Adventure of Strategy

I'm getting a little flak from some of my more pessimistic friends at this comment that I made a few days ago in my post on the WEF 2010 annual meeting in Davos:

"While the possible imminent economic collapse of Greece is of intense interest to Germany and others who will have to bail the nation out to preserve the Euro, it is unlikely to be more than a transient blip on the radar of global affairs."

Well ..... Morgan Stanley have just joined others that appear to agree with me (see their post A European Slowdown Would Only Nick the US.)  Short term gyrations in the markets do not constitute an unraveling of the western way of life.  The Forbes article on the Global Debt Bomb (alluded to by my friends) is a worthwhile read but has a somewhat different focus.  I fully buy the assertion that the pain of recovery will not be felt until interest rates start to increase (as they most certainly will as the mountain of debt that has been amassed starts having to be repaid at exactly the same time as demand for spending on healthcare and social security increases.)  Then, as the Forbes article points out, "the taxpayer will have the devil to pay."

BUT .... I hold firmly to my view that in times of radical change and discomfort such as we are experiencing, opportunities abound for them that can maintain acuity and optimism.  What is required is a clear strategic perspective so that the right opportunities are seized and the wrong (superficially equally attractive) opportunities let go.  It is important, in stormy seas, to focus one's attention on the navigation instruments and steering the ship; not the size of the waves, the intensity of the wind or why life is so unfair that there should be a storm in the first place.

Apologies if some of my blog readers find this post a bit obtuse.  Those at whom it is aimed know who they are and I thought the topic was of wide enough interest and strategic importance to warrant airing publicly (but with no reference to the identity of those concerned, of course.)

The annual World Economic Forum Annual Meeting in Davos, Switzerland has come and gone again for 2010. Unsurprisingly, it was not the happiest of events this year. The global financial crisis proved to be a popular carcass on which to feed. As usual in such global networking efforts, individual national interests trounced actually finding long-term global solutions, so there was not much progress on that front. There are a few conclusions that can be drawn from the proceedings, though, that would be of interest to leaders of law firms and many others:

My “aeroplane reading” this trip has been David M. Smick’s “The World is Curved.” Bill Clinton has called it one of the top three books on the financial crisis. Alan Greenspan has called it “an essential read for those who wish to understand the workings, politics and distresses of the global financial system.” Others endorsing the book are a veritable who’s-who of international finance.

The book outlines how the crisis of 2007 – 2009 unfolded both generally and, in quite specific and easily understood terms, exactly what went wrong in 2008 and how/why it might recur. He points out that the actual quantum of sub-prime debt was quite small, relative to global capital pools. (A mere $200 billion in a global economy worth several hundred trillion dollars.) The problem was the lack of knowledge of who owned the toxic assets and the consequent breakdown in trust. He stops just short of actually predicting that we will see a repeat performance in due course in the Far East, given the ballooning number of non-performing loans and far more opaque banking practices in China.

The Big Picture:  A VERY COOL, 165 second summary of what lies ahead for the legal profession by our friends at Beaton Consulting in Australia. Adobe Flash (free download) required.

Are YOU ready for the future?

I'm blogging from a Starbucks near Embankment station in cold, windy and somewhat rainy London today.

What do you do when knowledge that you have been selling becomes publicly available .... for free? Another milestone along this trend line surfaces today with the launch of a free legal search service engine from Google. From the Google blog:

"Starting today, we're enabling people everywhere to find and read full text legal opinions from U.S. federal and state district, appellate and supreme courts using Google Scholar."

More evidence that in the future ... the near future ... law firms that are relying on simply selling knowledge are going to be in for a tough time. Clients will buy deep, thoughtful judgment and business advice from their lawyers, but not simple repackaged knowledge.

Posting today from Miami International Airport on my way to London and thereafter to Mexico City to deliver a keynote address on current global trends and their likely impact on the legal profession at the Lex Mundi 2009 Latin America / Caribbean Regional Conference.

One of the changes that is beginning to loom large on the radar is the matter of "alternative fee arrangements." My friend and colleague Jordan Furlong has tackled the latest on this topic in a thoughtful and lucid (as usual) post captioned Beyond Billing on his "Law21" blog .... well worth a read!!!

We all heard back in the midyear about Rio Tinto's initiative to outsource a significant proportion of its in-house legal work to India, in the hope of achieving a 20% cut in legal spend. (See this June 2009 article about it in The Times.) Well, nearly six months on and the arrangement seems to be working rather well. In this webcast, Richard Susskind asks Leah Cooper, Rio Tinto's Managing Attorney and head of the 100+ lawyer in-house team worldwide, how many law firms have been on the telephone to her to find out how the initiative is working and what they can learn from it. Her unbelievable answer? It's not law firms that have been calling at all. General counsel and other in-house legal advisors from across the globe have, but not law firms.

This webcast is a REAL eye-opener. To be clear, this is not about business process outsourcing / back office work, but lawyers from CPA Global undertaking real, substantive legal work, sometimes in conjunction with Rio Tinto's panel of outside law firms, as a natural extension of Rio Tinto's in-house team. The same quality of legal service, at a cost differential of 1:7.

