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Innovation in the Legal Services Industry
Professor Daniel Martin Katz
“The Future is Already Here
It is Just Not Evenly D...
There is storm brewing
the consequences of which
are not entirely clear ...
but if you were to write the
story of this era ... it might go
something like this ...
The
UnderInvestment
Problem
Chapter I :
Meet Bob
Bob Likes Bow-Ties
Bob is also Equity Partner
at a Large Law Firm
Like Many Other Equity Partners
Bob is > 49 years old_
Thus, Bob has a different time horizons
than his associates and junior partners
The Managing
Partner Has Just
Called a Meeting
During Which ...
He Will Ask Bob
and his Other
Equity Partners
To Defer
Compensation
Today ...
In Order to a
Support a
Series of
Initiatives
That Have Significant
Upfront Costs and a
long Term horizon
Associated with a
Positive Return
Bob May Say Yes,
Bob May Say No
But As He is Deciding
What to Do ...
Remember he is
not deciding what
to do with the
company’s money
He is deciding
what to do with
his money
In other words ...
He Can Support More
Compensation For
Himself Today ...
Or Support Investments
in a Future with
Speculative Associated Returns ...
The
Underinvestment
Problem
Partnership is a
business model
with serious
inherent
weakness
There are strong
incentives for
under-investment
Whether that be
human capital
investments
such as training
younger lawyers
or capital investments in
software,
info technology,
long term marketing,
etc.
There is a strong
incentive to maximize
in the present and
trade away the future
this point has
been raised by
several others ...
The
Dimensions
of
Competition
Chapter II :
A Thought Question ...
Is There Really a
Difference Between the
AmLaw 153rd Firm and
AmLaw 147th Firm ?
Is There Really a
Difference Between the
AmLaw 57th Firm and
the AmLaw 61st Firm ?
Perhaps?
But it is losing argument
because they are
all “great lawyers”
these entities are primarily
competing on one dimension ...
{ Law }
Legal Expertise
But If They Expand the
Dimensions of Competition
{ Law }
Becomes
{ Law + Tech + Design + Delivery }
TM
{ Tech + Design + Delivery } = Process
{ Law } = Substance
Every entity claims
to be innovative,
process driven, etc.
It is Not True
It is a bumper sticker ...
Are They As Efficient as ...
Modern Manufacturing Facility
Fortune 500 Logistics Center
Data Driven Emergency Room
Chapter III :
Sophisticated
Clients
and the
Birth of a
‘New’ Market
What are the historic
barriers to real innovation?
Client Sophistication
The Sophisticated
General Counsel
The Financial Crisis Placed
Significant Pressure on GC’s
To Control Their Legal Spend
Legal was brought
in line with
the Other C Level
Officers/Divisions
The General Counsel
as Legal Supply Chain Manager
“I am not running your
training program ...”
(i.e. Don’t Put
1st and 2nd Year
Associates
on our work)
“If you want our
work - you are
going to work with
other providers”
Blended
Teams
of
Providers
Big Law
+
E-Discovery Firm
+
Legal Process Outsourcing
+
Law Division Insourcing
+
Software/Ana...
Client Sophistication is
Critical to this Story ...
Their changing demands
help support the efforts of
entrepreneurial entities
of those looking to
challenge the
established order
Chapter IV : Lawyer
Regulation
What is the big
limitation on
innovation?
Rule 5.4:
Professional
Independence
of a Lawyer
Historically it was this
non-lawyer ownership rule
that stymied competition
and stifled innovation
Competition
was a major
reason that
a reform package
was implemented
in the UK
That Brought
Forth the “ABS”
But Here in the
U.S. (and in
Canada)
Non-Lawyer
Ownership Rule
Remains
This imposes some
real functional limits on
outside investment
Obviously, this has
very little to do with
protecting clients ...
It is pure
protectionism ...
Among other things, it
essentially prevents
law firms from taking
on a corporate form ...
Model Rule 5.4 has
historically hindered
innovation
But there have
been some very
interesting
developments ...
Now it may hurt
the very people it was
designed to protect ...
Indeed it may be the
case that Rule 5.4
no longer matters ...
Chapter V :
The
Legal
Tech
Industry
This is a
mature sector
and in mature sectors ...
firm efficiency
trumps
firm growth
My Friend
Bill Henderson ...
Took A Photo When We
Were At LegalTechNYC
He Then Asked ....
Who
Are
These
Companies?
Turns Out that the legal
tech sector is heating up
What are they doing?
Process / Project Mgmt.
Workflow Optimization
Discovery /
Document Management
Search
Info Visualization
Document Generation
Quantitative
Legal
Prediction
There are
established
companies ...
and there are
many more coming ...
