If you think everything’s fine, it may be time to change

Over the past few years, change managers have relied heavily on the idea of the ‘burning platform’ to help them awaken organisations to the need for change. Perhaps the most famous example was the company-wide memo sent by the then CEO of Nokia, Stephen Elop.

It is a logical approach. When things are going badly, there is little point in continuing as normal. However, such forced change is also high risk. This is clear from the original context of the phrase, which goes back to the Piper Alpha disaster in 1988.

One hundred and sixty-six crew members and two rescuers lost their lives in what was (and still is) the worst catastrophe in the fifty-year history of North Sea oil exportation. One of the sixty-three crew members who survived was Andy Mochan, a superintendent on the rig.

From the hospital, he told of being awakened by the explosion and alarms. Badly injured, he escaped from his quarters to the platform edge. Beneath him, oil had surfaced and ignited. Twisted steel and other debris littered the surface of the water. Because of the water’s temperature, he knew that he could live a maximum of only twenty minutes if not rescued. Despite all that, Andy jumped fifteen stories from the platform to the water.

When asked why he took that potentially fatal leap, he did not hesitate. He said, “It was either jump or fry.” He chose possible death over certain death. Andy jumped because he felt he had no choice—the price of staying on the platform was too high.

In a true burning platform situation, change (jumping from the platform) is high-risk, but probably less risky than not changing. Nokia is now a very different company than it was in 2011, but it is still moderately healthy.

Sometimes, however, the burning platform idea is used to engineer acceptance of change when the risks of not changing are actually not especially high. In those situations, people often see through the claims of those seeking change and so they ignore the change initiative and carry on as normal. They need a different kind of persuasion.

That is not to say that change is impossible (or unnecessary) when everything appears to be going well. Two items I came across today indicate that change might be necessary and easier in good times.

The first is a TED talk by Tony Fadell, who developed the iPod and the Nest thermostat. He starts by observing that habituation (getting used to the way things are) is a natural and often necessary human attribute. He then highlights three ways good designers (who are just a particular kind of change agent) learn to work around habituation.

The key points from Fadell’s talk are that it is necessary to take a different perspective on things (looking at the larger context and the detail) and that naive questions and observations can trigger insights that are lost to the habituated.

Law firms often talk about understanding their clients, but they rarely actually see their work from the client perspective. Likewise, trainees, new employees and other professionals within the firm can ask naive questions about the way work is done. If those questions are explored rather than batted away, novel insights might follow.

The other item is a LinkedIn post by Anne Marie McEwan. She reflects on accounts of the recent history of RIM, the BlackBerry manufacturer. Unlike Nokia, RIM has responded to the growth of Apple and Android smartphones by concentrating on improving and developing their existing products. (Nokia shifted its focus to other areas of the market.) This strategy hasn’t served RIM well. For Anne Marie, amongst the reasons for this is the difficulty of making change in times of stress.

Business as usual is constant pressure as normal but there are degrees. It can be difficult for people to take on new ideas and ways of working when they are under unbearable pressure, although I have worked with people where things were already so dreadful that they were eager to try anything.

I’ve found that the best time to instigate change is when things are not going badly. The most receptive businesses are those performing well but they know that they will need to adapt to maintain their position; they can see external threats and opportunities coming over the hill.

So the best time for change is probably before the platform is at risk of catching fire. Spotting the threats and opportunities is best done with the benefit of a design approach — noticing when everyone else hasn’t that the things you have got used to are actually bad. That’s what Apple did with the iPod and iPhone.

In the legal sector, I suspect that the predominant view is still that almost everything is fine. Certainly, the comments on a report about consolidation in the High Street bear this out. Clients (whether individuals or businesses) may have a very different view. Two posts by Bruce MacEwen detailing his experience as a client (“The Client Seat” and “The Client Seat (2)”) suggest that from that perspective things very definitely are not fine. Here are some key quotes (from Bruce and other members of the group interviewing potential advisers):

The engagement letter from Firm C (a firm you all know) has all the charm of a utility bill. Let me emphasize that they entirely skipped over the step of responding to the reasonable questions posed by the committee and went straight to an engagement letter. An oversight in the haste and press of business? Hard to believe. Presumptuous? You bet.

This letter unfortunately confirms what many think of lawyers and law firms (which I happen to believe is untrue) as heartless and rapacious (aren’t we all tired of lawyer jokes?). It would hardly rise to the level of “over investment” to reference the issues and address the recipients in more personal terms.

After many years of working with contractors, both as an IT executive and then in supply chain, I firmly believe that when vendors do not respond to an RFP as requested, it says that they will do what they want to do, not what the client wants. I have seen this pattern repeatedly – we went for the firm with the better name or more likable people only to be sorry once we were under contract. Vendor selection is like dating – if they do not treat you with respect now, it is not going to get any better when you’re hitched.

