How do law firms stay alive?

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

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

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

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

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

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

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

And:

17) People continuously create safety.

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

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

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

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

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

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

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

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

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

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

Improving work with better relationships

Roosevelt and Churchill at Chatsworth House

There is a growing body of people bringing new perspectives on the way organisations are structures and how work gets done. Amongst these, I have recently found a podcast, Reimagining Work, presented by John Wenger and Rogier Noort. It has now been running for 14 episodes, and I listened to a few of these on my walk this morning.

Roosevelt and Churchill at Chatsworth HouseThe presenters have very different backgrounds, which makes their conversations more interesting than if they came from the same direction. Rogier’s experiences are more rooted in technology, whilst John’s come from helping businesses with people issues. In the first episode they talked a little about their previous work, and I was struck by John’s description of something he offers as part of his consulting work — sociometry. John described this in the podcast as follows:

Sociometry is a word that literally means ‘measure of social relationships’ — connections between people. One of the themes of sociometry — teachings of sociometry — is that the quality of an outcome is directly related to the quality of relationships between the people who are trying to generate that outcome. Therefore, if you have better relationships, what you try and do together will be more productive, more satisfying, more life-giving.

There is also a later podcast dedicated to the topic (which I have yet to listen to), and John has a blog post on the topic. But John’s description made me think about teams and crews.

I have mentioned crews before. For now, the important point is that unlike a team, which has an existence of its own, a crew is a temporary group of people brought together for a particular job or task and then disbanded. In sociometric terms, the members of a crew may not have a relationship of any sort prior to coming together. There is value in both approaches to work, but does the lack of a pre-existing relationship mean that a crew-based approach is at a disadvantage against a team focus?

I am not sure that it does, as long as the organisation is not bound to traditional models of work and management. The classic crew might be a group of fire-fighters, police officers, paramedics and road managers brought together to deal with a serious motor collision. Each member of the crew brings their own professional expertise, which is respected by the others and which the others have no interest in challenging. As a result, they all do their work as a group and achieve most effectively what needs to be done — often without a lot of command and instruction. Discipline and practice takes the place of strong relationships.

By contrast, an organisation that depends heavily on hierarchy and command-and-control management probably could not use crews to get work done. Instead, teams arise and are managed more or less well (depending largely on the quality of the relationships within and between them. They therefore miss out on the possibility that a crew might bring a better outcome by introducing new expertise and experience. By contrast, I think that an organisation which uses social technology to build relationships where there isn’t necessarily an existing working connection (along the lines of Mark S. Granovetter’s “Strength of Weak Ties”) can use those relationships as the basis for task- or activity-based crews. The outcome would be a much lower dependence on managed structures, more autonomy for people working in groups, and improved value for the business.

Building on the relationships theme, John and Rogier spend some time in a later podcast discussing empathy and its power to improve the way people work together. This leads to a conversation about the way organisations tend to dehumanise people when they think of them as assets or resources. Coincidentally, I have been reading a paper summarising critiques of the resource-based view of the firm. I was led to that research by my concern that organisations were treating knowledge as an asset and that this didn’t reflect the reality of how knowledge flows and how it is valued.

In the paper, the resource-based view of the firm is described thus (I have removed the references for ease of reading):

The resource-based view (RBV) has become one of the most influential and cited theories in the history of management theorizing. It aspires to explain the internal sources of a firm’s sustained competitive advantage (SCA). Its central proposition is that if a firm is to achieve a state of SCA, it must acquire and control valuable, rare, inimitable, and nonsubstitutable resources and capabilities, plus have the organization in place that can absorb and apply them. This proposition is shared by several related analyses: core competences, dynamic capabilities, and the knowledge-based view.

