Law, Rebar, and Disruptive You-Know-What

Eye Wander, I Wonder

I’ve tended to stay out of the disruptive innovation discussion as it pertains to law if for no other reason than that my experience with large law firm and “Bay Street” practice is essentially nil. I understand — as anyone might, experienced or not — that new approaches that shake things up could bring about beneficial change, and that change, beneficial or not, will occur willy-nilly because it’s just the way things are. And I understand that the proponents or prophets of disruptive innovation mean something rather more precise by the phrase — perhaps something lying in the gap between “plus ça change…” and “Nous avons changé tout cela.” And that seemed enough. But eventually the drumbeat repetition of the phrase throughout the part of the internet where I forage has moved me to join the dance; I do so tentatively, however, and hope that, unlike Lewis Carroll’s porpoise, I’m not too clumsy about it.

Let me start by quoting scripture. Here’s the originator, Clayton M. Christensen (and Michael E. Raynor, and Scott D. Anthony), with one of his paradigmatic illustrations of “type two” disruptive innovation:

The second type of disruptive innovation takes root among an incumbent’s worst customers. These low-end disruptions do not create new markets, but they can create new growth. The disruption of integrated steel mills by steel minimills demonstrates how low-end disruptors harness what we call asymmetries of motivation.

Minimills first took hold in the steel industry in the mid-1960s. They were very efficient. They had a 20 percent cost advantage over integrated mills. But the quality of the steel they produced was inferior. The rebar market at the bottom rung of the industry (rebar is small steel bars made from scrap and used to create reinforced concrete) was the only market that would accept the minimills’ steel.

As the minimills entered the rebar market, the integrated mills were happy to exit it. Their gross margins in the rebar business were a mere 7 percent, and rebar accounted for only 4 percent of the industry’s tonnage. So the integrated mills decided to focus on higher-profit steel products. The minimills made boatloads of money until they finally drove the last of the integrated mills out of the market—and then the price of rebar dropped 20 percent, because rebar had essentially become a commodity market. The minimills’ reward for victory was that none of them could make money.

To make attractive money again, the minimills had to figure out how to make better-quality steel in larger shapes—not only angle iron but also thicker bars and rods. Profit margins in this market tier were 12 percent, almost double those of the rebar market; the overall market was also twice as large. So the minimills invested in equipment to make the larger pieces and worked to improve the quality and consistency of their steel. As the minimills began making inroads with better and bigger steel, the integrated mills were happy to exit this market tier to concentrate on more profitable products. When the last integrated mill left the market, the price of angle iron collapsed. Once again, the minimills had to move up to the next tier of the industry in order to survive. And so on.

At each stage of the minimills’ climb up-market, an asymmetry of motivation was at work. For the minimills, the need to enter a more profitable market provided the motivation to solve the technological hurdles preventing them from producing higher-quality steel. The integrated mills were happy to leave these markets because the lower tiers in their product mix were always less profitable than products targeting higher-end customers. Eventually, of course, the integrated mills ran out of markets to flee to.
Six Keys to Building New Markets by Unleashing Disruptive Innovation

Let’s pretend that the legal industry is the steel business as was, and that like the latter it has a high end and a low end market. The lesson from Christensen’s parable for the folks above the salt is “Ware the rebar!” Yet most of what we read concerning disruptive innovation in law, it seems to me, has to do with how to intervene directly in the financing, structuring, or regulation of big, high-end firms; that is, explicit, remedial innovation. Nothing wrong with that, of course. Those who’ve tried to re-direct organizations, however, will tell you that an organization’s ability to revert to type after a destabilizing shove is positively gyroscopic.

Sometimes technology is seen as the killer disrupter for law. My own view, for what it’s worth, is that, yes, technology will be, but not yet; we’re still a few beats back of the really big changes that are coming from tech. Besides, as rebar, tech by itself doesn’t quite track.

For me, A2J is the rebar. As the fancy steel mills did with rebar, so the fancy law firms have hived off “access to justice” as a market that is, well, beneath them. Of course it’s an important social problem: someone has to make the armatures on which all of our buildings are built; it’s just not a problem we’re prepared to solve as a cohort, as a decile, as a . . . profession. As we often do with our undesirables, we’ll give the jetsam an elevated name in order not simply to assuage the harm our rejection has caused but also to convey our deep respect for the values clinging to it: justice. Access to justice, and not to the merely grubby, sub-lunary stuff that is law and that corporations pay for.

