Aims and Objectives of the Project

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The project will provide data that will produce a better picture of the state of innovation in the Australian legal profession than is currently available. By examining patterns of innovation across the Australian legal profession the research will identify:

• Key drivers of innovation in the Australian legal profession, for example, clients, suppliers such as legal software providers or internal research and development
• Areas of innovation, for example, in pricing, service delivery, firm organisation, marketing, strategy or business processes
• Distribution of innovation, for example, in big established firms, small established firms, small, newer firms or widespread
• Degrees of innovation, for example, efficiency oriented without restructuring business model or radical change of business model
• Impacts of innovation in the market on law firms and their behaviour

By assessing the drivers of innovation, and the breadth and depth of innovation, the legal profession will be better able to determine whether the profession is in a state of disruptive innovation, and if it is, to make more informed decisions as to how to maximise efficiency while protecting client interests, the rule of law and the interests of the profession overall.  Policy makers will also be better armed with information that may assist them determine how best to shape regulation of the legal profession in relation such matters as intersecting regulation of the profession across global jurisdictions and fiduciary responsibilities in light of the automated delivery of legal services where there is no lawyer-client communication.

The project will also compare the state of innovation in the Australian legal profession on a State by State basis and also characterise the type of firm and type of innovation being pursued.

The project will not only provide better understanding of innovation in the Australian legal profession but it will also add to the body of knowledge about innovation more generally in knowledge intensive business services. Comparing data collected through the project with data collected from previous studies will help determine whether the legal profession is on a unique trajectory or whether lessons might be learned from the experience of transformation in other knowledge intensive business service industries.

Disruptive Innovation

Disruptive innovation is a term coined by Harvard Business School Professor, Clayton Christensen,  and is used to explain how difficult it is for industry incumbents to adapt their business models to innovations in product or services that enter the market at lower gross margins, thereby making the product or service more affordable and accessible. Christensen opines that although initially disruptive innovators service the low quality end of the market, eventually they perform more efficiently at the high quality end of the market or change the accepted business model, and displace incumbents. Incumbents lacking foresight of the impact of disruptive innovation and wedded to high quality and high margin business models that service an elite segment of consumers, find it very difficult to transform and compete with the innovators as it means effectively abandoning a profitable business model (even though their market share is shrinking).

When applied to the legal profession, disruptive innovation refers to the challenge posed to the traditional partnership model of bespoke, face to face delivery of legal advice and representation by developments such as increased competition from non-lawyers and multidisciplinary practices, automated documentation, apps that deliver cheap advisory services, virtual law practice, off shoring and unbundling, easily accessible ratings services, a broadening of in house counsel roles, and increasingly better informed and stronger bargaining consumers, particularly corporate consumers. As a result of disruptive innovation it is anticipated that the current guild nature of legal practice will be transformed into a commoditised high volume, low employment service delivered mainly online by broad based retail service providers. Richard Susskind  envisages that demand will remain for small to medium sized law firms that offer niche, high value services. However, apart from a small number of global law firms, he predicts that most large law firms will reduce in size and only be called upon for specialist tasks in legal projects managed by multidisciplinary practices. He also predicts greater collaboration and risk sharing between clients and law firms.

Nonetheless, contrary to the above prognosis and despite poor economic conditions, big established Australian law firms have continued to remain resilient and profitable by forming international alliances, innovating and imposing efficiencies. It remains to be seen whether their strategic responses to restructuring in the wider economy will be sustaining. The proposed research will generate data and analysis that will better inform the debate around the future of the Australian legal profession.

Relationship of this Project to Existing Research Around the World

Globally, the legal profession is acutely aware of the need to adopt new technologies, business models and practices to deliver value to cost conscious clients.

