Category: Law Firms

Pulling the right financial levers

Mark GouldLeave a comment

One of the links I provided in my last post was to a Financial Times report from six months ago, “Professional services at heart of UK productivity problem”, which suggests that depressed productivity is a particular problem for services sectors:

Lawyers, accountants and management consultants lie at the heart of the UK’s productivity problem, explaining almost a quarter of a shortfall since 2008.

Financial Times research shows that the stagnation of productivity since the crisis is largely explained by just four sectors — professional services, telecommunications and computing, banking and finance and manufacturing.

Why might this be? The article’s authors suggest a couple of reasons:

Productivity in professional services has stalled for many reasons including corporate reluctance to fire staff even as business dried up in the recession and subsequent new hires taking time to become more productive.

And they also quote a view from the legal sector:

Stephen Denyer, head of City and International at the Law Society, said staff in law firms were spending more time than before on activities that were not “billable hours”, such as business development and compliance.

“You have to work harder to win each mandate, and a lot of time on compliance, the requirements not only of our regulator but also in relation to money laundering, sanctions, particularly for people doing international work.”

These are probably good explanations, but a much more thorough analysis was provided by Steven Toft for the UK Commission for Employment and Skills. In his piece, Toft concluded that poor productivity at the national level stemmed from poor performance in the workplace.

Much of the fall in productivity is due to what the ONS calls Multi Factor Productivity (MFP) or Total Factor Productivity (TFP):

Output growth which cannot be explained by increasing volume of inputs and is assumed to reflect increases in the efficiency of use of these inputs.

In other words, how resources like capital and labour are managed. As the Growth Through People report comments:

One big part of TFP is the ‘black box’ of the workplace, and how employers turn skilled workers and tools into products and services which customers value. We may have a more qualified and – if qualifications are of good quality – a more skilled workforce, but are those skills being used effectively? It seems that as world markets have become more difficult in the past decade, many of our work-places have struggled to adapt.

The inability to turn a highly skilled population into high productivity is a symptom of failure in the workplace.

By comparison with some enterprises, law firms derive much more value from their people. Without doing the comparative revenue per lawyer analysis that I described in my last post, it is impossible to be sure that law firm productivity is not stagnant. My suspicion is that even if the sector as a whole looks more productive, few firms stand out as particularly good performers. (Sadly, I don’t have access to the relevant data and I can’t afford to buy it at the moment.)

Twisted rootsMy conclusion comes in part from thinking about a very simple model of law firm operations. (Please excuse the very basic nature of the next few paragraphs. I find it helpful to go back to first principles.)

(In the background to this analysis is a continuing downward pressure on fees. One reason for productivity apparently being depressed is that, although output (if measured in terms of chargeable hours worked) may be constant, clients are no longer willing to pay the headline hourly rate for that work. The need to extract maximum value from each hour worked only reinforces the importance of increasing productivity or yield.)

At its most basic, a firm can be understood as a facility for producing legal advice, information or execution capability. It contains people who do those things in return for fees. There are a number of ways in which their output can be increased.

