applying the mckinsey 7-s model to assess innovation

Applying The McKinsey 7-S Model To Assess

Innovation Efforts In Law Firms

A Thesis submitted to the Bucerius Master of Law and Business

Program in partial fulfillment of the requirements for the award of the

Master of Law and Business (“MLB”) Degree

Thanigai Adhavan Muthusamy

July 26, 2019

~ 14,200 words (excl. footnotes, lists, graphs, appendices)

Supervisor 1: Prof. Clifford Larsen

Supervisor 2: Prof. Dr. Alexander Wulf

Table of Contents

i

Table of Contents

Table of Contents ................................................................................................................... i

List of Figures and Tables .................................................................................................... iv

List of Abbreviations ............................................................................................................. v

1 Introduction ..................................................................................................................... 1

2 Research Question, Literature and Methodology ........................................................... 3

3 Legal Technology and Operations .................................................................................. 5

3.1 The Emergence of Artificial Intelligence ............................................................... 5

3.2 What is Legal Technology? .................................................................................... 6

3.3 What is Legal Operations? ...................................................................................... 7

4 The Business of Law Firms ............................................................................................ 9

4.1 Traditional Business Model .................................................................................. 10

4.2 Key Performance Indicators in Law Firms ........................................................... 12

4.3 The Pressure to Innovate and Change ................................................................... 15

5 Change Management .................................................................................................... 19

5.1 Theories and Models of Change Management ..................................................... 19

5.1.1 The Three Step Model of Lewin and Schein ................................................ 20

5.1.2 Diffusion of Innovations Model.................................................................... 20

5.1.3 The Kübler-Ross Model ................................................................................ 21

5.1.4 John Kotter’s Eight-Stage Model .................................................................. 22

5.1.5 The ADKAR Model ...................................................................................... 23

5.1.6 The McKinsey 7-S Model ............................................................................. 24

5.1.7 Choosing a Winner ....................................................................................... 26

Table of Contents

ii

5.2 Defining the Variables of Innovation in a Law Firm ............................................ 27

5.2.1 Innovation Hubs ............................................................................................ 28

5.2.2 AI/ Machine Learning Application in Legal Practise ................................... 28

5.2.3 Data Analytics ............................................................................................... 28

5.2.4 Knowledge Management .............................................................................. 28

5.2.5 Legal Project Management ........................................................................... 29

5.2.6 Legal Operations ........................................................................................... 29

5.2.7 Creative or Alternative Compensation Methods........................................... 30

5.2.8 Client Inclusivity ........................................................................................... 30

5.2.9 Legal Tech Provider Inclusivity .................................................................... 31

5.2.10 Openness to New Structures ......................................................................... 31

5.2.11 Internal Reward Structure ............................................................................. 32

5.2.12 Innovation Time ............................................................................................ 32

5.2.13 Innovation Budget ......................................................................................... 33

5.2.14 Innovation Inclusivity ................................................................................... 33

5.2.15 “Lawyer+” Skills .......................................................................................... 33

5.3 Placing the Variables under the McKinsey 7-S Model ......................................... 35

5.3.1 Superordinate Goals/ Shared Values ............................................................ 35

5.3.2 Structure ........................................................................................................ 35

5.3.3 Strategy ......................................................................................................... 36

5.3.4 Systems ......................................................................................................... 36

5.3.5 Style .............................................................................................................. 36

5.3.6 Staff and Skills .............................................................................................. 37

Table of Contents

iii

6 Applying the McKinsey 7-S Model to a Law Firm ...................................................... 39

6.1 Law Firm 1 ............................................................................................................ 40

6.2 Law Firm 2 ............................................................................................................ 43

7 Conclusions and Limitations......................................................................................... 46

Bibliography ........................................................................................................................ 48

List of Figures and Tables

iv

List of Figures and Tables

1) Figure 1: Leverage in law firms 11

2) Figure 2: Comparison of current law firm structure with tomorrow’s

law firm

14

3) Figure 3: Chart showing the percentage (%) of respondents in the

Altman Weil Surveys who stated that the recent changes in the legal

market are permanent

16

4) Figure 4: Flow chart illustrating Kotter’s Eight-Stage model 22

5) Figure 5: Illustration of the McKinsey 7-S model 25

6) Figure 6: Comparison of old skills with new skills for lawyers 34

7) Figure 7: Modified McKinsey 7-S model with the Innovation

Variables

38

8) Figure 8: Scoring scale to evaluate innovation efforts 39

9) Figure 9: The McKinsey 7-S model applied to Smart & Savvy LLP 42

10) Figure 10: The McKinsey 7-S model applied to law firm X 45

List of Abbreviations

v

List of Abbreviations

1) AI Artificial intelligence

2) CLOC Corporate Legal Operations Consortium

3) E.g. For example/ Example given

4) fin-tech/ fintech Financial technolgy

5) KPI Key Performance Indicator

6) legal ops/ legal-ops Legal operations

7) legal tech/ legal-tech Legal technology

8) M&A Mergers and Acquisitions

9) ML Machine learning

10) UK United Kingdom

11) USA/ US United States of America

Introduction

1

1 Introduction

In the opening lines of his book, Tomorrow’s Lawyers: An Introduction to Your Future,

author Richard Susskind identifies three Drivers of Change working together to bring an imminent

transformation of the legal industry.1 These are:

1. The ‘More-for-Less’ challenge,

2. Liberalization, and

3. Technology (specifically, information technology).2

These forces, says Susskind, are,

“urging law firm leaders around the world to contemplate opportunities and threats

that the legal market has had little reason to confront in the past. With clients under

cost pressures and the business environment changing rapidly, prudent law frms

everywhere are trying to develop compelling responses to the new market conditions.”3

From the list above, the last Driver of Change – technology – deserves a special

acknowledgement for bringing about change not just in the legal industry. Indisputably, it has been

a ubiquitous and powerful change driver since the earliest days of computers.

In a thesis about law firms and change, technology deserves a closer scrutiny, thanks to the

resistance lawyers have shown to adopt new technologies.4 One important reason for slower

adoption of technology in this area is the arrangement of reward structure in this business; law-

firms, the most common form of business organization for lawyers, have been profitting from a

revenue model that is built on inefficiency.5 In a system where money earned by lawyers is directly

proportional to the hours worked, efficiency does not become a priority for a law firm. Though

technology can increase productivity and lower prices, law firms have largely held on to their

billable hours model to charge clients.6

By resisting to adopt improvements to the value delivery system in the business, lawyers and

law firms have not allowed clients to truly benefit from technological advancements. Recent

reports also clearly state that in comparison to related fields like financial services, where financial

1 Richard E. Susskind, Tomorrow's Lawyers: An Introduction to Your Future, Second edition (Oxford, United

Kingdom: Oxford University Press, 2017), 3. 2 Susskind, Tomorrow's lawyers, 3. 3 Susskind, Tomorrow's lawyers, 16. 4 Richard E. Susskind, The End of Lawyers? Rethinking the Nature of Legal Services, Revised ed. (Oxford, New York:

Oxford University Press, 2010), 22. 5 Simon Thompson, “Law Firms Slow to Embrace 'new' Technology Due to a Lack of Desire and Motivation to

Change,” accessed June 21, 2019. 6 Susskind, The End of Lawyers?, 150–51.

Introduction

2

technology (also written as: fin-tech or fintech) is more prevalent, technology in the legal industry

has lower penetration.7 Note that the word used in the first sentence above is ‘adopt’ not ‘develop.’

Another way of stating the same message is to say that there is greater technological capacity for

use by the legal sector, but it is not being fully utilized. Technology is ahead of its users – in this

case lawyers.

This resistance to using new technology is not a new challenge. It has been successfully

overcome many times in different industries. However, the problem must be viewed within the

larger context. Technology adoption is not a linear change that happens merely by learning skills

or training people in using new tools; it almost always comes with a change in business models.

Technology adoption is not an independent activity or goal to be accomplished with all other

factors remaining constant. To leverage technology, the entire value creation and value sharing

mechanism has to evolve. In other words, business models have to change.8 But change is easier

said than done.

While Drivers of Change acting strongly to reshape the legal industry and law firms may be

a new phenomenon, organizational change has always been a challenge for most other businesses.

Over the years, this challenge has been studied and many change managements models and

theories have been developed to help managers in organizations ease the process of change.9

Different law firms may be at different stages of accepting the reality that the legal market around

them has changed for good.10 At this juncture, this thesis attempts to apply wisdom from change

management to aid law firms who are struggling with innovation and change.

In fact, suggestions on how to apply change management models to specific problems within

a law firm already exist.11 However this thesis attempts to develop a self-assessment tool, based

on a selected change management model that can serve as an innovation compass to those law

firms that are willing to transform themselves to fit the new market reality. This thesis aims to

provide a tool for leadership in law firms who ask themselves, “Are we doing the right things now

to become a competitive and innovative firm in the coming years?”

7 “Lawtech Adoption Research” (The Law Society of England and Wales; Tech Market View, 2019),

https://www.lawsociety.org.uk/support-services/research-trends/lawtech-adoption-report/, 21. 8 Mark A. Cohen, “New Business Models- Not Technology- Will Transform the Legal Industry,” accessed July 8,

2019, https://www.forbes.com/sites/markcohen1/2018/11/08/new-business-models-not-technology-will-transform-

the-legal-industry/#334b433a18cc. 9 John Hayes, The Theory and Practice of Change Management, 4th edition (Houndmills Basingstoke Hampshire,

New York NY: Palgrave Macmillan, 2014), 4–21. 10 “2019 Report on the State of the Legal Market” (Thomson Reuters; Georgetown Law, 2019),

http://ask.legalsolutions.thomsonreuters.info/LEI_2019-State_of_Legal_Mkt, 13. 11 Arne Byberg, “Change Management for Lawyers: What Legal Management Can Learn from Business

Management,” in Jacob; Schindler; Strathausen, Liquid Legal, 175–90.

Research Question, Literature and Methodology

3

2 Research Question, Literature and Methodology

My research began by trying to understand how the legal industry is changing, and what

changes are radical and permanent. Legal technology (also written as: legal tech, or legal-tech)

and legal operations (also written as: legal ops or legal-ops) were two themes that repeatedly

emerged in many sources – books, opinions, articles, surveys and blogs. Among others, some

opinions and comments from experts aroused my curiosity about the general direction of

innovation in the legal industry. “Legal Tech: The Era of Bad Ideas,”12 “Law Firm Innovation &

the Limits of Current Tactics: Altman Weil’s 2017 Law Firms in Transition Survey,”13 and “10

things that law firms are saying that kill innovation”14 were some of the headlines that kindled my

curiosity to dig deeper.

Upon looking at market study reports and surveys, a number of issues affecting the legal

industry, and particularly law firms, emerged. Within these, one theme appealed to me the most -

that of innovation in law firms not being guided in the right direction by leadership. Clearly,

something was lacking here. I decided to focus on this narrow issue as a topic for this thesis.

Legal technology and innovation in law is a rather new field. Though, authors like Richard

Susskind have written about it a few years ago, much of the information generated on this topic is

rather recent. Since this thesis highlights the market reality to understand the industry landscape,

a large part of the data used has come from surveys and market study reports. Since the thesis also

relies on works from the discipline of change management, original sources, particularly books

and journal articles that published the original authors’ ideas have been used. E.g.: In Search of

Excellence,15 the book in which the McKinsey 7-S model was originally discussed by its authors.

