By Daniel Acosta.
The adoption of technologies doesn’t guarantee business success. Even though this statement might be controversial, I believe that the adoption of technologies for organisations is just a step in a process. Volti (2001) argues that technologies are conceived for achieving specific objectives. Hence, for firms and ventures, the decision to allocate resources on inventions must be a stage of a comprehensive strategy.
Certainly, the introduction of artificial intelligence or machine learning to the legal industry might be a milestone as lawyers have been historically reluctant to changes compared to other professionals. Yet, technology is far from being a purpose itself. In fact, investing in novelties without setting a proper blueprint, might be catastrophic.
History provides multiple examples of business failure caused by mistaken approaches to the adoption of technologies. For instance, when the centralised electricity system was introduced by Edison at the end of the XIX century, incumbents of the gaslighting industry increased the improvement of the old and established technology. As a result, the gas sector has mostly disappeared. It was replaced by a new invention. Theories such as the Sailing Ship Effect introduced by Ward (1967) and the Innovator’s Dilemma (Christensen, 1997) further illustrate this situation. Nonetheless, a full discussion of them lies beyond the scope of this article.
One of the most significant contemporary challenges for lawyers concerns about the intersection of the legal industry and technologies. Several attempts have been made to explain how technology is shaping the future of legal services. For instance, how big data and analytics can complement or substitute the tasks executed by lawyers. So far, however, there has been a surprising paucity of conversations focusing specifically on the prominence of innovation and the business model to successfully transform.
In the pages that follow, I will argue that the relevance of adopting technologies for both incumbents and new entrants in the legal industry, lies in a comprehensive business model innovation strategy. Before inquiring about new technologies, their features and potential to replace lawyers, I suggest you should be asking about the value proposition that is intended applying technologies to the legal business. Enhancing our understanding of the relationship between business model innovation and the adoption of technologies will increase the odds to thrive in the future of the legal industry.
1. What is innovation?
As a business, comprehending what an innovation means may be the most accurate way to approach the incorporation of technologies. According to Tidd and Bessant (2009), innovation is a process. -Yes, a process-. The extent to which new ideas are created and taken into a market, securing value from them. innovation transcends de creation of a device or an invention. It involves the capability to identify connections, to sense opportunities and to seize them.
People tend to consider inventions and innovations as synonyms. However, this is a misconception. Allow me to go back to the example of Edison and the electricity. Did you know that Edison did not invent the lightbulb? In fact, the incandescent light was created by Joseph Swan. I guess most of you have heard about Thomas Alba Edison, but no Mr Swan. Why is it so? How did the former become a worldwide recognised figure, instead of the later?
Edison succeeded because he was able to capture value from the invention. He innovated with a whole system of electric lighting, power generation and distribution that supported the diffusion of the lightbulb. In other words, Edison deployed a strategy to take advantage of the opportunities he discovered (or created) in the market. (Please, bear in mind that this article does not engage with the IP lawsuit that took place between them. Spoiler alert, Swan won).
The case of Edison and Swan illustrates the difference between an invention and innovation. On the one hand, Swan failed to secure value from the lightbulb. Inventions – as technologies- don’t have a value proposition per se. Neither they are essentially linked to a process of commercial realisation. On the other hand, Edison created a business model around the incandescent light, offering a novel solution to customers. Edison created an innovation, positioning the new product in the market.
As shown by the illustration, the adoption of technologies without considering a strategy to approach the market might decrease dramatically the probability to excel. Hence, the process of innovation is essential for: i) bringing new ideas into the firm (what necessity is out there in the market and how can you solve it with technologies). ii) selecting the optimal idea to implement (which is the best technology to enhance your value proposition). iii) converting ideas into reality (acquire or develop the chosen technology). And iv) capturing value from the idea (gaining new clients, efficiency, or reputation for the firm).
2. What is a business model?
Awareness about the business model for entrepreneurs and established organisations is vital for innovation. Legal firms tend to implement technologies only for enhancing their services -this is called a downstream model since barely relates to clients-. Nevertheless, changes can be made in relation with partners, suppliers or processes -a upstream model-. The upstream model is often neglected as the business model is not fully understood. Thus, one of the objectives of this section is to explain how you can characterise your business model to determine where is it possible for you to innovate.
Moreover, having a business model will guide you through the process of innovation. Once you have a clear idea of what is -or could be- your value proposition, you can start looking for technologies that will develop further your business strategy. The business model should be the ‘wind rose’ for the adoption of technologies.
Scholars have long debated the importance of having an explicit business model in a firm and its characteristics. Moreover, whether developing a business plan is a preferable option. I would like to explain essential elements that can be found across multiple theories. Yet, a note of caution is due here since this information may be somewhat limited.
