Mediation as a “Disruptive Innovation”

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In 1997 Harvard Professor Clayton Christensen authored The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.  Hailed as a revolutionary business book that has forever changed corporate America, the Wall Street Journal warned that entrepreneurs, managers and CEOs who ignore its wisdom and warnings do so at their peril.

Christensen’s work elaborated on what seems obvious: As new technologies (or innovations) appear, old technologies either quickly or eventually perish.  Whether it’s Netflix replacing Blockbuster, smart phones dislodging film cameras, or discount retailers displacing full-service department stores, our lives are constantly ‘upgraded’ by new ways of doing things.  And many industries have been upended by entirely new and better ways of accomplishing the same goal.

Often, Christensen notes, a new (or disruptive) innovation faces an uphill battle before it finds acceptance in the marketplace, or even by the firm that produces it.  The question Christensen ponders is why do some firms fail and others succeed at this.  Why did Wang fail and Intel succeed?  Why Costco and not Sears?

Why don’t potential parties to a case select mediation first to resolve their dispute rather than resort initially to litigation?

Christensen notes that often a disruptive innovation initially underperforms the current technology on the attributes that matter most to mainstream customers. Compare that with litigants who expect larger payouts if they prevail in court than if they get a mediated settlement.

According to Christensen, characteristics of disruptive innovations, at least in their initial stages, can include lower gross margins, smaller target markets, and simpler products and services that may not appear as attractive as existing solutions when compared to traditional performance metrics. This is another resemblance to mediation vis a vis litigation.

These lower tiers of the market traditionally offer lower gross margins.  (How many attorneys refer to ADR as an Alarming Drop in Revenue rather than its accepted name, Alternative Dispute Resolution?)  As such, they are unattractive to other firms moving upward in the market.  Unwittingly they often create space at the bottom of the market for new disruptive competitors to emerge.

Compare then, mediation with trials:  Is one obstacle to greater use of mediation attorneys who relish the ego satisfaction of winning in Court and concomitant fat fees over the sometimes ponderous and lower income-producing process of mediation, where the courtroom skills they’ve spent their careers perfecting may be useless or irrelevant?  Clearly, for some in the legal profession mediation may not offer the satisfactions that a trial does.  For others, so-called ‘reformed litigators,’ mediation may yield a more fulfilling career path.

The question I keep pondering is how can mediation emerge as a disruptive innovation that eventually moves from the lower rungs of the legal totem poll to become the cornerstone of the US legal system?  I believe that the pre-conditions already exist:

• Court processes are slow: civil cases may take as long as a year to come to trial. Judges’ calendars are crowded.
• Litigation is expensive when you consider that both sides are paying lawyers as well as the costs of discovery.
• Jury selection can take days, if not weeks and is a roll of the dice.  Compare mediation, where parties choose the mediator and maintain control of the outcome.

 

How many plaintiffs experience ‘buyer’s remorse’ as they encounter delay after delay and legal expenses they never anticipated?  And, of course in any court battle, there is the inevitable winner and loser. And then there’s the matter of collection or enforcement.

To determine whether mediation can become the centerpiece of our legal system, three questions need answers:

1. Does a market for mediation exist?
2. Are law firms willing to establish mediation as a practice specialty?
3. Are law schools ready to move mediation from its elective status to a major element in the study of dispute resolution?

First, let’s examine the legal profession. Which law firm (firm, not sole practitioner) will be the first to offer prospective clients the option of either litigating or mediating?  This might call for a firm to operate an ADR subsidiary or branch to which clients could go knowing that their case will not be litigated.  In such situations, a prospective client would be introduced to a group of professionally trained mediators with legal experience in, say, civil, probate, or family law.  Fees would be in line with the existing rates that other mediators charge in the community. 1

Christensen notes that established firms which successfully seized strategic positions in new markets enabled by disruptive innovations have done so by giving responsibility to commercialize the disruptive innovation to an element that matched the size of the targeted market.  This raises the question: How can a law firm possibly anticipate the number of clients who would prefer mediation over litigation?  It likely can’t. 

Citing Christensen (yet again), too many companies are data driven, i.e., they base their future course on past performance instead of looking at where challenges to their existence (or their profit margins) are emerging.  Knowing full well the non-existence of data to forecast the size of a prospective market, Christensen advocates something called ‘discovery-based’ planning, where managers develop plans for LEARNING what needs to be known. It is in disruptive innovations where we know least about the market, but where lie potentially fast-moving advantages. This, Christensen declares, is the innovator’s dilemma.

