Archive for the 'Innovation' Category

Snippets on the future for law firms

Published 9 May 2012 Change , Clients , Innovation , Law Firms 1 Comment

I am intrigued by what the future historian will make of the economic and commercial change we are currently experiencing. Will this be another ‘world turned upside down’ moment, or just a blip in the continuum? Over the past couple of days, I have read a few commentaries suggesting that law firms at least are facing real upheaval. They also start to indicate what the way out might look like.

First, a couple of last month’s posts from Bruce MacEwen. It is trite to point out that the supply side of law firm economics is notoriously fickle: Bruce links the problem to change on the demand side.

Imagine for a moment you are in charge of designing the balance sheet of one of these firms (or any sophisticated law firm regardless of location and absolute size).  As you examine what role debt should play, perhaps the first question that should come to mind is “what assets do we have on the other side of the ledger, against those hypothetical liabilities?”  And the answer is:  Elevator assets.  That’s it, folks.  Your firm’s primary and only meaningful asset is its talent:  Its human capital, a/k/a its people.

And on the other side of the ledger?

What about accounts receivable, a pledgeable asset since the Peruzzi and Medici families in medieval Tuscany, if not before?  Normally, a law firm’s accounts receivable are a highly reliable credit—one with something approaching the creditworthiness of the firm’s clients themselves.  But consider:

  • Discounts and writeoffs are more widespread than at any time since I entered the practice;
  • Realization is systemically lower than at any time in memory (by “systemically” I mean industry-wide, not firm-specific);
  • And, most importantly, if a firm’s partners and/or clients begin to lose confidence in the firm, receivables decline in value abruptly and often irretrievably.

In sum:

Fundamentally, building long-term debt on to the balance sheet of an enterprise whose only material assets are readily marketable and freely mobile human beings is to repeat the classic mistake of the institutions at the core of virtually every post-World War II financial crisis in the United States: It’s to create a timing mismatch.

That is to say, firms doing this are securing long duration liabilities with short duration assets. Should anything imperil the value of the short-term assets, the roof can cave in before you can evacuate the building.

How can law firms protect themselves against this problem? In a later post, Bruce hints at the traditional way they have done this — by trying not to scare the troops.

Imagine a firm that allocates its talent, investment, and management focus consistently every year, making incremental changes but following the same “steady as she goes” broad pattern year after year.  Imagine another firm that consistently evaluates the performance of practice areas and offices over time and adjusts the allocation of lawyers and other resources based on relative market opportunities (be they expanding or shrinking).

Which would you guess is going to perform better over some suitably extended timeframe?

And which model do you think most law firms actually resemble?

The answer is that most law firms favour the ‘steady as you go’ approach, which is also the one in which performance is more muted. This reflects research done by McKinsey into successful strategy in corporate America.

McKinsey sums up the results this way:

  • Companies that reallocated more resources—the top third of our sample, shifting an average of 56 percent of capital across business units over the entire 15-year period—earned, on average, 30 percent higher total returns to shareholders (TRS) annually than companies in the bottom third of the sample. This result was surprisingly consistent across all sectors of the economy. It seems that when companies disproportionately invest in value-creating businesses, they generate a mutually reinforcing cycle of growth and further investment options.
  • Consistent and incremental reallocation levels diminished the variance of returns over the long term.
  • A company in the top third of reallocators was, on average, 13 percent more likely to avoid acquisition or bankruptcy than low reallocators.
  • Over an average six-year tenure, chief executives who reallocated less than their peers did in the first three years on the job were significantly more likely than their more active peers to be removed in years four through six.

In other words, not only did “high capital reallocators” generate superior growth and returns, they did so (a) with lower volatility and risk, including lower risk of bankruptcy or acquisition; and (b) with less managerial turnover.

Bruce suggests that this process of constant review of profitable and unprofitable activities is something that law firms need to start to emulate. Unfortunately, that process will affect the firm’s position in the market for lawyers. It therefore needs to be matched with real attractiveness in the firm itself. Businesses like Google or Apple routinely drop products or service lines if they aren’t working out. Inevitably this will induce a sense of volatility (and nervousness) in their people: will I still have a job tomorrow? But Apple and Google are still places where people really want to work. The law firm that can create the same sense of positive nervous energy must surely have a winning ticket.

So what might that winning ticket look like? Two unrelated posts elsewhere provide some clues.

First, Robyn Bolton of Innosight, writing in an HBR blog post:

Here’s a quick quiz for you. Is it easier to get

A: 1% of a huge, established market?
or
B: 100% of a completely new one?

If you work for Apple, you might have picked B. But too often when companies embark on innovation projects, they pick A: that is, they start by believing that nothing could be easier than to capture a small chunk of a very big, existing market.

But to unleash the power of innovation to capture big markets, what matters is not how big any existing market is but how many people are wrestling with some problem that no current offering really solves, what we here at Innosight call the “important and unsatisfied jobs” of consumers — and non-consumers. When sizing an innovation opportunity, what you should be looking for are jobs what are widely held and currently poorly served, not lots of people who haven’t bought your own products yet.

I suspect that many firms concentrate too much on one or both of (a) their own internal issues or (b) resolving the problems that clients bring to them. Robyn shows how this can go wrong by examining what happened when Kellogg first tried to enter the Indian market.

Kellogg invested $65 million in establishing an operational and marketing presence to launch Corn Flakes, Wheat Flakes, and its “innovation” — Basmati Rice Flakes — throughout the country. “Our only rivals,” declared the managing director of Kellogg India, “are traditional Indian foods like idlis and vadas.”

Things didn’t turn out quite as planned.

How is it possible that Kellogg could envision building a $3 billion business in India, invest $65 million in the first year alone, and end up, 16 years later, with only $70 million in annual revenues? And how can other business leaders avoid making similar mistakes?

Kellogg’s mistake (admittedly easier to see in hindsight) was that it had taken a far too simplistic approach to identifying its “huge” market, merely looking for people who might want its products.

Essentially, the cereal company failed to understand that Indians culture favoured warm breakfasts, so a cereal served with cold milk was unlikely to be more than a niche product. They also struggled with pricing: starting from a base that was 33% higher than the domestic competitors. Better insight into the needs of Indian consumers might have led Kellogg to create versions of traditional foods that could be stored and prepared more easily.

