Innovation in UK and German law firms - 2013 study - Final Report - SUMMARY

Commercial in Confidence Grundfos – R&D Assessment 2014 – proposal
1
Study of innovation practices
in major UK & German law firms
Final Report – SUMMARY EXTRACT FROM FULL REPORT
Tuesday 30th September 2014
Alastair Ross
Director
Codexx Associates Ltd
Codexx Associates Ltd
3-4 Eastwood Court
Broadwater Road
Romsey, SO51 8JJ
United Kingdom
Company Registration No. 04481932
Tel +44-(0)1794-324167
www.codexx.com
How are law firms innovating
and what creates success?

Study of innovation in UK & German law firms 2013 – Final Report
Executive summary
• A study of innovation practices and performance in law firms in the UK and Germany was performed
during 2013, led by Codexx in partnership with the University of Exeter Business School and the
University of Leipzig Graduate School of Management. The study involved a total of 35 firms, 14 in the
UK and 21 in Germany. Firms participating from the UK were typically larger than those from
Germany with a median yearly revenue of £70m compared to £17m.
• We defined innovation as anything that was new to a firm and brought value – this broad definition
covered incremental as well as ‘step-change’ innovation.
• This study followed a previous one run by Codexx in 2006 with 16 UK law firms. The objective of the
2013 survey was to perform a more in-depth study of UK firms’ approach to innovation, particularly
since the 2008 economic downturn and the legal services deregulation. The opportunity to perform a
similar study with German firms and contrast approaches and outcomes brought additional value.
• The study found an overall similar level of innovation practices and performance in the participating
UK and German firms, which was typically at a middle to low level, compared to best practices. Whilst
UK firms had their main focus on process innovation, German firms’ focus was on service innovation.
The difference, we believe, results from the impact of the legal services deregulation and the post
2008 economic challenges in the UK, with firms giving increased focus to efficiency.
• The study also found a good level of correlation between innovation practices and performance –
showing that if these practices were put in place, it was likely that improved performance in key
metrics such as revenue from new services and cost reduction from process innovation, would follow.
• Analysis of those firms who were leading in innovation performance, showed that UK performance
leaders had an average level of practices ahead of the study sample in every practice area, though
this was not the case for German leaders (this might indicate some practice inconsistencies in the
generally smaller German firms). This finding gives support to the recommended comprehensive
approach to innovation, establishing a system to cover the the key practices.
• Firms identified their key innovation challenges as in resourcing innovation, establishing a supportive
culture and process and in leadership. Improving innovation resources and process were cited as
common improvement priorities for firms.
• The report defined five guiding principles for law firms seeking to improve their innovation
capabilities, based on Codexx experience in working with law firms in innovation since 2005.
35 law firms in the UK and Germany
were surveyed for their innovation
methods and results during 2013.
Innovation was defined as anything
new to the firm that generates value.
Overall UK and German firms, scored
similarly – at a middle to low level
compared to best practices in
innovation.
UK firms focused their innovation
mainly on process improvement and
German firms on services.
The study showed that improved
innovation practices resulted in
better business performance.
Firms’ key challenges in improving
their innovation were in resourcing,
culture and leadership.