After capturing the reality that confronts law firms vis-à-vis the question of innovation, the

thesis explores the viability of applying a selected change management model to help overcome a

narrow challenge in the process of innovation in a law firm. Models and theories in change

management do not return objective results, but they serve as reliable tools to clarify and bring

forward hidden issues. The application of a change management model in this context is not strictly

objective, but is suggestive and prescriptive. A combination of descriptive and comparative

methods has been used to select a change management model, and two sample cases have been

12 Zachary Korman, “Legal Tech: The Era of Bad Ideas,” University of Oxford, accessed July 20, 2019,

https://www.law.ox.ac.uk/business-law-blog/blog/2017/12/legal-tech-era-bad-ideas. 13 David Curle, “Law Firm Innovation & the Limits of Current Tactics: Altman Weil’S 2017 Law Firms in Transition

Survey,” Legal Executive Institute, accessed July 20, 2019, http://www.legalexecutiveinstitute.com/law-firm-

innovation-altman-weils-2017-survey/. 14 Shaun Temby, “10 Things That Law Firms Are Saying That Kill Innovation,” accessed July 20, 2019,

https://www.linkedin.com/pulse/10-things-law-firms-saying-kill-innovation-shaun-temby/?trk=mp-reader-card. 15 Thomas J. Peters and Robert H. Waterman, In Search of Excellence (New York: HarperBusiness Essentials, 2004,

1982).

Research Question, Literature and Methodology

4

used to demonstrate its application. The model used, and the context in which it is applied, serve

as a preliminary guide for more thorough work in this area.

Thesis statement: The McKinsey 7-S model can be used by law firms to assess their

innovation efforts and identify areas that deserve more attention.

Legal Technology and Operations

5

3 Legal Technology and Operations

Legal technology and legal operations are two developments that are critical to

understanding the context that gives meaning to this research. While technology as a key factor in

a changing market has been introduced in chapter one, legal technology, as a category, must be

discussed to understand its role and limitations. Legal operations on the other hand can be seen as

an effect of the ‘More-for-Less’ challenge that Richard Susskind described. Its emergence and its

implication for law firms as providers of legal services is discussed in this chapter.

3.1 The Emergence of Artificial Intelligence

Any discussion about legal tech would be incomplete without a proper reference to artificial

intelligence (also written as: AI). The reason is rather simple, legal tech has become a distinct field

largely because of the emergence and popularity of AI. Though the legal world has used

technology for some time, some authors believe market liberalization (in a limited context) and

technology’s influence on businesses overall have made AI in the legal industry more popular.16

AI still remains an elusive concept to many. But, its capacity to perform complex tasks has proven

that it is more than just a buzz word.17

The online Oxford dictionary defines AI as, “The theory and development of computer

systems able to perform tasks normally requiring human intelligence, such as visual perception,

speech recognition, decision-making, and translation between languages.”18 It can be

distinguished between “weak” and “strong” AI.19 “Weak” AI as the name suggests is not truly

intelligent in the human sense. “Weak” AI can be best understood by distinguishing it from

“strong” AI – “It uses models of a problem domain given to it by programmers. Weak AI cannot

perform autonomous reduction, whereas strong AI would have a real understanding of a problem

domain.”20

While debates continue on whether “strong” AI is even possible, all advanced functions in

the name of AI, including all of today’s legal tech use “weak” AI. In practise that means that a

computer is only able to solve a specific set of tasks and it cannot autonomously analyse and

understand a problem it is presented with. More importantly, technology has not progressed

16 Joanna Goodman, Robots in Law: How Artificial Intelligence Is Transforming Legal Services (London, United

Kingdom: ARK Group, 2016), 6. 17 Micha-Manuel Bues and Emilio Matthaei, “LegalTech on the Rise: Technology Changes Legal Work Behaviours,

but Does Not Replace Its Profession,” in Jacob; Schindler; Strathausen, Liquid Legal, 93. 18 “Definition of Artificial Intelligence,” Oxford English Dictionary, accessed July 20, 2019,

https://www.lexico.com/en/definition/artificial_intelligence. 19 Goodman, Robots in law, 5. 20 Micha-Manuel Bues and Emilio Matthaei, “LegalTech on the Rise: Technology Changes Legal Work Behaviours,

but Does Not Replace Its Profession,” in Jacob; Schindler; Strathausen, Liquid Legal, 93.


6

enough to render independent legal advice.21 However, its influence largely stems from enabling

lawyers to be faster at their work by speeding up many tasks.

3.2 What is Legal Technology?

In its simplest form, legal technology can be conceived as the application of new technology

for achieving various goals in the legal services industry.22 Authors who endorse such broad

definitions elaborate more to include its specific uses and functions. One such definition of legal

tech describes it as, “…technology and software used in the legal profession… This definition of

LegalTech encompasses the high end uses of technology, such as AI, for legal reasoning, as well

as the apparently more mundane use of Software for billing or case management.”23 Still others

restrict its meaning to only those software that “directly affect the provision of legal services,…”24

This last narrower definition would not accommodate broader developments in technology (such

as cloud technology) under the heading of legal tech, but restricts itself to specific tools, such as a

given documents automation software, or a decision automation tool.

The vast array of technology that is available in this area can be further classified. One such

classification (which assumes a broader definition of legal tech), from a report published by

Bucerius Law School and the Boston Consulting Group, layers the technology into three segments,

namely:

1) Enablers,

2) Support-process solutions, and

3) Substantive law solutions25

This categorization is based on the broad function(s) the said technology provides. For

example, cloud technologies which enable documents and files to be stored on the cloud is an

enabler technology, while case management software and billing software would fall in the second

category of support-process solutions.26

21 “AI in Law: Definition, Current Limitation and Future Potential,” Legal Tech Blog; Wolters Kluwer, accessed

June 23, 2019, https://legal-tech-blog.de/ai-in-law-definition-current-limitations-and-future-potential. 22 Micha-Manuel Bues and Emilio Matthaei, “LegalTech on the Rise: Technology Changes Legal Work Behaviours,

but Does Not Replace Its Profession,” in Jacob; Schindler; Strathausen, Liquid Legal, 90. 23 Micha-Manuel Bues and Emilio Matthaei, “LegalTech on the Rise: Technology Changes Legal Work Behaviours,

but Does Not Replace Its Profession,” in Jacob; Schindler; Strathausen, Liquid Legal, 90. 24 Markus Hartung, Micha-Manuel Bues and Gernot Halbleib, Legal Tech - How Technology Is Changing the Legal

World: A Practitioner's Guide (München: Nomos; Hart Publishing, 2018), 6. 25 Christian Veith et al., “How Legal Technology Will Change the Business of Law,” http://www.bucerius-

education.de/fileadmin/content/pdf/studies_publications/Legal_Tech_Report_2016.pdf, 4. 26 Veith et al., “How Legal Technology Will Change the Business of Law,” 5.


7

There are also other classifications of legal tech tools which offer more diverse headings to

categorise the tools available in the market. Among these, a popular method is to identify the tools

based on the different niche functions they serve such as document automation, e-discovery, legal

research etc. E.g.: LawGeex, an AI-based contract review tool company, released a document in

2018, the In-House Counsel’s LegalTech Buyer’s Guide 2018.27 This document has categorized

the legal tech tools into sixteen different headings, including expertise automation, legal analytics,

contract due diligence, etc.

As a distinctive field, legal tech is still young. It would be reasonable to state that as tools

become more refined and the technology more wide-spread, one can expect to see different

approaches to classifying the tools. But for the purposes of this thesis, legal tech will carry a broad

definition encompassing all technologies that enable lawyers and law firms to deliver their services

in a faster, cheaper and more consistent manner. In other words, any technology that ever so

slightly pushes the legal industry, more specifically a law firm, to change or reconsider its classical

way of doing business shall be covered under the term legal tech. chapter five of this thesis deals

with specific tools and their role in an innovative law firm.

3.3 What is Legal Operations?

Apart from technology that now makes it possible for lawyers to deliver services faster, a

new phenomenon is up and rising in the legal industry. This is the rise of legal operations. Legal

ops came about to help in-house legal departments overcome challenges associated with legal costs

and other issues.28 Thanks to its utility, an entire new organization – The Corporate Legal

Operations Consortium (also written as: CLOC) - has sprung to promote legal ops with the

following motto, “The CLOC mission is to help legal operations professionals and other core

corporate legal industry players to optimize the legal service delivery models needed to support

the needs of small, medium and large legal departments.”29 CLOC lists 12 competencies as

necessary for legal departments based on their maturity.30

27 “The In-House Counsel's LegalTech Buyer's Guide - 2018 Edition” (LawGeex, 2018),

http://content.lawgeex.com/?isPreview=false&pdfile=http%3A%2F%2Fai.lawgeex.com%2Frs%2F345-WGV-

842%2Fimages%2FLawGeex%2520-%2520The%2520In-

House%2520Counsel%2527s%2520LegalTech%2520Buyer%2527s%2520Guide%2520-

%25202018%2520Edition.pdf&shortKey=4dKk. 28 Christian Veith et al., “Legal Operations: Getting More from In-House Legal Departments and Their Outside

Counsel,” http://www.bucerius-

education.de/fileadmin/content/pdf/studies_publications/Buc_BCG_Legal_Operations_Studie_2019.pdf, 3–4. 29 “About Us,” Corporate Legal Operations Consortium, accessed July 18, 2019, https://cloc.org/about-us/#meet-the-

board. 30 “A Primer on Legal Operations,” Corporate Legal Operations Consortium, accessed July 20, 2019,

https://cloc.org/wp-content/uploads/2019/01/CLOC-Legal-Ops-Primer-posting-draft-v1_01Jan2019.pdf.


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These are:

1) Financial Management

2) Vendor Management

3) Cross-functional Alignment

4) Technology & Process Support

5) Service Delivery & Alternative Support Models

6) Organizational Design, Support & Management

7) Communications

8) Data Analytics

9) Litigation Support & IP Management

10) Knowledge Management

11) Information Governance & Records Management

12) Strategic Planning31

A close look at these competencies is a good marker of how legal services is treated by

clients. While mostly seen as a benefitting set-up for in-house legal departments, law firms also

stand to benefit from legal ops. One recent report states that, “In particular, law firms that employ

people who can talk with and understand the needs of their corporate clients’ in-house legal

operations teams can provide better traditional legal services.”32 In other words, a firm can change

itself to deliver better legal services if it can accommodate legal ops compatibility within itself. By

re-understanding what clients’ needs are, law firms will be able to give themselves a direction in

uncertain business conditions.

31 Corporate Legal Operations Consortium, “A Primer on Legal Operations,” 5–7. 32 Veith et al., “Legal Operations: Getting More from In-House Legal Departments and Their Outside Counsel,” 21.

The Business of Law Firms

9

4 The Business of Law Firms

In a discussion about innovation and change, it is quite easy to get carried away with

discourses over technology and efficiency. However, technology is only part of the driver that

brings about change. While addressing law firms, and the pressures they are experiencing, the

present business model within which they operate cannot be ignored. As already stated in the

previous chapters, technological and business model changes often go hand-in-hand.

Technology, particularly legal tech cannot be seen as a ‘booster’ that can instantly speed up

lawyers’ and law firms’ workflow to achieve greater productivity. A good example to understand

the effects of legal tech is to compare the switch societies made from a horse-wagon to a motor

car. Both a wagon and a car achieve the same results and serve the same purpose. But, the speed

and efficiency with which they help achieve a given goal – in this case, transportation – is very

different. Most importantly, for the discussion in hand, it is necessary to reflect on the fact that a

car and a wagon require different skill sets to operate. A wagon driver cannot operate a car without

sufficient knowledge and training. The two vehicles also require different infrastructure and

systems in which to operate

Over the centuries, lawyers have organized their collective not as corporations and

companies, but in the way of a law firm, more specifically, a partnership with limited liability.