Law firms could therefore improve their product by really getting to the heart of what their clients need to achieve — not the explicit needs, such as getting this deal done or settling this litigation, but the more important unspoken ones. What is the client’s market like? What pressures are there on profitability, costs, income, competition, regulation? What would help the business to meet those pressures?

Alongside this focus on the product (what the firm does), there is also a need to look at delivery (how it does what it does). This is something that Ron Friedmann examines in his most recent post.

Only a few firms will continue to win business on the strength of their name. The rest must provide clients with better service delivery to keep and win business. That means understanding client expectations and changing how how lawyers practice and the firm operates, for example, with alternative fee arrangements, process improvement, project management, KM, technology, new approaches to resource allocation, a better approach to staff support, value-add services (e.g., private content), and tailored business intelligence.

Ron’s post summarises three items from elsewhere, all of which point in the same direction: “firms must change how they deliver services.”

Let’s go back to where we started: the problem of elevator assets. Bruce MacEwen lists 26 law firms that are located within a 7 minutes walk of each other in New York. The point he makes is that this proximity could make movement between the firms a trivial matter. But that is only true (putting aside constants like the hiring process) if each of those 26 firms is practically indistinguishable — whether to its lawyers or to its clients. As soon as one firm stands out (as Google or Apple do in their markets), joining or leaving that firm is a much more significant step. The fear that constant change and improvement may bring could actually make the firm more attractive to join and more difficult to leave voluntarily.

KMers can do anything: is that wise?

Published 20 January 2011 Change , Innovation , Irrationality , KM , Law Firms 3 Comments

Ron Friedmann has spotted a trend for law firm KM people to branch into new activities, such as legal project management, alternative fee arrangements, and so on. He also offers a hypothesis for this:

So why does KM continue to expand beyond its core remit today? My theory is that KM professionals span multiple disciplines and think laterally. They can handle complex problems that fall outside the boundaries of other support functions. Moreover, successful KM professionals have gained the confidence of lawyers; many come from the practice; others have worked closely with lawyers for a long time. Whatever their background, they develop excellent rapport with partners and practice groups. Of course, many are lawyers and in the caste system that defines BigLaw, that is a big plus.

A number of people have supported his observations in comments on the post, which Ron has extracted into a separate post. For example, Patrick DiDomenico (CKO at Gibbons PC and blogger at LawyerKM) says:

I’m head KM (CKO) at my firm, but I also manage the library and litigation support department, have an active role in our E-Discovery Task Force, and am the social media evangelist (among other things). My role as a former practicing litigator at my firm has a lot to do with what I now do for the firm. The fact that I do these things does not make them “KM activities.” Rather, these are some of the things that the head of KM happens to do.

And Meredith Williams of Baker Donelson agrees:

These days CKOs and KM professionals are being asked to expand their roles further and further in addition to continuing many traditional KM tasks. As Patrick referenced, I too aid in multiple projects that are not traditional KM such as Social Media, Competitive Intelligence, E-Discovery, Legal Project Management, Alternative Fee Arrangements and Mobility.

In part, I think what Ron describes is in fact a change in what we understand to be part of KM (in any organisation). Social media is an example — one of the things that traditional document- and repository-based KM spectacularly failed to do was to draw people together to share their knowledge. Various forms of social media now allow us to address that challenge. From that perspective, law firms are just the same as other organisations.

However, there are a couple of other interpretations which I find more troubling.

In The End of Lawyers? Richard Susskind bemoans the tendency lawyers have to describe their jobs by reference to anything other than advising clients on the law. He talks of lawyers referring to themselves more as project managers or commercial advisors. (I still need to retrieve my copy, so I’m afraid I can’t provide a better quotation or reference.) Putting aside the question whether they are actually any good at those roles, it is odd that many lawyers would prefer to be thought of as gifted amateurs turning their hands to any odd job that comes along, rather than talented and focused professionals — masters of their own specialisms. That tendency really comes to the fore in knowledge roles. Amongst all the functions that modern law firms need to support their core fee-earning function (take your pick from HR, finance, marketing, IT, office services, sales, building and facilities management, training, library, etc.) the knowledge team is often alone in recruiting predominantly from the ranks of practising lawyers. In all those other areas, firms are willing to accept the advice and insight provided by functional specialists, but it appears that the non-legal KMer has yet to make an appreciable impact. 

One consequence of this ‘lawyers can do anything’ attitude is that the firm is less likely to get the benefits that come from the wider perspective and expertise of the knowledge professional. The benefit is that the knowledge support the firm gets reflects what lawyers need. I think there is merit on both sides, but there is a risk that a firm using lawyers in these roles may find that they learn little from the interesting approaches to knowledge development and use in other organisations and contexts. They may just get the usual precedents and know-how.

(By coincidence, Tim Bratton opens a similar can of worms when he suggests that firms could use lawyers in a dedicated client relationship role:

Is there a role in large City law firms for a lawyer who has no billing targets but whose role is to act effectively as an account manager for a small number of major clients?  I think there is.  But this would only work if it is a real role, it cannot be farmed out to business development or marketing.  To succeed from a client perspective it has to be a role undertaken by a lawyer.

As a general counsel, Tim may favour lawyers. However, not all law firm clients are lawyers — many are finance directors, bankers, commercial managers, company secretaries. Should firms employ relationship managers that match those roles too? And are clients prepared to accept the greater (albeit hidden) cost of employing lawyers as relationship managers? In fact, client relationship management is widely practised in other professional services firms (especially advertising, for example). Why should firms turn their back on that expertise or develop it themselves at huge cost?)

My other concern is that when firms take the view that their knowledge people can be directed to any new project (possibly with only a tenuous link to their core knowledge focus) they aren’t really demonstrating respect for those people or their activities. If your role is valued by the organisation, it will project you in it. The procurement manager who monitors the firm’s supplier relationships and negotiates hard to keep the costs of contracts down is unlikely to find themselves diverted into managing working capital, even if that role uses very similar skills. When a firm asks their knowledge leader to take on consideration of the firm’s billing structures and alternative fee arrangements, I wonder why it was felt that (a) the knowledge work could be scaled down and (b) the expertise of the firm’s own accountants and business managers could be ignored in favour of the gifted amateur. A callous interpretation might be that in fact the firm does not value the knowledge function at all, and so its senior people are fair game for diversion to other (probably equally unvalued) projects.