But can we apply Christensen’s methodology to the legal system?  Judges understand the benefits of mediation and regularly direct litigants to ‘try’ mediation first before going to trial.  Where I mediate in the DC Superior Court judges don’t hesitate to refer cases to mediation.  They’d rather have parties to a divorce determine their children’s future than decide it themselves.  The same is true for vexing intervention cases where, for example, family members might dispute how and which family member would provide care for a handicapped elder. 

The downsides are obvious: firms with a mediation subsidiary would operate at a lower profit margin and enter a market ignorant of its potential growth.  Mediators might compete with litigators based in other sections of the firm.   But an even greater downside is doing nothing. But there will be an upside in client satisfaction and positive word of mouth referrals. Also, because mediated disputes ordinarily move much faster than litigated cases, there can be profit in larger numbers of cases. 

Sooner or later mediation is going to take off.  Sooner or later prospective litigants are going to wise up to the economies of mediation over litigation.  Instead of waiting for a judge to order parties to ‘try mediation,’ more and more litigants are choosing mediation over litigation to resolve their conflicts before they even get to court. The question is:  what will it take for this potential market to reach critical mass?

To diverge for a second, consider these examples: Blockbuster and Tower Records managed to keep pace with technology when they switched from tape (be it VHS or cassettes) to DVD’s.  But when streaming found its footing, they folded.  Now that Medicare reimburses doctors to counsel patients on end of life options, will terminally ill patients continue to try to ‘hang on’ for whatever limited time they can squeeze out of intrusive procedures administered in an ICU?  Or, once aware of the advantages of less ‘heroic’ treatment and more comfortable home-based care, will they (and their family members) opt for a palliative approach to end of life care? 

But where can a firm find highly trained practitioners as knowledgeable about mediation as about the law?

There’s no shortage of mediators.  Firms can take their pick of any number of specially trained mediation professionals who are either lawyers or not lawyers.  But what’s really needed is a change in how mediation fits into legal education. This is the second course correction that needs to take place for mediation to become the cornerstone or our legal system and not just an ‘alternative.’

The time has come for legal education to embrace mediation.  Up to now, the legal profession – attorneys and judges – have been schooled in, among other subjects, case law, precedent, and legal procedure.  While they may have taken some elective courses in ADR, few have been exposed to the actual process and outcomes of mediated cases, such as those recounted in Gary Friedman and Jack Himmelstein’s “Challenging Conflict: Mediation through Understanding.” 

If mediation is to claim its rightful place as a major element of our legal system, law schools will need to offer more than an elective or two in ADR.  In the same way that palliative care for the terminally ill is not (yet) the ‘go-to’ medical specialty for terminally ill patients with incurable conditions, so should mediation become the go-to process for dispute resolution.

But obstacles persist.  For example, too many doctors are still prone to advise their patients to undergo more intrusive life-sustaining medical procedures.  Similarly, too many attorneys counsel their clients to litigate their case knowing the chances of a favorable judgment are 50-50 or less. 

Finally, change the culture.  Sadly, conflict resolution in our culture is rooted in an adversarial system which typically spits out a winner and a loser.  If a dispute emerges between a married couple or between businesses or individuals, ‘going to court’ is emblematic of the natural course of events.  As noted above, how often do prospective litigants realize the time, expense, and emotional drain our adversarial system imposes on them?

We can begin to remedy this by no longer referring to mediation as alternative dispute resolution.  As long as courts, law schools and attorneys (and we, ourselves) persist in referring to mediation as an alternative, I believe it will remain a second-class citizen of the legal system.  If the legal system refers to mediation as an alternative, what is the public to think? Why not consider litigation the alternative?

Mediation as a disruptive innovation must itself improve.  Yes, incremental shifts like more rigorous certification standards, collaborative law, online dispute resolution, integrative mediation, and a plethora of ever more specialized training opportunities have inched our campaign along.  But we can do more.

To conclude: We mediators have been evangelizing about mediation for years, decades.  And, yes, acceptance is growing…slowly.  We’ve seen advances in training and practice modalities.  But gaining widespread market acceptance and use depends on significant shifts in the legal system itself.  The Courts are doing their part.  But the other key elements of the legal industry — law firms and law schools — have a distance to travel before mediation is fully integrated into the corpus of our legal system. 

 Endnotes