What is innovation?
value
ideas
Introduction
Innovation is a ‘broad church’ and can mean different things to different people. This can lead to confusion and result in inconsistent responses to
questions around innovation. So to help ensure a common understanding amongst study participants and consistency in questionnaire responses,
we included an introduction and definition to innovation in the study invitation to participants.* Essentially, innovation is about deriving value
from ideas. We find that the most effective definition for innovation from a business standpoint is “Innovation is anything that is new to you and
generates value.” This is how innovation was considered for this study. To help in determining where law firms were focusing their innovation
efforts, we introduced the ‘dimensions’ model for innovation (shown on the next page).
Innovation is anything that is new to you – and generates value
Our broad definition of innovation means that incremental improvement as well as radical
change should be considered as ‘innovation’. It also means that existing methods or
technologies in use in other businesses or sectors (or other parts of the firm) and applied
to your firm (or part of the firm) is also ‘innovation’. This broad view of innovation helps a
firm’s management develop an holistic strategy for innovation. Whilst radical, step-change
or ‘disruptive’ innovation grabs the headlines, most innovation is of the incremental type.
In the services sector, Amazon’s growth has been as much due to its continual focus on
improving its customer’s experience through ongoing incremental improvement as it has in
its strategic innovation in developing products such as its Kindle e-reader.
Invention alone is not innovation
Innovation is about creating or using an idea and generating value (e.g. increased
profitability) from it. Successful exploitation of an idea to deliver value to the business is a
key requirement for innovation – action is needed. This is why innovation is more than just
invention or creativity.
Institutionalised innovation requires a healthy innovation system
Being effective at innovation requires more than just the occasional good idea or a progressive Partner. Our focus here is not on an ‘individual’
innovation, where a fee earner comes up with a new way of working. True value comes when an innovation is ‘institutionalised’ by being
accepted and applied across a team, a department or the firm. To do this, research and experience has shown that a systematic approach is
needed in key areas such as culture, leadership, client understanding and the application of methods and resources. In turn this will enable a
firm to be innovative. This study explored how effective the innovation system is in law firms and what the key challenges firms are facing in
their innovation efforts.
*The study invitation letter and introduction to innovation is included in the Appendix.
Figure 1: Innovation is the conversion of ideas to value.

Where can law firms innovate?
Innovation Dimensions
To help in determining where firms were
focusing their innovation efforts, we
introduced the ‘Dimensions’ model of
innovation, which breaks innovation
activities into four distinct types*:
• Process – Removing waste, improving
service, cost or quality.
• Service – Developing new services for
your clients.
• Market Position – Entering
new/repositioning in existing markets.
• Business Model – Fundamental
change in your business value.
In each dimension a firm can ‘do nothing’,
make ‘incremental’, or ‘radical’
innovation. This is a model that has been
used by our academic partners and in our
consulting work on innovation across
services and industry segments for the
last decade. We used these categories in
reviewing firms’ innovation activities.
Innovation dimensions – with examples of law firm innovation
Source: Codexx, based on
original model by Bessant
and Francis.
*This model and definitions were included in the study questionnaire.
Figure 2: Innovation dimensions model showing law firm examples.

Study participation
14 UK firms and 21 German firms participated in the study.
The UK firms were well spread across revenue bands with a median turnover of £70m.
The German firms were smaller – the median turnover was estimated at £17m*.
Participants in UK firms were typically Managing Partners or Partners leading innovation activities.
Exhibit 1 – Study participants profiled by revenue
* The revenue of some of the smaller German firms had to be estimated
based on number of fee earners, as no financial data was provided.
KEY
UK
Germany

Section 1 – The innovation landscape in law firms
What is the level and nature of
innovation activity in law firms?

What is the level of innovation in the participating law firms?
Sample size: 14 UK law firms, 21 German law firms
Exhibit 2 – Level of innovation activity in participating firms
KEY
UK
Germany

What is the maturity of innovation in firms?
Exhibit 3 – Nature of innovation produced in participating firms
KEY
UK
Germany