On the other hand, the response might be that these new activities are actually highly valued and so it is important for a senior, respected person to lead them. This is a compelling argument, but it calls to mind the advice to CEOs that I found in an HBR blog last year. In the fourth of a series of conversations on personal productivity with Bob Pozen, chairman emeritus of MFS Investment Management and senior lecturer at Harvard Business School, he was asked “How do you decide what to spend your time on when you’re the boss?” His response was interesting:

Top executives usually say they set their priorities and then figure out how to implement them. But in this process many executives make a critical mistake. I’ve noticed this when I’ve mentored new CEOs. They say, “Here are the top five priorities for the company. Who would be the best at carrying out each priority?” Then they come up with themselves as the answer in all five areas. It might be the correct answer, but it’s the wrong question.

The question is not who’s best at performing high-priority functions, but which things can you and only you as the CEO get done? If you don’t ask yourself that question, your time allocations are bound to be wrong.

For Pozen, then, senior people should stick to the things that truly need their attention. To do otherwise dilutes their attention and limits the opportunities for development of others in the organisation. He actually extends this principle further down the business:

What about those of us who aren’t CEOs?

The key, I’ve found, is to become messianic about the principle that everybody owns their own space. This is the human resources analogy to bottom-up investing.

Under this approach, every employee is viewed as the owner of a small business — his or her division, or subdivision or working group; the performance of this unit is his or her responsibility. As the boss, my role is to provide my reports with resources, give them guidance and help them do battle with other people in the broader organization. But they own their own unit.

If law firms’ knowledge leaders are really to be respected and to ‘own their own unit’ they need to be protected from distractions that take them away from that core responsibility. They and the firm get the best results that way.

Another response might be that some of these new projects are experimental, and may not persist. That is fair: why invest in something if it may be temporary? But look at this from a different angle: if you aren’t investing in it, might you be guaranteeing that it will be temporary? Here’s an alternative approach: given that (as ever) law firms are facing many of these issues some time after other organisations, why not buy in expertise on a fixed (but renewable) contract? If you want to explore how matters might be managed or billed differently, why not take on people from the major consulting businesses or accountancy firms to see if their experiences in non-legal professional services firms might be transferable? If you are, in Pozen’s terms, messianic about people owning their own space, and you are exploring a new space, get a new person to lead the exploration.

Knowledge leaders should, by all means, explore new ways of developing and using knowledge in the firm (and they may be able to contribute that expertise to the new activities), but (a) that should not be seen as a change in KM itself and (b) respect for the knowledge function is best expressed by not drawing its people into unrelated new projects.

The corporate-professional spectrum: law firms, KM and the future

Published 5 May 2010 Clients , Culture , Innovation , KM , Lawyering 1 Comment

Last week, I was at a meeting discussing an aspect of learning and development in law firms. One of the speaker’s slides referred to a dichotomy between attitudes within law firms (and some other professional service firms) and big corporations. This probably isn’t particularly insightful for others, but I hadn’t thought about it in the terms he used before, and something clicked for me.

Bear in the Bärengraben, Bern

The essence of the distinction is that the corporation is founded on a stable aim, whereas the professional service firm is more opportunistic, and that this is reflected in the way people work. Within an organisation like Boeing, for example, everyone knows that the company’s aim is to make planes. Everything they do is focused on that aim. In a law firm, by contrast, the nature of the work done (beyond the vague aim of helping clients) depends on the opportunities presented by those clients, the capabilities and interests of the lawyers (in combination with the support available).

As a result, the law firm tends to be more individualistic and pragmatic, where the corporation is hierarchical. People within law firms perceive themselves to be entitled to more autonomy than in the corporation. (As an outsider coming to the firm from a university background, I was completely at home within an environment where everyone considered themselves to be self-employed, whereas a colleague of mine who came from a retail business was quite shocked.)

These are, of course, extreme characterisations, but there is still an element of truth in them. They explain why KM and L&D people (as well as HR people) in law firms find a different set of challenges from their counterparts in commerce and industry. If the purpose of a law firm is emergent rather than pre-ordained, and contingent on the lawyers present in the firm at any given time, where is the value in knowledge continuity or succession planning?

That said, as I suggested in my last blog post, things are going to change in the next few years (and that change will make some of the freer souls feel like the relative of Mary Plain pictured above, in the now-closed bearpits at Bern). Any law firm that hasn’t already got a strategy is going to need one, and adherence to that strategy will become more important than ever — success will depend more on people doing what they are told than it does currently.

That is not to say that the essential nature of law firms will be lost. Law is still a more agile business than the building of aeroplanes — innovation will depend on people successfully following their own creative instincts. They will just have to do that within a more corporate framework. Two blog posts I picked up on today reinforce that quite well.

The first is a note by the always thoughtful Scott Berkun on a long interview with Tim O’Reilly. Scott picks up and re-tells a story Tim tells about an early encounter with an investment banker (Bob):

Bob made a statement that really struck me, and the more I thought about it, the more I saw in it, both to agree and disagree with.

The statement was this: “You don’t fish with strawberries. Even if that’s what you like, fish like worms, so that’s what you use.”

Bob was referring specifically to finding out what the real needs of the potential strategic partners might be, since they might be focussing on something other than what we think is most important about what we have to offer.

That’s really good advice for any sales situation: understand the customer and his or her needs, and make sure that you’re answering those needs. No one could argue with such sound, commonsense advice.

At the same time, a small voice within me said with a mixture of dismay, wonder and dawning delight: “But that’s just what we’ve always done: gone fishing with strawberries. We’ve made a business by offering our customers what we ourselves want. And it’s worked!”

