innovation in uk and german law firms - 2013 study - final report - summary

Commercial in Confidence Grundfos – R&D Assessment 2014 – proposal 1

Study of innovation practices in major UK & German law firms Final Report – SUMMARY EXTRACT FROM FULL REPORT Tuesday 30th September 2014

Alastair Ross Director Codexx Associates Ltd Codexx Associates Ltd 3-4 Eastwood Court Broadwater Road Romsey, SO51 8JJ United Kingdom Company Registration No. 04481932 Tel +44-(0)1794-324167 www.codexx.com

How are law firms innovating and what creates success?

Study of innovation in UK & German law firms 2013 – Final Report

Executive summary

• A study of innovation practices and performance in law firms in the UK and Germany was performed during 2013, led by Codexx in partnership with the University of Exeter Business School and the University of Leipzig Graduate School of Management. The study involved a total of 35 firms, 14 in the UK and 21 in Germany. Firms participating from the UK were typically larger than those from Germany with a median yearly revenue of £70m compared to £17m.

• We defined innovation as anything that was new to a firm and brought value – this broad definition covered incremental as well as ‘step-change’ innovation.

• This study followed a previous one run by Codexx in 2006 with 16 UK law firms. The objective of the 2013 survey was to perform a more in-depth study of UK firms’ approach to innovation, particularly since the 2008 economic downturn and the legal services deregulation. The opportunity to perform a similar study with German firms and contrast approaches and outcomes brought additional value.

• The study found an overall similar level of innovation practices and performance in the participating UK and German firms, which was typically at a middle to low level, compared to best practices. Whilst UK firms had their main focus on process innovation, German firms’ focus was on service innovation. The difference, we believe, results from the impact of the legal services deregulation and the post 2008 economic challenges in the UK, with firms giving increased focus to efficiency.

• The study also found a good level of correlation between innovation practices and performance – showing that if these practices were put in place, it was likely that improved performance in key metrics such as revenue from new services and cost reduction from process innovation, would follow.

• Analysis of those firms who were leading in innovation performance, showed that UK performance leaders had an average level of practices ahead of the study sample in every practice area, though this was not the case for German leaders (this might indicate some practice inconsistencies in the generally smaller German firms). This finding gives support to the recommended comprehensive approach to innovation, establishing a system to cover the the key practices.

• Firms identified their key innovation challenges as in resourcing innovation, establishing a supportive

culture and process and in leadership. Improving innovation resources and process were cited as

common improvement priorities for firms.

• The report defined five guiding principles for law firms seeking to improve their innovation

capabilities, based on Codexx experience in working with law firms in innovation since 2005.

35 law firms in the UK and Germany were surveyed for their innovation methods and results during 2013.

Innovation was defined as anything new to the firm that generates value.

Overall UK and German firms, scored similarly – at a middle to low level compared to best practices in innovation.

UK firms focused their innovation mainly on process improvement and German firms on services.

The study showed that improved innovation practices resulted in better business performance.

Firms’ key challenges in improving

their innovation were in resourcing,

culture and leadership.


What is innovation?

value

ideas

Introduction Innovation is a ‘broad church’ and can mean different things to different people. This can lead to confusion and result in inconsistent responses to questions around innovation. So to help ensure a common understanding amongst study participants and consistency in questionnaire responses, we included an introduction and definition to innovation in the study invitation to participants.* Essentially, innovation is about deriving value from ideas. We find that the most effective definition for innovation from a business standpoint is “Innovation is anything that is new to you and generates value.” This is how innovation was considered for this study. To help in determining where law firms were focusing their innovation efforts, we introduced the ‘dimensions’ model for innovation (shown on the next page).

Innovation is anything that is new to you – and generates value Our broad definition of innovation means that incremental improvement as well as radical change should be considered as ‘innovation’. It also means that existing methods or technologies in use in other businesses or sectors (or other parts of the firm) and applied to your firm (or part of the firm) is also ‘innovation’. This broad view of innovation helps a firm’s management develop an holistic strategy for innovation. Whilst radical, step-change or ‘disruptive’ innovation grabs the headlines, most innovation is of the incremental type. In the services sector, Amazon’s growth has been as much due to its continual focus on improving its customer’s experience through ongoing incremental improvement as it has in its strategic innovation in developing products such as its Kindle e-reader.

