Category: Complexity

The upside of partnership

Mark GouldLeave a comment

I have been known to suggest that law firms might benefit from a shift away from the partnership model. I am broadly sympathetic to Bruce MacEwen’s critique of this form of ownership in an environment of change. In particular, the collegiate nature of partnership can make it hard for law firm leaders to assert unambiguous authority, as Laura Empson’s research has shown. However, there are some recent indications that the legal partnership still has much to offer.

Facade or whole?

Notwithstanding the doom-laden prognostications from a variety of directions (including an assertion that 75% of the current UK 200 law firms could disappear in the next five years), legal partnerships appear to be very resilient. Surprisingly few large firms failed during the financial crisis. There have been failures and those added to mergers and other closures have contributed to a reduction in the number of law firms overall. According to the Law Society’s figures, there has been a fall in the number of firms every year for the last four years — going from a peak of 10,413 in 2010 down to 9,542 in 2014. At the same time, the number of solicitors employed in those firms has gone from 86,748 to 90,306 (the majority of that increase occured in the last year reported).

More evidence of the resilience of traditional law firms came at the end of last week in a report published by Jomati Consultants: Re-engineering Legal Services: How traditional law firms are finally learning to embrace alternative working practices. (I don’t have a copy of the report itself, so I am relying on vicarious accounts of it from Legal Futures and Legal IT Insider.) Jomati identify three areas where firms are changing to meet the market:

  • the rise of the law firm-operated low cost centres,
  • gradual acceptance of client-facing legal project management and process improvement
  • engagement of contract lawyers in addition to law firms’ permanent fee earners.

Jomati reports that firms are taking these steps in response to client demand and to reflect shifts in the market as a whole. They also suggest that many firms are attacking these changes in a piecemeal fashion, partly because of resistance amongst partners.

This second point goes to the heart of the difference between partnership and a more corporate structure. Someone once described a university to me as being staffed with “people who think they are self-employed, and act accordingly.” Much the same is true of partnerships. Partners sometimes resent, and therefore resist, firmwide initiatives that they think undermine their own practices — especially when they also think their clients’ interests are at stake. In many situations, partners’ closer proximity to their clients will mean that their assessment of what is needed might be more realistic than a firmwide approach mandated from central management. More importantly in this context, partners with their clients’ interests at heart might take action to improve the way they work with clients in advance of the firm. Where some partners resist, others will want to be pioneers; partnership allows that possibility.

Recent history is littered with major corporations whose failure came quickly when the market moved on without them — common current examples include Kodak and Nokia. The reasons for those collapses are hard to disentangle, but they often include a failure to recognise and react to environmental changes. The monolithic nature of large corporations makes it hard for anyone other than a small group of leaders and senior managers to take the steps required to change the company’s direction. (Those at a lower level who see the future coming are usually best advised to leave altogether.) By contrast, partnership spreads power more widely. Even a fairly junior partner may have sufficient autonomy to change the way they and their junior colleagues work with their clients — introducing process improvements or changing resourcing models. If they are successful, the whole firm will be able to see and copy. That is the kind of change that Jomati reports seeing across the sector.

It is probably not a coincidence that two of the most significant law firm collapses after 2008 — Dewey & LeBoeuf and Halliwells — were brought about, at least in part, by actions taken by central management. They were probably, therefore more akin to corporate failures. Closer adherence to traditional partnership principles might have helped those firms weather the economic storm better than they did.

Partnership is not necessarily the only way to manage a law firm. It may not even be the best. But it has shown a degree of resilience that corporate structures may lack. On the other hand, the firmer direction that can come with a steeper corporate hierarchy can allow faster and more lasting change across the business. (Will that change always be positive?)

