Hidden innovation: the best kind?

I suspect almost everyone is fascinated by Apple. For some, the company is a peculiar cult that holds its acolytes in thrall to blocks of glass and metal. For others, it is a benchmark against which all types of innovation can be measured (and usually found wanting). I am particularly interested in the things that are often missed in Apple’s innovation story.

The video below shows Steve Jobs addressing an audience at Apple just 8-10 weeks after he rejoined the company in 1997. The main purpose of the presentation is to show the new ‘Think Different’ advertising campaign. That’s not the bit that interests me though. Within the first minute, Jobs sets out the priorities: “We’re trying to get back to the basics of great products, great marketing, and great distribution.” I think the third of those is the most significant hidden contributor to Apple’s sustained success since then.

Jobs goes on to say (at 2’08”):

We have not kept up with innovations in our distribution. I’ll give you an example — I am sure it was talked about this morning. We’ve got anywhere from two to three months in our inventory, in our manufacturing supplier pipeline, and about an equal amount in our distribution channel pipeline. So, we’re having to make guesses 4/5/6 months in advance about what the customer wants. And we’re not smart enough to do that. (I don’t think Einstein’s smart enough to do that.) So what we’re going to do is get really simple and start taking inventory out of those pipelines — so we can let the customer tell us what they want and we can respond to it super-fast.

(By all means watch the rest of the video, but that is all that is relevant for this post.)

Those responsible for two of the three basics identified by Jobs were already part of Apple. On the product side, the designer Jony Ive had been promoted to Senior Vice President of Industrial Design, and Jobs himself led Apple’s marketing efforts. Within six months the third element, distribution, would be taken on by a new appointee — Tim Cook.

Just one year after this video, Apple launched the iMac: designed by Ive, marketed by Jobs, and built by contract suppliers appointed by Cook. The same combination underpinned successive new Apple products — new generations of iMacs, the iPod, MacBooks, the iPhone and iPad. Tim Cook became Apple COO in 2007, and was appointed CEO in succession to Steve Jobs just before Jobs died in 2011.

The Apple products we (some of us) use today may still be Ive creations and also bear the imprint of Steve Jobs’s personality in their marketing, but their success in the market is just as much Tim Cook’s doing. In a profile from 2008, he is described as “demanding and unemotional:”

Think of Cook’s contribution like this. There are two basic ways to get great profit margins: Charge high prices or reduce costs. Apple does both. The marketing and design drive consumers wild with desire and make them willing to pay a premium; Cook’s operational savvy keeps costs under control. Thus Apple is a cash-generating machine. Cook has called the company a place that is “entrepreneurial in its nature but with the mother of all balance sheets.”

Apple’s high profit margins are driven by two forces: the company is obsessed unlike any other of its size with creating products that it thinks people will love, and its supply, production, distribution and retail processes are managed more tightly than any of its competitors.

Some aspects of that tight supply chain management appear to be readily copied. Others are more innovative and unique to Apple, but depend on constants like long-term relationships with suppliers and choosing simple options rather than complex ones, even if those are exorbitantly expensive. Early examples included block-booking all available air cargo slots in advance of the iMac’s first Christmas sales period, and shipping iPods direct to retail customers from the manufacturing facilities in China. There is also no competition between product, marketing and distribution. They work as a team:

That mentality—spend exorbitantly wherever necessary, and reap the benefits from greater volume in the long run—is institutionalized throughout Apple’s supply chain, and begins at the design stage. Ive and his engineers sometimes spend months living out of hotel rooms in order to be close to suppliers and manufacturers, helping to tweak the industrial processes that translate prototypes into mass-produced devices. For new designs such as the MacBook’s unibody shell, cut from a single piece of aluminum, Apple’s designers work with suppliers to create new tooling equipment.

Can other businesses learn from this aspect of Apple’s success? Possibly very little:

How Apple is managed is one of its enduring mysteries. The idea that a company with $235 billion in sales is managed with a single P/L is fascinating in many ways.

There are obvious lessons about the need to keep inventory as low as possible, but otherwise I think the main thing is not to concentrate on obvious innovations. It may feel easier to identify novel products and services that could find a valuable place in the market, but just as much (if not more) profit might flow from making the hidden parts of the business work better. Given how different these hidden parts might be, each firm has to make its own choices.

Thoughts on Randi Zuckerberg’s 10 trends…

Last week’s London Law Expo was drawn to a close by a rousing keynote address given by Randi Zuckerberg. I have never seen such a rousing speaker at a legal conference (even though she claimed to be jet-lagged).

