Innovation: What’s Holding Us Back?

Editor’s Note: References in this article to the regulator are referring to the Victorian Legal Services Board and Commissioner

The digital economy and technology present wonderful opportunities for the legal profession to open up under-serviced markets, yet relatively few lawyers are entering this space. Does regulation prevent the profession from innovating, or are there greater forces at work? What is working for lawyers who are doing things differently? What are the keys that could unlock innovation in the profession?

Snapshot:

• Market forces are putting pressure on the traditional model of one-to-one legal services. While the legal profession sees the need to adapt, there are a number of barriers to change.
• Uncertainty about the attitude of the regulator and insurer may inhibit development of new models, but the more likely culprits appear to be models of pricing and methods of customer service.
• The regulator is supportive of the development of new models of legal practice that are ethical and consumer-focused.

I have been in legal profession regulation for over 25 years, working across two jurisdictions (NSW and Victoria). I have spoken to hundreds of lawyers and read thousands of complaints. It’s been interesting to see over this time that, while some things are different, there are many areas where not much has changed. I do see an increase in the severity of the problems and pains experienced by both lawyers and their clients arising from how legal services are done. Many lawyers, particularly practicing in the general ‘personal law’1 and small business market, have told me they find it hard to make ends meet, that other service providers are chipping away at their client base, and many of their clients are increasingly ungrateful, demanding and difficult. In the complaints and enquiries we receive, clients continue to express frustration about the way their legal problems are handled, the lack of perceived value for money, and the way their lawyers relate to them – and they are more willing to voice those frustrations.

Massive changes have taken place over that time in the way commerce is conducted. When I finished my law degree in 1987, few of us had our own computers and the World Wide Web did not exist. Now everything is online and so much easier – shopping, movies, books, an extraordinary amount of commerce and an increasing number of professional services. What’s more, businesses compete with one another on customer experience – providing what people need and want with less friction and effort, greater speed and lower cost, and in a way that their customers find easy and satisfying to use.

So then, the big question is, ‘What’s stopping the profession from running businesses like these?’

In this article, I would like to float a few ideas about what works for the lawyers who are beginning to do things differently.

What is innovation?
To get us on the same page, what is meant by the term ‘innovation’? On hearing the term, many people think of investing in expensive software systems or doing something completely new that no one else has thought of. However, these are really pictures of what, among many options, you might do as a result of innovation. Innovation itself starts with paying close attention to a particular problem: seeing it differently, and solving it differently. Some define innovation as ‘change that adds value’. Innovation is about doing things better – more efficiently, cheaper, faster and better for the user.

Innovation can be incremental; or it can be far more radical. The more radical efforts are already underway and it’s likely only a matter of time before we start seeing very different ways of doing legal services. For the majority of the profession, however, and particularly in the ‘personal law’ area of the market, change is more likely to be incremental – but it may make a wonderful difference to both lawyers and their clients. Either way, it seems to me that in order to survive and thrive in the long term, looking at solving clients’ problems differently is a skill that the legal profession must acquire.

Why does innovation happen?
Stepping away from the market for legal services, let’s consider how and why innovation happens in other sectors.

Economist Joseph Schumpeter coined the term ‘creative destruction’ to describe the way that a competitive market continually grows and evolves.2 As sellers compete for business in a market, they create new methods and products to get that all-important competitive edge. The online environment provides very different ways of doing things, and players in the market creatively use those ways to provide new ways of serving an old need. This pattern can be seen in many sectors of the economy as a new and better product serves the needs of consumers in a way that they like more: easier to access, more desirable to use, cheaper, more effective. Think of Netflix displacing your local video shop or Google displacing AltaVista.

What could be holding us back?
‘I’d like to do things differently, but the regulator/insurer won’t let me.’

