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What Are the Key Attributes of an Innovative Law Firm and How Much Do They Really Matter?

Managing a law firm in this era of rapid change is a massive challenge. It’s hard to know the right thing to do. It feels like the ground is constantly shifting. Your firm’s lawyers are giving conflicting reports on the state of business while your clients keep demanding “more for less.” Many legal tech companies are stepping up to help with these challenges. Yet these companies often meet resistance from the very firms they are trying to help.

I’d like to introduce Sean Bernstein. Sean is a co-founder of MinuteBox, a next generation cloud-based minute book and corporate records solution for law firms, accounting firms and internal legal departments. As an entrepreneur in the legal space, he’s spoken with dozens of law firms, ranging from single lawyer offices to global behemoths. As a result, he has some thoughts on what distinguishes innovative law firms from more traditional firms.

This article presents both the “outside looking in” and “inside looking out” perspectives when it comes to what makes a law firm “innovative”. Following Sean’s remarks, I offer some thoughts on how things look from within a law firm. Overall, we conclude that although certain firm attributes are prevalent in innovative law firms, such attributes are quite limited in predicting a firm’s “innovativeness”. Instead, the proper circumstances appear to be a more reliable indicator of a modern innovative law firm.

Sean’s Observations

From my experiences as a legal entrepreneur I’ve come across commonalities inherent in more innovative firms. In my ideal world, these attributes would permeate across every law firm globally. These attributes include: being proactive about risk, streamlined processes for implementing new technology, dedicated resources for innovation, and strong senior leadership support for innovation.

Being Proactive About Risk

Trying something new requires taking on some risk. But risk is inherently unavoidable. Ironically, given today’s changing legal landscape, not doing anything can be just as risky as trying something new. In some cases, I believe maintaining the status quo can be problematic. Understanding that indecision is still a decision, innovative law firms put themselves in the driver’s seat by proactively choosing which risks to take and which to dismiss.

Closely tied to understanding risk is understanding your firm’s internal pain points. Firms that have identified their pain points and strategic direction in advance (usually through in-depth process mapping) have an easier time deciding what to buy and what solutions fit within their risk tolerance profile. They also avoid being surprised by a problem and making reactionary decisions.

In the context of MinuteBox, our team has mapped out a spectrum of firms ranging from those merely curious about our solution to those who have clearly identified and prioritized improving minute book management. Law firms that have already performed internal strategic analysis will have a simpler (and less costly) buying process; they are empowered to find the products with the best overall fit and more readily adapt it to their workflows.

Streamlined Processes for Implementing New Technology

While each new technology can bring new challenges to an IT team, what’s not new is the fact that such technology is a part of the strategy of law firms. We believe that the firms that can quickly test new technology and make it available to users will have a competitive advantage. The ability to do so lies in having streamlined processes.

Implementing a new tool requires cooperation from the firm’s IT personnel, its Innovation team, and the end users at the firm. The most effective firms have alignment across these different stakeholders. Clear and consistent communication enables each person to handle their part of the job independently. In an ideal world, the appropriate individuals in both the law firm and the vendor would be in constant communication and feedback on everything from a solution’s efficacy, ease-of-use and overall value-add. Conversely, traditional firms may have a less formal technology implementation process, which can lead to bottlenecks or implementation purgatory as other more pressing matters take precedence.

At MinuteBox, our seamless implementation process is as important as our solution and we will do whatever it takes to determine if our solution is the right fit for your firm. But at the end of the day, this process is made infinitely easier if a firm has outlined a process where the steps, roles and duties of all those involved are clearly outlined.

Dedicated Innovation Resources

It’s not uncommon to hear some variant of “this solution looks great, but we just don’t have the budget right now.” NOs are fine. They are part of an entrepreneur’s life. More interesting is the varying definition of “budget”: it can mean everything from an ambiguous term with no set amount, to a defined sum of money set aside specifically to implement new solutions and innovations.

Having a dedicated budget for innovation can send powerful messages. First, when partners see that a portion of the firm’s profits are going toward “innovation,” it signifies that senior leadership believes change can have positive benefits for the firm. Second, setting aside a budget generally correlates to hiring staff dedicated to working on these projects. Smaller firms that do not have the size to hire dedicated people usually designate someone internally to future-proof the firm. Either way, designated roles further signal that a firm not only values innovation in concept, but is actively pushing forward an innovation agenda.

