Innovation hype is alienating too many practicing lawyers. This is because we forgot that lawyers innovate in the realm of substantive law.  It’s time to fix that.


Last year I was at a conference on law firm innovation organized by the Ark Group. To close things out, the event’s chairperson, Patrick McKenna, walked attendees through an insightful 30-minute flipchart session that could have been the centerpiece of the entire conference.

Above is a depiction of what McKenna drew on the first page of the flipchart (I’ll call it the McKenna Lifecycle of a Practice Area). Patrick was making the point that legal work moves along a time continuum that starts with lawyers building relatively lucrative practices by becoming experts in difficult and emerging areas of law.  Yet, at some point a substantial portion of that practice area becomes relatively mature.  Notwithstanding one’s level of mastery, the market is filled with other lawyers with a similarly deep skill set. As demand flattens and starts to decline, what was once a cutting-edge area of practice becomes a commodity.

Patrick McKenna

Patrick gave the example of synthetic biology as an emerging practice area.  As Patrick pointed out, synthetic biology raises extremely complex and novel issues of intellectual property, regulatory law and consumer safety to name but a few. In the growth area, Patrick suggested googling “virtual reality law practice” to see that lawyers from Cooley, ComputerLaw Group, and Kelley Drye have planted their flag in this important new practice area. Securities law is a good example of a practice area that has reached relative maturity — complex but sufficiently settled that portions of it can be brought in-house.  Finally, Patrick pointed to debt collection as an area that has become fully saturated and thus subject to pure commodity pricing.

I have been studying the legal market now for more than 15 years. For the last ten years or so, I’ve tried to refine the tool of just talking to lawyers about their practices. In each conversation, I’m listening for novel or recurring patterns.  In my experience, very few lawyers or law firm leaders attribute their success to catching the right practice waves. Instead, conversations almost always focus on the abilities and intellect of individual lawyers.  Perhaps this is because the waves of change in law move slowly and are hard to decipher without a lot of additional effort. As a result, we fixate on the surfer (and the surfer fixates on the surfer) and overlook the importance of the powerful waves that hurl them forward.

In this post, I’ll explain how McKenna’s Lifecycle of a Practice Area is a remarkably useful tool for delineating between two types of legal innovation: Type 0 innovation (substantive law), which is the engine that powered the rise of the world’s most successful law firms, and Type 1 innovation (service delivery), which is crucial for reigning in the problem of rising costs and complexity in a highly regulated, interconnected and globalized world.  Type 0 remains as important as ever, but clients would also like help with Type 1.


For a recent and in-depth treatment of this topic, see McKenna, “The Advent of the Legal Practice’s Micro-Niche, Part 1“, Legal Executive Institute, Oct. 14, 2018; McKenna, “The Advent of the Legal Practice’s Micro-Niche, Part 2“, Legal Executive Institute, Oct. 18, 2018.  It’s noteworthy that McKenna believes that the most important law firm strategy occurs at the practice group level.


Type 0 Innovation

As McKenna explained his diagram, I recalled numerous lunches and dinners with rainmakers who explained to me how they build their practices.  Some fit the profile of the trusted advisor — they were great listeners, excellent at identifying core issues, very practical, and excellent at delegating technical tasks to other lawyers in the firm.

But another group, who were not particularly charming or charismatic, described how a series of assignments early in their careers took them deep into the business and technical aspects of their client’s industry. Eventually they came out the other side with a series of solutions that proved to be very valuable and useful.  As a result, they got more work from their client and others with similar type problems.  These folks caught a wave in the blue or early green portion of McKenna’s lifecycle.

This is Type 0 Innovation. It happens organically when a lawyer has the opportunity to immerse herself in the business and legal complexities of a new or changing industry. Although it often produces the same economic benefits as a major R&D initiative, lawyers and law firms seldom frame it that way.  This is because clients are paying the bill, often by the hour.  It’s just legal work.  The lawyer who develops such an opportunity into a major practice is viewed as a rainmaker and is compensated accordingly.

I call this Type 0 innovation because it is common throughout the legal profession.  Virtually any lawyer has the intellectual tools to do it.  It requires zero additional training. Yet it’s undertheorized almost to the point of being invisible to practicing lawyers.

