Ensuring Practice Group Effectiveness

Our joint research project with the Managing Partners Forum continues and our topic in February 2014  was practice group management.  Specifically, are there particular responsibilities practice group leaders should be taking on in order to drive effective practice management?  In addition, what kinds of base level support are firms providing to practice leaders (e.g., job descriptions clarifying the role, training for leaders, etc.)?

At the core, we found that firms experiencing higher levels of success with practice group management have different (and higher) expectations for their practice leaders.   Firms reporting the highest levels of success with practice group management ask their practice leaders to take on more responsibilities – the most common responsibilities in more successful firms can be summarized as:

  • Strategic planning for the group;
  • Work flow management (right people on the right matters at the right time);
  • Coordination and encouragement of teamwork, esprit and morale;
  • Coordinating and encouraging marketing to new clients;
  • Coordinating and encouraging professional development and training.

Those top responsibilities are depicted graphically below.

Top six effective firms

A complete documentation of the results of this survey on practice group management can be found at the Managing Partners Forum web site.  We welcome your questions and feedback regarding these findings.

Our March 2014 research focuses on best practices in law firm strategic planning.  Highlights will be presented here, a full write-up of results will be published at the Managing Partners Forum, and a more in-depth article will be developed for and published in the June edition of Legal Management magazine.

Talking with Clients: The Critical Role Non-Lawyers Need to Play

This article is a follow-up to a major section in our recent article Non-Lawyers: A Critical Success Factor for the Law Firm of the Future.  Namely, when should non-lawyers – and specifically, business development professionals – be expected to interact directly with major clients?  This follow-up is both informed and motivated by the comments, feedback, speaking invitations and other conversations that original article sparked.

To be clear, we are talking about non-lawyer involvement in communications with major clients.  By major clients we mean that group of clients that (with the possible exception of the very largest law firms) fall into an 80:20 or 70:30 rule (i.e., the 20% of clients who represent 70% or 80% of the firm’s revenues).  That especially includes clients for whom the firm provides multiple legal services (i.e., clients served by multiple practice groups).  Even more particularly, that should include major clients who are using other law firms in areas where your own firm has demonstrated strengths (i.e., where your firm is not getting work from otherwise great clients in areas where your firm  has exceptionally strong capabilities).

Are You Advocating Cutting Lawyers Out of the Relationship?

The short answer to that question is, “of course not.”  So, let’s stipulate some things that may be obvious, but ought to be underscored nonetheless.

  • Lawyers are the primary contact(s) with clients for the delivery of legal services and the management of legal (and often other) risks.
  • Nearly 100% of current client relationships originated with a lawyer or team of lawyers – though in many instances, the “originating” attorney is no longer active in the practice of law (i.e., the client relationship pre-dates the current team serving that client).
  • Lawyers should (in fact must) remain integral to client relationships – maintaining, improving and growing those relationships.

The point is not that lawyers are set to be thrown on the trash heap of history.  Rather, the point is that the efforts of client serving attorneys can be greatly enhanced and augmented by involving non-lawyer (particularly business development) professionals in client communications.  Also, while a few firms are turning to (non-practicing) lawyers to take on these business development or client relations roles, the majority will be filled by professionals whose training and experience has prepared them to lead business development in a professional services setting.

So, How Can/Should Talented Business Development Professionals Be Interacting With Major Clients?

Business development professionals are (or at least should be) extremely well positioned to gather systematic, objective, constructive, deep feedback and input from major clients.  That feedback gathering can benefit from the involvement of managing partners, practice or section leaders, or others law firm (i.e., lawyer) leaders.  However, law firm leaders are generally too busy to maintain regular, systematic contact with major clients.  Gathering that input via well-structured, extended conversations with multiple people within major client organizations is the starting point for non-lawyer interaction with clients.

Remarkably, relatively few firms are gathering feedback from clients (major or otherwise) on a systematic basis.  Even in firms that are committed to gathering client feedback informally, many do not leverage the skills and experience of business development professionals to do so.  Many firms on the smaller end of what we would consider to be mid-sized may not have a seasoned business development professional capable of leading that process (i.e., the marketing and business development function is staffed by people skilled in marketing communications and/or event planning).  In that case, feedback gathering can be outsourced – frankly, the return on investment is outstanding.

With systematic, objective, constructive, deep feedback and input from major clients in hand, what should the firm do?  There are several answers to that question.

  • Most importantly, firms need to use that client input to help the team of lawyers who serve the client on a day-to-day basis – together with lawyers who perhaps should be serving that client – to develop and implement a plan to expand the relationship.  Seasoned business development professionals can and should facilitate this process (though it can also be outsourced if necessary).
    • That includes both deepening the relationship (i.e., doing more of what the firm is already doing for the client, ideally with a more engaged and informed team) and broadening the relationship (i.e., bringing other strengths of the firm to bear on behalf of the client – providing legal assistance in other areas where firm strengths align well with client needs).
    • That also includes tracking and coordinating implementation of those “client service plans” (which almost certainly should include metrics, action plans, and milestones).
  • In addition, that feedback needs to be used to draw other non-lawyers into the client relationship.  In the current environment, client feedback often uncovers expectations and/or needs that require the assistance of IT professionals (e.g., extranets, connectivity, proprietary systems, etc.); knowledge management expertise (e.g., process automation, database integration, smart forms, etc.); project management expertise (which may reside at the firm and/or at the client’s organization); and finance expertise (e.g., cost analysis, creative pricing arrangements, etc.).  Again, a seasoned business development professional should be able to bring this extended support team to the table and coordinate their efforts with those of the rest of the client service team.

