Adventure of Strategy

 

Much law firm strategy, especially in smaller to medium sized firms where the partners all know each other, is crafted in strategy meetings or at strategy retreats. Typically, such meetings consist of some preparatory information being presented and then, quite quickly, the meeting moves on to consideration of a number of alternatives. It is here where the phenomenon of an “information cascade” can rear its ugly head.

In 2005, behavioral economist Robert Shiller and Karl Case conducted a survey among San Francisco home buyers, measuring their perception regarding likely house price movement in their market. The median expected price increase, over the next decade, was nine percent per year!

Obviously, history has proved them to have been badly wrong. According to Shiller & Case, their baseless optimism was based on two factors: salient price increases in the recent past and the apparent, and contagious, optimism of other people. In effect, an information cascade.

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A few weeks back I had a fascinating discussion with an officer in the US Marine Corps about the current doctrines of military strategy and how they translate to business. He told me that a major current area of focus is finding ways to reduce the time that it takes to plan operations while, at the same time, disrupting the enemy's ability to plan. He also said that "everybody knows" that a strategic plan is out of date immediately after it is drafted.

In today's rapidly changing world, this makes perfect sense in business too. (The first part, at any rate!) Yet it is clear from the results of our August 2007 Managing Partners' Forum strategy survey that the "average" law firm, both in the United Kingdom and North America, uses neither the full range of information sources that they need for the firm's leaders to make good decisions, nor the tools available to get strategy crafted and executed as quickly and effectively as possible.

My fellow strategy researchers Bruce MacEwen and Andrew Hedley and I are still ploughing through the quite fascinating data and we will be releasing the full results within the next few weeks. In the meantime, herewith a few preliminary remarks about strategy velocity, data sources and tools. Continue Reading

I'm busy reading Solving Tough Problems, an excellent little book by Adam Kahane. Kahane was the architect of the Mont Fleur Scenarios that were developed in South Africa in 1992, just before the formal end of apartheid, to develop a range of possible views on South Africa's post-apartheid future. The proponents of the exercise were the then still black liberation movements, the African National Congress (ANC) and the Pan Africanist Congress (PAC.) The books covers far more than just scenario planning, though. (Important though scenario may be as a tool in the strategist's toolkit.) Continue Reading

I have discovered another kindred spirit in the form of Eric D. Beinhocker, author of The Origin of Wealth and Senior Advisor at McKinsey & Co. His article at Harvard Business School Working Knowledge, Creating Strategy in an Unknowable Universe, is worth reading carefully, and then reading again.

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Now for something that will blow your mind! Even after measuring the sides of each myself, my intuition still cannot accept that the two tables in the article are the same shape. (Sorry, HBS Linking Policy specifically prohibits me from reproducing the picture that I'm rambling on about here, so you'll have to visit the original Harvard Working Knowledge article, When Not To Trust Your Gut, to see what I mean. We're talking about more than just the usual blindspots, though!) A sound-byte:

"Just as intuition biases your vision, it can sabotage your negotiations without your awareness. This article explores why we often think irrationally-and why, even when the stakes are high and mistakes are costly, we sometimes are unable to overcome our psychological biases."

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Rob May has a posting over at Businesspundit, on why so much strategy ends up being complete baloney. (I've swiped his graphic for my post, too!) His take on it:

"Stratanalyphobia" : The fear of doing any analytical work to justify your assertions about strategy.

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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:

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How do you fast-track the business-savvy of your partners, to match an equally fast track growth strategy? According to Nigel Knowles, joint CEO of come-from-nowhere-in-the-past-eighteen-months global giant DLA Piper Rudnick Gray Carey, the answer is to partner with the Harvard Business School and send them back to the lecture halls in batches of fifty to sixty, for a week of bespoke, high intensity training.

Legalweek.com has an article this week on the DLA Piper / HBS training course.

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One of the most serious problems hindering strategy is the inherent lag in 'clock speed' between the rate of change in the market; the rate at which a firm can formulate a strategic response to those changes; and the rate at which the firm can implement the changes necessary to execute the strategy. (See diagram below.)

Here are ten things that a firm can do to increase clock speed in strategy execution:

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I must confess that I hadn't read David Maister's article 'Are Law Firms Unmanageable?' until Bruce MacEwen's quite poignant response in Adam Smith Esq hit my aggregator yesterday. My copy of April 2006 edition of "The American Lawyer" (containing David's article) has yet to reach me, so instead I printed out the advance copy that he was kind enough to email me a week or so ago, settled down into my favourite leather wingback chair in my study and read it through. Then, I look a deep breath and read it a second time.

