New business models are the key to innovation, not new technology. That’s the conclusion of a recent Wall Street Journal CIO article that draws from business guru Mark Johnson’s new book “Reinvent Your Business Model.” Johnson offers several cogent observations on business transformation: (1) a business model is “a representation of how a business creates and delivers value for a customer while also capturing value for itself, doing so in a repeatable way;”(2) successful business models have four interdependent elements—customer value proposition, profit formula, key resources, and key processes; (3) most successful new business models come from startups, not well-established companies; (4) new technology alone, no matter how transformative, is not enough to propel a business forward; (5) the new business model, enabled by technology, is key to an organization’s success or failure; and (6) many successful companies are risk averse and reluctant to venture into “white spaces” (new opportunities) that require new business models and skillsets.
How does the legal industry align with Johnson’s observations? Does it matter whether the business model-not technology-is the prime driver of transformation? Short answers: not well and yes.
Law Is Focused on Technology, Not Consumers
Legal technology is a good news/bad news story. The good news is that technology’s utility as a tool to help solve law’s wicked problems—notably the democratization of access to and improvement of the delivery of legal services—is now widely recognized, if not applied. That has had a profound impact on the labor-intensive, lawyer-centric delivery of legal services. Technology has fueled the disaggregation of “legal” tasks and has morphed legal delivery from the sale of legal expertise to legal expertise leveraged by technology and process—the business of law. There is a “legal tech” frenzy across the globe; it is often difficult to separate the hype from the reality. Artificial intelligence (AI), blockchain, enterprise platforms, and software will not replace lawyers, but these tools will change how, when, for whom, and at what price they are engaged. It also means that “knowing the law” is a baseline, not an end-game for lawyers. It must be augmented by additional skills– business basics, analytics, project management, “people skills,” and collaboration, among others.
Law’s preoccupation with technology diverts attention from its real value: to enable new business models to better align with and serve customer needs. Law’s focus should be on its objectives—what can lawyers/legal providers do to solve the industry’s wicked problems and what kind of business structures would facilitate that? This requires a cultural shift within the profession, an appreciation that law is an industry of which the profession is a part but by no means the whole. It also demands that legal consumers—not lawyers—are the focus of legal service business models.
Technology is not a panacea for consumer challenges. To be meaningful, technology must be relevant to a material client use-case. Legal tech holds tremendous potential, but its efficacy is a footnote to the culture it operates in and the business models from which it is deployed. Tech alone will not drive legal transformation; new business models will. Those models will extend management and compensation parity beyond licensed attorneys to tech and business professionals. Failure to do that has a chilling effect on the impact of technology and process.
The Sunset of The Law Firm Partnership Model and The Rise of The Customer-Centric Paradigm
The law firm partnership model, long the industry standard, has become misaligned with customers’ value proposition. It worked well when law was solely about lawyers and when law firms sold one thing: legal expertise. Firms had a virtual monopoly of that expertise and dictated the terms of client engagement. They created a pyramidal economic model with senior partners at its apex. The structural foundation was cemented by eager associates for whom access up the ladder was created by high billable hours at premium rates. The firm provided client-subsidized on-the-job training, the client’s “investment” in the relationship. There are visible stress cracks at the foundation of the partnership pyramid, and those in the middle no longer see a clear path to the top. Most significantly, there is a marked divergence between law firm and client valuation of service. That has created a market opportunity for customer-centric providers with new business models and new skillsets that address unmet customer demand.
Legal buyers- not firms- are driving industry change by disaggregating “legal” work, separating the practice of law from the delivery of legal services, using data, embracing diversity, and hiring legal professionals with process, project management, technological, business, and other skills necessary to deliver legal services efficiently and cost-effectively. Demand for law firm services has been flat for six years even as the overall demand for legal services has steadily increased. The delta can be explained by the failure of law firms to adapt to changing consumer expectations; the partnership model that discourages re-investment, especially among older partners; new skillsets; new delivery options (including the Big Four); and a growing willingness of legal buyers to source “legal” services to legal service providers with new business models.