The ultimate vision for non-lawyer interaction with clients ought to be somewhat akin to a more traditional marketing function in a corporate setting.  In a corporate setting, market intelligence and customer input is used to drive an integrated marketing function that goes well beyond marketing communications and business development.  Some may remember the “Four P’s” from Phillip Kotler’s Introduction to Marketing text books (i.e., Product, Pricing, Promotion and Placement/distribution).  Gradually, the legal industry is moving toward this model.  For instance, there are reportedly over 300 “pricing directors” at law firms now.  Similarly, there are more and more non-lawyer business development and outright sales roles.

Ultimately, these roles need to be integrated and coordinated.  Call the leader of that group the Chief Marketing Officer, the Head of Client Relations, or some other title.  Frankly, the title is less important than the function, which is to bring the outside into the firm (e.g., client input, market intelligence, competitor intelligence, etc.) and to coordinate the firm’s response to that information in ways that (profitably) extend and deepen existing client relationships and establish new ones.

Strategy Advice for 2014

Many smart analysts and commentators have made their predictions for the legal industry in 2014.  LexisNexis compiled a number of predictions; the Future Lawyers Network made their predictions for the UK legal market; the Wall Street Journal legal blog made financial predictions; and the Time Blawg compiled a range of predictions around legal IT and marketing.  Rather than add to that pile, we thought it might be useful to answer the natural follow-up question to the predictions.  Namely, what should we do given the trends and likely future of the legal industry in 2014?

The short answer to that question is, “Do what your clients want you to do.”  Taking that a step further, you will find three pieces of pragmatic strategy advice for large firms; for mid-size firms; and for smaller firms in the sections below.

LARGE AND MEGA FIRMS

There is a continuing stream of good advice available to larger firms – both solicited and paid for as well as unsolicited and offer via ALM, consultancies, and blogs.  Much of that advice is well conceived – invest in technology, get knowledge management tools in the hands of client servers, adopt project management discipline on large scale matters, understand the growing importance of non-lawyers to your firm, and so on.  That advice responds well to the mega-trends influencing the legal industry, and particularly larger firms.  We would add three areas of focus for 2014.

  • Process Redesign – There are a number of buzzwords associated with process redesign (e.g., six sigma, lean process, re-engineering, etc.).  Take a step back from the buzzword bingo card and remember what the clients are asking for – greater efficiency and predictability.  Focusing energy on the so-called “golden triangle” of people-process-technology remains the best approach to improving efficiency.  And, the analysis required to truly improve processes will lead to better pricing decisions and substantially improved predictability.
  • Partner Loyalty – Bruce MacEwan posted a couple of short, insightful articles around the turn of the New Year regarding people management (See Talent, Kill It; and See Talent, Feed It).  The demise of major law firms can be traced – at the core – to a loss of partner loyalty.  As partners depart via the back door, instability grows and the risk of a downward spiral increases.  Ask yourself what cements partners to the law firm.  Dedicate energy to strengthening the ties that bind partners to the law firm – particularly the non-monetary ties.
  • Client Focus – The largest law firms have built tremendous platforms that span geography, legal specialties, and industry expertise.  You have to make sure your firm and your partners are harnessing that platform for the benefit of your clients.  Is client work being done by the right people, in the right places, at the right rates?  Do your people have the tools they need to make that happen?  And critically, ensure that clients’ broader needs are well understood by the firm and that the firm’s ability to address those needs are understood by the clients.

MID-SIZE FIRMS

Recognizing that “mid-size” is in the eyes of the beholder – and therefore one size most decidedly does not fit all – we offer three points of advice for mid-size firms at the start of 2014.

  • Capitalize on Being “Big Enough”LexisNexis (pdf) has found that large scale matters are moving to mid-size firms.  That is a trend we have seen anecdotally at our mid-size clients for many years – now the data confirms it.  To capitalize on the trend, you need to target large companies (ideally via personal/professional contacts you already have among your people), let them know what your strengths are, and emphasize the dual advantages you bring to the relationship (i.e., your firm is cost effective and lean and it has sufficient scale, sophistication and experience to hand complex matters).  This window of opportunity will close – make sure your firm benefits before that window closes.
  • Portfolio Management – As a mid-size firm, you almost certainly have practice gaps.  That is perfectly fine – you can’t and shouldn’t try to be all things to all clients.  That said, your most important clients would probably like you to add selected capabilities.  Ask them directly what legal issues they wish your firm could fulfill so they didn’t have to send it elsewhere.  Filling strategic gaps is one of the biggest (if not the biggest) driver of last year’s record merger activity.  Manage your portfolio of practices and fill your most strategic gaps in 2014.
  • Client Focus – Real growth, profitable growth, is available to mid-size firms from the relatively simple task of investing time off-the-clock to ask clients directly what challenges they anticipate and/or face today.  Those conversations lead to better relationships, add to the existing flow of work from the client, and sometimes open doors for new types of work.  Yet, remarkably few firms put any kind of discipline behind systematically gathering and acting on client feedback.  If you don’t already do so, make 2014 the year you focus on asking clients about their business and their future (and of course, how you can help them achieve their goals and objectives).

SMALLER FIRMS

In many ways smaller firms have been insulated from the mega-trends influencing the legal industry.  That was unfortunate in the go-go years, when profits at larger firms soared, but somewhat satisfying in the wake of large firm lay-offs and competitive pressures.  That said, this is no time for leaders of smaller firms to be self-satisfied.  Technology and non-traditional competitors threaten to erode work from small businesses and individuals, while the increased competitive pressures facing large and mid-size firms encourage them to hunt for work among your largest (and probably most lucrative) clientele.  Advice for smaller firms for the coming year includes the following.