  • If there is still capacity for additional work, any new instructions (and the fees that come with them) go straight to the bottom line — all additional income increases profit and the profit margin.
  • If there is no additional capacity, new work will require additional people to do it. In this situation, additional work will not increase the profit margin, but it should increase the size of the firm’s profit.
  • In order to extract additional value when capacity appears to have been reached, a firm may insist on more intense production. If, for example, the current target for chargeable hours is 1400, the firm might push for a higher target of 1600 or more hours. (Information about the current range of hours targets in the UK has been collated by the Legal Cheek website.) A change such as this is unlikely to be possible in a short time period, and will almost inevitably come with a cost as salaries rise alongside the additional work requirement.
  • Firms can make changes to the fee-earning machinery. They can shift work from qualified lawyers to paralegals. They can move staff from high-cost centres like London to cheaper areas of the country. They can change their resourcing model to use more contract staff rather than permanent employees. If the value of the work produced does not change, any and all of these changes will shift the revenue per fee-earner equation in a positive direction for the firm. It will look more productive.
    But each of these shifts (what Bruce MacEwen calls ‘labor market arbitrage’) is a one-off gain. Once work has been moved to paralegals and contract staff in a low-cost city, that tactic cannot be tried again. In effect it is a re-basing of the productivity curve, giving no recurring advantage to the firm. It is also a tactic that is easy to adopt, so it gives no firm a lasting advantage.
  • Looking to more long-term changes, a firm might turn its back on low-value work and build a capability to do higher-margin work. This is not an easy strategy, unless few other firms identify the same opportunity.
  • Real increases in productivity or yield will only come if firms find ways to generate more income from the same amount of fee-earner work.
  • Alternatively, continuing improvements to productivity and yield come from products or services that can generate income without incurring costs at the same time. At present, however they resource the work that they do, most firms incur salary costs at a similar rate to the income they generate (unless they run below capacity). Firms with products or services that ‘make money while we sleep’ (as a managing partner once described them to me) will produce income that goes straight to the bottom line once the investment costs of creating those products or services have been met.

Looking at these options, there are clearly limits to the power of firms’ business development (sales and marketing) or HR functions to improve the long-term financial health of the firm. They can affect work levels and resourcing (the first four bullet points), but they are unlikely to play a central role in shifting the firm’s focus (the last three bullet points).

To go back to my agricultural metaphor, the combination of successful sales/HR work is like a farmer buying a new field. The farm will generate more income with that field, and more profit, but overall profitability or yield is not changed. Real improvements in yield come from using the land more intelligently by developing better farming techniques or leveraging new technology to extract more value.

Similarly in law firms: changing the way work is done, the kind of work that is done, or the products and services the firm provides, is a job for those who understand the work best — together with those who can see into the future. In a law firm, those people should be in the leadership function together with knowledge leaders and (because that is the direction of travel for the foreseeable future) technology leaders.

Firms that really want to make lasting changes to their productivity beyond one-off improvements to process or labour market arbitrage and without overworking their staff, need to use their knowledge and technology teams better. If they continue to rely solely on BD and HR, their gains are more likely to be short-lived.

When firms turn to their technology and knowledge teams, they need to be sure that those teams are capable of providing the help needed. That will be the subject of the next post.

Measuring success

Mark Gould1 Comment
It's a prickly question

I have written before on the difficulty of measuring the return on investment in knowledge activities. Prompted by a couple of recent conversations, I have been pondering the issue a little more. What follows is a rumination on how successful knowledge activities might be identified within a law firm, especially over a period of time.

It's a prickly questionIn the past, some knowledge folk might have responded to a question about the value of the work they do by pointing to volumes of documents in a know-how database. All this demonstrates is the amount of work done — it doesn’t help people understand how the firm benefits. Nick Milton helpfully summarised some ways in which business might benefit in a blog post earlier this year (together with survey results showing which measures were most commonly used).

In addition to the kind of successes that Nick points to, I have also been fond of using qualitative assessment of knowledge activities. Often it is easier to ask people (whether inside or outside the business) about their experience of KM work. Their responses serve a double purpose — as well as indicating how successful past activities might have been, they can also suggest fruitful directions for the future.

However, I have become more doubtful about the merit of highlighting one-off successes or of depending on how people feel about a service that is designed to make them feel good. These may give an impression of how well certain parts of the knowledge function perform, but they don’t help with a wider picture.

After reflection, I think the answer can be found in an analogy I have used before. Back in June 2014, I likened knowledge management to farming.

In order to improve the yield of the organisation (by whatever measure is appropriate), managers need to enhance people’s natural capabilities (fertilising for growth), while reducing the impact of adverse conditions (sheltering crops from bad weather). That isn’t possible without a deep understanding of the environment within which the organisation works, the natural capabilities of the people within the organisation, and the value of whatever the organisation produces.

