Launching lean innovation in your firm

Today's law firms need every advantage they can muster to remain competitive and distinguish themselves in an increasingly crowded market.

Typical strategies that have worked well in the past have included increased leverage, seeking economies of scale, globalising or, more recently, localising, outsourcing and cutting costs to the bone to preserve profitability.

Although each of those strategies may well have a continuing role in many environments, firms are looking to more innovative solutions to build the competitive muscle they require. While 'innovation' is commonly used to embrace a wide range of activities, the term 'lean innovation' identifies key processes and skills which contribute to building and delivering innovation. It owes much to the observations and learnings emerging from the innovation and 'start-up' culture of Silicon Valley. The principal publicists have been the likes of Ries, Blanc and Christensen, all of whom have contributed to not only describing the benefits of innovation-based strategies but, as importantly, articulating the key processes and skills that companies need to implement and foster to create and deliver their innovation agendas.

Lean innovation is not only a strategy designed to build 'competitive muscle' but it also enables firms to minimise the risk of being 'disrupted' by more agile competitors. Undoubtedly the larger professional services firms believe they have that capability, but threats also come from small start-up firms offering diverse services ranging from those delivered through portals to 'free' legal services, often tied to other more substantial services. The possibilities are endless if the extensive disruption being witnessed in markets ranging from advertising to taxi services is any indication.

Such market disruption is not driven solely by the internet but such a broadly enabling 'platform technology' does permit relatively fast, low cost experimentation of new ideas and business models without long time leads, big investment in technology and large staffs. The good news is that 'lean methodologies' are just as accessible to established firms as to start-ups. The difference is the appetite for risk and the willingness to test new approaches to ascertaining and serving client needs.

In writing Lean Innovation for Lawyers: Creating and Delivering an Innovation Strategy, I wanted to bring those ideas - and my experience in consulting to law firms, start-ups and established companies seeking to develop their own innovation initiatives - to a wider audience. There are numerous examples ranging from firms that have successfully floated on the stock exchange to fund their innovation agendas to those who have developed game-based training modules for both clients and staff. And innovation examples are not restricted to existing law firms. It includes developments driven by in-house counsels, barristers and those developing truly innovative legally based solutions for clients as well as entities who cannot actually perform legal services but who develop 'portal'-based strategies to achieve control of legal work in specific markets.

Key elements of 'lean'

So what are the key elements that distinguish a 'lean' approach to innovation? Any innovation process must facilitate the devising and commercialising of new products, services and entirely new business models to better provide value to clients, and just as importantly, enable the innovator to capture some of that value for the firm. It stands apart from the more traditional 'R&D'-driven approach to innovation previously characterised by Bell Labs, major pharmaceutical companies and automotive car giants. (Having said that, the concept of 'lean' is borrowed from Toyota's 'much imitated 'lean' manufacturing approach). Innovation has long been measured by R&D spend and the number of patents a company might hold. Neither of those indicators is without significance but 'lean innovation' focuses on different metrics particularly relevant to service industries.

Firstly, it recognises that at the end of the day what matters is the successful commercialisation of the company's ideas for a new product or service. As such it recognises that the majority of such ideas will ultimately fail in the market. It is commonly observed that between one half to two thirds of all new retail products fail to reach the targets planned for them, and that metric of course reflects only those that were actually launched and does not include those that didn't make the cut. Lean innovation recognises the reality of that experience and demands close attention to ascertaining and meeting unmet client needs or those that can be anticipated by careful scrutiny of client business models, market trends and broader economic and social factors. This analysis phase is then followed by rapid experimentation in actual markets with careful scrutiny of what appeals to clients, what pricing is appropriate and whether the innovation has the potential to 'scale'.

In order to drive more successes, therefore, an innovator needs to have many such initiatives and get them to market as quickly as possible to test their worth. This is not to underestimate the need to research, analyse and prioritise the more promising initiatives but the emphasis is very much upon the value of quickly capturing actual market reaction to even an inferior 'beta' stage product in preference to endlessly pursuing internally focused assessment and 'white boarding'.

Typical lean terminology such as the innovation's 'runway', 'take-off' and 'crash and burn' reflect the concept of the innovation process being one of a constant state of rapid forward motion, rushing as it were toward its ultimate test: real world market exposure and reaction before the cash runs out.

Secondly, it places an emphasis on very careful post-launch analysis to truly capture actual client response, which will enable a company to quickly 'pivot' its original strategy to adapt to market responses or to rapidly 'scale' initial success to take advantage of market enthusiasm. Alternatively the project 'crashes and burns' and resources are redirected toward new initiatives which are waiting to try their wings.

Lean is not sloppy!

If there is one thing about lean innovation, however, that is not widely appreciated, it is the disciplined approach, leadership and processes which need to be in place to underpin and sustain it.

Many interpret 'lean' to mean simply generating a multitude of ideas and then letting them loose on an unsuspecting market. The initial need may well be to encourage a culture which is at least capable of generating lots of ideas, but then the hard work begins. If the aim is to build new services which find favour with the market, then implicit in that approach is the notion that such a service or even, new business model can provide better value than what exists currently to a target group of clients.

Any firm's funds are finite and the allocation of the necessary resources to test the implicit assumptions behind any idea and then objectively prove or otherwise those assumptions also requires both oversight and prioritisation. Assumptions that may need to be verified include such things as the key characteristics of the clients the service is anticipated to attract, the price they may be willing to pay, the alternate options available to such clients and its mode of delivery.

