Law Firm Strategy – Are law firm leaders in denial about the perfect storm or hanging on for the final big catch?

Posted on: May 6, 2011

An article on law firm strategy written recently by myself (Kim Tasso, management consultant in professional services) and Roger Bell (a strategy consultant for listed companies). Please note that the George Clooney references were my idea !

Whilst the media focuses on the latest development in the onslaught of change facing the profession, it is easy to lose sight of the big picture. Imagine looking at things on a ship’s radar. On the outer rim there are dramatic global changes affecting all sectors – massive population growth, deep and prolonged recession across the developed world, eye-watering growth in the BRIC (Brazil Russia India China) territories and unrelenting pressure from astonishing technological advancement.

Closer to the centre but surging in at an alarming rate, we see issues profoundly affecting the future supply of the most precious raw material needed to sustain the legal sector’s growth – people. The emergence of Generation X with their digital native attitude to technology and their frustrating counter-culture drive for fairness in all things, responsibility for the wider environment and a desire for work-life balance. And, heresy, a disinterest in the primary incentive of partnership status and a distrust of all things authoritarian.

Crashing to the core – after centuries of protected and almost effortless double digit growth – is wave upon wave of erosion – deregulation, commoditisation, productisation, consolidation, client sophistication, price pressure, removal of public funding and the undermining of the legitimacy and respect for the legal profession. And while the death toll for the billable hour is getting louder (when, oh when, will someone please get to grips with the notion of value billing?), the lure of the comfort of trusted household brands moving into the sector looms darkly on the horizon.

The fleet of major law firms is braced for the hurricane. They huddle together seeking safety in numbers. Many have contemplated taking a new route to a fresh ocean with calmer waters, but none is perhaps brave enough to break away and strike out alone. No one is prepared to seize the first mover advantage for fear of jeopardising the apparent calm at the eye of the storm where the fish – for the time being at least – are still plentiful. Or are they in denial, a modern day equivalent of King Canute seeking to hold back the unrelenting tide of change by sheer force of will?

Business school case studies often reveal that the player that precipitates the total market meltdown and restructuring is frequently not one from within but the new kid on the block or the external observer. While law firms are used to profit margins in the 20-40% range, the rest of the world would count itself fortunate indeed to achieve half or even a quarter of that. And therein lies the final piece in the perfect storm scenario, for now the legal profession has been opened to outside investors on the global commercial stage who will in turn bring with them and insist upon a more commercial and longer term orientation.

But what can the firms do? Either they lack the “strategic muscle” or the management dexterity to  carve out consensus, invest in journeys through unchartered waters, change direction on a pivot and take all those highly trained, highly paid and highly individualistic folk with them or they look at all the changes and argue over which are real threats and whether or not to risk doing anything.

The problem isn’t a neat one. It can’t be handed over to the finance, or marketing, or human resources or the other specialist resources they have.   At first glance the larger firms might consider bringing in McKinsey or Bain management consultants. But these people don’t understand the finer points of the profession, and whilst a wizened partner from these consultancy giants might provide the insight needed, the armies of young analysts who will drill to the core of their economic engine will prove a barrier to credibility. An insult to the legal legacy.

So do law firms wait to die, be devoured or dispossessed of the ownership of their precious client relationships? A fast or slow demise – Hobson’s Choice.

So can the firm’s do it themselves? Yes, but the journey is treacherous. And through unchartered waters.  The first step is to be clear about the governing objective of the organisation by answering “what do we want the strategy to deliver?”. Easy to say and yet in so many firms the only thing that the owners can agree on is to maximise short term profits – often due to the “strategy day” discussion which is frequently nothing more than an add on to the budget process.  Such a short-term focus fundamentally works against investment in significant research and development, marketing or a redefinition of the business model. Furthermore such a mindset runs counter to how the stock market and, by inference, how outside investors value businesses.  There is compelling evidence that the stock market takes a much longer term perspective than many commentators would have you believe.

The second step, once the governing objective is articulated and agreed, is to assess the attractiveness of the markets and to agree where investment and effort will focus – Which geographic territories? Which sectors? Which services? Which processes and channels? Yet many law firms lack the discipline, the tools and the metrics to undertake this analysis in an objective way – or the appetite to make hard decisions based on rational argument as opposed to emotional loyalties and industry legend. They are in a riotous sea, buffeted by many currents, and seemingly unable to select and chart a course.

The third step is equally unpalatable as it puts the business model under close scrutiny. And the comparisons must go beyond the competitors who share the same commitment to the permanent propagation of the partner:associate pyramid. The firm must be clear on its competitive and differentiating value proposition – exactly what it promises to deliver to its clients – and ensure that the price (not just the cost) is aligned with client expectations of value.

The fourth step is one where many firms struggle already on a daily basis – the execution of strategy. Firms are not stupid – they often know what to do. But there is often a lack of motivated management resource of the right calibre and credibility with the authority to act and to change things. The management team must select just three or four critical issues that will deliver the vision and to pursue these with a fierce determination that knows no distractions. How many firms have a strategic to-do list spanning pages and pages of great ideas – which divide opinion and spread resources too thinly to have any noticeable effect? Such an approach is almost designed to fail and we could write a book just on the available tools to develop effective execution strategies.

It is a sad fact that in many great law firms the people with the intellectual capability, the strategic foresight and the ability to influence and move their partners are simply too busy earning today’s super profits or in a silent collusion not to rock the boat as heretical radicals.

We stand on the shore and we fear for the souls. Will the legal profession, like George Clooney in The Perfect Storm, stick bravely and determinedly at the helm while the huge waves wash it away to oblivion or will it, like the man in real life, reinvent itself and appear in another Hollywood Blockbuster as a completely different character in a much more conducive environment.

 

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