15
2009
Law or Legal Related Companies*
15
2009
Law or Legal Related Companies
as highlighted by*Josh Kubicki @ ReInventLaw London 2013
*
15
2009
Law or Legal Related Companies
as highlighted by*Josh Kubicki @ ReInventLaw NYC 2014
*
411
2014
15 411
2009 2014
Law or Legal Related Companies
+
*
as highlighted by*Josh Kubicki @ ReInventLaw NYC 2014
What is to be done?
How Can a Traditional Law
Firm Compete Against
these Organizations?
Answer is simple ...
Embrace Them ...
Even Better
Become Them ...
Chapter VI :
Why Can’t a
Law Firm Also
Be a Software
Company?
Why Can’t a Law Firm Also Be
a Process Engineering Firm?
Why Can’t a Law Firm
Also Be a Design Firm?
Why Can’t a Law Firm Also
Be an Analytics Firm?
Why Can’t a Law Firm Also
Be a Software Company?
Why Don’t Law Firms
Have R&D Departments?
Systematic Problem
with Partnership as a
business model
Individual
partners have an
incentive to defect
to underinvest in
components that offer
short losses versus
long run gains
commitment
mechanisms
are needed
strong leadership
is needed
or you have to
start over
you have to
“startup”
Turns Out That None
of this is a Thought
Experiment ...
The Rise of the
Rule 5.4 Optimizers
Empowered by the
financial crisis and the
quest for reduction
in legal spend
We are observing the rise
of confederated entities
That have elaborate
organizational structures
Which allow for both
legal service provision by partnership
Which allow for both
legal service provision by partnership
technology, process, marketing
by separate entity with outside...
Solve the defection
problem by long term
service contract
between partnership
and other entity
Remember
Legacy Platforms
include
both software + people
Adoption by Key
Actors is as
important as
Building Great
Technology
That is why starting
over is so attractive
So if you could
start over ...
and build a law firm
from first principles ...
you would change the
business model
you would build the
tech/process/data driven
platform first
to do so you would
raise outside capital
for that platform
monetize that
investment by
strategically licensing
it to other entities
This is the flavor of one
major restructuring taking
place within the current
rule environment
And It Points to a
Fairly Plausible
Portrait of the Future
and it does NOT require any
modification of Rule 5.4
Going Forward ...
You Should Expect
even more innovative configurations of
{Law
Substantive
Legal
Expertise
{Law
Substantive
Legal
Expertise
Analytics
Platform
AI
Computing
+ Tech
{Law
Substantive
Legal
Expertise
Analytics
Platform
AI
Computing
Process
User Experience
Design Thinking
+ Tech + Design
{Law
Substantive
Legal
Expertise
Analytics
Platform
AI
Computing
Process
User Experience
Design Thinking
Business Models
R...
So while the Final
Chapters of this story
are still to be written ...
Here is What We
Have So Far ...
The
UnderInvestment
Problem
Chapter I :
The
Dimensions
of
Competition
Chapter II :
Chapter III : Sophisticated
Clients
and...
So, the Cat is Out
of the Bag ...
The One Way
Ratchet has clicked
Something
fundamental is a
foot
With respect
to a significant
component of
this industry ...
“The future is already here ...
It is just not evenly distributed ...”
Professor Daniel Martin Katz
Associate Professor of Law
Illinois Tech - Chicago Kent
@computationalTwitter :
Computational...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Pro...
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Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Professor Daniel Martin Katz - ReInventLaw Laboratory / MSU Law )

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Innovation in the Legal Services Industry - "The Future is Already Here, It is Just Not Evenly Distributed" (Slides by Professor Daniel Martin Katz - ReInventLaw Laboratory / MSU Law )

  1. 1. Innovation in the Legal Services Industry Professor Daniel Martin Katz “The Future is Already Here It is Just Not Evenly Distributed” @computationalTwitter : ComputationalLegalStudies.comBlog : Corp : LexPredict.com Page : DanielMartinKatz.com
  2. 2. There is storm brewing
  3. 3. the consequences of which are not entirely clear ...
  4. 4. but if you were to write the story of this era ... it might go something like this ...
  5. 5. The UnderInvestment Problem Chapter I :
  6. 6. Meet Bob
  7. 7. Bob Likes Bow-Ties
  8. 8. Bob is also Equity Partner at a Large Law Firm
  9. 9. Like Many Other Equity Partners Bob is > 49 years old_
  10. 10. Thus, Bob has a different time horizons than his associates and junior partners
  11. 11. The Managing Partner Has Just Called a Meeting
  12. 12. During Which ...
