TOWARD A BRAVE NEW BUSINESS MODEL

With all due apologies to Aldous Huxley for bastardizing the title of his book A Brave New World for the title of this posting, I’d like to spend some more time on what I consider to be the need for a new business model within the legal industry.  Bill Gratsch concluded his March 28, 2007 posting entitled "Changing Models:  Parallels Between Music and Legal Information," with the following paragraph:

As the music industry has discovered, in the face of changing technologies and consumer expectations, old line business models become vulnerable.   The old business models for the legal information industry may be transformed--for better or worse--sooner than we think.

His conclusion not only afforded me a great transition point as I mentioned in my last posting, but also struck a responsive chord with me and reminded me of a point made by the late Peter Drucker.  In “The New Society of Organizations,” an article first published in the Harvard Business Review in September-October 1992, Drucker noted:

In the society of organizations, however, it is safe to assume that anyone with any knowledge will have to acquire new knowledge every four or five years or become obsolete.

This is doubly important because the changes that affect a body of knowledge most profoundly do not, as a rule, come out of its own domain.  (Underlining emphasis added for this posting.)  After Gutenberg first used movable type, there was practically no change in the craft of printing for 400 years – until the steam engine came in.  The greatest challenge to the railroad came not from changes in railroading but from the automobile, the truck, and the airplane.  The pharmaceutical industry is being profoundly changed today by knowledge coming from genetics and microbiology, disciplines that few biologists had heard of 40 years ago.

Bill’s posting and the remembered Drucker observation brought to the surface for me a deeply buried, but long held, personal belief – the legal industry is just as susceptible as other industries to foundation-shaking and fracturing change.  I’m not talking about the kind of change wrought by the advent of the mag-card, the telex, the fax, FedEx, or computers used for word processing or number crunching, unfortunately all of which I’m old enough to remember.  No, I’m talking about the kind of change where prior success is, in the words of strategists Gary Hamel and C.K. Prahalad, “eroded or destroyed by the tides of technological, demographic, and regulatory change and order-of-magnitude productivity and quality gains made by nontraditional competitors.”  As Hamel and Prahalad have noted further, these prior success foundation-shaking and fracturing changes occurred “when the industry terrain changed shape faster than top management could refashion its basic beliefs and assumptions about which markets to serve, which technologies to master, which customers to serve, and how to get the best out of employees.”  Technology, which is behind the “seismic shift in the way consumers acquire music” as The Wall Street Journal put it in the article cited by Bill Gratsch, also is shaking foundations with its tremors in the film, TV, and publishing industries.  Technology already has improved document production and retention in the legal industry.  It also has made the process of doing legal research faster.  More importantly, technology now enables many to access “the law” who couldn’t before - and they can do so without lawyers.  The moat around the legal industry castle that long has existed and has protected it from outside influence and intervention – limited or no access to legal information without the payment of a substantial toll in the form of legal fees billed by the hour - now has a drawbridge across it.  With its ability to change the paradigm surrounding access to and distribution of all types of information, not just legal information, technology likely will fill up the moat with concrete and be an enabler that facilitates “upsetting the apple cart” with respect to legal industry business models.

For those who believe that the legal industry somehow is unique from other all industries and is impervious to change wrought by outside forces, I respectfully suggest that you (no, not pound sand as one of my friends would have it) read Bill Gratsch’s posting; read the articles on the changes in the music industry; read the 2006 annual report for Wolters Kluwer, a company mentioned in Bill’s posting and one that calls itself “The Professional’s First Choice for information, tools and solutions that help professionals make their most critical decisions,” and focus on what that company is doing with information and how it’s doing it; read the comments made at the Northwestern School of Law’s 34th Annual Securities Regulation Institute by Mark Chandler (Cisco’s General Counsel) about what clients want from lawyers (a link to his comments is in the margin under the heading “Articles of Interest”), especially his comments that, “From the law firm think perspective, ‘sales’ too often means a one to one relationship with a lawyer who bills by the hour. As a client, I can tell you what I want to buy is access to information, strategy, and negotiation, and, in the case of litigation, to courtroom skill as well”; consider the fact that we now have a generation of young people who believe information should be free; re-read Drucker’s observation above and think about from where the changes that will affect the body of knowledge in the legal industry might originate; and, think about how you’d parse or “tranche” what you do into various skills, tasks, and knowledge, some of which in the future might be provided by some nontraditional competitor outside the industry at a greater value to the client.

For those who believe the legal industry is susceptible to foundation-shaking and fracturing change, what should you be doing at your firm?  It is time, I believe, for you to “reconceive existing business models in ways that create new value for customers, rude surprises for competitors, and new wealth for investors”  (to borrow Gary Hamel’s phrase from my last posting) and to move toward a brave new business model.  The winners in tomorrow’s legal industry will start the competition for the future now.  They will develop a business model that incorporates a core strategy for the future that can enable them to “get to the future first without undue risks” in the words of Hamel and Prahalad and will compete today for tomorrow’s opportunities and new competitive space.  Hamel and Prahalad believe those firms will need, among other things, an understanding of how competition in the future will be different; a process for finding and gaining insight into the opportunities of tomorrow; and, an ability to energize the firm for the “long and arduous journey” to the future.  With a view that “competence” is a bundle of skills and technologies rather than a single discrete skill or technology and that a “core competence” represents the sum of learning across individual skill sets and individual organizational units, Hamel and Prahalad believe the firms that win the competition for the future will recognize that they must compete now for core competence leadership and that they must have a portfolio of core competencies as well as a portfolio of businesses.  It will not be easy.  It will be hard work and will take time and resources.  It’ll require challenging what Peter Drucker called, in a September-October 1994 Harvard Business Review article by the same name, “the theory of the business” for your firm.  In essence, these firms must challenge:

• The assumptions about the firm and its environment, including the market, the customer, and technology – Drucker described it as defining for what the firm is paid.

• The assumptions about the firm’s mission – in Drucker’s view, what the firm considers meaningful results.

• The assumptions about the firm’s core competencies needed to accomplish its mission – to Drucker, where the firm must excel in order to maintain leadership.

To be a valid theory of the business according to Drucker, these assumptions must fit reality; fit one another; be known and understood throughout the firm; and, be tested constantly.  And, finally, the firms must have a blueprint for building the competencies necessary to dominate future markets – what Hamel and Prahalad call a “strategic architecture.”

William Jennings Bryan once said, “Destiny is no matter of chance. It is a matter of choice. It is not a thing to be waited for, it is a thing to be achieved.”  Those firms that begin competing for the future today begin the journey toward achieving success tomorrow.  For those firms that wait, the only music they will hear likely will be “Taps.”