Technological innovation has disrupted industry at an aggressive rate in recent years. This manifests in different ways: from Airbnb’s threat to hotels, to non-traditional banking via apps such as Venmo. In this age of increased competition and hard-to-come-by revenue growth, companies that embrace change can dominate a market in the blink of an eye. Those that don’t, even well established companies with sterling reputations, can falter in the same time span.

Traditional industries such as law firms, publishing companies, agriculture and banking have historically been slower to adopt new technologies or spearhead innovation.

But it is law in particular that seems to have stagnated in the face of disruptive changes in the market. In a survey at the Managing Partner Forum conference, 66% of attendees said that law firm strategy has not changed at all in light of disruptive change.

Further, in the Altman Weil 2016 Law Firms in Transition survey, 59% of firm leaders expressed an unwillingness to change because clients do not require it, and 56% said they are not motivated economically to implement any changes.

This is no new phenomenon. Back in 2011, CLO respondents to the Altman Weil CLO Survey noted that for the previous three years, they had not seen law firms becoming more serious about changing their service delivery model.

It is interesting that law firms remain unchanged, while clients seem increasingly worried about the threat of disruptive innovation.

The Executive Perspectives on Top Risks for 2016 annual report highlights how seriously corporations now take disruption. 2016 is the first year that “rapid speed of disruptive innovations and/or new technologies” came in as a top 10 risk for corporations. Specifically, companies are afraid of the organization’s ability to compete and/or manage the risk appropriately.

Beyond the company as a whole, law departments are also recognizing the need for technological innovation to drive efficiency as a business unit and for the broader corporation. In a survey by ALM Intelligence about the biggest opportunities corporate counsel face in 2016, the fourth most popular answer was “implementing new technology to increase efficiency.”

The Altman Weil 2015 Chief Legal Officer Survey confirms these results. The survey, which polled 258 CLOs globally, found that in the last 12 months, nearly 60% of CLOs have implemented greater use of technology to increase department efficiency in delivery of legal services. Further, CLOs rated technology, described as “continuing advances that change business needs and legal delivery,” as number one of the top five forces that are driving market change.

Clearly, the data shows a disconnect between law firms and clients when it comes to willingness to innovate. In most industries, disruption is spearheaded by industry innovation, and clients follow. In the law, however, there seems to be a waiting game between clients and law firms, where law firms refuse to innovate unless clients force them to do so. It seems likely that, if they haven’t already done so, clients will become more demanding when it comes to firm innovation. Firms at the head of the curve will beat this request, and their competitors, to the punch.

As a result, law firms are being outshone by alternative providers and even the legal department itself. These non-law-firm alternatives have been eating up market share with innovative and cost-effective ways of getting things done. The Altman Weil survey notes that, in 2015, 16% of respondents reported using alternative providers, a jump of 12 percentage points from 2012.

Alternative legal service providers offer the flexibility that law firms often refuse to pursue: avoiding the billable hour and a strict work environment in favor of commoditized billing and a virtual network.

In some ways, Big Law has been lulled to sleep by the steady evolution of alternative service providers from e-discovery experts into bona fide legal experts. (For an excellent rundown of the different types of alternative legal services, see Disruptive Innovations: New Models of Legal Practice.) As corporate counsel become more proficient in implementing metrics internally, law firms should be increasingly worried about maintaining the status quo.

Law firms are playing a dangerous waiting game, allowing clients and lower-cost competitors to win the battle for legal work as Big Law demand softens. It is not too late to turn the tide. Like other industries, law firms that take the initiative and spearhead this effort on their own will succeed in the long run. As clients well know, the “clients don’t make us do it” excuse will not cut it.

ALM Intelligence is researching the alternative legal service provider trend, and we need your input. For thoughts on insourcing and outsourcing trends by law departments, shoot us an email at disaacson@alm.com. Keep an eye out for our survey on the topic launching at the end of this month.

ALM Intelligence Notes:

  • Mark Your Calendar: Registration is open for ALM’s Women, Influence & Power in Law (WIPL) Conference from September 21-23 at The Omni Shoreham in Washington, DC.
  • Irking Male Behavior: See here for the top 10 behaviors that annoy all female colleagues.
  • Corporate Governance Update: Top business leaders released a set of recommendations for improving corporate governance.

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