Until now, most law firms have been in the fortunate position of being able to fish with strawberries. Even when they pay lip service to understanding the client, many of them are more interested in comparing themselves with other law firms. As a result, the shape of the legal market has not changed significantly over the past twenty years or so. There is still scope for strawberries, but we need to be better at considering the worms our clients relish (and that requires a discipline that has not often been seen amongst lawyers. A balance is possible, as Scott makes clear:

To only make strawberries makes you an artist. And to only make worms makes you a capitalist. To make both at the same time, or some of one now and then some of the other later, perhaps makes a successful artist. Or an artistic capitalist. Or in Tim’s case, it means you’re having a successful life that has helped people like me make successful lives, and perhaps that’s the best kind of fishing of all: fishing that helps other people learn to fish.

The other blog post is more clearly relevant to law firms. Bruce MacEwen has turned his laser-sight on the competing conceptions of ‘quality’ held by lawyers and their clients.

Clients on Quality Firms on Quality
Often “good enough” is good enough We need to run down every conceivable contingency no matter how remote-and extinguish it with a string cite
80/20 rule 99.99%
Financial metrics, cost-benefit, ROI Professional ethics and intellectual tradition
Business judgment The traditions of excellence in our firm

 

This is an excellent characterisation of the strawberries/worms dichotomy applied to service delivery. But whilst Bruce is generally keen to support the client perspective, he raises a valid concern.

Here’s my worry:

  • You and your firm agree to a client’s request/demand that a certain matter is only worth “good enough.”
  • You give it good enough-plus 10%, let’s say, just because you can’t help yourself.
  • Case closed.
  • Tick….tick….tick
  • Sometime later, things go seriously south with the matter formerly deemed closed.

Is good enough good enough any more?

And who’s to blame-your firm or the client-for the fact that merely sufficient legal advice has come back to bite?

Actually, you might not want to let your malpractice carrier think about this too long.

So doing things the lawyerly way could be beneficial to the client in the long run. The challenge must surely be to find a way to explain this to clients and to deliver it to a cost that increasingly price-sensitive businesses will tolerate. This is an excellent example of the difficult decisions that will need to be taken by firms, rather than individual lawyers, and where leadership and discipline will need to be exemplary for success.

And, needless to say, there is a role for knowledge management to play — how else will the firm learn from its mistakes and successes?

Transplanting practices between organisations

Published 4 November 2009 Best Practice , Culture , Innovation , Law 3 Comments

It is time to revisit the best practices meme again. Over the past few months I have been struck by the way the term is sometimes used in an all-encompassing way, without necessarily clarifying its scope.

Lamb House, Rye

One relatively recent post of this type “Innovation Builds on Best Practice” was written by Tom Young of Knoco, and refers to their intriguing Bird Island exercise. Over the last ten years, Knoco have been running workshops in which the participants build a tower with a given set of materials, then improve their designs following a number of KM interventions. The decade of experience has been documented in a set of ‘best practices’ which are used as part of the exercise. As the exercise progresses, tower heights increase significantly, and the maximum heights have also grown over the ten year period. (There is a longer account of the exercise in the April 2009 issue of Inside Knowledge magazine.)

Tom defines ‘best practice’ by reference to work done with BP:

A recognised way of [raising productivity or quality level across the board] is to identify a good example of how to do it and replicate that in other locations. We used the term ‘good practice’ in the BP Operations Excellence programme. After we had identified several ‘good practices’, we developed from them, the ‘best practice’. It was only after the ‘best practice’ was identified (and agreed by the practitioners) that it was rolled out and all plants encouraged to implement that method. After all if there was an agreed ‘best practice’ to do an activity, why would you not want to use it? Learning was captured on an ongoing basis and the ‘best practice’ updated periodically.

If I understand him correctly, Tom is comparing performance in an activity, process or task in one part of an organisation with the same activity, process or task elsewhere in the same organisation. In this context, I can see that practices may well be comparable and replicable across silos. (Although, to answer his rhetorical question, I can easily envisage situations where the context may well require a ‘best practice’ to be ignored. Offshore oil extraction will be very different in the different climatic conditions of the Gulf of Mexico and the North Sea.)

However, greater problems arise in attempts to transfer ‘best practice’ between organisations, or even within organisations where more processes or activities are at stake.

More years ago than it is comfortable to recall, I studied Comparative Law. (I even taught it briefly at a later stage.) One of the key readings was an article by Otto Kahn-Freund, “On Use and Misuse of Comparative Law” (1974) 37 Modern Law Review 1. (The article is not online, but I found a very good summary of its key points, together with a later piece by Gunther Teubner.) Kahn-Freund’s argument is that a law or legal principle cannot be separated from the culture or society that created it, and so even when there is a common objective, transplanting the law from elsewhere will rarely work. There is a useful example in the criminal law. The way in which criminal investigations and prosecutions proceed varies wildly between countries. It would make little sense to take a rule of evidence from the adversarial system used in England and transplant it into the French inquisitorial system. William Twining has elaborated considerably on this argument in an interesting lecture given in 2000 (PDF).

The problem that I have with much of the ‘best practice’ discourse is that it often strays into assertions or assumptions that such practices can readily be transplanted. However, like the law, such transplants will often be rejected.

The other aspect of Tom Young’s post that, frankly, confuses me is his treatment of innovation. Here’s an extended quote.

Now I hear some mention the words like ‘innovation’ and ‘creativity’. Perhaps you are thinking that the use of best practice will inhibit innovation and creativity. For me this is where context is vital.

In some situations, you don’t want innovation or creativity, you just want it done in a standard, consistant fashion.

If you are running a chemical plant, you don’t want the operator to innovate. If you are manufacturing microchips, you don’t want the technicians to innovate. If you are launching a new product into a target market, you perhaps don’t want innovation but standardisation. If you are decommissioning a nuclear power plant, perhaps you don’t want innovation during the work phase.

I am comfortable with this so far. Where things are working well, we should carry on. However, there is always room for improvement, even in simple systems.

Innovation should be built on current best practice. One of the key lessons from the Knoco Bird Island exercise is that if you ask people to do something, they will frequently start based on their own experience. When you illustrate the current best practice that has been achieved by several hundred people before them, they are frequently overwhelmed as to how poor they achievement was compared to what has already been established. 

Where appropriate give them the best practice and ask them to innovate from there. For example if by the introduction of AAR’s the time to change filters has been reduced from 240 hours per screen to 75 hours and a best practice created illustrating how this is achieved, innovate from the best practice figure of 75 hours, not the previous figure of 240 hours but only if it is safe to do so. In some instances innovation must be done in test area, ideas thought out, prototypes created and tested before the agreed modification is installed in the main plant.