This objection points to uncertainty about the impact of regulation and liability, but it also carries with it an underlying assumption that ‘the way we’ve always done things’ is what the regulator and insurer require. It’s actually often the other way around – regulation and insurance requirements are generally a reaction to the way legal services are done – how lawyers have evolved in an environment of the profession having a monopoly on legal knowledge and provision of legal services.3

For example, the way the profession generally prices its legal services – by the hourly rate – grew up over the last century and particularly in the last 50 years. Why? Because it was seen by lawyers as a reliable and easily calculated way of putting a value on legal services and pricing them accordingly, even though this may not necessarily align with a client’s perception of the value of those services.4 Regulation of costs has expanded in an effort to control some of the bad side effects of this method, including that in many matters clients had no idea of the price of the services until the end of the matter. To mitigate this problem, the regulation requires the lawyer to give an upfront estimate – which is difficult because of the hourly rate! It’s important to note that the hourly rate is by no means required as the method of billing – the requirement is that the client is told upfront how the costs will be ‘calculated’, which also encompasses a fixed fee.5 As regulator, we have no problem with a fixed price, as long as the client has genuinely agreed to it, after a full discussion with the lawyer about the value of the services – that the contract is fair and reasonable as much as the amount.

In the US, a significant focus of reform is to allow non-lawyers to be able to own or co-own law firms. The reformers in the profession believe that this will help lawyers to collaborate more with technologists and other professionals in order to craft better, more service-oriented firms. In Australia we have been able to do this in some form since the Legal Profession Act 2004,6 and many lawyers are starting to take seriously the opportunities this presents. Regulation in this area is a lot less restrictive than many believe. As noted in articles in the April and December 2019 LIJ, the LPLC and the VLSB+C are collaborating in offering the profession the ‘Innovation In-box’ to test ideas and get our input on regulatory or liability issues that might arise. We invite you to contact us if you have any doubts about this: just drop us an email at innovation@lsbc.vic.gov.au, and we can arrange a time to chat.

That being said, the ethical principles of legal practice remain. The VLSB+C will continue to take action if any service, no matter how ‘innovative’, is dishonest, unethical or harmful to clients. However, the method of legal practice is a lot more flexible.

Finally, we do agree that regulation is not perfect. There are some points at which it may, without any ethical underpinning, fetter efforts by lawyers to practice differently. Please talk to us about this – we need to know about your experience and insights.

‘My clients are happy with my services. Why should I change?’

Lawyers on the innovation road would say to this: ‘How do you know? Have you asked them?’ Another question might be, ‘What might induce them to change lawyers, or to use another service entirely if it worked better for them?’ If you don’t know what your clients like and don’t like about your firm, you may be missing opportunities to be even better and to get rid of irritants that you might not be noticing.

Many firms are seeing their path to growth and greater effectiveness mapped out for them as they have these conversations, and focus closely on their clients’ experience. A frank conversation gives an opportunity to see a problem and work out how you can fix it – often something quite small and easily done. However, be aware that many clients, while liking their lawyers personally, may dislike the way legal services are being done, and may be a ready market for more user-friendly services that represent, for them, better value for money.

The reality of our economy and technology is that knowledge of the law is far more freely available, and online services are starting to grow up that are in many ways better for clients than going to see a lawyer, particularly where the problem to be solved is not unusual. As Richard Susskind predicted, the ‘gatekeepers are being bypassed’7 – often by experienced lawyers – to provide new kinds of services that were never contemplated by the framers of the regulations. It is often either beyond our powers, or contrary to our mission as a regulator, to stop many of these developments.

For example, a recent judgment in the England and Wales Family Court, JK v. MK & Anor [2020] EWFC 2, found that an online service, ‘amicable’, that allowed couples to record and file non-contentious divorce applications and consent orders for property was not in breach of the relevant laws in relation to the unqualified practice of law. The service provided forms for divorce and various aspects of the settlement for filing in the Family Court. They simply checked that the forms were in order without advising the parties; and the platform provided a series of ‘red flags’ that indicated where there may have been family violence or other circumstances that made consent orders unsuitable and provided a referral to a solicitor for advice. The decision is not authoritative here, as the Uniform Law is quite different in its design to the UK regulatory scheme. However, it does indicate how a regulator might approach services like these, noting that a simple administrative tool can provide real benefits for parties who have already agreed on the terms of their separation.

‘Hang on! If you just leave documents and tools online for people to play with, they will mess it up and make things much worse for themselves!’