You might imagine law firms responding to RFPs would think their overriding goal should be to make it easy for the client to select their firm. If this sample of three is any indication, they seem to be operating under some alternative assumption, although it baffles me what that might be. Each in their own way made it harder for us to pick them.

If you are a lawyer, can you be sure that your clients aren’t this critical of your work? If you are, how is that? Maybe they have just become habituated, and once an alternative provider comes along with a better way of doing things they’ll transfer their allegiance. That’s what happened to Nokia and RIM. Those companies are still dealing with the aftermath.

Don’t wait for your platform to smoulder. Learn to see what needs changing while it is still possible to test things out.

Who should be responsible for happiness?

I spent last week in a remote Scottish location, which meant that I could catch up on some podcasts that had backed up on my phone. As I listened to a few in succession, some interesting juxtapositions were thrown up. One in particular got me thinking about the balance of power and responsibility between individuals and organisations.

Strathossian ruinI would guess that everyone knows someone who is unhappy in their work, even if they aren’t themselves. There may be many reasons for this, but the prevailing trend seems to be that the unhappy owe it to themselves to find a way to change things so that they can become happier. (Or to manage their own unhappiness.) An old friend of mine, perhaps worn down from years listening to HR complaints, was robust in her assertion that people should leave if they didn’t enjoy working at the firm: “we don’t put bars on the windows.”

So, as I listened to the Thinking Allowed discussion of happiness and wellness, I was particularly struck by comments about the way that this individualistic approach has allowed organisations and even society at large to transfer responsibility for making things better to individuals. This is often dressed up as ‘agency’, even when people may actually have very little power to make real change, short of changing jobs.

A little later, on their excellent Shift podcast, Euan Semple and Megan Murray had an entertaining conversation about navel gazing as a key business skill. Jack Vinson blogged a key point:

The thing that struck me hard enough to do a quick blog post is the idea that some people get wrapped around the axel of self-improvement without thinking why.  On the opposite end are people who have no interest in self-improvement (but who are happy to point out situations in which they are unhappy).

I have always liked the idea that if I am upset about something / someone, it is because something inside me is out of kilter.  It is not the other person / situation is necessarily wrong, but my take on it has me upset.  In other words, it is my responsibility to figure out why that business meeting made me so angry, and then DO SOMETHING DIFFERENT.

I don’t disagree with Jack’s view that one should always consider whether there is something one could change about oneself. However, I am concerned that when organisations assume that people should always take responsibility, they are more likely to allow poor situations to persist.

People make decisions about difficult working situations for so many reasons that each may well be unique. They may stay because they have built up valuable support networks amongst colleagues and have no wish to let them down. They may have external commitments that make it hard to move. They may feel no such constraints. They may be natural disruptors so they drive change wherever they are. If the organisation has no interest in understanding people and the reasons why they are happy or unhappy, it has no way of knowing whether there are fundamental problems that need to be addressed at the organisational level. (This can produce stagnation, but may also allow unfettered change initiatives to flourish.)

It is time for the pendulum to swing back. By all means encourage people to take some responsibility for making the changes they need. But organisations also need to take more responsibility for being aware that people are unhappy and why this might be, and for making sensible changes to improve overall happiness.

Fortuitously, last week also saw the launch of a new tool that gives organisations a better way of understanding what is really going on. Cognitive Edge’s cultureSCAN can be used to take a snapshot of the way people feel about their work, or it can be used repetitively to test the reception of organisational change (for example). As a Cognitive Edge network member, I can work with law firms (and others) work out how best to use cultureSCAN and the information it produces. Please get in touch if you are interested in knowing more.


A summary of cultureSCAN is provided on the Cognitive Edge site, and I have excerpted it below.

Culture is a crucial part of most organisations’ success or failure – yet, given its complexity, is also one of the most difficult things to influence. The organisational culture, people’s behaviour and the narratives they share when they meet are all interwoven – co-evolving together.   Looking to understand the overall system and see which levers to pull is a futile – and mistaken – pursuit.

Instead anyone tasked with changing a culture must work to understand the narratives – the stories and fragments of meaning – that are exchanged each day in the many interactions that happen at the coffee machine, in the corridor and in meetings. Change then becomes a matter of amplifying the narratives that lead in the desired direction, dampening the ones that draw people away – and looking for opportunities to improve and innovate along that path.

Cognitive Edge’s cultureSCAN is a unique opportunity – a pre-configured tool for online and smartphone users to gather organisational narratives and understand the culture as it stands.

cultureSCAN is a culture-specific set of signifiers allowing users to signify audio/text/pictures quickly and easily (audio and pictures available only on iOS and Android apps).  It uses SenseMaker® – the only software licensed to use Cognitive Edge’s patented signification methods – meaning that organisations have the objectivity and scalability of quantitative data, supported with the insight and richness of qualitative micro-narrative material.

So it is easy to see – and prove – where the organisation is today, as well as delving deeper to understand why – and where it can be taken tomorrow.

Where to start with law firm knowledge development?