Ten trends

After giving us a vivid account of her history (New York, Harvard, Ogilvy & Mather, Facebook…), with a few digs at her dropout brother,  Randi introduced us to ten trends that she considers will affect all aspects of life in the near future. These all have a link to technology, but they aren’t technology trends. She has done similar presentations at other events in the past, but it is good to see that older versions (which can easily be found on the web) are appreciably different. There is an simple account of the version I saw online at Urban Source in Australia.

The beauty of Randi’s list is that each member of the audience probably had their own reaction to the trends she identified. Here are some of my thoughts.

Trend 1: The age of the entreployee

2015-10-13 15.57.43The ‘entreployee’ is someone employed by an organisation that encourages its people to spend time coming up with ideas that might be interesting (just like an entrepreneur). Randi referred to Google’s 20% time and Facebook’s hackathons. She was under no illusion that the ideas coming out of these events would all be useful — she mentioned a Facebook engineer linking a mini-trampoline to an iPhone so that the phone could be unlocked by replicating a particular jump. That was probably the worst idea she had ever seen.

Interestingly, hackathons seem almost always to take place outside normal working hours and Google’s 20% time is now understood to be something like 120% time. But any sensible business (including law firms) should try to find out about the ideas that its people have to improve things. Some have ideas banks of some kind (online or otherwise), and I visited a Magic Circle firm this week that was in the midst of a ‘jam’ event along the lines of those developed by IBM. Events like this are ideal to surface insights that could be taken up by pioneer groups like the ones I described in my last post, and are becoming much more common.

Trend 2: Think like a media company

2015-10-13 16.01.43The key here is capturing attention. Randi gave some great examples of consumer brands using events or subverting traditional media to get people to share their experiences across social media. Media success has never been purely a product of sales — readership is the metric that matters. One copy of a newspaper may be read by only one person, if it is good enough. If it is great, it will be read by many people.

This is more of an issue for consumer-facing law firms, but it shouldn’t be ignored by commercial firms. I am aware of just one that has created a genuine media brand for itself. The Rethink Law videos (UK/US) are another example of attention-grabbing media use, this time by a new-law business. These were shared widely across the legal world — students, law firms, clients. They were even emulated by others.

Trend 3: Reinventing retail

2015-10-13 16.06.54The focus here wasn’t so much on the retail experience as the matter of consideration (as contract lawyers might say). Using the streamline, “cash is not the only currency,” Randi had some intriguing examples of retailers allowing customers to exchange something other than money for their wares. That might be a hotel in Sydney offering a free stay to people with 10,000 Instagram followers, or a webshop where people pay with their talents (even talents as odd as sounding like a car horn).

Billing and pricing have been hot issues in law firms for at least the last decade. However, I would be surprised if many firms have allowed clients to pay their bills with their reputations. (And there may be regulatory or other reasons why such exchanges might be difficult.) But there may be other forms of ethical and interesting non-pecuniary compensation.

Trend 4: Start ’em early

2015-10-13 16.12.16Randi’s message here was to encourage children to learn to code as early as possible. I am not sure that everyone has to be a coding prodigy, but understanding the basics of computing has been important for some time. I was lucky enough to be exposed to BASIC programming using punch-cards to create simple programs and then moving on to the mainstays of late-70s/early-80s educational and personal computing. I am no technical wizard, but that experience has made me comfortable with technology in a way that I don’t see in those who missed out on it.

The practice of law, like every other area of work and life, depends on intelligent use of technology. But this is not common amongst lawyers. One GC, Casey Flaherty, was so disturbed by the lack of technical acuity amongst his external lawyers that he developed the Legal Tech Audit (now called the Service Delivery Review). His recent experience suggests that, even amongst current law students, technical ability still falls short.

Trend 5: The maker movement

2015-10-13 16.16.15Curiously, wide use of the internet created the conditions for traditional crafts to flourish alongside global retail behemoths. Etsy and similar platforms allow small artisanal producers to sell their products to the world.

It is now possible to run a legal business with little of the infrastructural paraphernalia associated with the traditional law firm model. Platforms like this one can be used to create a meaningful web presence at a low annual cost. Organisational email and internal collaboration can be bought on a per person basis. Secure client collaboration is also possible. Firms built on cloud-based platforms can add new lawyers quickly in comparison with others, and they inevitably concentrate on the important aspects of their business — leaving support and development of technology to experts in those fields.

The ‘maker culture’ crops up in other ways in the law. Rather than create a firm, people are building apps that give access to the law in a different way. The traditional firm is thus being squeezed from both directions.

