Daniel Farris is the Founder and CEO of NMBL Technologies, a company building legal tech solutions, such as the legal workflow management platform Proxy. A former software engineer and computer scientist, Daniel handles tech and privacy matters for mid-sized companies to large-cap multinationals as a partner in the Technology Transactions and Data Protection practice group at K&L Gates.
Judging by the uptick in innovation committees, chief innovation officers, and “hackathons” prompting lawyers to share their best ideas for change, you might conclude that today’s large law firms have finally left behind outdated business practices and positioned themselves to meet the challenges of the changing marketplace. Unfortunately, you would be wrong. While firm leaders launching these initiatives surely intend for them to be effective, most of the time little substantive change comes from this work, and firms remain entrenched in business practices decades behind and receding further by the day. “Innovation theater” — the performance of being open to change while steadfastly preventing it from coming to pass — poses a real risk to law firms, because it allows them to sidestep crucial questions and persist in the belief that what has worked in the past will more or less work in the future.
Why are law firms stuck?
Decades of protectionism have fostered a false sense of security for law firm leaders in three ways:
- Licensure created a monopoly. The number of people able to invest resources necessary to become a lawyer was relatively small. Law firms tended to hire most (and the best) lawyers, and few alternatives existed.
- Lawyers controlled access to valuable information. Law libraries, case reporting and other tools were housed within law firms, and only firm lawyers could unlock this knowledge.
- All legal work had to be done by humans. There was no technology that could meaningfully replicate or improve the efficiency of basic legal tasks.
But the reality of today’s market and technological landscape is undermining the security that lawyers and law firms used to enjoy:
- Utah and Arizona have already passed laws allowing nonlawyers to provide certain legal services and own law firms. California is considering similar legislation. Lawyers may soon face a lot more competition.
- Information is far more accessible in far more places than we ever could have imagined. Lawyers are no longer the gatekeepers.
- Many basic tasks that lawyers traditionally performed can now be handled by computer programs, and artificial intelligence (AI) technologies will be able to handle even more sophisticated functions in the future.
The slow — and then sudden — pace of disruption
During the gradual build-up to any major disruption, industry leaders find it very difficult to imagine that their business — demand for their services, the processes by which they serve their clients, and the skills and technologies required to do it — could change in a fundamental and irreversible way. Take Blockbuster, for example. When Netflix first came on the scene in 1998, Blockbuster held a near monopoly on the movie rental market. Because Blockbuster believed that in-store browsing was the cornerstone of the customer experience, the company did not consider Netflix a serious threat. In fact, Blockbuster CEO John Antioco laughed Netflix executives out of a meeting when its co-founder Marc Randolph offered to sell Antioco his burgeoning company. But, as network speeds improved and Netflix transitioned subscribers from DVDs to streaming, the company catapulted to the top of the home-entertainment mountain, and Blockbuster tumbled to the bottom. Firms should understand that disruptive change follows a growth curve that is more exponential than linear. This creates a false sense of security. Take the chart below, for example, and assume the rate of change is measured over a 30-year period. If the area to the left of the Y axis represents 2005-2020, you can see why many lawyers do not take business transformation or technical disruption all too seriously. If, however, the area to the right of the Y axis represents anticipated change to legal services delivery between 2020 and 2035, law firms should be terrified.
If you think that sounds alarmist, allow me to show you Amazon’s Net Revenue growth between 1997 and 2020.
Does that curve look familiar? If you were a retailer hearing stories of impending doom during Amazon’s first 15 years, from its founding in 1994 until the recession in 2008/2009, you might have laughed it off. In fact, there is a now infamous 60 Minutes spot from 1999 in which Bob Simon openly laughs at the thought that Amazon might one day threaten Barnes & Noble or Sears. Funny right? The question is not whether something similar could happen to law firms if they don’t make drastic changes to their current model — it’s when the rupture will occur, because we know it’s coming. This reality can be so disturbing for older law leaders who have spent their careers painstakingly building a firm — and with great success! — that they refuse to take a clear-eyed look at what they are facing and recede deeper into denial. But responding appropriately to new market trends and client needs is not a repudiation of your firm’s past work. Quite the contrary. It took extraordinary skill and foresight to bring your firm to where it is today. Now you can leverage that success to evolve again, doing what’s necessary to meet this moment. And early action is key. If you watch that 60 Minutes clip, you’ll notice that Walmart was one of the few retailers outside of bookstores that took Amazon seriously all the way back in 1999. That explains why Walmart is one of the few retailers left standing today.
How to get unstuck
Innovation theater is easy. Real business transformation is hard. And it requires a tremendous investment of time, money, strategic focus, and dedication. But the leaders who accept that market conditions are changing and respond accordingly will help their firms find footing in the new landscape, even as we don’t yet know exactly what it will look like. Here’s how to begin:
- Create a real organization, separate and apart from the firm, whose only job is to come up with innovative solutions: new lines of business, new ways to deliver services for clients, new technological solutions. Independence is key because lawyers enmeshed in the day-to-day work of serving their clients don’t have the bandwidth to participate and may face blowback for taking on institutional sacred cows.
- Empower this outside innovation organization with the funds it needs to create pilot programs and test them, invest in new technology, and create new processes. A committee can come up with great ideas, but without funds it will never move from abstract idea to successfully implemented practice.
- Start today. The coming disruption to the law firm business model feels a little like climate change: a large, amorphous threat on the horizon. We can debate when it will materialize and what impact it will have, but we all know it’s coming. When it arrives — when the marketplace changes so drastically that law firms can no longer operate as they are currently structured — the consequences will be swift and all-encompassing. And by then it will be too late to change the model in time to adapt.
Law firms will continue to face uncomfortable existential questions about how they need to change, and we don’t yet have all the information we need to answer those questions. But by accepting that the industry is already changing and that you must truly reimagine your firm, you can face reality head on — and identify the significant opportunities this moment presents. Stop the innovation theater and commit to true transformation to a secure future for your law firm.