Innovation and IT trends

In our article on Innovation, Effectiveness and Efficiency, we referred to Peter Drucker’s observation that in some industries innovation is not taken seriously:

“The people who work within these industries  ... know that there are basic flaws. But they are almost forced to ignore them and to concentrate instead on patching here, improving there, fighting the fire or caulking that crack. They are thus unable to take the innovation seriously, let alone to try to compete with it. They do not, as a rule, even notice it until it has grown so big as to encroach on their industry or service, by which time it has become irreversible. In the meantime, the innovators have the field to themselves.” - Peter F. Drucker, Innovation and Entrepreneurship: Practice and Principles

This was particularly highlighted by a recent article from McKinsey updating research from 3 years ago. Not only do the trends they identify have more impact on the legal world (especially with lower regulatory barriers to entry) but in a chilling phrase they say that “what we described as nascent three years ago is fast becoming ubiquitous, which gives managers unimagined possibilities to fine tune processes and manage operations”.

The Top Trends

Four of the Ten trends identified in 2013 seem to have increasing relevance for the legal world – these are, using their terminology:

  • Joining the Social Matrix – the good news here could be the decline of email – at least internally. McKinsey's research has shown that searching for information, reading and responding to email and collaborating with colleagues can take up to 60% of typical knowledge workers’ time, and that they could become 25% more productive through the use of social technologies. They quote one large IT services supplier which has pledged to become a “zero-email” company as early as 2014 by replacing internal email with a collaborative social networking platform. This suggests that the advantages of scale and the ability to invest will hand ever greater advantages to the largest firms with the IT capability to move to such platforms.
  • Competing with Big Data and Advanced Analytics - global data volumes are doubling every two years, and analytical capability is becoming ever more powerful as costs fall. This can have significant impacts in a number of areas of law. These capabilities are already being used to replace labour-intensive elements of major matters, such as discovery and due diligence – again handing a competitive advantage to the larger firms. But perhaps the area where this can have the greatest impact is in the mass market of business to consumer law – with the ability of the major retailers to harness their ability to profile customers down to the street on which they live, and even their address, so that their marketing of specific legal services can be finely targeted. There have been cases of their data identifying pregnancy before the family concerned knew themselves, so finding targets for Powers of Attorney, or even Divorce may not be too difficult!
  • Freeing Your Business Model through Internet Inspired Personalisation and Simplification - we regularly hear firms complaining about the increasing move towards ”Do It Yourself” solutions where clients access knowledge from the Internet which would previously have been chargeable. Businesses in many fields are encountering similar issues, with new online competitors having a business model based on something other than providing a one-to-one service in which every transaction is chargeable. Often, the basic level of knowledge is provided free as a teaser  to attract clients who want to push themselves to their ”level of incompetence” before moving to a chargeable service - which may in turn have several levels. This has applied in industries from online games to management consulting, and will be increasingly prevalent in different areas of law. Increasingly, knowledge is free and universal, but the experience and application of knowledge is where the professional still holds sway. Clients may find out what to do, but having the courage to do it when the costs of error can be high is a completely different matter.
  • Automating Knowledge Work - this is clearly the area with the biggest potential impact for the legal world. On the one hand, the ability of IT to remove the labour cost component of many transactions promises to expand the volume of legal activity massively. On the other hand, it threatens the role of the qualified lawyer. McKinsey quote the example of an American IT company that was able to scan half a million documents, and pinpoint the 0.5% that were relevant for an upcoming trial, so that the process took only 3 days, instead of a team of lawyers taking several weeks. In a separate paper, which we will return to in a future bulletin, McKinsey analyse the different ways that the automation of knowledge work affects different kinds of transaction, and different professionals. Many Partners have assumed that automation only applies to “commodity” work carried out by more junior staff, and that true knowledge work involving the provision of advice rather than processing of transactions is somehow safe from the advance of technology. Be assured, that is no longer so……

To reiterate what Peter Drucker has said, “They do not, as a rule, even notice it (innovation) until it has grown so big as to encroach on their industry or service, by which time it has become irreversible. In the meantime, the innovators have the field to themselves.”  We cannot say that we were not warned!