Legal Business Blogs

Guest post: Why ‘Big Ideas’ are often wrong and the fallacies of legal myths

Why do ‘big ideas’ or ‘monolithic ideas’ become so accepted when under analysis and the test of time they so often prove to be wrong? It has always seemed especially strange for monolithic thinking to have caught on in the legal sector, an industry whose lifeblood is enthused with the need for careful checking of details and not taking statements at face value.

Such monoliths come and go, but a few that are in current usage include:

Mid-tier firms will all go bust eventually – the thinking behind this one is that if you are not a huge global firm, or not a niche/specialist firm then you’ve had it. But, this isn’t true. There are plenty of firms that serve the mid-market and do very well and are not super niche, nor global in terms of offices. One reason why they will remain is that there are thousands of clients that relate to such legal advisers. They like their spread of practices and their culture. They also find that many of these firms can arrange cross-border legal advice when needed, which leads to the next point.

The only way to serve global clients is to open offices all over the world – the argument goes that if you don’t follow the one-stop-shop model you’ve had it. But again, this isn’t true. Many global firms are very successful, but many ‘independent’ firms are also able to service their clients using referral or best friends networks. In fact, there are far more top tier independent firms in the world than there are global firms (at last count about 30 or so versus dozens and dozens of quality independents around the world). Is one model better than the other? Is this a zero sum game, where one model must eliminate the other? The answer is no. Markets and client demand are not so simplistic. Both can do well as long as clients see the value in both….and they do.

The legal market is facing blanket consolidation, especially in the UK – there have been many mergers, but there are also many new legal services providers working on major commercial matters in the UK. If one considers the increase in US law firms in London doing English legal work, plus the flexible resource businesses, plus the growth of the Big Four legal teams and the development of ABSs such as those funded by insurance companies, one finds that there is an equally strong argument for a trend toward more players in the market. While it is true there have been ‘a lot’ of mergers, especially in PI and also in Scotland, over the last few years, we are not seeing the ‘blanket consolidation’ some would like us to believe in. In fact, 2014 saw far less mergers in the UK than the previous year (I’ll come back to this one in the next post).

Technology will put all lawyers out of a job – as examined in a previous post, this is not going to happen and is perhaps based on some confusion over what ‘a lawyer’ actually does as compared to paralegals and those junior legal staff whose life is one endless processing of documents. If all you do is process work and these tasks can readily be turned into a piece of software one might say that such a job is not really that of a lawyer who thinks through the law and advises clients. Moreover, someone still has to check the output of all this software. Does your law firm really want to send out loan warranties that have not been considered by a human? Good luck to you and your Professional Indemnity insurer if you trust software to make the call.

The list of ‘truths’ that turn out not to be true could go on (and please add your own favourites in the comments section). Other classics from the past that won’t be examined in detail include:

  • The legal market will mirror the accountancy profession and there will soon be a Big Four of law firms – that didn’t exactly turn out to be true.
  • Because external investment is now possible private equity funds will soon take stakes in many major commercials firms and change the legal market forever – well, that didn’t happen either. Someone forgot to ask the equity partners whether they wanted to give up control before making that assertion.
  • Tesco (or other supermarkets) will launch legal arms and wipe out all the small law firms in the UK as there are no famous high street legal brands. This one didn’t turn out as planned either, even if one famous supermarket brand did give it a good try.

Why Are Monoliths So Seductive?

‘Big ideas’ have always been compelling. Who doesn’t want to believe in far simpler universe than the one we inhabit? Even if the outcome of such predictions can sometimes be against us, humans still tend to want to extrapolate into the future using the most meagre of starting facts.

Central to this way of (un)-thinking is the idea of ‘disruption’, a creed that has grown out of industrialisation and more recently and perhaps especially from the culture of Silicon Valley technology companies.

Technology companies that make consumer goods need us to believe that what they have made is better than what came before. The logic goes that if people use ‘X’ to fulfil a need then it can be replaced with ‘Y’, which is faster, more efficient, less expensive. The end result will be that ‘X’ fades away, in fact, must go extinct.