Invention alone is not innovation Innovation is about creating or using an idea and generating value (e.g. increased profitability) from it. Successful exploitation of an idea to deliver value to the business is a key requirement for innovation – action is needed. This is why innovation is more than just invention or creativity.

Institutionalised innovation requires a healthy innovation system Being effective at innovation requires more than just the occasional good idea or a progressive Partner. Our focus here is not on an ‘individual’ innovation, where a fee earner comes up with a new way of working. True value comes when an innovation is ‘institutionalised’ by being accepted and applied across a team, a department or the firm. To do this, research and experience has shown that a systematic approach is needed in key areas such as culture, leadership, client understanding and the application of methods and resources. In turn this will enable a firm to be innovative. This study explored how effective the innovation system is in law firms and what the key challenges firms are facing in their innovation efforts.

*The study invitation letter and introduction to innovation is included in the Appendix.

Figure 1: Innovation is the conversion of ideas to value.


Where can law firms innovate?

Innovation Dimensions To help in determining where firms were focusing their innovation efforts, we introduced the ‘Dimensions’ model of innovation, which breaks innovation activities into four distinct types*: • Process – Removing waste, improving

service, cost or quality.

• Service – Developing new services for your clients.

• Market Position – Entering new/repositioning in existing markets.

• Business Model – Fundamental change in your business value.

In each dimension a firm can ‘do nothing’, make ‘incremental’, or ‘radical’ innovation. This is a model that has been used by our academic partners and in our consulting work on innovation across services and industry segments for the last decade. We used these categories in reviewing firms’ innovation activities.

Innovation dimensions – with examples of law firm innovation

Source: Codexx, based on original model by Bessant and Francis.

*This model and definitions were included in the study questionnaire.

Figure 2: Innovation dimensions model showing law firm examples.


Study participation

14 UK firms and 21 German firms participated in the study.

The UK firms were well spread across revenue bands with a median turnover of £70m.

The German firms were smaller – the median turnover was estimated at £17m*.

Participants in UK firms were typically Managing Partners or Partners leading innovation activities.

Exhibit 1 – Study participants profiled by revenue * The revenue of some of the smaller German firms had to be estimated based on number of fee earners, as no financial data was provided.

KEY UK

Germany


Section 1 – The innovation landscape in law firms

What is the level and nature of innovation activity in law firms?


What is the level of innovation in the participating law firms?

Sample size: 14 UK law firms, 21 German law firms

Exhibit 2 – Level of innovation activity in participating firms

KEY UK

Germany


What is the maturity of innovation in firms?


Exhibit 3 – Nature of innovation produced in participating firms

KEY UK

Germany


Commentary – innovation activity and maturity

Law firm innovation maturity

We then profiled participating law firms’ maturity in their innovation programmes (Exhibit 3). Our maturity measure recognised that in a law firm (or any professional services firm) a major barrier to innovation is in the difficulty of engaging fee earners in innovation activities due to their primary focus on chargeable time. Many law firms also lack effective processes for innovation and therefore individual Partners can drive innovation - often ineffectively - through championing ‘pet projects’. Therefore we considered that widespread engagement in incremental innovation is indicative of a higher level of innovation maturity (due to the required level of engagement and changes in firm culture for example) than a few examples of more radical innovation. The former is evidence of an embedded innovation system that provides the firm with a strong and sustainable platform for innovation. The latter is highly dependent on a few partners who may not provide repeated innovation for the firm and may well leave.

Our sample showed that the bulk of firms did not have widespread engagement in their innovation. Innovation typically consisted of a few uncoordinated innovation projects that delivered incremental or radical improvements. This reflects the ‘silo’ nature of law firms where the structure of Partner led teams, based in separate offices, provides multiple barriers to firm-wide innovation activities. Partners are often motivated (through reward) to focus on their own team’s performance to the exclusion of others. In addition, the typical lack of an encompassing innovation culture and system in law firms makes repeated and sustainable innovation highly unlikely.