These are absolutely essential insights to assimilate if you are a leader in a law firm that aspires to continue to serve sophisticated corporations in the future, from somebody who is leading the way. Despite its length, I highly recommend that you watch the webcast right to the end. The conversation moves more in the second half to how the arrangement with CPA Global really works in practical terms, and how it has affected the law firms that serve Rio Tinto.

As a footnote : Firms that think that they are going to simply get away with passing on a 10% fee increase to their clients in 2010 .... just don't get it. See Pat Lamb's DejaVu all over: bad habits are hard to break and Susan Hackett's Are Firms Tone Deaf? Why the Push for Rate Increases in 2010? The key, it is clear, must be to find ways to achieve the same or better net income by working differently; not just pushing up rates or working more hours.

My friend and colleague Gerry Riskin has just posted a video similar to the Shift Happens video of a year or two back, specifically about social networking. It is compelling and important information for those trying to get their minds around what the impact of social networking is going to be on life, professional practice and the art/science of strategy over the next few years. Very cool!

Attached is an article that I wrote as the cover article of the current edition of FD Legal in London. I have received gratifyingly positive feedback to it from managing partners and executive directors on both sides of the Atlantic and beyond, to whom I sent advance copies, so am posting it for all readers that do not see FD Legal (which is a journal aimed particularly at law firm financial directors in Europe.)

The article concerns changes that might emerge over the coming 5 - 10 years in the way that legal services are delivered to clients across the globe. Feedback, comment and constructive criticism, as always, is most welcome.

Download file

Two swallows do not make a summer, as the old saying goes, but here are a few links to current articles and blog posts that give some cause for optimism:

Chinese manufacturing is expanding for the first time since August 2008

End to Europe's recession in sight?

Good economic news?

So this is what a recession looks like ....

Clearly, we are not out of the woods .... not by a long way .... and there is undoubtedly more pain to come in the next few months. All but the most optimistic economists whose work I am tracking to make sense of the implications for law firm strategy are putting real recovery firmly into 2010. But .... things do look like they will start to improve before then and we may look back and see that the bottom of the recession "trough" was round about now, or even that it occurred a month or two ago. More importantly: a clearer picture is also emerging now of what the strategic environment for law firms will look like post-recession. It is very clear that it will be substantially different, in many important ways, to what we were used to in the 1990s and 2000s.

For the past six months at least, managing partners have been mostly too busy firefighting to think deeply about strategy. This is unsurprising. The most brilliant strategy in the world means nothing if the next skirmish proves fatal. The time is close though, if not already here, to start shifting the focus back to the medium term. By "medium term," I mean the period from the return to positive GDP growth (i.e. early 2010) up to three to five years (still a useful time-frame) later when the recession's effects will have been fully diluted into a new set of market vectors. The reward for doing so will be to identify actions that need to be taken in late 2009, in order to drive your firm forward in that medium term, while your competitors' eyes are still "off the ball." For some firms, this will mean strengthening their position. For others, it could mean the difference between prosperity and dissolution.

This medium term will almost certainly remain full of surprises (of both the opportunity and the threat variety) so agility and flexibility are critical. In turn, this will take a very different approach to strategic planning, to that which most law firms (and others) used in their last strategic planning cycle. So, even if you are not ready to embark on a new strategic planning exercise just yet, it is time for you to start thinking how you and your firm need to change the way that you think about strategy and how you intend approaching strategic planning this time around.

If you'd like to discuss options further, by all means email me. I'd love to hear from you.

How much would your firm charge to compile a term sheet for a typical venture capital deal?

$100,000 .... ?  $10,000 .... ?  $1,000 .... ?  $100 .... ?  $10 .... ?

Whatever your answer, you've just been undersold. Wilson Sonsini Goodrich & Rosatihave (amongst the most august US law firms by anyone's standards) have just launched an apparently very comprehensive Term Sheet Generator for venture financing . . . free of charge. Ross Holman at Strategise takes up the story:

"Why would Wilson Sonsini do this? It's not really costing them anything -- by their own admission, it is a web-based, generic version of a tool that they already use in-house. Maybe the end result will work for some venture money, but my guess is that there's enough that's generic that you may need to call Wilson Sonsini for advice and/or customization: give away the artifact (i.e., the term sheet) and make your money on the resultant service. Will some other attorneys use this and charge their clients for it? Probably. But my guess is that Wilson Sonsini is not after the clients that would go to those types of attorneys.

I think there's a massive paradigm shift that needs to happen in the field of law. Instead of charging hours to create what are essentially templated forms, agreements, contracts, etc., why not just sell the template for, say, $200? Buy some Google AdWords and advertise for very little per month, especially if you are selling a very specialized document. People can buy the template 24/7/365 from your website and if it's good enough as is, then you are still making money while you sleep and the purchaser feels like they got a good value. However, if the purchaser needs further advice or reviewed changes or some other service related to the document, then you can work out an hourly (flat?) fee for the services."