Trend 6: Virtual reality

2015-10-13 16.20.44Some time ago, firms were looking at moving into virtual worlds, such as Second Life. Some years later, Second Life is looking a bit tired. Nonetheless, virtuality still holds a strong allure for some. The current poster-child for virtuality is Oculus Rift, which is currently intended primarily as a gaming device. Doubtless it is a short leap to a device for presenting objects to consumers in a better way than is currently possible on a normal website. I am sceptical that this will make a significant difference to the business of law.

Trend 7: Life logging

2015-10-13 16.24.39In a sense, lawyers were early on the life logging scene. After all, what else is time recording than a log of events during a lawyer’s working day. When life logging was in its infancy, significant amounts of work would be needed to create something like Nicholas Felton’s annual report “weaving numerous measurements into a tapestry of graphs, maps and statistics reflecting the year’s activities.” Now, the Apple Watch is just the latest and most sophisticated device that can monitor a wealth of personal information and aggregate it into meaningful (and actionable) insights. It is worth noting that Felton’s most recent annual report will be the last:

The world of personal data has changed considerably since the project began in 2005 and this edition attempts to capture its current state. While previous editions have relied on custom solutions to gather ethereal personal data, this edition is based entirely on commercially available applications and devices. Using an array of products and software, the author’s car, computer, location, environment, media consumption, sleep, activity and physiology were instrumented and logged.

Lawyers are still mostly in the land of manual (slightly automated) timesheets. There are tools to monitor the things people do (emailing, telephoning, drafting, etc), but few of them match the power of personal technology devices. Even where it exists, few law firms have adopted this kind of technology, and fewer still present the results of the information gathered in a meaningful way for their fee-earners. Those that do are stealing a march on their competitors by having more information to use as a basis for understanding their position in the market as well as the performance of individuals and teams.

Trend 8: The new frontiers — education and healthcare

2015-10-13 16.27.57The internet has moved on considerably in these areas. People used to try and find out more about health issues (and self-diagnose). Now, treatment is possible using things like guided simulations and 3D printing. On the education front, real learning is now possible — taking people beyond mere information.

In the law, there is still a lot of work to be done on improving the availability of information. Free services like the Statute Law Database provide a useful service, but they need additional work (is this text still in force? is there anything else that might be relevant?) for people to be sure that they are reading the law as it applies to them. As that work progresses, the position of lawyers as gatekeepers to legal insight will decline. Just as some aspects of education and healthcare are being de-professionalised, so lawyers will need to rethink their position in the knowledge chain. As Jeremy Hopkins puts it, in a review of Richard and Daniel Susskind’s new book, The Future of the Professions:

Another area where I suspect we have not yet seen the full impact is what is described as “commons”, the free sharing of knowledge through open, online collaborative communities. One of the real benefits here is the ability to address latent demand, in enabling access to legal services for the many who can’t afford it. The challenge here is that there may be a considerable overlap between those who fall into this category and those who do not have the capability to make best use of “self-help” solutions or indeed to know they are in need of such help in the first place. The positive argument here is that some degree of access to justice is better than none at all.

Networked knowledge has changed the nature of education and healthcare. It is doing the same for the law too.

Trend 9: Gamification for motivation

2015-10-13 16.30.48The important word here is ‘motivation’. Gamification became popular a few years ago when people realised they could mirror the practice of ‘favouriting’ or ‘liking/unliking’ familiar in social media tools within business platforms. The thought was that people would ‘like’ an intranet page or internal blog post, but it wasn’t always clear what purpose that would serve.

In a sense, gamification has existed in workplaces for generations. The gold watch or carriage clock awarded for long service can be seen in the same light as achievement badges in gaming on or platforms like Foursquare. But people never stayed with an employer for 25 years or more just to get the clock. They stayed because there was some other motivation — they enjoyed the work or the people, or they just liked getting paid to do something they could do. Modern gamification contains a similar risk — people find their motivation in a variety of different places (possibly from a unique combination of factors for each person). Trying to second-guess where motivation might arise is a fool’s errand. It is better to make the work meaningful and the management sensitive to each individual’s needs and interests. Gamification risks de-motivation.

Gamification works when there is already a desire to do something, but a little more motivation is needed. When there is no interest in doing something, gamification is more likely to put people off. One of the examples Randi gave was an app that helps people keep up their training routine by persuading them that they are being chased by zombies. The key factor here is that the desire to exercise is already present. A zombie app won’t actually get someone off the couch in the first place if they are more interested in catching up with their soaps than in going for a run.

Trend 10: Unplug to refresh

2015-10-13 16.33.49I thought this was an important point to make. Randi highlighted the growing interest in deliberate disconnection. (Even to the extent that there are hotels and resorts that charge more for the peace that comes with an absence of connectivity.