Experimentation for success: the people factor

Mark GouldLeave a comment

In a few weeks, the London Law Expo will take place at Old Billingsgate (pictured below). It is an interesting event, especially the keynote speakers it attracts. This year, Randi Zuckerberg (founder & CEO of Zuckerberg Media, a boutique-marketing firm and production company) heads the bill. Last year, the main attraction was James Caan, the entrepreneur. (Disclosure: I also spoke at last year’s event, and I am on the advisory panel for this year’s.)

2014-08-28 14.48.35-1

I meant to write about James Caan’s speech at the time, but couldn’t find the right hook. A few things recently have brought it back to mind.

Caan’s investments have always focused on businesses that depend on people. He started with a recruitment business, then moved into property management and has even invested in a law firm.

His keynote last year was packed with valuable tips on running people businesses. He was clear about the metrics he used to keep an eye on the health of all of his investments. He was adamant about the need to support people and to make sure they were right for the role the business needed. And then he said this:

But I like to do things a little differently. If I have found somebody that has the right characteristics, I will always try and find a role or a space for them within one of my businesses.

The very best and the most talented individuals can come from any walk of life and from any background. Experience and qualifications are of course hugely important and should always be taken into account, but sometimes it helps to look beyond these. What can really make all the difference is a person’s character and the strength of their personality.

Despite being highly focused on performance and fit, Caan occasionally allows himself to take chances on people who may not fit a role perfectly, but who feel like good people to work with.

When I heard this, I was struck by the contrast with my own experience in recruiting. The process of making business cases, proving that a particular role wasn’t unusual in law firms (often a challenge for KM teams whose structure can be very context-specific), and then finding someone to fit the role profile is a very taxing one. And yet this is one of the few areas where firms can experiment with ease.

Law firms are complex systems. As Dave Snowden tells us, the best way to start to manage complexity is to undertake safe-to-fail experiments. Here he is describing this approach in a historical situation:

Experimentation in a firm is tricky. Clients don’t often appreciate it, and the internal culture often militates against it.

James Caan’s approach to hiring is a type of experimentation. If you see someone who might work well within the firm, hire them even if there isn’t a perfect place for them. If they are as good as they appear to be, they will create real value that you couldn’t have expected.

This has worked well for me personally in the past. When I joined Addleshaw Booth & Co’s Trade & Regulatory team as a Professional Support Lawyer in 2001, the partners were taking a risk. They hadn’t had a PSL before, and they weren’t really sure what one could do for them. But we got on very well at interview and they decided to take a punt. It worked. Between us, we created the conditions within which the team grew and became very successful, winning Competition Team of the Year in the 2006 Lawyer Awards.

The current market is one in which firms should be experimenting as much as possible. The past few years have been hard and, although things may feel better at the moment, the market has fundamentally changed so that none of the old certainties apply any more. There are all sorts of things that could be subjects of experimentation — delivery models, client engagement, business structures, and so on. But what I see across the market is a small amount of experimentation and lots of copying. And on the recruitment front, there is little change from the past in terms of the specialists that firms are looking to hire.

It is a small risk to take a leaf from James Caan’s book and hire people who would fit well even though there is no obvious role for them. If the firm is honest with the candidate, so that both parties know what the risks are, surely the most dynamic individuals will be tempted to take the risk of their employment being short-lived in return for the opportunity to make a real difference?

(As always, get in touch if your firm is interested in taking such a chance. It’s my job to make a real difference.)

The multiple dimensions of legal services

Mark Gould2 Comments

No cartells in BesalùOver the last month, The Lawyer published a series of articles in which the natural structure of law firms was debated by Bruce MacEwen, Mark Brandon and Tim Bratton. Each of the articles, and most of the comments on them, is worthy of careful reading and reflection (registration is necessary to read the articles on The Lawyer website, but they are free to read).

There are interesting points in each of the articles, so I particularly want to highlight some of the things that struck me.