Ross and others preaching a similar message including Mark Chandler (general counsel of CISCO,) and Richard Susskind (author of 'The End of Lawyers') are dead right: the days of selling knowledge or standardized templates by the hour are almost gone forever. In the (near) future, information and "artifacts" (I love that term ... ) will be freely available in the market. Professionals will only make money where they need to apply deep expertise and judgement to their clients' specific businesses in ways that yield high value. For this, they will be able to charge superior rates not only because of the high value to the client, but because such deep expertise and judgement will remain rare in the market given the effort required to acquire it and remain up to date. For those relying on less sophisticated services, the price race is on .... all the way down to zero.

Same goes for the consultants that serve those professionals :)

It's nearly midnight here now and I've just finished going through the PWC 12th Annual Global CEO Survey. The main body of it (+/- 40 pages) at any rate. There are still another +/- 100 pages of appendixes to digest later. If you have a leadership role in any commercial organization, I urge you to read it too. If you don't have time to do this, here is a +/- 4 page headline commentary / summary:

Depressing .....

Cees Bruggemans is one of my favorite economists. He's the chief economist at First National Bank in South Africa. Sometimes tongue in cheek with a wit as dry as the wind in the Sahara, his weekly emails are thought provoking, interesting .... never boring. It is also interesting to read perspectives on the global crisis from a 'guru' in a market that is not in North America or Europe but is most certainly affected by what happens there, so a close observer of developments. I hope that Cees does not mind that I reproduce his weekly email just received in its entirety. The address to request to be put on the mailing list is at the bottom.

Cees: You really need to discover RSS feeds. Email is so "20th century" and not all of us are on Facebook, either!  :-)

Law Fuel in New Zealand reports on a survey by the The Lawyer (UK) amongst managing partners of major City law firms. The article says firms are preparing staff for financials at 2003 levels, but that firms said uniformly that they expected a recovery from the recession within 18 months.

That would be by late 2010; which would in turn mean that the Economist had it nearly right (slightly under-estimated) when they calculated about a year ago (May 2008) that it would last for ten quarters measured from its commencement in late 2007. See pic below from my deck of presentation slides on "The World and the Legal Profession in the 21st Century," comparing the current recession to recent predecessors. The slide is based on a diagram that the Economist published in the edition of 17 May 2008. (Click on thumbnail for larger version.) At that time, of course, Lehman brothers were still trading and the liquidity crisis had hardly even begun to manifest itself. Also, the Economist is talking about how long it will take to return to pre-crisis levels. The managing partners, I suspect, are talking only about how long until we return to positive growth. 

Like so many non-economists, I am trying hard to make sense of what is going on with the Obama Administration’s efforts to revitalize the US economy. The current furore about the supposedly-leaked “Geithner Plan” is a case in point. (Timothy Geithner is the US Secretary of the Treasury.) As usual, there is apparently a clear dividing line between those highly intelligent, well informed and qualified economists who believe it is wonderful, and those equally intelligent, well informed and qualified economists that believe it borders on treason.

It would seem to me useful to try to reduce the issue to some hard realities and work from there:

Here is a vastly improved version of the "shift happens" mini-video that was doing the rounds a year or so ago. This version was apparently flighted by Sony at their executive conference this year. Hat tip for the YouTube link to my old friend John Henry Looney of Sustainable Direction in England.

On the same topic (from the perspective of the legal profession, anyway) Richard Susskind's new book "The End of Lawyers - Rethinking the nature of legal services" is now available. I'm reading it at the moment and will review it for you when I'm done. At first glance, though : absolutely essential reading for anybody either leading a law firm or, in 90%+ of cases, practicing law in the 21st Century.

Thanks to credit derivatives (financial contracts that allow investors to speculate on / protect against default) we can observe how likely global markets think that it is that the United States will default on its mounting debts. Last week, markets pegged the probability of such a U.S. default within the next 10 years at 17 to 1 (6%.) A year ago, it pegged the probability at 100 to 1 (1%.)

Ms. Juhi Garg

Edge International is delighted to announce the addition of Ms. Juhi Garg.   Juhi holds a Masters in Business Law from India's foremost law school, the National Law School of India in Bangalore and is also a graduate in media from Delhi University. With Juhi on our team, Edge International will offer our full traditional range of consulting services to Indian law firms. In addition, we will be focusing on assisting Indian law firms with their strategies to develop business in the western hemisphere and to assist western firms wishing to take advantage of the burgeoning Indian legal services market.

India is a legal services market that is attracting global attention, for good reason. It produces more law school graduates annually than any other country. Its impact with outsourced legal services in western markets has been significant and this is set to grow exponentially as western clients seek to cut legal costs in the face of the current economic recession. Also, upcoming legislation is expected to significantly relax restrictions on foreign firms and lawyers practicing in India. Several international firms have already entered into arrangements with Indian law firms in anticipation of this change.

 See Juhi's biography by clicking here.

PUNCHLINE:  If you are a firm based in Australia, New Zealand Canada the US or UK (or anywhere else) and are interested in exploring an arrangement with an Indian law firm and you would like counsel on the selection and vetting processes, please allow me, Juhi Garg or Gerry Riskin to explore helping you.