My problem here is that I don’t think Tom is describing innovation. These are improvements in existing processes, rather than adaptations to new scenarios where adherence to the current way of doing things would be counter-productive. In a comment to Tom’s post, Rex Lee refers to kaizen. This is something that is often associated with Toyota. To be sure, the lean production processes in Toyota’s main, automotive, division are partly responsible for its continuing viability. However, another critical aspect is the way in which the company has diversified into other areas such as prefabricated housing, which it has been building since the mid-1970s. This response to crisis is an innovation, and goes beyond process improvement. Toyota encourages both through its well-documented suggestion system.

Going back to the Bird Island, it is certainly correct that no sensible business would expect people to embark on tasks or activities without guidance as to the ways in which they have successfully been done before. However, if the business needs a different way to achieve the same outcome, or a different outcome altogether, getting better at doing the same thing isn’t going to cut it.

Who are you looking at?

Published 22 July 2009 Clients , Innovation , Knowledge , Lawyering Leave a Comment

Something puzzles me. Why do law firms find it so hard to ignore their competitors? More than that, why do some firms (US ones, typically, I think) dedicate significant resources to finding out as much as they can about other law firms? Is this a lawyer thing or is it more widespread?

Canal boats, Pontcysyllte

The questions come up because I have seen a flurry of interest in Competitive Intelligence in a number of places.

It started with Emma Wood, reporting in Steve Matthews’s blog on a CI session at SLA 2009. The whole thing was a bit new to Emma as well.

Coming from the relatively small Canadian legal market, I was fascinated to hear about the competitive nature of major law firms in United States. I described it afterwards to a friend as it almost being like the rivalry between McDonalds and Burger King. I knew that the American legal industry was bigger and different from ours, but I didn’t realise just how fierce the competition between major law firms is.

So what do these firms get by way of information about their competitors?

McAllister created a newsletter that captures information in seven categories: mergers & acquisitions; office openings/closings; lawyer moves; law firm management trends; finances, fees, bonuses, salaries; the firm in the news; and special reports such as AmLaw 100, etc.

What puzzles me is the result of all this information. In my previous incarnation as a competition lawyer, I was very conscious that the competition authorities were often particularly interested in markets with high levels of transparency (especially with regard to pricing, which I assume is not relevant here). The reason for this interest is that the authorities consider that transparency can often lead to a reduction in pricing and product differentiation between companies where there is a degree of concentration. (For an economics view of the question, see this paper.)

Aside from this, I feel instinctively that a business that focuses as much effort as Emma describes on learning about its competitors is probably looking in the wrong direction. Surely it would be more sensible to concentrate on what clients need, on the directions their businesses are heading, and on more general economic and market trends (outside the legal sector).

Another guest blogger, Laura Walters on the 3 Geeks… blog provides a worked example of CI in action for a law firm, using LinkedIn (originally written by Shannon Sankstone).

A quick search for a well-known law firm listed one of their attorneys as the top result. Although Mr. Lawyer made his connections private, he did not shy away from requesting recommendations. He lists over 40 recommendations, 26 of which are from clients. Some of these clients are (names have been withheld, but are available on Mr. Lawyer’s profile):

  • A publicly listed hotel and resort corporation;
  • A large biotech company; and
  • A private equity firm.

At first glance, the CI pro now knows at least 20 of Mr. Lawyer’s clients (some clients had more than one person recommending Mr. Lawyer). Were a firm considering approaching Mr. Lawyer as a lateral hire, they would include this information, and an analysis of the clients, to determine if Mr. Lawyer’s client base was in line with the firm’s business development goals.

If, on the other hand, a firm was competing with Mr. Lawyer’s firm for work from a company in the hotel industry, then Mr. Lawyer’s recommendations might be leveraged to the CI pro’s firm’s advantage. While Mr. Lawyer may point to his recommendations as proof that he has delighted clients in this industry, the competing firm may highlight this as Mr. Lawyer having a better relationship with a competitor company.

If I were a client, I think I would be more impressed by a firm that highlighted the real benefits of instructing them, rather than raising allegations of conflicts of interest with my existing lawyers. The latter argument tells me nothing about (a) why I should change lawyers at all, or (b) why the pitching firm should get my business. In short, I am not sure that I would be especially impressed by even an implied impugning of my choice of lawyer. This kind of comparative advertising sits poorly in a profession that sets great store by the creation of genuine working trust-based relationships.

Any business that concentrates its efforts on working out what its competitors are doing makes it very difficult to generate new ideas, to find points of difference that appeal to clients or customers. This is the point of “differentiation” — a goal of most businesses. Any organisation can do things differently (although that can be hard too). Real value only comes when those different things (whether they be core legal services, or a way of working) actually resonate with clients — there is real differentiation from competitors. However, an understanding of what will differentiate the firm cannot come from an examination of what one’s competitors do — that can only result in painting the same products in different colours. As this summary shows (drawing on this HBR article), the questions to be asked all focus on the client.

  1. Have you researched your clients’ requirements and preferences?
  2. Do you know what the points of parity or hygiene factors are?
  3. Do you know what the motivation factors are?
  4. Do you understand, from the client’s perspective, what the relevant importance of each of the motivation factors are?
  5. Can you substantiate how your offering creates value for your clients?
  6. Can you deliver a resonating CVP – one that really appeals to the client’s key motivation factors?

Unfortunately, the lack of differentiation that comes from examining competitors rather than clients is extremely visible to outsiders. We should not fool ourselves that it is not. Eric Karjaluoto recently gave a splendid example of how obvious this failure to understand differentiation can be.

A few weeks ago we met with a company that was having exactly this problem. They’re a respectable law firm whose website just didn’t seem to be doing what it needed to. They particularly liked a website that we had crafted for another firm, and decided that they should get in touch with us.

The meeting went swimmingly. They were all pleasant and had a lovely office space. They explained to us that they were quite different from other law firms, and that while others were rather boring and stodgy, they are in fact much younger, more progressive, and “out of the box” thinkers*. They didn’t think this came across in their current materials, and were highly dissatisfied with their existing website. They felt that if we built a site for them like the one we built for their competitor, it would remedy this problem.