The key to measuring the value of our knowledge activities is yield. If the set of things that we do to improve productivity are successful (allowing for the fact that some may be more successful than others), the firm’s yield will improve.

The next question is how yield might be measured in a law firm. The answer here, I think, depends on whether you want to consider the firm in isolation or compare it with the market as a whole. Financial data that is available within the firm may not match what is made available for publication.

Generally speaking, productivity is an expression of the ratio of outputs to inputs. At the national level, the UK Office for National Statistics derives labour productivity estimates by dividing measures of output by some measure of labour input. In professional services, productivity is measured by the turnover of companies adjusted for average wage rises in the sector.

Within a firm, inputs and outputs can be measured precisely. Firms know how many people they employ, how much they are paid, and how long they work. They also know which of these people contribute directly to the firm’s turnover. Productivity could therefore be measured as a ratio of turnover per person (full-time equivalent or otherwise) or per hour worked. Such a measure would not be useful for comparison over time, since inflation might increase fees without a real increase in yield. Using the ratio of income to salaries would smooth out such variations, since inflation in fees is likely to run at a similar rate to pay inflation.

Over time, then, a firm can see how productivity changes from year to year. As law firm knowledge management efforts tend to focus on the income-generating side of the business, examining the productivity of fee-earners in isolation over a significant period might help to show whether those efforts have had a real impact.

If comparison beyond the firm is needed (does our productivity match changes in the market?), then firms need to find publicly-available datasets. The most easily-accessible data is collected annually by The Lawyer (in the UK) and The American Lawyer (in the US). Both the Lawyer UK 200 and the AmLaw 100 calculate revenue per lawyer (RPL), which can be used as a proxy for more precise measurement of productivity. Because this measure does not take account of inflation, comparison between firms is only possible in a single year. On its own, that comparison is almost worthless. Factors such as the firm’s employment profile (does it depend on low-cost associates or is it partner-heavy in high-cost locations?), its client types, or work profile, little real insight is possible. At best, firms might pick comparators they know to be broadly similar.

There is a useful way to use published figures for revenue per lawyer. That is to compare the trend in a firm’s performance with a larger set. For example, the median RPL figure for the top 100 firms can be plotted against time. That line is likely to ascend, with occasional dips when the wider market was under stress. (I would use the median in preference to the mean, in order to reduce the impact of particularly high- or low-performing firms in any given year.) When the RPL for a single firm is plotted alongside the whole set, one can see whether the profile of the line matches that for the whole set (performance in line with the market) or whether it rises more steeply (outperforming the market) or more shallowly (underperforming against the market).

This graphical information, when combined with what is known inside the firm about any special factors, allows the firm to understand better how well it is doing in the market and what might be causing any difference in performance. The special factors could include investment in knowledge activities, as well as significant client wins or losses, so some caution is still needed.

I suspect very few firms do this kind of meaningful analysis. In a later post, I want to explore the implications for law firm support teams of not having this kind of insight.

Experimentation for success: the people factor

Mark GouldLeave a comment

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

2014-08-28 14.48.35-1

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The multiple dimensions of legal services

Mark Gould2 Comments

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

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

The partnership debate

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

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

…and thus:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Henderson concludes:

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

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

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

Full-service complexity

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

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

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

Mark’s response ends with this statement:

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

And later he added:

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

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

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

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

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

But what about the business model?

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

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

His conclusion?

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

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

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

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

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

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

Why your foundations matter

Mark GouldLeave a comment
No visible means of support

A couple of weeks ago, I challenged firms to think about what might be possible without resorting to technology. That post was based on an assumption about the nature of most law firms:

The tools, systems and attitudes of technology have to be imported into traditional law firms, therefore they are available to everyone without preference. (The status of technology within the firm is a relevant issue here, but I want to leave that for another time.)

This is that other time.