Although there is a multiplicity of theories and conceptualisations, a business model refers to a description of how a firm can capture, create and deliver value in connection with its stakeholders (Massa and Tucci, 2013). In other words, the business model allows an organisation to harmonise what it has to offer with customers considering external players and resources required to do so (Desyllas and Sako, 2012).
Four are the main elements of a business model. First, a value proposition -and the most relevant one-. The extent to which the firm decide what is it going to be offered to clients and why is it different from the competitors’ solutions. Second, the profit formula. How the business generates a profit from the value proposition. Third, key resources. What is needed to deliver the value proposition? Finally, processes. The activities that the firm must develop to offer the value proposition.
These four elements can be represented in multiple ways. Osterwalder and Pigneur (2010) offered the concept of Business Model Canvas as a simplified guide to develop businesses. Canvas is an alternative to gather and clarify hypothesis, instead of pursuing a cumbersome exercise or planning. Figure 1 shows nine points that should be considered to create a canvas.
Figure 1: the 9-point deconstruction of a business model canvas (Chesbrough, 2010).
Sadly, the business model of the legal industry has been identified as a central barrier to innovation.
This reality supposes an extra effort that must be made by lawyers to innovate. Further barriers (such as uncertainty, fear, lack of interest or no sense of urgency) could affect other markets.
For instance, the revenue flows of law firms are often based on billable hours which grants lawyers the control of the incomes. Hence, changing how fees are perceived might be counterintuitive. Nonetheless, alternative revenue structures as fix prices might be more customer-friendly.
Another example is the partnership model. The majority of law incumbents -and professional service firms- are organised as partnerships. The partnership model results problematic for innovation for multiple reasons. One of them is homophily. Heterogeneity enhances the formation of networks, the transmission and circulation of knowledge, grants access to resources and increases the creativity and innovative potential of firms. Adopting technologies -as a process of innovation- requires capabilities that are not often thought in law schools.
The discussion about implementing technologies is not just a matter of acknowledging, buying or developing them. Technologies must be adopted and diffused considering internal and external factors of the organisation. For that, having a business model is paramount. A value proposition might serve as the compass to guide the process of innovation that law firms should develop to implement trending inventions such as artificial intelligence, big data or machine learning.
The first step in this journey should be identifying the opportunities to transform. The following questions might help you to start innovating: What are the market signals? What are customers asking for? How can the business model be improved? After that, select what is going to be done. Determining priorities is imperative as resources are limited.
Then, implement. Here, technologies might help you out to deploy the value proposition aimed. Furthermore, to enhance any element of the business model. Finally, consider how the benefits are going to be secured by the firm. As new entrants are disrupting the sector with innovative business models, lawyers might have to change the roots of its business to cope with the latest solutions claimed by clients. Perhaps, this is the reason why changing process inside law firms is burdensome. The introduction of technologies is asking practitioners to pivot what they have been doing for centuries.
Chesbrough, H. (2010). Business Model Innovation: Opportunities and Barriers. Long Range Planning, [online] 43(2-3), pp.354-363. Available at: http://www.elsevier.com/locate/lrp [Accessed 07 Dec. 2020].
Christensen, C. M. (1997) The Innovator’ s Dilemma: when new technologies cause great firms to fail. Boston, USA: Harvard Business School Press.
Desyllas, P. and Sako, M. (2012). Profiting from business model innovation: Evidence from Pay-As-You-Drive auto insurance. Elsevier B.V, [online] 42, pp.101-116. Available at: http://www.elsevier.com/locate/respol [Accessed 06 Dec. 2019].
Massa, L. and Tucci, C. (2013). Business Model Innovation. Oxford Handbooks Online, [online] pp.1-25. Available at: http://www.oxfordhandbooks.com [Accessed 06 Dec. 2020].Osterwalder, A. and Pigneur, Y. (2010). Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Hoboken, N.J.: Wiley & Sons.
Tidd, J. and Bessant, J. (2009) Managing innovation. 4th ed. Chichester: John Wiley & Sons.
Volti, R. (2001) Society and Technological Change. 4th edn. New York: Worth Publishers.
Ward, W.H., (1967). The sailing ship effect. Bulletin of the Institute of Physics and the Physical Society 18, 169.
About the Author
Daniel Acosta is Founder and Director of Innovation of Legalnova*. He is MSc in Innovation Management and Entrepreneurship from The University of Manchester, and Banking Lawyer from Los Andes University (Colombia). Daniel participated as a researcher at The Manchester Law and Technology Initiative. He worked as an In-house Counsel and as Innovation Champion at Bancolombia (Colombia). He has written for Legal Business World, The Business Year, The Impact Lawyers, The Legal Technologist, and The University of Los Andes. He is a member of the Board of Directors of the Colombian Association of Legaltech (alt+co) and is a public speaker about digital transformation and legal tech.