Within this structure, most of the legal work has been done by qualified lawyers who have been

historically assisted by secretaries and paralegals. Important decisions have been made by lawyers

who have stakes in the partnership.

For many years, law firms charged a fixed fee for legal work.33 But, over time, the revenue

model evolved to become directly related to the hours spent on a matter.34 However, thanks to

legal tech, this model is being challenged.35 Drawing wisdom from Charles Darwin in biology, it

is safe to state that adaptability (into newer methods of doing business) is becoming a necessity

for those law firms that wish to survive the fundamental changes that are happening in the industry.

33 Susskind, The End of Lawyers?, 151. 34 Susskind, The End of Lawyers?, 151. 35 Jordan Furlong, “Break the Law Firm Business Model,” Law Twenty One, accessed July 16, 2019,

https://www.law21.ca/2017/12/break-law-firm-business-model/.


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4.1 Traditional Business Model

“The traditional partnership model was designed for the practice of law, not the delivery of

legal services.”36 These are the words from an article titled, “Are Law Firms Becoming Obsolete?”

A title in the form of a question like this, raised in 2017, traces its origin to some very important

shifts in the legal services market since the 2008 global recession.37

After the global recession in 2008, there was a fundamental shift in the attitude of the

consumers of legal services. Clients, who were used to paying legal fees set by law firms, now

started to fight back with demands for lower prices and greater predictability of costs.38 In other

words, studies show that legal service industry was shifting from a seller’s market (where the seller

of a good(s) or service(s) determines and sets the prices) to a buyer’s market (where buyers of a

good(s) or service(s) determine the prices). The 2019 State of Legal Market39 study summarizes

very well the reasons for why legal services was always a seller’s market,

“The traditional law firm economic model was premised on the assumptions that (i)

legal work was labor intensive, (ii) that only lawyers could provide the services

required, and (iii) that law firms would control the design and delivery of legal

services. It reflected a seller’s market in which all key decisions about how legal

matters were staffed, scheduled, conducted, and priced were essentially made by law

firms.”40

The same report also states that the traditional business model was rather successful but some

of the realities that supported its sustenance started to change after 2008. The reasons for this

change include greater competition, new technologies, entry of new players and in-housing of legal

work.41 When new technologies entered the scene, they busted the idea that legal work was labour

intensive and expensive42

Under the traditional model (a partnership which followed the billable hours model), a law

firm has a strict hierarchy and the partners tended to be highly specialized in their respective fields

of practise. With this strict hierarchical structure, partners were largely in-charge of generating

business for the firm in the form of clients. Once a client was in, the client then paid the lawyer(s)

36 Mark A. Cohen, “Are Law Firms Becoming Obsolete? ,” accessed July 20, 2019,

https://www.forbes.com/sites/markcohen1/2017/06/12/are-law-firms-becoming-obsolete/#44e82d6e2264. 37 “2017 Report on the State of the Legal Market” (Thomson Reuters; Georgetown Law, 2017),

https://static.legalsolutions.thomsonreuters.com/static/pdf/peer-monitor/S042201-Final.pdf, 2. 38 Thomson Reuters and Georgetown Law, “2017 Report on the State of the Legal Market,” 9. 39 Thomson Reuters and Georgetown Law, “2019 Report on the State of the Legal Market” 40 Thomson Reuters and Georgetown Law, “2019 Report on the State of the Legal Market,” 13. 41 Thomson Reuters and Georgetown Law, “2019 Report on the State of the Legal Market,” 13–15. 42 Thomson Reuters and Georgetown Law, “2019 Report on the State of the Legal Market,” 13.


11

not for the value of the work that was produced, but for the number of hours any given lawyer(s)

worked on a matter/mandate from that client. This was the core of the billable hours model.

Partners, as more experienced lawyers, earned more than junior lawyers thanks to the

concept of leverage. Leverage here refers to the method of making money by billing work for a

client at a rate that is higher than the cost of hiring the junior lawyer who does the work.43 That is,

a partner who has three junior lawyers working under him and bills their hours at a given rate

would earn more than a similar partner with two associates who bills the same number of hours at

the same rate.

Figure 1: Leverage in law firms44

Figure 1 above shows law firm ‘B’ with a greater leverage than law firm ‘A’ since there are

more lawyers at the bottom of the hierarchy of law firm ‘B’. Law firm ‘B’s’ equity partners are

likely to earn more since they have more lawyers (at the bottom) whose work can be billed.

43 Toby Brown, “Leverage: The Real Lever for Law Firm Profit,” 3 Geeks And A Law Blog, accessed July 20, 2019,

https://www.geeklawblog.com/2010/11/leverage-real-lever-for-law-firm-profi.html. 44 Own illustration

Firm ‘A’ Firm ‘B’

Hie

rarc

hy

Number of Lawyers


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4.2 Key Performance Indicators in Law Firms

“If you can’t measure it, you can’t improve it.”45 Time and again, executives and policy

makers rely on specific metrics to keep track of where an enterprise or economy is heading.

Likewise, law firms have also used their own metrics to measure various strengths. These metrics

are individually known as key performance indicator(s) (also written as: KPI).

Under the business model described in the previous chapter, different metrics were used to

measure the success of a law firm. These include Profit per Equity Partner,46 Hours Worked per

Lawyer47, Lawyer Growth,48 Accounts Receivable,49 Current Run Rate50 etc. For the most part,

these KPIs were associated closely to the hours billed. As one expert puts it,

“Law firms sell hours. That’s what they track, record and place on their bills, and

that’s what clients pay them for, even if they’d rather not. Law firms use hours as a

proxy measure for client outcomes, and clients accept this because they implicitly

recognize that they need a shared understanding of outcomes and most of them don’t

have a better one to offer.”51

Among the KPIs, a significant number of them indicate a particular idiosyncrasy of the law

firm business model. To highlight this idiosyncrasy, two such KPIs are discussed briefly here

below.

1) Leverage, and

2) Billing and Collection Cycles.

1) Leverage is simply the “ratio of all lawyers other than equity partners in a given firm to

the equity partners in the same firm.”52

2) Billing and Collection Cycles are measures of the speed at which billing for a given work

is done and the speed at which that bill is collected.53

45 Quote attributed to Peter F. Drucker. 46 Total profit earned by the firm in a given period of time divided by the number of partners. 47 Total number of hours billed in the firm, divided by the number of lawyers 48 Increase in the nubmer of lawyers in a firm, often expressed in percentage. 49 This is a measure of the unpaid bill amount that the law firm is yet to recover for services already rendered to clients. 50 This is a projection of the annual revenue of the firm, based on the revenue of the past few months. 51 Jordan Furlong, “Rethinking Law-Firm Productivity Measurement for the Post Billable Hour Era,” accessed July 5,

2019, https://lawyerist.com/rethinking-law-firm-productivity-measurement/. 52 Thomson Reuters and Georgetown Law, “2017 Report on the State of the Legal Market,” 7. 53 Thomson Reuters and Georgetown Law, “2017 Report on the State of the Legal Market,” 8.


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Studies show clearly that these KPIs have hit a decade long plateau since 2008. They have

not grown significantly.54 But, beside the conclusions to be drawn from numbers, attention must

be paid to the nature of the measures themselves. That is, both Levarage and Billing and Collection

Cycles are good indicators of how the business is organized to measure itself from within. Law

firms are not necessarily interested in knowing the value of their work as the clients see it.

However, owing to the ‘More-for-Less’ challenge, clients are now suggested to adopt

creative and new KPIs to measure the value of the services that law firms provide.55 The legal

departments (of clients’) are urged to have a vision statements and clear objectives to help define

new indicators; there is an urge to measure the value of legal services by its contribution to business

goals,56 and not just by hours.

Once clients start using new KPIs to measure the value of the services they pay for, law firms

cannot ignore those KPIs and continue to operate only under the older KPIs of their own making,

such as Profit per Equity Partner and Leverage mentioned above. It has also been stated that the

end of a seller’s market is here.57 Primarily, the push is for law firms to move from inward-looking

quantitative metrics to client-centred mixed metrics.58

A new KPI for measuring lawyers’ technical capabilities could be Advanced Tech

competence. It could be used as a heading for a metric that measures the number of lawyers in a

firm who can use a data analytics tool. Such measures are more than just a creative re-christening

of existing skills. The real need to have such measures has already been understood by some

experts, and tools exist for those who wish to test themselves for advanced tech skills59

Apart from skills and revenue elements, the structure of law firms is also predicted to change

in the coming years. From the current pyramid structure, law firms could evolve to look like that

of a rocket as shown below.60 This shift would mean that law firms will be more diverse in their

roles, and decisions will be increasingly made by non-lawyers in a law firm.

54 Thomson Reuters and Georgetown Law, “2017 Report on the State of the Legal Market,” 7. 55 “Service Delivery Review Primer: Outside Counsel Service Delivery Review” (Buying Legal Council; procertas, ),

3. 56 Christine Pauleau, Christophe Collard, and Christophe Roquilly, “Key Performance Indicators (KPIs): Run Legal

with Business Metrics: Will the Legal of the Future Measure Everything It Does? ,” in Jacob; Schindler; Strathausen,

Liquid Legal, 111. 57 Thomson Reuters and Georgetown Law, “2019 Report on the State of the Legal Market,” 13. 58 Paula Avery, “The Secret Law Firm Metric Clients Will Pay to Improve,” Lexis Nexis,

http://businessoflawblog.com/2015/05/secret-law-firm-metric/. 59 “Legal Technology Assessment,” Institute on Law Practice Technology & Innovation, accessed July 20, 2019,

http://www.techassessment.legal/. 60 Veith et al., “How Legal Technology Will Change the Business of Law,” 10–11.


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Figure:2 Comparison of current law firm structure with tomorrow’s law firm61

The wave of business model change in the legal services industry is forcing every player to

learn new tricks. The reports discussed in this section warn that a shift from the billable hours

business model require law firms to develop new KPIs62 and structure themselves differently. This

will be a volatile challenge in the coming years, since during the shift, every player is likely to

devise new measures and apply them until new standards emerge, establishing new industry norms.

61 Veith et al., “How Legal Technology Will Change the Business of Law,” 10. 62 Thomson Reuters and Georgetown Law, “2017 Report on the State of the Legal Market,” 17.


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4.3 The Pressure to Innovate and Change

While the previous sections of this chapter have shown how law is structured as a business

and how it measures its own successes, this section will state what studies and surveys show about

the changing landscape of the legal industry from the vantage point of law firms. While experts

and gurus may predict what is yet to come, it is valuable to look at how many law firms side with

popular opinions. At the outset, it is clarified that the two studies on which this thesis largely relies

for this section are both based out of the USA. As a large legal market, the data is more reliable to

indicate what is happening in the industry.

To start with, a 2017 report on the state of the legal market summarized its findings on the

old KPIs of billable hours. It stated that over the preceding decade, there has been a net fall in the

number of hours billed by lawyers.63 This report brings under the scanner four changes that law

firms and the advocates of the billable hours business model have to take note of. These are:

1) End of the billable-hour pricing model

2) Unbundling of legal services that leaves only ‘bespoke’ and ‘core’ legal activities to law

firms, while other legal needs are fulfilled by other means, including by in-house set ups.