There are already online services that provide documents and information to users without advice, and they are becoming increasingly popular. Although lawyers may see this as ‘second best’, consumers will go for it if the alternative is too expensive. If the service is indeed purely administrative, it can be seen as simply a user-friendly self-help tool – a tech-enabled version of a lay person sitting down with a precedent form and working through it themselves. That is not something the legal regulator can restrict.8

The development of these online tools demonstrates that there is a massive market for legal services that is not currently being serviced, and technology is starting to provide ways for lawyers to access and service those markets. Why not take the opportunity to make the administrative work more efficient, adding the value of legal advice (for example in a video chat) where the circumstances warrant it? Why not provide an online unbundled service9 for an area of your expertise? The opportunities are many and the profession is far from doomed.

‘I don’t know where to start.’

The late great Harvard Business School Professor Clayton Christensen argued that business needs to ask the question ‘what is the job to be done?’ He made the point that when a person buys a product, there are many things they ‘hire’ it to do.10 He gave the example of research into why people buy McDonald’s thickshakes. One cohort buys them on the way to work, because they want something that will fill them up and take a long time to consume in the course of their boring commute. Another cohort buys them because they want something that will allow them to linger at the restaurant table while they catch up with their kids. So ask your clients: ‘what exactly is the job that you hire me to do?’ – that is, ‘what do I do that is most valuable to you?’ You might think it’s negotiating the biggest share of the matrimonial assets you can reasonably get for your client – but they might think it’s having someone to help them salvage some dignity and survive the crushing blow of a family breakdown. Knowing their perspective might change the emphasis of your services and the way you present them – and result in greater client satisfaction.

Organisations who are successfully changing the way they practice start with their clients, finding out what they really want and how they experience their interaction with you as their service provider.11 For example you might try to ‘map’ the journey of every contact a client has with your firm. Include all your staff in this exercise – for example, your receptionist will have the opportunity to observe your clients’ experiences in a way that you might not.

Are there administrative tasks that you could automate, say by taking instructions through the use of a chatbot?12

Do you have specialised knowledge that you could offer clients on a subscription pricing basis?13

Do you have clients who have compliance issues in a particular industry? Could you think of a way of automating certain parts of a process or of a tool that might help them navigate their way through the issues? Many lawyers are beginning to learn skills such as Human Centred Design, which is an approach to ‘discovering’ and thoroughly describing problems, and then using experimentation and feedback to design a ‘desirable, feasible and viable’14 solution.

There are so many tools now available that can make a lawyer’s job more efficient and the client’s experience better, and there is a vibrant, excited community of lawyers that are seeking, together, to do law better than ever.

‘If I automate everything, how am I going to run a profitable law firm?’

Pricing is one of the keys to innovation. Pricing your services by the hourly rate means that you are selling your time to clients, and the sale of your expert knowledge and advice is really incidental to this. If you price by time rather than value, creating time-saving short-cuts can hit your revenue in an unacceptable manner. On the other hand, if you create services that provide a valuable and helpful experience for your clients, they are often willing and even happy to pay well for those services.

Learning how to price services by value is not always easy and can be quite counterintuitive when generations of lawyers only know how to bill by the hourly rate. However, it is possible, and an increasing number of firms are using this method, with very positive results. Not only are the clients happier, but also the lawyers – more focused on their relationships with the clients, and more creative and effective in how they provide their services. David Wells (formerly the Managing Principal of a firm who has been value pricing for the best part of a decade) recently said to me:

“We thought we were just changing the pricing model but once you scope and price everything up front, everything else changes. The clients change. You realise that the work you should be doing is for clients for whom you can create value. Clients don’t object to lawyers making profit if the client’s profit is so much more. Both sides are winners.”

You can do this!
The keys to innovation are to focus on a problem that needs to be solved – for your clients or indeed for a whole new market of clients – and to work out how to price your services in a way that represents value for those clients.