…

*Incidentally, Almost every law firm we’ve met with has told us exactly the same thing. I have yet to encounter the law firm that claims to be “boring and stodgy”.

Unfortunately for Erik, the engagement didn’t work out, but he is at least able to draw a wider conclusion from the firm’s behaviour.

Although I’m talking about one specific operation, my point applies to many. In our (nearly ten) years in business, we’ve spoken with a lot of people. Almost all face similar challenges, and they typically lack one of two requirements needed to remedy the situation and spur change. The first and most important is a willingness to differentiate; the second is the allocation of appropriate funds, in order to make this happen.

The law firm in question knew their problem–they came off as “beige” and boring like everyone else. They then looked to all of their competitors and decided to copy the site that they liked most. While I understand what leads to this, it’s a rather perverse notion: “Let’s differentiate our firm by copying the one that we like the most.” (Riiiiight.) They wanted the result without the price–a price which is both monetary and psychological in nature. In order to actually stand out from their competitors, they’d have to find a story of their own to share. With this does come some small amount of risk; it also brings with it the opportunity to create something powerful.

You don’t differentiate by copying the most attractive brand you can find. (If we did, KFC would be marketed like Louis Vuitton, and that would be sort of weird, wouldn’t it?) No, you have to isolate that which is uniquely yours and amplify it compellingly. You need a story that’s plausible (and one that people want to hear) and then you need to share it effectively. Not doing so leads to what one might consider the marketing “doom loop”, in which new campaigns are crafted and deployed haphazardly–destined for failure before they’re even out of the gates.
Although I’m talking about one specific operation, my point applies to many. In our (nearly ten) years in business, we’ve spoken with a lot of people. Almost all face similar challenges, and they typically lack one of two requirements needed to remedy the situation and spur change. The first and most important is a willingness to differentiate; the second is the allocation of appropriate funds, in order to make this happen.

The law firm in question knew their problem–they came off as “beige” and boring like everyone else. They then looked to all of their competitors and decided to copy the site that they liked most. While I understand what leads to this, it’s a rather perverse notion: “Let’s differentiate our firm by copying the one that we like the most.” (Riiiiight.) They wanted the result without the price–a price which is both monetary and psychological in nature. In order to actually stand out from their competitors, they’d have to find a story of their own to share. With this does come some small amount of risk; it also brings with it the opportunity to create something powerful.

You don’t differentiate by copying the most attractive brand you can find. (If we did, KFC would be marketed like Louis Vuitton, and that would be sort of weird, wouldn’t it?) No, you have to isolate that which is uniquely yours and amplify it compellingly. You need a story that’s plausible (and one that people want to hear) and then you need to share it effectively. Not doing so leads to what one might consider the marketing “doom loop”, in which new campaigns are crafted and deployed haphazardly–destined for failure before they’re even out of the gates.

I can see that there is a natural inclination to compare ourselves with the neighbours, but that is not a useful long-term strategy. It leads one down avenues that do not fit our real preferences, or into courses of action that lead to social, emotional or real bankruptcy.

Our competitors do not have the key to improving our businesses, but our clients do. I think we should look (and listen) to the right people, and spurn the siren voices.

Knowing how to be disruptive

Published 17 March 2009 Clients , Innovation , Knowledge , Music , Tradition 2 Comments

If nothing else, the state of the economy must make us wonder what things are going to be like when it is all over. At a personal level, there are people whose careers have been forced in a direction they neither expected or wanted. Some household names (such as Woolworths in the UK) have already disappeared, and there will doubtless be others.

Mary Abraham has taken a look at what firms may need to do to see a clear way through the current economic crisis.

Rather than focusing on what doesn’t seem to be working, focus on your organization’s strengths. Ask yourself, what are we doing right? How can we do more of that? How can we do it better? Then, look at your mission. Is it the right mission for your organization? Does it line up with your organization’s core strengths? Are your colleagues and their activities aligned with that mission? Is all of this supported by your organizational culture?

In the midst of all this upheaval is a golden opportunity to reinvent ourselves, to create something new. The “Clean Sheet of Paper” exercise is just a tool to help you get started. Don’t let this opportunity pass you by.

I commented on Mary’s post, but I want to develop some of those thoughts a bit further. My initial reaction to the post was to refer to something else I had read recently on a similar point.

The questions you suggest as part of the “Clean Sheet…” exercise leave out an important part of the equation. What do our clients want? What are people buying?

At the end of his recent long article (“The Great De-Leveraging“) Bruce MacEwen reminds us of Andy Grove of Intel’s reaction to a similar crisis:

Better yet, or more realistically yet, perform Andy Grove’s famous thought (and reality) experiment when Intel was a low-end maker of commodity DRAM chips, having their lunch eaten in the late 1970′s by the voracious and talented Japanese, threatening Intel’s very existence.

I paraphrase: Grove said to his top management team, “If we don’t turn things around in a very serious way, the Board will fire us. So why don’t we ‘fire’ ourselves. Let’s march out of this conference room and march back in assuming we’re the new team the Board has hired. What would we do then?”

They performed the exercise, decided to abandon DRAM’s and invest in microprocessors. The rest is history, and it’s history residing under your desk or in your lap.

I think the Andy Grove approach is an essential part of the clean sheet exercise.

There is a real problem for businesses that want to innovate their way out of the crisis. We are used to working with clients to identify what products and services they need. This symbiosis requires a degree of stability. Even if someone doesn’t know what they need until they see it (and who knew they needed an MP3 player with such minimal controls and so few features before Apple created the iPod?), disruptive innovation depends on people realising when they see it that the new product or service does actually fill a hole. The need, niche or desire is created in the same moment as it is fulfilled. At the moment, it is extremely difficult to know how the market will react to novelty. We can’t rely on understanding our clients’ needs to get us through this — we need to walk with them and discover together what is required. We cannot know what the outcome of this perambulation will be. In particular, I don’t think we can assume that the status quo ante will be any part of the future. As Seth Godin puts it:

It’s amazing that people have so much time to fret about today’s emergency but almost no time at all to avoid tomorrow’s.