To illustrate this point, McKenna cites several years of data from law firm retreats where he has polled partners using anonymous clickers. In sessions related to the importance of business development, McKenna asks, “How many of you right now can think of something you’ve observed in your practice that could be turned into a compelling service offering for one or more of your existing clients?”  McKenna says he consistently gets scores in the 65% to 85% range. Next question, “How many of you have shared your idea with firm management?” Remarkably, scores of 25% or lower are the norm.

When asked why, partners explain that they doubt the firm or practice group will support them. Specifically, to “innovate” is to put yourself at risk of being on the wrong side of numerical targets needed to maintain one’s status in the firm. Stated another way, the partners are not sharing risk. As a result, too many partners are stuck trying to sell services in the “mature” portion of the lifecycle, often at prices that cause clients to question the value they are receiving. This is a failure of both strategy and leadership.

That said, some law firms, particularly those that are highly specialized by practice area and/or industry, understand the importance of underwriting the development of substantive law innovations.  For example, one of the attendees of Patrick’s session was Tim Mohan, Chief Executive Partner of Chapman and Cutler LLP, an AmLaw 200 law firm that specializes in financial services.  Tim later told me that Chapman had adopted a system of innovation hours whereby partners and associates could obtain credit on par with billable hours for innovation efforts likely to result in future revenues for the firm.

One area where this approach has paid large dividends is marketplace lending, which is the relatively recent development of non-bank financial institutions matching up borrowers with lenders, often by leveraging technology to evaluate and process loan requests.  Obviously, this has been tremendously disruptive to traditional banks.  Back in 2013, when this industry practice was at best an “emerging” [blue] practice area, two Chapman partners, Marc Franson and Peter Manbeck, wrote a whitepaper called “The Regulation of Marketplace Lending: A Summary of the Principal Issues.”  The first draft (the authors now keep it updated) took several hundred hours to research and write.  But once posted on the Chapman and Cutler website, it became a hotbed of download activity that has led to $10M+ in firm billings. This is pure Type 0 innovation. Far from going away, Type 0 opportunities are growing in number and importance.


Chapman and Cutler is also a shining example of Type 1 innovation.  See Post 039 (discussing the career path of Eric Wood and the founding the Chapman Practice Innovations as a successful example of law firm intrapreneurship).


Once McKenna’s Lifecycle model got into my head, I began to see Type 0 innovation all around me.  Consider the following examples:

Gary Marchant at ASU Law

Gary Marchant is a Regent’s Professor of Law and director of the Center for Law, Science and Innovation at ASU Law.  He is also on the speaker’s circuit, wowing legal audiences with novel questions of law that judges, regulators, and practicing lawyers are grappling with as a result of massive advances in science and technology, from autonomous cars to drones to cloning to global warming to digital data that captures our every move and hence of great value in determining issues of guilt or civil liability.  Several times over the last few years, I’ve had the privilege of being the same program with Gary, where he consistently knocks the ball out of the park.

Our most recent panel was earlier this month in San Francisco. Fortuitously, we shared a cab to the airport.  Thus, I got to ask Gary, “How in the world do you come up with all these examples of new and emerging issues?”  Gary replied that he teaches seven classes a year at ASU Law (e.g., Law, Science and Technology; Genetics and the Law; Biotechnology: Science, Law and Policy; Health Technologies and Innovation; Privacy, Big Data and Emerging Technologies; Environmental and Sustainability Law; and Artificial Intelligence: Law and Ethics). To scale his expertise, each is taught with a co-instructor. “But they’re all paper classes.  I read and grade 400 papers a years. All my examples come from my students.”

Gary Marchant is astonishing example of how to get the three circles of teaching, service and scholarship to overlap in near perfect unity. Kudos to the enlightened deans at ASU Law who found a way to make this work!