The paper summarises eight ways in which this view has been challenged, but doesn’t offer an alternative approach (reasonably, as it is a literature review). In listening to John and Rogier, I wondered whether a better way of understanding the strength of a business might be an evaluation of the strength of its relationships (internally — within teams and more generally across the organisation — and externally — with clients/customers, suppliers, competitors, and the wider market) and the merit of the work it does (in terms of social value outside the organisation and personal value within it). A business that was well-connected and whose people enjoyed their work and knew that it added value to the world would be in a stronger position than one which demotivated its employees by keeping them in unjustifiable silos producing things of no particular worth.

This combined relationship/activity-based value probably wouldn’t appeal to traditional economists, because it has the benefit of being additive — a business that is successful by this measure does not succeed at the expense of another. Good relationships and social value are like knowledge in this respect — if they are shared they grow rather than being diminished. As the authors of the RBV review put it:

Another characteristic of knowledge, hardly taken into account in the RBV, is its nonrivalrousness—meaning that its deployment by one firm, or for one purpose, does not prevent its redeployment by the same or another firm, or for another purpose. On the contrary, deploying knowledge may increase it.

That sounds like a powerful reason for organisations and individuals using knowledge well, in addition to building relationships and generating real value for society. In short — doing great work.

Will more training really fix that problem?

When things go wrong, it is common to see training proposed as the first (and often only) response. I can understand this — training courses come with an obvious KPI (number of people trained), they can often be cheap if provided internally, and they are readily procured from external suppliers if necessary. Most significantly, if the organisation provides training, the blame for errors (or just poor performance) can be placed more securely on the shoulders of the people doing the job.

But, often, people commit errors after having been trained. They perform poorly even when they demonstrably know and understand what they are supposed to do. More training cannot fix this problem. Something else is needed.

Enlightenment on Calton HillThis is not a new issue. Oddly, though, very few organisations seem to want to grapple with it. The default response, again and again, is to lay on a training course.

Some years ago, Harold Jarche provided clear guidance to those facing this situation. In a post dating from February 2005, he turns the issue on its head. Rather than concentrating on the manifestation of a problem (people performing poorly), he advises looking more closely at the system itself — what is the cause of poor performance. The post includes a really clear (and simple) flow chart to help diagnose the appropriate response. Tellingly, it concludes that “only a lack of skills and knowledge warrants training.”

Harold’s flow chart also contains the reasons why organisations fall back on training unnecessarily often — the alternatives require at least a small amount of change. Those include changes to the way jobs are done (tweaking processes or removing obstacles) or to performance regimes. Ultimately, there may be repercussions for the individual, but only once organisational changes have been tried and the results tested.

Harold expands on the need to address barriers to performance in a later blog post (together with a number of resources linked from it). Whenever I hear someone demanding training to fix a problem, my mind turns to Harold’s advice. As long as training is seen as a cure-all, the fundamental problems underlying poor performance are unlikely to be resolved.

L’enfant, c’est moi

A while ago, a former colleague described me as being like a child. I think (I hope) she meant ‘child-like’ rather than ‘childish’. There is a difference, and the former description is preferable. Sadly, many organisations contain people whose behaviour is more likely to be childish.

Snow coverIt snowed yesterday in the part of Northern England where I am based. As I was working at home, I took the earliest opportunity to go for a walk. The snow was still falling, and the ground was firmly covered. It was a child-like impulse to venture out: to experience the metallic taste of snowflakes in the air, and to walk across cornflour-crunchy fields of fallen snow.

Snowfall changes a landscape. Shades of green and brown are blurred and highlighted. Seeing the familiar fields and trees covered in white makes one  appreciate them differently. Paths are indistinct, and one has to tread more carefully.

This is what it is to be child-like. To be open to seeing things differently. To welcome new experiences without pre-judging them. To wonder at previously unknown perspectives. To learn again and again. Sometimes this can tip over into sillier experiences, but that is not to be childish. (Richard Feynman could be famously silly, and retained a child-like curiosity until his death. I think he was rarely childish.)

The alternative is to resist novelty, learning, and new experiences without demanding detailed reasons for change. Closing one’s mind to how things could be different is petulant, childish, and sadly common amongst grown-ups.