Furthermore, a firm also needs to critically evaluate its own business model to determine if it can credibly deliver such a service and take advantage of an opportunity if it can establish it actually exists. It may also need to consider how such a service may 'cannabalise' the services it is already offering. Witness one firm which elected to 'destroy' its once highly profitable trademark division by offering free trademarks to clients seeking start-up capital for new ventures who were perceived to offer greater long-term returns.

The lean process

'Lean' approaches these and the many other questions that arise in instituting an innovation strategy by focusing on three principal steps:

• Thinking

• Analysis

• Action

'Lean Thinking'

The disciplines and processes as well as the structures, resources and need for firm-wide involvement require the firm be prepared for what is to come. The ground needs to be prepared, as it should, for any major strategic initiative. Roles and resources need to be identified and aims clarified. Pilot schemes or competitions may be an option to raise awareness. The inevitable firm 'anti-bodies' need to be identified, won over or at least neutralised.

This all requires leadership, commitment and a clear articulation of what the firm is attempting to achieve. Where are the firm's innovation priorities and what types of innovation are seen as most desirable? Some innovation can be relatively 'incremental', such as improved billing and recruiting processes. Others, such as the launch of a joint venture with a major client to offer legal and other services through the creation of a jointly held ABS, may well be more 'disruptive'. What likely 'portfolio' of innovations is the firm aiming for?

An Innovation Committee is suggested which is tasked with developing, nurturing, launching and managing the firm's innovation portfolio. Its principal tasks are summarised in a detailed five step 'stage-gate' process which incorporates the 'lean' principles. It clearly describes what is expected of both the team proposing the specific innovation as well as the Committee's oversight, resourcing and accountability responsibilities at each 'gate'.

'Lean Analysis'

Far from being a 'random walk', innovative ideas can be the subject of quite rigorous pre-launch examination to improve the likelihood of success. Analysis based on an acute appreciation of a target client's business model and the market in which it is operating is an essential tool for identifying if it is likely to offer that particular type of client or a target market any real value. Similarly, an understanding of wider political, economic, environmental and other trends affecting those potential clients or markets, once the underlying business model is understood, can also provide critical insights.

An appreciation of and a curiosity about clients and their business models is essential. Again, this can be broken down into a clear set of questions about such a model and I favour Alex Osterwalder's model as being one that is easily understood and applied. See Figure 1.

Once the client business model is understood, the innovation target illustrated below captures a progressive analysis working from the inside to the outside ring to identify trends or issues which might affect that model and help reveal innovation opportunities. See Figure 2.

Just as importantly any innovation proposed must take into account the firm's ability to deliver. In short, is its business model up to the task and what changes if any might be required before the idea is taken forward? To come up with a great idea, market test it successfully and then fail to capitalise on the opportunity is an experience often seen in other markets where competitors prove more agile than the originators in capturing the target market. Think of Facebook and its predecessor Myspace, not to mention Xerox's pioneering of the mouse-based interface and its exploitation by Apple. Innovative services may require the firm consider radical changes or even the creation of new business models and legal structures if it is to deliver such services successfully and reap appropriate rewards.

'Lean Action'

This encompasses the five 'stage-gates' envisaged in the lean process. The process takes the idea from inception to launch and beyond and includes progressive consideration of such issues as:

• Its fit with other initiatives the firm is pursuing

• Its impact on the firm's existing offerings and business model

• Key underlying assumptions needing to be verified to underpin success

• Its ability to be 'scaled'

• The participation of parties external to the firm to develop and launch the initiative

• Pricing, costs and ROI

• The composition and skills of the 'innovation team'

• The method of delivery and marketing

• How market acceptance is to be tested

• Competitor reaction

• Regulatory issues

• The possibility of developing the initiative 'off-campus'

There is of course a careful balance to be achieved to ensure the idea, if it has passed initial scrutiny, can be brought to market quickly and market response tested rapidly. Considerable thought therefore needs to be directed to devising adequate market testing and how best to evaluate the results. One firm tested a new service using an internet-based offering which used three different websites each containing a subtly different version of the service to see which had the greater appeal. In another case a service was offered before the service could actually be delivered just to see what the level of interest was, in that case by measuring requests for more information about what was being 'offered'. This reflects in part the approach adopted by one major Australian bank which, skeptical of the likely success of ATMs, initially performed all transactions requested by ATM users manually before committing to the software which was actually required to operate them autonomously.

A lean summary

There is much commitment and hard work required to both initiate and drive an innovation strategy. It is a long-term commitment and on any analysis should be viewed as requiring firms adopt a more investment and risk-driven agenda towards building and sustaining competitive advantage. To take all the profits 'off the table' each year and invest only minimally, as is so often the case, is to invite crisis, disruption and the loss of clients.

'Competitive muscle' can only be built through repetition, setting goals and building the necessary skills and resilience to suffer more than the occasional setback. As Thomas J. Watson, founder of IBM, observed, 'If you want to increase your success rate then double your failure rate'.

Lawyers may be paid to 'get things right' but this is one area where more may be learnt (and potentially earnt) from failure than success.

Duncan Hart is the founder of Duncan Hart Consulting (www.duncanhartconsulting.com)