Carolyn Elefant at MyShingle.com

Carolyn Elefant, the clarion voice of the solo and small firm bar at My Shingle, has recently written a book called “41 Practice Areas That Didn’t Exist 15 Years Ago.”  The table of contents can be viewed online here. Elefant is renowned for being a solo practitioner who stays busy doing challenging work she loves.  So, how in the world does she have the time to identify 41 new practice areas?  Similar to Gary Marchant, Elefant skillfully leverages the time of student law clerks she regularly employs in her practice.

Carolyn compiled this list not necessarily for her own practice but to prove the point that new practice niches are growing at an accelerating rate.  As a result, any lawyer can pick an emerging area of law that is causing heartburn for some distinct population of clients and, by dint of some research and writing in an ebook format, translate that know-how into seven figures of income. This is because the community of interest passes around the ebook, building goodwill and credibility with future clients. This isn’t theory — this is Carolyn’s own experience which she learned through trial and error as she created a landowner rights practice.  See “Seven Figure Ebook,” My Shingle, Aug. 23, 2018.  She’s turn this insight into an easy-to-follow methodology for creating a lucrative and rewarding Type 0 law practice.

I know all this because I signed up for one of Carolyn’s webinars this past August — for me, it’s field research.  I greatly admire Elefant because she is passionate about helping other lawyers become successful. She reflects the legal profession at its best.

Kevin O’Keefe at LexBlog

Kevin O’Keefe is the Founder and CEO of LexBlog, which is an online publishing platform that currently hosts 1,400 law blogs, including Legal Evolution and the majority of blogs published by AmLaw 200 law firms.  Arguably, LexBlog has become the epicenter of Type 0 innovation, as the vast majority LexBlog content is focused on substantive law.  In most cases, the unit of production is either the boutique law firm or a practice group inside a major law firm.

Like Carolyn Elefant, O’Keefe spends a lot of time helping lawyers see the abundance of ripe fruit hanging less than a foot off the ground. The only catch is the modicum of effort necessary to reach down and pick it up. This is the world of content marketing, demonstrating through your writing your insights on a set of problems that afflicts some discrete universe of clients. When someone in that small universe goes online in search of relief, your content appears near the top of the Google search (the LexBlog platform aids SEO).  That content builds trust and credibility.  Although some readers will use it for pure self-help, the complex work flows disproportionately to the authors and the authors’ firm.

A good, but far from unique, example is Ballard Spahr, which puts out five publications on LexBlog:

In the year 2018, lawyers can skip the rubber chicken dinners and make rain by developing and sharing their expertise online.

Kevin O’Keefe has an infectious laugh and a life story so inspiring that every year I invite him to Indiana Law to talk with my students. Without fail, Kevin marshals example after example of young lawyers who create life-altering career opportunities for themselves by researching the legal issues around what interests them.  Step 1 is to find the online legal experts. Step 2 is to read their content and the materials they point to.  Step 3 is to contribute to the conversation via social media.  That’s right, to get off the ground, cutting-edge Type 0 innovation often leverages a twitter account.


Type 1 Innovation

I hope it’s obvious to readers that the vast majority of Legal Evolution content is focused on Type 1 innovation — i.e., service delivery improvements (data, process, technology, etc.) that chips away at the problem of lagging legal productivity.  For example:

  • Post 001 (lagging legal productivity negatively impacting entire profession)
  • Post 006 (discussing impact on legal education and courts)
  • Post 009 (importance of ODR to solve bottleneck in courts)
  • Post 019 (legal productivity is a “last mile” problem that requires new business models)
  • Post 022 (CLOC is response to lagging legal productivity problem affecting large corporations)
  • Post 036 (discussing dire statistics because of productivity problem in PeopleLaw sector)
  • Post 042 (consumers are coping with higher costs by foregoing legal services)
  • Post 048 (framework to see differential impact on people versus organizations)
  • Post 058 (Landscape report for Cal Bar that emphasized the problem of lagging legal productivity)

Yet, as important as this topic is to the future of the legal profession, it is near impossible to get lawyers to go on this journey when innovation hype ignores or denigrates the innovations routinely occuring at the practice group level.  I hope the Type 0 / Type 1 framework can start to mend this riff.