Change (and by extension innovation) is hard. It requires research, internal analysis and the right team to actually implement a solution once decided. But having dedicated and motivated staff, supported with some internal financial backing, is a great indication that a firm is serious about change.

Strong leadership support

Arguably the most important factor is strong leadership. It is difficult for lawyers and staff to feel comfortable about trying something new without senior leadership recognizing the value of their efforts. Effective leaders create a sense of urgency and communicate a clear vision of what change will look like across the entire firm – legal and “non-legal” alike.

Although I rarely have a complete picture of the internal workings of the different law firms I encounter, it is obvious when senior leadership prioritizes innovation. It can be as simple as allowing junior lawyers to sit on innovation committees. Proactively developing leadership skills can improve every aspect of a firm. As Blane Prescott notes, “the single most common success factor for law firms today is great leadership.” Senior leaders that embrace innovation will help foster change throughout the firm.

At the end of the day, I want to work with law firms that want to work with me. I don’t want to be a burden or an imposition within a law firm. Big or small, I want to dig deep into a firm’s problems and try and tackle whatever issues they face together. I want the incorporation of MinuteBox within a law firm’s workflow to be a mutually beneficial experience that creates a strong relationship of trust and understanding.

James’ Observations

Thanks for those great insights, Sean. I think it’s valuable to see what attributes generally correlate with innovative law firms. Still, sometimes firms with the attributes you covered still remain ineffective when it comes to preparing for the future. Why? I think that beyond these attributes one must consider the circumstances within a firm. The proper circumstances allow these attributes to have the desired effect, or not.

For example, consider David Maister’s observation that expertise-based work is on the opposite end of the spectrum from efficiency-based work – and that “every aspect of a practice group’s affairs, from practice development to hiring, from economic structure to governance, will be affected by its relative positioning on this spectrum.” There is unavoidable tension between innovation efforts, which generally aim at efficiency, and law firms taking pride in their specialized expertise. Even if you have the right attributes in place, so many lawyers and others will be operating strictly to optimize expertise.

One type of positioning is not inherently better than the other. But if a firm cannot adapt its business model to help users justify using efficiency-based innovations then it will be nearly impossible for them to do so. While it might appear from your end that certain law firms are effective or ineffective based on certain attributes, my experience working within these firms tells me something deeper is going on within firms, whether they realize it or not. As change management expert John Kotter points out: “we underestimate the subtle and systematic forces that exist in virtually all organizations”.

Being proactive about risk

To your point, risk is always present. But I’m not sure if a firm’s risk tolerance is a reliable indicator for finding correct solutions. As Clayton Christensen points out: “many of the executives who have been unable to create sustained corporate growth have evidenced a strong stomach for risk”. If there’s not much correlation between risk tolerance and sustained growth in business generally, it’s safe to assume the same goes for law firms.

Consider a firm that has decided to proactively manage risk: how does it accurately assess those risks? The problem with large firms seeking growth is that the exciting growth markets of tomorrow are small today. Even if a firm wants to pursue a certain opportunity, its size and business model can still make it impossible to justify doing so.

Even though firms are indeed aware of industry trends and have smart people working on preparing for the future, an organization’s size and business model can skew its perception of risk. So no matter how much a firm might understand it needs to change, it cannot justify doing so given the constraints it has built for itself. As Christensen puts it: “[Disruption] is not a story of incompetence. It is a story of perfectly rational, profit-maximizing decisions.”

Streamlined Processes for Implementing New Technology

As someone who works in innovation, I know that at times it can indeed feel like there aren’t any processes. Some firms are better at this than others, but every law firm already has processes for implementing and managing new technology. Given the amount of technology involved in every law firm (e-billing, document management system, accounting software, laptops and mobile devices, etc.), processes are a must. I’ve come to understand that delays arise not from any attributes of an IT team, but the circumstances under which they’re operating.