The history of knowledge management in law firms can be simply sketched:

  • Lawyers and publishers started with standard documents and forms, then moved on to more discursive materials — often managed by librarians;
  • The bigger firms employed dedicated knowledge professionals (PSLs) to create and maintain bespoke material, training and current awareness;
  • PSLs became more common, so firms began coordinating their activities
  • This coordination evolved into strategic support for the firm’s wider goals, and often extended to include information and research professionals and/or learning professionals;
  • Greater strategic focus led to increased diversity of activities between firms — encompassing technology-supported practice, client-facing activities and so on.

This account isn’t perfect, but it covers the main inflection points. However, it also contains the seeds of misdirection.

Chatsworth sundialWhilst there are firms that have reached the final stage, many are still approaching KM as a new activity. They may subscribe to the major services. They may also have some of their own internal knowledge material, drafted by practising lawyers. They might even have a nascent knowledge system of some kind. What should be their next step?

The natural thing to do would be to learn from what other firms have done. (A standard knowledge management tactic.)

How should that learning progress? One approach, which appears to have been suggested at today’s KM Legal conference, is to follow in the same steps as other firms. I am not at the conference, but following some of the tweets.

The advice to start with PSLs without coordination or a vision is risky. It feels right, just as the historic biological view that “ontogeny recapitulates phylogeny” appeared to make sense. The better choice is to start from the current state of the more mature firms. By all means learn from the work already done by those firms, but there is no need to go through the same process to do so.

The most experienced firms have concluded that successful knowledge activities require coordination or governance, and a vision that is congruent with the firm’s strategy. In learning this lesson, they made mistakes and had successes. Firms coming afresh to this work should learn the same lesson without having to have the same sequence of experiences. Learning from other people’s experiences is a critical knowledge principle in itself.

Does it really matter? If only a small investment is possible, why not start with a PSL or two and see how they get on?

The problem with that approach is that without informed guidance as to what the firm needs and/or the experiences other firms have had, there is a real risk that the PSL has to bend to the will of the lawyers they work with. Without an organising force outside the practice group, PSLs will often be forced to support old-fashioned ways of working.

The vision may not need to be detailed. It would be enough for the firm’s leadership to be clear about the things that need to improve. Armed with simple goals like that, PSLs would be able help their practice groups develop in a coherent direction. They could help build a modern firm without having to go through the Enlightenment first.

(As an aside, one thing firms could do to emulate their more forward-thinking peers would be to drop the title ‘PSL’. It is essentially meaningless. Other versions, such as Practice Development Lawyer, Knowledge Development Lawyer, Training and Knowledge Lawyer, are much more helpful.)

If you or your firm is thinking about these issues, and would like some personalised guidance, please get in touch.

Why do you want to ‘do KM’?

My recommendation to anyone new to knowledge management is to start by reading and reflecting on David Gurteen’s presentation to KM Middle East in 2011, “Don’t do KM.”

Despite David’s high profile, and the fact that this message has been repeated by him and many others over the past four years, I still see the same mistake being made. But it’s now being made at an organisational level, and that causes problems further down the line.

Here’s an example. A law firm has decided that it should have a knowledge management function. So headhunters are briefed to find someone to lead that function. Sadly, neither the firm nor the headhunters understand what is needed.

The firm probably has a sense of what might need fixing, but they don’t know what measures could be taken. The headhunters have a better understanding of the ambit of traditional KM, but may not be allowed any insight into the firm’s real needs.

The result: a role description that indicates how important KM is (“a strategic function”), but also lists various ‘information assets’ that need to be managed. In short, a description of KM that limits the function to pre-defined boundaries separated from the performance of the firm.

In reality, of course, a role description can be ignored. But it acts as an anchor. Presented like this, it is difficult for a new recruit to persuade the firm that they shouldn’t ‘do KM’. It also means that investment in change or in unexpected activities that would make a real difference are harder to justify.

By contrast, advertisements for leadership roles in business development and marketing are much more likely to refer to the need for things like “new and innovative approaches on winning business”, “driving forward pioneering initiatives”, or “distinctive client experience”. Even though firms may have a better idea of what might be involved in this discipline, they rarely dictate at the outset in detail what these roles should do. The result is that these recruits are trusted much more to lead the firm (not just their own teams) in the right direction.

Just as people with ‘knowledge management’ in their titles should avoid ‘doing KM’, firms should avoid thinking that they need KM. They don’t. They may need to use their knowledge better because they have identified a problem. That’s a much better starting point for recruitment. You don’t need a Knowledge Director or CKO just because everyone else has one.

Innovation: the importance of ‘why’

My friend Mary Abraham has written a characteristically perceptive post about the lessons innovators should learn from the pyramid builders. It is both interesting and useful.