Definitions

Lawyers value definitions.  I would proposed the following as a starting point:

  • Type 0 innovation.  Adapting law to fit changing social, political, economic and technological conditions.
  • Type 1 innovation. Improving the quality, cost and delivery of existing legal solutions.

[click to enlarge]
We can plot these innovation types on McKenna’s Lifecycle of a Practice Area, with Type 0 (emerging, growth) being in the wheelhouse of skilled artisan lawyers and Type 1 (growth, mature, saturated) being the foundation of one-to-many legal solutions and thus requiring the collaboration of lawyers and multidisciplinary professionals.

Isn’t it obvious that Type 0 and Type 1 innovation are both distinct and interdependent? Further, isn’t it obvious that the legal profession’s tool box needs to include both types of innovation, albeit with lawyers and legal professionals tending to specialize in one or the other but retaining the ability to effectively collaborative across the two types?

Additional Frameworks

As I’ve reflected on Type 0 / Type 1 innovations, I’ve snapped them on to other frameworks.  Below are two examples based on other Legal Evolution posts:

The T-Shaped Legal Professionals graphic (above left) has been discussed in Posts 043 and 048.  Type 0 innovation is enabled by the traditional law school curriculum. If you’re reading the news in the year 2018, it’s obvious that Type 0 innovation is crucial to the functioning of an open society based on the rule of law.  Yet, to address the problem of lagging legal productivity, legal professionals needs a bigger toolbox that includes the ability to collaborate effectively across multiple disciplines. Type 1 innovation is enabled by the disciplines at the top of the “T”.  Solutions to crucial PeopleLaw/Access to Justice issues require quantum leaps in Type 1 innovation. There’s literally no time to waste.  This is why so many of us are working tirelessly to stand up the Institute for the Future of Law Practice (IFLP, or “I-flip”).

Likewise, variations of the Traverse the Pyramid Strategy (above right) have been discussed in Post 010 (the rise of managed services) and Post 055 (law firm strategy that combines substantive lawyering with data, process, and technology). It’s foolish for legal services to migrate away from the pyramid model, as Type 0 innovation is built on the foundation of “mature” law in the operational and commoditized space. It’s also the type of work that law firms have historically used to train junior lawyers. Less than 15 years ago, the process usually began with banker boxes filled with documents as part of the discovery or due diligence process.  Likewise, legal operations and the P3 disciplines (pricing, project management, process improvement) all exist within the Type 1 innovation vertical — though more prices sensitive, it reflects the bulk paid legal work.  Thus, we need to retool the traditional law firm talent model so that it can flex in the direction of both Type 0 and Type 1 innovation. This is yet another challenge that is being taken up by IFLP.

Conclusion

Neither Type 0 nor Type 1 innovation are easy or costless.  Both require continuous learning and an investment of time and resources without a guaranteed financial return.  Yet both add immense value to clients and form the basis for challenging and rewarding careers.  Thus, for both lawyers and legal professionals, the future is bright.

What’s next?  See PartnerVine and Last Miler’s Club (072)

If a successful large law firm faced an Innovator’s Dilemma, what would it look like?

On the one hand, the firm has a wonderful set of endowments: (1) longstanding and lucrative relationships with industry-leading clients; (2) a business that requires very little operating capital yet generates significant cash and profits; and (3) an established brand that makes it the safe choice against upstart new entrants.  On the other hand, when the traditional service offerings hit a plateau that is likely permanent, the firm struggles to use its superior endowments to reinvent itself in a way that locks in another generation of prosperity. The graphic above depicts the problem.

Many law firm leaders understand the innovator’s dilemma and worry about the timing and execution of reinvention. Thus, at numerous firms, there are internal innovators, or “intrapreneurs,” who are running carefully vetted projects designed to deliver tangible benefits to their firms. In its idealized form, this strategy raises awareness through small wins, which, in turn, create buy-in and momentum for more ambitious change.

We were fortunate to have three law firm intrapreneurs as guest lecturers during Week 5 of “How Innovation Diffuses in the Legal Industry“:


For a summary of Week 2 guest lectures (Pangea3, Practical Law Company, Hotshot), see Post 032. For week 3 (consultative sales at Thomson Reuters), see Post 034. For Week 4 (a deep dive into Axiom), see Post 036.