Lawyering can take many forms. As lawyers have become able to connect and communicate with clients using tools that go beyond the telephone — email, SMS, collaboration platform, social media — they may have forgotten the power of meeting someone and talking face to face. Unplugged communication like this can refresh a client relationship in a way nothing else can. Likewise, if a difficult point has derailed a negotiation, it can often be understood better if the parties get in a room together without electronic devices. There is a reason why mediation is an increasingly important tool in a range of commercial and personal situations.

Finale

At the beginning of her keynote, Randi described how her ambitions to sing on Broadway had been thwarted when she couldn’t get onto the Music major at Harvard. Despite this setback, she got the opportunity to appear in a show last year. No doubt inspired by that success, Randi finished her talk by singing — probably a first at any legal conference. The organisers, Netlaw Media, were filming the conference, so visual evidence of the performance may be available in time. If so, I will update this post with a link.

Hoverboards and jetpacks: the future will be something else

In less than 90 days, it will be 21 October 2015. That’s the date to which Marty McFly travels in Back to the Future Part II. His journey through time from the 1980s led him to a future filled with gadgets like hoverboards, flying cars, and self-tying shoe laces. Unless we experience three months of frantic development, I suspect we won’t see any of those in October.

Pollock's Toy MuseumThat’s the problem with trying to predict the future — our current preconceptions often blind us by narrowing our vision. Jetpacks might have seemed like a great idea when we were young in the jet age, but they actually make no sense. Madeleine Ashby puts it bluntly:

“We were promised jetpacks!” they whine. Yeah, dude, but what you got was Agent Orange. Imagine a Segway that could kill you and set your house on fire. That’s what a jetpack is.

Jetpacks solve exactly one problem: rapid transit. And you know what would help with that? Better transitBetter telepresenceBetter work-life balance. Are jetpacks an innovative solution to the problem of transit? Nope.

I have a fear that a lot of the current pontificating about the future of legal practice is in the hoverboard and jetpack category. Many commentators present a future in which technology is injected into lawyers’ work. One way to show how this might fall short is to look at the process of document creation — a core legal activity.

  1. Documents have always been at the heart of legal work. As soon as someone reneged on an oral promise, it became clear that shrouding a transaction or relationship in writing would make it easier to prove and enforce. At this stage, the documents are short and written by hand by the lawyer in person or by someone scribing the lawyer’s words.
  2. As lawyers became more exalted, it was more likely that they would dictate to a secretary. Sometimes the lawyer or the secretary would collect commonly used clauses and paragraphs as an aide-memoire and to speed up the drafting process.
  3. Technology first arrived in the form of typewriters, which allowed secretaries to create documents more easily than writing by hand.
  4. Later on, the process of conveying the lawyer’s words onto paper was improved by the use of dictating machines. With these, the lawyer could store up words for typists to convert into documents. The document creation process could thereby be shifted in time and space.
  5. Typewriters gave way to word-processors, which saved more time by making error-correction and document reproduction much easier.
  6. Dedicated word-processing systems were supplanted by standard software and PCs that were inexpensive and easy to use so that lawyers could use them without the assistance of a secretary.
  7. Lawyers were assisted further in the production of their own documents by the ease of copying previous documents and by the creation of template documents and clauses for general use.
  8. The dictation process has now been digitised, so that lawyers who prefer not to type can still have documents created for them. These systems might just improve the traditional dictation process or they may use speech recognition to allow documents to be created directly.
  9. Increasingly, the document creation process is being automated — reducing the need for typing and similarly error-prone human intervention.

At the end of this broad-brush account it should be clear that a huge amount has changed. Technology now allows hugely complicated suites of documents to be created and managed with ease and accuracy compared to the quill-pen on vellum of the past. But equally, very little has changed. Clients still see their transactions or relationships converted by lawyers into documents. Apart from changes in technology and practice, a 19th century lawyer would recognise the work of a 21st century lawyer.

Through this lens, technology has changed the way lawyers work, but it hasn’t actually changed the way they serve clients.

Clients don’t see the world through documents. Documents are secondary to their real needs. More significantly (barring future litigation), the role of lawyers often ends when the document is done. For clients, that is just the beginning. Lawyers (especially those in private practice) rarely see the life that documents lead. For, as my former colleague Melanie Hatton pointed out some time ago, contracts are alive.

The best Projects and Contracts Managers which I’ve worked with keep their contracts close at hand and use them as a daily weapon against their suppliers to ensure deliveries are made on time, service levels are met, software performs as it should and (you’ll be surprised how much this next one is overlooked)  invoices are accurate, so that we’re not charged a penny too much for the privilege.