Mary’s lessons can be summarised thus:

  • Innovate by using a series of disciplined experiments that are thoughtfully designed and carefully executed.
  • An experiment that is not examined for lessons learned is a failure — regardless of its actual outcome.
  • As you innovate, collect and share your knowledge to support further innovation by others.
  • Ensure that there is a clear and compelling vision of the intended results of innovation effort, and complement this with clear communication throughout the project.
  • Choose a sponsor who knows the value of second chance in the hands of an intelligent innovator.

Organisations that say they are innovative often display some of these characteristics. Very few manage all of them. In my experience, the one that is most commonly missing is the fourth — clarity of vision. Without this, successful changes can only be haphazard.

Curiously, the need for vision is often ignored (or assumed) in popular accounts of innovation processes. Consider this presentation by Tim Harford, for example.

Harford’s account contrasts two modes of innovation: long shots and marginal gains. Long shots are illustrated by game-changing great leaps forward like the Supermarine Spitfire, penicillin, and the work of Mario Capecchi creating the ‘knockout mouse’. They tend to be fuelled by the vision of their inventors or creators, but that vision fits within a broader social or community goal (improvements in military strength, reductions in disease and infection, or deeper understanding of genetic causes of ill health).

Marginal gains, on the other hand, are exemplified by the approach of Sir Dave Brailsford when he was performance director of British Cycling and team principal at Team Sky:

examining every aspect of performance to extract small advantages, which collectively add up to a decisive winning margin.

Some of the changes that Brailsford prompted are obvious (making bikes more aerodynamic, and so on), but the most eye-catching were things like: ensuring the team had their own tailored bedding rather than using those provided by hotels (so that their posture while sleeping didn’t affect performance the following day); requiring all team members to use hand-sanitisers (so that the risk of infections was reduced); or heated shorts (worn by track cyclists between races to make sure that their muscles stayed in the best condition to ride in semi-finals and finals).

Brailsford himself explains the philosophy in this video.

It is not an accident that the video combines two aspects of the management change that Sir Dave Brailsford brought to British Cycling. The CORE principles that he describes created a culture within the team that supported marginal gains. The culture defined the focus for the team: to do everything necessary to win races. That culture and vision helped people understand why marginal gains were important, and also gave them the means to describe why a particular suggestion would contribute to success.

The idea of marginal gains has become commonplace within organisations wishing to promote innovation. I have seen it used by law firms as a way of prompting people to submit ideas for improvement. Sadly, however, few firms have defined the purpose for which improvement is sought. There is no vision. (The cultural piece is often also missing, which doesn’t help either.)

Without clarity of vision about what needs to be improved, firms using marginal gains as a tool will often find that ideas are generated in a scattergun fashion. When the firm can’t express its own vision, it is left to individuals to find their own. Those individual perspectives aren’t always well-informed, and so can be misleading. Some people won’t be able to identify a purpose at all, and so will be unable to suggest changes (even though they might have some great ideas when prompted). As a result, fewer suggestions are forthcoming and, at worst, some of proposed ideas will pull in such different directions that little or no overall improvement is possible.

Writing with respect

Recently, I have been helping a firm improve some of its marketing collateral. They had a really great message for their clients and potential clients, but it was hard to see because there was an expected way of doing things. When we moved beyond that template, we could produce something that actually expressed the firm’s value (and values) more coherently. Looking back, I think the key was making sure that the writing was done with respect.

Respect for time

Major junction (A7/A1), Edinburgh Lawyers read and write for a living. For most of them, a ten-page marketing document is short and sweet, especially when it is on a topic that interests them. More often than not, clients don’t have the same interest. If the message can be conveyed in two pages, it should be. If the document can be structured differently so that the important material comes first, it should. (And you need to be really clear about the meaning of ‘importance’. That has to be judged from the perspective of the reader.)

Imagine your readers have only two minutes or less to decide whether they care about your firm. What do you want them to learn in that short time? Your answer to that question may mean that you have to push the things you find interesting to the back of the document. If so, you must.

Respect for language

I am ambivalent about jargon. On the one hand, it can act as a useful shorthand between peers. On the other, it can act as a barrier to good communication. The linguist Geoffrey Pullum calls it ‘nerdview’:

It is a simple problem that afflicts us all: people with any kind of technical knowledge of a domain tend to get hopelessly (and unwittingly) stuck in a frame of reference that relates to their view of the issue, and their trade’s technical parlance, not that of the ordinary humans with whom they so signally fail to engage.

So lawyers should avoid using a legal frame of reference in their non-legal writing. (I’ll leave clarity in legal writing for another time.) But this could be an opportunity to demonstrate a connection with your audience’s knowledge. If you can comfortably and genuinely use their technical parlance, you should.

This has to be natural. Only use the technical terms if your lawyers use them in their daily work. Many do. If that comfort comes across in the document, readers will get it. Any discomfort will push your material into the uncanny valley.

Respect for your people

Law firms like to put lawyer profiles on their websites. Most of them shouldn’t bother, because their standard template removes all the humanity by reducing people to their contact details and a lifeless account of career history and recent work. Sadly, this approach often finds its way into marketing material as well.