  • Focus – Know what your genuine strengths are (be honest with yourself) and build on that strength.  In particular, ensure that your business development investments are focused on your existing strengths.  The surest way to waste those investments is attempting to gain visibility (or new work) in areas where your firm isn’t genuinely strong.
  • Be Open – It is entirely reasonable to adopt a strategy that does not include mergers.  In fact that may be the most advisable strategy (depending on your circumstances).  However, you will learn something valuable almost every time you have lunch with the managing partner of a mid-size firm.  And, you never know when you might run across a proverbial match made in heaven.  Autonomy is great, but the legal industry is changing fast.  Technology and other advances carry substantial costs.  So, be open – to conversations, to learning, and to possibilities.
  • Client Focus – The need for active client focus is just as valid (if not more valid) for smaller firms as it is for the larger and mid-size firms.  That is often easier for smaller firms – clients may be close personal friends and/or you may be their most trusted advisor.  Maintain that active focus on clients as 2014 unfolds.

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Obviously, the common theme across all firms for 2014 is focusing on clients and their needs.  As Peter Drucker observed 50 years ago, “The purpose of business is to create and keep a customer.”  Everything else follows from that – make that your mantra for 2014.

 

Intentional Management: Saying What You Mean and Doing What You Say

Over the past year we have noticed an important word showing up more often in the strategy deliberations of our law firm clients.  That word is intentional, literally meaning “done in a way that is planned or intended; thoughtful; deliberate; goal-directed.”

Frankly, we could not be happier to see our clients embrace the term intentional to describe strategic and managerial priorities.  For far too many law firms, for far too long, many aspects of firm and practice management have been anything but intentional.  On the contrary, many firms – including many with smart, well-conceived strategic plans – accommodated highly autonomous action on the part of practices and (especially) successful partners.  Firm strategy was essentially subservient to the needs and interests of individuals and small groups within the firm.

In his landmark article “Patterns in Strategy Formation,” (pdf) Henry Mintzberg accurately characterized this as the strategy of “muddling through.”  This approach is inherently reactive and leads to continual bargaining vis-a-vis priorities and goals.  As a result, strategy is fragmented and often reflects the narrow interests of powerful individuals, rather than the proactive pursuit of best opportunities available to the organization as a whole.  Sound familiar to anyone?

What do we mean by “intentional management?”  It simply means saying what you mean (i.e., being clear about the direction the firm is heading and the priorities it will adopt in its pursuit) and doing what you say (i.e., following through on those priorities).  Now, it is easy to define intentional management, but more difficult to live it.  Living it requires linking strategy across and through the firm.

Cascading

It also requires actively managing, monitoring and measuring progress toward the firm’s primary goals.  Passively waiting for annual (or less frequent) partner compensation discussions is not sufficient.  There need to be clear commitments to action at the firm, practice, departmental, and individual level.  And, the whole endeavor benefits immensely from tracking what is working (and what is not working) via outcome measurement.

After all, we adopt strategies and implement those strategies with particular outcomes in mind (e.g., revenue growth, improved realization, stronger client relationships, a more effective work force, etc.).  If we are following through on our commitments (i.e., managing intentionally), then we can use outcome measures to identify what is working, make appropriate adjustments, and challenge the strategy when circumstances dictate.

Intentional management applies to virtually every aspect of the law firm.  For instance:

  • We need to be intentional in our approach to people management – especially in recruiting, training and professional development.
  • Client relationships benefit from intentional management.  That is particularly true for relationships threatened by clients’ demands for greater value and/or cost reduction (e.g., where project management, knowledge management, or other aspects of the ACC Value Challenge are in play).  It is also true of relationships that can benefit from greater breadth and/or depth (i.e., where others in the firm can help substantially in cementing the client relationship).
  • It is certainly a requirement for effective business development if that is going to be anything more than heroic individuals going to market on behalf of the firm.  Any meaningful targeting, leadership in industry segments, and/or team-oriented selling is a function of intentional management.
  • Pricing decisions (e.g., rate setting, creation of alternative fee arrangements) and other basic economic decisions (both revenue and cost related) benefit from intentional management.
  • Finally, the ultimate decision of who owns the law firm (and at least here in the US, that means who becomes and remains an equity partner) should be driven entirely by intentional management.

So, three cheers to the firms out there embracing an intentional approach to management.  It will serve you well as the legal marketplace becomes increasingly competitive.

Five Tips to Better Align Budgets with Firm Strategy

Most law firms are deeply in (or about to enter) budget season.  We surveyed law firm leaders last year regarding best practices around budget development.  As a seasonal follow-up to that survey, we offer the following five tips to improve the alignment of law firm strategy with annual budgets.

Engage Practice Group Leaders Directly in the Budget Development Process

A surprisingly high percentage (44%) of firms in last year’s survey reported that they do not build budget projects from the practice groups up (i.e., direct costs, gross revenues, realizations, etc.).  The budget development process provides an excellent opportunity to cascade firm strategy (and strategy implementation) to the practice group level.

Engaging practice group leaders in budgeting – in thinking about cost drivers, revenue drivers and factors that contribute to client satisfaction (which often translates to realizations) – helps to “connect the dots” for people.  It highlights how strategies are being operationalized in the practices and makes those connections tangible in financial terms.

Budget for R&D

What does the average partner (i.e., the partner not involved in management) think about budgets?  Mainly, he/she wants the firm to beat its budget so that distributable income is higher than projected – creating a pool of funds that can pay partners more than their “expected compensation.”

By explicitly budgeting for R&D (both time investments and direct costs), the tension between partners’ desire to distribute all income at year end and the firm’s need to invest for the long term is mitigated.  Essentially, R&D projects should be prioritized along with other investments (see the next section).  At year end, assuming the firm had a good year, everyone is happy.  The firm has made needed investments for its future.  The partners get distributions above what was budgeted.

Prioritize Budgets in Financial and Strategic Terms

Law firm leaders (especially COOs and CFOs) are very comfortable thinking about projects and initiatives in financial terms.  Projects with high returns on investment (ROI) and/or fast payback are a higher priority than low return projects – a blinding glimpse of the obvious (a la Barbarians at the Gate).

