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Innovation: What’s holding us back?

Innovation: What’s holding us back?

By Jennie Pakula

Innovation Technology 

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The digital economy and technology present opportunities for the legal profession, yet few lawyers are entering this space. Does regulation stop innovation, or are there greater forces at work?

Snapshot
  • Market forces are putting pressure on the traditional model of one-to-one legal services. While the legal profession sees the need to adapt, there are some barriers to overcome. 
  • Uncertainty about the attitude of the regulator and insurer may inhibit development of new models, but the more likely culprits are be models of pricing and methods of customer service. 
  • The regulator is supportive of the development of new models of legal practice that are ethical and consumer-focused.

I have been in legal profession regulation for more than 25 years, working across two jurisdictions (NSW and Victoria). I have spoken to hundreds of lawyers and read thousands of complaints. It’s been interesting to see over this time that, while some things are different, there are many areas where not much has changed. I see an increase in the severity of problems and pains experienced by lawyers and clients arising from how legal services are done. Many lawyers, particularly practising in the general “personal law”1 and small business market, have told me they find it hard to make ends meet, that other service providers are chipping away at their client base and many of their clients are increasingly ungrateful, demanding and difficult. In the complaints and inquiries the Victorian Legal Services Board (VLSB) receives, clients continue to express frustration about the way their legal problems are handled, a lack of perceived value for money and the way their lawyers relate to them – and they are more willing to voice their concerns. 

Massive changes have taken place in the way commerce is conducted over this time. When I finished my law degree in 1987, few of us had our own computers and the World Wide Web did not exist. Now, everything is online and so much easier – shopping, movies, books, an extraordinary amount of commerce and an increasing number of professional services. What’s more, businesses compete with one another on customer experience – providing what people need and want with less friction and effort, greater speed and lower cost, and in a way that their customers find easy and satisfying to use. 

So, the big question is, what’s stopping the profession from running businesses like these? 

I would like to float a few ideas about what works for lawyers beginning to do things differently. I invite you to contact us at the VLSB to let us know whether this understanding is right, and what the regulator can do to help the profession thrive in the new environment. 

What is innovation? 

On hearing the word innovation, many people think of investing in expensive software systems or doing something that no one else has thought of. However, these are really pictures of what, among many options, you might do as a result of innovation. Innovation itself starts with paying close attention to a particular problem – seeing it differently and solving it differently. Some define innovation as “change that adds value”. Innovation is about doing things better – more efficiently, cheaper and faster for the user. 

Innovation can be incremental or it can be more radical. The more radical efforts are already underway and it’s likely to beonly a matter of time before we start seeing very different ways of offering legal services. For the majority of the profession, however, and particularly in the “personal law” area of the market, change is more likely to be incremental – but it may make a huge difference to lawyers and clients. Either way, it seems t that in order to survive and thrive in the long term, looking at solving clients’ problems differently is a skill that the legal profession must acquire. 

Why does innovation happen? 

Stepping away from the market for legal services, let’s consider how and why innovation happens in other sectors. 

Economist Joseph Schumpeter coined the term “creative destruction” to describe the way that a competitive market continually grows and evolves.2 As sellers compete for business in a market, they create new methods and products to get that all-important competitive edge. The online environment provides very different ways of doing things, and players in the market creatively use those ways to provide new ways of serving an existing need. This pattern can be seen in many sectors of the economy as a new and better product serves the needs of consumers in a way that they like more – easier to access, more desirable to use, cheaper and more effective. Think of Netflix displacing your local video shop or Google displacing AltaVista. 

What could be holding us back? 

“I’d like to do things differently, but the regulator/insurer won’t let me.”

This objection points to uncertainty about the impact of regulation and liability, but it also carries with it an underlying assumption that the way we’ve always done things is what the regulator and insurer require. It’s actually often the other way around – regulation and insurance requirements are generally a reaction to the way legal services are done – how lawyers have evolved in an environment of the profession having a monopoly on legal knowledge and provision of legal services.3

For example, the way the profession generally prices its legal services – an hourly rate – grew over the last century, particularly the last 50 years. Why? Because it was seen by lawyers as a reliable and easily calculated way of putting a value on legal services and pricing them accordingly, even though this may not necessarily align with a client’s perception of the value of those services.4 Regulation of costs has expanded in an effort to control some of the bad side effects of this method, including that in many matters clients had no idea of the price of the services until the end of the matter. To mitigate this problem, the regulation requires the lawyer to give an upfront estimate – which is difficult because of the hourly rate. It’s important to note that the hourly rate is by no means required as the method of billing – the requirement is that the client is told upfront how the costs will be calculated, which also encompasses a fixed fee.5 As regulator, we have no problem with a fixed price as long as the client has genuinely agreed to it after a full discussion with the lawyer about the value of the services – that the contract is fair and reasonable as much as the amount. 