In my experience, asking people about themselves produces very different results. Let that come across to your readers. What does that partner see as the high point of their work in this sector? How did that associate get to grips with the  tricky issues in that recent transaction?

I have seen some firms try this approach in combination with a standard template, especially when they what to show the more human side of their lawyers. This can make people uncomfortable: perhaps they don’t want to tell the world what they do at the weekends. Leave the template behind and ask open questions. Let the lawyers write their own account. Interview them and let their story come through.

Above all, respect for the reader

Marketing teams often struggle to get the attention of their lawyers. That is one reason why they resort to standardised documents and templates — they save time and effort. The result is often sterile, and lawyers know that. That’s why they don’t play along.

On the other hand, lawyers often spend a lot of their own time and effort making sure their clients get what they need. This isn’t just because that’s where the money is. Many (if not most) lawyers actually get a kick out of helping clients. If they see marketing as having the same aim, they are more likely to take part whole-heartedly.

Being more respectful may produce greater variety in your marketing materials. That is a virtue, not a weakness. The firm’s character can shine through, and your readers can decide much more easily whether it’s a character they like. Don’t be bland, because clients don’t want to find out too late that they have instructed a lawyer who doesn’t fit their needs.

If this interests you, and you’d like to have a longer conversation, please get in touch.

Make it easier for clients by standing for something

Curving right

Last week, the people of the United Kingdom made their quinquennial choice. The outcome was a majority Conservative government for the first time since 1997.

Curving rightFor some people (probably fewer than in previous generations), politics are easy — they cleave to the same party loyally from election to election. Parties have nothing to gain from courting these voters. The rest, whose choices are undecided until late in the day, need to be persuaded. This, as Dave Trott points out, is a marketing problem.

The point about marketing is, it’s not about what you want to say.

It’s about what your market (people) needs to hear.

What they need to hear are two things:

1) Clear and Simple

2) What makes you different

Bad marketing people don’t understand this.

Dave is discussing Ed Miliband’s promises set in stone. He shows that each of the six promises is neither clear nor simple, and none of them marked out the Labour Party as different from the competition.

What you are left with is a message “Carved In Stone” that tries to say everything to everyone.

It avoids differentiation in case it offends anyone.

It isn’t marketing, it’s just a list: a mind dump.

Thinking that a gimmick, like carving something in stone, is more important than what you carve in stone.

Many commercial organisations fail Dave Trott’s marketing tests too. Law firms may not be the worst offenders, but the legal sector as a whole has always struggled with differentiation. (We can leave clarity and simplicity for another day.)

The week since the election has been filled with navel-gazing. All the parties, apart from the Conservatives (who won much more convincingly than the pollsters predicted), the SNP (which won every seat in Scotland, bar three), and the Greens (who won many more votes than anticipated), are trying to work out what went wrong. For most of them, I think the answer is simple: either the electorate couldn’t tell what you stood for, or they could and they didn’t like it.

Much the same is true in commerce. Potential clients and customers need to know what they are buying. If you can’t tell them why your service fits their needs better than the other firms, they won’t buy it. You can’t even rely on existing clients remaining loyal. If another firm comes along that can say more clearly why what they do is better, your clients will jump ship.

Differentiation requires you to stand for something distinctive that clients are willing to pay for. You need to risk offending some people (by being too expensive or too cheap or too Lean or too bespoke…) in order for the clients that fit you to know that they fit. You might end up with a market share as small as the Greens, but at least you can be confident about its stability.

Being a client

Bruce MacEwen has been interviewing law firms in an attempt to find one that can advise his church on a real estate issue in New York City. His experience hasn’t been good, as his account of the process shows all too clearly. Any lawyer should find it painful to read, but I wonder if the firms involved will see where they are going wrong.

The walls of Duffs Castle undermined

To help them, Bruce concludes with a set of asymmetries that he sees in the market for legal services:

  • One asymmetry is that of consequences. If the client chooses a firm that delivers a wonderful result, everyone wins; but if the chosen firm delivers a disappointing or even deleterious outcome for the client, the firm gets paid. Pretty much in full.
  • The other asymmetry is one of disclosure and, to be pointed about it, candor: The client needs to tell the firm as much as honestly possible about the engagement and what the client knows, while the firm’s instinct and practice is to guard information, hedge predictions, and avoid definitive statements.

In addition, he notes that there is no real risk sharing — firms don’t have the same commitment as clients do; no account is taken of this. And there is no correlation between fees and value to the client.

Bruce concludes with a suggestion for lawyers:

If you wonder why clients are pushing back on fees and what that objectionable word “value” really means, all I can say is: You should try this for yourself some time.

