This is the second in a two-part series recapping some of our thoughts, analyses, and impressions gleaned during our time in London late last month.  The first installment, where we discussed Business Models and Compensation, is here.

Today’s topics are Efficiency and innovation, and the Challenge of geography (as in running a multi-jurisdiction, potentially multi-continental, law firm).

Efficiency and innovation:

These two topics are relatively new on the landscape.

“Efficiency” has actually been around more or less forever and at least since the GFC has been a regular topic of polite conversation with virtually any firm.  It of course started in a serious way well before the GFC but the GFC was an accelerant as it was of relentless client cost pressure—the supply and the demand sides of the same coin, if you will.

What about the advent of off-shore and on-shore operations and legal centers (Wheeling, Dayton, Manchester, Belfast, many others).  We do very much count these as efficiency initiatives, but if they’re merely relocating the same functions, they’re labor market and occupancy cost arbitrage: Good hygiene.  (A&O’s Peerpoint is a more broadly envisioned initiative designed to respond to surges in demand and as such is in a different category in terms of ambition and intent.)    In the larger view, we’ve long since moved from IBM Selectrics  to Google Docs, bicycle messengers to email and iPhones, and massive file rooms and Iron Mountain to the cloud.

All of  these transitions reflect sound managerial, financial, and IT hygiene, not to mention following our clients and our peer firms, and as such are just fine and frankly pretty boring.  One of our favorite managing partners describes them as “activities, not accomplishments.”

“Innovation,” however, represents something else entirely to most people who bring it up.  It’s invoked as a separate and unique category of human inventiveness, and the implied yardstick is that if it’s not “disruptive” it’s not real innovation.  Disruption, in turn, implies non-linear, discontinuous change, with near banishment of the old order: Cars vs. horses, iTunes vs. CDs, smartphones vs. BlackBerrys.

If disruption in this sense is the acid test for innovation, then we think Law Land is nowhere.  We are still doing basically what we’ve always been doing, using people drawn from the same backgrounds, charging clients under the same revenue model, and governing and organizing our firms using the same managerial model.

Is this a problem?  At the moment, we’re hard-pressed to see just how. Don’t get us wrong: As Americans and as optimists, we count ourselves second to none in rooting for innovation in general.

But also counting ourselves as realists, and in the context of Law Land, the most important changes we see are three new market developments.  Now, these developments most definitely must be reckoned with as they pose a challenge to Big Law, yet none amount to, in our book, “innovations.”  Rather, they are different business models constituting classic economic competitive-market threats: (1) LPO’s (Axiom, Clutch, Novus, etc.); (2) “New Law” businesses (Radiant, Riverview, etc.) and (3) the Big Four accountancies.

What all have in common are new approaches to the pricing and organization of the production function underlying the delivery of legal services.  In simple terms:  They charge differently—fixed fees for projects or “units” of service, often with an element of risk-sharing—and they are internally organized in radically different form, bearing no resemblance to conventional law firms.

Make no mistake: Collectively they represent a never-before-seen competitive challenge to Big Law.  Their goal is nothing other than reducing the share of legal services provided by law firms and taking an ever-growing slice of what used to be our pie and our pie alone.

Not to be dismissed—or only so at your peril—but “innovation” in the strictest sense?  We don’t see it.

Note: We won’t discuss IBM Watson beyond noting that we’re following it with rapt interest and in fact have organized a half-day introduction to Watson for leading law firms, in New York.

Here’s our view in a nutshell:  Watson is a tremendously impressive and capable deployment of technology in areas—primarily finance and healthcare—arguably analogous to what lawyers do.  But as of yet there are no “instances” of Watson running or being deployed in the legal industry vertical, and IBM has declared itself not to be particularly interested in trying to figure out what a Law Land Watson application might look like.

In other words, they’re leaving it up to us to figure out what “Watson, Esq.” could do.  Whenever a well-resourced and imaginative firm gets cracking on this, we expect the question of whether innovation exists in Law Land to be resolved once and for all.

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