The same logic is then used to project forward. ‘Y’ will eventually be replaced by ‘Z’ and all the people that still hold onto ‘Y’ also will be out-dated. Once a pattern of replacement has been set in motion, goes the logic, there can be no end to it. Technology will improve and wipe out all before it in that particular segment of the market.

The same logic is then applied to anything that appears to be new, or original, or simply was not there before and appears to have some momentum.

Rooting for the new is exciting. There is also a sense of kudos one gains from buying into the idea one will be on the ‘winning side.’ Talking about innovation and disruption sounds a lot more fun that considering cold, hard reality.

The issue is complicated by the fact that the disruption approach is real and does have an impact in certain areas. The hard to swallow part for some is that its impact is not universal. Nor are its effects felt uniformly, nor permanently. Here are some examples:

  • Digital watches will wipe out analogue watches – in the 1980s it certainly seemed that way. However, the watch industry reinvented itself. One part of the industry, such as Swatch, created bright, fun, lower priced watches for a youth market that competed with the nerdy digital watches. The other part of the market saw that ‘time pieces’ could still be a luxury item and pushed that idea to its extremes. Walk around London’s West End and it is clear the wristwatch is not dead. Now the Apple Watch and other wearables are creating a new front in this battle. But the end result is not guaranteed for the ‘disruptors’.
  • Video tapes will wipe out cinema – when video stores first arrived it was predicted that cinemas had met their doom. Cinemas responded by providing more choice via the multiplex, while studios pushed the creation of extravagant blockbusters to get people back into the theatres rather than stuck at home. Of course, downloadable content and massive HD TV screens have now created a new challenge. Cinemas will no doubt fight back again.
  • E-readers will wipe out physical books – when Kindle and other e-readers became widespread in the late 2000s it was ‘certain’ that physical books were dead. In 2015 sales of physical books in the UK are actually on the increase. One of the UK’s most venerable names in bookselling, Foyles, has just reopened its flagship shop on Charing Cross Road in London. Booksellers are growing in confidence even if they have needed to develop websites to sell their ‘hard copy’ books.

So, what happened? Why didn’t disruption wipe out ‘X’? The reason is because the world is not a single lane motorway with the traffic all going in one direction. It is only in certain areas of the market where what came before can be 100% replaced with something that 100% of the customers/clients think is far better.

What usually happens is that the client base understands it can gain value and benefit from all that is on offer, old and new. Unlike the people selling the one-dimensional view of the world they do not experience the world in that way, nor want to.

It is true that sometimes technologies do beat each other to death. But this often happens when there is a ‘format war’, such as between VHS and Betamax. The world could economically only choose one. It went with VHS, so Betamax was dead. But such instances are rare, especially so in such a complex market as legal services.

Another classic example is the Model T Ford versus the horse. Before the Model T there were literally dozens of small car companies across the world. Their machines were expensive, often faulty and had little impact on the horse and cart. Ford’s cheaper, commoditised vehicles took some years to become economically viable, but eventually they did. When they did it was goodbye to horses except for sport and leisure. The Model T didn’t so much disrupt travel as entirely replace a mode of transport on a global, systemic scale. Another example is the word processor versus the typewriter. Not so much disruption as complete annihilation of the opposition.

But – and it is a big caveat – such instances are not common even if they are compelling. The biggest danger is to take from a few examples a template that can then be applied to all ‘new’ things, tendencies and trends without first doing a reality check.

Diversity not Monoliths

Coming back to the legal market, what is more likely to happen is that we will see both disruption in some areas, as well as a continued appreciation by clients of value where there really is value to be found.

We will probably see in the future all and every possible model for a legal services provider, not just one.

We will have tech-led operations where there are just a handful of lawyers and the rest of the staff are IT experts, though the focus will be process.

We’ll have global firms perhaps even twice, or three times, as big as the ones today, but we’ll also still have plenty of excellent mid-tier, mid-market firms and we’ll have plenty of excellent firms doing international work with only one or two offices.

And, it would be interesting to see how many law firms there will be in London in another ten years. I would bet that there will be more, not less than there are today.

The truth is that most big ideas are too simple or insufficiently compelling to totally change the world. What they usually do is change part of it and the rest of the world carries on.

Richard Tromans is founder of TromansConsulting and has previously worked as a law firm consultant at Jomati and Hildebrandt International.