“Notorious RPV” and Innovation in Law (Part 2): RPV applied to Legal Innovation

In my first post summarizing Christensen’s “resources processes and value” theory I laid out what the theory is, and how it applies to disruptive technology and business models.  We started to look at how the RPV of law firms, locked into the “solutions shop” business model, may experience constrains on innovation.  But why are law firms locked into this “solutions shop” business model? For this, we must understand the unique role that regulation plays within the legal marketplace, and its role in perpetuating a singular RPV. 

At this point, I would be remiss if I didn’t direct readers to Ray Worthy Campbell’s excellent paper “Rethinking Innovation” (which can be hard to find; DM me if you want a copy to use – for copyright appropriate purposes, of course). Campbell discusses at length the application of value configurations theory to legal innovation in the US market, breaking down Christensen’s research and its application to the current state of legal innovation. 

Both Campbell and I think that we can understand the challenges facing legal innovation today primarily through an understanding of value configurations and their RPV. As business literature on innovation makes clear, successful incumbents do not exist in a vacuum and are intermeshed in a network of resources, processes and values optimized to existing clients, all of which will resist change. There remains the risk that new entrants will compete with new technologies or business models that follow Christensen’s “moving upmarket” “value chain innovation theory”.

 Campbell notes that much writing on legal innovation, including Susskind’s, has focused on technology as the driver of innovation; however, “[a]s disruptive innovation theory has matured, business models and value configurations have taken center stage as the real enabler of disruptive innovation.”

 Thus, the ability of disruptive innovation theory to explain what is happening relies only in part on actual technical or business model innovation. To truly understood how innovation takes root depends on understanding the market.  And, for the legal services market, that means understanding why the solutions shop business model dominates the legal services and law market, and also understanding the role that regulation plays in creating and constraining the market.  

 Impact of the Regulation of Legal Services

Campbell offers this insight: the professional rules that apply to lawyers lock them into the solution shop model and prevent new entrants from offering anything within that model, and in some cases, in any other model.     

The “practice of law” is not precisely defined – as Ken Grady had noted – but is circumscribed within a very detailed set of rules that set out in detail what is “acceptable” legal practice. These professional rules serve the purpose not of defining a product (i.e. a legal service) but of mandating a particular way of doing work that a client wants done.  Legal services are not what is done but how it is done. The regulatory framework mandates that lawyers deliver services using only the solution shop model. Any other value configuration than the solution shop is not “the practice of law” and is not acceptable. (Campbell breaks down in detail what this means, and I commend a full reading of this paper.)

Campbell describes “two hemispheres” in the delivery of legal services – the corporate and the consumer hemispheres – which is more than “a divide within the bar”. These constitute separate markets. Individuals and consumers have different needs, and operate within different RPV frameworks, with different resources, processes and value configurations operating within each market.  According to the regulatory framework, both must hemispheres must deliver legal services within the solutions shop model; however, recently, the corporate side has been more successful in evading these regulatory constraints.    

He notes there has been creeping “de facto” deregulation in the corporate hemisphere, and points to the rise of LPOs and law companies, increasing deliberate use of co-operation and co-ompetition (competitors collaborating on delivery), extensive automation and other mechanization of processes. There has been a LOT of innovation in this hemisphere (even if some aren’t happy with the pace and want more of it, faster). Additionally, Campbell notes there has been almost no regulatory or similar enforcement applied against these developments. 

Largely, corporations are consuming these services through the General Counsel or similar office, purchasing through a lawyer, who assumes the “supervision” requirement under existing regulation, and it becomes the General Counsel’s office that now takes on the vestiges of the model of the “solutions shop”. It is arguable that the rise of the General Counsel and CLOC both reflect and contribute to the ongoing deregulation of this market, largely through disaggregation of services that used to be provided exclusively through the solution shop of the law firm.

While disaggregation has opened up substantial innovation for the law department consumer, law departments themselves are also subject to RPV forces. Innovations that do not fit within a law department’s RPV – its resources, processes and values – will have a hard time gaining traction within that department, and possibly within the overall corporate hemisphere market. 

In contrast, there has been limited and less innovation in the consumer hemisphere because the solutions shop model remains largely intact. Individual consumers are generally constrained by absolute cost and are also not able to effectively counteract a challenge to the “unauthorized practice of law”.  

What Notorious RPV suggests about the likely path of Innovation

Chistensen’s RPV lens – whether through technology or value configuration – helps us make sense of the existing state of innovation in the legal landscape, including where and how innovation is occurring and what might come next (and from where).  Notorious RPV suggests:

·      It is likely, within the existing regulatory framework, that the majority of innovation will occur within the corporate hemisphere.   

• Innovation will depend on the transition to different value configurations, and a focus on new business models (and not just the adoption of new technology, although doing so many be important to achieve sustaining innovations within a firm or law department).
• Changes to the regulatory framework that permit RPV models other than the solutions shop may enable truly disruptive innovation; without that, the ongoing de facto deregulation of the corporate hemisphere may permit experimentation within the law department in close collaboration with providers that offer different models and RPV, only to the extent that the RPV of a law department is not co-extensive with its law firm suppliers within its existing network.
• Some of the divergence identified within the Altman Weil survey might be explained by RPV (law firms doubling down on either the existing solution shop model, and offering sustaining innovations OR trying spin-offs adopting different RVP models for this)

Additionally, the concepts underlying Notorious RPV may help:

• technology and alternative services providers better develop and articulate go-to-market strategies that correspond with the existing RPV frameworks of their targets. Understanding the “three market segments” from Post 1, may shed light on what is possible for new entrant “upmarket” disruption, looking to Christensen’s “unfilled” markets analysis from Post 1.  
• explain why lawyers insist on “working up a solution” to every legal problem presented; even when on its face this might appear to be unnecessary.  Remember, it’s not that lawyers are “dumb” or don’t like technology – it’s that their regulatory framework requires them to be this way, or they are not practicing law!