Commentary – innovation activity and maturity
Law firm innovation maturity
We then profiled participating law firms’ maturity in their innovation programmes (Exhibit 3). Our maturity measure recognised that in a
law firm (or any professional services firm) a major barrier to innovation is in the difficulty of engaging fee earners in innovation activities
due to their primary focus on chargeable time. Many law firms also lack effective processes for innovation and therefore individual
Partners can drive innovation - often ineffectively - through championing ‘pet projects’. Therefore we considered that widespread
engagement in incremental innovation is indicative of a higher level of innovation maturity (due to the required level of engagement and
changes in firm culture for example) than a few examples of more radical innovation. The former is evidence of an embedded innovation
system that provides the firm with a strong and sustainable platform for innovation. The latter is highly dependent on a few partners who
may not provide repeated innovation for the firm and may well leave.
Our sample showed that the bulk of firms did not have widespread engagement in their innovation. Innovation typically consisted of a few
uncoordinated innovation projects that delivered incremental or radical improvements. This reflects the ‘silo’ nature of law firms where the
structure of Partner led teams, based in separate offices, provides multiple barriers to firm-wide innovation activities. Partners are often
motivated (through reward) to focus on their own team’s performance to the exclusion of others. In addition, the typical lack of an
encompassing innovation culture and system in law firms makes repeated and sustainable innovation highly unlikely.
Whilst none of the UK firms participating considered that they had produced ‘little/no innovation’, over a quarter of the German firms did.
This could mean that German firms have been tougher on themselves in defining what ‘little innovation’ means in comparison with the UK
firms. Or it could mean that the German firms have been feeling less drive for innovation due to the lack of the deregulatory force for
change, compared to that being experienced in the UK market. Overall the UK firms average score on innovation maturity was significantly
higher than German firms, at 3.3, compared to 2.4 for German firms.
Level of innovation activity within firms
Firstly we sought to understand the level of innovation activity within law firms and asked participants to position their firm against a
simple activity scale (see Exhibit 2). Only 1 UK and 2 German firms considered that they had ‘’little to no innovation activity”. Most
recognised that their innovation was fragmented and not very structured with ‘pockets of ad hoc innovation activity’. However about a
third of UK firms considered that they invested substantial time and money in innovation. For example one firm had mapped all their
processes to support their efficiency improvements; another had developed new products and dedicated partner time to this, one was
running a firm-wide lean programme, and another had an on-going business efficiency programme. On average both the German and UK
firms scored a level of 2.9.

Where have firms been focusing their innovation activities in the last 3 years?
Innovation focus over last 3 years
0%
10%
20%
30%
40%
50%
Process innovation
Service/Product innovation
Market positioning innovation
Business model innovation
Exhibit 4 – Innovation focus of participating firms in last 3 years
KEY
UK
Germany

Firms identified their strengths in innovation
Note: All quotes are from participants
Exhibit 5 – UK law firm identified strengths grouped by
innovation practice areas
Exhibit 6 – German law firm identified strengths grouped by
innovation practice areas

Commentary – firm’s innovation strengths
Measuring innovation strengths
We asked firms what they considered their three strengths in innovation were. Of course this is a subjective view and
firms will have a mixed level of understanding of innovation needs and therefore the level of their own capabilities. So
this question gives a perceived understanding – rather than an objective one. Nonetheless it is useful to review the
overall responses and contrast them between the two countries and also against what we know about law firm
innovation capabilities from our work in the legal sector. To help in the analysis, we used our innovation model practice
areas as ‘buckets’ to group the responses and then calculated the frequency of responses that fell into that practice
‘bucket’ compared to the total number of responses for that country. The results are shown in Exhibits 5 & 6.
What we found
• Practices in innovation Climate (covering aspects such as culture and values) were identified by German firms as the
largest area of their strengths for innovation, with 45% of strengths falling into these categories. In comparison 26%
of innovation strengths were cited by UK firms in this area. The German score is much higher than expected, based
on our experience in working with UK firms. In our experience law firms are typically conservative with a partner-
based governance model that tends to be autocratic and a primary focus on chargeable time as the measure of their
employee performance. These elements don’t normally provide a supportive climate for innovation.
• Resources were cited the most often (29% of strengths) as an innovation strength for UK firms, these included
examples such as having a Lean coordinator, an internal support team for innovation activities, an ideas forum &
quarterly reward, defined funding for innovation projects and in-house programme for Client Focused improvement.
• None of the firms considered their Learning practices (e.g. Knowledge Management) as an innovation strength. This
is a surprise given the focus firms have typically placed on Knowledge Management. It may be that they don’t
consider this that relevant to their effective innovation.
• UK firms were more likely to consider Leadership as a strength in their innovation, than were German firms. This was
typically down to practices such as visible leadership for innovation from senior partners and managers, a young
management team, senior role established to focus on strategy and partner autonomy,
• The innovation Process was cited few times as a strength in both countries, and in our experience this matches the
reality for firms, where there is typically no systematic way to generate and explore new ideas, then select and
implement the most promising.
• Overall the key practices for ‘direction setting’ in innovation (namely leadership and strategy) were comparatively
weak in firms. Without this, innovation activity will have reduced impact on the business.
Resources were
cited the most often
as the area for
innovation strength
for UK firms.
None of the firms
considered their
Learning practices
as an innovation
strength.
Practices for
direction setting in
innovation were
comparatively weak
in firms from both
countries.