In addition to the financial perspective, we recommend adding consideration of the expected strategic impact of a project to the prioritization process.  Essentially, projects that contribute to multiple strategic goals (i.e., that are more “mission critical”) are higher priority initiatives.  For example, a Knowledge Management project may contribute to achieving goals associated with client satisfaction; improved efficiency/value; and improved predictability.  Contrast that with a project to reconfigure office space – which may have a high ROI, but relatively little strategic impact.

 Priorization matrix

Prioritization across both dimensions (financial and strategic) yields added clarity on what the priorities really need to be across a range of projects – and may even lead a firm to delay or spike selected projects.

Validate Revenue Projections by Taking a Client (bottom-up) View

Revenue projects are (more often than not) built on the basis of headcount, anticipated hours, and rates (i.e., FTE x Hours x Realized Rates = Gross Revenues).  That is entirely logical and appropriate.  However, a nice check on that approach is to look at revenues from a client perspective.

At many firms, the top 50 clients (plus or minus) represent a substantial share of total revenues (often well over 50%).  By asking relationship partners what those major clients are expected to do in the coming year, a firm can help to validate its revenue projections.  If most of the major clients are expected to continue to generate similar or higher revenue streams, great.  However, if revenues from important clients are expected to fall (e.g., a major case has been resolved, the company has been sold, etc.), it may lead the firm to make important adjustments to its budget.

Align with Other Metrics – Financial and Non-Financial

Last December we asked law firm leaders where they had reliable metrics and where they did not.  Over 95% of firms have solid, reliable financial metrics.  Metrics associated with client satisfaction, people development, and business processes are more spotty – though those kinds of metrics do exist on at least a limited basis.

The budget process provides an opportunityfor firm and practice group leaders to think about and revisit financial and non-financial metrics.  Essentially, it is an opportunity to ask the question, “If we make or exceed this budget, will we also achieve our other measurable objectives?”  Similarly, it is an opportunity to ask, “Are the financial and non-financial metrics we have adopted to track the success (or lack thereof) of our strategy consistent with the budget we are about to propose and approve?”

Essentially, the budget process becomes another tool to help a firm and its practice groups effectively use a balanced scorecard to monitor and drive strategy implementation.

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As always we welcome your comments and insights – in the comment section below, via email at info@sterlingstrat.com, and over the phone at (312) 543-6616.

 

Strategic Thinking for Mid-Size Law Firms

Last month we talked about mid-size law firms:  how best to define “mid-sized;” whether aggressive growth was the most logical strategy for mid-size firms; and alternatives to adopting an aggressive growth strategy.  We got quite a bit of feedback – including some asking whether we had any alternatives to rapid, merger fueled growth.  Part of the answer to that question was addressed in the second half of that article (a section entitled “winning strategies for mid-size law firms”).  This article advances that discussion further.

Last month we identified some important commonalities among successful mid-size law firms, including the following.

  •  Successful mid-size firms tend to be general service, business law firms (though not “full service” – that is unattainable even at 2,500+ lawyers).
  • A large number (perhaps a majority) of their clients are middle market companies – and that means that legal costs are essentially paid out of the owner/CEO’s pocket.
  • Successful mid-size firms have people and/or practices that are the absolute best in the local/regional market in their areas of expertise.
  • They have at some point (perhaps frequently) been approached by another law firm (probably a larger law firm) interested in merging.

There are important strategic implications associated with each of these traits, each suggesting potential sources of competitive advantage and vulnerabilities to competitive disadvantages.  Some generic strategic thinking can be applied to these common attributes – a few examples follow.

General Service, Business Firm

As a diversified law firm, a “general business firm” has an opportunity to build deep, multi-practice, multi-partner client relationships.

Potential Advantage – Partners at mid-size firms have a strong personal familiarity with (most of) their partners.  That should provide an advantage relative to introducing one another to clients as new needs arise (assuming partners have confidence in one another).

Potential Disadvantage – Every firm has practice capability gaps and those gaps can be pretty large at mid-sized firms (even in the strongest).  When competing against biglaw, mid-size firms need to avoid competing on the basis of scale or breadth.

Middle Market Clientele

Serving middle market companies has preconditioned many partners at mid-size firms to be value conscious.  The legal market has been moving decisively toward reduced costs and value, particularly since the great recession.  Many mid-size firms have been benefiting from that trend.

Potential Advantage – Generally speaking rates are lower in mid-size firms.  In addition, many mid-size firms are predisposed (temperamentally and practically) to staff matters with lean teams.

Potential Disadvantage – Biglaw firms are making substantial investments in knowledge management, project management, and financial management and that has the potential to close rate and efficiency advantages currently enjoyed by mid-size firms.  In addition, as Bruce MacEwen has noted here, some large firms are engaged in “suicide pricing” – it isn’t sustainable for a biglaw firm, but it is a real threat to competing mid-size firms.

Market Leadership

Strong mid-sized firms are often the best choice in their local or regional market for a number of legal issues.  Yet, they are rarely the largest or most visible firm in their own market.

Potential Advantage – Marketing and business development that supports market leading practices generally has the best return on investment.  That includes both investments intended to attract new clients and those intended to expand existing relationships across practice areas.  The key is being willing to make those investments.

Potential Disadvantage – Essentially, two can play that game (i.e., biglaw competitors will be pushing their own strengths forward in the marketplace) – and larger law firms have larger marketing and business development budgets.  In addition, that biglaw competitor may have a great option for the client sitting in an office 2,000 miles away (geography often isn’t a barrier for  work these days).

