Who are you looking at?

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

Canal boats, Pontcysyllte

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Knowing how to be disruptive

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

More on lawyers and innovation

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

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

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

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

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

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

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

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

Perhaps we can only hope to create better bricklayers.

Lawyers: architects or bricklayers?

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

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

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

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

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

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

Defining the Millennial organisation

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

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

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

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

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

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

Dilemmas

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

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

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

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

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