  13. 13. He Will Ask Bob and his Other Equity Partners
  14. 14. To Defer Compensation Today ...
  15. 15. In Order to a Support a Series of Initiatives
  16. 16. That Have Significant Upfront Costs and a long Term horizon Associated with a Positive Return
  17. 17. Bob May Say Yes, Bob May Say No
  18. 18. But As He is Deciding What to Do ...
  19. 19. Remember he is not deciding what to do with the company’s money
  20. 20. He is deciding what to do with his money
  21. 21. In other words ...
  22. 22. He Can Support More Compensation For Himself Today ...
  23. 23. Or Support Investments in a Future with Speculative Associated Returns ...
  24. 24. The Underinvestment Problem
  25. 25. Partnership is a business model with serious inherent weakness
  26. 26. There are strong incentives for under-investment
  27. 27. Whether that be human capital investments such as training younger lawyers
  28. 28. or capital investments in software, info technology, long term marketing, etc.
  29. 29. There is a strong incentive to maximize in the present and trade away the future
  30. 30. this point has been raised by several others ...
  31. 31. The Dimensions of Competition Chapter II :
  32. 32. A Thought Question ...
  33. 33. Is There Really a Difference Between the AmLaw 153rd Firm and AmLaw 147th Firm ?
  34. 34. Is There Really a Difference Between the AmLaw 57th Firm and the AmLaw 61st Firm ?
  35. 35. Perhaps?
  36. 36. But it is losing argument
  37. 37. because they are all “great lawyers”
  38. 38. these entities are primarily competing on one dimension ...
  39. 39. { Law }
  40. 40. Legal Expertise
  41. 41. But If They Expand the Dimensions of Competition
  42. 42. { Law }
  43. 43. Becomes
  44. 44. { Law + Tech + Design + Delivery } TM
  45. 45. { Tech + Design + Delivery } = Process { Law } = Substance
  46. 46. Every entity claims to be innovative, process driven, etc.
  47. 47. It is Not True
  48. 48. It is a bumper sticker ...
  49. 49. Are They As Efficient as ...
  50. 50. Modern Manufacturing Facility Fortune 500 Logistics Center Data Driven Emergency Room
  51. 51. Chapter III : Sophisticated Clients and the Birth of a ‘New’ Market
  52. 52. What are the historic barriers to real innovation?
  53. 53. Client Sophistication
  54. 54. The Sophisticated General Counsel
  55. 55. The Financial Crisis Placed Significant Pressure on GC’s
  56. 56. To Control Their Legal Spend
  57. 57. Legal was brought in line with the Other C Level Officers/Divisions
  58. 58. The General Counsel as Legal Supply Chain Manager
  59. 59. “I am not running your training program ...”
  60. 60. (i.e. Don’t Put 1st and 2nd Year Associates on our work)
  61. 61. “If you want our work - you are going to work with other providers”
  62. 62. Blended Teams of Providers Big Law + E-Discovery Firm + Legal Process Outsourcing + Law Division Insourcing + Software/Analytics Firm
  63. 63. Client Sophistication is Critical to this Story ...
  64. 64. Their changing demands help support the efforts of entrepreneurial entities
  65. 65. of those looking to challenge the established order
  66. 66. Chapter IV : Lawyer Regulation
  67. 67. What is the big limitation on innovation?
  68. 68. Rule 5.4: Professional Independence of a Lawyer
  69. 69. Historically it was this non-lawyer ownership rule
  70. 70. that stymied competition and stifled innovation
  71. 71. Competition was a major reason that
  72. 72. a reform package was implemented in the UK
  73. 73. That Brought Forth the “ABS”
  74. 74. But Here in the U.S. (and in Canada) Non-Lawyer Ownership Rule Remains
  75. 75. This imposes some real functional limits on outside investment
  76. 76. Obviously, this has very little to do with protecting clients ...
  77. 77. It is pure protectionism ...
  78. 78. Among other things, it essentially prevents law firms from taking on a corporate form ...
  79. 79. Model Rule 5.4 has historically hindered innovation
  80. 80. But there have been some very interesting developments ...
  81. 81. Now it may hurt the very people it was designed to protect ...
  82. 82. Indeed it may be the case that Rule 5.4 no longer matters ...
  83. 83. Chapter V : The Legal Tech Industry
  84. 84. This is a mature sector
  85. 85. and in mature sectors ...
  86. 86. firm efficiency trumps firm growth
  87. 87. My Friend Bill Henderson ...
  88. 88. Took A Photo When We Were At LegalTechNYC
  89. 89. He Then Asked ....
  90. 90. Who Are These Companies?