To set reader expectations, there was a lot to cover in this class. With three great guests, we ran out of time to probe each story with equal depth.  Also, for the purposes of publication, I need to disentangle the principles and lessons of intrapreneurship from the organizations where our guests have worked. The risk is that a discussion of context will be construed as criticism, and criticism was far from the spirit of our discussion.

To resolve this tension, I use the two problem statements below to meld together common themes. After that are specific highlights of each speaker’s remarks.

Problem statement from within the law firm

When we apply innovator’s dilemma and intrapreneurship concepts to law firms, the underlying subtext is that highly educated and successful partners are, as a group, ill-equipped to adapt to a changing legal market.  Assuming this problem statement is true — and I believe it is — why would it be true?

The problem is certainly not lack of creativity.  Within their substantive specialties, lawyers routinely come up with ingenious solutions.  Rather, the challenge is a confluence of experience, perspective, and incentives that create a powerful mental frame that is very difficult for long-time insiders to overcome.

Specifically, for several generations, lawyers in corporate law firms have carried on their craft within a simple business model that required very little time or attention to maintain. In most cases, if lawyers just focused intensively on their clients’ problems, the economic results got progressively better. This was (and is) powerful operant conditioning. As a result, for many law firm partners, the macro-trends of the legal industry are abstractions that carry very little weight.  The only market that matters is the tiny slice each particular partner serves.

Unfortunately, in very few instances are clients speaking with one voice.  In fact, voices vary by adopter type. See Post 013 (providing examples of two major corporate clients expressing completely opposite views on the need for change). Innovator and early adopter clients are drawn to new ways of legal problem-solving, though they’re in the minority.  Similarly, some early majority clients are pushed toward innovation because they can no longer afford solutions provided by traditional law firms, see Posts 032 and 036 (2008 recession led to surge in adoption for Pangea3 and Axiom).  But a sizable portion of the legal market is content with brand firms billing by the hour. If “my clients” feel differently next year or the year after, we can deal with it then.  This narrow client-centric approach is strongly reinforced by most law firm compensation systems.

The above description explains the paradox of the highly successful law firm unable to play its superior hand.  Thus, the innovator’s dilemma is a real strategy dilemma for virtually all large law firms.

Problem statement from the client side

Although clients don’t speak with one voice, the environment they are operating within is becoming more complex, global, and regulated.  This, in turn, is changing the structure of the corporate legal services market — i.e., the macro-level trends that many partners wave away as irrelevant to their practice.

Arguably, the biggest change is growth of corporate legal departments.  For at least the last 20 years, corporate clients have adapted by growing their in-house legal departments and insourcing more repetitive or lower-stakes work that formerly went to law firms. See Post 003 (showing 1997 to 2016 employment trends for lawyers working in government, in-house, and private law firms).

With more and more legal departments becoming the equivalent of large law firms embedded inside corporations, we’ve witnessed the rise of the legal operations movement (CLOC and ACC Legal Ops) and the rise of the “Type 6” client. See Post 005 (presenting a typology of law firm clients).

Legal operations as a profession and field is coming into being because many large corporate clients need more sophisticated methods and systems for managing legal cost and legal risk.  The ascendency of this role is strong evidence that the business-as-usual law firm billable hour model is on a slow but permanent decline, at least for operational “run-the-company” work that accounts for the majority of the corporate legal services market. See Post 034 (discussing trend through the lens of Axiom); Post 010 (discussing trend through the lens of the managed services industry).

The graphic below depicts the market transformation.

In general, legal complexity increases with economic growth.  For about 100 years, we’ve coped with this problem through division of labor and specialization.  This approach created the large law firm. In more recent decades, as the growth-complexity line has steepened, law firms reaped higher profits.

Yet, we have reached a point where division of labor and specialization are no longer a match for the geometric growth of legal complexity. Although clients and law firms experience this pressure as a cost problem, the root cause is lack of productivity gains.  See Post 001 (discussing systemic problems created by lagging legal productivity). To meet this productivity imperative, the legal industry is starting to migrate to new methods of legal problem-solving that are based on data, process, and technology. Indeed, these pressures are why NewLaw exists, financed in large part by venture capitalists and private equity.