There are many reasons for the profession to embrace the new possibilities that technology opens up, and there are many good resources to help get you started. There is much that the LIV can do to bring together people who are working on change, including tapping into the knowledge of the many members who are already down the innovation track. As the regulator, we thoroughly support positive change. I invite you again; if you have any idea for something new, no matter how preliminary, please contact us through the Innovation In-box: innovation@lsbc.vic.gov.au

Jennie Pakula
Manager
Innovation & Consumer Engagement

Biography: Jennie Pakula was admitted to practice in NSW in 1988. Since 1994 she has worked in various roles in NSW and Victoria in legal regulation, including managing the enquiries and complaints assessment team from 2010 – 2018. She is currently Manager, Innovation & Consumer Engagement. Jennie is a member of the Technology and the Law Committee.

Resources
Podcasts & Blogs (just a sample!)

• Centre for Legal Innovation – The Legalpreneurs Sandbox
• Lucy Dickens – Doing Law Differently
• Andrea Perry-Petersen – Reimagining Justice
• Legal Talk Network – Lawyerist Podcast, Law Technology Now, New Solo
• Ron Baker & Ed Kless – The Soul of Enterprise
• Dan Hunter & Lisa Leong – Future Law Podcast
• Carolyn Elefant, https://myshingle.com/
• Lawyerist blog, https://lawyerist.com

Books & Articles

• Jordan Furlong, Law is a Buyer’s Market (Jordan Furlong, 2017)
• Aaron Street, Sam Glover, Stephanie Everett & Marshall Lichty, The Small Firm Roadmap (Lawyerist Media LLC, 2019)
• William Henderson, Legal Market Landscape Report (prepared for the California Bar, July 2018, https://taxprof.typepad.com/files/henderson.pdf)
• George Beaton & Imme Kascher, Remaking Law Firms (American Bar Association, 2016)
• Michele DeStefano, Legal Upheaval (American Bar Association, 2018)
• David Sharrock, Fighting for Enterprise Success: through the eye of the tiger (Tiger Publications, 2018)

Networks

• Law Institute of Victoria – Technology & the Law Committee
• Australian Legal Technology Association
• Lawyerist.com

1. That is, in areas where clients have a rare and often emotional encounter with the legal system such as in family law or probate etc
2. Theory propounded in Schumpeter, Capitalism, Socialism and Democracy (1942)
3. For a longer discussion of how the model evolved, see Jordan Furlong, Law is a Buyer’s Market (Jordan Furlong, 2017), ch 4.
4. Paul Dunn and Ron Baker The Firm of the Future: A Guide for Accountants and other Professional Services (John Wiley & Sons, 2003) 164
5. S.174(1)(a) Legal Profession Uniform Law (Vic) 2014 (‘Uniform Law’) provides that a law practice must disclose the basis on which costs will be calculated; and s.174(2)(a)(ii) includes the client’s right to negotiate the billing method ‘(for example, by reference to timing or task)’ – my emphasis added.
6. Through incorporated legal practices and multi-disciplinary partnerships (Part 2.7)
7. Richard Susskind and Daniel Susskind, The Future of the Professions: How Technology will Transform the Work of Human Experts (Oxford University Press, 2015), 106-107
8. At present, any online services that are not engaging in legal practice are simply consumer services that are regulated under the Australian Consumer Law & Fair Trading Act 2012, and therefore within the remit of Consumer Affairs Victoria.
9. Part tailored self-service, with individual lawyer attention at the right points
10. For an introduction to this concept, listen to this interview: https://hbr.org/podcast/2016/12/the-jobs-to-be-done-theory-of-innovation?referral=03759&cm_vc=rr_item_page.bottom
11. An interesting and engaging book by Melbourne lawyer David Sharrock describes in detail his experience and thinking in shaping a client-centric firm. See David Sharrock, Fighting for Enterprise Success: through the eye of the tiger (Tiger Publications, 2018)
12. What is a chatbot? See Peter Moran’s Technophile column, ‘Meet Josef’, Law Institute Journal, July 2019
13. For example: https://podcasts.apple.com/au/podcast/subscription-based-law-firm-jon-tobin-counsel-for-creators/id893874169?i=1000462165232
14. See IDEO.org, Field Guide to Human Centred Design (1st ed, 2015, https://www.ideo.com/post/design-kit), 14.