The best processes in the world will barely matter if the work you want done is deemed “extra” compared to everything else handled by the IT department. There are a long list of responsibilities for these teams that are more important than implementing new innovation software. Implementation procedures are important, but the resource allocation priorities of IT provide ample justification for postponing innovation efforts.

Further, if an IT team seems genuinely resistant it might be because, though they don’t get any reward for implementing new software, they certainly take on all the risk. It doesn’t matter if something was or wasn’t IT’s idea, any cybersecurity issue is always seen as IT’s fault. As Gary Moore explains, in any industry, “technical function is often last to get on board”. And the way past this is not in processes but in changing incentives. As Moore explains: “IT only get on board after the executive function makes it a priority, which they will only do after a department makes it clear they have a problem.”

Dedicated Innovation Resources

Resources are indeed a crucial piece to any endeavor. But they are quite malleable to their circumstances. Having an innovation fund doesn’t guarantee a firm will invest in the right technology. Similarly, just because a firm has dedicated staff working on innovation doesn’t mean the rest of the firm is receptive to their efforts. Getting a firm to buy new software is one thing, getting a firm to actually use it is often quite another. So just like processes, resources are crucial and yet limited in their effectiveness.

While resources and processes are often enablers of what a firm can do, a firm’s values can represent constraints by outlining what a firm cannot do. A firm with one set of values would be incapable of succeeding in anything other than the work that aligns with those values. The “subtle and systematic forces” of the organization won’t allow it – even with dedicated staff and budget. Christensen’s observation that “organizations cannot disrupt themselves” implies how deeply an organization must change in order to shift its values and corresponding business model in order to adapt. The magnitude of this change is why he suggests an organization build an off-shoot organization with values that lead to better outcomes, or undertake a herculean managerial effort in order to redesign itself.

Strong leadership support

I’ve spoken before about the massive shift in required skills involved in going from lawyer to managing a law firm. And while I still think that argument has some merit, even those who have spent entire careers managing companies struggle with sustaining growth. As Christensen observes:

“about 90% of all publicly traded companies have proved themselves unable to sustain for more than a few years a growth trajectory that creates above-average shareholder returns. Unless we believe that the pool of management talent in established firms is like some perverse Lake Wobegon, where 90% of managers are below average, there has to be a more fundamental explanation for why the vast majority of good managers has not been able to crack the problem of sustaining growth.”(emphasis added)

Though all companies struggle with navigating a changing marketplace, one particular obstacle for law firms is embedded in the leadership style that typically works for expertise-based companies. Maister explains that in expertise-based companies (like most big law firms), “the autonomy of the individual partner would be among the most supreme virtues in the firm, with little use made of formal internal structuring.” This setup has had much historical success. But as the legal industry undergoes structural shifts, this hands off approach is now a liability. Christensen explains that: “disruptive innovation is the category of circumstance in which powerful senior managers must personally be involved… A senior-most executive is the only one who can endorse the use of corporate processes when they are appropriate, and break the grip of those processes and decision rules when they are not.” No amount of business acumen will be sufficient in creating change unless senior leadership is willing to be hands-on throughout.

Conclusion

A proactive approach to risk, streamlined processes, designated resources, and management skills are all necessary for a firm to be able to adapt for the future, but they alone are not sufficient. As much as certain people are pushing for change, employees at every level make prioritization decisions. And those decisions are derived from how the firm sets up its values. One set of values is not inherently better than another, and it is possible to navigate the tension between expertise vs efficiency; but the conflict between them will always be present.

Selling products that make an organization more efficient is one thing. Organizations trying to transition from expertise-based values to efficiency-based values will, as Maister puts it, “be transforming the fundamental nature of their firm.” And those asking their lawyers and staff to become more efficient while focusing their incentives and growth strategy on expertise-based work will have a hard time navigating that tension. So legal technology companies must be conscious of the changes their solutions ask of a firm. Similarly, the more conscious law firm leaders are of how much they are asking their lawyers and staff to change, the less frustrated they might be when things don’t go according to plan.

Comments

  1. Solid article, gentlemen.

    In addition to the key attributes you’ve identified, having a burning platform, strong business cases for innovation initiatives over competing initiatives, and an organizational culture primed for change are important factors if law firms are going to prioritize innovation efforts.

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