NB: All the analysis and charts above frame a structural problem from the perspective of organizational clients. For this group of clients, the problem of lagging productivity is leading to market-based responses, albeit slowly. For individual clients in the PeopleLaw sector (roughly one-quarter of the legal market and shrinking), lagging legal productivity manifests itself through self-representation or people failing to seek any type of legal-based solution. See The Decline of the PeopleLaw Sector 037. In short, these are two distinct problem sets.


So the question is very simple: for large corporate clients, who is going to create the new paradigm? There are three contenders:

  • Legal departments through more legal operations and in-sourcing;
  • Law firms by skillfully playing their superior hand; or
  • NewLaw, which has data, process, and technology as its core competency but has the challenge of being new and unfamiliar.

The answer is likely to be some combination of all three. Yet, it is also likely that many law firms will fall victim to the innovator’s dilemma and be among the losers.

The challenge for law firms is that the business opportunities of a structural market shift require partners to make business judgments about macro-trends at the same time they are under pressure to acquire, bill, and collect hundreds of thousands of dollars or more in legal fees for the current fiscal year.  Unfortunately, this problem can’t be fixed by changing a comp system to reward a long-term focus, as those with a short-term focus are free to leave and take their clients with them.

Kubicki: Intrapreneurship inside a law firm

Among my three guest lecturers, Josh Kubicki has given the most thought to intrapreneurship as an applied discipline. See, e.g., Kubicki, The Intrapreneur’s Dilemma, Medium, Aug. 20, 2014.  During his guest lecture, Josh asked us to envision a simple corporate pyramid that consists of the CEO (at the top), the C-Suite (layer 2), vice-presidents (layer 3), directors (layer 4), managers (layer 5), and line workers (base of the pyramid). “Obviously, we know who’s in charge.”

“Law Firms,” noted Josh, “are much flatter.” He then picked up a grease marker to draw a stylized law firm org chart.

At the top of the pyramid, which may not be a pyramid at all, are partners who are also owners. Although partners are not the CEO, they do tend to act as CEOs of their own practice, particularly if they keep a lot of other lawyers busy.  However, increasing performance and enterprise value of the firm require collaboration across the partner / owner / CEO class.

To do this well, the law firm intrapreneur has to find ways to break down the partitions between partners — the blue lines above — without engendering fear or resistance.  Further, the intrapreneur has to do it with little or no formal authority.  “No matter what your title is, the intrapreneur is part of the professional staff paid for by revenue-generating lawyers.  So the only tool you have is your ability to make someone’s life better in a relatively simple and low-cost way.”

This reality is why Josh relies heavily on design thinking in all his change initiatives.  Josh drew the diagram below, which he called “the trifecta.”

Innovations start as an idea in an innovator’s head.  Once we move to implementation within an organization, however, we move into people’s daily experience — busy people whose job it is to serve others. Even if an innovation will, in theory, make the organization better off, implementation will fail if individual stakeholders have a negative experience that makes their job harder. Thus, successful innovation (Phase I Initiation + Phase II Implementation, see Post 015) is actually a series of properly designed sub-innovations.

A successful sub-innovation requires making the complex very simple, culturally compatible, and highly advantageous to the end-user, ideally with a very fast return-on-investment. Cf. Post 008 (presenting the key factors in Rogers rate of adoption model). If the coordinated sub-innovations all result in a good individual experience, the larger innovation has a chance of being successful. Seen through Josh’s eyes, the effectiveness of the law firm intraprenuer is less about individual brilliance than empathy, listening skills, patience, and budget, as doing this type of work “is very labor intensive.”

The intrapreneur’s intellectual gift is that, for a variety of reasons, they are not stuck inside the frame of the traditional model, often because of some prior life experience that gives them an outsider’s view. (For one of Kubicki’s transformative life experiences, which he discussed in class, read his Intrapreneur’s Dilemma.)  Yet, Josh was emphatic that humility is the single most important attribute for intrapreneur effectiveness. “If something works, congratulate the adopter for their insight and move on.”