The partnership debate

Bruce MacEwen’s position is simple: “Abandon the partnership model.” Amongst the reasons he cites in support of the proposition, his concerns about how partners behave in wielding power are intriguing. He says:

I aver that since lawyers can be legalistic, they (wrongly) translate the legal fact into the operative/managerial fiction that they ought to have a co-equal hand in control of the enterprise. They ought not. Yet it would be unavailing at best, and a career-ending injury at worst, to explain that to most partners when they attempt to grab the steering wheel.

…and thus:

The presumed right of any given partner to issue orders to others who do not in any organisational sense whatsoever report to that individual is nakedly premised on the trump card, “I’m the partner.” (Whether or not the card is actually played is mostly a matter of social grace and discretion; everyone knows the card is held in the partner’s hand.)

The result of this analysis is that perspectives on legal business from outside the partnership are almost always deprecated — even when those alternative views are better for the organisation or for clients, or are rooted in a more robust understanding of business — if partners feel that their personal status might be worsened.

I have seen this behaviour too often to disagree with Bruce’s observations, but I am not sure that it is due purely to the partnership model. I suspect that it is also linked to the undiversified nature of law firms. They are set up to provide legal services, and so legal knowledge, insight and experience is valued above all others. This is changing slightly. As Charlie Geffen, Gibson, Dunn and Crutcher’s London corporate chair, puts it in an interview with The Lawyer:

“Clients go to law firms for three reasons,” argues Geffen. “They either want advice on what to do, they want to know what the law is, something which is now largely available for free online or on websites, or they want an execution capability, which is commoditised.”

Each of these three components is very different now to 25 years ago, and each provides opportunities for different types of expertise.

Clients increasingly want advice on what to do that is not couched purely in terms of the legal options. They want more rounded advice, taking into account the  personal and/or business context in which they act. Lawyers ignoring this dimension are becoming increasingly irrelevant. That, in turn, leads lawyers to have greater respect for expertise that they do not possess.

The kind of legal material that is freely available online may only be capable of answering basic queries about the law, but that is far more than used to be possible without access to a comprehensive legal library. This has effectively taken work away from lawyers, and the process is only accelerating. The availability of such material (and the more detailed content within legal subscription services) has enhanced the utility of anyone within a law firm who is able to extract information quickly and accurately. Often these are not lawyers, but specialist information and knowledge professionals.

Finally, the commoditisation of law firms’ execution capability has moved work from trainees and junior associates to paralegals, project managers, systems specialists and sales and management experts. Very few of these are lawyers, and their status within firms is growing.

The partnership model for law firms may not be dead, but it may need to start welcoming a range of new professionals.

Mark Brandon supports the continuing existence of the partnership model for a range of reasons. His article concludes with a call to history:

I’ve always found that success itself is rather a good guide to, er, success.

Pulling a dusty directory from my shelf, dated 1990, I can scan through the top law firms in the UK, 25 years ago. Clifford Chance. Linklaters. Freshfields. Allen & Overy. Slaughter and May.

If Amazon, Apple, Facebook, Google and Tesla are all still around in 25 years, I’ll eat the tablet you’re reading this on. Freshfields, it is worth remembering, is older than the United States of America.

As I have already suggested, legal practice 25 years ago had significant differences from now. Of the companies he mentions, only one (Apple) existed in 1990. All of them owe their current success to products or services that matured in the last quarter-century. As the advertisements for financial investment products warn:

Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up.

In 1990, law firms only had to worry about competition between themselves. In the decade that followed, they even saw off attempts to enter the legal market by the big five accountancy firms (including Arthur Andersen, whose attempt was undermined by its own troubles). Now clients can look to a wider range of legal services providers, all of which are reportedly growing market share (albeit from a small base). I am not at all confident that the same names will appear at the top of the legal business lists in 2035.