Whilst none of the UK firms participating considered that they had produced ‘little/no innovation’, over a quarter of the German firms did. This could mean that German firms have been tougher on themselves in defining what ‘little innovation’ means in comparison with the UK firms. Or it could mean that the German firms have been feeling less drive for innovation due to the lack of the deregulatory force for change, compared to that being experienced in the UK market. Overall the UK firms average score on innovation maturity was significantly higher than German firms, at 3.3, compared to 2.4 for German firms.

Level of innovation activity within firms Firstly we sought to understand the level of innovation activity within law firms and asked participants to position their firm against a simple activity scale (see Exhibit 2). Only 1 UK and 2 German firms considered that they had ‘’little to no innovation activity”. Most recognised that their innovation was fragmented and not very structured with ‘pockets of ad hoc innovation activity’. However about a third of UK firms considered that they invested substantial time and money in innovation. For example one firm had mapped all their processes to support their efficiency improvements; another had developed new products and dedicated partner time to this, one was running a firm-wide lean programme, and another had an on-going business efficiency programme. On average both the German and UK firms scored a level of 2.9.


Where have firms been focusing their innovation activities in the last 3 years?

Innovation focus over last 3 years

0%

10%

20%

30%

40%

50%

Process innovation

Service/Product innovation

Market positioning innovation

Business model innovation


Exhibit 4 – Innovation focus of participating firms in last 3 years

KEY UK

Germany


Firms identified their strengths in innovation

Note: All quotes are from participants

Exhibit 5 – UK law firm identified strengths grouped by innovation practice areas

Exhibit 6 – German law firm identified strengths grouped by innovation practice areas


Commentary – firm’s innovation strengths

Measuring innovation strengths

We asked firms what they considered their three strengths in innovation were. Of course this is a subjective view and firms will have a mixed level of understanding of innovation needs and therefore the level of their own capabilities. So this question gives a perceived understanding – rather than an objective one. Nonetheless it is useful to review the overall responses and contrast them between the two countries and also against what we know about law firm innovation capabilities from our work in the legal sector. To help in the analysis, we used our innovation model practice areas as ‘buckets’ to group the responses and then calculated the frequency of responses that fell into that practice ‘bucket’ compared to the total number of responses for that country. The results are shown in Exhibits 5 & 6.

What we found

• Practices in innovation Climate (covering aspects such as culture and values) were identified by German firms as the largest area of their strengths for innovation, with 45% of strengths falling into these categories. In comparison 26% of innovation strengths were cited by UK firms in this area. The German score is much higher than expected, based on our experience in working with UK firms. In our experience law firms are typically conservative with a partner-based governance model that tends to be autocratic and a primary focus on chargeable time as the measure of their employee performance. These elements don’t normally provide a supportive climate for innovation.

• Resources were cited the most often (29% of strengths) as an innovation strength for UK firms, these included examples such as having a Lean coordinator, an internal support team for innovation activities, an ideas forum & quarterly reward, defined funding for innovation projects and in-house programme for Client Focused improvement.

• None of the firms considered their Learning practices (e.g. Knowledge Management) as an innovation strength. This is a surprise given the focus firms have typically placed on Knowledge Management. It may be that they don’t consider this that relevant to their effective innovation.

• UK firms were more likely to consider Leadership as a strength in their innovation, than were German firms. This was typically down to practices such as visible leadership for innovation from senior partners and managers, a young management team, senior role established to focus on strategy and partner autonomy,

• The innovation Process was cited few times as a strength in both countries, and in our experience this matches the reality for firms, where there is typically no systematic way to generate and explore new ideas, then select and implement the most promising.

• Overall the key practices for ‘direction setting’ in innovation (namely leadership and strategy) were comparatively weak in firms. Without this, innovation activity will have reduced impact on the business.

Resources were cited the most often as the area for innovation strength for UK firms. None of the firms considered their Learning practices as an innovation strength. Practices for direction setting in innovation were comparatively weak in firms from both countries.