In the US, a significant focus of reform is to allow non-lawyers to be able to own or co-own law firms. The reformers in the profession believe that this will help lawyers to collaborate more with technologists and other professionals in order to craft better, more service-oriented firms. In Australia we have been able to do this in some form since the Legal Profession Act 20046 and many lawyers are starting to take seriously the opportunities this presents. Regulation in this area is a lot less restrictive than many believe. As noted in articles in the April and December 2019 issues of the LIJ, the LPLC and the VLSB are collaborating in offering the profession the “Innovation Inbox” to test ideas and get our input on regulatory or liability issues that might arise. If you have any doubts about this, we invite you to contact innovation@lsbc.vic.gov.au to arrange a time to talk. 

That being said, the ethical principles of legal practice remain. The VLSB will continue to take action if any service, no matter how innovative, is dishonest, unethical or harmful to clients. However, the method of legal practice is a lot more flexible. 

Finally, we do agree that regulation is not perfect. There are some points at which it may, without any ethical underpinning, fetter efforts by lawyers to practise differently. Please talk to us about this – we need to know about your experiences and insights. 

“My clients are happy with my services. Why should I change?” 

Lawyers on the innovation road would reply: how do you know, have you asked them? Another question might be, what might induce them to change lawyers, or to use another service entirely if it worked better for them? If you don’t know what your clients like and don’t like about your firm, you may be missing opportunities to be even better and to get rid of irritants that you might not be noticing. 

Many firms are seeing their path to growth and greater effectiveness mapped out for them as they have these conversations and focus closely on their clients’ experiences. A frank conversation gives an opportunity to see a problem and work out how you can fix it – often something quite small and easily done. However, be aware that many clients, while liking their lawyers personally, may hate the way legal services are being conducted and may be a ready market for more user-friendly services that represent, for them, better value for money. 

The reality of our economy and technology is that knowledge of the law is far more freely available and online services are starting to grow that are in many ways better for clients than going to see a lawyer, particularly where the problem to be solved is not unusual. As Richard Susskind predicted, the “gatekeepers are being bypassed”7 – often by experienced lawyers – to provide new kinds of services that were never contemplated by the framers of the regulations. It is often either beyond our powers or contrary to our mission as a regulator to stop many of these developments. 

For example, a recent judgment in the England and Wales Family Court, JK v MK & Anor [2020] EWFC 2 found that an online service, “amicable”, that allowed couples to record and file non-contentious divorce applications and consent orders for property was not in breach of the relevant laws in relation to the unqualified practice of law. The service provided forms for divorce and various aspects of the settlement for filing in the Family Court. They simply checked that the forms were in order without advising the parties; and the platform provided a series of red flags that indicated where there may have been family violence or other circumstances that made consent orders unsuitable and provided a referral to a solicitor for advice. The decision is not authoritative here as the Legal Profession Uniform Law is quite different in its design from the UK regulatory scheme. However, it does indicate how a regulator might approach services like these, noting that a simple administrative tool can provide real benefits for parties who have already agreed on the terms of their separation. 

“Hang on. If you just leave documents and tools online for people to play with, they will mess it up and make things much worse for themselves.”

There are already online services that provide documents and information to users without advice and they are becoming increasingly popular. Although lawyers may see this as second best, consumers will go for it if the alternative is too expensive. If the service is indeed purely administrative, it can be simply a user-friendly self-help tool – a tech-enabled version of a lay person sitting down with a precedent form and working through it themselves. That is not something the legal regulator can restrict.8

The development of these online tools demonstrates that there is a massive market for legal services that is not being met and technology is starting to provide ways for lawyers to access and service those markets. Why not take the opportunity to make the administrative work more efficient, adding the value of legal advice (for example in a video chat) where the circumstances warrant it? Why not provide an online unbundled service9 for an area of your expertise? The opportunities are many and the profession is far from doomed. 

“I don’t know where to start.” 

The late great Harvard Business School professor Clayton Christensen argued that business needs to ask, what is the job to be done? He made the point that when a person buys a product, there are many jobs that they “hire” it to do.10 He gave the example of research into why people buy McDonald’s thickshakes. One cohort buys them on the way to work because they want something that will fill them up and take a long time to consume during their boring commute. Another cohort buys them because they want something that will allow them to linger at the restaurant table while they catch up with their kids. So, ask your clients: what is the job that you hire me to do? – that is, what do I do that is most valuable to you? You might think it’s negotiating the biggest share of the matrimonial assets you can reasonably get for your client but they might think it’s having someone to help them salvage some dignity and survive the crushing blow of a family breakdown. Knowing their perspective might change the emphasis of your services and the way you present them and result in greater client satisfaction. 