We wish that we had been wrong, but readers of our blogs will know that my partner Gerry Riskin and I foretold as long ago as mid-2007 that the economy was heading for a wall and that law firms needed to take heed and prepare for rocky times. We do not have huge mainframe computers and sophisticated economic analysis software. Most others that do, at that time held precisely the opposite view to us. At least publicly.

We were not alone, though. Renowned economist Nouriel Roubini earned the nickname “Dr Doom” for his then (in 2007) contrarian view of the economy.

“The bursting of the housing bubble is going to lead to broader systemic banking problems,” he told an IMF audience in 2007. “The rest of the world is not going to be able to decouple from the U.S. even if it is not going to experience an outright recession like the United States.”

What led us to the conclusions that we reached, while those focusing on highly quantitative analytical models did not? In short:
 

• Markets are far too complex to allow all the variables to be built into predictive software programmes.

• Barring artificial intelligence software (which is still too far on the fringes of R&D .... for now) software by definition can only process data that is inputted, so is not able to account for unforeseen circumstances.

• Economic data is inherently retrospective and therefore only a reliable predictor of the future when current circumstances sufficiently resemble previous circumstances already captured in the data.

There has been far too much slavish reliance on the output of complex quantitative econometric formulae, at the expense of rigorous qualitative logical thought. “Show me the numbers” is all very well and Peter Drucker’s admonition that “if you can’t measure it you can’t manage it” has much truth in it. But the most sophisticated quantitative analysis in the world is no replacement for well informed, critical-analytical human brains looking at the qualitative aspects in ways that computers simply cannot.

Roubini’s proposed solution to the economic crisis is as follows:
 

• Temporarily freeze all foreclosures.

• Create massive fiscal stimulus packages of at least $400 billion for public works, infrastructure spending, unemployment benefits, and tax rebates to lower-income households. Provide grants to state and local governments in dire need of funding.

• Coordinate interest-rate cuts globally.

• Temporarily insure all bank deposits. Allow insolvent banks to shut down and partially nationalize solvent but distressed banks.

• Open credit lines to solvent financial institutions and companies.

• Inject money into banks by buying equity.

• Coordinate a global effort to gradually adjust trade imbalances.

Gerry and my advice for firm’s that have been hit by the economic downturn is to adjust your business model to assume that fee revenues may decrease by another 10 – 20% in FY 2009. This may include:
 

• Identify those areas of your business that can be made to be profitable if business contracts further and those that cannot. Unless there is a really compelling reason why the firm should subsidize the non-performing areas, perform triarge (cleanly and humanely.)

• Monitor, collect and conserve cash unrelentingly. Eliminate all non-essential expenditure.

• Enhance revenue flows. Unless your people are already truly expertly skilled in business development and client retention, invest in behaviour-based skills coaching (not just training,) focused on specific key clients and their issues. Out-competing other firms for business has never been more critical.

• Keep your overall strategy in mind. Be alert to seizing appropriate opportunities that arise from difficulties in other firms. Proactively seek them out.

• Realize that when this time has passed, the world will be a different place and keep the changes that are taking place in the market on at least the edge of your radar. They will drive the best strategy for you to adopt when markets return to “normal.”

• Over-communicate both within the firm and with clients. Non-communication breeds rumours, then fear, then sometimes even panic.

• If a sober and objective analysis reveals that your firm might not survive such a further contraction, consider merger or acquisition (or other) opportunities now, before you are forced to do so with your back against the wall. Get outside help for this. You will most certainly encounter very strong resistance from partners in denial.
   

Whatever you do, please make sure that you don't just accept quantitatively derived conclusions inside your firms (or from consultants) without applying your mind and the minds of trusted colleagues to ask the critical "so what ...." and "what if ...." and "what else ...." questions. Part of the allure of quantitive data is its perceived preciseness (especially when presented to four decimal places) and the ease with which it can be presented in bar charts and other graphics. Don't be dazzled by this. If your gut tells you something different to what "the numbers" do, at least entertain the possibility that your gut may be right!

1694 is the year that a Royal Charter was granted to the Bank of England. Queen Mary II of England died, leaving King William III the sole ruler of England, Scotland and Ireland. The year marked the unofficial end of the Lao empire of Emperor Lan Xang in China. There was a great fire in Warwick and a treasure fleet of 13 ships under HMS Sussex was shipwrecked of Gibraltar with the loss of about 1,200 lives.

Until today, it was also the last time that England saw a Bank Rate as low as 1.5%.

Also today, Clifford Chance announced that partners are being asked to contribute up to £100,000 to the firm's capital and that the firm is set to make almost 10% of its lawyers in London (up to 80) redundant.

This is the Bank of England's monetary policy committee’s statement from earlier today:

The OECD Economic Outlook No. 84 dated November 2008 includes this very neat graphic of which nations in the world are likely to be in recession next year and which not. Blue indicates negative growth in 2009; orange indicates positive growth; white indicates zero growth and gray indicates that no forecast is made. Unsurprisingly, things look quite hairy for advanced economies though less so for the developing world. We need to be careful about stereotypes such as "first world" or "developing country" because the assumptions on which these stereotypes are based are often dated (see Hans Rosling's excellent presentation Debunking third-world myths with the best stats you've ever seen at Ted.com if you need convincing on this issue.) The graphic presents a compelling picture nonetheless. Warning: TED is addictive!