A glimpse at the TV and internets shows one talking head after another angsting about today’s economy. These are the same people who needed to devote entire hours to mindless trivia nine months ago when they could have done an enormous amount of education about avoiding this mess in the first place.

His point is that we need to concentrate on what is coming, not what is happening now. In a business that depends heavily on the brain-power of its people, like a law firm, that means that we need to focus a significant part of our knowledge efforts on working our what we and our clients need in that future. Tending to our past knowledge needs will not get us safely out of this crisis.

There is another strand to this. Whose knowledge are we talking about? To what extent will the stresses and strains of the current economy affect firms themselves, especially when coupled with tools that could facilitate very different organisational forms. Consider John Roberts’s view of the firm, couched as an objection to a hypothesis that “the firm is simply ‘a nexus of contracts’ — a particularly dense collection of the sort of arrangements that characterise markets.”

While there are several objections to this argument, we focus on one. It is that, when a customer “fires” a butcher, the butcher keeps the inventory, tools, shop, and other customers she had previously. When an employee leaves a firm, in contrast, she is typically denied access to the firm’s resources. The employee cannot conduct business using the firm’s name; she cannot use its machinery or patents; and she probably has limited access to the people and networks in the firm, certainly for commercial purposes and perhaps even socially. (The Modern Firm (Oxford, 2004): 104) 

What does this mean for knowledge-intensive firms? The resources that Roberts refers to are less relevant — the machinery is either freely available (Google has a few useful tools on offer) or is located in the heads of the knowledge workers. The networks that he highlights as important are increasingly located outside the firm — in Facebook, LinkedIn or twitter, for example. One consequence of this may be that firms which fail to reinvent themselves or provide other compelling reasons for their existence could end up as empty shells — with their people relocated to other firms or new forms of self-organisation.

The brick building in the centre-right of the picture above was one of Manchester’s Victorian railway termini, opened in 1880 and closed in 1969. As the railways were rationalised and nationalised, and as passenger numbers fell, there was clearly no need for a city the size of Manchester to have six major railway stations. There are now just two. Of the others, one is at the heart of a museum, one is a car park, the one pictured is an exhibition hall, and one is derelict. The building on the left of the picture is the Bridgewater Hall, home of the Hallé Orchestra (Britain’s oldest symphony orchestra). The Hallé’s previous home, the Free Trade Hall, is now just a facade for a hotel. Rising above the old station is Manchester’s tallest building, the Beetham Tower. The solidity and apparent permanence of all these buildings was (is) no guarantee that they would always fulfil the same purpose. In fact, the longest-lasting thing in this tale is the orchestra — an excellent example of a group whose purpose cannot be separated from its form. A symphony needs to be played by a symphony orchestra: individual musicians cannot replicate the sound by playing on their own. As long as people are willing to pay to hear symphonies, the Hallé and orchestras like it will continue to exist.

Is your firm an orchestra or a collection of soloists? Is there still an audience for its repertoire?

More on lawyers and innovation

Published 14 January 2009 Innovation , Lawyering Leave a Comment

Here are two bonus links following on from yesterday’s post.

From Tim Corcoran: Galileo Was Wrong: The Earth Revolves Around Lawyers.

On a number of occasions where we gathered with the board or executive team of an acquisition target in a secret location to discuss a business combination, we always invited the lawyers because there were items on the checklist that only they could handle. But they otherwise didn’t speak much. When outside lawyers were invited, they sat next to the in-house lawyers and spoke even less. Again, none of this is meant to demean the important role lawyers play in doing deals, but the point is they were there to identify and quantify risks in executing the deal so the business people could incorporate this into the financials, or choose to build versus buy if the risk was too great. We never asked for a go/no-go decision, and we didn’t ask for exhaustive explanations of the legal issues in play. We asked about the obstacles, the techniques to overcome the obstacles, and the cost of doing so — and not the legal cost, i.e., the legal bills, but the cost to proceed. For example, I wouldn’t want to know how much the law firm will charge to counsel us on new regulations; I wanted to know how complying with new regulations would impact the cash flow projections. Again, the point is, on the business side we rarely think of things in legal terms, but in terms of how legal issues impact our ability to proceed.

In point of fact, the earth does not revolve around the lawyers.

From Christopher Fahey: Innovation, Transformation, Therapy, Practice (via Scott Berkun).

The conversations around innovation over the past few years have in large part focused on producing innovation where it does not exist. It hasn’t been about innovation itself, but rather about cultivating innovation. It’s been about transforming groups of people who, without clever and forward-thinking leadership, would utterly fail to innovate. The literature, then, is aimed at people who fancy themselves as that same clever and forward-thinking leader.

To those of us whose everyday job is to innovate — e.g., designers — the hype around “innovation” has always seemed a little weird. As if not innovating has ever been an option for a designer. We do this all the time!

So what Nussbaum and the innovation cheerleaders have been talking about all along has not been about how innovative people can be more innovative. It’s been about how to take teams that cannot or will not innovate and getting them to actually come up with new ideas.

Perhaps we can only hope to create better bricklayers.

Lawyers: architects or bricklayers?

Published 13 January 2009 Clients , Creativity , Design , Innovation , Lawyering 1 Comment

Yesterday lunchtime I managed to get out of the office for a walk at lunchtime. As I did so, I pondered a question that has been at the back of my mind for some time. It is my impression that innovation in law firms tends to occur most in the delivery of legal services, client care or in some peripheral law firm activity (marketing, finance, IT, etc). It is fairly rare that we see real innovation in the law itself coming out of law firms. (Some evidence for this impression is provided by the annual Financial Times survey of innovation in law firms.)

As I pondered and wandered, I admired the characteristic brickwork of Manchester’s historic cotton warehouses. Cruelly, I wondered whether many lawyers were simply bricklayers — putting the right blocks together in a particular way to achieve the desired result: an agreement or set of agreements to achieve the commercial aims of their clients. Extending the analogy further, there are significant similarities between the creation of a new building and the conclusion of a corporate or commercial transaction.