Section 2 – Firms’ Innovation practices & performance
How effectively do the participating
law firms innovate and what do
they achieve?

Commentary – Effective innovation requires an holistic system
Commentary
Research and business experience has shown that a systematic approach to innovation is required for sustained innovation success. The
system requires effective practices across the 7 areas illustrated in Exhibit 7.
Exhibit 7 – Model of innovation as a system

Participating firms’ innovation practices
Sample size: 14 UK law firms, 21 German law firmsExhibit 8 – Average level of innovation practices in UK and German law firms
KEY
UK
Germany

Participating firms’ innovation performance
KEY
UK
Germany
Sample size: 14 UK law firms, 21 German law firmsExhibit 9 – Average level of innovation performance in UK and German law firms

There was a large spread in participating law firm innovation capabilities
Average score
Practice: 56%
Performance: 43%
KEY
Graph shows overall
Practice & Performance per
firm
Practices covers:
Ways of working
i.e.. strategy development,
leadership, climate, innovation
process, learning, client
involvement.
Performance covers:
Business outcomes
i.e. new product revenue,
process improvement for
service or efficiency, time to
market.
Leaders
Laggers
Exhibit 10 – Innovation practice v performance by participating firms
Correlation = 0.69

Section 3 – What are innovation leaders doing differently?
What can we learn from firms
leading in innovation?

Why study innovation leaders?
It is helpful to understand any practices which appear to have a higher relative impact on innovation success, to
guide law firm improvement activities. We can do this by studying the firms with the highest innovation performance
and finding those practices which are different to the average.
Identifying innovation leaders
To do this we identified a sub-set of innovation performance leaders. Specifically we identified those firms with
innovation performance (i.e. the average of performance measures such as new products developed, revenue from
recent innovation etc.) that scored 50% or more. This totalled 36% of the participating UK firms and 48% of the
German participants. Then we compared the practice scoring of the innovation leaders against the overall study
sample as shown in Exhibit 12. We also highlighted some leading practices being used by the UK innovation leaders.
The UK and German innovation performance leaders scored significantly differently and so we have assessed them
separately.
UK innovation leaders
There were five UK firms in the innovation leader group, based on their performance scoring 50% or more. The
average score of these UK innovation leaders was ahead of the study average in all practice areas (see Exhibit 12):
• Practices >=20% points higher than average: Vision & Strategy, Culture, Client involvement
• Practices >=10% higher but <20% higher than average: Process, Resources, Other External involvement
German innovation leaders
There were ten German firms in the innovation leader group, based on their performance scoring 50% or more. The
average score of these German innovation leaders was not ahead of the overall study average, in all practice areas:
• Practices < average: Vision & Strategy, Client Involvement
• Practices >= 20% points higher than the average: Learning
• Practices >=10% higher but <20% than average: Leadership, Culture, Resources
Commentary – what are the innovation performance leaders doing differently?
We compared the
practice scoring of
these innovation
leaders against the
overall study sample.
The UK innovation
performance leaders
scored ahead of the
overall study average
in all practice areas.

UK innovation performance leaders were ahead of the study average in all practice areas
NOTE
Performance leaders were defined as
those participating firms with
innovation performance of 50% or
more, This was achieved by 36% of
participating UK firms and 48% of
German firms.
Exhibit 12 – Comparison of practice scoring for innovation performance leaders compared to all firms

Section 4 – Firms’ future innovation intent
How do the firms intend to focus
their innovation efforts in the next
few years?