There is more to gain from being child-like than from being a childish grown-up.

Improving practice: insights for lawyers from Atul Gawande’s Reith lectures

As expected, Atul Gawande’s third and fourth Reith lectures were worthy of attention by lawyers despite notionally being about the practice of medicine. It is a truism that there are many commonalities between different professions, but Gawande’s insights provide some practical pointers for professionals themselves.

Lecture 3: The Problem of Hubris

(Audio | Transcript)

Gawande’s third lecture centred on the ways in which medical professionals deal with terminal care. This is an area where technology (better drugs and other treatments) plays a significant part, the lecture was more interested in the way doctors interact with their patients. Concerned by his experiences in managing care for waging patients, Gawande had spent some time talking to people about their experiences of terminal care — as patients, relatives, and doctors. These are some things he learned.

And so when I asked folks as I interviewed them, I’d say “So what would be on the checklist you would give me to use in my next office visit when I come to a critical decision point with a patient about whether we should do an operation or not or other kinds of considerations?” And one of the items that people said I ought to have on my list is that in that conversation I should be talking less than 50 per cent of the time while we’re in that room. And so I paid attention to what I was doing in those conversations and to my horror I found I was talking 90 per cent of the time. I had lots of facts and figures and pros and cons and risks and benefits, so now what do you want to do? And I’d see this bewildered person across from me.

They also said you know if you are going to talk less than 50 per cent of the time, the key thing is you have to be able to ask questions. And there are certain questions that I saw people ask that were really great at eliciting what people’s real understanding and their priorities were. The first question was to ask, “What is your understanding of where you are with your condition or your illness at this time?” Another is, “What are your fears and worries for the future?” “What are your goals if time is short?” “What outcomes would be unacceptable to you?” And with that, they’ve told you their priorities and what they care about and then that tells you both where the bright lines are that you do not cross and what you might actually be aiming for.

Now not everyone can answer such questions and their answers can change over time, so you have to ask it, you know, as things go along.

Drawing some wider conclusions, the following seem to me to be critical points.

  • Listen more — talk less than 50% of the time
  • Ask some key questions. For doctors these are:
    • What is your understanding of your current situation and its likely outcome?
    • What are your fears and worries about the future?
    • What outcomes would be unacceptable to you?

The need to listen more to patients or clients comes up repeatedly. It is interesting that Gawande actually actually tested himself and found himself wanting. Perhaps more professionals should do the same.

I find the key questions more interesting. It is clear from Gawande’s responses to the audience following the lecture that the first and last of the questions are the most significant. Eliciting what people really think about their (possibly irretrievable) situation, and what they would find unacceptable feel like truly important factors in deciding on the right treatment or advice. As Gawande puts it, the answers help doctors finding people’s priorities and bright lines. It is also important that the responses might change over time, so the questions need to be repeated as things progress.

One of the points drawn out by Gawande is that better personal care, in which patients have more autonomy about what happens to them, can actually result in better outcomes (in terms of survival time) than practitioner-led treatments involving surgery or drugs. After the lecture, there was a question from Pat Kane’s about the role of technology in prolonging life. Gawande’s response recognised the important part played by new treatments in extending lifespans, but also pointed out that what happens towards the end of life is crucial, by reference to a study of patients with incurable lung cancer:

Half of the patients got usual oncology care and the other half got usual oncology care plus saw a palliative care physician who would discuss with them what their priorities and goals might be for the end of life. Now the group who had that discussion ended up choosing to stop chemotherapy sooner. They were much less likely to go onto the fourth round of chemotherapy, in fact had one third less chemotherapy costs. They had one third fewer days in the hospital. They were much less likely to die in the hospital or in the intensive care unit. They started hospice earlier. They had less suffering at the end of life. And the kicker was they lived 25 per cent longer. If this were a drug, it would be a multi-billion dollar drug and we wouldn’t be asking oh could we afford it, how is this going to be possible? But you know in truth it isn’t even a matter of affording. These are basic skills around having conversations that enabled a win-win situation.