Merger Inquiries

Critically, you need to know what your firm’s general disposition is vis-à-vis merger.  Even if it is quickly dismissed by the partners, it is important to have that conversation from time to time at the Executive Committee or Board levels, as well as with the broader partnership.

Beyond that, as a general rule of thumb, mid-size firm managing partners should accept invitations to lunch from an out-of-town (merger seeking) peer.  At worst, you will learn a bit about a firm that is obviously interested in competing for clients and people in your market.  And, you will gain insights into what other people value in your market and in your firm.

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As always, we welcome your comments and insights below, via email at info@sterlingstrat.com, and via phone at (312) 543-6616.

 

 

What Are the Prospects for Mid-Size Firms – and What Does Mid-Size Mean Anyway?

The Executive Committee of an AmLaw 200 firm (aspiring to become an AmLaw 100 firm) raised the following question.  “(We’re at) an awkward size (roughly 500+ lawyers)…what should a mid-size firm like ours do (strategically)?”  Given their aspirations, the answer was to keep growing and become a ‘big’ law firm.  They certainly would not be the first to follow that road and some have realized their aspirations.  For instance:

  •  At the time of their merger in 1999, Piper Marbury was a 400 lawyer “Baltimore law firm” with most of its lawyers located outside money centers and Rudnick & Wolfe was a 350 lawyer “Chicago real estate powerhouse” with no New York presence at all.  According to the American Lawyer DLA Piper is now the world’s largest law firm, with over 4,200 lawyers in 30 cities worldwide.
  • Similarly, at the time Elliot Portnoy became chairman of the Firm in 2007, Sonnenschein, Nath & Rosenthal was a 600 lawyer “Chicago-based law firm,” with less than 20% of its people in New York.  Since declaring its intention to become leading global law firm, Sonnenschein scooped up over 100 lawyers from the disintegrating Thatcher Proffitt & Wood in New York, merged with UK law firm Denton Wilde Sapte, and simultaneously merged in international firm Salans and Canadian firm Fraiser Milner Casgrain.  Dentons now has over 2,600 lawyers in 80 offices across 50 countries.

“Moving up market” (as some like to term the strategy) is certainly not impossible.  But, the conversation with that aspiring AmLaw 200 firm raises a couple of pointed questions.  Is a 500-600 lawyer firm actually “mid-sized?”  And, is growth the only winning strategy for mid-size firms that intend to survive and prosper into future generations?

What is a Mid-Sized Firm Anyway?

Let’s deal with that first question – is a 500+ attorney firm mid-size?  Sure, if your frame of reference is the AmLaw 50 or 100, then an AmLaw 200 firm is mid-size.  That is especially true if your firm aspires to being part of ‘BigLaw.’  To generalize the point, defining what mid-size is depends largely on what you are comparing it to (e.g., an elephant is mid-size next to a brontosaurus).

That said, for many, many firms ‘mid-size’ is better defined in the context of nearby (i.e., local and regional competitors).  In other words, mid-size is a function of your size relative to other firms/offices in your primary (or only) city.  Firms that are mid-sized by that definition tend to share some common traits.

  • They tend to be general service firms (since “full service” is unattainable at any size) focused mainly on the legal needs of business clients and their owners.
  • They have a number (perhaps a majority) of clients who are classic middle market companies – and that means that legal costs are paid out of the owner/CEO’s pocket (if it isn’t insured risk).
  • They have people and/or practices that are the absolute best in the local/regional market in their areas of expertise.
  • They have at some point (perhaps frequently) been approached by another law firm (probably a larger law firm) interested in merging.

Is the only (or even the most logical) strategy to say ‘yes’ to merger overtures and/or launch a search for suitable merger partners with whom to grow aggressively?

Winning Strategies for Mid-Size Law Firms

So, is aggressive, merger fueled growth the best/most logical/only strategy for mid-size firms?  After all the demise of the mid-size firm has been predicted for at least 25 years.  Our answer:  it is certainly not the only strategy, but it really depends on what your firm aspires to become.  We addressed that broader question in a recent article regarding strategic direction.

Mid-size firms can adopt a compelling strategic direction that does not include substantial growth.  Assuming there is widespread agreement among the partners regarding that direction (whatever it might be), there are a few things that you can (in fact should) do to turn that into a winning strategy.

Focus on a Few Things that Can Create a Competitive Advantage

Focusing a a few things that create competitive advantages requires a firm to do at least two things.  First, honestly assess what the firm is (or can become) truly great at doing – strengths that can become the epicenter of genuine excellence that cuts across the firm.  Second, get external validation that being great at those things is meaningful in the marketplace.  Focus on a handful of things you are great at (or can become great at) that also have meaning in the market.

A basic SWOT assessment (strengths, weaknesses, opportunities and threats) can highlight your areas of strength (actual and latent).  If you are not good at looking objectively at yourself, a good consultant can help.

External validation can and should come from your clients.  Your best clients want you to succeed into the future – they almost certainly consider your partners to be among their most trusted advisers.  So, ask your clients what you are good at and what you can do better.  It will inform your strategy and improve your relationships to boot.  It is amazing how few firms do this in any systematic way.

Think Strategically

What does that mean, to think strategically?  Well at a minimum, think about competitive advantage (those areas you might focus your energies on) through three lenses.

    • Consider whether you enjoy size or scale advantages over competitors – or more likely face larger competitors who have size advantages with which you must cope.  Large firms do have deeper pockets (or at least more equity partner pockets) over which to spread marketing, technology and other shared costs.
    • Identify factors that may help you to defend your firm’s market position against competitors (even much larger, better financed competitors).  It may be your knowledge of the local courts and judges, your reputation and brand may have deep roots in the community, you may have very deep and broad relationships with clients.  Consider how you can capitalize on and solidify those defensive advantages.
    • Finally and most importantly, take an indirect approach – occupy the unoccupied market positions and be willing to do things differently from competitors.  Precedent is a horrible source of strategy – don’t do what others are doing, do things no one else is doing.