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The Canadian Bar Association (CBA) has undertaken a two year study culminating in a wide ranging report. The purpose of the study was to help lawyers understand and respond to the transformations that they face as a result of the combined effects of globalisation, rapid digitisation, increasing competition from non-lawyers, and the lack of access to legal services. The report incorporates a number of case studies illustrating specific innovations that allow law firms to respond more effectively to client needs and/or provide broadened access to justice. Although the CBA also considered key trends in the Canadian legal market place, apart from the case studies, no broad based empirical research was undertaken to measure the degree and spread of innovation in the legal profession and its connection to the size and structure of the market for legal services.

The American Bar Association has also established a Commission on the Future of Legal Services. It plans a series of community based grass roots meetings, a national convocation of judges, court personnel, businesses, clients and professional leaders and Commission public meetings to gather information and formulate ideas to help lead the future development of the legal profession. It has also formed working groups examining matters such as alternative business structures, electronic courts, and platforms for improved legal service delivery. The Commission is still very much a work in progress.

From 2009 – 2015, Altman Weil Inc, a US management consultancy firm, has undertaken an annual Law Firms in Transition survey. The survey collects data from Managing Partners and Chairs of US law firms and examines their perceptions of likely sources of organisational transformation and their responses to them such as alternative billing, improved practice efficiency, changes in staffing profile, growth strategies, and organisational preparedness for and embrace of change. While the survey produces an excellent analysis of the views of US legal firm practice managers, as a proprietary instrument, its data has limited comparability with other surveys and does not comply with the OECD's Oslo Manual. Moreover, the survey only collects data from firms of 50 or more lawyers, whereas in Australia the legal profession is primarily comprised of small firms.

With significant implications for policy and regulatory development in Australia, a report on Innovation in Legal Services prepared for the Solicitors Regulation Authority (SRA) and Legal Services Board (LSB) found that regulatory and legislative changes have acted both as a driver and a barrier of innovation in the UK market for legal services.  In particular the report found that the introduction of Alternative Business Structures has positively affected innovation in the provision of legal services.  Where innovation was implemented, its major effect was to diversify the range of legal services offered by law firms, improve quality and attract new clients.  The report identifies the types of innovations that are occurring in the UK and where they are occurring (for example in what size law firm; among male or female lawyers; among commercial and non-commercial firms).  It also examines law firm decision making structure and culture and correlates these with the level of innovation proposed or implemented.  Consequently, the Innovation in Legal Services Report provides an excellent comparative benchmark for the researcher’s proposed data collection and analysis.

Studies have been undertaken in Australia to measure the breadth and depth of innovation across the economy. However, these have not been undertaken on a sectoral basis and to date there is no academic study which has attempted to measure the degree of innovation specifically in the Australian legal profession and the impact that this has on the legal services market. Consistent with the Oslo Manual, from 2003 – 2013 the Australian Bureau of Statistics (ABS) has collected data to measure innovation in Australian businesses. Among other matters, the ABS data have characterised the innovation by type and status (for example, operational or marketing), identified sources of ideas for innovation, looked at innovation financing, examined drivers and barriers to innovation, considered collaborative arrangements leading to innovation and calculated the benefits of innovation. However, as noted above there is no specific data relevant to the legal profession published by the ABS and it is too difficult to tell whether the general trends identified by the ABS would apply.

As in the US, proprietorial studies have been undertaken by Australian based legal management consultants and legal information management firms such as Lexis-Nexis. However, it is unclear how representative the respondents of these studies are of the legal profession as a whole. Moreover, the studies are not designed to measure the degree and spread of innovation across Australia. 

Project Design

1. An environmental scan of developments in the Australian legal services market will be undertaken to determine how closely the market currently resembles the prognosis outlined in literature examining disruptive innovation in the legal profession
2. A survey and interviews will be undertaken with key personnel in Australian law firms to determine the level and scope of innovation being pursued, particularly innovation in service delivery models
3. Statistical analysis of the data collected by the survey and the interviews
4. Evaluation of the data to determine whether it confirms, predicts or refutes disruptive innovation in the Australian legal services market
5. Examination of the implications the findings may have for consumers of legal services
6. Preparation and submission of research outputs and dissemination of results to the legal profession