Organisations who are successfully changing the way they practise start with their clients – finding out what they really want and how they experience their interaction with you as their service provider.11 For example, you might try to map the journey of every contact a client has with your firm. Include all your staff in this exercise – for example, your receptionist will have the opportunity to observe your clients’ experiences in a way that you might not. 

  • Are there administrative tasks that you could automate, say, by taking instructions through the use of a chatbot?12 
  • Do you have specialised knowledge that you could offer clients on a subscription pricing basis?13
  • Do you have clients who have compliance issues in a particular industry?
  • Could you think of a way of automating certain parts of a process or of a tool that might help them navigate their way through the issues? 

Many lawyers are beginning to learn skills such as human centred design, which is an approach to discovering and thoroughly describing problems, and then using experimentation and feedback to design a “desirable, feasible and viable”14 solution. 

There are so many tools now available that can make a lawyer’s job more efficient and the client’s experience better, and there is a vibrant, excited community of lawyers that are seeking, together, to do law better than ever. 

“If I automate everything, how am I going to run a profitable law firm?”

Pricing is one of the keys to innovation. Pricing your services by an hourly rate means that you are selling your time to clients and the sale of your expert knowledge and advice is incidental to this. If you price by time rather than value, creating time-saving shortcuts can hit your revenue in an unacceptable manner. On the other hand, if you create services that provide a valuable and helpful experience for your clients, they are often willing and even happy to pay well for those services. 

Learning how to price services by value is not always easy and can be quite counterintuitive when generations of lawyers only know how to bill by an hourly rate. However, it is possible and an increasing number of firms are using this method with very positive results. Not only are the clients happier, but the lawyers are more focused on their relationships with the clients and more creative and effective in how they provide their services. The managing principal of a firm which has been value pricing for the best part of a decade recently said to me: 

“We thought we were just changing the pricing model but once you scope and price everything up front, everything else changes. The clients change. You realise that the work you should be doing is for clients for whom you can create value. Clients don’t object to lawyers making profit if the client’s profit is so much more. Both sides are winners.” 

You can do this

The keys to innovation are to focus on a problem that needs to be solved – for your clients or indeed for a whole new market of clients – and to work out how to price your services in a way that represents value for those clients. 

There are many reasons for the profession to embrace the new possibilities that technology opens up and there are many good resources to help you get started. There is much that the LIV can do to bring together people who are working on change, including tapping into the knowledge of the many members who are already down the innovation track. As the regulator, we thoroughly support positive change. So, if you have any idea for something new, no matter how preliminary, please contact us through the Innovation Inbox: innovation@lsbc.vic.gov.au. ■


Jennie Pakula is Innovation & Consumer Engagement manager, at the Victorian Legal Services Board + Commissioner. She previously managed the inquiries and complaints assessment team. She is a member of the LIV Technology and the Law Committee.

  1. Eg, in areas where clients have a rare and often emotional encounter with the legal system such as in family law or probate.
  2. Theory propounded in Joseph Schumpeter, Capitalism, Socialism and Democracy, 1942.
  3. For a longer discussion of how the model evolved, see Jordan Furlong, Law is a Buyer’s Market: Building A Client-First Law Firm, Jordan Furlong, 2017, ch 4.
  4. Paul Dunn and Ron Baker The Firm of the Future: A Guide for Accountants and Other Professional Services, John Wiley & Sons, 2003, p164.
  5. Legal Profession Uniform Law (Vic) 2014, s174(1)(a) provides that a law practice must disclose the basis on which costs will be calculated; and s174(2)(a)(ii) includes the client’s right to negotiate the billing method (eg, “by reference to timing or task”).
  6. Through incorporated legal practices and multi-disciplinary partnerships (Part 2.7).
  7. Richard Susskind and Daniel Susskind, The Future of the Professions: How Technology will Transform the Work of Human Experts, Oxford University Press, 2015, pp106-107.
  8. At present, any online services that are not engaging in legal practice are simply consumer services that are regulated under the Australian Consumer Law & Fair Trading Act 2012 and, therefore, within the remit of Consumer Affairs Victoria.
  9. Part tailored self-service, with individual lawyer attention at the right points.
  10. For an introduction to this concept listen to the interview: https://hbr.org/podcast/2016/12/the-jobs-to-be-done-theory-of-innovation?referral=03759&cm_vc=rr_item_page.bottom.
  11. See David Sharrock, Fighting for Enterprise Success: Through the Eye of the Tiger, Tiger Publications, 2018.
  12. See Peter Moran’s Technophile column, “Meet Josef”, LIJ, July 2019, p66.
  13. Eg, https://podcasts.apple.com/au/podcast/subscription-based-law-firm-jon-tobin-counsel-for-creators/id893874169?i=1000462165232.
  14. See IDEO.org, Field Guide to Human Centred Design, 2015, https://www.ideo.com/post/design-kit, p14.

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