The legal industry is facing a perfect storm, as the forces of globalization, technological innovation, and liberalization converge on an industry that has remained largely unchanged for decades. Change creates great opportunity, but it also poses great risk to those who do not remain fleet of foot. As we assessed the competitive forces facing Big Law in the global market for corporate legal services (see Figure 1) and the related changes taking place, we thought it would be interesting to explore from our respective demographics of New Law and Big Law and the UK and U.S. what might be the next wave of radical change in the industry, or the Next Normal.
To explore the Next Normal, we used scenario decision strategy. Broadly speaking, this methodology involves identifying key uncertainties facing an industry and selecting two central uncertainties to build a matrix of four possible future worlds that explore potential paths of continued market evolution. Scenario decision strategy goes beyond traditional strategic planning approaches by incorporating uncertainty and complexity into the model to simultaneously examine how different uncertainties might interact under a variety of assumptions.
We derived the content for our analysis from key uncertainties identified by one of the co-authors in a research study for the Mack Institute for Innovation Management at the Wharton School (see Sidebar: Top 10 Key Uncertainties). The full research study includes a detailed description of the scenario planning methodology and the forces, trends, and key uncertainties uncovered in the research, including results from an in-house counsel focus group assembled for the study.
For our experiment, we chose the following two key uncertainties: the pace of globalization (including its impact on liberalization in the U.S. legal market), and the pace at which clients adopt or switch to alternative technology-focused options that replace traditional legal service delivery models. We used these to build a matrix of four possible snapshots of the global market for corporate legal services in the year 2030 (Figure 2). Given the space constraints of an article of this nature, we zeroed in on one of the four scenarios to sketch: Scenario B (Law Networked), produced at the upper extremes and marked by an increasingly interconnected global economy and clients who willingly switch from traditional legal service delivery models to those built on emerging technologies.
Next, we perch ourselves in the year 2030 and offer some general observations on how the industry could unfold under Scenario B and the potential strategic implications for New Law and Big Law. But remember, this is a speculative exercise, so don't cast too many aspersions! It's also meant to be provocative—scenario decision strategy is designed to stretch the imagination, push people past their comfort zones, and challenge deeply held beliefs and existing business models. When built on solid industry analysis and research on key trends and uncertainties, it's a powerful strategic planning tool that can help companies avoid stumbling in the face of disruptive change.
Sketching the Future (2030): Law Networked
Now we're in 2030 and the era of Law Networked. Most would agree that for much of its history, the legal industry had been a very conservative one, its participants long-protected from external pressures toward competition or change. Some even argued that was a good thing. But over the last 15+ years, the industry has experienced firsthand that in a world in which open-market values are increasingly prized, and advancements in technology swift, the barriers to outside competition can quickly erode, and in dramatic fashion.
Over the last couple of decades, regulation of legal services was a proverbial hot potato, and many were adamant that the U.S. would never succumb to federal regulation or nonlawyer ownership of law firms. Understandably, there was a lot at stake. But in an increasingly globalized marketplace, it became very difficult for the U.S. legal industry to remain immune to the trend toward liberalization seen first in Australia, then Europe (UK, Ireland, Italy, Portugal, and Greece), followed by some Asian countries that also started to loosen their regulatory belts.
The formation of an International Network of Legal Regulators in 2012 was an early indicator that such matters could not remain isolated from an increasingly interconnected global economy. Pressure mounted from foreign competition, access to justice lobbyists, and "regulatory convergence" via the mega-regional trade agreements. As more and more countries echoed the mantra of the UK's Legal Services Act to "promote competition, innovation, and the public and consumer interest" in legal services, in the immortal words of Star Trek's Borg, resistance was futile!
Ultimately, just as we saw happen in Europe, when the so-called Troika (the triumvirate consisting of the IMF, ECB, and EU) used its clout to remove anticompetitive legal regulation as an economic stimulus, political pressure was brought to bear on those who stubbornly refused to accept that this was a debate that extended well beyond the boundaries of our profession. Long after the first of the Canadian provinces, Ontario, led the way in North America, the U.S. finally succumbed. By now, jurisdiction has ceased to be anywhere near as important an issue as it used to be, and the power wielded by many U.S. firms, and even regions, is long gone.
Which leads us arguably to an even more provocative aspect of this scenario, that of technology. It proved to be an enormous irony, that while numerous bar associations and countless lawyers expended their energy kicking the metaphorical ball of nonlawyer ownership around, the game moved to an entirely different pitch. What the U.S. lacked by way of regulatory stimulus toward competition and innovation fifteen years ago, it more than made up for with an impressive raft of technology-based start-ups. Over the last fifteen years, investment in legal technology has grown from the half billion over a decade ago to numbers that now boggle the mind.
Relying on human brainpower, professional services had been relatively immune from the wholesale disruption that technology had wrought on other industries such as retail, travel, publishing, and music. But what began as an interesting foray into the world of e-discovery, rapidly moved on to embrace emerging technologies such as Artificial Intelligence (AI), Machine Learning, and Machine-to-Machine. Over the last fifteen years, we've witnessed Cognitive AI outperforming doctors in many applications, and "Robolawyer" has become a reality after IBM's Watson passed a multistate bar exam back in 2020.
We are now in a technology era in which computers are able to do most of what lawyers could do 15 years ago, and do it better, faster, and cheaper! And given that these technological capabilities, which were once only a pipedream, are now a commercial reality, clients have become exceedingly willing to switch from traditional legal service providers to alternative technology-focused providers. The technology train left the station years ago, and it turns out that it doesn't have brakes!
