Thursday Thinkpiece: Campbell on Innovation in Legal Services

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Rethinking Regulation and Innovation in the U.S. Legal Services Market
Ray Worthy Campbell
9 NYU Journal of Law and Business 1 (2012)

Excerpt: pp. 52-54

[Footnotes are omitted but are available in the full article online via the link above.]

V. THE STATE OF INNOVATION IN LEGAL SERVICES: WHAT IS HAPPENING AND WHAT TO EXPECT

We now turn to the state of innovation in the legal ser- vices market today, and what we can expect in the future. As shown, innovation will not be just a matter of technology. The laws regulating lawyers will surely play a role. Just as impor- tantly, however, value configurations and market structures will confine the ability of incumbents to disruptively innovate. Looking at the near future of legal services allows us to show how these forces interact.

Regulatory requirements in the United States require many legal services to be delivered through the particular “solution shop” value configuration that helps define the practice of law. This reflects and also institutionalizes the historical solution shop model of professional firms, which means that many of today’s incumbents will be locked into the solution shop model. Both the markets and the regulatory reality differ based on whether we are discussing the corporate or individual client submarkets. We treat the large corporate client marketplace as being significantly different from the individual client, small business marketplace.

One current question is whether the solution shop value configuration will survive as a significant part of the legal services solution mix. Susskind has projected that legal services innovation will occur along a continuum. In his view, legal services will move from the traditional bespoke services model to, ultimately, commoditized products, as problems become routine and as technology allows more sophisticated and complex automated solutions. Disruptive innovation theory and value configuration analysis teach us that, if this shift does occur, the players in the marketplace will very likely change. Those processes, resources and values that make firms succeed at bespoke services will set them up to fail in a world of low cost commoditized products. Law firms, like other incumbents faced with disruptive change in the structure of a market, will find it difficult to move downstream in the value chain.

Richard Susskind – Legal Services Evolution
Bespoke >> Standardized >> Systemized >> Packaged >> Commoditized

Christensen, Stabell and Fjeldstad suggest, however, that the change will not be as total as Susskind’s chart suggests. Susskind is surely right when he suggests that not all legal services will be delivered through “bespoke” or solution shop models, and that services that are now custom can be delivered as standardized commodities. It would be an unusual market, however, that ends up in a place where all vendors operate from the value chain configuration that delivers commoditized product and services. Networks (as Susskind recognizes elsewhere) will likely become increasingly important parts of the mix, and solution shops will remain important for complex problems. Innovation will more likely take the form of more business models and value configurations entering the mix.

As the transition toward a different mix of value configurations proceeds, law firms that offer standardized products as marketing tools should not be confused with those few rare firms that might try to pursue new business models. If a law firm publishes a periodic newsletter or circulates white papers on significant cases to clients and potential clients, that does not mean that they are considering a shift to a publishing business model. Rather, they are hoping to market their solution shop services to those who are impressed by the content of the free publications. Similarly, if a law firm offers a free online term sheet generator, that should not be misread to suggest that the firm is moving to online delivery of standardized products. Rather, just as with print or email newsletters, the firm most likely is marketing its solution shop products.

Regulation will also play a role in which innovative ideas can succeed. In a world where class action attorneys stand ready to enforce unauthorized practice of law rules against would-be innovators, not every innovation that could succeed in an unregulated market will survive. The regulatory hand seems likely to be heavier where individuals and small consumers are involved. In the corporate setting, the ability to work with attorney oversight and to change jurisdictions has and will continue to make regulatory barriers less effective.

The matrix below sets forth the possible generic value configurations and target markets for legal services. On the market side, the matrix distinguishes between large corporate customers on the one hand, and small businesses and individuals on the other. On the value configuration side, the matrix tracks the three generic value configurations developed by Stabell and Fjeldstad and used by Christensen—solution shops, value chains, and networks. I list for illustrative purposes an example of at least one possible innovation in each cell of the matrix.