In the classic "The Innovator's Dilemma," Clayton Christensen analyzed how companies at the top of their game, with brilliant and successful products, and focused on their core clients, could be undercut and eventually dethroned by small, pesky start-ups with demonstrably inferior technology.  No less than Andy Grove had this to say:

"This book addresses a tough problem that most successful companies will face eventually. It's lucid, analytical-and scary."

If you haven't read it, first of all, shame on you, but second of all, here's Christensen's key insight: Market-leading, highly-functioning firms that are (rightly) focused on their best clients will ignore newly introduced "disruptive" technologies which typically begin life cheaper, smaller, and easier to use—but far less capable—than the market leader's offerings.  The leader's best clients know and appreciate the fully-featured products they buy, and have no use for what the inferior upstart sells. Meanwhile, senior and middle management of the market-leading firm has no incentive to adopt the new, inferior technology either, since (a) their best clients have rejected it; and (b) at least initially, the market niche is so small it would contribute negligibly to the firm's growth, and could even dilute profitability (cheaper generally being associated with lower-margin).

We all know what happens next:  The emerging technology matures quickly, becomes competitively capable, and the market-leading incumbent is caught flat-footed.  If Christensen's book has been consistently criticized for anything, it's that he doesn't have much to say about what the market leader could do differently to avoid being dethroned—which I interpret not as a failing of Christensen but as a reflection of how intrinsically difficult it is for the market leader in such a situation:  Revolutionizing themselves to meet the threat on its own terms means taking their focus off their best clients and investing in somewhat unproven, low-margin products with an uncertain future.

What has this to with "the economics of law firms?"  Legal Week reports:

"Some of the fastest-growing, most innovative firms in the UK are found not within the confines of the City [of London] but out in the regions. Here, unencumbered by the tradition, expectation and expense of running a London operation, they have succeeded in building up legal businesses whose capacity for growth may soon see them encroaching on their capital equivalents’ territories."

And what have these firms in common?

"Change.  As businesses which have come a long way in a comparatively short time, they are used to embracing it as a constant."

One could argue that the impending Clementi Commission reforms give UK firms greater incentive to innovate (or greater fear if they don't) than their less immediately challenged US brethren, but the firms Legal Week discusses don't sound fearful and don't sound bashful.  A partner at Liverpool-based Silverbeck-Rymer (no, I hadn't heard of it either—but for a taste of something "completely different," check out their website) says:

"The companies outside the profession currently being touted as potential providers of legal services are in a position to provide a much slicker service at a much reduced cost. If law firms are to survive they must embrace change or face extinction"

while another says "[we] have no God-given right to make money and will have to adapt and innovate to survive."

Incidentally, Silverbeck-Rymer has all of four partners and revenue of £16.4-million (about $29-million), so don't be too hasty to scoff at their business model.

What are the "business models" of these firms in general?

• Heavy investments in IT to propel efficiency.
• A strong culture of client-service orientation, including call-tracking and case management systems:  "anything focused on keeping the client happy," as one managing partner puts it.
• A "virtuous circle" whereby the investment in efficient, standardized systems and a stable workforce lead to satisfied clients receptive to cross-selling, which increases profitability and enables more aggressive investments in IT and marketing.

Now for the most disruptive innovation of all:  Discarding the partner-manager model entirely.

Drastic?  Not to Tim Hastings, chief executive of Midlands-based firm Nelsons, who says bluntly (emphasis supplied):

"We found many years ago that the pace of change in today’s business world is too rapid to suit the partner-manager model. It simply took too long to make a decision.

"A corporate-style model, however, allows us to emulate successful non-legal businesses. Most big companies have been built up by delivering consistent, high-quality products to their customers. This can be applied to legal services too, which is why we need a [corporate-style] decision-making process."

Is this starting to sound familiar?  Innovation arises from small, regional upstarts who offer inferior services ("standardized," "commoditized," not bespoke) at a lower—and fixed!—price.

Granted, UK firms staring down the barrel of Clementi may have little choice; but those like Nelsons and Sylverbeck-Rymer who enthusiastically embrace change may be showing us all a model for the future.  Win, lose, or draw, they're doing what Christensen found so threatening to incumbents:  Breeding new ideas, experimenting with different processes, and using their rapid growth to invest in more of the same.