Understanding innovation risk – should you run your law practice like an Apple store?

A law firm’s attitude to innovation and how to implement it can go a long way to determining the success of any new ideas, writes Ronwyn North.

Innovation is an important business tool in times of change. Yet many law practices are failing to tap in to the benefits because of misconceived ideas about innovation and innovation risks. Does your law practice need a shift of mindset?

Depending on who you listen to, innovation is either the legal profession’s road to salvation or the road to ruin. The essence of innovation is in creating value from new ideas; your own or someone else’s. Innovation is not the idea itself; that is invention. Rather, innovation involves the willingness and capacity to seek advantage from using the new ideas, or using old ideas in new ways. In a business context, successful innovation means advantages gained from innovating are able to be ‘commercialised’; that is, translated directly or indirectly into financial benefits.

The diversity of views about innovation – reject it, be sceptical, or embrace it –was starkly illustrated for me recently by conversations with four different law practice principals. Here is what they said:

“I am not in favour of innovation because innovation puts lawyers out of business.”

“Innovation is a passing management fad, like total quality management.”  

“Innovation is a waste of money. We don’t use half the bells and whistles that our IT manager persuaded us were essential.”

“I’ve restructured the practice to be more like an Apple store. ‘Sales’ and work intake staff are now separate from the ‘genius bar’ of technical experts who do the work. So far, my clients love it”.      

I will come back to what is insightful or misconceived about these views of innovation, but at least today it possible to have a meaningful conversation about the topic. This was not the case 20 years ago when I took part in a feasibility study for the NSW Law Foundation called Tomorrow’s Legal Services. The study recommended funding of a larger project with the objective “to improve access to justice and competitive success for the legal profession through research, innovation and support”. The proposal was ahead of its time and went nowhere.

Now the tide has turned and in April this year the NSW Law Society announced a ‘commission of inquiry’ into the future of the legal profession. The commission will shortly take ‘evidence’ from interested parties and report later in the year. If the commission reaches similar conclusions to the equivalent commissions that have already been held in Canada, the United States and the United Kingdom, then embracing innovation will be one of the key recommendations.¹

Returning to the view of four practitioners, let us consider what each is really saying, or not saying, about innovation and innovation risk.

“I am not in favour of innovation because innovation puts lawyers out of business.”

It is not innovation that puts lawyers out of business, but lawyers’ failure to use innovation as a means for responding to the forces of change and disruption. The context of the above quote was a conversation about the rise of ‘DIY law’ and the unbundling of legal services. This is the trend whereby clients do some of the work themselves and use lawyers for limited tasks.

The practitioner in question felt that lawyers are now losing business because the internet and technology enable clients do things such as their own legal research; download, draft and file their own documents; or take steps to resolve disputes. The practitioner felt that DIY law is all very well, but not when clients seek ‘insurance’ – figuratively and potentially literally – by consulting lawyers to check the quality of the DIY work. While this practitioner may appreciate a new coffee mug with the slogan “Please don’t confuse your Google search with my law degree”, she may benefit more from a shift in mindset. A cartoon from yesteryear nicely captures the concept of a mindset shift. It shows two barbershop signs on opposite sides of the street. One sign advertises “$5 haircuts” and the other trumpets the fact that “We fix $5 haircuts”.

What this practitioner was really saying is: “I want things to stay the same. I don’t want to change.” However, no amount of wishing is going to put the change genie back into the bottle. This practitioner should be asking: “Can we afford the risk of not innovating?” She may decide to maintain the status quo and take the risk that enough clients like the old ways for the practice to survive. Or she can take the risk of finding new approaches to practice that both meet the needs of the new breed of clients and are profitable for the firm. If the practitioner does decide to embrace innovation, the question then becomes how to make it happen effectively, which is where the views of the second practitioner become interesting.

“Innovation is a passing management fad like total quality management.”

Innovation is both a business capability and a tool for advancing strategic and operational objectives. Like any capability, it has to be learned and practised in order to be executed well. Like any tool, it is more suitable for some purposes than others; it can be used or misused, and in different hands it can produce different results. The practitioner in question acknowledged that a law degree did not provide training in law practice management. However, he remained sceptical about ‘management claptrap’ after a bad experience with total quality management some years earlier. The failure of TQM to deliver value seemed to have undermined the practitioner’s trust in business management generally. The mindset shift this practitioner needs to make is to regain trust in ‘good management’ and be willing to learn how to use the latest tool in the managerial toolbox called ‘innovation’. After all, law practices successfully adapted and adopted other business management practices in areas such as strategy, marketing, finance, HR, IT, and risk management.

Practitioners can either acquire these business skills themselves or hire suitably qualified staff or advisers – and it is the same with building capacity for innovation.

The second practitioner would also do well to reflect on the reasons why the TQM experiment failed. Was it because the TQM approach used was not appropriately adapted from manufacturing to the professional services environment or the size of the firm? Or were there factors within the law practice itself that doomed the initiative to failure?  This brings us to the third practitioner, whose views are instructive about why innovation can fail to live up to expectations.

“Innovation is a waste of money. We don’t use half the bells and whistles that our IT manager persuaded us were essential.”

There is no doubt that innovation carries the risk of investing time and money in working out how to use a new idea only to have little or nothing to show for it at the end. However, innovation is not inherently more risky than other business initiatives. Rather, innovation can ‘feel’ more risky because results are more uncertain and less predictable when you are working with unproven ideas. Judged objectively, sailing a new route through unfamiliar waters may sometimes turn out to be safer than attempting to navigate known but dangerous shores.