This is something I have advocated for some time, but I am actually far from confident that lawyers learn much from being clients (of other firms or of other professionals). I think there are too many escape clauses, so that only the most self-aware will actually see a need to change their own behaviour. (And of course that group is more likely to be reflecting on their performance in any case.) Here are two for starters:

  • Being a critical client and seeing poor service might actually lead you to think that your own performance is good by comparison. “That lawyer is terrible; I’m glad I don’t do that kind of thing.”
  • If the firms in Bruce’s account recognise themselves, I suspect that they will have plenty of excuses for the answers they gave to his questions. “It’s really more complicated than he thinks. If he knew, he’d understand that we couldn’t have quoted a better price for the job.”

In reality, many lawyers are clients at various times in their careers. Firms often get other firms to advise them on major transactions — someone has act as the client in that relationship. As individuals, lawyers instruct other lawyers for personal transactions, and they may also instruct financial advisors, accountants, architects, and other professionals. With that wealth of experience being a client, how can they still deliver the kind of service that Bruce describes?

I want people to reflect on and learn from the widest range of experiences, including things that other people do and things that happen in other areas of work and life. However, I have to recognise that some people are impervious to that kind of reflection. They need much more direct feedback, of a kind that I hope Bruce gave privately to the firms he interviewed. If someone does a bad job, they may need to know why it was bad, and how it could have been better.

That said, the rest of us should learn from Bruce’s public feedback.

Spending time and money

In my last post, I mentioned the stresses that a GC might be under and how that might manifest itself as a shortage of time. Something similar is at play when one considers financial constraints. Often those who have money to spend have very little or no capability to make more. Anyone who makes demands on people’s time or money needs to be aware of the limited nature of those resources, and what else is competing for them.

Office frozen in time (at the Highland Folk Museum)

A number of thoughts flow from this observation, which may be useful for people offering legal and other services as well as those providing internal business support.

What do they get in return?

If you do something in the expectation that someone else will commit time or money to it (or both), they need to feel that they will get something in return. This is most obviously expressed in financial terms as a return on investment, but that is only the most tangible form. At the other extreme, broadcasters and the film and music industries (for example) create products that take time to consume and often have to be paid for. In return for investing their time and money in a film, TV programme, book, or album, the audience need to feel that their lives have been enhanced in some way. They need, in Lord Reith’s words, to be informed, educated or entertained.

Crucially, investing in one thing often excludes the possibility of investing in another. If I choose to watch Mad Men (as I do), I will spend at least 92 hours (and probably more) of my time doing so. Those 92 hours can’t be spent doing something else — I can’t read a book, do some work, or go for a drive at the same time. Likewise, the financial cost of acquiring the right to watch the programme (by DVD or pay-TV subscription) means that I have reduced my capacity to buy other things. The impossibility of spending twice has repercussions on both sides of the equation — for those spending time/money and those demanding it.

Sometimes people know what they get when investing in something. This may not be conscious — slumping in front of a mindless TV show with a glass of wine after a hard day’s work may seem worthless, but it provides a valuable opportunity to relax and unwind. Sometimes it needs to be explained what the return on investment might be. Time spent on marketing may feel like a waste, for example, but not doing it will almost inevitably lead to a drop in income.

By contrast, people seem to be pretty poor at evaluating investment choices. I have referred previously to the work of Dan Ariely and other behavioural economists on choice and different kinds of value. In particular, people overvalue things they already have compared to future goods. That generally makes it hard to persuade people to stop doing something inefficient and start doing something new and better.

Original artist unknown, see linked page for attribution

Learning (or not) from past spending patterns

One significant consequence of the way we value our expenditure of time and money, and yet fail to understand its cost, is a tendency to misunderstand change. This may have an impact on sellers as well as buyers.

A good example of this can be seen in the music business. For decades, recorded music was a dominant form of entertainment. From the 1950s until well into the 1990s, significant amounts of people’s leisure budget would be committed to vinyl or (later CDs). As a result, some (by no means all) recording artists and others in the music industry became quite wealthy. The possibility of riches attracted some to the business. Now, with the growth of streaming services such as Spotify, people can listen to recorded music without having to own a copy. As a result, it appears that less money accrues to the original creators than they have been used to.

One response to this drop in income is to reject the whole model — to withdraw from streaming services altogether. Another is to claim that such services should recompense artists at a higher level than they do currently. I suspect that neither of those options will work.

The problem is that, in general, people just don’t have as much money to spend on recorded music as they did. It is rare now to see people regularly “buying two CDs, a DVD and maybe a book – fifty quid’s worth.” Instead they have to commit £20-40 per month on a mobile phone contract, £10 to Spotify, even more for cable TV and broadband subscriptions. There just isn’t the money available to go back to the old way of doing things. Artists demanding that the clock should be turned back are wasting their breath. The simple economic fact is that people don’t generally value music as much as they used to.

Something similar happens within organisations. Without improvements in profitability or increases in income, the amount of money available for investment is finite. When external advisers or internal support teams demand more, their demands will only be ignored. That’s why businesses hate it when legal costs overrun. It is difficult to ignore those demands for payment, but the fact that costs have escalated is a clear indication that the lawyers have failed to understand how the client’s business works. Historically, lawyers’ demands for sustained income have been much more difficult to ignore than recording artists. As new ways of providing legal support move to the mainstream, it will become increasingly easy for clients to choose cheaper (and often better) ways of resolving issues than using traditional law firms.

