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.