Hat tip to Menzie Chinn at Econbrowser, who provides some detailed analysis and comment that it would be redundant for me to duplicate when you can as easily read it on that blog.

OK .... I'm stumped. I may not be an economist, but something just doesn't make sense here to my puny mortal brain. $7.4 trillion (the current total estimated cost of the economic stimulus / bailout package in the USA) is just a crazy figure (remember when it was "only" $700 billion, just a few weeks ago?) Here's Bloomberg's breakdown of the $7.4 trillion. This excludes the more recent bailout of Citi and anything that might go to the three auto dinosaurs, too. For perspective: the GWP (gross world product) of the whole of planet earth in 2006 was $65 trillion, according to Wikipedia, and the GDP of the USA (purchasing power parity) was then $13.13 trillion (according to the CIA) and I'd guess it will probably about the same in 2008. So ..... how does one get to spend the equivalent of > 50% of the total economic output of a country (or 11% of the entire planet's) for an entire year on an economic stimulus package? When that country is already running a deficit? Where does the money actually come from? Bloomberg's breakdown gives headings but doesn't actually answer the question. I can't help worrying that this could all crash and burn in 2009 ..... whatever that might mean! To say nothing of the economic impact of the cost of other economic stimulus packages being implemented around the world. There seems to be a great deal of emphasis on short-term fixes, which usually have a long-term price attached that can be more painful than the immediate hurt. I'd like to say that I'm confident that the great economic minds deployed to fix this are assured of success .... but have a nagging concern that they include those that got us into this mess in the first place.

One thing that I am sure about:  when this recession recedes, the world will be a very different place. Also, that the road between now and then is highly likely to get much rockier before it gets smoother. So, if you haven't torn up the strategic plan that your firm compiled early in 2008 or before, then it really is time that you did. It may well be more dangerous right now than no plan at all. Your strategy right now needs to be focused squarely on (a) short term survival and (b) making sense of what is going so that you can position yourselves correctly for the new market that will exist when this is over. This new market is almost certainly likely to be:

1.  More global

2.  Less dominated by the west

3.  Much more technologically driven

4.  More dynamic and unpredictable than ever before

President-elect Obama really does have his work cut out. Apologies for the cheerful start to the week!

Hat tip to Richard Schuchts for the link to the Bloomberg article.

Just over 60 seconds on this videoclip from Big Think, on what the most exciting things going on in business today are. Highly relevant when thinking about what kind of world both business and otherwise will emerge as the recession passes and life goes on, and how one should be aiming the firm's strategy to capitalize. I am convinced that America is going to grow stronger than ever in the world that follows, on the back of a new entrepreneurial imperative that I can already see emerging, amongst those with whom I discuss these trends. Having a President as culturally diverse as Barack Obama will no doubt help. But that's for another blog post. In the meantime, here's Professor D. Quinn Mills on the Harvard Business School on the topic. Haven't got 60 seconds? The punch lines are: the continued globalization of the economy and the movement into the global economy of more and more nations and more and more people. This leading to far more potential customers / clients and also suppliers / service providers, and more overall prosperity.

Bruce MacEwen of the esteemed blog Adam Smith Esq points today in his post Sand Hill Road Brings You The Head Of A Pig to a presentation that is doing the rounds, originating from Sequoia Capital and now available for free on Slideshare, with a comprehensive collection of graphs and other graphics outlining not only the current state of the US economy, but also the prospects for recovery. Note the comments posted below the presentation .... full range from "idiotic presentation" to "brilliant presentation." Plain data, most of it, so apathetic to human emotion. Bruce's commentary is also well worth a read.

The slide presentation makes seriously sobering reading. If the reality has not dawned already, then this should make absolutely crystal clear that the response of any firm that is not fortunate enough to be benefiting from the Emergency Economic Stabilization Act of 2008 or its global equivalents, the flurry of bank mergers and acquisitions or the steadily increasing litigation, needs to be two-stage:

1.  Conserve cash and chase debtors. Cut costs to the bone. Over-communicate with all in the firm so that everybody understands the need for extra effort to survive the next few years. Over-communicate with clients and step up client relationship initiatives with key clients. Produce better quality work and be more responsive than ever.

2.  Start thinking about what the world will be like when the recession ends. The markets will not "return to normality" as in back to what was before, but settle into an entirely new pattern. As the old saying goes .... the "Golden Rule" is really that "he who has the gold, makes the rules." The gold is now is different places. To see where, click here although the most recent events will have certainly changed some of the data, perhaps dramatically. This will impact global power balances, client needs and will almost certainly accelerate the overall process of globalization.

Point two above, of course, applies equally to those fortunate firms that are thriving on the current turmoil. They simply have more resources to be able to attend to it and actually start crafting and executing new strategy.