And, as the project which it manages evolves, so the contract should evolve too.  A contract is a living thing. And indeed, the Project or Contracts Manager managing that project is best served by keeping up to speed with this evolution.

Melanie tells a great story to illustrate her point. The ‘hat saga’ is best read in the original, but the key point is that when a particular contract was made some elements were left for future agreement. That isn’t uncommon. Nor, sadly, is it uncommon for the later agreement to be poorly remembered and possibly not even documented at all. The document was pointless in the face of the relationship’s commercial evolution.

Good technology could change the way transactions and relationships are managed by looking beyond the document into the reality of commercial practice and contractual evolution. (I know that contract management tools exist, but my sense is that they aren’t always successful.)

Two items from beyond the legal sector provide further illustration of the principle of looking beyond the hoverboard and jetpack.

For some years, journalists covering consumer technology have argued that Apple should make a television. Obviously, Apple has not made a television to compete with Sony and Samsung in the living room. M.G. Siegler of Google Ventures has spotted why that is:

a whole generation is now growing up used to watching television content on their phones and/or tablets. Or, at the very least, their laptops. For all intents and purposes, these are televisions. And guess what? Apple already makes them!

In essence, Apple (with other companies) has changed the way moving pictures are consumed. They don’t need to make a television to match the old way of viewing.

…just imagine what a mistake it would have been to build an actual television. Whatever that is.

Benedict Evans recently took a long hard look at the evolution of Microsoft Office and similar productivity software.

[T]oday, in a thousand companies, a thousand execs will pull data from internal systems into Excel, make charts, put the charts into PowerPoint, write some bullets and email the PowerPoint to a dozen other people. What kills that task is not better or cheaper (or worse and free) spreadsheet or presentation software, but a completely different way to address the same underlying need – a different mechanism.

Evans traces the design of this kind of monolithic software back to the kind of office environment presented in Billy Wilder’s film, The Apartment, in which Jack Lemmon played CC Baxter, a junior executive. Evans proposes a different focus — on needs and verbs.

Do you need a large or small screen, do you need a keyboard, a mouse or just touch, and do you need a complex multi-window OS (Windows, Mac OS) or a simpler model based on full-screen use (Windows 8 et al, iOS, Android)? If you have to make an Excel file, paste charts into PowerPoint and write bullets or a memo then yes, keyboards, mice and windowing make things much easier. But if you have to flag a few key changes on a dashboard and tag them for review by three colleagues, you might not. The business task being achieved might be the same. Again – you need a keyboard to do x, but is x actually your job, or it it just the tool you use today to do your job?

What this points, to, I think, is that productivity breaks down into a set of verbs. In CC Baxter’s office you see each of those verbs made into a physical object. Over time, those verbs get combined, broken apart, linked, created and removed as the tools change, the organization is changed by the tools and of course the underlying business itself changes. You don’t actually send email or make a spreadsheet – you analyze, delegate, report, confer, decide, track and so on. Or, perhaps, ‘what’s going on, what are we doing and what should we be doing?’ Each set of tools fixes that into a different pattern, but one should not look at that pattern and assume that that’s the way things must be done – that that’s what ‘real work’ looks like.

A thread through all of this is communication… Communication changes from a typed memo hand-carried to your desk in a manila internal mail envelope, to a carefully-laid-out presentation laboriously crafted in PowerPoint (maybe emailed, maybe presented on screen, maybe printed), to threads in Slack, a chat app with third-party service and data integrations. The real, underlying task is to communicate around the problem “how are sales of widgets going, why, and what should we do about it?”, and that might not have changed at all, though you might have gone from a week to a day to a minute to get the answer.

Distilling that further, there is information and the creation and analysis of it, and then there is communication – the connective tissue of the organisation. Right now, both of these generally mean the creation and the passing around or talking through of document files. But there’s nothing eternal about that model.

Evans is talking about generic business processes, but these are just as applicable to legal work. When they document clients’ transactions and relationships, lawyers manage, create and analyse information and then use the document as a medium of communication. There is nothing eternal about the document-centric model of legal work.

What could come in its place? Anything that matches more closely the way clients want to work. Just as moving pictures now fit in people’s pockets rather than being restricted to large public or household screens, so relationships and transactions could be more comfortably managed in a myriad of ways better than in a rigid document that is likely to end up unread in a filing cabinet.

There will be technology in the future. But it will be more useful than hoverboards, jetpacks, flying cars and turbo-charged legal documents.

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.