I think there is a deeper issue, in that the motivation to focus on technology in medical care (and possibly in other professions too) is a set of assumptions about ‘value’ which may not be the right ones. In medical terms, prolonging life may be an obvious choice if we think about humanity as a whole. But if we ask individuals who are actually mortally ill, their choices may well be different (as Gawande’s lecture makes clear). There is a similar issue in law. Legal technology is often rooted in a set of assumptions about efficient legal practice which are almost undeniable from the perspective of legal business. From a client perspective, those assumptions may not deliver the best outcome. Instead, an apparently more inefficient client-led process (with less technology) might be better for the client and produce different savings for the firm.

Lecture 4: The Idea of Wellbeing

(Audio | Transcript)

Gawande’s final lecture differed from the others slightly in that it didn’t have a single narrative at its heart. It depended more on an account of research into childbirth care and the way professional conduct themselves during childbirth.

In one health centre, staff may not wash hands because they don’t know it’s important; in another, because they don’t have sinks or running water in the delivery rooms; and in another, because they simply have not made it their habit and no one cares.

That last phrase I think is the critical one: if no one cares when someone takes the trouble to do things right, nothing changes. And the overwhelming message to the people who work at the frontlines of care around the world is that no one notices excellence and no one cares. That is the biggest source of burnout and discouragement for health care workers everywhere.

For me, this was the most important point made in any of the lectures. It is one thing to ask people to care — in almost all cases they will aim to do that. (In my experience this is as true of lawyers as it is of medical professionals.) However, that intention to care is often undermined by a wider failure to value excellence and caring, rather than some other factor (often management metrics). If people who are inclined to care about doing a good job are not supported in doing so, they will tend to stop caring as much over time.

A member of the audience made a point about this. “If nobody cares about delivering a good burger king hamburger, that would seem normal; but when it comes to medicine, you wonder why nobody cares.” Gawande developed his analysis in response:

I think this is really important because I think that feeling of being at the very frontline is that nurse responsible for you know a thousand deliveries in a year and that no one cares if you’re doing a great job or you’re doing a poor job; that you’re only going to get your hand slapped if you have some trouble along the way – you shouldn’t ask questions, etcetera. That is common. Overcoming it is what we’re finding can happen by bringing someone from the outside who says let’s look and see do you want to be washing your hands better, do you believe in what’s on this checklist, how can we begin to achieve making it work? And the fascinating thing is that the process of having the nurse speak to the sweeper to say can you bring a basin of water and soap every time you clean that room, it was creating communications and interlinking, it was creating a system that had literally not been there before.

Organisations of all types work very hard at reducing the risks of bad outcomes. Sadly, this work often finds expression in the kind of hand-slaps that Gawande mentions. Rarely does it result in recognition for a caring job well done. Sometimes that is because it is often harder to see caring happen. Sometimes it is more serious — the organisation has forgotten to value the good things about the way their people take responsibility for caring. Hospitals, clinics, law firms — all can suffer from the same failings.

Care: the future of practice?

These two lectures are a really good expression of the way that patient care needs to develop: better listening and question-asking by physicians and other health professionals; combined with institutional recognition of caring by all those participating in care.

The same can be applied to legal practice. Clients get a better service if they are listened to properly. That listening process requires a good understanding of the client’s own perception of the situation as well as what they are not prepared to accept or risk. Lawyers and those working alongside them need to care about doing things well (which most of them tend to do anyway) and — crucially — the firm needs to see and value the fact that people are doing good things.

People, technology, location: where should law firms’ money go?

Experimental archaeology is a favourite way for TV documentaries to bring the past to life for the casual viewer. The BBC is currently showing a new series looking at the construction of a 13th century castle, together with various other related mediaeval activities. In last night’s episode, the team made a crossbow and its bolt using only techniques and materials available in the 1200s. In the commentary, they kept returning to the fact that a crossbow allowed armies to be effective with much less training (one presenter gleefully told how Richard I had been killed in 1199 by a crossbow fired by a mere boy).

