Managing Legal Innovation
Innovation is a process that can be learned, practiced, and mastered. Applying Everette Rogers’s Diffusion of Innovations Theory to solve problems in the American legal industry may hold the key to addressing critical issues such as access to justice and overwhelming legal complexity. This post explores diffusion theory from a student’s perspective and through an interview with Professor Bill Henderson conducted in November 2019.
The Legal Innovator’s Dilemma
Change is notoriously hard. From an early age, most people learn to fear the idea of “going out on a limb,” and organizations often cling to the safety of the pack. Yet despite a societal preference to resist change, good ideas eventually take root and become widely adopted. Moreover, the pace of change differs widely between industries.
Today, the medical and tech industries seem to deliver cutting edge breakthroughs every other day, while others such as the legal industry seem to lag far behind. Why is change so hard, and what makes the legal industry especially challenging? Further, what lessons can we learn from studying how different sectors respond to change? According to some, the answer to the legal innovator’s dilemma is hybrid seed corn.
Connecting Hybrid Seed Corn to Artificial Intelligence
What does a study on hybrid seed corn from the 1960s have to do with the proliferation of artificial intelligence in the legal industry in 2020? As it turns out, maybe a lot.
In the mid-20th century, farmers across the United States resisted an innovation – the hybrid seed corn. Although the innovation appeared to work as promised, researchers such as Everette M. Rogers discovered that the adoption of hybrid seed was more a function of a social system rather than technology alone.
In other words, the fact that hybrid seed produced superior crops was relatively unimportant. Instead, Rogers delivered an insight that mass adoption rested on the willingness of a few influential farmers to take a chance on buying hybrid seeds. With agriculture today, it seems obvious, but at the time in the 1950’s, buying seeds instead of planting your own was a radical idea. Once influential farmers bought into the concept, others followed. Rogers delivered his insights with the Diffusion of Innovations (DOI), quickly becoming one of the most widely cited works in social science.
Applying Diffusion Theory to the Law
Professor Bill Henderson, who teaches the course “How Innovation Diffuses in the Legal Industry” at Northwestern Pritzker School of Law, discovered Rogers’ theory after learning lessons the hard way as an entrepreneur with a legal tech startup. After realizing that Rogers’s work explained why his journey in legal tech was so arduous, Professor Henderson launched Legal Evolution to help entrepreneurs overcome the type of massive passive resistance that has become a hallmark of the American legal industry.
If influential farmers were the key to unlocking hybrid seed adoption, then the ability of an entrepreneur to identify influential decision-makers in the legal market could prove to be the difference between a successful business or another failed startup. Armed with this theory, entrepreneurs might be able to focus their resources on customers who are more willing to accept and spread innovations, rather than simply those with the most money.
A Case Study in Decision Making
Bob Meltzer’s experience with founding VisaNow, an innovative online immigration legal services platform, in 1999, provides an excellent example of the theory in action. VisaNow initially sold to enterprise customers but became bogged down in the sales cycle. With enterprise customers, VisaNow was spending its time trying to sell to risk-averse and consensus-based decision-makers.
However, Bob realized if he backed off and went to a smaller customer – where there was a single owner or manager who had the power to make fast buy decisions – he could overwhelm a niche market. His sales increased dramatically. He was selling to smaller customers, but the high volume enabled VisaNow to grow 100% year over year for three years. In a way, the successful adoption by small, yet influential customers made VisaNow’s sales to larger, more sophisticated customers easier, especially as innovation adoption continued to spread.
The Diffusion Theory Framework
Sounds great, but what is it?
As Professor Henderson explains in detail on the Legal Evolution blog, we can adopt Rogers’s regression model to understand how to reach mass adoption for a given innovation in the legal market.
The core model has five factors (known as the relative advantages) that account for between 49% and 87% of the variance in the rate of adoption. The five factors that should be analyzed include:
- Perceived Attributes of Innovation
- Type of Innovation Decision
- Communication Channels
- Nature of the Social System
- Efforts of Change Agents
By learning how to evaluate the market with these five factors, the legal entrepreneur can identify which areas require attention and how to effectively approach issues.
