Almost everybody who is involved with business strategy and transformation knows of Clayton Christensen and his theory of disruptive innovation. This theory explains how simpler, much cheaper products or services enter a market, usually from small, resource-constrained suppliers operating at its fringe. These new offerings then steadily improve until they challenge and perhaps even displace incumbent market leaders by winning their mainstream customers away from them. Frequently cited examples include progression in the music industry from vinyl to cassette tapes to iPod to streaming, in data storage media, and in the displacement of the gigantic steel mills of the 1980s and before that by small, mini-mills.
Very rationally, incumbents being disrupted respond by “retreating to quality.” They ditch “commoditised” goods and services and focus instead on their more demanding, high-margin clients and services. They either ignore early disruptors or deride them as poor quality or not what clients want – therefore not a threat. By the time the disruptors’ goods and services are “good enough” for the incumbents’ core clients to switch, the performance–price advantage and more efficient business models make response very difficult.
Applying that logic to legal services, the future seems likely to belong to the fringe “AI-first” law firms that are currently emerging, together with other tech-heavy “alternative legal service providers” (ALSPs) aiming to service small and medium sized enterprises (SMEs) and ordinary (i.e. not high net wealth) private clients. It would imply that these firms will quickly climb the value ladder, winning work from conventional law firms that find themselves unable to break free from their legacy workflows, cultures and governance models.
As Christensen explains: “The reason why it is so difficult for existing firms to capitalize on disruptive innovations is that their processes and their business model that make them good at the existing business actually make them bad at competing for the disruption.”
But is this really how things will play out? Does the future really belong to the disruptors?
In their recently published (2025) Resurgent – How established organisations can fight back and thrive in an age of digital transformation, Julian Birkinshaw and John Fallon describe a different scenario. As they explain, market leaders are that for good reason. They know their customers and their markets extremely well. They are operationally astute and well resourced. Birkinshaw and Fallon show how many businesses that formed part of the Fortune 500 in 1995 still appeared in that in 2020. Also how few new entrants in 2020 (only 17) did not exist in any form in 1995 or before.
Why 1995? That year saw the beginning of the last major era of technological disruption with personal computers, the World Wide Web and emails becoming mainstream. In the years that followed, we saw the dotcom boom and then its crash, 9/11 and the War on Terror, and the global financial crisis. In the UK, the Legal Services Act was promulgated, allowing fees and profit to be shared between lawyers and others, opening the door to external investment in law firms. We saw the emergence of mobile telephony, computing and broadband. Later, we saw the Covid pandemic and Russia’s invasion of Ukraine.
If the theory of disruptive innovation is the best explanation for how the sector has responded to the litany of market changes to which it has been subjected, then surely today’s leading law firms would be disruptor firms that have emerged in the past thirty years – not the “dinosaurs” that existed in 1995?
As it happens, this is not the case. Inspired by Birkinshaw and Fallon, I compared the Legal Business 100 (LB100) list of the 100 largest British law firms in 1995 (with thanks to my friend David Burgess for helping me source this) with the same list in 2023 – the year immediately following ChatGPT’s public release on 30 November 2022. The results are illustrated below.
- 56 law firms that appeared in the 1995 LB100 list appeared also in the 2023 list
- 35 law firms that appeared in the 1995 LB100 merged to form part of the 56 firms that appear in both lists (and in some cases with others too)
- 3 law firms fell out of the LB100 lists
- 6 law firms went out of business.
The disappearance of 44 law firms through merger, contraction or dissolution created a vacuum that was filled by new entrants to the LB100 list in 2023. Crucially, though, all but four of these new entrants already existed in 1995, albeit below the scale threshold for LB100 inclusion.
Looking at the scale and performance of the LB100 firms in 1995 versus 2023 provides even more dramatic insights. The headcount across LB100 firms increased roughly 4X over the period, but revenues – after correcting for inflation – increased 6X. Revenue per lawyer (RPL) – also after correcting for inflation – increased by roughly 1.5X.
The deep resilience and agility of market leaders can be seen more starkly by focusing on the performance of the 56 law firms that appeared in both lists. In 2023, these firms accounted for 84 percent of lawyer headcount in the LB100 law firms and 92 percent (!) of revenues. Between 1995 and 2023 these law firms furthermore increased their RPL by not roughly 1.5X, but by nearly 1.6X.
Clearly, these incumbent law firm market leaders from 1995 have not only survived, but thrived through the multiple and diverse market disruptions over the past 30 years. Yes, there has been consolidation, but that is very different to disruption. That consolidation is evident in the greater scale of today’s leading law firms, compared to those in 1995.
This is naturally not to say that today’s leading law firms need not transform their client value propositions and operating models, probably radically, as generative AI develops (as did digital technologies from 1995 onwards.) Christensen’s theory of disruptive innovation applies, but in a more nuanced way. But it would seem safe to bet that most of today’s leaders will successfully transform themselves and retain market leadership in years to come.
Or perhaps this time will be different. What do you think?