Section 2 – Firms’ Innovation practices & performance

How effectively do the participating law firms innovate and what do they achieve?


Commentary – Effective innovation requires an holistic system

Commentary Research and business experience has shown that a systematic approach to innovation is required for sustained innovation success. The system requires effective practices across the 7 areas illustrated in Exhibit 7.

Exhibit 7 – Model of innovation as a system


Participating firms’ innovation practices

Sample size: 14 UK law firms, 21 German law firms Exhibit 8 – Average level of innovation practices in UK and German law firms

KEY UK

Germany


Participating firms’ innovation performance

KEY UK

Germany

Sample size: 14 UK law firms, 21 German law firms Exhibit 9 – Average level of innovation performance in UK and German law firms


There was a large spread in participating law firm innovation capabilities

Average score Practice: 56% Performance: 43%

KEY

Graph shows overall

Practice & Performance per

firm

Practices covers:

Ways of working i.e.. strategy development,

leadership, climate, innovation

process, learning, client

involvement.

Performance covers:

Business outcomes i.e. new product revenue,

process improvement for

service or efficiency, time to

market.

Leaders

Laggers

Exhibit 10 – Innovation practice v performance by participating firms

Correlation = 0.69


Section 3 – What are innovation leaders doing differently?

What can we learn from firms leading in innovation?


Why study innovation leaders? It is helpful to understand any practices which appear to have a higher relative impact on innovation success, to

guide law firm improvement activities. We can do this by studying the firms with the highest innovation performance

and finding those practices which are different to the average.

Identifying innovation leaders To do this we identified a sub-set of innovation performance leaders. Specifically we identified those firms with

innovation performance (i.e. the average of performance measures such as new products developed, revenue from

recent innovation etc.) that scored 50% or more. This totalled 36% of the participating UK firms and 48% of the

German participants. Then we compared the practice scoring of the innovation leaders against the overall study

sample as shown in Exhibit 12. We also highlighted some leading practices being used by the UK innovation leaders.

The UK and German innovation performance leaders scored significantly differently and so we have assessed them

separately.

UK innovation leaders There were five UK firms in the innovation leader group, based on their performance scoring 50% or more. The

average score of these UK innovation leaders was ahead of the study average in all practice areas (see Exhibit 12):

• Practices >=20% points higher than average: Vision & Strategy, Culture, Client involvement

• Practices >=10% higher but <20% higher than average: Process, Resources, Other External involvement

German innovation leaders There were ten German firms in the innovation leader group, based on their performance scoring 50% or more. The

average score of these German innovation leaders was not ahead of the overall study average, in all practice areas:

• Practices < average: Vision & Strategy, Client Involvement

• Practices >= 20% points higher than the average: Learning

• Practices >=10% higher but <20% than average: Leadership, Culture, Resources

Commentary – what are the innovation performance leaders doing differently?

We compared the practice scoring of these innovation leaders against the overall study sample. The UK innovation performance leaders scored ahead of the overall study average in all practice areas.


UK innovation performance leaders were ahead of the study average in all practice areas

NOTE Performance leaders were defined as those participating firms with innovation performance of 50% or more, This was achieved by 36% of participating UK firms and 48% of German firms.

Exhibit 12 – Comparison of practice scoring for innovation performance leaders compared to all firms


Section 4 – Firms’ future innovation intent

How do the firms intend to focus their innovation efforts in the next few years?


How will innovation change in the next 3 years?