How will innovation change in the next 3 years?
0% 10% 20% 30% 40% 50% 60% 70%
1 - It will drop
2 - No change
3 - It will increase a little
4 - It will increase a lot
How innovation level will increase in next 3 years
KEY
UK
Germany
Exhibit 13 – View on future of innovation level in legal sector – average by country

Commentary – innovation in the next 3 years
How will innovation change in the legal sector in the next 3 years?
There is a major difference between the UK and German firms in their outlook on innovation in the legal sector as can be seen in Exhibit
13. Over 60% of UK firms consider that innovation in the legal sector will ‘increase a lot’ in the next 3 years compared to less than 20% of
German firms. Indeed more than 10% of German firms expected innovation to drop – there were no UK firms who believed this.
In our view, the prime reason for this chasm between the UK and German views is clear – the expected continued impact of legal services
deregulation in the UK. Whilst firms in both countries will face challenging market conditions, increasingly value-focused clients and the
deployment of new internet-enabled business models, the impact of deregulation in the UK legal market will undoubtedly be driving the
requirement for a higher level of innovation amongst law firms.
UK firms will experience a number of external changes in their competitive market, including:
• Firms reducing service costs through improved efficiency from the application of Lean and re-engineering approaches
• An increasing level of fixed fee service offerings from firms who are standardising and better controlling service delivery
• New corporate-based ABS entrants leveraging their branding and process expertise to increase price pressure on high volume services
• New internet-enabled service models (aping Rocket Lawyer and the like) coming to the market
• Further client-driven aggregation of work (as in the Balfour Beatty deal with Pinsent Masons in 2013)
• Continued mergers as firms seek to achieve benefits of scale and scope
How will UK firms respond?
Ultimately firms need to respond to this newly dynamic market, which requires innovation in:
• Strategic approach in dealing with the new demands of the market
• Processes to improve cost and service competitiveness
• New services to improve differentiation
• Improved post-merger optimisation to truly leverage potential synergies
• Establishing a culture and system for repeated and sustainable innovation/improvement
Developing these capabilities will require a significant improvement in law firms’ innovation practices.

Innovation focus over next 3 years
0%
10%
20%
30%
40%
50%
Process innovation
Service/Product innovation
Market positioning innovation
Business model innovation
Where do firms intend to focus their innovation activities in the next 3 years?
KEY
UK
Germany
Exhibit 14 – Expected innovation focus of participating firms in next 3 years

Commentary – firm’s innovation focus over the next 3 years
Future innovation focus
Participants were asked what they believed their firm’s innovation focus would be over the next 3 years.
The resulting profile shown in Exhibit 14 is not dramatically different from that of Exhibit 4, which showed
where firms had focused their innovation efforts in the previous 3 years. The key differences being:
• UK firms show an increase in the % of focus on business model innovation at the expense of a slight
decrease in Process Innovation. This likely reflects firms’ recognition that the ongoing competitive
pressures may require more radical actions to be taken over the next few years.
• German firms show little change in their innovation focus between the last 3 years and anticipated
next 3 years with services innovation still the dominant focus, followed by market positioning.
Why the difference?
The obvious question is why is there such a difference in the future focus areas for innovation in the two
countries’ law firms, especially given that their overall innovation practice and performance is quite similar?
An obvious difference is the regulatory environment for law firms that is in place in the two countries and it
is this which has driven the different competitive responses. In the UK, the Legal Services Act of 2007
enabled the deregulation of the UK legal market. New entrants and investment were enabled – including
major corporates such as the AA, RAC and Capita – setting up legal operations able to operate on the open
market, thus creating increased competitive pressures, especially on cost. So UK firms have particularly
focused on improving their efficiency of operation – hence this innovation focus. No such deregulation has
occurred in Germany and thus the focus is primarily on new value through services.
UK firms’ future
innovation focus was
predominantly on
process innovation.
In contrast, German
firm’s future innovation
focus was mainly on new
and enhanced services.
An obvious difference is
the regulatory
environment for law
firms that is in place in
the two countries and it
is this which has driven
the different competitive
responses

Section 5 – Challenges to innovation
What do the firms consider as their
key challenges to improving their
innovation?

Firms identified their key challenges to improving innovation
Exhibit 15 – UK firms’ challenges to innovation – grouped by practice Exhibit 16 – German firms’ challenges to innovation – grouped by practice

Section 6 – Taking action
How can law firms improve their
innovation performance and thus
increase their competitiveness?