3) Ineffectiveness of the leverage model64 to earn more money for the firm, and

4) Growing segmentation among law firm that widens the gap between best performers and

the worst performers, which is attributed largely to strategic focus and proactive response

to client needs.65

This report concludes by stating that law firms cannot continue under assumptions that

helped them so far, but rather have to review their entire approach to serving clients to avoid an

uncertain future.66

Such a finding is not limited to 2017 alone. The results of the same study repeated in 2018

and 2019 warn not about an incident, but a trend. Here are some numbers from the Altman Weil

Surveys conducted between 2017 and 2019

63 Thomson Reuters and Georgetown Law, “2017 Report on the State of the Legal Market,” 4. 64 Leverage model here refers to the way of generating profits for partners by increasing the number of junior lawyers

whose work will be billed at higher rate than the cost of paying them. 65 Thomson Reuters and Georgetown Law, “2017 Report on the State of the Legal Market,” 14–17. 66 Thomson Reuters and Georgetown Law, “2017 Report on the State of the Legal Market,” 17.


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Figure 2: Chart showing the percentage (%) of respondents in the Altman Weil Surveys who

stated that the recent changes in the legal market are permanent67

Identified change in the

legal market 2017 2018 2019

Technology replacing human

resources 84.4% 85.9% 82.8%

More commoditized legal

work 84.2% 83.5% 79.2%

Competition from non-

traditional service providers 79.3% 85.4% 89.4%

The chart above serves as an indicator of the angst among lawyers, at least in the USA. A

significantly large majority thinks these changes shown in the chart are likely to be permanent.

Naturally, a question arises: what have they planned to do if they think their business is under

threat by these changes?

The answer to this question is not a reassuring one. The 2017 survey states that only 7.5%

of the firms who participated have initiated the use of AI tools for legal work with another 29%

only beginning to explore the options they have.68 In 2018, only 38% of the law firms were actively

experimenting with innovative ideas and methods.69

Another incongruence arises through another question in these surveys. The respondents

were asked, “Going forward, do you think the pace of change in the profession will:,” and were

given the options: “decrease”, “remain the same,” “increase” and “not sure.” The percentage of

the respondents in the years 2017 and 2018 who answered that it will increase were 72.1%70 and

69%71 respectively. When change is expected at an increasing pace, preparedness for it does not

seem to be commensurate. Does this reflect some difficulty or inability? In other words, do law

firm want to change, but they are not able to?

67 Chart comprises of numbers taken the Altman Weil Flash Surveys of 2017, 2018 and 2019. 68 Thomas S. Clay and Eric A. Seeger, “Law Firms in Transition: An Altman Weil Flash Survey” (Altman Weil, Inc.,

2017), http://www.altmanweil.com//dir_docs/resource/90D6291D-AB28-4DFD-AC15-

DBDEA6C31BE9_document.pdf, vii. 69 Thomas S. Clay and Eric A. Seeger, “Law Firms in Transition: An Altman Weil Flash Survey” (Altman Weil, Inc.,

2018), http://www.altmanweil.com//dir_docs/resource/45F5B3DD-5889-4BA3-9D05-

C8F86CDB8223_document.pdf, v. 70 Clay and Seeger, “Law Firms in Transition,” 2. 71 Clay and Seeger, “Law Firms in Transition,” 2.


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The answer to this question is also less than satisfactory. Law firms are not serious about

considering a change in their business model to deliver greater value to clients. Between 2017 and

2019, more than 50% of the respondents in these surveys stated that their law firm had a low

priority or seriousness of doing this. In fact, it was a high priority only for less than 3% of the

respondents across all three years 2017,72 2018,73 and 2019.74

A key aspect here is leadership. Respondents in 201775 and 201876 expressed that a majority

– 67.2% and 61.4% respectively – had only moderate confidence in their firm’s preparedness to

keep up with the challenges of the new legal market. For this query, only less than 9% of the

respondents in both years stated they had high levels of overall confidence in their law firms.7778

Surprisingly, the partners who lead the firms were reported to show moderate to high awareness

of the challenges of the new legal market. More than 50% of the respondents in both 201779 and

201880 have reported this. From the next set of numbers, it becomes clear that partners’ attitude

and not awareness correlates with the firm’s preparedness.

Partners who sit at the helm of law firms were reported to show very low levels of willingness

to change. Participants in the 2017 and 2018 surveys were also asked to rate the adaptability level

of partners. In the 201781 survey, only 1.1% of the participants said that partners have a high level

of adaptability, while 56.9% said partners have a low level of adaptability. In 201882, these

numbers were 1.5% and 58.4% respectively. These numbers show that within law firms, partners,

for one or several reasons, are not invested in bringing changes to function well under a new

business model.

In all the three years, participants also rated the same four reasons, albeit with differing

ranking of importance, as reasons for their firms not doing more to change the way they deliver

legal services. These are:

1. “Partners resist most change efforts”

2. “Not feeling enough economic pain”

72 Clay and Seeger, “Law Firms in Transition,” 11. 73 Clay and Seeger, “Law Firms in Transition,” 13. 74 Thomas S. Clay and Eric A. Seeger, “Law Firms in Transition: An Altman Weil Flash Survey” (Altman Weil, Inc.,

2019), http://www.altmanweil.com//dir_docs/resource/28BC6AB5-10E9-418D-AED2-

B63D1145F989_document.pdf, 42. 75 Clay and Seeger, “Law Firms in Transition,” 19. 76 Clay and Seeger, “Law Firms in Transition,” 21. 77 Clay and Seeger, “Law Firms in Transition,” 19. 78 Clay and Seeger, “Law Firms in Transition,” 21. 79 Clay and Seeger, “Law Firms in Transition,” 20. 80 Clay and Seeger, “Law Firms in Transition,” 22. 81 Clay and Seeger, “Law Firms in Transition,” 21. 82 Clay and Seeger, “Law Firms in Transition,” 23.


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3. “Most partners unaware of what to do differently”, and

4. “Clients aren’t asking for it.”83

The surveys and studies referenced in this section help conclude one thought beyond doubt,

partners as leaders of law firms may be aware of what is happening as a larger trend in the legal

services market, but they don’t know how to lead the firms into working under a new business

model. They are not accepting of the seriousness to evolve and don’t know what to do differently,

even though much of the change is here to stay (or at least perceived to be permanent).

Whatever law firms’ leadership is doing in the post-recession legal market, it is not preparing

the firms for the future. The need to do much more is apparent in the final paragraph of the

conclusion section in the 2019 survey,

“As has been the case for years, law firm’s success will be driven by their ability to

meet the changing requirements of the marketplace. Firms that can craft smart, client-

focused strategies and execute on them rapidly are likely to achieve competitive

advantages. Moreover, firm that can build flexibility, scalability and resilience into

their business models will create sustainable advantages for the long-term.”84

A good place for law firm leadership to start taking the change process seriously is to take

stock of where they are at present. The thesis proceeds on the conclusions that leadership in law

firms are resisting change, at least in part, because, they are unaware of what to do differently. In

other words, they need help to show what innovation could be in their firms to start the change

process or drive it further in the right direction. The following chapter will discuss how change

management can help leadership to do just that.

83 Clay and Seeger, “Law Firms in Transition,” 44. 84 Clay and Seeger, “Law Firms in Transition,” x.

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5 Change Management

“Change is the only constant.”85 is a famous quote often cited to impress the transience of

anything around us. Change, however, need not be a threat to or the end of anything, least of all

law firms. Thanks to research, change can be reduced to a manageable challenge. Due to constant

changes in commerce and trade, often triggered by developments in technology, change has been

studied and documented under many headings and names, including innovation, progress and

development.

More specifically, academic studies of change have given birth to specific models of change

management to help deal with change at different levels. In the previous chapter of this thesis, it

was established broadly that the entire legal services industry, and especially law firms, are at the

precipice of change. In this chapter, the thesis will discuss and evaluate select change management

models that can help law firm leadership. By juxtaposing one narrow and specific challenge that

law firms have at hand with various change management models, this chapter will try to identify

one model that can be of most value to law firms’ leadership.

5.1 Theories and Models of Change Management

Once the challenges facing law firms are understood, it is important to look into existing

literature for wisdom on how to surmount the challenges. One discipline that offers this wisdom

is the field of change management. Having evolved over almost a century, there is much to learn

from the theories and models that were developed over the years.

Change management as a discipline traces its origins to the early and mid-1900s to the works

of Van Gennep (an anthropologist) and Lewin (a social psychologist).86 While its origins are more

closely tied with various disciplines in social sciences, the concept proved its importance to the

business world and was increasingly adopted to deal with changing patterns of human interactions

with organizations.87 As the discipline grew more popular and useful, some works stood apart over

time, like that that of John Kotter’s Eight-Stage model. His eight steps to transforming an

organization offers a clear guideline of what is expected from the leadership of organizations that

wish to remain competitive in an innovative and competitive environment.88

The following models are some of the well-known change management models that can

provide valuable insights for a law firm that is committing to transition from a pyramid to a rocket

85 Quote attributed to Heraclitus, a Greek Philosopher. 86 “The History and Future of Change Management,” Prosci, accessed July 10, 2019, https://empower.prosci.com/the-

history-and-future-of-change-management-download, 2. 87 Prosci, “The History and Future of Change Management,” 2–3. 88 John P. Kotter, “Leading Change: Why Transformation Efforts Fail,” Harvard Business Review, 1995.

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structure and deliver greater value to clients. From the list below, one model will be chosen after

a brief evaluation them all.

The change management models are:

1) The Three-Step model of Lewin and Schein,

2) Diffusion of Innovations model by Everett Rogers,

3) The Kubler-Ross model,

4) John Kotter’s Eight-Stage model,

5) The ADKAR model, and

6) The McKinsey 7-S model.

5.1.1 The Three Step Model of Lewin and Schein

The Three-Step model, as the name suggests, categorizes the change effort into three distinct

stages, namely,

1) Unfreezing,

2) Moving/ Changing, and

3) Re-freezing.

This theory was developed to help bring a solution to conflicts in an organization or a society

by means of behavioural change.89 This would be a good model to learn from if the change problem

discussed in this thesis refers only to those challenges which stem at the individual or group level,

within a law firm. E.g.: This model could prove useful for design thinkers and process

improvement managers in a law firm who wish to completely redesign workflow in a select

practise group.

5.1.2 Diffusion of Innovations Model

The Diffusion of Innovations model deserves a place here, though it does not strictly feature

as a change management model. Everett Rogers developed and presented this model in his book,

Diffusion of Innovations.90 The model serves as an evaluation tool for checking a specific

innovation’s ability to enter a business and ground itself to be part of the new norm. His book

discusses many examples of how different factors come together to promote adoption of a given

innovation, such as the adoption of hybrid seeds by farmers in Iowa, USA91

89 Bernard Burnes, “Kurt Lewin and the Planned Approach to Change: A Re-Appraisal,” Journal of Management

Studies 41, no. 6 (2004): 986, accessed July 10, 2019. 90 Everett M. Rogers, Diffusion of Innovations, 5th (2003). 91 Rogers, Diffusion of Innovations, 68–71.

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The diffusion of innovations model gives four factors to consider about any given

innovation. These are:

1) The Innovation – its attributes,

2) Communication Channels,

3) Time, and

4) Social System92

Though this model is worth looking into, brevity limits a detailed discussion on this model.