One indicator that partnership is withering has been provided by a demographic study of law firm leaders in The American Lawyer. This found that partnerships are ageing,  and the gap between law firm leaders and their workforce is increasing, compared to corporates. According to the analysis by Bill Henderson in  The Legal Whiteboard:

BigLaw is getting grayer because the 100-year old gold factory is breaking down. Law firms’ portion of corporate legal spending is no longer growing, as in-house lawyers, NewLaw managed services shops (United Lex, Axiom, Counsel on Call), and technology are all curbing demand for traditional law firm services.   The best economic play for 55- or 60-year old equity partner is to ride out the existing model with the dwindling but still substantial number of Baby Boomer senior in-house lawyers who are themselves not too anxious to change.

Henderson concludes:

[S]ome firms are several years into strategies that have the potential to take market share from peer firms.  Further, the innovation teams inside these firms are having the time of their professional lives because the work is so collaborative and creative–the antithesis of billable hour work.  What is also clear is that many competitors just can’t muster the leadership nerve to make similar investments.

In the years to come, some BigLaw firms are going to pull away from the rest, becoming a magnet for talent and then clients.  Younger lawyers are going to thrive there.  Another portion of BigLaw is going to gradually fade away.

The debate about the partnership model may well be resolved by the passage of time, rather than deliberate action.

Full-service complexity

I found the most interesting part of Mark Brandon’s contribution elsewhere than in his article. It was in the comments where he has an exchange with Jeremy Hopkins.

Jeremy makes a point similar to mine above (but more succinctly):

The deficiency of the partnership structure stems from the imbalance of influence – with lawyers leading on things that professional leaders should be – and the lack of permanent capital enabling long term thinking and investment in client relationships. …I doubt many non-partner senior managers from law firms will disagree with me.

Mark’s response ends with this statement:

I think it is because the law, and law firms, are infinitely more complex than anyone gives credit for.

And later he added:

I do think, though, that the challenge was summed up very neatly to me by the ex Big Four marketing professional opining on a colleague’s determination to teach lawyers a thing or two.

“Law,” she said. “You learn, or you leave, simple as that.”

The point about complexity is a powerful one. In addition to the three aspects to legal practice noted by Charlie Geffen, one has to factor in the existence of a range of very different professional practices — litigation, real estate, corporate, commercial, regulatory, and so on. Each of those is susceptible to different market pressures so that one’s approach a partner in the insolvency team would have to be very different to that taken when dealing with a real estate partner. They also practice Geffen’s three facets in varying amounts and in different ways. Commoditised execution capability for a corporate team with a ‘lumpy’ workload would need to be managed very differently from that supporting the steady caseload of a real estate practice. The information and knowledge needs of specialised regulatory lawyers are likely to be very different from those of transactional lawyers.

Blending all these components together should suggest that full-service law firms are far more complex beasts than any legal service provider that concentrates on just one of Geffen’s facets or on a reduced set of practice areas. That complexity may also lead to forms of competition for support and focus of internal resources that is absent in simpler businesses like manufacturing or even some other professional services.

I have discussed complexity before on the blog, and I think it is poorly understood. One aspect of this misunderstanding is that people often try to reduce it to simple terms. That may work for a while but, before long, reality reasserts itself and the simple structure breaks (often to be replaced by another  version). Managing in a complex environment means understanding and accommodating an unpredictable array of actions and activities. Rigid and unforgiving management structures are poorly suited to this. Engagement with a wide range of members of the complex system will almost invariably produce a better outcome. Some aspects of partner behaviour, reward, support and participation should be improved. But as Mark Brandon points out, partnership provides that engagement.

But what about the business model?

Tim Bratton’s take on this debate draws on the same comment by Jeremy Hopkins that I quoted above, which starts: “The whole structure thing is a red herring.” Tim’s own position is clear:

I would like to highlight an important omission from the debate. Which is the voice of the client. What does the client want from ‘tomorrow’s law firm’?

His conclusion?

The Amazon et als do not succeed because of their structure.  They succeed because they not only know what their customers want, but more pertinently they continually invest in knowing what their customers don’t even know they want until they have it.  This is called product development or R&D in most sectors.

