Law firm Innovation

I’ve been spending part of my summer on a research project looking at innovation in US law firms, or the lack thereof. According to the interviews I’ve been conducting with lawyers, consultants, and law practice administrators, law firms may be some of the least innovative organizations in the US economy.

This is partially due to the nature of law as a profession. Laws don’t change very often. As one of my interviewees noted:

“Lawyers practice a profession that is rooted firmly in the power of precedent. They don’t want to change and are very suspicious of change efforts.”

It’s also due to the ways in which law firms structure themselves. It’s hard to be innovative when you’re billing by the hour and you’re measured by the number of hours that you bill.

“Innovation is not a dominant strategy; profitability is. Law firms will do anything to preserve profitability and not take risks.”

Considering that there are over 50,000 law firms in the United States, you’d think that a few might be bucking conventional legal wisdom and would be working on innovative products or practices. And there are a number of firms that are innovating within the legal profession.

But what the legal profession finds innovative is often quite unremarkable for other industries.

For example, Orrick Herrington, a large global firm based in San Francisco, in 2002 combined the back office operations of all its different offices at the Orrick Global Operations Center, in Wheeling, W. Virginia.

In most industries, this kind of move (which happens frequently) might not fit into the “innovation” bucket. According to the editors at California Lawyer, however:

“Orrick’s move has revolutionized conceptions about normal law-firm structures …”

These kinds of successes are rare enough that they are often republished as case studies.

“[Most law firms] won’t think about innovation in a larger sense. They’ll try little things that are new, and they usually don’t succeed because they don’t have the infrastructure or support.”

Why should lawyers want more innovation? Even with its absence, US lawyers are prospering. As of May 2005, according to the Bureau of Labor Statistics, there were almost a million people working in legal services industries. More than half of these were lawyers, and their average compensation was about $110,000 a year. There are a few other occupational categories, like surgeons and CEOs, that get paid more. But there’s no other category with the combination of so many people being paid such high wages.

In fact, there is innovation in law firms – it just happens much later than in other industries. Law firms are the classic “late adopters.”

Because law firms are late adopters, they reduce the risk from these innovations – they adopt well after an innovation has had its wrinkles smoothed out.

Of course, they don’t get many of the well-documented benefits that come from being an early adopter. By the time law firms innovate, they’re catching up to standards that other businesses have already set. This makes innovation a “cost of doing business” rather than an opportunity.

Will we ever see legal services embracing innovation earlier or even generating significant new services themselves? Most of the people I talked with were skeptical:

“I arrived in the legal market in 1989, saying this can’t possibly last. I’ve been proven wrong time and again.”

US law firms currently lack a compelling reason to innovate. As David Maister noted recently:

“Perhaps the greatest advantage lawyers have is that they compete only with other lawyers. If everyone else does things equally poorly, … even the most egregious behavior will not lead to a competitive disadvantage.”

2. For more on legal industry compensation, the US Department of Labor, Bureau of Labor Statistics survey information is here.

4. The College of Law Practice Management provided partial funding for this work. Their website is here.

sent the article below to a good law buddy of mine, suggesting that he would probably find it both interesting and depressing. Thought you’d find his response interesting. The comments regarding Westlaw and Nexis Lexis might be a kernel for a follow up article…

This guy has a PhD in engineering and degree in IP law. One of the smartest folks I have ever met in my life.

No...not depressing at all. I think there is huge opportunity in innovating the

way that law is practiced in the US. Some evidence:

> Today contracting service companies -- like Westlaw and Nexis Lexis -- command

very large fractions of a typical litigation invoice. More and more, high value service

orgs are capturing an increasing fraction of the revenues that normally went to the

law firms;

> Various alternatives to using law firms (like ADR firms, Alternative Dispute Resolution

firms) are becoming increasingly popular. In fact, in some states, before a court will

even hear a tort case, the judge requires the parties to try ADR first. (Nothing like

having a court order that REQUIRES people to use your services....!)

> In IP: Most law firms and business still don't understand IP as a business strategy

or an offensive weapon. Lots of opportunity here....

Yep...all good news for me....

Interesting, and all too true. I wish in particular that firms

would figure out a way to move to true value based billing, while still

remaining profitable. Perhaps you can develop this as a niche?!

7/31/2006

“Looking for Law Firm Innovation”
[ Management and Technology ] — Ron @ 1:07 pm

CIOs often champion law firm innovation but frequently face a tough battle. Why?

I’ve advocated innovation as a large law firm manager, legal technology consultant, and software marketer. Getting buy-in is a challenge. Eric Mankin, an expert in business innovation and an old friend whom I’ve cited previously, offers a great analysis of legal market innovation in his weekly e-mail update.

Eric notes that the business of law is bound by the ideas of legal precedent and the billable hour. What passes for innovation in the legal market is old hat in most industries. He notes that the average of income of lawyers (not just BigLaw partners) is high and therefore the incentive to change low. Law firms are late adopters: innovation is a cost of business, not an opportunity. I certainly can’t cite a single instance of the market punishing a BigLaw firm for being a late adopter.

His entire “Looking for Law Firm Innovation” analysis is here, with permission and is worth reading. And I personally look forward to hearing more about the fruits of Eric’s research, which he will present at the annual meeting of the College of Law Practice Management (PDF link).

on the plus side, lawyers were the first industry to adopt word processing technology in the 80's.

“[Most law firms] won’t think about innovation in a larger sense. They’ll try little things that are new, and they usually don’t succeed because they don’t have the infrastructure or support.”

Strategic Legal Technology

7/31/2006

“Looking for Law Firm Innovation” [ Management and Technology ] — Ron @ 1:07 pm

“Looking for Law Firm Innovation”
[ Management and Technology ] — Ron @ 1:07 pm