Adventure of Strategy

No commentary necessary .... 3 minutes and 42 seconds on what cloud computing is and why you need to be thinking about its implications.

Below is a Flash movie clip about some of the technology built into the next generation XBox 360. Quite mind-blowing (and, as ever, my first thought is:  if this is what is being achieved now, where will this technology be in five to ten years?) Now, imagine:

The conversation is not between Claire and a computer-generated boy called Milo, but between Claire and a computer-generated professional (perhaps a lawyer ...) from whom she is seeking advice. Let's call him "Bob." Imagine that the piece of paper that the system is scanning and "handing" to Milo (or Bob) contains not a picture of an orange fish that Claire has drawn but a document to be reviewed. Imagine Bob completes that review, comprehensively and accurately, in just a few seconds. Imagine that Claire develops a deep and trusting relationship with Bob, whose personality, gender, looks, language and demeanor she can even modify to her preferences. Imagine furthermore that Bob is wired into an enormous database of technical information, well beyond the capacity of any single human mind or even group to assimilate, and that he/she is equipped with advanced artificial intelligence capabilities ....

Naaah! Couldn't ever happen!!!! Could it?

Nothing whatever to do with strategy .... but here's Dan Riskin who could be, in my humble opinion, the next David Attenborough (only way funnier and cooler.) He's also Gerry Riskin's son!

Dan Riskin on Craig Ferguson's 'Late Show' (I'll bet he'll be on TED before too long, too.)

Part 1

http://www.youtube.com/watch?v=0S4G3ODnZY8

Part 2

http://www.youtube.com/watch?v=KLbZSnFXzKM

WARNING: DO NOT WATCH WHILE EATING!

I'm sure that at least some of this blog's readers know what it is like to be the poor dentist on the other side of this telephone call.

One of the latest offerings from Managing Partner comes as a complete breath of fresh air.  Alternative Fee Arrangements: Values Fees and the Changing Legal Market is written by Pat Lamb, who I count as a good friend, but who more importantly is managing partner of Valorem Law Group in Chicago. Valorem is a law firm that has been successfully practicing the art of not billing by the hour for some years now. Many readers of this blog will no doubt also know Pat's excellent blog In Search Of Perfect Client Service.

Earlier today, I enjoyed listening to Aric Press's webinar on the Amlaw rankings in 2009 (being a preview of what is published in the upcoming edition of American Lawyer.)

His comments on the trends in the Amlaw 50 (the fifty largest grossing law firms in the USA) over the past twenty five years were particularly interesting. Despite the slight dip for most U.S. law firms in 2008/9, the long trends from 1985 up to today for the Amlaw 50 are:

Gross earnings:  Up 13x

Headcount: Up 4x

Revenues per Lawyer: Up 3x

Profits per Partner: Up 5x (and still 2.5x when 1985 dollars are adjusted to 2009)

Those twenty five years encompass almost the entire careers of many of the senior decision makers in U.S. law firms today.  For such leaders, having experienced such immense tailwinds for almost all of a quarter century makes the possibility of this trend reversing almost inconceivable. I am also not suggesting that the trend itself is likely to reverse anytime soon ... but should these leaders have the same level of confidence in their business models remaining the same? That is, barring tweaking like better cost-efficiency, moving associates to performance-based compensation packages and negotiating a few alternative fee arrangements with clients? Will the most profitable business model/s for delivery of legal services in the future be radically different to those that succeeded so dramatically in the past?

Aric did touch on the "is the model broken?" debate in his webinar but he hedged his bets and avoided making any predictions himself. To be fair, the scope of this issue extends far beyond the topic of the Amlaw 200's performance in 2009, so this was probably wise. If the events of the past two to three years did cause hairline cracks in the business model of America's top law firms, though, those may yet be nothing compared to what might come from the hammer poised across the Atlantic.

A debate on this topic was held in London a week ago by Legal Week's Future of Legal Services Forum. Much naturally revolved around the impact of the Legal Services Acts which, as I am sure most readers know, involves non-lawyer ownership of businesses dispensing legal services in England and Wales, amongst other things. Here are some of the comments quoted from that event:

" ..... new entrants [are] not interested in the law firm model." and "..... the biggest competition will come from the outside."

Neil Kinsella (Chief Executive, Russell Jones & Walker)

"Venture capitalists see more opportunities in setting up new businesses to compete with law firms, as opposed to direct investment into existing firms."

Simon Beswick (Managing Partner, Osborne Clarke)

In my humble opinion it is almost certain that radically different business models will indeed emerge from the crucible that will characterize the legal services market in England and Wales over the next few years. Some of the experiments planned are very well funded. The brains behind them are amongst the best around and I don't just mean legal brains, either. I mean legal brains working together with finance brains and with strategy/business brains and with marketing brains on equal terms with each other .... a powerful cocktail indeed. Will there be failures? Of course, and these will no doubt be held up as evidence that the Legal Services Act is a terrible idea, by those who feel that way. There will be successes too, though, and there will be those that thrive in the new environment and those that fail.

How will those emerging business models impact the markets of U.S. law firms? In truth, it's difficult to say at this early stage. The convergence of the new models together with the macro-trends of globalization, exponential advances in IT and the entry of new legal services markets (India being at the forefront) into the global legal services market could spawn a Black Swan of monumental proportions for the U.S. legal services market, though. Time will tell.

