The theory of “disruptive innovation” was coined by Clayton Christensen and popularized by his book, The Innovator’s Dilemma. The theory tracks the process by which an industry dominated by high cost and complex products or services is transformed by innovation marked by certain key elements: simplicity, convenience, accessibility, and affordability. According to Christensen, disruptive innovation begins in a niche market—at the margins– that may appear unattractive or inconsequential to industry incumbents. Eventually, the new idea or product is embraced by the broader market and completely redefines the industry.
The personal computer is a classic example of disruptive innovation. Before its introduction, mainframes and minicomputers dominated the computer industry. They were both costly–usually about $250,000 and up– and difficult to operate. As most of us know, Apple (the first iteration) was a pioneer in the PC world. But what is often overlooked is that Apple initially made computers for a new, niche market segment: children. Once Apple gained a foothold in this previously untapped market segment, PC’s soon were embraced by a broader audience and turned the industry on its head. Why? True to Christensen’s theory, PC’s were simpler, cheaper, as well as more convenient and accessible than the hardware they replaced.
The Proliferation and Acceleration of Disruptive Innovation
As the pace and reach of technological innovation has accelerated, it has spawned disruption in a host of industries. A few examples include: retail (Amazon), software (Microsoft), consumer electronics (Apple, the sequel); hospitality (Airbnb, among others), education (numerous remote learning companies), transportation (Uber), and a spate of other companies that have disrupted their industries. And while we’re at it, let’s not forget social media (Facebook and its progeny) whose disruptive effect went far beyond communication and has had a profound impact on geopolitics.
It seems that disruptive innovation is everywhere and that the pace of it is accelerating at warped speed. One might say that, paradoxically, disruptive innovation has become commonplace. So what about the legal vertical and disruptive innovation? And why has the legal vertical not seen true disruption?
The Stage is set for Legal Disruption—Almost
By now, there is a growing consensus that the legal vertical is ripe for disruption. Its model is broken across the ecosystem: law schools, retail law, and corporate law all have anachronistic models that cannot be readily or meaningfully fixed. Legal services are too expensive for retail and corporate clients alike, and clients (consumers) are confronted with an unholy Trinity of uncertainty: (1) price; (2) time to resolution; and (3) outcome. Retail clients confront an “access to justice crisis” (ironic since there is a more-than ample supply of unemployed/under-employed lawyers who could fill the demand with a different practice model). LegalZoom, RocketLawyer, and others have provided a partial solution by offering legal documents as products instead of services. But the corporate segment of the market has yet to see true disruption—why not?
The financial crisis of 2008 accelerated the perfect storm for legal disruption due to:
- the expanded “unbundling” of legal tasks and the growth in numbers and market share of largely unregulated “legal service providers” (as opposed to law firms)
- widespread sentiment that legal services were too expensive and the delivery model was inefficient, if not monolithic (and monopolistic)
- large law firm bankruptcies
- the uptick in law firm mergers (efforts to stave off extinction)
- advances in technology
- regulatory changes abroad
- the advent of legal document companies and other entities who have morphed legal services into products
- the misalignment of supply and demand between lawyers and clients (see my blog on “The Fat Middle and the Lean Middle”)
- the gap between value and cost
- an increased economic tension between law firms and clients
- a lack of diversification between/among all but a handful of law firms
- an absence of “market ready” law school graduates and an erosion of mentorship within law firms
- a misalignment of economic interest among the three stakeholders in the legal vertical: lawyers, law firms (think: equity partners), and clients
- a general erosion of confidence in lawyers, at least from an economic perspective
Add to this list the growing number of entrepreneurs and financial backers eyeing the legal vertical as a ripe target for disruption, and one gets the notion that the stage has been set for something big.
This post is the first of two posts that explains why disruption has not yet taken hold in the legal industry. Part 2 will be published next week.