What’s coming next?

Some folk in the music business appear to have been caught unawares by the changes in the way that people consume their product, and the consequent impact on their income. In fact, services like Spotify were a natural result of developments that they tried to fight (such as illicit peer-to-peer services like Napster and Limewire) and changes in other industry sectors (such as the growth of smartphones and broadband internet services).

New ways of finding and consuming music showed customers how much easier it could be to listen to what they wanted — no need to go to a shop to buy a CD  to play in an expensive player of some kind. They also introduced people to the idea that music could be cost-free, albeit illegally. Once those ideas became more mainstream (as ideas tend to), they became hard to rebut. On that analysis, Spotify is actually an improvement. The options were that artists would either not be reimbursed at all for their efforts, or be paid at a much lower rate than they would prefer.

Had musicians analysed the financial impact of novel areas of consumer spending, they might have realised that their command of a large proportion of that budget was threatened. It appears that few did. By contrast, the music labels and distributors did understand. They did deals with Spotify and the like, so that those services could flourish legally. Those deals had to be done against the background of the streaming services’ likely revenues from subscriptions and advertising, and were therefore informed by how much consumers were realistically going to spend on music.

It is fair to say that few people could have predicted precisely what would happen to the music industry. However, understanding what was going on in and around it should have led anyone to the conclusion that there would be less money available than there had been previously. I suspect that people are still spending as much time as before actually listening to music, so I can see how musicians may be aggrieved that listeners are getting more for their money than they did previously. That may just mean that the music industry was particularly lucky in the past and that luck has now run out.

There are lessons for other sectors where the pace of change has been a bit slower. Everything you do that costs someone time or money is contingent on them continuing to agree to that expenditure. Keep an eye on the things that might reduce their interest in the way you do things.

  • Don’t dismiss the upstarts competing directly for your work (even if they are doing so illicitly). The likelihood is that if people like what they do, it will form some part of the future.
  • Be aware of how your customers/clients are spending their time and money. If more interesting things are happening somewhere else, you need to move to be with them, whatever it costs you. The alternative is the equivalent of the £3 CD or the £5 DVD.
  • Consider the possibility that the riches of the past were abnormal, and that the future may be much leaner. Don’t depend on a return to good times.

The reality of client ‘loyalty’

In my last post, I said I would come back to the question of client loyalty. It isn’t possible to state definitively what keeps clients with firms — each situation will be governed by a unique combination of events and actions. However, experience suggests that, amongst those elements, one or more of three key factors is likely to be at issue. Knowing and dealing with those will help firms (and their new competitors) understand and address their strengths and weaknesses within the future market. In the end, they may conclude that what looks like loyalty is no more than inertia. It is essential not to be complacent about that — inertia is rarely permanent.

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These observations are primarily relevant where firms have long standing relationships with clients with the expectation of a pipeline of work. Similar factors may be at play where the relationship is more intermittent or ad hoc, but I know much less about those.

The three factors that play a part in sustaining relationships between clients and their firms (whether a single firm or a panel) are the following:

  • Minimal relationship management
  • The 9x problem
  • Genuine trust

Relationship management

In recent years, some law firms have invested significantly in actively managing client relationships. On the other side of the fence, some of the largest clients have begun to extend existing vendor relationship management programmes to their legal advisors. This is atypical — for most businesses, the relationship with lawyers is much less important than that with other suppliers. Law firms value the client relationship much more, which is why they are right to invest in it.

A few months ago, I spoke to a former colleague who now runs a significant in-house legal function to see if he might need any help with knowledge issues in his team (or in liaison with his panel firms). I got a friendly, but firm, rebuff. As he saw it, his biggest problem wasn’t one that I could fix — he just didn’t have enough time to do everything the job demanded.

I think this is a common situation for GCs and in-house lawyers generally. I once started to sketch out on a mind map all the things that a GC might have to do, manage, or understand. The result is below (click for a bigger version).

IMG_3729.JPGI only have a partial understanding of the burdens of an in-house lawyer, so I have probably mssed many more things that concern them. This exercise was also done in the context of thinking about content published by firms for clients, so there is a bit of an imbalance. Notwithstanding these caveats, I think it is clear that GCs have very little time for active management of their external lawyers, except when a formal review of advisors is scheduled.

As a result of pressure on time and the low priority for legal supplier management, it shouldn’t be surprising that many clients are loyal to their law firms for no better reason than a disinclination to invest in change. Businesses without in-house legal support probably have even more inertia.

The 9x problem

Even if a client commits time and effort to reviewing existing relationships with advisors, there is no guarantee that they will value new providers properly. The Harvard academic John T. Gourville has studied the psychological reasons why new products or services don’t succeed as quickly as they might. Building on, amongst others, Daniel Kahneman’s and Amos Tversky’s prospect theory, Gourville suggested a rough rule of thumb for expressing the scale of the persuasion problem that new entrants have.

