From idea to action: Transform your law firm with innovation

29 Aug 2013News

Markus Hartung and Arne Gaertner discuss how to launch an innovation programme that is successful across your law firm

Six things you will learn from this Masterclass:

The difference between innovation and innovation management
What the ideal innovation process looks like
The link between law firm culture and innovation
How to establish an innovation management programme
How law firm leaders can promote innovation
Which questions to discuss during an innovation workshop

When law firm leaders were asked in a recent survey what their firm’s greatest challenge would be in the next 24 months, the top answers were ‘increasing revenue’, ‘new business’ and ‘growth’; ‘client value’ ranked eighth and ‘increasing efficiency’ came in eleventh.¹

Interestingly, there was one challenge that did not make it into the top 12 challenges list at all: being (more) innovative. Besides reputation, network, expertise and experience, innovation is a key competitive advantage in the legal market. It helps the firm to increase revenues, generate new business, grow, generate greater value for clients and increase efficiency.

A recent research report put it this way: “To be successful in the new market environment, firms will need to be much more flexible in their work processes and much more open to partnering with their clients in finding innovative ways to address legal needs”.²

Innovation in law firms

In a competitive market, lawyers and law firms need to be innovative. Efficiency, effectiveness and operational excellence were recognised as competitive advantages in the good old days, when legal markets were characterised by a surplus of demand. But, today there is a surplus of supply and these criteria are no longer regarded as competitive advantages; instead, they are taken for granted.

Law firms therefore need to go one step further and challenge their own business models. They need to be innovative in the way that they produce legal services.

What is innovation?

But, what exactly is innovation and how can a law firm implement an innovation management programme? According to one definition, “innovation is the successful implementation of creative ideas within ?an organization”.³

This definition includes one very important distinction: Innovation is not the same as creativity. Creativity is about coming up with a new idea. The transfer of this idea into a new product, process, service or business model is innovation – bringing the idea to life.

Furthermore, one has to differentiate between various categories of innovation: product innovation, service innovation, process innovation and/or business model innovation. Because there is no such thing as patent protection for creative legal ideas or products – and thus the legal market lacks much room for product innovation – law firms tend to focus on service, process and business model innovation.

The lack of product innovation does not however mean that lawyers are not creative – quite the contrary. Creativity is in the fabric of good lawyers. But, being creative and being innovative are two very different things. Law firms need to concentrate on open innovations centred around client needs.⁴

What is innovation management?

Innovation management is the management of all innovation efforts within an organisation. In the past, when most innovations originated within the company’s R&D department, there was no necessity for a company-wide innovation management programme. But, since companies now tend to recognise that innovations not only emerge in the R&D department, many have developed company-wide innovation management programmes.

Some law firms have followed their lead. See, for example, Allen & Overy’s Innovation Panel, which the firm says “provides the practical support needed to encourage innovative ideas, and then turn those ideas into reality”.

A core aspect of law firm innovation management is that it needs to be initiated and endorsed by senior management but implemented and executed across all offices. One of the most important success factors for establishing an innovation management programme is getting as many partners and employees as possible to align closely with firm management. Because of the ‘herding cats’ phenomenon, this will of course ?be a challenge.

The innovation process

The ideal innovation process consists of four steps, as follows.

Idea generation and enrichment – find as many ideas as possible through various creativity techniques. Brainstorming is just one of these; there are others like brainwriting, lateral thinking and ‘six thinking hats’ that can work much better in law firms.?
First draft of concept – after a first selection of the ideas, the most promising ideas should be further developed. These assessments can be made, for example, based on practicability and value to clients.?
Evaluation and selection of concepts – for any innovation process to succeed, the generation and evaluation of ideas must be strictly separated. There will not be any real ‘outside the box’ thinking if all ideas are immediately evaluated by other people. All ideas should be evaluated in terms of economic dimensions, value to clients and practicability, as well as any other factor that is relevant to the firm. After that, the ideas with the best scores should be selected.?
Implementation – launch the best concepts onto the market.

Re-evaluation is key. Innovation management is not a one-off process; rather, it should become an integral ?part of law firm management.

Impact of culture

When law firms try to become more innovative, institutionalised innovation management is only one side of the coin. The other side – the firm’s culture – is at least as important.

It is common knowledge that the motivation of employees is driven by both extrinsic and intrinsic factors.⁵ These factors also stimulate or decelerate innovations. But, besides these, there ?is a third factor: culture.

Since the culture of many law firms is characterised by hierarchy, traditions, a very clear division of tasks and responsibilities and a low-fault tolerance, the working environment is not particularly innovation friendly.

This is clearly a big challenge for law firms, because an innovation-friendly environment is a key success factor ?for innovations. All innovative corporations are characterised by flat hierarchies, general openness of mind when it comes to change, a strict orientation towards teamwork and a high fault tolerance.