Every business is constructed around a core set of assumptions. Those assumptions include:

  • Purpose — why does this business exist?
  • Beneficiaries — for whom does the business exist?
  • Platform — what is the business built on?

The answers to these (and other) questions define the nature of the enterprise. Often they are unspoken, but generally there can only be one answer. A business might pretend to serve stockholders and customers alike, for example, but in extremis a choice has to be made between them. One group has to be favoured over the other.

No visible means of supportI want to look more closely at the third of these questions, especially in the context of legal businesses.

The traditional law firm could have a range of purposes, although some manage by committing vaguely to helping businesses and individuals with legal problems. The firm may exist to make a profit for its partners, or it may prioritise client service above partner remuneration. Most, however, are founded on delivering services using people with legal knowledge and experience. That is their platform. If you were to replace all the lawyers with different people, the firm would be a very different entity. That isn’t a likely occurrence, but firms that lose significant partners and other senior lawyers do collapse. We can see this also in the legal directories — The Legal 500 and Chambers and Partners compilations rank firms and lawyers.

It is instructive to look to a different sector for comparisons. In the car industry, a volume manufacturer may have some key personnel, but they are rarely crucial to the final product. Ford may have a carefully expressed design language, but the success of its cars depends more on the reliability and dependability engineered into them in the company’s massively automated production lines. Ford’s platform is a technological one — its people are much less important than technology in the final product.

Not all cars are the same — Rolls-Royce and Bentley depend on craftsmen to produce the finishing touches that mark their vehicles out amongst luxury vehicles. Without them, the product would have much less value in the market. The platform could also be a mixed one. There are high-end motor manufacturers like McLaren and Porsche where designers and high technology (such as composites and advanced gluing techniques) are both critical to the product.

Most law firms are more similar to Rolls-Royce and Bentley in that their platform depends on key individuals and a continuation of experience and craft. Those firms need to contend with the fact that the market values that approach to legal service much less than it used to.

Some of the new entrants into the legal market have done so with a completely different platform. Riverview Law is one of the most forward-thinking in this regard. They make it clear from the front page of their website that technology is at the heart of their work:

One of the key themes that differentiates us is the way we use dashboards, management information, analytics and visualisations to help in-house legal and related teams to make better and quicker decisions, manage risk, and evolve their operating models.

They even offer their technology to in-house legal teams.

I am sure the people at Riverview are really good at what they do, but it seems clear to me as an outside observer that the platform for the business is technology. The technology allows Riverview to provide a service that stands apart from what other legal businesses do. The people might come and go, but losing the technology would fundamentally change the nature of the business. No traditional law firm could say the same.

Another firm that depends on a technology platform is Inksters in Scotland. Brian Inkster and his colleagues have created a business around a set of cloud-based services that allows them to serve clients extremely effectively from any location. This mobility and flexibility sets them apart from other firms. The firm specialises in crofting law and other legal services for the widely-scattered and remote communities of the Highlands and Islands of Scotland, so their clients find it harder than most to get to a lawyer’s office. Inksters has offices, but they also have a ‘Flying Solicitor’ service, and they have provided ‘pop-up’ legal services in a wide range of different locations.

If Riverview Law is the legal equivalent of Ford, Inksters is more similar to the likes of McLaren or Porsche — using a blend of expertise and technology as the basis for a firm that can react quickly to legal need whatever the location. Both Riverview and Inksters depend on technology for their success, but Inksters has also stirred in a larger dose of legal expertise to create a unique recipe.

Riverview and Inksters are just two examples of new legal businesses built on technology foundations. There are others, and there will be more. That isn’t to say that all successful legal businesses must have such a foundation, but it is an indication of where growth will happen.

The problem for existing law firms is that they already have non-technology foundations — and you can only build on one platform. Most have bolted technology onto the work that they do, but there are limits to that approach. Some are starting to shift their work so that they can use technology in a much more fundamental way — DWF is a good example here. Over time, that technology could become so embedded in the way the firm works that it is considered part of the foundation. That is likely to be a long painful process, especially in a business where consensual decision-making is the norm.

