In the ‘Innovator’s Dilemma’, the Harvard Business School professor, Clayton Christensen, states that the best route to success is to listen to your clients, but at the same time the problem is that listening to your clients is also one of the main reasons why businesses fail, especially in the field of technology. How can that be and what does that have to do with law firm innovation? Read on.
In a nutshell, Christensen’s argument goes like this: companies develop new products based on innovative processes and technology. The clients love these new products (or services), revenues grow and the business makes sure to keep its client feedback attuned to how the clients respond to these new products as they are steadily improved each year. For instance, a law firm or any other business that uses QuickBooks Desktop for their business financial management will have firsthand experience on this software and may provide feedback to the developers in order to keep improving the software. That all seems logical, right?
Over the years the clients keep giving helpful ideas about what they want, how they’d like things to change: a little tweak here, a little boost there. The clients and the business providing the products or services get very chummy and at ease with how to provide incremental, or as Christensen terms it, ‘sustaining innovation’, in that particular area. But that is where a critical, but often unseen, problem starts to arrive.
To use a sporting metaphor, the business has taken its eye off the ball. Or, going back to economics: it has become a ‘rentier’ on the back of a product they know works well, so they just keep adding a little improvement here, a little ‘go faster stripe’ there.
They get used to the money rolling in and all the feedback from the clients is that they really like the way things are, because – surprise – clients are people too and they also get stuck in an incremental innovation rut the same way as anyone else. Until, that is, they suddenly change their minds.
The Innovator’s Dilemma
What Christensen carefully examines and then concludes is that what happens next, especially in the field of technology where product innovations can suddenly leap ahead, is that a new or ‘disruptive’ approach arrives and the business and most of its clients ignore it. And that is their fatal error.
What happens is the disruptive tech, (which is primarily disrupting the earlier product or service, often based on a whole new way of doing things), is taken up by those who stand to gain from engaging with something distinctively new, and who perhaps are not so wedded to the status quo. They see little risk in a more significant leap in how things are done. New entrants to the market are especially well-suited to take this approach.
Eventually major clients who had been perhaps watching with detached interest all of the buzz around the disruptive tech suddenly decide that this is actually the way to go. Their old providers are out of date, selling old stuff in old ways. The change can be overnight in some cases.
Understandably the businesses based wholly on sustaining innovation are upset at the change in attitude from their clients. They perhaps feel like a jilted boyfriend or girlfriend. ‘How could they do this to me?’ they ask plaintively. ‘We gave them what they wanted. We listened to them. Every year we improved the offering just like how they said. Why leave us like this…why leave us now?’
Christensen also adds some important additional economic analysis, especially around why businesses get stuck on sustaining, or incremental, innovation, and why it is just so addictive. One key reason is that for a long time it is simply very profitable.
Because the product and the processes around it have not changed much the businesses can get very good at making that product, thereby increasing their profit margins. They can scale up production because they know what they are doing and understand exactly the numbers when it comes to financial inputs and outputs. As long as the clients keep buying this thing then everyone’s happy…..(until they’re not).
The Need For Innovation Teams Who Experiment
So, what does all of this mean for law firms? Fundamentally what it means is that they need to keep running innovation teams that genuinely are experimenting, exploring, thinking big, and challenging the status quo. The law firm that employs the innovation team may not need to act on every project they develop – but the firm really does need to have someone continually challenging the way things are done.
It doesn’t matter what the job titles of the people doing the experimenting and testing are. You can call them Innovation Directors if you want, or it can just be a person in the traditional IT team, or maybe someone in the KM group, or someone else. The thing that matters is that someone who the management is willing to listen to is testing, piloting, gauging new tech, new processes, new approaches and even whole business models.
And the latter point is key here for legal tech. Many of the larger firms perhaps now feel they have got to grips with several of the core technologies that came through during the New Wave of Legal Tech that really hit the collective legal consciousness in around 2015. But, just because you know something exists and how it works is not enough.
Firms need to consider what happens when you roll out that tech at scale. How does the business change? How does the market shift? What will the new landscape look like? Where will we be in this changing landscape? How does changing in that way, for that practice area, connect with the rest of the business? How will client relationships alter? And fundamentally, how will the business’s ability to make money change? I.e. just because you know X exists is not the same as modelling what happens when X becomes something used at scale and then knowing what to do about it.
Consider electric vehicles. The large car makers knew all about how electric vehicles worked long before Elon Musk was even born. But, once Tesla became one of the most valuable companies on the planet many started to scramble, some from a standing start, to build their own EVs. However, for a very long time to come Tesla will be ‘the car in front’. Moreover, in the UK for example, new petrol cars will be banned from 2030. And the bit that must be galling for the big auto manufacturers is that they could have seen it all coming. One thing Musk certainly has never been is quiet, nor has the environmental lobby. Ignoring things until the last minute is not a great strategy.
You get the picture.
Let’s leave it there for now. In the coming weeks and months there will be more think pieces on the Innovator’s Dilemma and other great works of technology and business literature.
By Richard Tromans, Founder, Artificial Lawyer, Dec 2020.
Book reference: ‘The Innovator’s Dilemma’ by Clayton Christensen – 1997, Harvard Business Review Press.
[ Main photo: Cabazon Dinosaurs, about 20 miles West of Palm Springs, California. Credit: RT. ]
Great article, Richard. I certainly believe Tesla is falling into the innovation trap now too and Hydrogen cell cars will be the future. We shall see!
I’ve always made the client engagement more about business, process and the people rather than features. This allows us to innovate to solve real challenges out there.
I second that it is a great article. But not just firms need to do this, their clients do too, and may look to business and legal advisors to help them understand how to do it. Some of the ways that successful organizations have done that are detailed in the book “Seizing the White Space”, by Mark Johson.