The model’s application to legal innovation has been shown by Prof. William D. Henderson of the

Maurer School of Law, Indiana University. Prof. Henderson has used the model to develop a

scoring chart for innovations.93 This chart helps understand how quickly a given innovation may

spread and be adopted. E.g.: A new case management software, or automation tool could be

evaluated to check if it scores strongly. The scoring chart can serve as a first step for innovators

who wish to test or develop innovations for the legal industry to see how it may be adopted by a

law firm or clients as end users.

Rogers, however, did not stop with a discussion on the attributes that affect a given

innovation, he also presented a list of factors that affect organizational innovativeness. These are:

1) Individual (Leader) Characteristics,

2) Internal Characteristics of Organizational Structure, and

3) External Characteristics of the Organization.94

Each of these headings also have one or several sub-categories which act as indicators which

determine the overall innovativeness of an organization.95 For the challenge in hand, this model

could be useful.

5.1.3 The Kübler-Ross Model

The Kübler-Ross model was presented by Dr. Elizabeth Kübler-Ross and David Kessler in

their book, On Grief & Grieving: Finding the Meaning of Grief Through the Five Stages of Loss.96

The model is centered around human reactions and responses to loses which the authors say

92 Rogers, Diffusion of Innovations, 46–67. 93 William Henderson, “Scoring Your Innovation,” Legal Evolution, accessed July 12, 2019,

https://www.legalevolution.org/2019/06/scoring-your-innovation-098/. 94 Rogers, Diffusion of Innovations, 459. 95 Rogers, Diffusion of Innovations, 459. 96 Elisabeth Kubler-Ross and David Kessler, On Grief and Grieving: Finding the Meaning of Grief Through the Five

Stages of Loss (2014).

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progresses through five stages: Denial, Anger, Bargaining, Depression and Acceptance.97 While

the model is helpful in guiding a group or an individual to make peace with that which is no more,

for the purpose at hand, it is not the most ideal as it deals specifically only with human elements

and not the larger structure of organizations. This model may be helpful to support a large group

of employees who may show strong resistance to changing structures of a law firm, but as a tool

to guide leadership assess their efforts, this model does not serve well.

5.1.4 John Kotter’s Eight-Stage Model

Kotter’s model was developed to act as a guide for leadership in organizations that are

implementing change. For these organizations, Kotter lists eight stages as steps in the process of

creating a major change.98 These eight stages are shown in the chart below.

Figure 4: Flow chart illustrating Kotter’s Eight-Stage model.99

This model could be very useful to senior leadership in a law firm. When trying to set up

new teams and motivating everyone in a firm to participate and cooperate in an innovation effort,

this model could help establish a linear checklist for leaders as the firm leaves old practises behind.

The Eight-Stage model, nevertheless, is very similar to the Three-Step model according to Kotter’s

own words, “The first four steps in the transformation process help defrost a hardened status

97 Kubler-Ross and Kessler, On Grief and Grieving, 18–29. 98 John P Kotter, Leading Change (Harvard Business Review Press, 2012), 23. 99 Kotter, Leading Change, 23.

1) Establishing a Sense of Urgency

2) Creating the Guiding Coalition

3) Devloping a Vision and Strategy

4) Communicating the Change Vision

5) Empowering Broad-Based

Action

6) Generating Short-Term Wins

7) Consolidating Gains and

Producing More Change

8) Anchoring New Approaches in the

Culture

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quo… Phases five to seven then introduce many new practices. The last stage grounds the changes

in the corporate culture and helps make them stick.”100

Kotter leaves a comment on how to follow them meticulously to achieve a desired change.

He warns that skipping steps in the Eight-Stage process or simultaneously working on more than

one stage is not a good idea. He states, “Normally, people skip steps because they are feeling

pressures to produce. They also invent new sequences because some seemingly reasonable logic

dictates such a choice.”101 Such an attempt he warns, “…doesn’t create the momentum needed to

overcome enormously powerful sources of inertia.”102

5.1.5 The ADKAR Model

ADKAR is an acronym formed from the first letters of the key elements of this model. These

are:

1. Awareness of the Need to Change,

2. Desire to Support and Participate in the Change,

3. Knowledge of How to Change,

4. Ability to Implement Required Skills and Behaviours, and

5. Reinforcement to Sustain the Change.

It is a model that is designed to be applied after a specific change in an organization is

identified.103 The model is built on the idea that, “Organizational change begins with managing

individual change”.104 This model’s focus on the individual who needs help in the process of

change is highlighted when one considers the number of factors that are listed as Factors

influencing success. Some of these factors are, a person’s view of the current state, each

individual’s personal situation, psychological blocks, intellectual capability etc.105

While the model takes into consideration broader business goals as the end of any change

management process, it reasserts a necessity for the individuals involved in the change to achieve

the different goals listed within the themes of, Awareness, Desire, Knowledge, Ability and

100 Kotter, Leading Change, 24. 101 Kotter, Leading Change, 26. 102 Kotter, Leading Change, 27. 103 Jeffrey M. Hiatt, ADKAR: A Model for Change in Business, Government and Our Community (Loveland, Colo.:

Prosci Learning Center, 2006), 3. 104 Prosci, “What Is the ADKAR Model? ,” Prosci, accessed July 10, 2019, https://www.prosci.com/adkar/adkar-

model. 105 Hiatt, ADKAR, 45.

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Reinforcement.106 As a model to help leadership assess change efforts, the ADKAR model does

not serve well.

5.1.6 The McKinsey 7-S Model

The McKinsey 7-S model was developed and presented by Thomas J. Peters and Robert H.

Waterman, Jr. in their book In Search of Excellence. They set out to study organizational structures

of corporations and later moved on to study management effectiveness broadly.107 The duo closely

examined how some corporations had the record of constantly being able to reorganize themselves

to provide the market with innovative solutions. They identified seven independent elements that

led to the development of the McKinsey 7-S model.108

The 7-S Framework consists of the following elements or headings:

1) Shared Values or Superordinate Goals,

2) Structure,

3) Systems,

4) Strategy,

5) Skills,

6) Staff, and

7) Style.109

A key highlight of this model is that these elements don’t act as independent themes that

each influence in a certain measure the total innovation or change in the organization, but they

interact with each other to bring out effectiveness in the attempt to change.

Not only does this model show elements of an organization along each of which change

efforts can be measured, but these elements are also connected and balanced to remind users to

always be wary of skewed efforts which may throw the organization off balance. The illustration

below shows the authors’ conception of how they imagine this to work.

106 Hiatt, ADKAR, 48. 107 Peters and Waterman, In search of excellence, 22. 108 Peters and Waterman, In search of excellence, 23. 109 Peters and Waterman, In search of excellence, 24.

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Figure 5: Illustration of the McKinsey 7-S model110

110 Robert H. Waterman, Jr., Thomas J. Peters, and Julien R. Phillips, “Structure Is Not Organization,” Business

Horizons 23, no. 3 (1980): 18, accessed July 10, 2019,

https://www.sciencedirect.com/science/article/pii/0007681380900270.

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5.1.7 Choosing a Winner

In the previous section, seven change management models have been briefly described.

Now, the question arises, which change management model is to be used? Why any given model

over others? This question does not have an objective answer. None of the models described above

were developed in the same context or within the same time frame. Some are old, some are rather

recent. Nevertheless, all models have use and deliver value when applied correctly.

In order to pick one, it is perhaps useful to look at the intention of this thesis. In the previous

chapters, different challenges facing law firms have been identified. A simple way of classifying

these problems would be to distinguish leadership and management problems (strategic problems)

from problems faced by individuals or teams (functional problems). An example of a strategic

problem would be to find and allot sufficient time for innovation in a law firm. An example of a

functional problem would be the struggle to train lawyers to use a new AI based tool.

The discussion thus far has been largely about the trends in the legal industry forcing law

firms to change. A major challenge to this change as discussed in the previous chapter is the role

of leadership. This problem is the core interest of this thesis. Leadership, as discussed previously,

needs help to understand a firm’s position and priorities first. Therefore, a change management

model that would address the strategic problems, not functional problems of a law firm will be

more suited than other models. From the brief descriptions above, the following models appear

more helpful to address strategic problems than functional problems; these are:

1) The Diffusion of Innovations model (organizational innovativeness)

2) Kotter’s Eight-Stage model, and

3) The McKinsey 7-S model.

From this list, the McKinsey 7-S model fares better than the Diffusion of Innovations model

because of the interconnected nature of its elements. Not only will the McKinsey 7-S model show

strengths and weaknesses in the innovation effort of a firm, but it will also show how well balanced

the efforts are across the elements. This crucial advantage sets it apart.

The McKinsey 7-S model also stands out for a few reasons vis-à-vis the Eight-Stage model.

The McKinsey 7-S model is more abstract and does not work in a linear way. The Eight-Stage

model, executed in a linear way, is more useful when a clear direction and final plan for

organizational change is established. The chosen model has to address the rigidity that has gripped

law firms and prevents them from being innovative. The first step is to achieve that is to create

awareness of where the firm is, not necessarily point to where the firm ought to go – that is only

the second step.

The authors of the McKinsey 7-S model stated that the model may be used as a checklist to

give a new understanding of how to design a change program; It can also help its users to identify

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the right fit and align the different elements of the model to redirect the organization.111 The

purpose here is to give law firms a trusted tool so a clarity emerges as to whether their efforts (if

there are any to begin with) are indeed aligned to take them forward. Therefore, the McKinsey 7-

S model would be the ideal choice.

5.2 Defining the Variables of Innovation in a Law Firm

In this section, an attempt is made to distil concrete variables from thematic ideas of

innovation and change. These are the more tangible efforts on part of a law firm’s leadership which

contribute to its overall move to become innovative. These tangible efforts, which may include a

policy, a team, a tool, a partnership, an investment in a technology are called innovation variables

or simply variable(s) here onwards.

A law firm may be innovative because it has set up a special collaboration agreement with a

legal tech company. It may be innovative because it has instituted a new bonus system for its

associates based on the number of hours they have saved by using a tool for document review.

Such examples galore. However, there is no exhaustive list of innovations. The best way to start

identifying these variables is to look at what the leading innovative law firms are doing. Among

law firms, some have set themselves apart as leaders in trying to deliver value to clients and

becoming a law firm of the future. The BTI Innovation Champions is a list of such law firms.112

Using this list as a beginning, a simple exercise was done to extract the right variables that

contribute to a given law firm’s innovation. By examining the websites of and references to a select

few law firm among the BTI Innovation Champions, a number of variables they have implemented

or incorporated have been listed. Given their status as Innovation Champions, these variables are

reliable indicators of successful innovations among law firms. Apart from this, another set of

variables are also listed after looking at expert opinions and reports. An example of such a variable

is Openness to New Structures

The variables themselves do not invite value judgement, but may be seen as dimension on

which any law firm can improve itself. Some of these variables may already be used as an indicator

in a law firm; Notwithstanding, looking at the collective of variables as a list helps one understand

a law firm’s innovation capacity from a bird’s-eye-view.

111 Waterman, Jr., Peters and Phillips, “Structure is not Organization,” 25–26. 112 “52 BTI Innovation Champions—Complete List,” BTI Consulting Group, https://www.bticonsulting.com/legal-

innovation-and-technology-outlook-bti-innovation-champions-full-list.

