25 May So you think you’re innovating?
Innovation: the introduction of something new; a new idea, method, or device: novelty (Merriam-Webster)
- When does a startup, stop being a startup?
- For how long does a person qualify as being an Entrepreneur?
- At what point does an innovation cease to be innovative and become the mainstream? And are you waiting until then to adopt it?
Innovation has become somewhat of a moving target as new tools and technologies are continually being created that help deliver tasks more efficiently, data more accurately and communication more easily. However, it’s no longer reasonable for companies to blame a lack of knowledge about the technology options that exist for inertia around change.
Equally, firms do not need to expect to be in a continual cycle of change and innovation as requirements for new solutions ebb and flow. At times organisations will be in execution mode, or business as usual and then at other times, actively in the market for an innovation that supports a business transformation. If you’re working in a law firm or at the pointy end of M&A, you will more than likely be in innovation mode today.
Can we divorce innovation and technology?
Innovation isn’t necessarily disruptive; nor is it always driven by technology. The digitisation of processes and services remains a hot topic but ultimately new ideas take hold because they solve a problem and this could be iterative or a sudden breakthrough.
The label ‘innovation’ is often used synonymously and interchangeably with ‘technology’ because in today’s digitised world the two frequently go hand in hand. Technology has become ubiquitous with our daily lives. If you’ve used cardless cash, had a go at trading crypto-currency or have a lady called Alexa in your home, then you’ve been disrupted by technology already. And there continues to be an enormous gap between the technology used everyday in people’s homes and that applied within law firms.
Reinvention vs evolution
Aversion to adoption is often driven by the perception that innovation is a sudden, pivotal change; something that will be ‘hard to do’ when actually it’s usually always more incremental. Take these examples that we now hold as ‘big’ inventions as we take a look at actually how they came about:
- Steve Jobs Apple – built on research into computing and information conducted in the 70s
- Model T Ford – existing car components put together on an assembly line rather than by hand
- Uber – mobile phone and map technologies with taxi booking
Many of the so-called innovations today are incremental and have been tested in public labs and universities for many years prior.
The adoption curve holds true
In our white paper we discussed how the adoption of technology has accelerated over the years when we compared the 76 year adoption of the telephone to that of 10 years for the smartphone.
Let’s look at Cloud technology as an example. When in 1999, Salesforce began delivering it’s application over the internet, CIOs struggled to understand how cloud technology would translate into ROI. Compare that to last year when Forbes reported that 74% of Tech Chief Financial Officers (CFOs) said cloud computing will have the most measurable impact on their business in 2017 with Microsoft Azure and Amazon Web Services leading the way in terms of market share. Now an estimated 57% of the world’s companies have some element of their enterprise in the Cloud.
Regardless of the speed of adoption, we still see Rogers’ Innovation Adoption curve hold true in the real world with Bain and Company reporting that 43% of companies are Later Adopters when it comes to the Cloud. Those Early Adopters who ‘got in first’ are now reporting 79% of their IT infrastructure sits in the Cloud. It stops being ‘innovation’ and starts being the norm.
The influence of others trying it first
Technology evolving quicker than the rate at which people can comfortably respond creates anything from fear to inertia within companies that could ultimately benefit from it’s implementation.
When a pivotal external event occurs such as the Global Financial Crisis, it re-shapes the business landscape and forces new business models and approaches. One of the impacts was that innovation got a place in the boardroom and the new breed of Consulting Firms – Innovation Consultancies including IDEO, Livework and Inventium – were born.
But what we see when there is no force for change is the typical process of the transformational Early Adopters trialling new innovations and the Late Adopters waiting in the wings for the the resulting reassurance – by which time, it’s no longer an innovation.
And now big organisations are striving to get ahead of the curve so much that, where their size means that they struggle to innovate, they often create a new group or subdivision: The Innovation Lab – something we’ll discuss in a future blog post.
Are we innovating yet?
McKinsey identifies three areas of innovation – product, process, or business-model innovation and these can be seen across industries from aviation to construction, financial services and energy to medicine.
Example #1 A virtual assistant for your home loan
Robochat is an example of how organisations are leveraging cognitive virtual assistants that have the ability to engage in a conversation, respond in context and learn.