With all the subtlety of a nuclear-tipped cruise missile, David goes to the heart of why he believes law firms not only are not, but can not be managed as efficiently as other professional firms.

He starts:

"After spending 25 years saying that all professions are similar and can learn from each other, I'm now ready to make a concession: Law firms are different.

The ways of thinking and behaving that help lawyers excel in their profession may be the very things that limit what they can achieve as firms. Management challenges occur not in spite of lawyers' intelligence, but because of them.

Among the ways that legal training and practice keep lawyers from effectively functioning in groups are

-problems with trust;

-difficulties with ideology, values and principles;

-professional detachment; and

-unusual approaches to decision making."

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The British philosopher Bertrand Russell once wrote that "the trouble with the world is that the stupid are cocksure and the intelligent are full of doubt." This is true whether one interprets "stupid" as foolish (short on smarts) or as ignorant (short on information). His sentiment echoes that of Charles Darwin, who pointed out: "ignorance more frequently begets confidence than does knowledge."

Alan Bellows has posted a piece called Unskilled and Unaware of It on his blog Damn Interesting, about exactly this. In effect it is another blindspot, and one that arises all too often in strategy discussions, performance appraisals and many other facets of the life of a firm.

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Religious conviction; the national Treasury; a firm handshake: all symbols of trust that evoke expectations. Most importantly: the expectation that one will not be betrayed. If there is one place where trust is paramount, it is in firms that practice professions such as law, accounting and consulting, where the service being delivered is so intangible that trust is the only assurance that the client has, that its work will be done properly. Small wonder that trust-based relationships both with clients and internally are the very cornerstone of the cultures of such firms; certainly those at the 'top of the curve.'

The March/April edition of the Harvard Magazine contains an article on the differences between risk aversion generally and aversion to being betrayed. It makes fascinating reading and, I think, introduces a seldom-considered facet to the process of strategy.

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For larger view, click on image

A current Strategy+Business article, Love Your Dogs, suggests that conventional wisdom may be wrong when it dictates that resources should be focused on a businesses 'stars' while leaving 'dogs' to starve or hiving them off. (The terms, of course, come from Boston Consulting Group's famous model that divides businesses into stars, question marks, cash cows and dogs.)

This issue is a particularly troublesome topic in many professional service firms, where practice areas that may have commoditized to the point of marginal profitability are not faceless business units but one's partners, colleagues and, frequently, friends. So facing up to the need to starve or divest dogs is something that many firms simply don't have the stomach for. The result is that they are tolerated and sometimes (in the name of 'fairness') even invested in as much as high growth areas of the firm.

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The Harvard Business School Working Knowledge blog has a posting that I think is right on the money about what the roles of CFOs in professional service firms should be. For too long, their primary purpose has been to measure and describe the history of the firm's financial performance. According to Jeremy Hope:

"Most CFOs want to spend more time managing the future rather than dwelling on the past. So the ability to help managers to prepare quality forecasts is fast becoming a core competence. But most finance teams have much to learn. The mistake that most of them make is assuming that forecasts are about predicting and controlling future outcomes. The purpose of forecasting is to inform decision making (to help shape future outcomes), not to predict the future."

Strongly recommended reading for your accountant / CFO / financial manager! This is exactly the approach that is needed in order for firms to be able to be strategically resilient and to be able to react to and capitalize upon a range of futures.

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Vivek Ranadive's book The Power to Predict - How real-time businesses anticipate customer needs, create opportunities and beat the competition (McGraw Hill, 2006) describes nine characteristics of real-time companies. These translate well to professional service firms. The ability to manage and adapt to change in real-time is an important aspect of strategic resilience, so with wording changed where necessary to reflect professional service firm terminology, here they are:

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The weblog Innovation Tools had a posting yesterday (10 March) on a strategic innovation tool called TRIZ (pronounced "treez".) The post describes the 5-Step process that TRIZ defines for a strategic innovation roadmap and references InSourcing Innovation, a new book on the topic.

