Disruptive Innovation Revisited

I’m still thinking about the “great disruption” that John O. McGinnis has been talking about and thought it might be useful to revisit the Disruptive Innovation in the Market for Legal Services conference held at the Harvard Law School in March of last year. Specifically the first panel of speakers where Clayton Christensen (author of the Innovator’s Dilemma and Harvard business administration professor) outlined what constitutes “disruptive innovation” in the market place.

Christensen defines disruptive innovation as something that transforms products or services “which are complicated and expensive into things that are so affordable and accessible so that a larger population of people have access to them.” This sounds very much like what’s been driving innovation in legal services; an attempt to reduce the complexity of practising of law so that a wider array of legal services will be available for those who need them.

His two examples both demonstrated how an innovative player in a particular industry creates a disruption by improving the performance of a specialized task and removing that task from a larger industry player. In the steel industry for example, specialized “mini mills” were able to produce rebar for concrete structures more efficiently than the traditional integrated steel mills could. At the same time the larger mills were happy to let this smaller and less profitable segment of their business go until eventually the mini mills had cornered the rebar market.

Once the mini mills had succeeded the price of rebar fell. It turns out that removing the “high cost competitor” from the equation negatively impacted on the mini mills ability to make a profit producing rebar. So they moved up the production line and developed an improved process for the next steel product produced by the integrated steel mills. The same cycle occurred until today the mini mill account for about 80% of all of the steel produced in the U.S.

Unfortunately the slides for the presentation were hidden from view but I think this is the diagram Christensen used to illustrate this process of a series of small disruptions taking hold in the market place:

Christensen made a couple of other interesting comment that resonated with me noting for example that this “trajectory of innovative development” aims to make good products better.

And this one about business evolution,

“… the business unit isn’t designed to evolve, they’re born and they die. But by creating mutant business models that can go after disruption the corporation can evolve even though the business units do not.”

Does this type of thing apply to the legal services industry? Does the legal services industry have a what Christensen calls a “technological core” which is the common element that enables this process of disruptive innovation?

Mike Rhodin (Senior VP, IBM Watson) was one of the respondents on this panel. He provided a wonderful history of the development of computers and computing. And he also talked about IBM’s evolution which has placed them as a leader in the “third era of computing”; the era that is ushering in “probabilistic and cognitive systems” that have the ability to learn.

Rhodin considers this third era of computing as the “next major disruption” representing a shift away from the “deterministic systems” that characterized the “monetization of the second era of computing.”

He describes our current information environment this way: [5]

“What’s happening … is the information is starting to become so vast that you can no longer rely on deterministic programming because you can’t process all the data. And because you can’t process all the data you have to start to rely on probabilistic techniques … statistics, analytics … You have to start developing systems that can understand things like human language … define the meaning of words, the meaning of information as it’s stored on disc. Not just rows and columns of numbers that are in traditional relational type databases or spread sheets, but actually in the written word, in the paragraphs of the law journals that you all read.”

So it’s starting to sound very much like this “third era of computing” may have a major influence on a language-based system like the law.

However … this is all well and good until you hear from a practising lawyer, someone like Sarah Reed (General Counsel, Charles River Ventures) who spoke after John Zuh (CEO of Legal Zoom).

Reed reminds us that the legal profession is “uniquely impervious to change.” She hasn’t been terribly impressed by some of the recent innovations in the legal industry.

She agrees that there have been some improved efficiencies through off-shoring of services or the use of e-discovery tools and she looks to some of the new products emerging pointing specifically to the area of search where there are some “big giants to be slain.” But the big players, the big law firms, have so far been good at adopting and absorbing these efficiencies without changing how things are done in the profession.

Reed identifies a few areas where she sees a need for improvement, for example, document drafting. She would like to see something like a “Stack Overflow for law” that could better standardize the process of putting legal documents together. And she would really like to see an end to the “soul destroying” effects of the billable hour. But she doesn’t see this happening any time soon because “big law firms are pretty good at nipping this in the bud.”

She sees the commodity side of legal services, where many new innovations are being introduced, as a “small part of the market.” Reed agrees there is a “huge untapped market” of people who need and would benefit from access to specialized legal services. And she points to evidence of this in the many legal clinics associated with law schools. But she also notes that the process of solving legal issues are often complex and can’t be easily handled with a simple form pulled down from the Internet.

This first panel at the Disruptive Innovation in the Market for Legal Services conference provided valuable context for the potentially disruptive innovations that continue to emerge in the legal profession.