The success or failure of innovation can be influenced by a number of factors within the control of the law practice, including culture, decision-making and project management. These factors may have been in play in the case of the practitioner who felt that innovation is a waste of money.

Three key factors

First, let us consider innovation culture. David Morely, global senior partner of Allen & Overy, puts it well: “Successful innovation requires firms to have the right culture. There has to be a culture where people feel able to try new things without being shot down if it doesn’t work out. However, lawyers by their nature – and please excuse the generalisation, can be cautious and focused on the downside. That approach is sometimes right for legal advice, but for business decisions it can hold you back. To innovate, you need to experiment and some experiments will inevitably fail. If there is a blame culture, people will be too scared to innovate.”

Second, decision-making is crucial to success. Deciding which unproven ideas with which to ‘experiment’ can be more risky if decisions are solely driven by creative hunches, innovation for innovation sake (aka the ‘shiny new things syndrome’) or the views of a dominant stakeholder. Creativity and intuition have a role to play in innovation, but so too does reality testing the need for and the purpose of innovation. This includes research and number-crunching about things such as law practice performance projections, client needs, market trends, options and alternative scenarios.

Innovation needs influential champions, but successful innovation is more likely if the champions pursue a transparent, consultative and collaborative process involving the right people, rather than one which is secretive, dictatorial or exclusive. The lack of involvement of the right people in an innovation project came home to roost recently for the Law Society of England and Wales. According to media reports, the society spent £7 million (about AUD$13 million) on developing an electronic conveyancing portal that does not work well enough to be worth marketing. While the idea was a good one, apparently one of the lessons from the debacle is that the design and testing stages required much more input from experienced conveyancers.

The third factor is project management. Like any new business initiative, innovation requires good project management as time and resources are not unlimited. However, trying to micromanage an innovation project will almost certainly guarantee its failure. Working out how best to use unproven ideas requires some flexibility as to outcomes, scope, budget, timeframes and milestones in order to account for unexpected developments. Too rigid an approach runs the risk that innovations with good potential will be killed off too soon, while bad projects will be pursued for too long.

Beyond the design and feasibility phases of innovation, it is critical to focus on good planning and the allocation of adequate resources for the success of the changeover or commercialisation phase. Innovation will fail to add value if the people who are most affected by the change are not sufficiently informed or motivated to adopt the innovation. Appropriate and timely communication, incentives and training should be built into project planning from the start of every innovation project.

The Apple effect

The impact of any change applies to clients as well as law-practice personnel. This brings us to the fourth practitioner.

“I’ve restructured the practice to be more like an Apple store. ‘Sales’ and work intake staff are now separate from the ‘genius bar’ of technical experts who do the work. So far my clients love it.”      

Innovation can be revolutionary or evolutionary. Radical rethinking of the practice of law as we know it is all about innovation. So, too, is the adoption of new ideas that refresh or optimise existing practice strategy, systems and processes, or restructure or realign the law practice to its market opportunities.  These approaches to innovation are not mutually exclusive and the more sophisticated law practices may be taking steps simultaneously to refresh, re-engineer and reimagine different aspects of the practice. For example, one team may benefit from optimising the use of an existing document management system, while another reconfigures practice processes for wholly electronic files, while yet another transforms a particular type of matter into an online internet-based service. At first glance, the ‘Apple store’ approach sounds more transformational.

However, many a highly leveraged sole practitioner or client relationship partner in a larger firm might argue that there is nothing particularly new about separating people who get the work from those who do the work.  In fact, what is different about this practitioner’s approach is that many of the ‘work getters’ are not lawyers and this is what appeals to clients. Apparently, compared with lawyers, clients feel these ‘meeters and greeters’ better understand their needs, ‘speak their language’ and are less intimidating to see at the start of a matter.

The practitioner has the right idea in focusing innovation on client benefits, not simply getting more money in her own pocket. However, innovation can have unintended risks and consequences. For example, the ‘Apple store’ model may have increased professional liability risks that need to be addressed. Non-lawyer work getters might over-promise what the doers can deliver, misrepresent their qualifications, or give legal advice.

A sound approach to innovation will seek to anticipate and mitigate such risks; for example, by making sure that roles and limits to authority are well understood and maintained. An unintended consequence may be that some good lawyers do not like the new model and leave, or are reluctant to join the firm.

Win or lose

In conclusion, times of rapid change tend to create winners and losers. Which side will your practice be on, and could a shift in mindset towards innovation increase your chances of winning? When it comes to innovation, do not knock it if you have not tried it. Most law practices have nothing to lose and everything to gain from becoming more innovative. If you are going to do it then, like any skill or capability, learn to do it well and avoid the common traps.

Innovation does not have to be radical to create value. Take an approach that matches the strategy and resources of your practice. Pay special attention to culture and people, not just technology. Finally, get comfortable expecting the unexpected and the occasional failure.

Safe practice!

Ronwyn North is the managing director of Streeton Consulting and a qualified lawyer who specialises in consulting to the legal profession on practice management issues, including risk management. She can be contacted at rjnorth@streetonconsulting.com.au.

 ¹ Refer to the Canadian Bar Association’s Legal Futures Initiative; the American Bar Association’s Commission on the Future of Legal Services; and The Law Society’s report in the UK on the Future of Legal Services.