  91. 91. Turns Out that the legal tech sector is heating up
  92. 92. What are they doing?
  93. 93. Process / Project Mgmt. Workflow Optimization
  94. 94. Discovery / Document Management
  95. 95. Search Info Visualization Document Generation
  96. 96. Quantitative Legal Prediction
  97. 97. There are established companies ...
  98. 98. and there are many more coming ...
  99. 99. 15 2009 Law or Legal Related Companies*
  100. 100. 15 2009 Law or Legal Related Companies as highlighted by*Josh Kubicki @ ReInventLaw London 2013 *
  101. 101. 15 2009 Law or Legal Related Companies as highlighted by*Josh Kubicki @ ReInventLaw NYC 2014 * 411 2014
  102. 102. 15 411 2009 2014 Law or Legal Related Companies + * as highlighted by*Josh Kubicki @ ReInventLaw NYC 2014
  103. 103. What is to be done?
  104. 104. How Can a Traditional Law Firm Compete Against these Organizations?
  105. 105. Answer is simple ...
  106. 106. Embrace Them ...
  107. 107. Even Better Become Them ...
  108. 108. Chapter VI : Why Can’t a Law Firm Also Be a Software Company?
  109. 109. Why Can’t a Law Firm Also Be a Process Engineering Firm?
  110. 110. Why Can’t a Law Firm Also Be a Design Firm?
  111. 111. Why Can’t a Law Firm Also Be an Analytics Firm?
  112. 112. Why Can’t a Law Firm Also Be a Software Company?
  113. 113. Why Don’t Law Firms Have R&D Departments?
  114. 114. Systematic Problem with Partnership as a business model
  115. 115. Individual partners have an incentive to defect
  116. 116. to underinvest in components that offer short losses versus long run gains
  117. 117. commitment mechanisms are needed
  118. 118. strong leadership is needed
  119. 119. or you have to start over
  120. 120. you have to “startup”
  121. 121. Turns Out That None of this is a Thought Experiment ...
  122. 122. The Rise of the Rule 5.4 Optimizers
  123. 123. Empowered by the financial crisis and the quest for reduction in legal spend
  124. 124. We are observing the rise of confederated entities
  125. 125. That have elaborate organizational structures
  126. 126. Which allow for both legal service provision by partnership
  127. 127. Which allow for both legal service provision by partnership technology, process, marketing by separate entity with outside capital
  128. 128. Solve the defection problem by long term service contract between partnership and other entity
  129. 129. Remember Legacy Platforms include both software + people
  130. 130. Adoption by Key Actors is as important as
  131. 131. Building Great Technology
  132. 132. That is why starting over is so attractive
  133. 133. So if you could start over ...
  134. 134. and build a law firm from first principles ...
  135. 135. you would change the business model
  136. 136. you would build the tech/process/data driven platform first
  137. 137. to do so you would raise outside capital for that platform
  138. 138. monetize that investment by strategically licensing it to other entities
  139. 139. This is the flavor of one major restructuring taking place within the current rule environment
  140. 140. And It Points to a Fairly Plausible Portrait of the Future
  141. 141. and it does NOT require any modification of Rule 5.4
  142. 142. Going Forward ...
  143. 143. You Should Expect
  144. 144. even more innovative configurations of
  145. 145. {Law Substantive Legal Expertise
  146. 146. {Law Substantive Legal Expertise Analytics Platform AI Computing + Tech
  147. 147. {Law Substantive Legal Expertise Analytics Platform AI Computing Process User Experience Design Thinking + Tech + Design
  148. 148. {Law Substantive Legal Expertise Analytics Platform AI Computing Process User Experience Design Thinking Business Models Regulation Marketing + Tech + Design TM + Delivery}
  149. 149. So while the Final Chapters of this story are still to be written ...
  150. 150. Here is What We Have So Far ...
  151. 151. The UnderInvestment Problem Chapter I : The Dimensions of Competition Chapter II : Chapter III : Sophisticated Clients and the Birth of a New Market Chapter IV : Lawyer Regulation Chapter VI : Why Can’t a Law Firm Also Be a Software Company? Chapter V : The Legal Tech Industry
  152. 152. So, the Cat is Out of the Bag ...
  153. 153. The One Way Ratchet has clicked
  154. 154. Something fundamental is a foot
  155. 155. With respect to a significant component of this industry ...
  156. 156. “The future is already here ...
  157. 157. It is just not evenly distributed ...”
  158. 158. Professor Daniel Martin Katz Associate Professor of Law Illinois Tech - Chicago Kent @computationalTwitter : ComputationalLegalStudies.comBlog : Corp : LexPredict.com Page : DanielMartinKatz.com

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