Implement – Do What You Say You Are Going to Do

We have written extensively on implementation – through the balanced scorecard and through other means as well.  Successful implementation involves:

    • Cascading strategy implementation throughout the organization – from firm level initiatives to practice and departmental level activities to a vital and meaningful roles in implementation for all of the firm’s people (partners, associates and staff);
    • Measuring and monitoring implementation and the results it is producing – reinvesting in and celebrating the things that are working;
    • Adjusting as implementation unfolds – abandoning or recalibrating initiatives that are clearly not producing expected results and responding to new market challenges and opportunities as they arise.

In sum, if you think you are mid-size, you probably are – it is entirely a function of your perspective on the competitive marketplace.  Being mid-size is not equivalent to being diagnosed with a fatal disease.  You are free to reject the label and seek to grow – others have done so with remarkable success.  But, you can also adopt other winning strategies by focusing on few sources of competitive advantage, thinking strategically, and implementing with discipline.

As always, we welcome your comments and insights below, via email at info@sterlingstrat.com, and via phone at (312) 543-6616.

 

Strategic Direction – The Key to Sustained Success

We have written quite a bit about strategy implementation both on this blog and elsewhere.  Those articles and books make the assumption that a good strategy is already in place.  The topic of effective strategy development can (and has) benefit from book length treatment.  However, it only takes a few minutes to get a solid grasp of the most important aspect of good strategy – namely, having a well understood and agreed upon strategic direction.

“Strategic direction” sounds like fluent consultant-speak and it probably is (guilty as charged).  That said, research underscores the point that having a clear direction is critical to sustained business success.  In fact, if you have a well understood direction, coupled with strong implementation, the odds are overwhelming that your organization will survive and prosper.  All the other details surrounding strategy development are secondary to strategic direction and good implementation.

So, what does strategic direction mean?  There are three fundamental components – vision; shared values; and primary goals.

Vision

A great deal has been written about vision (and vision statements), often dismissing it as superficial or confusing it with a marketing tagline.  Without a doubt, it is difficult to craft a short, compelling vision for an organization’s future – particularly if you intend to have it stand alone as the only reference point for the organization’s direction.

Ideally, your vision should be short and inspirational.  It should not, however, be expected to stand alone as the sole definition of your organization’s strategic direction.  Rather, treat it like a destination on the map – the end state you aspire to reach.  Then, discuss the vision in the context of enduring values and the primary goals of the organization.

Shared Values

The most enduring element in a strong organization is its culture – a reflection of the shared values held by stakeholders within the firm.  At most firms, shared values can be articulated though a half dozen or fewer words – sometimes with a phrase or sentence expanding on what each means at the firm.

Collins and Porras discussed the enduring nature of purpose and values in the context of what they termed “corporate ideology” (Built to Last).  The key point to take away from their research:  a set of shared values is like an organizational North Star – a constant in a sea of constant change.  We discussed ways for maintaining a positive culture here.

Visions change as markets change and goals are achieved.  But values endure through changes in leadership, markets, product/service offerings, et cetera.  The only reasonable exception to this basic rule of thumb is in cases where the organization’s culture is so dysfunctional that everything – and especially the current values – needs to change.

Primary Goals

The final element in a well-articulated strategic direction is identifying and articulating a limited number of primary goals.  Those goals serve as the focal point for the prioritization of investment and implementation efforts.  Fewer goals are better than more generally speaking.  Three is better than five – and more than five goals is resource dissipating and will erode most organizations’ ability to maintain focus and professional discipline.

The best primary goals reflect an intersection of market/client needs with the firm’s ability to deliver excellence in that realm.  That intersection of market need and organizational excellence usually manifests itself in one of the following ways.

  •  First, it can lead to the development of core capabilities that enable the firm to perform at a level required to remain competitive.  Achieving these goals does not differentiate the firm, but it does enable the organization to stay in the game.  Examples include having low cost operations in the aluminum industry, solid product quality in the automotive industry, and talented people in professional services.  You simply cannot compete without these core capabilities.
  • Second, it can lead to the development of core competencies – a competitive strength that transcends products, services, and markets and one that genuinely distinguishes the firm from others in the market.  Examples include Apple’s excellence in product design, 3M’s ability to continuously innovate and develop new adhesives and coatings, and Axiom’s ability to deliver highly experienced legal talent at a low cost.

Taken together – vision, shared values and primary goals – define strategic direction.  It highlights where the organization is going, provides a “north star” for navigation, and identifies a limited number of goals to focus the allocation of resources to guide the strategic choices the organization will need to make to achieve its vision.

As always, we welcome your input and feedback in comments, via email (jsterling@sterlingstrat.com), and over the phone (312) 543-6616.

 

 

 

CO-CREATING UNIQUE VALUE WITH CLIENTS: A Strategy Tool for Winning the ACC Value Challenge (Part One)

This is the first in a two-part discussion of a valuable innovation tool for law firm leaders – “co-creation.”  Co-creation has its greatest value at the individual client level, but can be applied at practice level as well.  Co-creation dovetails directly with the kind of call to action at the heart of the Association of Corporate Counsel’s (ACC) “value challenge.”  Namely, that increasing the value law firms deliver to clients requires “that solutions must come from dialog and willingness to change things on both sides.”

 Co-creation is quite distinct from disruptive innovation (see our article from April 2013) which provides a process and roadmap for creating low end solutions that fundamentally alter established markets.  On the contrary, co-creation is a process for creating solutions that have unique and enduring value for clients (often enhancing or at least preserving profitability).  It is essentially a process for taking practices to higher levels of value and for strengthening client relationships in the process.