If you'd like to chat about how this might impact your firm .... contact me. For nigh on the past year, working through the scenarios that might emerge through the process now under way, and their implications for western law firms in particular, has been the primary focus of my professional practice. There are both opportunities and threats out there .... if you haven't worked through these issues then the worst possible strategy right now might just be the one that you developed and started executing twelve to eighteen months ago. Worse, perhaps even, than no strategy at all.

"Last night, US President George W Bush's right hand, Condoleezza Rice, tried hard to lift the gloom. Her official opening address of Davos 2008 was friendly and upbeat. Exactly the opposite of what we've been hearing from the Republicans here for the past few years. But such is the half empty perspective of delegates that due praise was subsumed by the complaint that the US Secretary of State should have been making these noises eight years ago when her boss took office, not now when he's about to depart from it.

The too-late and "asleep at the switch" refrain about the Federal Reserve kept reverberating in official sessions and private conversations. The few optimists hope this week's rate cut which arrested sliding stock markets will be more than a placebo. Most of those I've been exposed to worry that it's yet another symptom-addressing quick fix which only serves to make the eventually cold turkey even more severe.

That equity markets have become uppermost in minds is reflected in bookings for the various sessions. Rarely have economists been more popular in Davos. Any discussion dealing with the dismal science has a house full sign posted within minutes of bookings opening on the electronic system. Just about anything else on the programme is an easy walk-in."

I'd add to this a comment in the economics blog The Bayesian Heresy, about "what Greenspan would say." It quotes Alan Greenspan in 2001:

Ambassador John Negroponte, the US Director of National Intelligence, was the guest speaker at the Oxford Analytica dinner at Blenheim Palace on 22 September. His address is very well worth the attention of anyone with an interest in the future of globalization, the changing geopolitical landscape, global macro-strategic trends and terrorism.

Watch it here courtesy of Reuters (just under 19 minutes) or read it here.

According to an article in Legal Week just published in London, Clifford Chance is set to move about 300 support jobs from the UK to India over the next four years, in a cost cutting move that is expected to save about £30 million (about US$57 million at today's exchange rate.)

While the firm is largely looking at accounting and IT functions, the move could affect any support staff, with a spokesperson for the firm commenting: "The criteria is: does this job need to be done in this office?"

Click on image to enlarge

Heres a factoid from the Oxford Analytica conference that caught me a little by surprise:

The USA is sitting on oil reserves more than 3 x the total of Saudi Arabia, in the form of oil shales in the Rockies. Much of these can be profitably exploited at $45 a barrel. Major reasons why they have not been more fully exploited in recent times included fear amongst oil companies that supply and demand could go weird again like it did in the 1980s and the oil price could plummet again; and also that importing from the Middle East was easier and cheaper. Until now. A recent USA Today article, Oil Shale Enthusiasm Resurfaces in the West gives a pretty good overview.

I've just spent a most diverting week at Christ Church at the University of Oxford in England, participating in Oxford Analytica's 2007 Global Outlook Conference. Quite fascinating. Over the next few days, I'm going to be blogging on those 'lessons learnt' that are of particular relevance to strategy in law and other professional service firms.

One of the topics that the Science and Society work group discussed was the likelihood and potential impact of a major outbreak of a deadly strain of Avian Flu. According to the experts, it is absolutely not a question of "if," but rather of "when!" Since at least the 1500s, mankind has been subjected to a major pandemic between every 10 and 40 years. In other words, about two or three per century. It is now 39 years since the outbreak of the last global pandemic (HIV/AIDS) and a fact often lost on folk living in North America and Europe is that about 25% of human mortality worldwide is still today the result of infectious disease.

In the 1918 influenza pandemic, 8% of the world's population perished within a period of months. A similar mortality figure today would yield approximately 500 million deaths, although some current estimates conclude that total mortality would probably not exceed about 150 million. The reality is that it is completely impossible to predict.

Science fiction? Beyond the realms of imagination? Or something that firms can or should be seriously factoring into their risk management strategies? Oxford Analytica regard the threat as severe enough to include on their Global Stress Point Matrix which summarizes the most important risks worldwide. You be the judge, as you read on....

Debates about professional service firm demographics have tended to focus, over the past decade or so, on generational issues between the older "Baby-Boomers" and younger "Generation Xs" and more recently the "Generation Ys". One of the outcomes of these debates has been the institution of mandatory retirement ages and a focus on making firms 'youngster-friendly.' All completely understandable and justifiable, especially when coupled with getting 'up to speed' with technology. But things seem set to change.

Jim Thompson, aged 70, has just stood down as chairman of Chicago headquartered, 800 lawyer Winston & Strawn, after holding the post for 13 years. Read more in this Chicago Sun-Times article. He will, however, continue to practice law full time and also hold down several directorships of publicly listed companies. The firm twice changed its rules about mandatory retirement at age 65, to enable him to stay on.

Across the "pond" in England, mandatory retirement on the basis of age is being declared an unfair labour practice.

Are these indeed early indicators of changes in the age-related drivers in professional service firms generally? Current western demographic trends also support the idea that such changes might be on the way.