I was seriously disappointed when, recently, the Canadian Bar Association bifurcated its examination of the future of law, one project addressing The Future of Legal Services in Canada, the other, Equal Justice (i.e. A2J) — as if these matters could live in separate houses not even within the same neighbourhood. The mistake is not only the moral one of putting the bulk of the legal system at arm’s length from the rainmakers and their well-watered friends but also — and this is the gravamen of my post, I suppose — the analytical one of failing to see that, absent some black swan large scale social disruption, solutions will be forged to the problems facing the legal system, and that, however unpolished they may appear when seen from above, these solutions and their near cousins bid fair to eat their way up the quality/sophistication ladder in the way in which minimills’ steel did until —

I may be wrong in all of this, of course. Probably am. But I would like to see more discussion of how. Yes, there isn’t just “a profession” of law but, rather, many overlapping sorts of practices; yet at some basic level each aims to use similar tools to deal with similar human problems, so that even though the “ladder” up which A2J solutions will climb more closely resembles a snakes and ladders game board, perhaps, some players will get to the top. And though the economic calculation of bang for the buck will likely first be made by governments and quasi-governmental agencies charged with assessing the merits of this or that A2J solution, corporations can count too and, bless them, exist for no other purpose than to maximize their bottom lines, leading, as it almost always does, to “good enough” approaches to the solution of difficulty. No reason for them not to compromise with regard to . . . justice difficulty.

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Comments

  1. I think it is time to rename that, which has become known by the platitude “access to justice” and call it out for what it appears–legalized injustice.

    “Thucydides reported that the Peloponnesians and their allies were mighty in battle but handicapped by their policy-making body, in which, he related, ‘ each presses its own ends … which generally results in no action at all … they devote more time to the prosecution of their own purposes than to the consideration of the general welfare–each supposes that no harm will come of his own neglect, that it is the business of another to do this or that; and so, as each separately entertains the same illusion, the common cause imperceptibly decays.'”

    There are many of us out here having been served up an unjust outcome & run out of money. Many of these unjust outcomes involve children & have been documented in research–see Bala 2012. Who is responsible to ensure the safety and security of these children?

    Who cares?

  2. You’ve raised important concerns here about transforming access to justice needs through innovation; you ask whether innovation will be inevitably about capturing the high end of the legal market, at the continuing expense of low-income and middle-income communities. The answer must be that innovation needs to help everyone.

    That said, you are not a lone voice on this, Simon. Through our comprehensive six-month cross-country, multi-stakeholder Legal Futures Initiative consultation, we found that people share your concerns about who will benefit from innovation in the legal profession. We heard unease from some participants on Alternative Business Structures and their likely chill on public interest litigation; those participants asked the CBA to consider how ABS can be structured beyond the profit motive to allow lawyers to work towards the public good. We also heard that access to justice and diversity in the profession are inherently part of the discourse about innovation; we need to both re-define the role of a lawyer in a client’s life, and re-define what it means to be a lawyer in today’s society, while putting the needs of the public we serve, in all its diversity, first. The Equal Justice Initiative also started its work by listening to current perceptions of justice from marginalized communities, and then using that input to continually question whether any proposed innovations will provide meaningful access to justice, and if so, to whom. The Equal Justice Initiative’s report contains a number of recommendations that call on each of us to look for ways to embrace the full potential of innovation to improve access.

    It is clear that there are many important conversations yet to be had in the context of futures discourse. Malcolm Mercer’s recent Slaw column Being in Favour of Reform, Just Not Change is a fantastic example of how innovation will free lawyers to provide new and different services, and consequently, how those new and different legal services may serve to empower clients of all socio-economic backgrounds. (And we are delighted that Malcolm is part of the Initiative so that we can benefit fully from his thoughts in this regard.)

    On the bifurcation of our two initiatives, we believe they have always existed in complementarity to each other. Trying to be innovative ourselves, we realized the need to define the scope of our work. Splitting the work in two, with clear direction to both teams that they work closely together, was a means to help expedite the work, as the need for solutions is pressing, and reflects the fact that lawyers are an important, but not the only, stakeholder involved. Reaching Equal Justice starts from people’s perceptions of the law and unmet legal needs. It calls on a number of stakeholders to take concrete steps to work better together and to improve access. The Legal Futures Initiative examines how one of those stakeholders – the legal profession – can adapt to changing client needs, be those the needs of the wealthy or the marginalized. As these Initiatives unfold, we are increasingly convinced of the interplay between the two: that opportunities, transformations, and cultural shifts engendered by innovation can be leveraged towards positive changes in access to justice, and conversely, that access to justice can grow through, amongst other things, a reinvention of the delivery of legal services. These are not easy issues to solve, particularly in the realm of new ideas and untested concepts, but here at the CBA, we have found great appetite for moving the conversation from “why” to “how” when it comes to innovation and access to justice. As for bifurcation, I look forward to a meeting in a few weeks’ time when members of the teams working on both projects next gather together.

    Thanks,

    Fred Headon, Chair of the CBA Futures Initiative and President of the CBA

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