Horse and cattle trough in SmithfieldBy concentrating on the saving on training that the crossbow brought, above the longbow, the programme missed an opportunity to make a wider point about the impact of technology on warfare — it changes the way money is spent.

If your army depends on archers wielding longbows, you need to invest heavily in training (and in the peripheral expenses to maintain archers in training). However, a longbow was probably slightly cheaper to produce than a crossbow, which needed components wrought from iron (not a cheap resource by comparison with wood at the time). So, as crossbows become more widely used, it is likely that the budget for archers would shift from supporting training to the new technology.

This is part of a pattern over hundreds of years. The wars of the twentieth century were probably the last in which the size of an army or navy played a part in determining the outcome (directly or indirectly). Modern warfare is waged with small numbers of people and huge amounts of costly technology. (Sadly, the impact on humanity is just as devastating — possibly more so, as civilians become harder to distinguish from combatants.)

Longbows and crossbows are still capable of causing death and serious injury. Nothing has made them less deadly, but their power is meaningless in the context of modern warfare.

Law firms are in a similar position today.

For the past few centuries, the primary cost for a firm has been lawyers and their training and upkeep. In more recent times, larger firms have also spent large sums on acquiring and maintaining high-quality offices in expensive business locations. As salaries and rents increase, clients have ultimately had to bear the cost in higher fees.

Technologies that are now readily available (or in development) are starting to eat away at the traditional model. They cost more than the basic IT tools already in use (typically email and document processing and management). It is a reasonable assumption that a firm of the future will spend a much higher proportion of its budget on technology than it did in the past, and a lower proportion on people (some of their functions being done automatically) and offices (as people work much more flexibly, using mobile devices and in non-firm locations).

So it is interesting to read in the Legal Support Network’s Legal IT Landscapes 2015 report that the top 100 UK firms are not investing hugely on their IT:

Our results show that top 100 firms spend on average 4.1% of revenue on IT (there were some that spent 8-10%, so you can imagine the other numbers). Though this metric isn’t one I’d use alone, and it puts law firms squarely alongside other professional services businesses (according to Gartner), many would say that legal businesses should be spending more, to innovate and build competitiveness. Let me put that 4.1% figure in context, too: education, media and entertainment, and banking and financial services all spend more – banking’s spend on IT as a percentage of revenue is 6.3%.

The top 100 firms are facing competition from a range of new entrants. Some are offering technology directly to legal consumers. Some have created businesses based on a different model — different in terms of office use, people employed, and technology developed. They are almost certainly all spending significantly more than 4.1% of revenue on technology — some may surpass 10%.

The future of law will involve more technology. There is no doubt about that. Some artisan law firms will continue to exist, but the bulk of legal work will be done in businesses founded on technology platforms that go beyond word processing and email. Interestingly, many firms are working alongside the new entrants in the development of new ways of working. As Simon Wardley points out in a post describing the commoditisation of part of the entertainment media, doing so betrays a completely inadequate strategy.

Such a deliberate move by a commissioning company – the chess equivalent of Fool’s mate – should never work but it does, in industry after industry. Yes, I am saying that companies often support the commoditisation of an underlying component or constraint without realising this will reduce barriers of entry into their field and ultimately commoditise them. Companies seem to act thinking of the short term with no understanding of the impacts to themselves.

Most of the problem appears to be that companies cannot see the environment (i.e. they have no map) and aren’t used to any actual form of strategic play. To be honest, this is like stealing candy from a baby except the candy is worth millions or billions. What is really frightening, is it takes a couple of hours to map out and work out such a play. There is no way on earth you should be able to get away with this and I’m afraid it gets worse.

So, incumbent law firms should be investing more in technology, but they should also do so more strategically — armed with a really good understanding of the terrain they are fighting on. If they don’t, they become as useful as the water-trough pictured at the top of this post — fit only for decoration.