Law firm leaders have a tough task balancing short and long term priorities and there is not much for them to do about this right now except (1) watch carefully as things unfold and (2) keep asking the difficult "what if?" questions.

But they shouldn't lose sight of this ......

Check back through the entries in this blog and you'll find about as many product endorsements as teeth in the mouth of a chicken. I don't "do" product endorsements. This time, I'm making an exception because it is a product that I am so delighted to have finally found for myself to use.

Laptops get stolen or need to go in for repairs .... flash drives get misplaced .... perhaps placing sensitive client or company data at risk. There are a number of ways of encrypting data on these devices but this one .... Encrypt-Stick from Canada-based ENC Security Systems .... looks as though it meets the dual requirement for security and ease of use.

The application uses Advanced Encryption Standard (AES) and 512-bit polymorphic encryption. The polymorphic code has never been hacked, according to Encrypt-Stick, and it is at least 8x stronger than AES. It is downloaded from the vendor's website onto a flash drive which, when inserted into a USB drive on a computer, is used to create encrypted "vaults" on the computer's hard drive, or on other flash drives, or on any other storage media.

It may or may not meet the security standard for national security agencies .... I don't know .... but it certainly meets mine and at $40 I'm going to get myself a license as soon as I've finished typing this blog post!

Thomas Barnett in his book The Pentagon's New Map: War and Peace in the Twenty-first Century describes a brief that he gave senior U.S. Naval commanders shortly following the demise of the Soviet Union, on the best policy to adopt towards what had become the Russian Navy. The prevailing wisdom at the time was that the fledgling Russian Navy was every bit as much a threat as was its predecessor and that the policy should be to continue to stonewall them on arms control. Barnett saw  the possibility of different scenarios emerging. His analysis concluded that wider economic pressures could well ensure that the Russian fleet would wither away by the end of the 20th Century. His story contains lessons for strategists trying to effect change in any kind of organization.

On 19 May 2010, I am conducting a one day master class at Holborn Bars in London, UK on value pricing and alternative fee arrangements for law firms. My Edge International partner Dan Mahoney, former general counsel for DuPont and father of the world renowned DuPont Legal Model will be joining us for part of the day from the United States by teleconference. If you're interested in attending, please feel free to download a PDF brochure here or visit the organizer Ark Group's web site here.

The Resource-based View of corporate strategy dictates that a firm's basis for competitive advantage lies in the way that it applies the unique bundle of valuable resources available to it. In this case, one person's strategy for getting from "A" to "B" appears to have included a somewhat unusual resource ..... a garden hose. (Photo taken in a parking lot in South Africa.)

If you are at all interested in what is happening right now with value pricing of legal services / alternative fee arrangements then please do join me and my friends Pat Lamb and Jordan Furlong for a webinar on this topic on 18 March.

Who says British lawyers are a dour lot? Not true! In this video, now out on YouTube, an all-star cast from law firm Macfarlanes show that they can do far more than strut their top tier tax and finance stuff, as they bring down the house at Koko night club in London at at their annual charity cabaret night. Good for Charles Martin and his team! It looks like The Lawbreakers at Wilsons may have some competition as to who "rocks" more :-)

Hat-tip to RollOnFriday.

Courtesy of Add Letters; hat-tip to Verasage.

My friend and colleague Jordan Furlong has posted a piece on his blog titled The new rules of pricing, that is well worth a read. I have posted the comment below in response. This is an important topic and one on which it is well worth getting a discussion going. If you'd like to add to it, please would you click the link to Jordan's blog and do so there by also posting a comment / response?

I’ve just finished reading Nobel Prize laureate Joseph Stiglitz’s new book Freefall: America, Free Markets, and the Sinking of the World Economy, which has been an educating albeit somewhat disconcerting experience. A proponent of New Keynesian Economics, Stiglitz joins the long, long queue of people who over the years have pointed out the dangers of compensation systems that over-emphasize production, in particular with stock options: 

“In many sectors where “performance pay” had been tried,” Stiglitz writes, “it was abandoned long ago. If workers are paid on the basis of a piece-rate and they have any discretion – which they almost always do – they produce the shoddiest products they can get away with. After all, they are paid on the basis of quantity, not quality.  [my underlining] This phenomenon occurred throughout the financial chain" [in the disaster that befell global financial markets in 2007-2010.] pp 151-152

It is not too many years ago that associates in one of the larger offices of a premier global law firm drafted a memo to their partners, that found its way into the press, in which they complained that their extremely high billable hour targets may have caused clients to be double-billed and otherwise overcharged. This firm found itself in the spotlight not because the situation was unique but because it was a memo from within that firm that was leaked and many a managing partner in other firms no doubt looked on aghast and thought to themselves “there but for the grace of God go I ….”

The fact is that very high salaries to newly minted attorneys (in some cases salaries higher than those earned in other professions after decades of experience) coupled with “money in must exceed money out” coupled with client intolerance for paying high rates for inexperienced lawyers and also the rapid commoditization of many legal services and so pressure on fees generally …. is a very toxic mix. Nor is the problem restricted to the ranks of the newly minted.