This first article provides an overview of the tool and how it applies in a law firm setting.  Our follow-up article next week will provide a few examples to provide some practical, real world insights into the process.

Origins of the Tool and Principles

Co-creation emerged and was defined by C.K. Prahalad and Venkat Ramaswamy – both professors of business at the University of Michigan.  They identified a number of foundational shifts in the nature of relationships between businesses and their customers – shifts that alter how and where value is created.  Those shifts include:

  • Growing access to information on the part of clients; globalization regarding viewpoints and perspectives (i.e., not only do clients have increased access to information, that information is global in scope);
  • Networking among clients (for example, via the Association for Corporate Counsel, LinkedIn interest groups, and other formal and informal networks); and
  • A willingness to experiment – particularly with digital and/or information driven products and services.

Given that backdrop, Prahalad and Ramaswamy found that increasingly value was created at the point of interaction between businesses and their clients.  Value was becoming less a function of creating a product or service to be purchased (i.e., take it or leave it).  Rather, value was being created as businesses and their customers created unique solutions together.

For many in the legal industry, this insight is not particularly novel.  Because legal services often require dynamic interaction and unique tailoring of solutions via direct interaction with clients, the idea of co-creating value is a standard operating practice for many lawyers.  Prahalad and Ramaswamy approached this dynamic from a mass market, product oriented perspective, and as a result they were able to develop some basic principles that are potentially valuable to law firms.  In short, they have codified the foundational approach that makes co-creation based innovation a repeatable process with clients.

Using the Tool in a Law Firm Setting

Co-creation tools provide a roadmap for taking client interaction to a higher level – recognizing that the world has become more interconnected and information is more readily available to clients than it had been in the past.  By recognizing and embracing that change, more value can be created for clients and in the process, relationships can be strengthened.

Applying co-creation in a law firm setting involves embracing four fundamental, ongoing principles in client interactions.

  • Dialogue – “Dialogue means interactivity, engagement and a propensity to act – on both sides (client and law firm).”  Beyond simply listening to clients, dialogue suggests shared learning on the part of two problem solvers.
  •  Access – Access focuses primarily on providing access to information and tools.  For instance, many firms have implemented extranets and/or cloud-based solutions for managing shared information with clients.  Embracing the access principle takes that one step further, ensuring access to the insights, knowledge and other foundational tools the law firm uses on behalf of clients (e.g., knowledge management tools, project management tools and processes, etc.).
  • Risk Assessment – To fully engage in co-creation, clients need to have a deeper understanding of the risks (and trade-offs) they face when selecting and creating a particular solution.  Some attorneys are extremely good at helping clients assess risk and make wise choices – others are not.  Helping clients assess risk is fundamental to co-creating value.
  • Transparency – Historically, there has been a natural imbalance regarding some elements of the relationship (e.g., pricing, underlying costs, profit margins, etc.).  Some of that imbalance has already broken down.  For instance, starting salaries for associates are published openly at NALP and profit levels are openly reported in the AmLaw 100 and 200 rankings.  The transparency principle calls on firms to continue and expand that openness.

While many will object to (or fear) the level of openness called for by the principles above, that fear is generally unsubstantiated in actual practice.  Clients do not object to their law firms earning a healthy profit – they understand that profitability is the cost of doing business into the future.  Furthermore, because they are actively part of key decisions regarding the creation of solutions and the management of risks, the value received relative to the fees charged is generally perceived to be very high.  In addition, having co-created approaches that deliver high levels of value, incentives to switch firms falls dramatically – increasingly client loyalty in the process.

Co-creation works most effectively when complexity is high and resulting solutions are genuinely unique and of high value.  In those high end settings, law firms are well served adopting principles of co-creation.  However, the principals work in many other settings as well (e.g., improving value on high volume work, integrating legal process outsourcing vendors into ongoing relationships, etc.).  In summary, co-creation is a natural extension of long standing traditions and leads to deeper, stronger and more loyal client relationships.

Next week we will follow-up with a few examples of how these principals work in practice.

 

 

Strategy Implications of Disruptive Innovation

The rise of Axiom, Clearspire and other disruptive innovators in the Legal Process Outsourcing (LPO) segment of the market has led to a wave of articles and blog posts – some insightful and well considered and some likely to prove embarrassing to the author(s) down the road.  We have been addressing law firms’ strategy development and strategic planning needs for over 25 years and I personally have been a professional strategist for nearly 30.  That contributes to my frustration with some of the writing out there – namely, this stuff isn’t particularly new (although some of the more successful disruptors in the legal industry are relatively new).

Clay Christensen published The Innovator’s Dilemma in 2000 – in the wake of documenting dozens of disruptive business models during the dot.com boom.  Since that time, multiple books (including follow-ups by Christensen himself) and journal articles have been written building on that initial landmark.  Further, several industries have adapted (and adopted) innovation toolkits based largely on the principle steps involved in pursuing disruptive innovations.

We covered this topic in reasonable depth in our book Strategic Planning for Law Firms: A Practical Roadmap.  For the benefit of blog readers, we have excerpted an edited portion of that discussion below.  We hope this helps you and your firm think about the strategic implications of disruptive innovation in the legal industry.  Please keep in mind, especially in the legal industry, disruptive innovation is not the only successful approach to innovation and new service development.  This a tool for pursuing one type of innovation and there are other valuable innovation tools with application to the legal industry.

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Disruptive innovation is an approach to product, service and business process development that focuses on delivering “good enough” products or services.  In other words, disruptive innovations target and capture the so-called low end of a given market – usually by delivering “good enough” performance at a dramatically lower price than full service or full function incumbents.

