Top Insights from 2012 Strategy Questions of the Month

by Sterling on January 11, 2013

Throughout the course of 2012, Sterling Strategies conducted monthly mini-surveys, each focused on a single strategy topic.  The intent was to develop some empirical data on what works and what does not work relative to a variety of strategic management challenges.

We certainly learned something every month.  Often the findings and insights were entirely new (if not entirely counter-intuitive).  Occasionally, the findings confirmed something we believed, but lacked the data to support.

Before setting our sights on advancing the state of strategic management in 2013, we thought readers might enjoy a highlight reel of sorts of the most significant findings from the 2012 strategy question of the month series.  The list is presented as a “top ten,” but the insights are ordered for readability and flow.

  1. Grow your own – When developing a strategy for generational succession, it is best to develop people yourself (rather than seeking to hire future leaders laterally).  Our November 2012 survey found that “high lifer” firms (i.e., firms with higher percentages of people who were hired at the entry-level and stayed) have dramatically higher confidence that future leaders exist within every experience level of their firm.
  2. Confront the elephant under the rug – The August 2012 survey focused on what approaches to managing under performing partners actually work and which do not.  What we found was that under performance rarely improves without frank discussion and accountability.  More importantly, confronting under performance actually has a reasonable success rate.
  3. Show me (more than just) the money – What characteristics make up a “model partner?”  That was our question in July 2012 and what we found was that, while originations and billings are very important characteristics in a model partner, subjective factors (e.g., training associates, bringing legal acumen to the table, being a good corporate citizen) comprise nearly 50% of the mix of characteristics firms want from the hypothetical ideal partner.
  4. See no evil, hear no evil, speak no evil (at least when it comes to partner compensation) – Our inaugural survey in January 2012 examined the question of what approaches to setting partner compensation lead to the highest levels of satisfaction.  It turns out, objective (i.e., formula) systems correlate with the highest levels of satisfaction.  And, so-called “closed systems” in which compensation and other data are not published are also closely correlated with higher satisfaction.
  5. The “vision thing” is a key to effective strategic planning – We took an objective look at what tools and approaches lead to more effective strategic planning in law firms (beyond, obviously, hiring Sterling Strategies) in June 2012.  The firms with the most effective strategic planning processes are much more likely to have articulated a vision for the future, a set of shared values, and measurable objectives to track progress toward achieving major goals and strategies.
  6. Focus practice group leaders on things that make a real difference in group performance – Firms with the most effective practice group management experiences are much more likely to ask practice groups to focus on cross-marketing, on profit drivers for their respective group, and on aligning practice strategy with firm-level strategy.  Meanwhile, the least effective groups get bogged down in administrivia.
  7. Better budgeting practices – Firms with the most effective budgeting processes are more likely to plan for growth (in addition to looking for cost savings).  And, the more effective budgeting processes are considerably more likely to involve practice group leaders in the budget development process.
  8. 2012 profit growth was driven by production and realization improvements – The bloom was clearly off the rose relative to using rate increases to drive profit growth (unlike the decade before the financial crisis).  Bonus question – is leverage dead?  On the surface the answer would appear to be ‘yes,’ but the reality is that leverage is wearing new disguises (e.g., more income partners, larger top-to-bottom compensation differentials, growing use of contract attorneys, etc.).
  9. Data, data, data (if you hope to be successful with AFAs) Alternative fee arrangements are growing across a number of categories.  Law firm leaders were emphatic in noting that the key to success with AFAs is well analyzed data (both cost data and historical work load data).
  10. Practice portfolios are driving domestic law firm mergers – Allowing for alignment of fundamentals (e.g., firm cultures and economic compatibility), the most important driver of mergers these days is finding a merger partner with complimentary practice area strengths.

As a bonus (since many may have missed it with the crush of year-end collections and the holidays), see our December 2012 findings regarding the use of objective measures and scorecards in law firms.  Short summary – firms are universally good or excellent at measuring financial objectives and results, but do a poor job measuring the strength of client relationships, people development, or much of anything else related to their operations.

We are immensely grateful to the many, many law firm leaders who completed the short (usually two-minute) strategy surveys throughout 2012.  That input enabled us to build a nice body of empirical data regarding a number of important strategic management topics.  It was helpful for law firm managers – and to us as strategy consultants.  We intend to take a slightly different approach in 2013 (shooting for five-minute surveys on a quarterly basis).  That will reduce the number of times we have to pester you all for input over the course of the year.  In place of some of the monthly surveys, we will share insights and proven approaches gained directly via other channels.

Best wishes for a very healthy and prosperous 2013.

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