At the heart of this conundrum are two facts.

  1. People who use a particular product or service (consumers) will tend to overvalue it, by comparison with new alternatives
  2. People who produce a new product or service (developers) will tend to overvalue its benefits, by comparison with existing equivalents.

Gourville applied numerical factors to these propositions:

Consumers overvalue losses by a factor of roughly three.

And:

Developers overvalue the new benefits of their innovation by a factor of three.

With this outcome:

The result is a mismatch of nine to one, or 9x, between what innovators think consumers desire and what consumers really want.

This is presented diagrammatically:

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The 9x effect explains why innovative entrants into any market often fail to achieve the success they expect (at least initially). Incumbent firms with a traditional offering will benefit from their clients’ nervousness about novelty. The psychological factors are also relevant, but to a lesser extent, when a like-for-like exchange is proposed — any incumbent has an advantage even against an equivalent competitor.

The trust factor

When all else is equal, an firm with a particularly good relationship with the client (or, at least, those who are responsible for instructing lawyers) will have another advantage — the relationship itself.

One of the clichés of professional services is the notion of the ‘trusted advisor’. It is even the title of a classic book on the topic. One of the authors, Charles H. Green, now runs a consultancy focussing purely on developing trustworthy professionals. At the heart of The Trusted Advisor is a measure of trustworthiness based on four elements:

  • credibility
  • reliability
  • intimacy
  • self-orientation

These elements match the common academic division between cognitive and affective trust:

Cognitive trust is a customer’s confidence or willingness to rely on a service provider’s competence and reliability. It arises from an accumulated knowledge that allows one to make predictions, with some level of confidence, regarding the likelihood that a focal partner will live up to his/her obligations.

Affective trust is the confidence one places in a partner on the basis of feelings generated by the level of care and concern the partner demonstrates. It is characterized by feelings of security and perceived strength of the relationship.

(These definitions are taken from “Cognitive and affective trust in service relationships” by Devon Johnson and Kent Grayson.)

Most law firms now claim to understand their clients. Ultimately, such claims can only be assessed by reference to the clients’ level of trust. Lawyers (or any other professional) who work hard on knowing everything about their clients’ businesses, markets, and customers may succeed in being seen as credible and reliable — cognitive trust. Only those who show that they genuinely care about those things and provide security in the relationship will enjoy sufficient  intimacy and diminished self-orientation to justify affective trust.

The distinction between the two types of trust matters most in times of stress. When the relationship is tested (when mistakes are made, for example) it is unlikely to survive if only cognitive trust is present. This is because cognitive trust depends only on what is known or presumed to be known of the other party’s credibility and reliability. If those are demonstrably reduced, trust will disappear and the relationship will founder.

By contrast, a relationship rooted in affective trust can withstand failures in performance. Being good at the job is necessary but not sufficient as a foundation for affective trust to develop. Once affective trust is present, mistakes are more likely to be forgiven — at least until the point that confidence in the other party evaporates.

Newton’s first law of motion

An object that is at rest will stay at rest unless an external force acts upon it.

An object that is in motion will not change its velocity unless an external force acts upon it.

The three factors described here may explain why law firms might be confident about the loyalty of their clients. That confidence is misplaced unless nothing changes at all. In reality, many things may happen to overcome inertial loyalty.

Incumbent firms should, first of all, be wary of the assumption that any or all of these factors are present. Only those who engender affective trust in their clients, whose services are not three times overrated by those clients, and whose clients are disinclined to spend any effort reviewing the relationship may rest easy. Anyone who doubts the nature of their clients’ trust, who is nervous about the perceived quality of the service provided, or whose clients regularly examine the relationship closely should be very worried.

I suspect most firms are in the latter category. Whether they are worried enough is another matter.

Very few lawyers can be sure that the trust the client has in them is rooted in confidence and intimacy. It is much more likely to be based on an expectation of service quality that can be spoilt too easily. Even where there is affective trust, it is likely to be a bond between individuals. If either the lawyer or the client move, the relationship is likely to move with them. The firm cannot rely on it.

More significantly, any of these factors are irrelevant when the relationship is controlled by others. One such situation arises when the client’s procurement team manages and reviews appointments. That team is likely to be immune to the 9x problem, unbothered by trust issues, and ready to review relationships on a frequent and/or regular basis.

Client loyalty is by no means an immovable object, and the forces acting on firm/client relationships are almost unstoppable. The only same assumption is that inertia will be overcome. The only possibility of surprise is when and why it might happen.

Firms can reduce the element of surprise by actively working on improvements for clients, to match client need with the firm’s own capabilities (this doesn’t mean aping new entrants, since they will always have a head start). The situational awareness required to assess need and capability should in turn make it less likely that firms would fall short on any of the three factors described here.