On March 6, 2014, I watched what I could of the live stream webcast (thank you, Harvard Law School) of the Conference on Disruptive Innovation in the Market for Legal Services. The keynote speaker was, to quote Keith Jackson, “the granddaddy of ‘em all”, Clayton M. Christensen (@claychristensen), a professor at Harvard Business School, and one of the foremost experts on disruptive innovation and business processes.
Mr. Christensen was described in Forbes magazine as “one of the most influential business theorists of the last 50 years.” His keynote address to the conference was exemplary of his keen mind and thoughts on the current state of disruption in the legal industry.
During his address, Mr. Christensen discussed the cycle of disruptive influence in the steel industry. I will do my best to paraphrase his discussion on this topic, but hopefully my readers will understand that I make no attempt at the depth of knowledge and understanding displayed during the conference. But for context, here goes.
For decades, steel was manufactured in one way: through large, integrated plants, and it didn’t matter what the customer needed. That was the way it was done. This made some applications for steel, such as rebar used in construction, inordinately expensive for its intended use. In the 1970s, disruptive companies started to use mini mills with electric furnaces to make rebar. These disruptive companies beat up on the established, integrated mills on price, margin, and efficiency. Ultimately, the disruptors pushed the last of the integrated mills out of the rebar industry. The disruptors did it better, faster, and less expensive. So the bigger companies simply got out of the way.
So what happened next? The price point for rebar dropped 20%. The disruptors were now only in competition with one another. And the price points and margins dropped precipitously, because the disruptors were no longer trying to pick off chunks of the business, they were trying to corner market share away from each other. Those disruptors then turned their sights on other pieces of the steel market.
This portion of Mr. Christensen’s discussion highlighted two things. First, disruption in an industry is a symbiotic relationship. The disruptor model requires the “disruptee” so long as the model is based on lower cost. If the technology core is not different, i.e. if the product the disruptor is providing isn’t better, the cost is the main focus. Thus, if there is not a higher cost alternative, there is no basis for the disruption. The second highlight is that disruption is typically only successful from outside the industry. In fact, Mr. Christensen’s view is that attempting to disrupt from inside the confines of the incumbent has “zero chance of success.”
So why should a law firm try to innovate, given that this type of innovation has historically met with no success? Well, it’s a bit of a straw man argument, but there is the possibility of disrupting and innovating from within. It’s just that it may require significant separation from the rest of the firm in order to make it truly successful. There are great examples of innovation and disruption from various firms around the country, including my own. LeClairRyan has a collaboration with UnitedLex to provide efficient and lower cost discovery solutions after spinning off and selling its Discovery Solutions Practice. Dechert staffs an attorney whose primary responsibility is to monitor alternative fee arrangements for efficiency and profitability. Seyfarth Shaw launched Seyfarth Lean from within the confines of the firm to provide a “distinctive client service model”. Even some of the largest firms in the world have begun to work with knowledgeable disruptors to re-align with client needs and desires.
The reason is that clients want it. Even those clients who are skeptical that they can get equivalent product from disruptors are tired of the billable hour. For many of us, killing the billable hour is both the low-lying fruit and the maddeningly elusive target. There has been plenty written about alternative fee arrangements, but the loudest of those decrying the billable hour from the client side also seem to be the first to slam the door on the alternative fee. Truly changing the industry, even from within, requires more than just changing the billing model. It requires fundamental changes to the chilling loss of trust between clients and law firms. True change will require meaningful discussions and collaboration between clients and their lawyers. It can be done. But it is imperative we all be speaking the same language.