When I was a GC looking at professional life through a client lens, the best external advisers helped make my job easier.  They did this by knowing what I needed, in the very best cases before I did.  As someone helping to run a client-focused business, this is always front of my mind.

Business models and product development facilitate effective client service far more than corporate structures ever will.

As it happens, I think these are areas where many traditional law firms fail miserably. There has been a huge amount of innovation in the law over recent years. As Jeremy Hopkins pointed out recently, much of it has taken place within in-house legal teams. Businesses providing legal support services (such as publishers and technology suppliers) have also driven changes within law firms. And then we have the new legal businesses, such as the one that Tim works for, all of which have examined the client experience and adopted a different business model to improve the service they provide. There have been some changes in the way firms deliver their services, especially in the use of technology and specialised execution capability. Very few law firms have fundamentally changed their business model.

Bruce MacEwen recently took a look at the R&D question. By comparison with other sectors, law firms invest much less of their annual revenue in activities that could be termed R&D or product development. That isn’t to say that they don’t develop new things, but that development tends to come about in a more haphazard manner.

Partnership may be fine for the full-service law firm, but other legal businesses whose services are more streamlined and less complex appear to be better at adapting themselves to client need. There appears to be a strong correlation with corporate structure, but I don’t think there is a causative link. Partnerships could easily adapt to invest more in client service than they do currently. They might even be able to do so speedily.

How do law firms stay alive?

Mark Gould1 Comment

As the global financial crisis bit, and (in England and Wales at least) the regulatory landscape shifted for law firms, there was a sense that the coming years would see the collapse of a significant number of firms. That doesn’t seem to have happened. There have been a few notable failures (often due to specific local issues, rather than the market conditions), a few mergers and acquisitions, and some stagnation or downsizing. On the whole, though, traditional law firms have survived with often minimal changes to the way they do business.

Beyond economic repairThis fact may be attributable to the generally slow pace of change in the legal sector or to the fact that new legal businesses have still to make a real dent in the market. I think there is another factor that needs our attention — firms survive because people keep them alive.

In technology circles there is a fairly well-known piece of work by Richard Cook of the Royal Institute of Technology, Stockholm (he previously ran the Cognitive Technologies Laboratory at the University of Chicago). He has studied complex systems for many years, and has distilled his insights into 18 points: How Complex Systems Fail (I was originally directed to this work by Jack Vinson, and I have stored this PDF here until it becomes available again at Prof. Cook’s own site).

There is also a video of a presentation on the topic, which touches on the same points:

Some of Prof. Cook’s points are more applicable to technical systems, but many are relevant to any kind of complex system — including a law firm. Two stand out for me:

12) Human practitioners are the adaptable element of complex systems.

Practitioners and first line management actively adapt the system to maximize production and minimize accidents.

And:

17) People continuously create safety.

Failure free operations are the result of activities of people who work to keep the system within the boundaries of tolerable performance. These activities are, for the most part, part of normal operations and superficially straightforward. But because system operations are never trouble free, human practitioner adaptations to changing conditions actually create safety from moment to moment. These adaptations often amount to just the selection of a well-rehearsed routine from a store of available responses; sometimes, however, the adaptations are novel combinations or de novo creations of new approaches.

For a law firm, I think there are three main ways in which people prevent failure:

  • Clients are often more loyal than economic rationality would suggest
  • Employees make allowance for, and work around, poor law firm systems and working practices
  • Partners continue to invest in firms when other funders might withdraw

The question of client loyalty is bound up with issues of trust that I want to explore in more detail another time. For now, it is enough to be aware that deep client relationships can cause clients to overlook shortcomings in the provision of service. When there is no deep relationship, or where the relationship is controlled by someone other than the person for whom the work is being done, there is a higher risk that bad work will lead to a lawyer or firm being dismissed. Firms need, therefore, to be nervous about procurement-led appointments and about client relationships that are not as sound as they might be. Those are the areas where poor quality work will inevitably lead to loss of income (whatever the economic climate).