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Noteworthy variables among the Innovation Champions include:

5.2.1 Innovation Hubs

Some law firms have set up innovation hubs as an allied unit that is tasked with the full time

job of finding partners, evaluating tools, and taking the innovation agenda forward. These hubs

may vary on their function and purpose, but for an industry that has hitherto redistributed its

earnings annually, an innovation hub is not a small investment. Above all, it shows that the given

firm is committed fully to exploring different ideas. An example of an Innovation Hub is Dentons’

Nextlaw Labs.113

5.2.2 AI/ Machine Learning Application in Legal Practise

For all the clamour that surrounds it, AI based tools have entered the legal market by offering

bespoke products to law firm that help significantly cut down costs and save valuable hours. A

good example of such a tool would be LegalMation, an AI-based platform that, “analyzes legal

complaints and discovery requests, then generates draft answers, discovery requests, discovery

responses, and discovery objections in as little as two minutes.”114

5.2.3 Data Analytics

With millions of computers generating data everyday, it is no surprise that Data Analytics

has found its place in the legal industry. Seyfarth Shaw, one of the top innovators among the BTI

Innovation Champions uses data analytics while advising clients. By setting up a separate team for

this task – called the Organizational Strategy and Analytics team – this firm has set an example of

how analysts and economists can add value to their clients over and above what their lawyers

provide.115

5.2.4 Knowledge Management

While consumers and customers produce data useful for a retail company, law firms produce

information that is useful for them, time and again. Every time a legal opinion is produced, it

results in a product that serves as an index for how to tackle that or similar problem(s). By having

timely access to the host of legal knowledge that a law firm produces, every successive lawyer

saves valuable time from research and retrieval tasks. Knowledge Management helps in achieving

113 “About Nextlaw Labs,” Dentons, accessed July 20, 2019, http://www.nextlawlabs.com/. 114 Ogletree Deakins, “Ogletree Deakins and LegalMation Announce Innovative Partnership,” news release, January

9, 2019, https://ogletree.com/media-center/press-releases/2019-01-09/ogletree-deakins-and-legalmation-announce-

innovative-partnership/. 115 “Organizational Strategy and Analytics,” Seyfarth Shaw,

https://www.seyfarth.com/OrganizationalStrategyAnalytics.

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this goal. Skadden is a law firm worthy of mention here for their efforts in creating a Knowledge

Management system.116

5.2.5 Legal Project Management

In an interview with the Legal Executive Institute, the founder of the Legal Project

Management Institute, Susan Raridon Lambreth defined Legal Project Management with the

following words,

“Legal project management is a process of defining the parameters of a matter upfront,

planning the course of the matter at the outset with the facts you have at the time, managing the

matter, and, at the end, evaluating how the matter was handled (from both the firm or law

department perspective and the client perspective).”117

The system helps ease the expectations of clients while also giving the law firm control over

the flow of a matter from the beginning. The American Bar Association states that the need for

Legal Project Management is on the rise.118 Legal Project Management is also a tool/skill that the

legal world has borrowed from other industries and serves as a good reminder of the changing

landscape and the need to borrow wisdom from varied sources.

5.2.6 Legal Operations

Legal ops has been discussed briefly in Chapter 3. Some of the competencies listed under

legal ops also feature here as separate innovaiton variables, like Data Analytics. Nevertheless, the

separation of these variables from this heading is done on account of weighing key innovation

variables fairly. By combining many variables under one heading, it becomes difficult to accout

for efforts of a law firm that is adept at implementing one such variable but not another.

Nevertheless, in this context, as a separate variable, Legal Operations refers to all measures that

bring clients and a law firm ever closer than before to “…to optimize the legal service delivery

models”119. It refers to those efforts on part of a law firm to further the cause of legal operations

on part of a client.

116 Harris Tilevitz, “Knowledge Management in Law Firms: What Will Define Future Success?,” Legal Executive

Institute, accessed July 18, 2019, http://www.legalexecutiveinstitute.com/knowledge-management-law-firms/. 117 Bill Josten, “Legal Project Management — What Is It and Why Should You Care?,” accessed July 15, 2019,

http://www.legalexecutiveinstitute.com/legal-project-management/. 118 J B. Ruhl, “The Rise of Legal Project Management,” American Bar Association, accessed July 15, 2019,

https://www.americanbar.org/groups/young_lawyers/publications/tyl/topics/law-practice-2050/rise-legal-project-

management/. 119 Corporate Legal Operations Consortium, “About Us”

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As a leading innovator, Seyfarth Shaw has dedicated resources to help their clients build

Legal Operations capacity.120 By offering assistance with lean toolkits, training services, and

development of key performance indicators, this law firm offers a wide range of collaboration for

its clients under the variable of Legal Operations.121

5.2.7 Creative or Alternative Compensation Methods

One of the limitations shown above is the tie-up of lawyer’s compensation with the billable

hours model. An experiment with novel methods that would replace this method of remuneration

deserves a place in this list. Wachtell, Lipton , Rosen & Katz has tried a new method of

compensation.122 Instead of a take-what-you-bite system, this law firm has set up a lock-step

payment system that pays lawyers based on their seniority.123 By freezing pay based on one’s

seniority, the firm takes away the pressure on the individual lawyers to increase their own rewards

by billing more hours.

Though this list is short, these are some examples of innovations at the most successful law

firms. Looking further for wisdom, the thesis also takes into account other variables, from various

sources, that are considered or suggested as being innovative. After all innovation is a process and

new variables will continue to emerge. Having closely examined multiple surveys, reports and

expert opinions, here is another list of variables that count towards innovation.

5.2.8 Client Inclusivity

Having established that the traditional law firm structure does not model itself to be client

centric, efforts at innovation cannot be expected to reap rewards if old values continue to be held

on by law firms. In fact, once an innovative change is introduced in a law firm, there comes the

question of how will the value from this innovation be shared? This problem – called the “Last

Mile Problem” has been acknowledged as being complex and a tough one to solve.124 As a

suggested solution, Prof. William D. Henderson offers a three step process with the following

concluding note, “There are other solutions to the legal profession’s last mile problem, but none

will work as fast or as well as an honest dialogue between buyer and seller.”125 He is not alone in

his opinion; those who try to innovate from within law firm also share this sentiment. A short case-

120 “Level up Your Legal Ops,” Seyfarth Shaw, accessed July 15, 2019, https://www.seyfarth.com/How-We-Help-

Legal-Operations. 121 Seyfarth Shaw, “Level Up Your Legal Ops” 122 Kathryn Rubino, “The Key to Wachtell’S Success? How They Pay Their Partners,” accessed July 15, 2019,

https://abovethelaw.com/2018/09/the-key-to-wachtells-success-how-they-pay-their-partners/. 123 Rubino, “The Key To Wachtell’s Success? How They Pay Their Partners” 124 William D. Henderson, “The Legal Profession's 'Last Mile Problem',” www.billhenderson.com, accessed May 19,

2019, https://www.billhenderson.com/articles/2017/5/26/the-legal-professions-last-mile-problem. 125 William D. Henderson, “The Legal Profession's 'Last Mile Problem'”

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study report from Seyfath Shaw presenting the success of Lean Six Sigma in the firm states that a

large part of the success was attributable to the client centric attitude of the firm.126

Client Inclusivity is a remarkable indicator of if and how a given law firm has started

measuring its contribution for its true value. A simple exchange of ideas and criticism from clients

is the beginning of innovation.127 The high importance of including clients as allies in the change

process is reflected in a law firm survey that cites Greater connectivity and integration with clients

as the biggest change to the firm’s work in the next five years.128

5.2.9 Legal Tech Provider Inclusivity

This variable deserves careful definition. Legal Tech Provider Inclusivity refers to the extent

to which a legal technology provider is allowed access to understand the business and needs of a

law firm. A simple example of Legal Tech Provider Inclusivity would be to allow a legal tech

company to survey the associates and partners of a given practise group to check how far along

they are on some technical skills. Without this knowledge, the legal tech provider may not able to

train the firm sufficiently. On the more complex end of inclusivity, it refers to a close interaction

between a given law firm with a legal tech provider. Some law firm have done this well by

establishing early partnerships with legal tech start-ups.129

5.2.10 Openness to New Structures

A successful law firm of the future includes players other than lawyers. They are also

predicted to occupy not just the bottom of the rocket structure, but also the middle rung, and

possibly leadership and equity roles. This would mean law firms would have to invent roles and

devise compensation systems for them to be remunerated correctly. Such a change makes a big

part of the shift away from the pyramid structure. In fact, a 2019 report from the UK states that

money for legal tech coming from partners’ profit pools is a high bar to adoption of such tech,

especially since partners close to retirement have little incentive to cooperate in such efforts.130

126 Neryl East, “Implementing an Effective Change Management Strategy” (ark group, ),

https://www.seyfarth.com/dir_docs/publications/leanapproachcasestudy.pdf. 127 Patrick DiDomenico, “Innovation in Law Firms… It’S Not Just Tech,” Legal Executive Institute, accessed July 16,

2019, http://www.legalexecutiveinstitute.com/law-firm-innovation-ogletree/. 128 “Report 4: Changing Client Relationships: BDO Law Firm Leadership Series 2017” (BDO, 2017),

https://www.bdo.com.au/getattachment/Insights/Business-Services/Publications/Managing-Rapid-Change-BDO-

Law-Firm-Leadership-Se/LawFirmLeadersReport4_Final_AU.pdf.aspx?lang=en-AU, 2. 129 Joe Green, “A Tale of Two Partnerships: Collaboration Models for Law Firms and Legal Tech Startups,” Legal

Executive Institute, accessed July 16, 2019, http://www.legalexecutiveinstitute.com/emerging-legal-technology-

partnerships/. 130 The Law Society of England and Wales and Tech Market View, “Lawtech Adoption Research,” 23.

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Acknowledging such limitations to innovation, some jurisdictions have even passed laws to

allow for alternative business structures.131 Since private investments are now possible under the

Legal Services Act, 2007132. Some see the UK as a more favorable destination for law firm

innovation over the USA.133

5.2.11 Internal Reward Structure

This variable refers to incentives for innovative decision makers and those who execute those

innovative decisions. This variable is not the same as Creative or Alternative Compensation

Methods

In order to encourage adoption of new technology and deliver value in a new way, a law firm

will have to consider hitherto unseen practises in sharing rewards. A simple example of this would

be to create a bonus package for a practise group that shows significant savings by adopting an

advanced legal tech tool. In a law firm survery, 70% of international law firm leaders stated that

current methods of compensation and incentives will continue to hold good for the next five

years.134 This reflects a myopic outlook on part of the law firm’s leadership. A shift in the right

direction comes from measuring collective metrics and not just individual outcomes, as some law

firms have shown.135 The setup within firms should not stop there; rewarding innovative efforts

creatively will empower the rank-and-file to take risks.

5.2.12 Innovation Time

Creativity needs its own time. From experts who locate new tools in the market to associates

and paralegal who need training on a new case management software, any change that is to be

brought into a law firm needs dedicated hours. Without allocating this scare resource, innovation

will be limited to paper. Even more importantly, when processes within the firm changes, new

workflow will take time to become the new norm. Time has to be allocated to deal with human

resistance to change and related frustrations.