The trend down the S-Curve towards wholesale commoditization of the legal services that external lawyers provide to banks just accelerated dramatically. That is: if the tough new strategy that has been instituted by ANZ (Australia and New Zealand Banking Group Limited) to select its external lawyers takes hold in the market.

According to an article titled Banks Force Firms to Fight for Work and Fees in the Australian Lawyers Weekly, the new system has a few marked similarities to the user rating system used by the on-line actioneers eBay:

Asia Business Law has a posting today titled The Future of Law is International. A 'sound-byte' :

"The day is fast approaching when an American law student will not be able to find a job working as an attorney unless he or she has a basic working knowledge of international law and a basic fluency in a foreign language."

Starling David Hunter III, who blogs at The Business of America is Business has a post on Measuring Globalization which would be of interest to strategists in multi-national / global professional service firms.

The Offshore Outsourcing World Blog has a posting today titled Invented in US, Drafted in India, on trends in outsourcing patent applications to India.

What are the strategic implications of your firm and its competitors being able to transmit large amounts amounts of data across the globe, nearly instantaneously and at nearly zero cost?

A few weeks ago, scientists at the Fraunhofer Institute for Telecommunications at the Heinrich-Hertz-Institut HHI in Berlin set a new world record by pumping data down a 160km fiberoptic cable at a rate of 2.56 terabits per second. Click here for an article on this from PhysOrg.com.

That's 2,560,000,000,000 (two trillion, five hundred and sixty billion) bits per second!

Or the equivalent of the contents of 60 DVDs per second!

How often you hear somebody talking about 21st Century thinking; 21st Century technology; 21st Century whatever?

It's comforting to think that we have any sort of handle on what is likely to unfold during this century, isn't it? I mean, technology will continue to advance of course and so will our understanding of life and the universe, maybe even God, but surely life as we know it will probably not change in any really fundamental way .....

The truth is almost certainly that we really don't have a clue!

Let me illustrate:

Accenture have a great article on global trends in the May 2006 edition of their journal Outlook, called Making the Trend Your Friend. Predicting the future, according to the article, is the easy part. (Not sure if I agree with that, but anyway.....) The article lists 10 crucial global trends and the actions that organizations need to take to ride them and so create their own futures.

The 10 trends are:

Here's a link to Al Gore on global warming (and how to deal with a heckling robot.) Obviously, a megatrend not often regarded as being pivotal for professional service firms.

Why?

Well, Bill Gates's dictum that we tend to over-estimate things over a two year time horizon and under-estimate things over a ten year time-horizon does spring to mind. So firms with their offices less than six metres above sea level won't need to move their lobbies to the second floor and rename their neighbourhoods "Little Venice" at least until well after the expiry of the current managing partner's tenure.

On a more sober note, I've certainly got seeing Gore's movie, An Inconvenient Truth, on my list of things to do in the next month or two.

I've just spent a fascinating morning with Oxford Analytica here in Oxford, England. Oxford Analytica is the organization that Clifford Chance turned to, to undertake their scenario planning exercise that underpinned their strategy review last year.

I was privileged to be invited to attend their daily briefing as an observer. This meeting was a round-table "what has happened in the world in last 24 hours that we need to know about," that is modeled on the 'daily briefing' instituted by Henry Kissinger for Richard Nixon. Oxford Analytica's founder, Dr David Young, was one of Kissinger's key advisors.

According to this post on Curt Wehrley's The Bell Curve Scar, the sucking sound that one can hear in London and Europe these days (if you listen carefully) is the sound of the financial centers drawing increasing numbers of emerging companies and financial talent away from the U.S.

Good news for professional service firms east of the Atlantic; somewhat troubling for firms to the west.

Curt describes himself as a recovering statistician and his blog is about "pondering a world that no longer fits a Gaussian curve." His ten point manifesto is worth pondering too.

There's a tendency to overestimate how much things will change in two years, says Bill Gates, and underestimate how much change will occur over ten years. There are a few things, though, that can be predicted with relative certainty.

-Networks will get faster
-Computer processing will continue to increase in accordance with Moore's Law
-Data storage will continue to fall in price
-High definition screens will become cheaper, lighter and more portable
-Mobile phones will rival today's desktop PCs for power and storage
-Software will become increasingly sophisticated, streamlined and intuitive

Several of Microsoft's recent Executive Emails, including Beyond Business Intelligence : Delivering a Comprehensive Approach to Enterprise Information Management and also The New World of Work, provide valuable strategic insights into how some of the most serious problems that face us in the way that we use technology today, are to be addressed. Just a few of the concepts that strategists can look forward to over the next few years (starting next year with the release of Vista and several other new tools) are:

-Seamless and nearly gratis collaboration in teams across the globe
-If not the end then at least a massive reduction in information overload
-A new approach to data storage, away from today's 'file and folder' thinking, that will make it far easier to find the data that you really need.