Another approach would be to construct a new firm alongside the old one. The old firm could continue the traditional partnership, people-based model, whilst the new one made the most of new technologies and corporate structures. Over time, one would succeed (and it might not be the one with the technology foundation). For most traditional firms, this would be completely counter-cultural. Would clients care about that, or would they just gravitate to the legal service providers that best meet their needs?

Maybe it’s time for firms to start experimenting a bit more.

Where should you aim?

Mark Gould1 Comment

I have written a few times over the years about aim and focus. Targets continue to be an issue that bedevils traditional law firms. Lawyers are given targets for time recording. Partners are given targets for billing. Business services professionals are given targets for cost reduction (or, at least, budgeting). Worst of all, firms sometimes frame their strategies in terms of targets.

Blue skyAt the weekend, I started reading a long article on Tesla Motors and electric vehicles. It contains a huge amount of insight on the topic and, unsurprisingly, is very thought-provoking. Embedded in the middle of it are a couple of quotes from Franz von Holzhausen, Tesla’s chief designer, and Elon Musk, the founder and CEO.

I asked [von Holzhausen] what it was like to come to Tesla after having spent years at more established car companies. He described the difference like this: “A company like GM is a finance-driven company who always has to live up to financial expectations. Here we look at it the other way around—the product is successful when it’s great, and the company becomes great because of that.” (This mirrored what Musk had told me earlier in the day: “The moment the person leading a company thinks numbers have value in themselves, the company’s done. The moment the CFO becomes CEO—it’s done. Game over.”) Von Holzhausen went on, saying, “Another difference is that at other companies, engineering comes first—a design package is prescribed on the designer and they’re told to make it beautiful. At Tesla, design and engineering are assigned equal value, and Elon keeps them opposed to each other.”

Tesla’s view (which I think is shared by Apple and some other highly successful businesses) is that clearly-defined purpose and great product will deliver great numbers. On the other hand, businesses that focus purely on the numbers run the risk of failing to demonstrate purpose and value in their markets, and of creating products that nobody wants. RIM, the Blackberry manufacturer, might be the best current example of this.

Demand is a complicating factor. Do you create something that people want or need? Many businesses survive despite being soulless and number-driven simply because what they create is perceived as essential. Some businesses may have clear purpose and great products, but fail because nobody really wants their product instead of someone else’s.

Very few firms provide a must-have service. Those that do (because of geography or specialism) can afford to be number-focussed. The rest, whose service has to look more attractive than everyone else’s, need to show the market why they are better. Concentrating on numbers won’t do that. Clear purpose and great service will. The bravest (of either type) will follow Tesla’s example and ignore the numbers altogether.

What if technology isn’t the answer?

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Most of the current thinking about the future of law firms (and other legal activities) turns on the use of technology. Richard Susskind has been in the vanguard, and the accuracy of his predictions has drawn law firms and technology suppliers alike to the same conclusions — improvements in the practice of law and client service in the future will depend heavily on technology.

I agree. Any firm that isn’t making technology investments is drastically reducing its chances of survival.

Old and new techBut that only means that enhancing legal practice with technology has become the norm — table stakes. Clients and potential recruits will increasingly shun those firms without effective technology. (And by ‘technology’ I mean not just IT systems, but also the improved practices and processes that come from a more structured approach to legal practice. Technology is as much a mindset as it is a collection of algorithms and data.)

If technology investment is unavoidable, everyone will end up in the same place once the fuss has died down. Apart from minor adjustments in position between firms (differences in the rate of adoption, for example), the rising tide of technology will lift everyone to practically the same degree. The tools, systems and attitudes of technology have to be imported into traditional law firms, therefore they are available to everyone without preference. (The status of technology within the firm is a relevant issue here, but I want to leave that for another time.) If one firm sees something that another firm has, in many cases it is not difficult to acquire it.