In this context, high fault tolerance means that every idea or proposal – even if it sounds unlikely or implausible – is welcome for a start and further development. However, when it comes to launching innovative concepts, there should be a no-tolerance approach.

So, besides establishing an institutional innovation management model, you need to build an innovation-friendly working environment. While the structural setting of innovation management will become a part of the organisational chart and firmwide processes, the firm’s culture is invisible.

Set up structures that encourage creativity and, beyond that, are open to new ideas. These need to be accompanied by an extensive change management programme within the firm, affecting not only its culture but also firm strategy and HR strategy.

Overcoming barriers

But, how should you execute this? ?Meet the ‘promoter theory’, which is particularly relevant to law firms. This theory basically propounds that the success of innovation processes depends upon overcoming internal barriers. There are different types of barriers: ?

lack of knowledge;
ignorance, opposition and lack of resources;
administrative barriers; and
lack of cooperation and dependency.

Promoters within the organisation are required to overcome these barriers. Since there are four different types of barriers, four different types of promoter are required: ?

expert promoter;
power promoter;
process promoter; and
relationship promoter.

The power promoter, for example, supports any innovation efforts through hierarchical power. The expert promoter, on the other hand, does so through expert knowledge.

When implementing your innovation management programme, identify those partners or other employees in the firm – on a worldwide, national and office basis – who are most suitable to become promoters, and then get them on board. Next, train your promoters to convince other partners and employees, to get ?them on board too.

The implementation of a firmwide innovation programme is a very bold venture, but can be accomplished through an extensive change management programme.

Case study 1: Product innovation (work in progress)

T is a niche firm in private equity and tax. Tier 1 in its peer group for the past couple of years, T increasingly has to fight against competition from tier 2 firms that have managed to break into its client relationships. T is still known for its cutting-edge advice, but is regarded as resting on its laurels. Discussions between senior management and partners are leading nowhere. Various calls for stronger business development activities don’t show any results.

To leverage the creative potential of T’s fee earners, senior management introduce product development workshops with senior associates, calling for papers with innovative product ideas. The most promising four ideas will be selected for further development; the associates will be allocated extra time to work on their ideas and also receive a bonus. The associates will then have the opportunity to present their ideas to a panel comprising some of the firm’s top billing partners, the business development manager and an external advisor.

The first round of workshops is met with slight scepticism by associates and partners. Workshops are ridiculed as “the latest thing from senior management” to stir things up. Nonetheless, the first workshop turns out to be a great success – it was scheduled to last three hours and exceeds 4.5 hours. The reason is that people like what they are doing in these workshops – not just talking about what they have done but what could be done.

Three of the four ideas are considered very promising, the relevant associates receive a budget and extra time for furthering their ideas. Together with selected partners and support from business development staff, they identify (target) clients that could be interested. The relevant associates are part of the pitch team and take the lead where appropriate.

The results of the first pitches do not meet expectations – feedback from clients is extremely positive, but the pitches do not immediately lead to significant new instructions. In follow-up workshops, partners and associates start to understand that business development is a long shot; a marathon rather than a sprint.

The roadshows continue and senior management start the next series of workshops, again calling for papers. Stronger participation is received than in the first series. Younger partners show an interest in these workshops as they understand that the workshops, like an R&D department, provide partners with great ideas for their next client visits.

Senior management decide to organise these workshops on a regular basis. They change the firm’s performance management measures so that participation and creativity are considered important criteria for career development at the firm.

This is work in progress. The aim was to get structures and processes up and running, motivating lawyers to constantly think about their clients and developments in their chosen markets and to help the firm to take advantage of their fee earners’ creativity. The firm regards these efforts as a success, as client feedback is very positive and associates are motivated.

Innovation workshops

As mentioned above, innovation management should become a constant in the fabric of law firms. Observation of the market and the competition is a very important part of this. Furthermore, it is necessary to build a platform that allows ?all employees to submit their business ideas at any time.

The key questions that your firm ?should try to answer include:

How can we improve the value of our services to the client?
What are our core competencies and how can we develop them further?
Which additional services could be of value to our clients?
How can we improve our service delivery model?
How can we make our legal supply chain more efficient?

A series of innovation workshops is a good way to find answers to these questions. What sounds like low-hanging fruit at first sight is actually a giant leap – at least when you do it right.

Innovation workshops are not a silver bullet, however. Without extensive preparation and, more importantly, thorough follow-ups, the results will never match your expectations. The workshops must also be tailored to your firm – they are not out-of-the-box experiences like motivational seminars.
So, how can you get started with setting up your workshops? Start with some basic questions, like: ?

Who should participate in the workshop?
Where should the workshop take place?
How much time do we need? ?One day? Two days? Over the weekend?
Who should be the facilitator?
Which methods/creativity techniques are suitable and how do they work?