Launched in beta 12 months ago, UBank’s RoboChat is the online banks’ latest addition to its suite of customer service initiatives. An iteration of their Livechat interface, RoboChat uses IBM Watson’s Conversation API and natural language to help people complete the home loan application online.
At the moment it’s limited to 40 core home loan topics and a few hundred associated questions but it does have the capacity to learn. If that causes you worry that the robots will take over then it probably should, although the bank assures that it’s an assistant that does not replace human staff.
Technology that sits behind it is disruptive but the implementation isn’t ground-breaking and the limitation will be how much we can train the digital assistant, the user’s desire to interact with it and how quickly it can learn.
Example #2 robots putting us to sleep
Anaesthesiologists have been reported as the highest paid doctors in the US. Robotic anaesthesia used in surgery, with a single person monitoring multiple automated administrations at once, is seeing the highly repetitive parts of the workload distributed.
This leaves anesthesiologists to focus on other areas of patient care whilst increasing the accuracy, safety and reproducibility of the workload.
As we’ve seen across many other industries, robots are assisting humans in the process – not replacing the conduct of them entirely. The use of robotics is eliminating the repetitive parts of the work and serving as a pseudo-technological mental and physical ‘extension’.
Example #3 – new rules in banking will create innovation
Unlike the other examples above, this is not a new app, service or product. The Open Banking directive came into force on 13 January in the UK and is a way of facilitating data sharing with the aim of increasing competition and innovation in the market.
Opening up banking data is poised to transform the way people can move and use money from money management between accounts, sharing data to access loans and making payments directly from a bank account rather than using payment initiation services.
Labelled ‘revolutionary’ PSD2 (Second Payment Services Directive), Forbes has reported that as much as 10% to 20% of banking profits could be at risk of disruption. Bain & Company estimates that within five years, £1 billion to £2 billion of annual pretax profits could be vulnerable to disintermediation.
We’re Lawyers. We don’t need to innovate
Regardless of the appetite for change within law firms; since 2010 there have been major changes occurring in how clients are buying legal services, forcing providers to react (or in some cases fail to) and this has been extensively documented by George Beaton’s New Law, New Rules.
Alec Ross, On the Industries of the Future, last year talked about “white collar jobs being eaten by software” and listed several roles that are now capable of being automated in an industry where the most expensive thing in the legal process is the labour:
- Paralegals face up to 95% chance of being completely automated
- Financial accounting 93% chance of being automated
- Legal services, contract reviews being automated by AI
What once took hours and cost thousands of dollars is now immediate and costs hardly anything. The rote work of associates and paralegals is being roboticized leaving much smaller amounts of work involving complex problem solving.
The argument of ‘data confidentiality’ can only hold for so long when other industries such as the financial sector have demonstrated that they have found ways to deal in highly sensitive data, whilst transforming their business.
An HBR study of 33 OECD countries between 1960-2012 showed that there was a hump-shaped effect of innovative activities. The older the population, the less innovation there is. If we are to apply this to the law sector where the ABA reports that the legal profession is aging in a decades long trend that is seeing the percentage of younger lawyers continue to shrink, then what chance does the industry really have for innovation?
If we’re ready to ‘do’ it, then how do we measure innovation?
“In one end go raw concepts and notions. Out the other end come actionable ideas that can move the business forward”
Harvard Business Review suggests that innovation, like anything, is a pipeline so it should be managed like a sales pipeline.
McKinsey offers two solutions:
- RDP – take the ratio of R&D spend (as a percentage of sales) to sales from new products so that businesses can track the efficacy with which R&D dollars translate into new-product sales.
- NPM – the ratio of gross margin percentage to sales from new products, which provides an indication of the contribution that new-product sales make to margin uplift.
Where to from here?
Innovative firms will think not only about making current offerings more efficient, but how technology can allow them to develop new services that incorporate their expertise in a different way.
PWC UK, The law firm of the future, 2017.
Firms don’t have to adopt an “always on” approach to innovation; however, PWC UK reports that changing client demands, the opportunities that technology presents and a workforce that expects options for remote working are factors that mean change is not only becoming more frequent but is also accelerating.
What is clear now is that if you’re responsible for client delivery in a law firm then you should be asking the question: are we ready to embrace new solutions to our business and client needs or are we waiting for other firms to do it first?