The New Normal

Disruption, eruption or interruption: 3 views of change in law

By Paul Lippe

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Paul Lippe

The New York Times described the challenge of understanding changes in atmospheric measurement “you have to know what’s happening before you know why it’s happening.”

Living through a change like we’re experiencing in the legal market requires us to come up with appropriate metaphor for why things are happening, based on reasonable measurement of what’s happening.

Let me suggest there are three competing explanations: Disruption, Eruption and Interruption.

In the last few years, “Disruption” has become a common way of talking about change, as evidenced by the recent headline about David Perla joining Bloomberg Legal: “’Disruptive’ Journey Brings Perla to Lead Bloomberg BNA Legal” (sub. req.)

The language of Disruption, which we first talked about in 2009, was developed and popularized by Harvard Business School Professor Clayton Christensen, featured on the cover of this month’s Harvard Magazine (Christensen was also the subject of an unflattering profile by another Harvard professor, Jill Lepore, in the New Yorker a few weeks ago, but that’s a bit of inside baseball and perhaps bad timing by professor Lepore).

Christensen’s thesis is that in any field, new technology can enable new competitors to enter with a much cheaper but otherwise adequate product (think PCs versus DEC computer or mini-mills versus integrated steel manufacturers). At first those new entrants look trivial and cheap, but eventually they leverage technology to improve value, while the “incumbents” are constrained by their cost structure, profit expectations and cultures from being able to redefine their value proposition around the new capabilities. Disruption is the incumbents’ “Innovators’ Dilemma,” and often they see a dramatic drop in business, even though they are capable of developing the new technology.

Harvard Law School organized an excellent conference a few months ago—Disruptive Innovation in the Market for Legal Services—bringing the Disruption theme to law. In fairness, I’m not sure Christensen has fully figured this out for law (or even any service industry), but at minimum it is a useful metaphor to think about change (PDF). (Christensen says the one field that has never been Disrupted is hotels, although that may be changing with Airbnb, with some interesting possible implications for law.)

For my money, if we follow Christensen literally, Disruption has already happened in law. The Disruptive force has been the rise of the in-house legal department, which started out as a cheaper but adequate substitute for law firms, but which is now almost always a better value proposition than firms (a fairly unique situation where a “captive” internal function can outperform a specialty service provider). The rise of the legal department happened parallel with the explosive growth in demand for legal services from 1992-2007, which was driven by globalization, information complexity and regulatory complexity, so its Disruptive nature was masked for a long time.

Instead of Disruption, I’ll argue that what we’re seeing today is Eruption, an explosion (Perla calls it the “Pre-Cambrian” period of law, echoing biological models of evolution) of new service models in law that leverage some combination of People, Process and Technology to change the delivery and value design for legal services. Some examples (full disclosure—all of whom my company is working with in some form or fashion) include:

• London-based D2 Legal Technology (D2LT), who assist financial institutions to model and use technology to automatically capture key information in derivatives contracts to better comply with new financial regulation and manage risk.

• Chicago-based Omnivere, which is leveraging investor capital to create a “one-stop shop” for e-discovery.

• Carla Goldstein at BMO and David Allen at MassMutual, who are each, in slightly different ways, applying “Lean” approaches to help their legal departments deliver more value and streamline services.

• Huron Legal is rolling out a new service (K-CREATE) to help legal departments streamline contract creation, including analytics and some “smarts” from Neotalogic.

• And most importantly, IBM Watson (of Jeopardy-winning fame) is bringing cognitive computing and natural language processing to law through a partner ecosystem to help unpack legal complexity, enable transparency and improve access to justice in areas ranging from Dodd-Frank to claims processing.

The Eruptors are generally selling to (or in the case of Carla and David, remaking) legal departments, not law firms. Law firms are incumbents, and generally ascribe to a third theory, which I’ll call “Interruption.” Since 2008, lots of people in law have said that we were just in a temporary downturn, and the “natural” state of constant growth would soon return. The Interrupters point to the recent uptick in M&A activity, the failure of Eruptors like Clearspire, or the lack of a definitive “new model.” But there’s no reason to expect 100% of the Eruptors will succeed – maybe 10% to 15% will, which may be more than enough. For the Interruptors, Disruption is a bit of a strawman, a development that isn’t happening so change can be dismissed.

Although it’s not public, the Boston Consulting Group and Bucerious Law School of Germany just did a report entitled “Trends in the Legal Market—Disruptions Evolution or Just Hype,” based on 60 interviews, many of which were with experts featured in these pages. Among the findings I’m privy to:

• “The question of disruption is of second order—it is a (slow) evolutionary development towards a more nuanced landscape of different legal providers meeting more specifically articulated client needs

• General market development was driven by cost reduction & labor arbitrage—more innovative delivery models were very recently initiated but broad market proof of concept is (still) pending

• A value-added transformation of the legal market including real sophisticated (business relevant) BigData concepts is not yet happening and needs the “right” persons to pitch.”

The uber example of Disruption was digital photography, which Kodak invented but failed to commercialize. Kodak could have easily been Facebook, but its profit expectations, culture and cost structure prevented the change. So are today’s law firms more like Westin Hotels or are they Kodak or DEC? Of course we won’t know for sure which the right metaphor is until it’s all over. If I were running a firm for the long run, I would think the sensible analogue is in fact climate change—the risk of being wrong by doing too little is much greater than the risk of being wrong by doing too much.

Paul Lippe is the CEO of the Legal OnRamp, a Silicon Valley-based initiative founded in cooperation with Cisco Systems to improve legal quality and efficiency through collaboration, automation and process re-engineering.

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