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What law firms and taxis have in common

1 January, 2016

. Disruption. Law. Strategy

‘What law firms and taxis have in common’ is my rhetorical way of capturing the relevance to BigLaw firms of a truly insightful article titled What is Disruptive Innovation? by Clayton Christensen and colleagues in Harvard Business Review, December 2015.

To ensure you derive maximum benefit from these ideas please read the whole Christensen article and use my Uberisation of professional services post that went viral in January 2015 to provide a professional services context. Here’s my take on some the key implications for BigLaw and NewLaw firms.

What law firms and taxis have in common

In a phrase, what law firms and taxis have in common at industry and enterprise levels is the risk of being caught napping because they have been regulated for so long. Taxi prices are tightly controlled in many jurisdictions, minimising much of the force of competition. And law firms, while no longer complying with a scale of fees, remain regulated monopolies based on a wide range of competition-minimising rules, including strict occupational licensure.

axiom-law-logoEnter Axiom into legal services in 2002 and Uber_Logotype_Print_CMYK_BlackUber (so well known, there’s no need for link!) into taxi services in 2009. 

Today’s business owners of traditional law firms and conventional taxi fleets and their predecessors have only ever known highly regulated market conditions in their respective industries. The advent of newcomers who don’t play by the same rules and who offer clients and customers real choices has been initially ignored or down-played or even scoffed at in both industries.

I have noted elsewhere, American Lawyer, the bastion of BigLaw, has effectively ignored Axiom. And in cities where Uber is making inroads into the taxi business how often does one hear a cabbie say “Do you know Uber is illegal?” or similar innuendoes. 

What Axiom and Uber have in common

According to Christensen’s theory of disruptive, as opposed to sustaining, innovation neither Axiom nor Uber is a true disruptor.

True disruptors are of two kinds: Those that start in low-end markets which the incumbents ignore or serve very poorly, and those that open new markets

Those that focus on low-end markets provide customers with cheaper products that are ‘good enough’. Uber offers lower prices than conventional taxis, but many aspects of its service offering are superior. And while Axiom’s (and its many lookalikes) prices are lower than traditional large BigLaw business model firms’, its quality is at least comparable for the services Axiom chooses to offer. Thus neither Axiom nor Uber is a low-end disruptor. 

Those disruptors that elect to develop and compete in new footholds create market demand where none previously existed. In this sense, there are B2C and SMB legal services providers (think LawPath and Bespoke in Australia, RocketLawyer, Shake and LegalZoom originating in the US and elsewhere) that are disruptively opening up new and under-served markets. At least initially, they are in the main exposing latent demand rather than taking major market share from incumbents – and in the case of these examples they disruptors according to Christensen. 

Disarray ≠ Disruption

Throwing an industry of incumbents into disarray is not the same as disrupting them. Uber, except where it competes with limousines, has caused considerable disarray, but not disrupted in the Christensen sense. Axiom and its lookalikes are starting to cause some disarray, but clients are proving slower to switch than might originally have been expected.   

Why the distinction between disarray and disruption matters

Whether of the low-end or new-foothold variety, these markets are quickly served and enlarged by an increasing number of true disruptors once one enters.

The higher prices and complacency of the incumbents allow the disruptors to flourish and proliferate. Some disruptors, often many, fail. But those that succeed improve their product quality – at the lower price points because their business models permit this with foregoing margin. They force the incumbents to lower their prices or to retreat into smaller profitable segments. And incumbents should remember there are only so many seats on a life boat.    

Christensen states “Incumbents … do need to respond to disruption if it’s occurring, but they should not overreact by dismantling a still-profitable business. Instead they should

1> continue to strengthen relationships with core customers by sustaining innovations, and

2> create a new division focused solely on growth opportunities that arise from the disruption.”    
     (numbering added for emphasis)   

Reading and re-reading this aspect of Christensen’s thinking offers comfort and an actionable path for incumbent BigLaw business model firms.

How much time do BigLaw firms have and what should they do?

Once disruption is diagnosed, incumbents must decide what to defend and where to take advantage of disruption. My recent post on prioritisation explores this trade-off and the particular challenges BigLaw firms face. 

For the more cautious firms, observe and learn from pioneering BigLaw firms like Allen & Overy (see, for example, this firm’s report Unbundling a Market) and Seyfarth Shaw with their SeyfarthLean initiative. 

Remaking Law Firms

Whatever the route a firm selects, it is clear that the leadership in all firms should be starting now to address these questions. This call-to-action is a major plank in our forthcoming book, Remaking Law Firms. You can register here to be advised of the publication of Remaking Law Firms by the American Bar Association in a few months time.

Note

This post has started into a very large topic. In future posts I will explore more facets of why and how law firms need to be remade.

9 March 2016 conference

beatonlive, FINSIA and Professions Australia are hosting a conference featuring Professor Peter Weill in March 2016 exploring how to thrive in the new digital landscape – for further details click here.

 For more on this topic you may find these sources useful

What lawyers learn from clowns: Blue Ocean strategy by Warren Riddell

Applying Clayton Christensen’s theories to BigLaw vs NewLaw by Eric Chin

Fresh thinking on the evolving BigLaw–NewLaw taxonomy by George Beaton

+ Resolving the prioritisation crisis in BigLaw firms by George Beaton

Author

This post was written by George Beaton, a partner in Beaton Capital and executive chairman of Beaton Research + Consulting.

George tweets at @grbeaton_law and @NewLawNewRules

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