Josh described some of the wins of his team but it would be counterproductive to publish them on the web, as Josh believes the credit goes to the entire Seyfarth Shaw organization.

Eric Wood: making partner as a technology innovator

One of the reasons I am carefully chronicling my class is that I want to create a contemporaneous record of how the legal profession navigated the shift from a world of lawyer specialization to one based on multidisciplinary collaboration.  I am confident that Eric Wood’s story is going to be replicated by hundreds of young lawyers who begin their careers at law firms. Yet, Eric was the first to blaze this trail.

Eric is the Practice Innovations and Technology Partner at Chapman and Cutler.  The key word here is partner.  Eric is a 2008 graduate of the University of Chicago Law School.  After a stint at Cleary Gottlieb in NYC doing capital markets work, Eric moved back to Chicago and joined Chapman as a banking and financial services associate.  However, several years ago, Eric quit doing client billable work and instead focused all of his attention on technology-based initiatives.  During this time, his formal title remained associate. And earlier this year, he was promoted to partner.

Practice Innovations and Technology Partner is a new role within a law firm. During his portion of the class, Eric described his work as primarily “R&D” that fell into three major buckets:

  1. Writing code to build legal expert systems and automate the drafting of documentation for a wide range of legal matters.  Often this includes the design of web interfaces so the systems are relatively intuitive for the lawyers, clients, and other personnel who use them.
  2. Designing new technology products and managing their development, release, and maintenance. Often this involves finding ways to scale innovations across multiple practice groups, including via the development of new staffing models.
  3. Other knowledge management and technology projects, such as building transactional metadata databases and data visualizations, evaluating vendor products, and researching technological developments that might affect transactional practice (e.g., blockchains and crypto currencies).

Eric has no formal training in a technical field.  His undergraduate training is in political science and environmental studies.  Instead, he attributes the initial development of his technical abilities in computer coding and database structures to a desire to impress his friends with fantasy basketball data visualizations. That hobby required a lot of scraping of data from websites followed by computational analysis.

Yet, Eric’s work in the legal field enabled him to see cross-over applications. Prior to law school, as an AmeriCorps volunteer with Wyoming Legal Services, he helped build web content to reach the agency’s far-flung clientele. “We had to scale seven lawyers for the entire state, and it was obvious that only technology could do that.”  Likewise, many late nights as a NYC transactional associate gave Eric many ideas for how to automate unpleasant, time-consuming grunt work.

In 2013, as Eric continued to improve his technical skills, he decided it was time to find a outlet in the legaltech world.  However, during this time period, the firm’s Chief Executive Partner, Tim Mohan, began bringing in outside speakers to explain how the traditional practice of law was on the brink of a major shift.  So Eric requested a meeting with Mohan to explain some of this ideas.

Mohan immediately embraced what he heard and Eric stopped doing billable. Now do the math — taking Eric off the billable track is roughly a million-dollar decision ($500/hour x 2,000 per year).  Yet, what is the price of failing to reinvent?

Relatively quickly, the decision proved to be a wise one.  For example, one of Eric’s projects was the automation of closing document sets for finance transactions.  The market no longer pays full price for the organization, indexing, and tabbing of the full deal documentation, yet this work still needs to be done and delivered to the client in a polished, professional, and timely manner.  “What used to take weeks now takes a minute.”  At roughly $500 in staff time (with wide variations based on the size and complexity of the deal) x 3,000 closings per year, this single project is saving the firm roughly $1.5 million in labor that can be allocated to other value-add projects. And that is just one example.

With the encouragement of the firm’s leadership, Eric regularly gives internal demos that have generated significant curiosity and broad buy-in among partners.  Eric notes that these internal sales were often predicated on the quality advantages of technology — of increasing transparency of changes to complex forms and reducing opportunities for error. Yet, the economics are also very attractive.  Chapman and Cutler is a highly specialized financial services firms that does approximately 40% of its work on a fixed-fee basis.  In this context, technology and process enable the firm to continue to charge less than many rival firms while protecting or improving its margins. This is exactly how innovation is supposed to function.