0% 10% 20% 30% 40% 50% 60% 70%

1 - It will drop

2 - No change

3 - It will increase a little

4 - It will increase a lot

How innovation level will increase in next 3 years

KEY UK

Germany


Exhibit 13 – View on future of innovation level in legal sector – average by country


Commentary – innovation in the next 3 years

How will innovation change in the legal sector in the next 3 years? There is a major difference between the UK and German firms in their outlook on innovation in the legal sector as can be seen in Exhibit 13. Over 60% of UK firms consider that innovation in the legal sector will ‘increase a lot’ in the next 3 years compared to less than 20% of German firms. Indeed more than 10% of German firms expected innovation to drop – there were no UK firms who believed this. In our view, the prime reason for this chasm between the UK and German views is clear – the expected continued impact of legal services deregulation in the UK. Whilst firms in both countries will face challenging market conditions, increasingly value-focused clients and the deployment of new internet-enabled business models, the impact of deregulation in the UK legal market will undoubtedly be driving the requirement for a higher level of innovation amongst law firms. UK firms will experience a number of external changes in their competitive market, including: • Firms reducing service costs through improved efficiency from the application of Lean and re-engineering approaches • An increasing level of fixed fee service offerings from firms who are standardising and better controlling service delivery • New corporate-based ABS entrants leveraging their branding and process expertise to increase price pressure on high volume services • New internet-enabled service models (aping Rocket Lawyer and the like) coming to the market • Further client-driven aggregation of work (as in the Balfour Beatty deal with Pinsent Masons in 2013) • Continued mergers as firms seek to achieve benefits of scale and scope

How will UK firms respond? Ultimately firms need to respond to this newly dynamic market, which requires innovation in: • Strategic approach in dealing with the new demands of the market • Processes to improve cost and service competitiveness • New services to improve differentiation • Improved post-merger optimisation to truly leverage potential synergies • Establishing a culture and system for repeated and sustainable innovation/improvement

Developing these capabilities will require a significant improvement in law firms’ innovation practices.


Innovation focus over next 3 years

0%

10%

20%

30%

40%

50%Process innovation

Service/Product innovation

Market positioning innovation

Business model innovation

Where do firms intend to focus their innovation activities in the next 3 years?

KEY UK

Germany


Exhibit 14 – Expected innovation focus of participating firms in next 3 years


Commentary – firm’s innovation focus over the next 3 years

Future innovation focus

Participants were asked what they believed their firm’s innovation focus would be over the next 3 years. The resulting profile shown in Exhibit 14 is not dramatically different from that of Exhibit 4, which showed where firms had focused their innovation efforts in the previous 3 years. The key differences being:

• UK firms show an increase in the % of focus on business model innovation at the expense of a slight decrease in Process Innovation. This likely reflects firms’ recognition that the ongoing competitive pressures may require more radical actions to be taken over the next few years.

• German firms show little change in their innovation focus between the last 3 years and anticipated next 3 years with services innovation still the dominant focus, followed by market positioning.

Why the difference?

The obvious question is why is there such a difference in the future focus areas for innovation in the two countries’ law firms, especially given that their overall innovation practice and performance is quite similar?

An obvious difference is the regulatory environment for law firms that is in place in the two countries and it is this which has driven the different competitive responses. In the UK, the Legal Services Act of 2007 enabled the deregulation of the UK legal market. New entrants and investment were enabled – including major corporates such as the AA, RAC and Capita – setting up legal operations able to operate on the open market, thus creating increased competitive pressures, especially on cost. So UK firms have particularly focused on improving their efficiency of operation – hence this innovation focus. No such deregulation has occurred in Germany and thus the focus is primarily on new value through services.

UK firms’ future innovation focus was predominantly on process innovation.

In contrast, German firm’s future innovation focus was mainly on new and enhanced services.

An obvious difference is the regulatory environment for law firms that is in place in the two countries and it is this which has driven the different competitive responses


Section 5 – Challenges to innovation

What do the firms consider as their key challenges to improving their innovation?


Firms identified their key challenges to improving innovation

Exhibit 15 – UK firms’ challenges to innovation – grouped by practice Exhibit 16 – German firms’ challenges to innovation – grouped by practice


Section 6 – Taking action

How can law firms improve their innovation performance and thus increase their competitiveness?


Determining firms’ priorities for innovation improvement We asked the participating law firms which one thing they would do to dramatically improve their innovation and

grouped the responses against the practice areas of the innovation model shown in Exhibit 7. This is not intended to

be a rigorous analysis – the number of responses do not enable that – but it does give a useful indication of where

firms consider they most need to focus their improvement. The results are shown in Exhibit 18.