At the outset there is a client and the client has a need. No legal work is done without an external driver. Similarly few if any buildings are created purely speculatively. The client’s need (for a building to fit a particular purpose or for a new acquisition) is usually arrived at entirely without interference by professional specialists. However, once the need has crystallised, the professionals are needed to make the need a reality: an architect in the case of a building, a lawyer in the case of the transaction. At this stage, the client’s need might permit innovation (in building design or in legal structure). However, it is almost impossible for that innovation to create an opportunity for a new type of client need.

An example of the kind of innovation I mean is the development of steel-framed structures. Once the potential of that kind of building was realised by clients, the development of densely-built cities like New York and Chicago became possible. I can’t think of a legal innovation with an equivalent impact on the scenery of business, work, trade or commerce. (That is not to say that there isn’t one — it is late and my mind is tired.)

So at least one lawyer seeing to the client’s needs is an architect – creating the best structure to deliver what the client wants, dealing with other professionals (including regulators), managing key specialists (including hod-carrying lawyers), and ensuring that the client is kept happy. Innovation in all of those areas is possible, but it must be secondary to the need to deliver what the client needs as effectively as possible. In many situations (probably the vast majority), that effectiveness is probably most likely to come from doing the usual job. Similarly, many architects might want to be innovative, but ultimately the client wants something from the pattern-book, so that is what they get.

If my analogy is correct, it must have implications for our KM efforts. There is scope for KM to support innovation, but bricklaying lawyers need a different kind of innovation than the key architects. And innovations created by the architects might never relate to technical legal issues. How do we support them without knowing where the opportunities are?

Defining the Millennial organisation

Published 18 December 2008 Clients , Innovation , Management 2 Comments

After a night’s sleep, it occurred to me that it might not have been clear what I meant by a “Millennial organisation” in my last post. Here are some thoughts.

We have heard a lot recently about people in Generation Y and how they feel about work. (Here, via David Gurteen, is an example from Teresa Wu that generated spectacular amounts of heat and little light — check some of the trackbacks, especially this rather grumpy one.) What if businesses change in the same way? What would a Generation Y organisation look like? Before suggesting some answers, it is worth briefly summarising why organisations might need to change.

  • Climate change is still with us. It may have been pushed off the front pages, but it is still a reality. It will affect many business models directly, and many more indirectly.
  • The economy is front page news. The collapse of many shared assumptions about growth and prosperity should make us take stock and possibly re-focus.
  • Technology is facilitating many more interesting interactions. 5-10 years ago businesses learnt that they could not survive without at least a brochure-ware website. Now it is becoming essential to identify where and how your market is conducting its conversations online, and join in.
  • People’s expectations are changing. This is not just a Generation Y thing — customers of all generations are challenging their suppliers in ways that were impossible to predict just a short time ago. Employee profiles are also changing — the products of the baby boom are starting to retire in large numbers, potentially leaving a significant gap in the workforce.

That’s a lot of potential for disruption, and there is probably more (I haven’t even touched on globalisation, for example). What will an organisation that deals effectively with all those challenges look like? How might it behave? I can see at least six things, which correspond roughly to the six points made by Teresa Wu.

  • Millennial organisations will support and promote talent, wherever it arises. In doing so, they will need to be able to identify it first.
  • They will take seriously the work started by Ted Levitt in asking the question “what business are you really in?” They will not be afraid to re-invent themselves. (Compare Ford’s and Toyota’s approach to diversification into prefabricated housing, and consider the health of those businesses now.)
  • They will generate a sense of community and common purpose in their people by encouraging them to share and communicate what they know.
  • They will tend to have a flatter hierarchy than traditional organisations, and the leadership will actively involve people from across the organisation in key decision-making processes.
  • They will engage more actively with their clients or customers, in whatever way best suits the client or customer. (Because, as Jordan Furlong makes clear, the market does not care: “You have no right to make money from every problem or opportunity clients face, and the humility that comes from approaching clients that way matters.”)
  • They will encourage their people to bring a sense of commitment to the work that they do, to create better-quality work and a better-quality workplace. This means that badly behaved high-achievers will be tolerated less than they are at present, as will clients who make people’s lives a misery. (Bob Sutton is the guru for this one.)

An organisation with these characteristics will not be frightened of unapproved chaotic information — instead it will recognise the inevitability of the existence of such fragments and seek ways of bringing them to wider attention. It will also be constantly aware of the need to respond to changing markets by changing itself as often as necessary. (I wonder whether this also means that they will have to be smaller in size than they are now.) It probably won’t behave like the firms in Jordan Furlong’s article “The failure of billable-hour compensation“, which describes with alarming clarity ”an under-publicized way in which the billable hour poisons the [legal] profession.”

Dilemmas

Published 9 July 2008 Collaboration , Innovation , Management , Rationality Leave a Comment

Reading Tom Davenport’s brief polemic on the meaning of management (and the comments on it), I have realised that some of the things that I believe (and have promoted here) may be mutually contradictory.

Commenting on IBM’s explicit change in terminology from “knowledge management” to “knowledge sharing”, Davenport argues that (a) the equation of “management” with “command-and-control” is simplistic and misleading and (b) “sharing” as a concept is too unstructured to be useful in the enterprise (but equally, there is scope for tools of that nature).

I think this tension between the structure of a managed knowledge environment and vague knowledge sharing is symptomatic of the tension between what people want to do and what the business requires them to do. For example, people may be very keen to read widely to feed their creativity and improve the chances of innovation, but in order to perform their primary function they need to focus on the things that are more obviously related to the job. However, prioritisation of activities that are demonstrably valuable will result in a situation where people will only contemplate low-risk strategies. (As an aside, I think this might be particularly a problem in law firms: recording time in six-minute units is not conducive to activities that are not clearly relevant to client work.) As Bruce MacEwen has pointed out more than once, this is not a time to be concentrating on low-risk strategies.

So it is not sensible to encourage everyone to engage in what one of the comments on Davenport’s piece calls the “passive” activity of knowledge sharing. Equally there are dangers in insisting only on structured formal knowledge creation and capture. How do we manage our way around this dilemma?

I don’t know, but I think we need to be clear with people about the limitations of all the different approaches to knowledge in the enterprise, and the consequences of their over-use or misuse. By doing this, we can help them find a way that suits them and the business. Surely, that is knowledge management.

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