In addition to Eric, other transactional lawyers at Chapman have begun to invest in technical skills, with several automating significant portions of their practice. Part of this transition is made possible by an accounting system that treats “productive” hours related to firm innovation the same as client billable work. Eric gave the example of one  associate who has logged hundreds of productive hours over the past few years working on projects with Eric and his team. In short, Chapman is building more internal capacity.

This is a remarkable story. But can it be replicated by other other law firms?

I think the answer is “not easily.”  First, a firm needs someone like Eric Wood who possesses both deep legal domain knowledge and strong technical skills. Second, the stars have to align so that a leader like Tim Mohan can enable such a person to focus full-time on innovation and execution. In competitive markets, half-time efforts seldom win.  Third, it undoubtedly helped that Chapman and Cutler is a “small” large firm (~230 lawyers) that is focused on a single industry. This makes it culturally and logistically easier to implement change.

Beckett’s business mindset

As noted in Legal Evolution’s foundational posts, innovation is strongly influenced by connections between different social systems. Being on the edge of two or three systems is more valuable than being in the center of one. This is because multiple perspectives enable a person to transcend the dominant local frame and see problems with fresh eyes.

In addition to knowledge of law, all of our guest lecturers possessed a second or third frame for viewing the world. However, the most pronounced example was Jim Beckett, who acquired his legal frame after working five years in sales and distribution in the food industry, helping to grow market share for companies like Frito-Lay and Haagen Dazs.  During this time, Jim was following the advice of his father, who was impressed with Jim’s people skills and aptitude for business. Ironically, Jim’s father was a lawyer, working in-house at KFC.

Then, several years into Jim’s business career, his father had second thoughts.  “Jim,” his father said, “Law doesn’t have enough people who truly understand how businesses work.  If you get a law degree, you’ll go a long way.”  So, as an older student, Jim returned to Indiana University to go to law school.

Jim shared that law school was very difficult for him because the level of abstraction was so far removed from the practical problem-solving he was used to. It wasn’t until he was a law firm associate that we was able to meld the two perspectives.

The business frame, however, remained the dominant perspective.  For example, Jim discussed how he got his first in-house job at Brown & Williamson (a large tobacco company that later become part of RJ Reynolds). “I was the only lawyer they interviewed who could discuss the business issues that were at the core of the company’s legal work.” Further, rather than pursue upward mobility in the legal department, Jim asked to move to the business side, eventually running an RJ Reynolds operating unit in Puerto Rico.

Jim’s multiple perspectives in law and business was one of the reasons that John Crockett, chairman of Frost Brown Todd, recruited Jim to return to Louisville to run business development for the firm. Roughly 10 years earlier, Jim and John had worked together at the firm as billing lawyers. Jim was hired despite his warning that long-term success was going to require significant change, which would make some of Jim’s efforts controversial.

While the firm implemented many client-centric initiatives, Jim eventually became convinced that he could do more good by helping clients focus their purchasing power. Thus, in the summer of 2016, Jim left Frost Brown Todd to become the CEO of Qualmet, a technology company that provides legal departments with a scorecarding methodology that collects, organizes, analyzes, and shares feedback with their outside service providers.

During his lecture, Jim spoke with passion about what happens when lawyers get in full alignment with clients. “All lawyers want to do a great job. Unfortunately, very few are getting the information they need to take their practice to the next level.”  Jim believes that structured metrics and dialogue will enable clients and law firms to smoothly transition into the world of data, process, and technology.  Jim see this as not as a question of “how”, but “when.” Today’s CEOs expect their GCs, CLOs and in-house teams to drive business value that aligns with their respective company goals and objectives. Jim wants to bridge the “value” gap and sees 360 performance management as a critical piece to accelerate alignment. “Value creation is no commodity,” Jim observed, “So all stakeholders will benefit when performance is properly measured.”

Qualmet’s scorecarding methodology is closely related to Dan Currell’s post on the necessity of active outside counsel management. Convergence alone can’t deliver the desired results. See Post 031.  Thus, scorecarding will be the topic of a future post.

What’s next?  See “The Lawyer Theory of Value” by Casey Flaherty (040)