Disruptive innovators typically attract either non-consumers of a product or service (essentially creating a new solution and a new market) and/or customers who are “overshot” or over-served by a higher cost and higher function solution than they really need (creating a low end disruption).  There are dozens, if not hundreds, of examples of disruptive innovations entering and capturing the low end of their given market – Skype instead of full function video links, Quicken rather than more complex accounting software, cameras integrated into cell phones, and Metro’s free daily newspapers.

Origins of the Tool

Clayton M. Christensen is credited both with the research that identified the fundamental principles of disruptive innovation – in the first of two landmark books, The Innovator’s Dilemma – and with the subsequent work that codified how to pursue disruptive innovation in your own organization.  Christensen’s second book, co-written with Michael Raynor, The Innovator’s Solution outlined the steps to pursuing disruptive innovation.

The disruptive innovation process involves three major steps:

  • Opportunity Identification – This step includes identifying non-users of a product or service as well as users whose needs appear to be “overshot.”  With potential target clients or customers in mind, opportunity identification focuses on defining the “jobs to be done” for those customers (i.e., identifying through traditional market research the core needs those non-users and overshot users actually need fulfilled).
  • Idea Formulation and Shaping Ideas – The second step involves developing disruptive ideas – the authors provide a range of supporting tools to help with that process.  With ideas in hand, this stage of the disruption process calls for an iterative process for refining and testing ideas.  Christensen’s research found that innovators rarely understand the needs of non-users or overshot users out of the gate.  Rather, they need to refine their ideas via low cost, low risk failures – leading to a refined product or service that can capture a larger and potentially growing market.
  • Building a Business – The third step focuses on establishing a sustainable business to market the solution and grow the business to reasonable scale.  This stage requires the innovator to identify and understand critical areas of uncertainty, experiment in ways that resolve that uncertainty in the early growth stages of the business, and refine the underlying business model in response to what is learned.

Christensen and his co-authors have built upon and refined this approach over the past ten-plus years and there are now a number of industry specific innovation methodologies in circulation (though none focused directly on the legal market).

Application to the Legal Industry

The application of disruptive innovation for incumbent (i.e., traditionally structured) law firms is largely two fold.  First, for well established firms, understanding disruptive innovation is important.  In particular, successful low end innovators can and are dramatically altering the established market – client relationships, pricing expectations, profit potential and otherwise.  Ultimately, they may actually surpass incumbent competitors – fundamentally changing the market they undercut initially.

Christensen Disruption Graphic

Source: The Innovators’ Dilemma; Clayton Christensen; 2000

Second, there may be markets ripe for disruption that can be served by your own firm.  In those instances, firms or practice groups can directly apply the disruptive innovation tools to targeted markets – identifying non-users/overshot users; defining the “jobs to be done” for them; creating, testing and refining solutions; and building a sustainable business that grows to scale over time.

Examples of disruptive innovation in the legal industry have emerged in a number of specialty areas, as well as in important elements of larger scale legal processes.  For instance, the emergence of pre-paid legal services and “do-it-yourself” online tools have captured clients who were previously non-users of legal services – RocketLawyer.com is one of many examples of this business model (largely online, but with human talent behind it).  Talented patent attorneys have created micro-boutiques that do nothing but patent prosecution on a fixed fee per application basis.   Most threatening for bigger firms (and over the long run for mid-size firms), legal process outsourcing shops like Axiom are creating dramatically lower cost approaches to selected phases of large scale litigation and transactions.  In virtually every one of these examples, the solutions offered are “good enough” for over-served clients and the costs are dramatically lower than using a traditional firm.

It is critically important to understand the underlying business models of emergent disruptive innovators.  If their solution is scalable, if it can add new capabilities over time (gradually encroaching on your practice’s incumbent solution), and/or if it attracts clients who perceive themselves to be “overshot,” those innovators need to be taken into account in the context of developing and implementing competitive strategies.

Using the Tool in a Law Firm Setting

The three phase approach outlined above applies fairly universally.  It is certainly applicable in a law firm setting without unique tailoring or embellishment.  Because there is considerable depth, nuance and insight in The Innovator’s Solution, it is recommended that those planning to pursue disruptive innovation take the time to read that book and use the many supporting tools provided in that text.

There is an important consideration law firm leaders should recognize prior to engaging in an all-out pursuit of disruptive innovation.  Michael Raynor continues to research disruptive innovation with a high level of energy.  His most recent book, The Innovator’s Manifesto, includes an important insight for incumbent competitors.  Namely, incumbents tend to be highly successful at creating incremental innovations (i.e., innovating at the high end), but are dramatically less successful in introducing disruptive innovations (see the chart below).  There is a reason why the first book characterized disruptive innovation as a dilemma – it fundamentally challenges the established (usually highly profitable) business model.

Raynor Disruption Graphic

Source: The Innovator’s Manifesto; Michael Raynor; Crown Business; 2011.

This would suggest that firms wanting to capture disruptive innovation in an area where they are already an incumbent competitor should consider a few alternatives to directly pursuing disruption within their firm/practice group.  First, they can acquire a growing disruptor – someone who has already worked through the first two (and possibly all three) stages in the disruptive innovation process.  Second, they can co-opt a disruptive innovator, using them as a sub-contractor (a recent interview by Lee Pacchia at Bloomberg Law identified some anecdotal examples of this approach).  Third, they can set-up an ancillary business to develop the disruptive service offering – removing some of the principle barriers incumbents face when trying to launch disruptive innovations that will compete with their well-established services.

Further Reading

Those interested in pursuing disruptive innovation (or who have a strong interest in the topic) are encouraged to read Christensen’s and Raynor’s The Innovator’s Solution (Harvard Business School Publishing, 2003).  Raynor’s new book, The Innovator’s Manifesto (Crown Business, 2011) provides valuable insights into the drivers of success and failure among innovators.

 

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As always, comments are open below and we welcome your calls and emails at (312) 543-6616 and jsterling@sterlingstrat.com respectively.