For example, the Nature of the Social System factor requires an analysis of how to measure success. First consider who is in your system: Is the social system of your legal innovation comprised of the Am Law 100 firms, or is it each of the law librarians at every intellectual property firm on the North Side of Chicago? In one case the unit of measure for success might be adoption of your innovation by a firm. In the other case, the unit of measure might be the use of your innovation by each department head. Knowing the difference can help focus a business strategy and make efficient use of limited resources.
More case studies on innovation diffusion as it relates to the legal industry can be found at Legal Evolution.
Predictions on the Future of Legal Evolution
When pushed to make predictions about the legal market, Professor Henderson focuses his answers on culture, people, and processes more than any specific type of tech.
Technology, after all, is simply the application of scientific knowledge for practical purposes. If Oxford’s definition is true, then the development and implementation of a management technique is as much a technological innovation as the latest in-cloud tool.
Embracing Allied Professionals
In no particular order, Professor Henderson’s list of predictions starts with a change in culture, what he calls the “softening of the kind of the culture of law to embrace allied professionals.”
When explaining the concept, he says, “I think that we’re beginning to see the benefits of . . . opening up the social system to external intelligence. I mean, it makes us [lawyers] smarter to talk to accountants, it makes us smarter to talk to data scientists and software engineers.”
Management Techniques for Attorneys
A second prediction involves improved management techniques for attorneys. For example, consider CEO and founder of InCloudCounsel Ben Levi’s story. InCloudCounsel connects attorneys with clients through a novel cloud-based platform. To an outsider, the technology might resemble what Uber does for drivers and riders if they were executing hundreds of private equity contracts.
But the innovation is not about the software or a machine learning algorithm; instead, it’s the idea of implementing new management techniques. This primarily involved Levi’s use of net promoter scores (NPS) to evaluate attorneys. In some industries, NPS has become a popular tool to measure factors such as customer satisfaction and customer relationships. Though, is not often used in the legal industry, where tracking billable hours and revenue per lawyer is the main focus. Levi is taking a different approach.
Professor Henderson notes InCloudCounsel as one example of a legal company “bringing enlightened management to the law.”
Law Firms Will Win
Although the theory seems to suggest that large firms are slow and lumbering, in actuality, there are cases where large firms have the advantage in the innovation game. In addition to having a sheer strength in capital resources, large firms have all the units of measure that matter: the lawyers and other key influencers that determine outcomes in a social system.
To make the case, Professor Henderson recalls the case study on Clifford Chance Applied Solutions with CEO Jeroen Plink. As part of the case study, Jeroen guest lectured students about how he led an effort to develop in-house legal software solutions that are designed to increase efficiency and become profitable. Professor Henderson believes “Clifford Chance [and other law firms that invest in similar channels] will eventually get to a point where their tech business is perceived as more valuable than their services business.”
Professor Henderson stresses that “the tech business permits you to make money while you sleep” and could prove to be the more profitable business in the long run.
Impressed with the case, he went on to say, “I left that class with the conclusion that the law firms are going to win. And what I mean by that is, that they just have such overwhelming advantages. Number one, they’ve got deep enduring relationships with powerful customers. And number two, if they’re willing to set aside 1% or 2% to feed into it… they have an overwhelming advantage of basically being able to develop products with access to partners.”
For firms willing to invest, the idea that a traditional firm can win with relatively small investments is good news.
But for small startups, the big firm’s advantage also represents an opportunity. Firms still have to make an investment decision in the first place. Exploiting that decision space could be critical.
The observation that small innovators can win by paying attention to their users and acting on feedback is an important one. Despite their size, those talented enough and disciplined enough to develop innovations with the right product-market fit can still win. As Professor Henderson added, “you don’t need to be a Biglaw firm to pull this off.”
Justin Chae is a Master of Science in Law student at Northwestern Pritzker School of Law.