Employee loyalty is no different for law firms than it is for many other organisations. It is entirely understandable that, especially in times of economic stress, people tend to stay where they are. It is equally understandable that, whilst in work, they will do everything they can to make things work for them. However, as soon as the market picks up, people will stop making allowances for their firms and will move to better places. That’s why firms should invest in better systems and practices when times are hard. Change takes too long to do it when things get better — someone else will have stolen a march.

If one looks at the firms that have failed over the past few years, one common factor is money. Some overstretched themselves with lateral hires or new property. Some just ran out of funding. Often the plug has been pulled by a commercial funder — a bank or external investor. I suspect that some firms have stayed afloat by depending more heavily on internal funders — their partners. In times of financial stress, the ability to reduce or postpone partner drawings or to make a capital call on partners makes the partnership model particularly attractive. Unlike external funders, partners are probably more likely to throw good money after bad. Their intimate knowledge of the firm (and their possibly misplaced confidence in its future) may blind them to fundamental problems. As a result, the firm may stay alive for longer than it would if it were dependent on the more impersonal decisions of a bank or investor.

It may seem good that partners can keep a firm alive longer than a bank would, but more money doesn’t necessarily make the firm any healthier in real terms — especially if it just goes towards meeting recurring costs. A poorly firm in a bad market may survive because it is in no worse a position than many others, but in a healthy market it is much more likely to be overwhelmed by vigorous competitors.

So, firms may look like they are staying alive, but some of them will be depending on life support provided by clients, employees or partners. A really healthy firm will have a different perspective on these three elements:

  • Are new clients turning to the firm (and staying) because of the quality of the work and service provided? (Rather than the firm depending on a loyal but little-changing client base.)
  • Do people want to work for the firm because it is a joy to be there and it is getting better all the time? (Rather than being kept there by inertia and the fear of a harsh job market.)
  • Can the firm provide a real return on investment, that is attractive to external funders? (Rather than being propped up by the captive goodwill of partners.)

Firms giving a positive response to all three of these questions will be in good shape to survive the upturn. Those that are more hesitant will need to spot where they fall short, find ways of fixing them, and act quickly.

Understand the question or rush to solutions?

Mark GouldLeave a comment

“Hey farmer, how do you get to Little Rock?”
“Listen stranger, you can’t get there from here.”

(Michelle Shocked, Arkansas Traveler)

There is a variant on this, which is a joke told in many cultures. A tourist stops to ask for directions back to the big city. The response: “Sorry sir, I wouldn’t start from here if I were you.” These apparently foolish answers may be more sensible than overconfident directions. A meaningful response demands more information that could be drawn out by additional questions. Does the traveller need to arrive quickly or via a scenic route? How much do they know of the area already, to help in providing sensible guidance? Do they really want to get to the city, or do they just need a bed for the night?

You can get anywhere from here...Many organisations (but especially law firms at the moment) are like the disorientated traveller. They know that they need to do something to deal with changes that are going on around them. Unfortunately, there are few wise fools answering their requests for help.

Instead, there is a cacophony of technology suppliers, consultants, service providers, all shouting the merits of their particular product or approach. This thing, they argue, will fix everything and work for anyone.

Depending on who is speaking, the panacea for law firms will be greater use of technology, artificial intelligence, paralegals, alternative business structures, process mapping, automation, outsourcing, diversification, boutique practice, better client relationships, big data, and so it goes on…

Enough.

There are few simple answers. (I think there are none, but I may be wrong.) All of these ‘solution providers’ are starting from the wrong end of the problem. They have something to sell, so it doesn’t help them to discover more about their potential customers in case it turns out that their thing would be useless.