So, what of New Law in this brave new world? Well just over a decade ago, we saw in Clearspire the coming and going of what was then a New Law poster child. As Clayton Christensen has observed, the innovators of one era soon become tomorrow's incumbents and face the same possibilities of disruption, so those service providers that the industry categorized as New Law in 2014 had to respond aggressively to the even more radical changes they perceived were forthcoming. Still, a number in New Law did ultimately go the way of Clearspire.
But those that grew in prominence after the Great Recession using technology as a key part of their platform still remain, and a handful of the early flag bearers can be found within their networks. Years ago, these players already had their sights firmly set on the future, even while we were calling them the disrupters. Accordingly, they started to raise substantial amounts of outside investment to build out the technological capabilities they perceived they would need to thrive in the ensuing decade. In fact, Riverview Law was already talking about reinvention only two years after its founding (Riverview Law: Applying Business Sense to the Legal Market)! Now in 2030, it has fully moved from a services business enabled by technology, to a technology-led patent-protected business that provides services.
There's no denying that the inexorable march of globalization, liberalization, and technology adoption has played to New Law's strengths and many such firms have exercised their commercial nous and deep pockets to create substantial differentiation and competitive advantage. These service providers have become the networked hub for clients, often serving as an extension of clients' in-house teams, and working with a variety of other providers to streamline service delivery across the globe with a suite of customer-focused "productized" service solutions.
Where does this leave Big Law? It turns out that many traditional law firms were able to weather the post-recession first wave of New Law better than many had predicted. A number of the advances in technology served to complement existing practices rather than supplant them. For example, various firms now find that they are uniquely positioned to leverage the depth and breadth of their expertise to employ AI technology at levels that are unmatched by many in New Law. Those law firms with highly specialized, "bet-the-company" litigation practices also emerged as winners.
But the New Law providers of today are proving to be more formidable competitors than those of 15 years ago. Big Law is finding it increasingly difficult to compete with the "reinvented versions" of the New Law rivals who have spent the last fifteen years building out their innovation capabilities, supported by ever increasing levels of outside investment. That investment has turned a number of New Law providers into "mega" firms, but not necessarily mega in size. Instead, it's about tech-enabled capabilities that expand global reach, depth of knowledge, and the ability to deliver timely expertise in minutes. Many traditional law firms, on the other hand, weren't able to take the required hit to PPP and make the investments necessary to strategically position themselves for the new legal landscape that has become increasingly tech-focused. And stunning advances in technology have even paved the way for New Law to eat into some of the high-end, bet-the-company litigation work that was once the exclusive domain of Big Law.
Liberalization introduced another rising competitor: elite accounting firms. Several accounting firms restructured as ABSs in the UK years ago and started to rebuild and expand their legal service capabilities. Since then, the increasingly interconnected global economy, and the resulting diminished importance placed on jurisdiction, has positioned elite accounting firms to compete head-on with elite law firms across the globe that remain. These competitors to Big Law have combined their business and legal acumen with the client-oriented strategies they are known for to deliver differentiated legal solutions that are tightly integrated with business solutions. They have also used their deep pockets to acquire the technology needed to keep from falling too far behind New Law.
The Next Normal?
This scenario raises many challenging questions for our industry (and many others, too, of course). Where will the present course of globalization and regulatory convergence ultimately end? What threats and opportunities does it present for providers and educators? How prepared are the regulators to deal with autonomous robotic agents delivering legal advice, and who is liable when something goes wrong? Will these technologies be available to traditional law firms, or will they be completely disintermediated? If the former, how will firms afford them, and if the latter, how many of these firms will survive and what will they look like?
Clearly, nobody can predict what today's New Law or Big Law will look like fifteen years from now. And in some sense, New Law is no different from any of the current incumbents, in that it will need to continue to reinvent itself. Some current New Law success stories will become tomorrow's failed experiments and some of tomorrow's successes are likely to come from the most unlikely of quarters (for further thoughts, see Repackage the Future of Law). But a customer-centric commercial approach combined with an ability (capital and company DNA) to build innovation capabilities can help weather the storms of globalization and technological advancement. The smart players won't be resting on their laurels, because when all is said and done, the Next Normal increasingly looks like a journey rather than a destination.
- Andrew Benedict-Nelson and Andy Daws, "Repackage the Future of Law," Insight Labs (November 2013), online at: http://www.theinsightlabs.org/research/repackage-the-future-of-law/.
- Kelly M. Brown, "Enter the Disrupters: How New Law Firm Rivals are Disrupting the Market for High-end Legal Services in the U.S.," MBA research fellowship, Mack Institute for Innovation Management (the Wharton School) (May 2014), online at: http://mackinstitute.wharton.upenn.edu/students/mba-research-fellowships/mba-research-fellowship-papers-2/.
- Clayton M. Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (1997).
- George S. Day and Paul J.H. Schoemaker, Wharton on Managing Emerging Technologies (2000) (see Chapter 10, "Scenario Planning for Disruptive Technologies").
- Heidi K. Gardner and Silvia Hodges Silverstein, "Riverview Law: Applying Business Sense to the Legal Market," Harvard Business School Case Study (June 2014), online at: http://hbr.org/product/Riverview-Law--Applying-B/an/414079-PDF-ENG.
- Michael E. Porter, Competitive Advantage (1985).
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