That situation is great for suppliers (especially those, like HighQ, that have a product which becomes the default tool for a particular purpose) and for clients (who can start to rely on firms to improve their service through the use of technology), but it may be a problem for firms. If everything you can have is also available to everyone else, how can you stand out from the crowd?

A few firms will have the first-mover advantage, but this is probably minimal (given the stickiness of clients) and brief (given that few developments are truly bespoke).

In order to find something that truly differentiates them, firms need to ignore the commonplace of technology. By assuming that there is no technology solution, they become freer to consider possibilities that might be truly novel and useful to clients.

It is commonly suggested that there is no real difference between firms. It may appear that way from the outside, but every firm is unique. It has a unique collection of individuals within it. It has a unique collection of clients (each of whom is also unique). It has a unique history, and a unique place in the present. But very few firms make good use of their uniqueness (which is why they appear so similar to observers).

Every firm has the capability to stand out by making good use of the knowledge that is uniquely contained within it.

Everyone in the firm has a partial and unique insight into:

  • The firm itself;
  • The people within the firm;
  • Their relationships with each other, and outwith the firm;
  • The firm’s market;
  • Clients and their behaviour;
  • Clients’ markets;
  • Working practices (in all sorts of businesses);
  • The law;
  • Technology and other pervasive changes in the world;
  • And so on…

Gathering these insights from across the firm can only help the leadership team see new possibilities for action that is uniquely fitted to the firm.

This has to be done carefully. Some popular methods (such as brainstorming, amongst others) may be less effective than they appear to be because of factors such as:

By using techniques to foster openness, dissent and diversity, coupled with simple constraints and support for emergent ideas, firms can start to make sense of their unique position in the world and then act accordingly.

If your firm is interested in finding its own way, or at least in knowing more about what might be possible, you know the drill: get in touch.

Finding different influences

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When I was doing my research degree, I was regularly distracted by the many other interesting books in the library. Amongst those, I kept coming back to Robert Merton’s On the Shoulders of Giants. As the publisher’s blurb puts it:

Robert Merton traces the origin of Newton’s aphorism, “If I have seen farther, it is by standing on the shoulders of giants.” Using as a model the discursive and digressive style of Sterne’s Tristram Shandy, Merton presents a whimsical yet scholarly work which deals with the questions of creativity, tradition, plagiarism, the transmission of knowledge, and the concept of progress.

Although I remember little of the detail of the book, its themes (the collective nature of intellectual progress and the forms that imitation takes during that progress) still resonate. As the New York Times put it:

The book really does address itself to the problem of priority, and to the related questions of creativity, tradition, plagiarism, the transmission of knowledge, the social conditioning of science. It forces you to think hard about the notion of progress, and about why there should ever be anything new under the sun. Its very perversity is meant to illustrate the role played by contingency and accident (to say nothing of obstinacy and incompetence) in the history of ideas.

The modern equivalent of Newton’s aphorism is the quote popularised by Steve Jobs:

Good artists copy; great artists steal.

This isn’t intended as a licence to plagiarise. The allusion to theft, I think, is a reference to audacity. Taking an idea and transforming it into something bold is what Jobs (prompted by Picasso) had in mind. Interestingly, an investigation of the genesis of the phrase suggests that it was originally phrased very differently.

Loch Ossian through the treesImitation is an accepted part of progress. But how do we decide who to imitate? I think that is where great artists distinguish themselves. Their audacity isn’t just marked by the result of their copying, but also shows in what they choose to copy.

A long time ago, I railed against the tendency of law firms to compare themselves to each other. Little has changed in the intervening six years. And yet there are so many great things to imitate.

This post was prompted by a brief look at the website of a Scottish architectural practice, Page\Park. There are many similarities between law and architecture. Both apply expertise and experience to a client brief in order to create something. And yet few law firms look to architectural practices for ideas about how they might work. There are a couple of things that Page\Park do that are worthy of consideration for imitation. (I have no idea whether they are novel to that practice or common in the architectural world.)