Improving innovation resources and process are common priorities Firms from both the UK and Germany recognised that improving the resourcing of their innovation was a key priority.

The specific resources required were essentially in getting the time and skills of the appropriate fee earners made

available for innovation activities. Firms from both countries also recognised the need for an improved innovation

process and, to a lesser degree, an improvement in their leadership for innovation.

Some UK firms also highlighted the need for improvements in their strategy for innovation and also in better

involvement of clients in innovation activities. In contrast German firms mentioned neither of these areas. German

firms rated the need for improvements in their innovation climate more strongly than did UK firms. Yet German firms

had rated their climate for innovation as a much higher strength than had UK firms (see Exhibit 6). This might

indicate a stronger awareness in German firms of the importance of the firm’s climate for innovation success.

There was limited focus on leadership improvement We noted in Section 5 the pivotal importance of leadership in enabling innovation in firms, yet only a few firms

identified leadership as an area for improvement. In the UK, this focus was on moving away from the partnership

structure to a more dynamic structure such as a corporate – recognising the partnership model can slow change.

Improving Learning practices is not seen as important The need to improve learning received one mention by German firms and none by UK firms. It was the area of least

importance for improvement. It was also the innovation practice which firms rated as their lowest strength with both

countries scoring 0% in this area (Exhibits 5 & 6). However firms scored middling in learning practices (Exhibit 8) with

German firms scoring higher than UK firms. So what does this mean? Our conclusion is that firms don’t yet consider

that learning practices are key to effective innovation and see their innovation challenges as being in other areas.

Commentary – firms’ priorities for innovation improvement

Firms from both the UK and Germany recognised that improving the resourcing of their innovation was a key priority. Only a few firms identified leadership as an area for improvement. In the UK, this focus was on moving away from the partnership structure. Most firms don’t yet consider that learning practices are key to effective innovation.


Approaching law firm innovation Firms in the study recognised the importance of innovation and the assessment demonstrated that innovation practices and performance are

typically weak in the participating law firms compared to practices existing in other business sectors (as measured by the scoring of innovation

practices and performance against common measures). There is thus plentiful opportunity for firms to make improvements in their innovation

capabilities and hence their overall competitiveness. But how best should they go about doing this? From our experience of helping law firms and

other businesses improve their innovation, we have defined 5 guiding principles:

1. Innovation needs direction – from leadership and strategy

2. A supportive environment for innovation must be established

3. Get started and learn as you go

4. Capture and build internal competencies

5. Be curious and learn from others

In the following pages we have detailed these five principles.

Commentary – improving innovation capabilities #1

1. Innovation needs direction – from leadership and strategy To drive sustained innovation improvement, leadership from the board is needed to engage partners (and hence employees), to provide a clear

direction for innovation with a defined strategy and to support innovation activities. Our experience in law firms and other industries is that there

are a number of effective ways to start such an innovation programme, each with their own strengths:

• Run a number of innovation ‘catalyst’ event(s) that involve, inform and educate, stimulate thinking, challenge the status quo and deliver early

innovation opportunities. These can help in establishing a clear understanding and dialogue around innovation and generate new ideas. To help

one law firm build their innovation programme we used our 1 day Innovation Catalyst Workshop for department teams including Litigation, Real

Estate, Commercial and Private Client.

• Run a focused programme around process innovation (aka ‘re-engineering’) for specific services. This requires a involvement of partner and fee

earners and in our experience can generate major cost reduction through efficiency improvements and also raise service value. This approach

can be replicated across other departments. We have worked with a number of firms using our ‘Smarter Working’ re-engineering solution for re-

engineering services including Due Diligence, Insurance Claims Management, Commercial Property, Inquests and Employment Tribunals.


1. Innovation needs direction – from leadership and strategy (continued)

• Run an Innovation Assessment – against a best practices model (such as the Codexx ‘Foundations for Innovation’ assessment) to identify key

weaknesses in the firm’s current capabilities in innovation and define priorities for improvement. We did this with one law firm who had recently

merged to compare innovation capabilities.

