Wednesday, July 14, 2010

Identifying Disruptive Technologies for Law Firms

A "disruptive technology" is an innovation that improves a product or service in a way that the market doesn't expect, and as a result challenges the assumptions upon which existing business models are based.  I've identified a number of disruptive technologies for law firms below.  The first two are widely discussed and may no longer be disruptive to the extent that they are generally known to the marketplace.  The next three are, in my opinion, far more disruptive and largely unrecognized.  When discussing disruptive technologies, most commentators focus on "nuts and bolts" technologies--mobile devices, software, etc.  In my mind, the most disruptive technologies in the legal world will be found in new and innovative organizational structures, business models, systems and platforms:

Automated Document Assembly & Commoditization:  This includes legal "expert systems" and easily commoditized legal work.  To the extent that this is a means of undercutting rates currently charged for routine and routinized legal work, it is really a low-cost technology, and as Dvorak points out, not accurately described as a disruptive technology.  However, to the extent that automation and expert systems change the way attorneys perform bespoke and sophisticated legal services in partnership with those systems, this may be truly disruptive to contemporary law firms.

Value Billing:  The notion of charging for legal services based on the value provided, rather than the time taken to perform the service (the ubiquitous "billable hour"), is also a disruptive technology.  From the client's perspective, paying for value provided makes far more sense than paying for an attorney's time.  Law firms, however, are largely structured around the billable hour, and are having a very challenging time adjusting.  To the extent that some firms develop ways to effectively implement value billing, clients will flock to those structures and the existing assumptions of most firms will be challenged.

Open-Source Knowledge Management:  This has my vote as the most potentially disruptive technology for law firms.  What lawyers do, at its core, is manage knowledge and implement systems for applying that knowledge to solve clients' problems.  I'm not talking about case law, statutes, and other knowledge accessible via legal research here--that is so voluminous that, while they may keep some tidbits in their heads, most lawyers have long ago realized that they had to rely on external archives of information.  Instead, what I'm talking about is the knowledge of how to apply the law, lists of best practices for doing so, and systems for applying those best practices.  Few, if any lawyers have conceded that they might need a system for this knowledge.  Instead, it is something that you're supposed to learn and remember.  But our memories are spotty, and even the most experienced lawyer doesn't have access to the depth and breadth of best practices available to the "crowd."  For that reason, the potential of open-source knowledge management and development of legal systems (checklists, indexes of best practices, etc.) has the potential to truly disrupt the way most lawyers and law firms do business today.  Additionally, while many firms tout the benefit of their institutional knowledge to clients, no firm can compete in breadth and depth with a cooperative, open-source knowledge management tool that connects solo and small firms across the country.  Because it has the potential to fundamentally change how attorneys practice, and because it has the potential to eliminate the single greatest selling feature of mid- to large-size firms, open source knowledge management is a disruptive technology to watch.

Ad Hoc Legal Teams:  Another disruptive technology, closely coupled in theory with open-source knowledge management, is the potential to use our more connected, more peer-to-peer networked society as a means of connecting attorneys as needed on the basis of geography, skill, and specialty to best serve clients.  While this already happens in some cases, it is a dramatic departure from the traditional firm business model that seeks to capture all the talent, specialities, and experience needed to serve clients within the borders of a single firm, at the exclusion of competing firms.  As with knowledge management, even the largest firm can't cobble together as highly specialized and tailored a legal team as can be assembled by picking and choosing the most appropriate attorneys and non-attorney specialists from around the nation (and world).  Because it has the potential to eliminate the advantage of firm size and multiple firm office locations, the potential to build ad hoc legal teams is another disruptive technology to watch.  It is not yet well understood or accepted by clients, but it seems to be only a matter of time before innovators figure out how to address the potential ethical and business issues and sell clients on its inherent advantages.

Access to Capital Markets:  Open-source knowledge management and ad hoc legal teams--the disruptive technologies listed above--act as vectors pointing toward a future of more decentralized (but networked), smaller-scale or individualized law practices.  One innovation, arguably a disruptive technology, however, points boldly in the opposite direction:  capital.  In the US, law firms are ethically prohibited from having non-lawyers as owners.  That means that law firms don't have access to capital markets (angel investors, VC, stock markets, bond markets) in the way that traditional companies do.  In the UK and elsewhere that is changing (there is already a publicly traded law firm in Australia), and **if** it were to change in the US, it could lead to a radical restructuring of law firms through consolidation and growth.  Large firms, backed by significant infusions of capital, are also far more likely to invest money in innovation, automation, expert systems, and knowledge management and then staunchly protect these assets as trade secrets and intellectual property.  I'm not aware of a serious push at the moment to allow law firms access to capital markets, but this must be considered as a potentially highly disruptive technology should it ever come to pass.

What are the most disruptive technologies for law firms that you see emerging in the next few years?


ttoes said...

I see more suits against government agencies, programs and policies. Maybe it is wishful thinking on my part, but as government creates more departments and offices and becomes more invasive of what most feel is their private space, I think more dollars will be thrown at specialists who know how to take out laws, policies, and agencies much as there are specialists who target corporate activities.
I am probably just naive and there may be many firms/individual attorneys who specialize in this now, but even if there are many such practices today, I can't fathom a future without huge growth in this area.
I know this is not a disruptive technology. I do, however, think it would be a field where legal P.R., trial by media, electioneering, and a variety of techniques not normally associated with the law will be employed by these specialists. While not rising to the level of disruptive technology, I do think it will have profound impacts on the law and our society. Much as many government attorneys today are quite focussed on bringing down Wall Street, I see similar private efforts to bring down parts of our government.

chem geek said...

You wrote, "In the US, law firms are ethically prohibited from having non-lawyers as owners."

That may be true in a direct technical sense, but it is readily worked around by setting up separate companies. For example, Acacia Research Corporation (symbol: ACTG) is a public company with non-lawyers as (some of the) owners, but uses numerous subsidiaries to file patent lawsuits that, obviously, involve lawyers. Also, there are litigation-finance businesses such as Burford, Juridica Capital, Calunius Capital, Juris Capital, ARCA Capital and IMF (Australian-based publicly traded fund).

Anonymous said...


Selena Mcbride said...

This is not identified as disruptive technologies. I think it has a contrast on sustaining innovation does not create new markets or value networks but rather only evolves existing ones. lawyer san diego

Anonymous said...

Your examples are clearly innovations, but your definition of disruptive technology needs to be revised.

Clayton Christensen actually coined the phrase and described what it is in his book "The Innovators Dilemma". Disruptive Innovations most often are not actually higher quality, nor improvements in a way of doing something. Those are sustaining innovations. Disruptive Innovation is providing a service or product that solves a problem or fulfills a need in a manner that is cheaper and more accessible than what is currently available. They usually develop new markets for the service or product because it does not perform to the level demanded by the average consumer of the incumbent service or product provider. They are rarely seen as improvements until much further into their development. They end up being more affordable, convenient, and reliable.

canberra lawyer said...

Hhmm this is quite an interesting article and most of the points you covered got me thinking in terms of how disruptive it can be. I do know that having Adhoc legal teams does have its pros and cons. canberra law firms