Knowledge as a foundation for innovation

The relationship between knowledge and innovation is an interesting one. Good use of knowledge (in the broadest sense), coupled with openness to novel influences, is essential for successful innovation.

Innovation basics

Innovation is no different for law firms than it is in other sectors. With that in mind, consider David Hepworth’s view (expressed in the context of commentary on the music and magazine industries):

This is a classic case of Hepworth’s Law Of Improvement, which I developed over years of watching people trying to improve magazines. There’s improvement, then there’s the kind of improvement which is recognised by the user and finally there’s the kind of improvement which is both recognised and valued by the user.

Only the third sort is worth the trouble.

The same is true for innovation in law — only value marks out truly useful changes. So, my working definition of ‘innovation’ is ‘an improvement that meets a real need’. That need might be external (improving client service, for example) or internal (where a change in working practices results in improvements to profit).

Law firms might be able to make major improvements by changing the way they work with clients, but I think this is much easier for new entrants to the market (no firm can yet match Riverview or Axiom in this regard, for example). They may also innovate at a much smaller scale by creating new products or services at the practice group level. And then there is innovation in the law itself — providing a new answer to a legal or business problem. This might give rise to a new practice — in the past, IT law, PFI projects, and Islamic finance might have fallen into this category.

Water mill: innovative, then common, now redundantOf these three types of innovation, the last depends on real client need and requires an imaginative lawyer to spot the opportunity. As such, it could occur in any firm (apart perhaps from firms that suppress such imagination…). The other two require the firm to be supportive of experimentation (not all ideas succeed) and change (successful initiatives require old ways of working to be put aside). Experimentation and change are hard for traditional law firms to tolerate, especially when they depend on an annual cycle of budgeting and investment. (This is one reason why new entrants, which can often take a longer view, might have the upper hand.) It also explains why a small number of business-focused changes (legal project management, different pricing models, use of paralegals and other resourcing models) occur in a large number of firms. These improvements are based on business practices outside the law, and so are proven in use. As firms see them introduced elsewhere, they can see the benefits in action and will copy their peers.

Innovation shortcomings

The point about copying was well-made today in Jeremy Hopkins’s analysis of the reported intention of Freshfields to open an office in Manchester as a lower-cost base for some support services and legal work. Jeremy rightly challenges the logic behind this kind of cost-reduction exercise.

It follows that these associates have over the years being doing lower value work than perhaps they ought to have done. More significantly, if these alternative models are successful in achieving their objectives then the result will be less work for them.

This tempts the question how will this work be replaced ? I’m sure the aim will be to win more higher value work, but as more and more firms adopt this model it will become the norm, not a differentiator. They can’t all increase their share of a finite market.

As more firms take this course, the result is likely to be a reduction in numbers of lawyers. And there is little doubt that this kind of resourcing change is fast becoming part of the standard toolset for law firm management. As Jeremy points out:

As firms follow the crowd and join the queue to set up their “near-shoring” and flexible resourcing operations, you have to wonder whether they are really looking any further ahead than the firm in front of them ?

Bruce Macewen came to a similar conclusion in one of his Growth is Dead series of articles.

The history of responding to pricing pressure in BigLaw through “innovation” has been almost exclusively the story of labor market arbitrage. We have never gotten serious about changing the way we work.

By “labor market arbitrage,” I mean finding (a) cheaper people; (b) cheaper locales; (c) cheaper career paths; (d) cheaper offices, or some combination of all of these, to be able to deliver a service of indistinguishable quality for less. This works, and for awhile it gives clients what they want. But it has a few intrinsic limitations:

  • These savings are one-off’s. You can only move certain people out of midtown Manhattan once, and you can only introduce the non-partner associate track once.
  • There are virtually no barriers to entry in the labor market arbitrage business. If AmLaw firm A can do it, so can AmLaw firm B, C, D,…—not to mention the Pangea3’s and Integreon’s of the world.
  • Finally, “arbitrage” only succeeds as a profitable strategy, in equity and fixed income markets and in lawyer labor markets, so long as there are inexplicable price differentials. Once those “inexplicable” price differentials have been ironed out of the system and all that remain are fair, supply/demand driven, price differentials (based on quality, responsiveness, consistency, reputation, or other variables clients will pay for), there is no further profit to be made.

I challenge you to name one so-called innovation in our industry, introduced in the name of cost-cutting and efficiency, that has not at root been an exercise in labor market arbitrage.

Real innovation in law firms is, I think, fairly rare and poorly understood. Firms also seem to be oblivious of the shortcomings of their logic in pursuing the kind of development that Bruce MacEwen so neatly skewers. My suspicion is that their vision is too narrow — they think only in terms of the impact of the changes they make. They aren’t considering wider market changes in the way that Jeremy Hopkins does so succinctly.