TRIZ is a Russian acronym: "Teoriya Resheniya Izobretatelskikh Zadatch" (-¢-µ-æ--Ä-?--è --Ä-µ--à-µ-?-?--è -?-?-æ-±--Ä-µ--Ç-?--Ç-µ-ª--å--Å-?-?--Ö -?-?-¥-?--á.) An approximate English translation would be "Theory of Inventive Problem Solving (TIPS.)" The concept was developed by a Soviet patent specialist, Genrich Altshuller, while working with the erstwhile Soviet navy in the 1970s and 1980s. It has been considerably expanded and refined by subsequent work in the west.

How the tool can be applied in professional service firms is a topic for another posting. What I would like to blog about is an important insight about innovation itself, that emerged from Altshuller's work.

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Those that regularly read my material or work with me will have noticed a common thread. Strategy, I firmly believe, must focus on making firms resilient to the unexpected. The world we live in is too complex and dynamic to plan for all eventualities. Even following detailed scenario analysis, unforeseeable events inevitably arise.

One of the new terms that the war on terror has introduced to the strategists lexicon, is the 'black swan.' Nassim Taleb, writing in the New York Times (free registration required) defines this as "an outlier; an event that lies beyond the realm of normal expectations." Most people [except Australians, of course, where real black swans are common] expect swans to be white. Their experience tells them to. "A black swan is, by definition, a surprise." Today's world, clearly, is more full of surprises than ever before.

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If there was ever "thirty points you need to know rather than go do an MBA" then this post from Guy Kawasaki about covers it. Not restricted to professional service firms, either. I particularly liked points 2 and 3, which are about wasting time and effort on meaningless mission statements (and in doing so deluding oneself that what one is doing is somehow "strategy.") This post started as ten points, but enthusiastic readers rapidly added another twenty! Kawasaki has converted them into a GBAT Score test ("GBAT" = Guy's Bozofication Aptitude Test.) Take it at your peril!

If there is one blog that any thoughtful observer of the economics of law firms needs to add to his aggregator, then it is Bruce MacEwen's ongoing discussion on that topic, Adam Smith Esq. I am delighted to have been able to hook up with Bruce for coffee twice in the last week or so as I passed through New York, once westwards and then again back eastwards. His philosophy on blogs, that they should be a channel for carefully formulated, useful commentary on matters of importance in one's topic, corresponds exactly with mine. You will never hear from either of us what we thought of a recent movie, the current sports or social happenings, or such trivia.

One of Bruce's most recent postings on the new chairman at Shearman & Sterling, and what that great firm might do to boost its profitability, is a case in point. As is his posting How Do You Know If The Troops Got The Memo, which deals with another important emerging aspect of professional service firm strategy, namely social network analysis.

A basic challenge facing strategists is ensuring that the foundation for their thinking is sound. Herein lies the root cause of most strategy shortcomings including the frequent disconnect between strategy formulation and execution.

Eleanor Rosch, professor of cognitive psychology at the University of California at Berkeley, is on a quest to re-invent psychology. Her insights show new ways of looking at strategy, too. Science, she says, [and many other fields including strategy,] needs to be performed with the "mind of wisdom."

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Great post today from Guy Kawasaki called The Art of Creating a Community. Community in this case being a group of people that are communicating/collaborating/conspiring on something of common interest. Could be within your firm; between people inside your firm and inside one or more clients or prospective clients, etc, where people interact voluntarily to achieve something.

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Bruce MacEwen's blog has a truly excellent posting today on law firm strategy, called Do You Have a Chief Strategy Officer? Commenting first on Reed Smith's revenues and profits per partner (the latter up 21% in the last year and 154% over the past five,) he goes on to speculate how this might be so. According to Reed Smith, "It's just the result of following through on our strategy."

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What key performance areas do you measure in your firm? How certain are you that they are giving you the information that you need, to track strategy execution and to change the strategy when this is required?

Imagine flying a modern jetliner, where the only metric being measured is billable hours. (Maybe the equivalent of speed in the aircraft.) Not oil pressure, or fuel levels, or the temperature in the passenger cabin aft, just speed. Yet how many firms do fly with their pilots focused mainly on just one gauge?

Here are ten challenges or issues that I think always need to be considered when designing a flight control instrument panel for a professional service firm:

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Strategic Planning, some say, is a contradiction in terms. All planning that is done centrally should be of a strategic nature anyway, they say, or why waste the time. Yet others remind us of the need for strategy to be able to evolve with the market, which precludes grand, "Soviet style" long term planning. This may all sound a bit semantic, but in fact there are some very fundamental reasons why crafting strategy around a grand "strategic plan" often leads to poor [or no] execution.

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