Professor Christensen defined disruption in The Innovator’s Dilemma, Harvard Business School. In summary, a disruption addresses a market that previously couldn’t be served — a new-market disruption — or it offers a simpler, cheaper or more convenient alternative to an existing service or product — a low-end disruption.
Disruptive innovators begin with simple, easier – and maybe inferior – products or services at the low, less profitable end of a market and can move up market, eventually displacing incumbent competitors.
There is increasing urgency for law firms: large economic pressures plus growth in legal information available on the internet, drive to commoditisation of legal services, rise of enabling technologies, influx of alternative service providers and growth of sophisticated clients.
Christensen concludes that the same forces that disrupted so many businesses, from steel to publishing, are reshaping the world of professional service industries. No firm is insulated.
The implications for firms and their clients are significant. The pattern of industry disruption is familiar: New competitors with new business models arrive; incumbents choose to ignore the new players or to flee to higher-margin activities; a disrupter whose product was once barely good enough achieves a level of quality acceptable to the broad middle of the market, undermining … longtime leaders and often causing a "flip" to a new basis of competition.
Incumbent law firms with traditional business models often find it very difficult to respond to a disruption. In a new-market disruption, customers in that market are unserved because that would be unprofitable for the incumbents. In a low-end disruption, such customers compete with more profitable customers so incumbents do not seek them.
Thus a dilemma. Incumbents appropriately ignore the disruption because it is uneconomic to respond, but this hubris may lead to a later downfall.
Disruption versus Innovation
What is the difference between disruption and innovation?
Disruptors are innovators, but not all innovators are disruptors. Innovation and disruption are similar in that they are both makers and builders. Disruption takes a left turn by literally uprooting and changing how we think, behave, do business, learn and go about our day-to-day … disruption displaces an existing market, industry, or technology and produces something new and more efficient and worthwhile. It is at once destructive and creative. (Forbes)
Examples in Law
Australian legal examples include Marque Lawyers, Bespoke Law, Hive Legal, Nest Legal, WorkDynamic Plexus and AdventBalance who demonstrate combinations of disruptive business models.
To date firms with alternative business models may have had a small impact on the legal services industry, yet industry analysis shows the disruptive forces are structural and gathering momentum. Some commentators see mid-size law firms as being most at risk.
One area of disruption for law firms is value-based fixed fees. The fundamental problem with the billable hour model is that it encourages inefficiencies. Value-based fixed fees align the interest of the law firm and client while also giving firms access to new markets.
Another area is adoption of better technologies that speed up transactional law. For example, business process management systems that improve delivery times and quality of work or document generation/assembly platforms that can generate complex transactional documents in a few hours, or, in some cases, even minutes.
A third area is flexible working hours with benefits of high calibre workers and satisfied clients. “We don’t require employees to work within any sort of hours, we don’t require them to turn up to an office at all, we just give [employees] work and a deadline and we pay them for the work that they do.” (WorkDynamic). Contrary to myths, it’s of no consequence to clients whether their legal advisors work flexibly (VWL).
Understanding disruption is hard: disrupting is even harder.
Examples of how firms differ
Traditional Disruptee Innovative Disruptor
Hourly rates fees Fixed prices
Full time employees Flexi-work contractors
Customised drafting A.I. drafting
Lawyer does it all Unbundling of services
Full-service law firms Discount or niche (law) firms
Judith Bennett is a lawyer, business consultant and coach for the legal profession at www.Business4Group.com