The better place to start is to work out in detail what the real challenges are. Those aren’t the macro-level pressures that we can all see — regulatory change, market aversion to traditional billing models, and the like. The real challenges are different for every firm. What does their market (and their clients’ markets) look like? What financial constraints do they have? What appetite for change is there? How strong is the leadership? Are there any geographical issues to consider? What about other cultural expectations? Does the firm’s demographic structure help or hinder? What do clients want, and are they getting it? These might not even be the right questions — other factors may be relevant.

The important thing is to draw out the right knowledge about the firm, and work from there. Often this body of knowledge will surprise the leadership — it may contradict what they have been indoctrinated to expect by their usual suppliers. The firm might also have an incomplete understanding of what their suppliers are offering, and so be unable to articulate a sensible request for help.

Armed with self-awareness the firm is in a better position to challenge suppliers to provide services or products that actually meet its needs, so asking the right questions (and getting sensible answers) in the first place is actually beneficial for all.

This also applies to the way firms serve clients, of course. The lawyer who just rattles off a quick contract to the client’s specification without inquiring more deeply into the motivation behind the instruction risks doing the client a disservice (especially when the client is ignorant of the range of possible options).

I don’t have answers. I am more interested in helping firms find their own way.

Complexity, drivers and modulators in life and the law

Mark Gould1 Comment

This video is fascinating for a host of reasons. In particular, it illustrates a concept that is critical in my continuing series of posts about the legal ecosystem.

Patterns

The video shows an aggregation of anchovies — a shoal of fish obeying simple rules, but creating a constantly changing unpredictable pattern in the sea (just as a murmuration of starlings does in the air). What I find especially interesting is the way the fish react to humans in their midst.

Studies of fish show that they observe very simple rules when they shoal (as starlings do when they flock):

  1. Move in the same direction as your neighbour;
  2. Remain close to your neighbours;
  3. Avoid collisions with your neighbours.

Armed with these rules, it is possible to simulate the behaviour of shoals. It is even possible to predict large-scale changes in behaviour (such as migration). What is impossible is predicting the precise pattern traced by the shoal itself as it moves through the water. There are simply too many variables to allow this — for all intents and purposes each pattern is unique for the fleeting moment that it exists. This can be demonstrated mathematically.

For any number of items (N), the number of links (L) between pairs of items can be expressed thus:

\L=N(N-1)/2\

Likewise, the number of patterns (P) that can be generated by connection items can be calculated thus:

P=2^{L}

A simple table shows how the numbers of patterns grows exponentially as items are added:

Dots Links Patterns
N=4 L=6 P=64
N=10 L=45 P=35 trillion
N=12 L=66 P=73.8 quintillion

The number of possible patterns generated by hundreds of fish is inconceivable.

Drivers and modulators

We often refer to actions driving change in life and work. The word ‘driver’ suggests a direct and predictable link between cause and effect: if I do this, the outcome will be that — every time. Drivers of this type do exist, even in some quite complicated systems. When I turn the steering wheel in my car, I need the result to be predictable. It usually is, unless the system is broken or some other factor (ice or gravel, perhaps) has been introduced without my knowledge.

As the number of components in a system increases and the connections between them are loosened, the behaviour of the system become less predictable. However, when we see the outcome it often looks inevitable; we are persuaded by hindsight that it should have been predictable.

This can be seen in the video when people swim towards the anchovies. Sometimes the shoal just moves away from the swimmer. Sometimes it parts and rejoins beyond the swimmer. Sometimes it forms a ring around the swimmer. None of these outcomes was predictable, but they all appear to follow the same rules — the fish maintain a constant distance from each other and follow the course of their neighbours, but they keep a greater distance from the alien body (whilst not fleeing from it altogether).

Similar things happen in organisations. Patterns of behaviour might look fairly constant and predictable, but can be disturbed by significant events (a change of leadership, for example, or some external pressure). The consequence of that disturbance is unpredictable before it happens, but may look obvious afterwards — hindsight makes us think that it was inevitable.