131 “The Future of Law Firms: Strategic Imperative for the Law Firm of the Future” (International Legal Technology

Association & Legal Technology Future Horizons, ), https://thefuturesagency.com/wp-content/uploads/2013/04/The-

Future-of-Law-Firms-ILTA-Legal-Technology-Future-Horizons-Final-Report.pdf, 39. 132 The Legal Services Act, Parliament of the United Kingdom (2007). 133 International Legal Technology Association & Legal Technology Future Horizons, “The Future of Law Firms,”

39. 134 “Report 3: New Law Firm Structures and Models: BDO Law Firm Leadership Series 2017” (BDO, 2017),

https://www.bdo.com.au/getattachment/Insights/Business-Services/Brochures/Managing-Rapid-Change-BDO-Law-

Firm-Leadership-Se/HB009636_Law-Firm-Leaders-report_AU.pdf.aspx?lang=en-AU, 3. 135 Matthew Field, “'Giving the Partnership Back': Linklaters to Ditch Individual Partner Metrics to Target Team

Performance,” accessed July 16, 2019, https://www.legalbusiness.co.uk/blogs/giving-the-partnership-back-linklaters-

to-ditch-individual-partner-metrics-to-target-team-performance/.

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This variable can perhaps be called the most important because it will have to directly steal

from the most valuable resouce under the current business model – the billable hours model. It

will indeed be hard to not just budget time, but to find the right places in the firm’s work day to

siphon it from.

5.2.13 Innovation Budget

After time, money for innovation is a strong variable contending with other needs that also

need spending. However, innovation, especially those involving advanced technology like AI, will

require considerable investments. The size of the budget and the period of time for which it can be

re-invested (if needed) both play a key role in making innovation a success. As the Altman Weil

2018 Law Firms in Transition survey puts it, “To be truly effective at innovation, you must budget

time and money for it, support and embrace experimentation with alternative methods and systems

of delivering service and accept that failures are a necessary part of the learning process.”136

5.2.14 Innovation Inclusivity

Law firms have to be open to ideas coming from all sources, within the firm and without. As

traditionally rigid structures, that have worked in highly specilized practise groups, law firms have

to build a culture of creativity and also allow real participation for eveyone in the firm, irrespective

of the ranking and title of the person. Unlike budget or time, this variable is harder to measure.

Inclusivity may be part of a wider informal culture, or it could be built into a formal feeback

mechanism that is blind to a person’s background. Without embracing diversity of perspective and

allowing different points of view to thrive, innovation becomes difficult.137An important element

of innovation is lending an ear to ideas coming from within the law firm all over, not just the

leaders.

5.2.15 “Lawyer+” Skills

While innovative ideas may stem from diverse perspectives, implementing innovative ideas

will require new skill sets. Inducting Knowledge Management Systems or Data Analytics require

special skills. The mere number of new, and hitherto unseen, roles in a given law firm is a good

indicator of the firm’s innovativeness. Apart from experts filling new roles, lawyers themselves

need to diversify their skill sets. They can no longer be silos of legal expertise alone.

136 Clay and Seeger, “Law Firms in Transition,” vi. 137 DiDomenico, “Innovation in Law Firms… It’s Not Just Tech”

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Figure 6: Comparison of old skills with new skills for lawyers.138

Old Skills New Skills

Analytical ability Collaboration

Attention to detail Emotional Intelligence

Logical reasoning Financial literacy

Persuasiveness Project management

Sound judgment Technological affinity

Writing ability Time management

With advances in technology, there is a commensurate need to build competent users who

are skilled at using the latest technology. The Law Society of England and Wales identifies skills

in “communication, change management, influencing and people management” as challenges to

grooming future law firm leadership.139 Law firms have no choice but to measure their staff and

lawyers constantly against an array of skills and offer opportunities for everyone within the firm

to improve themselves. Diversity of skills is needed in both places, within a lawyer, who now has

to be Lawyer+, and within a law firm, as it accommodates new roles.

138 Jordan Furlong, “Core Competence: 6 New Skills Now Required of Lawyers,” Law Twenty One, accessed July 17,

2019, https://www.law21.ca/2008/07/core-competence-6-new-skills-now-required-of-lawyers/. 139 “Future skills for law” (The Law Society of England and Wales, 2018), https://www.lawsociety.org.uk/support-

services/research-trends/horizon-scanning/future-skills-for-law/, 8.

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5.3 Placing the Variables under the McKinsey 7-S Model

Having chosen a change management model and a list of innovation variables that law firms

of the future have to take stock of, the next step is to arrange these variables withing the McKinsey

7-S model.

In the previous chapter, only a brief overview of the McKinsey 7-S Model was presented. A

detailed look into each of the seven elements of the model is required to correctly place the

innovation variables under the right element.

5.3.1 Superordinate Goals/ Shared Values

It is only logical to start with the a clear vision of the goal. Placed in the centre of the

McKinsey 7-S model, the Superordinate Goal or Shared Value, is the lynchpin that serves as the

central purpose around which all the other six elements are constructed. It is defined by the makers

of the McKinsey 7-S model to be “… the broad notions of future direction that the top management

team wants to infuse throughout the organization.”140

This element does not enclose an innovation variable under itself naturally. However, it is

the starting point for a law firm’s leadership to make innovation and change a priority.

Having seen the problems that law firms are facing, a Superordinate Goal can begin with a

mission statement that shows a given firm’s commitment to shed the old and renew itself as a law

firm of the future. Seyfath Shaw carries the following affirmations on its website which could

qualify as a superordinate goal, “Seyfarth Shaw attorneys are: Client-Focused, Forward-Thinking,

Innovative.”141 A clear statement like this starts being a powerful reminder for eveyone within the

firm and for those outside on where the firm has set its priorities. But more than words, it is the

purpose of the business itself.

5.3.2 Structure

In its original development area, where corporations were analysed, the McKinsey 7-S model

developed the element of Structure to study how division of tasks were established. As different

disruptors forced corporations to change, different reallocation of tasks came to pass. For law

firms, the rigid pyramid structure with high levels of expertise has been the traditional structure.

The most fitting innovation variable here would be one that indicates a firm’s progressive atttitude

towards remaking the firm to work under a new structure. Therefore, Openness to New Structures

fits under this element of the 7-S model perfectly. Unfortunately, innovation in the legal industry

140 Waterman, Jr., Peters and Phillips, “Structure is not Organization,” 24–25. 141 “Firm Overview,” Seyfarth Shaw, accessed July 17, 2019, https://www.seyfarth.com/firm-overview.

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has not given clear winners to suggest a new structure for a law firm, depending on its niche, a

firm may have to experiment varying combinations of what would work and what would not. But

the first step to doing that is being willing to move away from the present, and perhaps use the

rocket structure as a guide.

5.3.3 Strategy

Defining Strategy correctly and narrowly is the first step. Originally, it was defined as the

way a company aimed to beat its competitiors by creating unique value.142 In other words, those

efforts of the company that are directly aimed to outperforming competition by transfering greater

value to customers fall under this element. Under Strategy, three innovation variables can be

placed. These are, Client-Inclusivity, Legal Tech Provider Inclusivity and Legal Operations. These

variables bring the client and the law firm closer together, along with the legal tech companies, to

collaborate on ideas that for value transfer between parties. Apart from these variables Innovation

Budget also fits under this element, for the simple reason that a bigger Innovation Budget would

give the law firm a greater competing edge against rivals with smaller or no budgets.

5.3.4 Systems

Systems in the McKinsey 7-S model is defined as, “…all the procedures, formal and

informal, that make the organization go, day by day and year by year.”143 All routines and

processes that an organization follows can be subsumed under Systems. Therefore, those

innovation variables that seek to infuse in the law firm new routines would all fall under the

element of Systems. These are AI/ML application in legal practise, Data Analytics, Knowledge

Management, Legal Project Management and Creative or Alternative Compensation Methods.

These variables will considerably change the way routine business is carried out in a firm.

5.3.5 Style

Of the seven elements in the McKinsey 7-S model, Style is the hardest to describe. Identical

to its dictionary definition, Style in this context refers to the way anything gets done within an

organization, in this case, a law firm. More specifically, it refers to the informal rules within the

organization. Despite its loose definition, it is a critical element. Originally, it was remarked as an

element that, “…has more to do with its ability to change organization or performace than is

generally recognized.”144

142 Waterman, Jr., Peters and Phillips, “Structure is not Organization,” 20. 143 Waterman, Jr., Peters and Phillips, “Structure is not Organization,” 21. 144 Waterman, Jr., Peters and Phillips, “Structure is not Organization,” 22.

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Even though the innovation variables described in the previous sections can be seen as

strictly fitting into the formal rules of an organization, some of them play a key role by sending

the right signal to the employees. In other words, some variables leave a strong impression in the

minds of a law firm’s employees and strongly influence the culture of the firm. These variables

act as powerful cues about the general direction in which the law firm is headed. These are

Innovation Hub, Internal Reward Structure, Innovation Time and Innovation Inclusivity.

5.3.6 Staff and Skills

Though Staff and Skills are listed as different elements within the McKinsey 7-S model, for

the purpose of this thesis, they are grouped together. Under the McKinsey 7-S model, the Staff

element refers to the way senior leadership looks at and manages talent within the organization,145

and Skills refers to the need for latest or most relevant skills to keep the organization running at a

competitive pace.146 While there are differences between these elements, they can be seen as

dealing with the people end of things while viewing people as technical and managerial capacities

of the organization. Seen separately or together, the innovation variable that fits under the elements

of Staff and Skills is Lawyer+ skills.

Having matched the innovation variables with the elements, a quick reference chart of the

McKinsey 7-S model with the corresponding variables is constructed below.

145 Waterman, Jr., Peters and Phillips, “Structure is not Organization,” 23. 146 Waterman, Jr., Peters and Phillips, “Structure is not Organization,” 24.

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Figure 7: Modified McKinsey 7-S model with the Innovation Variables

Shared

Values

Strategy

Staff

Skills

Systems

Structure

Style

1. Legal Operations

2. Client Inclusivity

3. Legal Tech Provider

Inclusivity

4. Innovation Budget

1. Openness to New

Structures

1. AI Application

2. Data Analytics

3. Knowledge Management

4. Legal Project

Management

5. Creative Compensation

Methods

6.

1. Innovation Hub

2. Internal Reward

Structure

3. Innovation Time

4. Innovation Inclusivity

1. Laywer+ Skills

Applying the McKinsey 7-S Model to a Law Firm

39

6 Applying the McKinsey 7-S Model to a Law Firm

Having classified the variables under the relevant elements of the McKinsey 7-S model, this

chapter will discuss how this model can now be applied to a law firm that wishes to assess its

innovation efforts.

The McKinsey 7-S model can be thought of as a descriptive snapshot of an organization

across the seven elements. In other words, it captures a firm’s efforts at a point in time and not

across a period of time. By giving an overview of how the variables are aligned withing the law

firm, the model can then help formulate or re-assess the firm’s position and allocate resources in

the right direction.

To begin with, each element under the McKinsey 7-S model is attributed a maximum of ‘4’

points starting from ‘0’, thus giving five possible outcomes for any given element. Style, Strategy

and Systems have at least four variables each. If all innovation variables under a given element are

present, then that particular element may be given 4 points, that is one point for each variable.

Structure and Staff and Skills are harder to score since they don’t have many variables under them.

Nevertheless, Structure can be scored reliably if a firm takes a poll in which the partners participate

to see how much support they have for trying new structures and to accommodate new roles within

the firm, which could then be translated to a number on this scale. Staff and Skills should be scored

relative to the other elements in the model. That is, a law firm must be always aware of what skills

it needs given its Systems, Strategy and technical capabilities.

If there is a strong Data Analytics team and Legal Operations team, all members of the firm

must be able to interact with such teams and will require basic skills in operations, accounting and

statistics. A firm that either has such skills in this situation or makes it mandatory to train its

lawyers in the said skills, will be given a high score. If it only employs these teams and fails to

train its lawyers, it shall be marked lower.

