How can we harness disruptive innovation in legal?

In the last decade, the legal industry has undergone rapid transformation. We’ve witnessed the rise of legal tech platforms, Alternative Legal Service Providers (ALSPs), and an industry pivot to accommodate remote working amidst a global pandemic. The legal industry is in the midst of disruptive innovation.

We have decided to delve into disruptive law. Our series of articles will focus on two key areas, the changes that have already shaken the legal industry up, and future innovations. But first, let’s take a look at the root of disruptive law: the theory of disruptive innovation.

The late American economist Clayton Christensen coined the term disruptive innovation back in 1995, but it was his 1997 publication, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail,” that captured the world's attention.

Disruptive innovations, according to Christensen, are innovations that upend existing markets. Specifically, they originally appeal only to a niche group and are dismissed by the incumbent to whom they first appear less attractive than but eventually usurp. A disruptive iInnovator would be regarded as insignificant by incumbent competitors until it’s too late they find large amounts of their market share dominated by said disruptive innovator. Think video stores versus Netflix.

Throughout his life, Christensen voiced concern over the misuse of the term disruptive innovation. It became ubiquitous to the point where any successful new business was labeled as a ‘disruptor’, which in fact misses the essence of his theory: the underdog upended the incumbent.

Harvard Business Review has a worthy four-step summarization of market disruption:

1. New competitors arrive
2. Incumbents ignore them and flee to higher-margin work
3. Disruptors establish a firm foundation in the middle of the market
4. The market “flips” and established players must compete on new grounds or risk losing significant market share - or worse

If we look at the law, disruptive innovators are the companies that did what most lawyers said would never happen - harness Artificial Intelligence and tech to streamline and automate legal processes and fundamentally change the fabric of legal practice.  

Law is an innately conservative practice, and it is also opaque. For years, lawyers have sought to find clients’ solutions whilst shrouded behind the curtain of law firms. ALSPs have upended this model by providing customer-focused, often digital legal services - putting more power into clients’ hands.

The law is also heavily regulated. In the US, the American Bar Association (ABA) controls standards of practice, legal education, and dismissal. Similar associations are in place across the globe and dictate the professional culture and attitudes of traditional and best legal practices. It wasn’t until 2012 that the ABA passed Rule 1.1 Competence - Comment in its Rules of Professional Conduct, stating: “A lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology.” The fact that this was passed only in the last 10 years is a true demonstration of how technology is changing the nature of a lawyer’s job.

Changing the attitude of lawyers towards tech is crucial to ensuring they embrace technology and don’t find themselves left behind the times. Unfortunately, many in the legal profession are apprehensive of legal tech. Yet the 21st-century reality is that lawyers are more than just lawyers - as the ABA’s Rule 1.1 acknowledges. They are change managers, legal designers, and operations specialists, technologists, and corporate influencers.

Association of Corporate Counsel’s 2019 Global Legal Department Benchmarking Report identifies the areas of legal tech that are becoming readily adopted. eSignature, contract management, document management, matter management, and e-billing are the clear contenders for the highest rates of adoption.

Image from Association of Corporate Counsel’s 2019 Global Legal Department Benchmarking Report

Harvard Business Review describes the law as an information-intensive industry, stating:“As computing power expands exponentially and legal services are unbundled and modularized, the practice of law is becoming increasingly susceptible to automation.” The adoption of matter, contract, and document management software into everyday legal practice shows that technology has already begun to disrupt law and will continue to do so.

There are three ways in which the legal industry will experience disruption: through sustained innovations, disruptive processes, and the emergence of new markets.

‍Sustained innovations are what we are already seeing. Christensen defines sustaining innovations as improvements to existing products or services. In the legal space that looks like technologies that streamline low-level, high-frequency legal tasks creating more efficient legal practices. Think legal workflow spaces, e-discovery, and the software mentioned above.

Disruptive processes are a change in the way the law is practiced, the frequent use of freelance in-house counsel or lawyers, or outsourcing work to ALSPs. Consumers heavily dictate how processes change. For instance, the demand for digital ALSPs is fundamentally changing the way legal services are provided.

New Markets will emerge. For one, there is a clear niche for small businesses and individuals that require economical, efficient, and digital legal services. Playing to these needs will see the development of new technologies.

Predicting future innovations and new markets in the legal sector isn’t straightforward, but any future speculators or potential entrepreneurs could benefit from looking to other industries. As the legal sector has been slower to adopt technological change, it can benefit from taking note of the success of others.

For example, UX Design principles apply to developing legal tech in the prioritization of focusing on the users’ needs, the usability of tech, and that ‘less is more’. In the same vein, legal innovators can look at the sales and marketing function and how they create and map customer journeys to predict scenarios and garner engagement.

Whether you like it or not, change is upon the legal sector. Embracing it is the surest way forward to keep up with an evolving market as well as provide the best possible service for your clients.