It is at this point that the ‘driver’ fallacy comes into being. If we see a number of events that appear to form an inevitable sequence of events, it is natural to think that repeating the initial cause will drive the same outcome. If the outcome looks good, then we are likely to take the same initial action expecting it to result in the same outcome. This is the thought process that underpins so-called ‘best practice’ and books like Good to Great. These hold out a promise that success will follow emulation of others.

Dave Snowden has suggested that it is more appropriate to think of change in complex systems being effected by modulators rather than drivers.

Imagine that you have a round flat table and around that table are a series of electro-magnets. They can vary in strength and also polarity. Some you control, some are controlled by people you know and some appear to change at random. In the middle of the table are a lot of iron filings. Now as long as the magnets don’t change, the iron filings will form a complex stable pattern. However as the magnets fluctuate in strength the pattern changes. if some of them change polarity then change is sudden and drastic before a new stability emerges. At the same time some of the iron filings get magnetised in turn as they pass through electric currents, making the situation even more complex. I may not even be aware of some modulators until they suddenly come into play and their impact is seen.

The magnets in this case modulate the system. They interact with each other and with the system as a whole, they make it inherently unpredictable. Understanding what modulators are in play will help us understand emergent behaviour of the system, but not to predict its future state. Attributing cause to a limited number of dominant modulators (that is what I think people mean by drivers) is a mistake as the level of interaction is too much. I can build models to simulate the behaviour of the system, however simulation does not lead to prediction.

Modulating change in law

A common type of ‘driver error’ arises when two systems appear to have the same objectives and basic structure. If one of the systems appears to have a good way of achieving a particular outcome, it is natural to consider transposing it into the other system. This sometimes occurs in legal and political systems, when adoption of different approaches to similar problems from foreign jurisdictions might be proposed. It also happens in law firms and other organisations that are apparently similar in scope and purpose. Otto Kahn-Freund skewered the notion of transplanting between legal cultures in his 1973 Chorley Lecture, “On the Uses and Misuses of Comparative Law”. His view was that there is a continuum of actions ranging from the organic (rooted in unique cultural, social and political soil) to the mechanical. The closer a particular process is to the mechanical end of the continuum the more likely it is that a transplant will be successful.

I prefer the Cynefin framework to Kahn-Freund’s continuum. It is better rooted in theory, as well as being more subtle — the linearity of a continuum is an immanent flaw. I intend to explore that further in a future blog post.

Whatever explanatory tool one uses, it should be clear that some practices translate better between organisations than others. At the moment, there are a few practical changes that are fairly universally recommended to law firms as panaceas to help them ride out changes in the legal market. These include legal project management, process mapping, fixed-fees, and so on. Some of these will work for some firms, but how can we know at the outset which and why? The answer is that we cannot do so reliably. Instead, it is important to test things out. There should be clarity about how the experiment can be evaluated — what does success or failure look like? — and there should be a safe fall-back position in the case of failure. Anything else is wishful thinking.

An experiment might be fairly small-scale, but it can also be quite audacious, as shown in this video explaining what happened when wolves were reintroduced to Yellowstone National Park.

The sequence of events described here — leading eventually to changes in the physical environment — is unique. It is not possible to say that reintroducing wolves in other places would have the same effect. A number of other factors also played their part:

  • The patterns of grazing behaviour of deer
  • The topography of the park itself
  • The availability of other species (beaver, coyotes, bears, birds, etc)
  • The time taken for plant species to regenerate
  • and so on…

So, for a law firm, introducing new ways of working or doing business might be a really good idea. The success of such changes depends on a host of components responding in particular ways. Beneficial outcomes are neither inevitable nor predictable.

Better outcomes arise from a process like this:

  • An understanding of why particular changes might work (and knowing what ‘working’ means for your firm);
  • Testing the change;
  • Evaluating if it is working or not (by reference to the first step);
  • If it works, continue;
  • If it doesn’t, revert to the previous safe state.