To effectively build on these initial approaches, a supportive environment needs to be established, as we discuss next.

2. A supportive environment for innovation must be established A major barrier to innovation in law firms is the focus on fee earner utilisation as ‘the only measure that counts’. Naturally this discourages fee

earners from making time for innovation activities – whether it is in developing new service ideas or working on efficiency improvements. This has

always been an outcome of the hourly fees environment for firms – but this is changing as we are seeing an increasing use of fixed fees by clients. A

supportive environment for innovation is one where the firm’s values truly support innovation, the culture is one where new ideas and a level of

risk-taking are encouraged, where recognition and reward is given to partners and employees based on the value they provided (whether it is in

the form of chargeable time, new services developed or improved, innovation activities or other areas that the firm values).

3. Get started and learn as you go Innovation is about doing new things. So an action-based approach to innovation within a firm must be the goal. Planning is good – and there is

experience and guidance available on the practices to apply for effective innovation (including this report) – but ultimately planning must be

converted into action for learning to start and benefits to be gained.

We advocate the goal for law firms, in improving their innovation, should be to build improved innovation capabilities, whilst simultaneously

generating benefits from improved performance – a ‘twin track’ approach. This means that new mechanisms put in place to support innovation

(such a new skills or tools) are closely linked to real experience. It also means that investments are being funded by benefits.

Innovation projects include improving the efficiency of the legal services provided to clients or in internal processes such as billing. In our

experience working with UK law firms, we have seen direct cost reductions of up to 70% achievable through process innovation (utilising

techniques such as Lean). Innovation improvements would also be in developing new services or raising the value of existing services and so

improving the firm’s differentiation. The majority of innovation opportunity lies in these two areas of process and service innovation.



3. Get started and learn as you go (continued)

This ‘twin-track’ approach is the best way for any organization to successfully introduce new methods as measurable success (i.e. clear benefits)

are the best way to gain support for the programme.

AXA Ireland, part of the global AXA insurance group, is a good demonstration of the value of this approach in their innovation programme in the

early 2000s. Their initial CEO led focus was establishing a group to generate new ideas. This was effective to a degree but they soon recognised the

need for an improved evaluation and selection process to improve quality and focus their implementation resources. Analysis of their implemented

ideas showed that most of their innovation was in waste elimination and improvements in their processes and services – rather than radically new

services. This insight helped them better communicate the opportunities for innovation across the firm to engage more employees who could bring

new ideas from their daily work. To keep innovation fresh and also to cover new areas, they developed themes, covering customers, involving

partners and also new process improvements. With hindsight, the programme could have been accelerated with better structure and practices at

the start – but the value of the learning and ownership from AXA developing their own solutions cannot be underestimated.

4. Capture and build internal competencies There is no recognised ‘cook-book’ approach as to which innovation practices should be addressed first – it depends on the situation present in the

organization. But we have found that a good foundation is a basic process where new ideas can be fed for exploration, selection and

implementation, supported by a review group. Meanwhile there should be a parallel track in developing and executing new innovation projects (for

products, process change etc.) triggered by ideas submitted into the innovation process or by structured activities (such as client reviews, market

sector reviews, process reviews). As a key part of the innovation programme, communication of progress and benefits is critical to effecting the

required changes in behaviour. We worked with one UK law firm to run a week long ‘webjam’ of internal brainstorming; with another to perform

innovation training and setup an innovation process. One major law UK firm has set up a Continuous Improvement group, another has driven

process mapping across its firm and one has supportive its strong culture for innovation with recognition and reward systems.

5. Be curious and learn from others Law firms have a tendency to be parochial and look to see what other law firms are doing. But since the legal sector as a whole is behind many

other sectors in their business practices, it makes sense to look outside the legal sector for ideas and to compare and benchmark practices and

performance. Potential examples include accounting firms, who have similar challenges as a professional services firm, but who have typically have

better practices in defining, operating and improving their business processes.