Law firms—except a cadre of elite, brand-differentiated firms that handle a disproportionate share of the highest value matters—are confronting a rapidly changing marketplace. Most pay lip service to “innovation,” but few are focused on creating transformative business models to respond to elevated client pressures and expectations. Many law firms are beginning to experience an economic impact. Most remain undifferentiated, and only a handful have taken steps to reconfigure their business model and embrace digital transformation. Law firms must rethink their economic/business model, value proposition, (lack of) alignment with clients, hiring practices, resources, strategic partners, supply chain collaborators, and delivery capability.
New Models Are Changing the Global Legal Marketplace
New legal delivery models have already made an impact in the “people law” and corporate market segments. Here are a few new model law companies that are changing the contours of the legal industry. Each has identified and responded to unmet customer needs– deploying technology, process, and capital to scale them; focusing on net promoter score (NPS), not profit-per-partner (PPP); and engaging in constant improvement and reinvestment of human and technological resources.
LegalZoom has serviced more than 5M customers including more than 1.5M small and mid-sized businesses. LegalZoom’s business model focuses on the access to justice crisis and provides accessible, just-in-time, affordable legal resources with different degrees of lawyer involvement ranging from “self-serve” documents to full-blown attorney engagements. The company has an enviable NPS that has been achieved by focusing on customer satisfaction, not technology alone. LegalZoom is a tech-enabled law company deeply committed to providing a positive customer experience that is accessible, efficient, and affordable. It has stringent quality control and performance processes that track outcomes and customer experience.
UnitedLex launched as a legal process outsource company (LPO) and has since morphed into a law company that provides an array of legal business services across the globe. UnitedLex, like LegalZoom, created a business model focused on unmet consumer needs. It recognized that law firms are strong in practice expertise but lack the technological, process, project management, and niche expertise (cybersecurity, data analytics, litigation support) to deliver legal services efficiently, cost-effectively, collaboratively, and expertly. The company has grown enormously in recent years and has booked nearly $2B of “legal” work within the past 18 months.
Axiom is another law company that created a new business model designed to address unmet customer need. The company launched as an agile, lower-priced but high-quality alternative to the traditional law firm model, stripping out cost escalators from the incumbent model and shifting risk to its institutional clients, most of whom have in-house legal departments. Axiom has significantly increased its technological and process capability in recent years and now operates as a global legal services provider. Its corporate structure and access to capital enable it to invest in resources required to meet customer needs.
Burford Capital is a litigation finance company created to fill another unmet market need—capital deployment to transform litigation from a liability to an asset class. Burford has had an enviable track record, providing customers and shareholders with strong returns while “leveling the playing field” in large commercial litigation.
These and other new model law companies share several characteristics. Each identified unmet consumer need; overcame regulatory obstacles; marshaled necessary expertise–not limited to legal acumen; utilized technology; fashioned rigorous processes; “educated” the marketplace; raised considerable capital; created corporate structures; hired diverse workforces; and focused on customer satisfaction. Each company transformed legal delivery by creating a culture, structure, and scalable economic model aligned with its customers and attuned to their rapidly-changing challenges.
Law has a gold-rush mentality—tech companies are desperately trying to locate and mine tech’s silver bullet that will “disrupt” the legal industry. The marketplace “gold” is not technology; it is designing business models that deliver impactful customer solutions consistently, scalably, efficiently, cost-effectively, collaboratively, transparently, and measurably.
The traditional law firm business model is not in synch with legal buyers. It is too slow, inefficient, costly, undifferentiated, lawyer/law-centric, and lacks the diverse expertise required to render holistic solutions to complex, multi-faceted business challenges. Effective deployment of technology will ameliorate some law firm deficits, but it is not a substitute for a reconfigured business model premised on addressing unmet consumer needs. Customer-centricity is more than a buzz word. It is the essence of legal services delivery in the digital age.