Sounds appetising! No doubt new problems will arise to replace old ones as they are solved, but Microsoft is firmly focused on addressing the following four issues, at least, over the next decade. To quote Gates:

One of the likely consequences of Thomas Friedman's 'flattening world' is the professions being driven to redefine not only the boundaries between themselves, but at a far more fundamental level what constitutes a profession itself. This is being driven primary by IT, but also by the changing dynamic of the professional/client relationship. The time frame for significant and visible impacts may be more than five years in most places, but in the legal profession in England and Wales the Clementi-induced changes may prove to be a powerful accelerator. The final result could easily be the complete deconstruction and re-aggregation of what we today call the professions.

This makes it critical for the strategists that guide professional service firms to hone their skills in the gentle art of picking up and tracking these trends as early as possible, and in working through the "what-if" scenarios well before they become an issue. At which point, their firms will hopefully have solutions that they have already identified, if not implemented, while competitors are still in the starting blocks.

The early trend indicators are compelling and in many ways the evolution is already well under way.

Can anybody even remotely connected to the internet not have heard about Skype's free or nearly free Voice-Over-IP (VOIP) telephone calls? Surely not. Here's a development at Skype that may be news to you, though.

Alex Osterwalder blogs today on his Business Model Design and Innovation that Skype has introduced a new real-time language translation service for Skype voice calls. The service supports 150 languages and it costs $2.99 per minute. Skype is able to offer this to the market through a partnership with Voxeo and Language Line Services.

So now firms can communicate with other firms across the world, that don't even speak the same language, for nearly free. Yet another indicator of our rapidly flattening earth! Imagine the implications of being communicate with a client who doesn't speak English seamlessly, accurately and inexpensively.

If optimism or pessimism about the economy is an important indicator of what the future really holds in store, then Grant Thornton's 2006 International Business Owners Survey (IBOS) of medium-sized businesses around the world makes interesting reading. The survey was carried out amongst 7,000 + owners of medium-sized businesses from 30 countries during late 2005.

None of the traditional western powerhouses feature in the top ten most optimistic countries. The USA's score has dropped a whopping 50% from 2005 and it ranks No 17 on the global ranking overall. The UK, which also shows a sharp drop from the 2005 survey, is at No 23. A graphic of the survey results may be seen below. The figures show the balance, being the difference between the proprtion of businesses responding positively and those responding negatively.

Strategy exists at two distinct levels:

The Macro Level, where the firm is not able to influence events but needs to be resilient to withstand them and even capitalize on them, and

The Market Level, where the firm can influence events to a lesser or greater degree and needs to do so in order to drive its competitive advantage.

Examples of the former include macro-economic trends like rises and falls of interest rates, war, Black Swans like 9/11 and natural disasters.

Examples of the latter include entry and departure of clients from the market, evolution of new services and maturation / stagnation of old, competitiveness with other firms in the market and penetration of new geographic markets.

Strategy can further be differentiated into deliberate strategy, which is planned for, versus emergent strategy where the firm reacts to something in the market that was not planned for (it may or may not have been foreseen, though) but which requires a change of direction (either an opportunity or a threat.)

One macro-strategic issue that has emerged as a possibility in the past few weeks, and that frankly scares the hell out of me, is the increased sabre rattling amongst senior people in President Bush's administration, about the possibility of attacking Iran. Perhaps even with tactical nuclear devices. The range of unforseen results that this could give rise to are truly frightening and extent to far beyond the Middle East. The global firms in particular, or others with global clients, need to be thinking about what this risk might hold for them. Let's play "what if" with the scenarios for a moment.....

Anybody who still thinks that "outsourcing to India" is and will remain the domain only of low-end services, needs to read this letter written to Steven D. Levitt and Stephen J. Dubner by a ten year old boy, posted on their blog Freakonomics. Levitt and Dubner are the authors of the bestseller of the same name, subtitled "A rogue economist explores the hidden meaning of everything." A great book! One of the best, I think, of 2005.

The letter reads:

Globalization has been a great liberator - but it also poses a threat to Western professionals. This article in Times Online of 9 March makes a great read on the topic of strategic implications for Western professional service firms, of the entry of emerging economies to the global market.

Thanks to Graeme Codrington (a fellow South African who has written a great book on intergenerational issues between Baby Boomers, Gen X and the Millennials, called Mind the Gap) for pointing to me to this. Graeme's posting on this topic on his blog is here.)

This posting is more about one of the most significant global mega-trends and the impact that it is likely to have on the global macro-economy and politics over the next decade or two, than directly about professional service firm strategy.

"The Long Emergency" is a concept coined by Jim Kunstler. Jim is a man of strong feelings. The unfortunately chosen name of his blog is not one that can be repeated in polite company. His hypothesis is no less than the collapse of American society as we know it, as a result of fuel starvation. His book by the same name is summarized in this article, and a video of an interview with Kunstler on BBC2 (just over 39 min) is available here.

PricewaterhouseCoopers (PwC) have just concluded their ninth annual global CEO survey, titled Globalization and Complexity, Inevitable Forces in a Changing Economy. 1400 CEOs from across the globe participated. Globalization, it is clear, is growing from strength to strength. But what of the professional service firms that serve these increasingly global organizations?