Figure 8: Scoring scale to evaluate innovation efforts.147

Needs immediate

attention

Needs to

improve Sufficient Good Very Good

Score = 0 Score = 1

Score = 2

Score = 3

Score = 4

147 Own illustration


40

6.1 Law Firm 1

A hypothetical law firm situated in a large city in the USA - Smart & Savvy LLP - will be

scored according to the scale to demonstrate its usage. Smart & Savvy LLP’s business may be

described as below148:

Smart & Savvy LLP was founded in the USA in the1940s after two friends with successful

criminal law practises came together to merge their offices. The firm has grown considerably over

the years and now employs over two thousand laywers in the USA and UK combined. The firm

has a robust practise in M&A, Tax, Real Estate, Labour law and Trust law. Their annual revenue

last year was one billion US dollars. All equity partners have taken home an annual income of

close to a million dollars in the last five years. However, moderate growth in legal work has

somewhat stagnated incomes and routine work that used to clock many associate hours and bring

in good revenues have almost halved over the last two years.

The firm spoke to some of its loyal clients to understand how they can improve their services,

but the feedback was not taken seriously. Over the last two years, knowledge mangement systems

were incorporated and a dedicated data analytics team was brought in. The firm also partnered

exclusively with a legal decision automation start-up incorporating AI that is around 4 years old.

Despite these measures, the firm does not seem to be outdoing its competitors. Given its situation,

Smart & Savvy LLP looked inward to see if there are any suggestions to take from its own senior

lawyers and decision makers. Despite their roles in the firm as leaders, much of their time went to

billing hours or negotiating alternative fee arrangements with the clients. Having exhausted all

other options to improve the financial status of the firm, the leadership is at a dead end to keep the

firm competitively strong. The firm’s leadership is aware of trends in the legal market, but strongly

believes all is being done within its powers to innovate. Yet, the bitter pill to swallow is that more

work is moving in-house and new players have entered the legal market. The situation of Smart &

Savvy LLP is not dire, but there is definitely more to be done for long term survival. A few

improvements have sustained key numbers, but the future remains unsure.

An assessment of the firm through the lens of the McKinsey 7-S model with the innovation

variables is done below.

148 The fictional law firm does not represent, nor is derived from, any existing law firm(s). The situation described is

compeletely hypothetical, but the problems within the firm were inspired by the industry trends as seen in the Altman

Weil – Law Firms in Transition surveys of 2017, 2018 and 2019.


41

Smart & Savvy LLP’s position across the 6 elements of the McKinsey 7-S model:

1) Structure: As a fairly traditional law firm, they have worked under the partnership model.

Though, they have seen its challenges, the firm’s leadership feels it is too risky to

experiment with such deeprooted structures and share decision making with non-lawyers.

Although new roles have been set up, they are led by lawyers and decision making does

not invite other players.

Total Score =1. (Since awareness of structural challenge is present, but decisions are at

best consulted, not shared with other players in the firm.)

2) Strategy: While the firm allocates an annual budget for partnering with its select legal tech

provider, it does not have the elements of Legal Operations and Client Inclusivity.

Total Score = 2. (Since Legal Operations and Client Inclusivity are missing and 1 point has

been given for each of the other variables.)

3) Systems: While the Data Analytics team and the Knowledge Management team have

improved services to the satisfaction of many clients, much more change is possible at this

end. To begin with, there is no measure to check if these teams are being fully utilized

within the firm. Moreover, as matters come in from different clients, the lack of Legal

Project Management sometimes leads to runaway costs for the clients which raises the bill

and the dissatifaction of some clients. AI, though still in trial stage, is being tested in

parternship with the start-up.

Total Score = 3. (Since Creative Compensation Methods and Legal Project Management

are missing and 1 point has been given for each of the remaining variables.)

4) Style: As a law firm aiming to innovate and remain competitive, Smart & Savvy LLP does

not have dedicated feedback mechanism to constantly take inputs from its associates.

Moreover, innovation is seen as a top-down tradition that practise group leaders and

managing parterns are expected to bring to a team. Completely lacking an Internal Reward

Structure to incentivise grass-root innovation, and missing Innovation Hub, Innovation

Inclusivity and Innovation Time, the Style element is lacking all variables.

Total Score = 0. (Since all four variables are missing.)


42

5) Staff and Skills: While a small set of new skills have been added via the new teams, the

lawyers at the firm spend most of their working hours at their workstation and don’t

necessarily learn new skills to improve work processes.

Total Score = 1. (Low score since diverse skill sets are present in dedicated teams and not

throughout the firm. Training does not seem to be mandatory.)

Figure 9: The McKinsey 7-S model applied to Smart & Savvy LLP149

An evaluation of Smart & Savvy LLP’s situation would show that on all elements, it scores

below 3. Its strongest element is Systems, but without commensurate investments in other

149 Own illutration built on the McKinsey 7-S model

Shared

Values

Strategy

(2)

Staff

(1)

Skills

(1)

Systems

(3)

Structure

(1)

Style

(0)


43

elements, its effots are skewed. The firm may have its heart in the right place, but clearly its efforts

are not.

An astute leader who catches this lop-sided effort in the firm has already derived value from

the McKinsey 7-S model. As a first step to re-orient the firm’s efforts and to dig deeper into why

Structure, Style and Staff and Skills are behind Strategy and Systems, the McKinsey 7-S model is

a good tool.

6.2 Law Firm 2

The model is best tested when it is used to check a real law firm. Without giving a descriptive

analysis of the firm’s situation, this section will capture the variables of an innovative firm from

the BTI Innovation Champions. The firm’s name is not disclosed. The law firm, henceforth referred

to as “Firm X”, has offices in forty countries and claims to advise Fortune 500 companies. The

said firm scores as below on the fifteen innovation variables.

1) Strategy:

a. Legal Operations: Firm X has a dedicated Legal Operations team with a director

leading it.

b. Client Inclusivity: Firm X’s Client Inclusivity cannot be sufficiently determined

from their website.

c. Legal Tech Provider Inclusivity: Firm X has close tie ups with multiple providers

of legal tech solutions to build tools.

d. Innovation Budget: Firm X has a significant budget for innovation given the

number of investments and tie-ups.

Total score = 3. (Since only three variables could be confirmed, Client Inclusivity is

presumed to be absent.)

2) Structure:

a. Openness to New Structures: Though still a law firm, many new roles have been

created and decisions seem to be taken in close coordination with different stake

holders at Firm X, the firm may be judged as moderately open trying new

structures.

Total score = 3.

3) Systems:

a. AI application: Firm X has invested in multiple AI tools for contract review and

other tasks.

b. Data Analytics: Firm X has partnered with a start-up that has expertise in Data

Analytics.


44

c. Knowledge Management: Firm X has a separate Knowledge Management team

headed by a director.

d. Legal Project Management: Firm X has multiple legal project managers in-

charge of Legal Project Management.

e. Creative Compensation Methods: While the website of the Firm mentions

meritocratic compensation, creativity is not clear and cannot be determined.

Total score = 4. (Since four out of five elements are present.)

4) Style:

a. Innovation Hub: Firm X has set up a dedicated Innovation Hub that collaborates

with legal tech start-ups.

b. Internal Reward Structure: Firm X has a dedicated innovation accelaration

program that allows lawyers to take time for innovation and be awarded credits

for the same.

c. Innovation Time: Firm X has a dedicated innovation accelaration program that

allows lawyers to take time for innovation and be awarded credits for the same.

d. Innovation Inclusivity: Firm X’s innovation accelaration program specifically

allows innovative ideas from associates to be heard and tested.

Total score = 4. (Since all four variables are present, 1 point has be given for each

variable.)

5) Staff and Skills

a. Lawyer+ Skills: Firm X has a dedicated learning program in a variety of formats

to impart the latest knowledge and skills to everyone at the firm. It is not clear if

learning new skills is mandatory.

Total score = 3. (One point has been deducted under the presumption that learning

new skills may not be mandatory, but a higher score is given since the firm allows

both Innovation Time and offers programs for learning new skills.)

Given the description and the scores of Firm X, it is already visible that it is a very innovative

firm with a fair balance among all the elements. The leadership could now be informed about

which areas or variables require further attention.


45

Figure 10: The McKinsey 7-S model applied to law firm X150

150 Own illustration built on the McKinsey 7-S model.

Shared

Values

Strategy

(3)

Staff

(3)

Skills

(3)

Systems

(4)

Structure

(3)

Style

(4)

Conclusions and Limitations

46

7 Conclusions and Limitations

This thesis began with the purpose of arriving at a suggestion for law firm leadership that

are challenged with the task of innovating a firm to fit the market realities of the future. The thesis

began by explaining why legal technology and legal operations are rising to limelight. The thesis

also captured the business model of law firms and how they operate under the traditional setup and

why they need to change. From structure to revenue model, many core ideas that defined a law

firm were seen to be eroding to give way to new realities.

In trying to identify specific hurdles that are preventing law firms, surveys and reports give

a clear answer. One of the key challenges to overcome presently is the attitude of leadership

towards change. Despite moderate efforts at innovation, law firms were repeatedly judged as

insufficient. Law firm leaders despite being aware of changing realities, were not doing enough.

To that end, this thesis attempts to provide a simple tool to nudge the leadership to look at their

firms through the McKinsey 7-S model.

The McKinsey 7-S model’s application as shown in the last chapter of this thesis is merely

a suggested beginning for a law firm to understand itself. Since resources may be expended too

much in one direction or completely absent in another, the tool helps the leadership with an instant

picture of innovation efforts within the law firm and constantly reminds them that skewed efforts

(or no efforts in some areas) will not yield expected results.

In this context, it was important to presume some attitudes and mind-sets on part of the

leadership. Assumptions include, Leadership in law firms wants to remain competitive in a

changed landscape, but they don’t know how; Leadership in law firms don’t necessarily

understand that innovation means more than incorporating technology and offering fee caps;

Leadership in law firms need a good place to begin self-diagnosis of the firm. These presumptions

are of course, based on the various data sources discussed throughout the thesis.

Since the scope of the challenge chosen to address in this thesis was narrow, it was not very

difficult to choose one change management model over all others. The McKinsey 7-S model has

served its purpose by being an easy indicator of what is misaligned in a firm. To make the model

more reliable, it could be sent to innovative law firms to check if similar exercises were conducted

by leadership to assess their innovation efforts.

Though the McKinsey 7-S model was chosen after eliminating all other, it does not mean

that other models cannot be used to address problems within a law firm. The innovation variables

listed in this thesis are not exhaustive. The method of selecting these variables was primarily by

studying the most innovative law firms and other recommendations. Given that surveys indicate

law firms are not doing enough, there is no clear reliability that even the most innovative law firm

has done all it can. This could mean some variables which are important but absent in practise

have not made it in the list.

Conclusions and Limitations

47

Also, all the listed variables may not be within the purchasing power of medium and small

sized firms, this is a serious limitation of this thesis. Only large firms that have the purse to pursue

large investments can invest in AI tools and Innovation Hubs.

The classification of the fifteen innovation variables under various elements of the McKinsey

7-S model was also based on a descriptive understanding of the elements and variables. Each

element is also, in theory, given equal weight on the scoring scale. But perhaps innovation in law

firms objecively need more effort only on the Structure element and not on so much on the Systems

element. Fair alignment of efforts does not have to mean equal effort (or equal scores) in each

element.

As a prescriptive thesis, the aim was to attempt to apply a change management model to a

problem in the legal industry. This aim was achieved in this thesis subject to the limitations

discussed above.

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48

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