Determining firms’ priorities for innovation improvement
We asked the participating law firms which one thing they would do to dramatically improve their innovation and
grouped the responses against the practice areas of the innovation model shown in Exhibit 7. This is not intended to
be a rigorous analysis – the number of responses do not enable that – but it does give a useful indication of where
firms consider they most need to focus their improvement. The results are shown in Exhibit 18.
Improving innovation resources and process are common priorities
Firms from both the UK and Germany recognised that improving the resourcing of their innovation was a key priority.
The specific resources required were essentially in getting the time and skills of the appropriate fee earners made
available for innovation activities. Firms from both countries also recognised the need for an improved innovation
process and, to a lesser degree, an improvement in their leadership for innovation.
Some UK firms also highlighted the need for improvements in their strategy for innovation and also in better
involvement of clients in innovation activities. In contrast German firms mentioned neither of these areas. German
firms rated the need for improvements in their innovation climate more strongly than did UK firms. Yet German firms
had rated their climate for innovation as a much higher strength than had UK firms (see Exhibit 6). This might
indicate a stronger awareness in German firms of the importance of the firm’s climate for innovation success.
There was limited focus on leadership improvement
We noted in Section 5 the pivotal importance of leadership in enabling innovation in firms, yet only a few firms
identified leadership as an area for improvement. In the UK, this focus was on moving away from the partnership
structure to a more dynamic structure such as a corporate – recognising the partnership model can slow change.
Improving Learning practices is not seen as important
The need to improve learning received one mention by German firms and none by UK firms. It was the area of least
importance for improvement. It was also the innovation practice which firms rated as their lowest strength with both
countries scoring 0% in this area (Exhibits 5 & 6). However firms scored middling in learning practices (Exhibit 8) with
German firms scoring higher than UK firms. So what does this mean? Our conclusion is that firms don’t yet consider
that learning practices are key to effective innovation and see their innovation challenges as being in other areas.
Commentary – firms’ priorities for innovation improvement
Firms from both the UK
and Germany recognised
that improving the
resourcing of their
innovation was a key
priority.
Only a few firms
identified leadership as
an area for
improvement. In the UK,
this focus was on moving
away from the
partnership structure.
Most firms don’t yet
consider that learning
practices are key to
effective innovation.

Approaching law firm innovation
Firms in the study recognised the importance of innovation and the assessment demonstrated that innovation practices and performance are
typically weak in the participating law firms compared to practices existing in other business sectors (as measured by the scoring of innovation
practices and performance against common measures). There is thus plentiful opportunity for firms to make improvements in their innovation
capabilities and hence their overall competitiveness. But how best should they go about doing this? From our experience of helping law firms and
other businesses improve their innovation, we have defined 5 guiding principles:
1. Innovation needs direction – from leadership and strategy
2. A supportive environment for innovation must be established
3. Get started and learn as you go
4. Capture and build internal competencies
5. Be curious and learn from others
In the following pages we have detailed these five principles.
Commentary – improving innovation capabilities #1
1. Innovation needs direction – from leadership and strategy
To drive sustained innovation improvement, leadership from the board is needed to engage partners (and hence employees), to provide a clear
direction for innovation with a defined strategy and to support innovation activities. Our experience in law firms and other industries is that there
are a number of effective ways to start such an innovation programme, each with their own strengths:
• Run a number of innovation ‘catalyst’ event(s) that involve, inform and educate, stimulate thinking, challenge the status quo and deliver early
innovation opportunities. These can help in establishing a clear understanding and dialogue around innovation and generate new ideas. To help
one law firm build their innovation programme we used our 1 day Innovation Catalyst Workshop for department teams including Litigation, Real
Estate, Commercial and Private Client.
• Run a focused programme around process innovation (aka ‘re-engineering’) for specific services. This requires a involvement of partner and fee
earners and in our experience can generate major cost reduction through efficiency improvements and also raise service value. This approach
can be replicated across other departments. We have worked with a number of firms using our ‘Smarter Working’ re-engineering solution for re-
engineering services including Due Diligence, Insurance Claims Management, Commercial Property, Inquests and Employment Tribunals.