Business model

It is unusual, and perhaps egocentric, for a firm’s website to describe the business model it has chosen. When that model (a) is different from the norm and (b) has benefits for the client, such egocentricity can be forgiven. Page\Park is an employee owned business, which is presented as a good thing for clients:

In so many fields of life the paramount role of the team, with each contribution being vital, has challenged traditional hierarchical models of management and, in our view, ownership. If society demands that each of us take responsibility for our roles, then surely ownership should respond likewise. So now, when you speak to anyone in Page\Park, you are speaking to someone with a share in the future of the practice, a belief in its values and a commitment to them.

More than that, the firm goes on to describe in detail how it works. This might be a step too far for a law firm, but it makes sense for an architectural practice. Their clients need to be able to see architecture in action, and where better to show it than in careful consideration of the way the firm is structured and how people work.

Time will tell if our model is the right one. However like a good building, if designed well it will flex and adapt to changing circumstance without compromising the architectural concept. That is to bring architecture back together, built on the understanding of the parts as a representation of all who contribute.

How many firms have thought carefully (and continuously) about their structure and activities. How many would be comfortable demonstrating and justifying their choices in the way that Page\Park does, to reassure their clients that they know how to make good commercial and legal decisions?

Learning and Knowledge

What first piqued my interest in Page\Park was the section on the site labelled ‘Thinking’ and the clear statement of intent there:

Creative yet careful thinking is at the heart of the approach of the studio. In the course of professional practice it is important to carve space to reflect and evolve ideas.

Our early Monday morning meetings are a vehicle for that exploration where ideas and approaches are presented and debated.

These themes are encouraged to grow into subjects for seminars where we extend a wider invitation to others to come, share and shape the discussion.

Here’s something that law firms could imitate. The new regulatory approach to learning (continuing competence) is an opportunity for firms to think imaginatively about the way they support the development of their lawyers and clients. The key elements of Page\Park’s approach offer an interesting starting point.

  • A focus on ideas. Rather than going straight into the detail (new developments in cladding materials, or the latest case on limitations of liability), looking at more general themes gives people the intellectual tools to deal with detail on their own terms.
  • Specified time for reflection. Many law firms have regular know-how or training sessions. These are usually arranged by practice group or sector, and are scattered through the week. As a result, they are easily avoided. In setting aside time early in the week for the whole practice, Page\Park sends a clear message about the significance of this activity. Reflection becomes part of ‘the way we work around here’ rather than being something that people might try to squeeze into a crowded work-week.
  • A direction of travel. Although ‘ideas’ and ‘reflection’ appear a bit wishy-washy, the firm suggests a much harder-edged set of outcomes. Whilst the starting point might be open-ended (this week’s was about ‘Good’), the intention is that ideas are refined and discussed further in a seminar involving external contributors (such as one on learning spaces in schools). Ultimately, that discussion is distilled into a briefing that is useful for clients and fellow professionals (on office/working culture, for example). The cycle repeats itself as the briefing becomes the foundation for a future Monday morning discussion.

The simplicity of this process allows it to become a habit. Once the habit is embedded, the culture of learning and development of ideas becomes an integral part of the firm’s practice.

Again, how many law firms have thought this carefully about how to develop knowledge, expertise and insight across the firm? As long as they look only at the way other firms do things (or the way things have been done in the past) they won’t be able to make meaningful progress.

So, great artists steal and great scientists stand on the shoulders of others. In doing so, they choose carefully who to steal from and whose shoulders to mount. They don’t just adopt like-minded models. They seek out influences that others ignore. Great law firms do the same. They look beyond the law for inspiration.

 

Where to start with law firm knowledge development?

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

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

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

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

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

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

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

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

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

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

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

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

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

Why do you want to ‘do KM’?

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

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

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

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

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

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

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

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