2015 Year-End Report

Special Issue • December 2015
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Disruptive Innovation

New players, technology, and rules


This transcript is derived from a lecture and has been edited for style and for print publication. To learn more, read Volume 1, Issue 2.

Disruptive innovation has become a catch phrase in the legal profession today. The term was coined by professor Clayton Christensen here at Harvard Business School.  He used it to explain why it was that in manufacturing, new competitors would come into the marketplace offering a product that seemed far inferior to existing products and yet within a relatively short space of time were able to not just capture market share but totally reframe the market and become the dominate players. The example he gives that everyone is familiar with is the transformation from big, mainframe computers produced by companies such as Digital Electronic Company or Wang Computer to small upstarts no one had ever heard of like Microsoft and Apple. The question is whether something like that is happening in the legal profession today.

Without question we have seen an explosion of new kinds of products and services in the legal arena. I say this very carefully, as many of these new products and services are not coming out of traditional law firms. Some emerging from new startups like Ravel Law, which is working in the research and information area. Or from Crowd Defend, which is an online service that allows people to crowd fund social justice innovations. Or Standin, which is an app that allows lawyers to find other lawyers who are in the vicinity—primarily in the courthouse—who can “stand in” for them when they can’t make a court appearance. Some products and services are provided by very large players that are moving into a new arena. Many people will have heard of the IBM Watson Project. Watson is the computer that, when it was known as Deep Blue, beat Garry Kasparov, the world chess champion, at chess. It then went on to beat Ken Jennings, the world Jeopardy! champion, at Jeopardy!. Watson is now working in a number of sectors, including the medical arena, where it is discovering new medicines and diagnoses through artificial intelligence. That same technology is now coming to the legal profession.

There are other examples of existing players moving into new arenas. Here the example I like to give is the Big Four accounting firms, which of course haven’t been accounting firms for very long. Accounting has been just a small part of what they were doing. Not so long ago they wanted to be multidisciplinary professional service firms, which meant that they wanted to have a separate accounting line, consulting line, tax line, and of course, legal line. After Sarbanes–Oxley, there was a lot of discussion about how accounting firms shouldn’t be giving non-accounting services to their accounting clients. And people in the United States and in many jurisdictions took their eyes off the accounting firms. Now accounting firms all over the world are offering what they call “Globally Integrated Business Solutions,” which of course law is a big part of.

So we’ve seen an explosion of new players offering services around law and legal services. This is very exciting. But it is not the panacea that many people expect. And that’s because many of these new players suffer from three big problems that bear watching.

The first problem is what I call hammers looking for nails. If you have a new technology or product, you will probably are trying to apply it to law because law seems like a very open market. But in fact, law is a traditional discipline that has changed very little over the past years. People think they can move into law without understanding how it works. In particular, there has been a tremendous temptation for all of these new providers to equate everything about professionalism—about the way lawyers currently operate—with protectionism that should be eliminated. That’s I think a serious problem.

The second problem is an overreliance on ratings or rankings without an understanding of what the underlying substance of those rankings entails—where they come from and how to make sure that they map sufficiently onto quality. A lot of consumer ranking that comes from publically available information is made without an in-depth look at quality.

All of these things are being driven by big regulatory changes that are happening around the world. For example, in the United Kingdom there has been a big move to deregulate legal services. By that I mean entities that were prohibited in the past from offering legal services and that are now allowed to—so-called Alternative Business Structures. These will allow, for example, companies to own law firms that can deliver legal services to third parties or allow private capital to be infused into law firms or to be traded on the stock market. These reforms started in the United Kingdom and are spreading to many countries around the world. And they are being activity debated here in the United States. That means we are going to see many more of these alternative players here.

The third problem is that many people are looking at these new technologies and new innovations as a panacea for all the issues that the legal profession is having, particularly one of the most important ones, which is that most people in the United States don’t have meaningful access to legal services and therefore don’t have meaningful access to law. I do believe that some of these innovations—whether they are around technology such as LegalZoom or whether they are around deregulation and allowing new kinds of practitioners, like Washington State’s Limited Licensed Legal Technicians (LLLT)—do offer important benefits to access. But I think we need to be careful in thinking that there is a technological solution for all of the issues that we care about related to access. Some of the problems in access cannot be addressed by either a technological solution or one that licenses new types of professionals. Some people will need lawyers. One of the problems in the United Kingdom, for example, is that along with the licensing of new kinds of providers, there was a decrease in funding for legal services. That’s something we should pay close attention to.

This is why at the Center we have a major study on disruptive innovation in the market for legal services, and we are working with Professor Christensen and other leading academics who have studied this area. The central thing that we are interested in is this: How can we determine the quality of what’s being provided—not just by the new players but also in the existing way in which legal services are offered. Without metrics of quality that can be compared among different kinds of providers, it will be very difficult to understand the disruptors’ true value or the importance of existing ways of practice. Where are going to do some major work on this topic in the coming year and look forward to reporting on it in The Practice.

2015 Year-End Report Special Issue • December 2015