Using knowledge and insight to improve innovation

I find it intriguing that law firms appear to be constantly surprised by the novelty of things that other professions have been doing for some time. If I were responsible for conferring innovation awards, I would take a dim view of lawyers reworking something that accountants or management consultant have been doing for years.

I think this lack of imagination is a result of firms being inherently poor at understanding how they fit into the wider legal and commercial world. This is not to say that individual lawyers lack that insight — quite the opposite, in fact. Rather, few firms have any mechanism for accessing and using the knowledge that their people have.

The historical position of knowledge management in law firms (generally expressed in resources like precedents, training programmes, and know-how repositories) was to make sure that lawyers could do work of the same type more effectively the second/third/fourth… time. That is still important, and is itself the subject of innovation (by using established knowledge more intelligently in the form of automated documents, client self-service products and so on). However, these activities are inherently backward-looking. A firm that wants to do something genuinely new must learn to access knowledge that is less visible and combine it with other insights to create something that hasn’t existed before..

One example: the development of PFI contracting in the 1990s meant that lawyers had to combine a range of knowledge sets — long term commercial contracting, public sector advice, finance, and so on. Few individual lawyers could cover these topics, so the firms that managed to build successful practices in this area over the following decade tended to be ones where someone spotted the opportunity (a knowledge skill in itself)), could find and combine the relevant expertise (knowledge location within the firm (and possible externally)), and present it meaningfully to potential clients (requiring client insight). Similar processes apply to other novel areas of practice. (And of course, the novel soon becomes commonplace — many firms now have a capability to support major projects, not just those that were early to the market.)

Sometimes it is simpler — a client wants to do something novel with their business and so they will push their lawyers to develop new legal instruments to make that possible. Those lawyers need to be able to identify and make use of the most sensible components from the knowledge that exists in the firm (and possibly make some new ones up). The easier it is to do that (which is one of the purposes of knowledge management) the better the result for the client.

Left to their own devices, good lawyers will come up with good new ways of working with their clients. Better, more consistent, results come when the firm has established tools, techniques and processes to make it easier for good lawyers to follow their instincts and for others to reach the standard of the good ones. That’s why knowledge management is like farming — left to their own devices, livestock will breed and produce useful progeny. Carefully managed breeding will improve the quality of the herd or flock, so no modern farmer allows nature to take its course. No modern law firm should rely solely on the instincts of their people — they need to intervene to improve performance.

Firms that can find ways of pooling and using the knowledge that all their people have — of their clients and their markets, of the legal market, of legal change on the horizon, and of the capabilities and limitations of the firm itself — are much more likely to be able to develop a coherent strategic response to the challenges they face. That response is likely to have innovative components, in that it results from the unique combination of factors present in that firm and its client base.

My sense is that firms are only slowly waking up to the possibilities presented by a more forward-looking approach to understanding and developing their knowledge. For some law firms, this is a very different way of thinking about knowledge management for law firms. Unsurprisingly, it is not unknown in other sectors. For example, this weekend I came across an interesting summary of 64 different ways for news sites to present their stories. How many firms could come up with 64 ways of working with their clients (they don’t all have to be sensible)? How many firms would open up such a process as widely as they possible, to attract insights from as many different people as possible? How many firms could actually express their need for change in such an easily understood way? (As always, get in touch if your firm is interested in getting better at this.)

Good innovation comes from a broad perspective on the world, an openness to novel insights and influences, reliable access to knowledge and insights across the firm (and from outside — clients and suppliers), and an organisational expectation that these should all come together coherently. That demands forward-looking knowledge management coupled with processes to support experiments in doing things better.

In praise of Professional Support Lawyers

Yesterday I attended Ark Group’s Professional Support Lawyer (PSL) conference, along with nearly 50 PSLs from over 35 firms. The presentations and audience contributions reminded me that PSLs are the hidden gems of legal business.

Holborn BarsWhen firms first realised that they could improve the quality of their lawyers’ work, PSLs were expected to focus on technical excellence — creating and maintaining key documents, and ensuring that developments in the law were addressed through training or current awareness briefings. Like other aspects of legal practice, this focus has shifted over the past 20 or more years. Now firms can expect their PSLs to be an essential part of their strategic armoury. This can be seen in a variety of ways, but just two highlight particularly well how PSLs make a real difference: innovation and culture.