5. Be curious and learn from others (continued)

To examine the practices for online services, look to Amazon and Google as well as new legal entrants such as Rocket Lawyer. Lean thinking is

highly applicable within law firms for improving efficiency and client service and there are a number of businesses who are exemplar at using Lean

– some are even in the legal sector.

One of the most effective sources of potential learning comes from clients themselves. The innovation leaders in this study established structured

approaches to do just this. By better understanding their business and practices, a law firm not only taps into a good source of learning and

improves its ability to better meet the needs of its client, but it also deepens its relationship with the client. What client would not value a law firm

that is seeking to better understand its clients’ business and improve its own services and ways of working?

Being curious is healthy, but for most value it has to be first focused – and this is where the firm’s strategy comes in. If we are focusing in process

innovation, then the firm needs to find out about Lean and re-engineering. Converting this curiosity into learning is where value begins. So that

means bringing the new ideas into the innovation process, into experiments, projects and pilots within the firm. And for this to happen, a

supportive environment is needed of course.


Conclusion

In our experience, the application of these five principles to guide a firm’s innovation activities, will help improve the likelihood of successful and

sustainable innovation and hence deliver improved competitiveness.


The study has shown that law firms in UK and Germany recognise the increasing importance of innovation

in their sector. It also demonstrates that most firms have a middling-to-low level of innovation capabilities

and performance compared to best practices. Only a few progressive firms in the study were giving focus

and resources to developing their innovation. So there is a large gap in innovation capability to be bridged.

The good correlation between practice and performance scoring demonstrated that law firms who put in

place improved innovation practices can expect to achieve improved business performance.

Whilst overall the UK and German-based firms had a similar level of innovation practice and performance,

there were significant differences in the views of firms in each country on the importance and direction of

innovation in the legal sector and in their innovation activities and plans. We also had some concerns

regarding the high level of practice and performance rating by some of the German firms – which might

possibly have been over optimistic.

UK-based firms are facing a more challenging business environment driven by deregulation than are the

German firms and therefore have a clear need to respond. UK firms are focusing more strongly on

process-based innovation, to help improve efficiency and improve cost-competitiveness than are the

German firms, who are instead primarily focusing on the development of new services.

The initial challenge for most firms is to establish innovation high up on the agenda in the firm’s leadership

and then to develop a strategy for utilising innovation to raise competitiveness. There is clear evidence

that in today’s competitive legal environment innovation is key to sustained competitiveness and hence

long term success.

Once there is leadership and direction for innovation, the other required mechanisms can then be put in

place and the experience of others together with knowledge of proven methods can be applied to drive

effective and sustainable innovation.

The study has shown that law firms recognise the need for improvement, for innovation, to deal with the increasingly challenging market conditions. Law firms who put in place improved innovation practices can expect to achieve improved business performance The initial challenge for most firms is to establish innovation high up on the agenda in the firm’s leadership.

Final thoughts


Further information

For further information on this study or to discuss approaches for improving law firm innovation, please contact: Alastair Ross Director, Codexx Associates Ltd Website: www.codexx.com Email: [email protected] Phone: +44 (0) 7766 525433 Mail Codexx Associates Ltd 3-4 Eastwood Court Broadwater Road Romsey, SO51 8JJ United Kingdom Further information on innovation: Codexx has produced a number of whitepapers on professional service innovation that are available to law firms on request: ‘Study of innovation practices in major UK law firms’ (January 2007), ‘Lean for Lawyers’, ‘Business Process Re-engineering in Law Firms’, ‘Innovating professional services’, ‘Increasing client loyalty’. ‘Innovating professional services – transforming value and efficiency’ by Alastair Ross, is due to be published by Gower in May 2015. About Codexx: Codexx was established in 2002 to provide innovation and transformation services for businesses. It has provided consulting services to clients in the industrial and services sectors, both in the UK and internationally. Since 2005 it has consulted to a number of major UK law firms including ASB Law, BLM, Bevan Brittan, Blake Morgan, Burges Salmon, GJE, Mills & Reeve, Nabarro, Norton Rose Fulbright, Pinsent Masons.

innovation in uk and german law firms - 2013 study - final report - summary

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