1. Innovation needs direction – from leadership and strategy (continued)
• Run an Innovation Assessment – against a best practices model (such as the Codexx ‘Foundations for Innovation’ assessment) to identify key
weaknesses in the firm’s current capabilities in innovation and define priorities for improvement. We did this with one law firm who had recently
merged to compare innovation capabilities.
To effectively build on these initial approaches, a supportive environment needs to be established, as we discuss next.
2. A supportive environment for innovation must be established
A major barrier to innovation in law firms is the focus on fee earner utilisation as ‘the only measure that counts’. Naturally this discourages fee
earners from making time for innovation activities – whether it is in developing new service ideas or working on efficiency improvements. This has
always been an outcome of the hourly fees environment for firms – but this is changing as we are seeing an increasing use of fixed fees by clients. A
supportive environment for innovation is one where the firm’s values truly support innovation, the culture is one where new ideas and a level of
risk-taking are encouraged, where recognition and reward is given to partners and employees based on the value they provided (whether it is in
the form of chargeable time, new services developed or improved, innovation activities or other areas that the firm values).
3. Get started and learn as you go
Innovation is about doing new things. So an action-based approach to innovation within a firm must be the goal. Planning is good – and there is
experience and guidance available on the practices to apply for effective innovation (including this report) – but ultimately planning must be
converted into action for learning to start and benefits to be gained.
We advocate the goal for law firms, in improving their innovation, should be to build improved innovation capabilities, whilst simultaneously
generating benefits from improved performance – a ‘twin track’ approach. This means that new mechanisms put in place to support innovation
(such a new skills or tools) are closely linked to real experience. It also means that investments are being funded by benefits.
Innovation projects include improving the efficiency of the legal services provided to clients or in internal processes such as billing. In our
experience working with UK law firms, we have seen direct cost reductions of up to 70% achievable through process innovation (utilising
techniques such as Lean). Innovation improvements would also be in developing new services or raising the value of existing services and so
improving the firm’s differentiation. The majority of innovation opportunity lies in these two areas of process and service innovation.

3. Get started and learn as you go (continued)
This ‘twin-track’ approach is the best way for any organization to successfully introduce new methods as measurable success (i.e. clear benefits)
are the best way to gain support for the programme.
AXA Ireland, part of the global AXA insurance group, is a good demonstration of the value of this approach in their innovation programme in the
early 2000s. Their initial CEO led focus was establishing a group to generate new ideas. This was effective to a degree but they soon recognised the
need for an improved evaluation and selection process to improve quality and focus their implementation resources. Analysis of their implemented
ideas showed that most of their innovation was in waste elimination and improvements in their processes and services – rather than radically new
services. This insight helped them better communicate the opportunities for innovation across the firm to engage more employees who could bring
new ideas from their daily work. To keep innovation fresh and also to cover new areas, they developed themes, covering customers, involving
partners and also new process improvements. With hindsight, the programme could have been accelerated with better structure and practices at
the start – but the value of the learning and ownership from AXA developing their own solutions cannot be underestimated.
4. Capture and build internal competencies
There is no recognised ‘cook-book’ approach as to which innovation practices should be addressed first – it depends on the situation present in the
organization. But we have found that a good foundation is a basic process where new ideas can be fed for exploration, selection and
implementation, supported by a review group. Meanwhile there should be a parallel track in developing and executing new innovation projects (for
products, process change etc.) triggered by ideas submitted into the innovation process or by structured activities (such as client reviews, market
sector reviews, process reviews). As a key part of the innovation programme, communication of progress and benefits is critical to effecting the
required changes in behaviour. We worked with one UK law firm to run a week long ‘webjam’ of internal brainstorming; with another to perform
innovation training and setup an innovation process. One major law UK firm has set up a Continuous Improvement group, another has driven
process mapping across its firm and one has supportive its strong culture for innovation with recognition and reward systems.
5. Be curious and learn from others
Law firms have a tendency to be parochial and look to see what other law firms are doing. But since the legal sector as a whole is behind many
other sectors in their business practices, it makes sense to look outside the legal sector for ideas and to compare and benchmark practices and
performance. Potential examples include accounting firms, who have similar challenges as a professional services firm, but who have typically have
better practices in defining, operating and improving their business processes.