Innovation

Coincidentally, today sees the publication of the FT’s annual Innovative Lawyers report. Looking at the list of standout, highly commended and commended initiatives by law firms, I see many that will have involved PSLs at some stage in their development. Some of the client service innovations depend for their success on materials created specifically by PSLs. Some of the innovations in legal expertise draw on insights made possible by the broader overview that PSLs can have over the legal landscape, unencumbered as they are by client demands.

In my own experience working alongside talented lawyers, I have seen a higher rate of products and services created or delivered by PSLs than by partners. And crucially, PSLs tend to be much better at seeing a product development cycle all the way through to the end — partly because they may have fewer distractions, but mainly because they know that this is a significant part of their role and they take it seriously.

Innovation is a tricky concept, much misunderstood and misused, but David Hepworth’s observations last week about ‘improvements’ read just as well when applied to ‘innovations’:

This is a classic case of Hepworth’s Law Of Improvement, which I developed over years of watching people trying to improve magazines. There’s improvement, then there’s the kind of improvement which is recognised by the user and finally there’s the kind of improvement which is both recognised and valued by the user.

Only the third sort is worth the trouble.

PSLs are often the most capable people in a firm to assess dispassionately what putative innovations would be recognised and valued by clients (and potential clients).

Innovation can clearly happen without PSLs, and some PSLs may not be in a position focus on new products and services for good reasons. But if your law firm is struggling with making innovation stick, try involving some PSLs — you may be surprised by the results.

Culture

Like many commercial organisations, law firms often struggle with culture. Sometimes this can result from the multiple role that partners have as owners and managers of the business as well as workers in it. A junior lawyer working alongside a partner is unlikely to see them as a co-worker, so will hold some things back that they might share with a peer. Partners therefore can only have a distorted view of their team. (Just as the Queen only ever sees perfectly clean, freshly-painted offices and hospitals.) PSLs, on the other hand, see lawyers at all levels in all types of situations. They help juniors with their panics over misfiled forms. They work as peers with all areas of business services (especially BD, HR, Risk and IT). They may be used as confidantes for aspiring partners.

At the same time as having strong relationships with a wider range of people working across the firm, PSLs are often regarded as peers by partners. Many of them will have experience in their area of expertise far in excess of some of the partners they work with. They may also have seen partners in other areas of the firm grow up from innocent trainees to practice-hardened lawyers. As a consequence their dealings with partners are different from any other group in the firm. PSLs often have the trust and confidence of partners across the firm.

This privileged position means that PSLs understand what is really going on (a shorthand for culture) much better than most other groups in the firm. Firms can use this insight intelligently in all sorts of ways. For example, mergers are one area where a number of firms have experienced the benefit of drawing on PSLs for more than their legal expertise. In the phase before a merger takes effect, PSLs from the two merging firms start work on the knowledge infrastructure for each new team. As the merger beds in, PSLs build new relationships with new colleagues — binding the team together better than partners can manage alone.

Why hidden gems?

Even if PSLs only do the core function of maintaining technical excellence, they generate more value for the firm than fee-earning lawyers. An hour of fee-earning will translate directly to income generated at the appropriate rate. There may be some intangible value in a deeper client relationship, but that is not guaranteed. By contrast, a well-focused hour of a PSL’s time spent drafting a standard document or a guidance note, or in providing training on a difficult new legal issue, should translate into many hours additional value by allowing fee-earners to work better. Over time, that single hour could multiply to 50 times as much value for the firm.

When PSLs go beyond the traditional core, they add even more value in all sorts of ways (not just innovation and cultural support). Not all firms see that yet. They forget to value the PSLs in return, or they suppress opportunities for PSLs to demonstrate their full potential (often by allowing them to be distracted by less significant chores). Firms that allow their jewels to shine see real returns on their investment.

If your firm is interested in working better with your PSLs — perhaps finding new ways of supporting their work; encouraging new ways of engaging with them as a group; or allowing them to lead more than they have so far — drop me a line: I would love to help you and your PSLs become more successful.

Snippets on the future for law firms

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

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

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

And on the other side of the ledger?

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

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

In sum:

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

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

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

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

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

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

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

McKinsey sums up the results this way:

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

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

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

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

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

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

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

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

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

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

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

Things didn’t turn out quite as planned.

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

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

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

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

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

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

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

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

KMers can do anything: is that wise?

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

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

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

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

And Meredith Williams of Baker Donelson agrees:

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

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

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

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

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

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

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

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

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

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

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

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

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

What about those of us who aren’t CEOs?

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

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

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

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

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

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

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

Bear in the Bärengraben, Bern

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here’s my worry:

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

Is good enough good enough any more?

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

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

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

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

Transplanting practices between organisations

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

Lamb House, Rye

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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