It is recommended that the participants are partners as well as associates and, in addition, that employees from other departments – such as business development or HR – are present. Interdisciplinary teams deliver better results than homogeneous ones, ?which is why the teams should be heterogeneous in terms of practices, sectors and locations.

Furthermore, try to open up your innovation process. Consider inviting clients or outside specialists to participate in the workshops to get a broader perspective. Also, try to choose a location outside of your office and maybe even outside of your city for the workshop, to create some mental separation.

Innovation and innovation management are very broad topics and ?a partner who is bound by his day-to-day business clearly cannot afford to start from scratch with this. Consider hiring specialists for the preparation, lead through, wrap-up of the workshop and ?the innovation management process. Especially in the beginning, this can help to avoid mistakes and get better results.

Case study 2: New business model

G is a medium-sized law firm focused on corporate, competition and litigation. It was formed a couple of years ago as a spin-off of one of the big international firms and has managed to maintain most of the client relationships it was able to lure away from its former firm.

G is steadily growing, but is increasingly facing resourcing issues – it lacks sheer size to cope with the amount of information and documents in compliance or competition matters. Hence, it requires further growth, which: (a) is difficult to achieve; and (b) would endanger its boutique business model. Hence, G is too small and too big at the same time and feels pressure to change this situation quickly.

G launches a series of ‘blue sky’ workshops with partners and associates to generate ideas on how they can increase headcounts or mimic greater size in order to be eligible for larger matters. The involvement of associates proves to be very positive. The obvious idea seems to be to work with legal process outsourcing (LPO) providers on a project-related basis.

Before they further develop these ideas, G’s partners interview their clients to ascertain whether they would accept such a business model. The client feedback is hesitant – they would highly value working with G, but are sceptical as to whether G would run into quality issues working with LPO providers; they are uncertain if the providers would be good enough.

G starts a second series of workshops, based on client feedback. In the meantime, it makes contact with an onshore LPO provider (L). It further develops the idea of working with a LPO provider by means of entering into a permanent cooperation.

To address the perceived quality issues, G agrees to include L’s associates in G’s in-house training programme and to second G’s associates to L. It further agrees on regular exchanges about market and product developments and to jointly pitch its services to clients (for regulatory and tax reasons, L will work for G as a contractor).

This new model proves to be very successful, as clients perceive this kind of permanent cooperation to be ideal to cope with quality and size issues. Clients also value G’s increased flexibility with regard to its rates. Quite quickly, G is invited to pitches in which it successfully competes against larger law firms.

G is now no longer concerned about its recent issues related to size. Clients praise the quality and creativity of G’s business model. One client says it “doesn’t happen too often that you guys really think about your ancient business model”.

Unleashing potential

There are some key success factors to establishing an innovation management programme: focusing on the client; overcoming barriers to innovation; opening the innovation management process; budgeting resources; setting structures; creating an innovation-friendly culture; and getting started (see box: Seven Golden Rules to Increase Innovation in Your Law Firm).

Do these sound too cumbersome? ?Not needed in your particular firm? Do ?you perhaps feel that your people are already highly creative? Well, that may well be the case. But, a firm can be overcrowded by highly creative people. As long as they have to struggle with hierarchical and inflexible structures, ?they will never manage to unleash their ?full potential.

Seven golden rules to increase innovation in your law firm

Focus on the client. All innovation efforts should focus on how to increase client value – either directly (e.g. through better services) or indirectly (e.g. through more efficient processes).
Overcome barriers to innovation. These include lack of knowledge, ignorance, opposition, lack of resources, administrative barriers, lack of cooperation and dependency. To do so, identify promoters within the firm that gladly follow your lead and convince others to get on board as well.
Open the innovation management programme. Engage your clients with the process and consider involving specialists from other sectors to obtain a broader perspective.
Budget resources. Setting up a firmwide innovation management model is a bold venture. Prepare for it to take human and financial resources to be successful, as well as time.
Set structures. The innovation management programme should become a part of the organisational structure of your firm.
Create an innovation-friendly culture. Key factors to ensuring this are flat hierarchies, general openness of mind, a strict orientation towards teamwork, a high fault tolerance and an interdisciplinary team approach.
Get started. Overcome your own barriers!

Markus Hartung is director and Arne Gaertner is research assistant at Bucerius Center on the Legal Profession in Hamburg, Germany (www.bucerius-clp.de)

Endnotes

1. See 2013 Law Firms in Transition, Altman Weil

2. See 2013 Report on the State of the Legal Market, Georgetown University Law Center

3. See ‘Transformational leadership, creativity, and organizational innovation’, L. Gumusluoglu and A. Ilsev, Journal of Business Research, 62(4): 461-473, 2009

4. See ‘Innovations in the legal market’, M. Hartung and A. Gaertner, April 2012

5. See The Achieving Society, David C. McClelland, Van Nostrand, 1961