5. Be curious and learn from others (continued)
To examine the practices for online services, look to Amazon and Google as well as new legal entrants such as Rocket Lawyer. Lean thinking is
highly applicable within law firms for improving efficiency and client service and there are a number of businesses who are exemplar at using Lean
– some are even in the legal sector.
One of the most effective sources of potential learning comes from clients themselves. The innovation leaders in this study established structured
approaches to do just this. By better understanding their business and practices, a law firm not only taps into a good source of learning and
improves its ability to better meet the needs of its client, but it also deepens its relationship with the client. What client would not value a law firm
that is seeking to better understand its clients’ business and improve its own services and ways of working?
Being curious is healthy, but for most value it has to be first focused – and this is where the firm’s strategy comes in. If we are focusing in process
innovation, then the firm needs to find out about Lean and re-engineering. Converting this curiosity into learning is where value begins. So that
means bringing the new ideas into the innovation process, into experiments, projects and pilots within the firm. And for this to happen, a
supportive environment is needed of course.
Conclusion
In our experience, the application of these five principles to guide a firm’s innovation activities, will help improve the likelihood of successful and
sustainable innovation and hence deliver improved competitiveness.

The study has shown that law firms in UK and Germany recognise the increasing importance of innovation
in their sector. It also demonstrates that most firms have a middling-to-low level of innovation capabilities
and performance compared to best practices. Only a few progressive firms in the study were giving focus
and resources to developing their innovation. So there is a large gap in innovation capability to be bridged.
The good correlation between practice and performance scoring demonstrated that law firms who put in
place improved innovation practices can expect to achieve improved business performance.
Whilst overall the UK and German-based firms had a similar level of innovation practice and performance,
there were significant differences in the views of firms in each country on the importance and direction of
innovation in the legal sector and in their innovation activities and plans. We also had some concerns
regarding the high level of practice and performance rating by some of the German firms – which might
possibly have been over optimistic.
UK-based firms are facing a more challenging business environment driven by deregulation than are the
German firms and therefore have a clear need to respond. UK firms are focusing more strongly on
process-based innovation, to help improve efficiency and improve cost-competitiveness than are the
German firms, who are instead primarily focusing on the development of new services.
The initial challenge for most firms is to establish innovation high up on the agenda in the firm’s leadership
and then to develop a strategy for utilising innovation to raise competitiveness. There is clear evidence
that in today’s competitive legal environment innovation is key to sustained competitiveness and hence
long term success.
Once there is leadership and direction for innovation, the other required mechanisms can then be put in
place and the experience of others together with knowledge of proven methods can be applied to drive
effective and sustainable innovation.
The study has shown that
law firms recognise the need
for improvement, for
innovation, to deal with the
increasingly challenging
market conditions.
Law firms who put in place
improved innovation
practices can expect to
achieve improved business
performance
The initial challenge for most
firms is to establish
innovation high up on the
agenda in the firm’s
leadership.
Final thoughts

Further information
For further information on this study or to discuss approaches for improving law firm innovation,
please contact:
Alastair Ross
Director, Codexx Associates Ltd
Website: www.codexx.com
Email: innovation@codexx.com
Phone: +44 (0) 7766 525433
Mail Codexx Associates Ltd
3-4 Eastwood Court
Broadwater Road
Romsey, SO51 8JJ
United Kingdom
Further information on innovation:
Codexx has produced a number of whitepapers on professional service innovation that are
available to law firms on request:
‘Study of innovation practices in major UK law firms’ (January 2007), ‘Lean for Lawyers’, ‘Business
Process Re-engineering in Law Firms’, ‘Innovating professional services’, ‘Increasing client loyalty’.
‘Innovating professional services – transforming value and efficiency’ by Alastair Ross, is due to be
published by Gower in May 2015.
About Codexx:
Codexx was established in 2002 to provide innovation and transformation services for businesses. It
has provided consulting services to clients in the industrial and services sectors, both in the UK and
internationally. Since 2005 it has consulted to a number of major UK law firms including ASB Law,
BLM, Bevan Brittan, Blake Morgan, Burges Salmon, GJE, Mills & Reeve, Nabarro, Norton Rose
Fulbright, Pinsent Masons.

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