Adventure of Strategy

 

Herewith our Edge International September 2008 Law Firm Strategy Newsletter

We have two items for you this month. Firstly, some tips on how to execute (as in kill-off, annihilate and utterly destroy) a firm’s strategy. Secondly, news about and an invitation to participate in an exciting new research project on globalization and its likely impact on the US legal profession.

We hope that you find them both diverting and useful. Feedback, as always, is most welcome.

Our best regards,
Rob Millard & Gerry Riskin

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At 3 PM on September 4 1882, Lower Manhattan was transformed as Thomas Edison’s spectacular, cutting edge electric illuminating system went into operation. The American public was astounded at this revolutionary new energy supply. Clearly, it was only a matter of time before it would take over as the primary energy source in industry too.

So it did, of course, but four decades later, only half of America’s factories were fully electrified. Why did it take so long for a clearly superior technology to establish itself?

The reason is simple:  The very best, state-of-the-art factories at the time (the product of a century of refinement and innovation through the course of the industrial revolution,) were designed in such a way that electricity provided little advantage. Unlike today’s factories, where every piece of machinery has it own electric motor, factories at the end of the 19th Century were designed around central energy sources. Machines were powered by elaborate systems of pulleys and shafts called “group drives” that transferred energy from the central source (typically a water turbine or steam engine) throughout the factory. The most efficient way of doing this was to minimize the length of the drives. Factories, as a result, were multi-storey buildings with one or more shafts per floor, each driving a group of machines. The entire factory, in effect, was designed around the limitations of the power supply.

So what use was this newfangled electrical energy? Initially, it was used to provide lighting and steam/water turbines were replaced with central electrical motors. Electricity only came into its own when a new generation of factory buildings started being built, where machinery could be arranged and rearranged to optimize production line efficiency. These were typically sprawling, single storey plants. Small, efficient electrical motors powered each machine independently. Electrical wires replaced the cumbersome group drives. There were no more awkward steps and elevators to navigate between floors.

Replacing the factory buildings was a slow and expensive process, however. One does not simply through out such capital investment and the know-how built up over a century or more.

This little case study provides a valuable lesson in how innovation progresses in law firms too. Many of the great ideas out there today provide little advantage to law firms as they are currently constituted.

The Chairman of a very prominent national US law firm mentioned in a conversation that we were having recently that except for the computers, there is little difference in a law office today, to what existed 50 years ago. The arrangement of offices, structural hierarchies and suchlike are still “just as they always have been.” Other practices like hourly billing and aversion to alternative work arrangements would fall into the same category. This is  more than just generational differences in perception between Baby Boomers / Gen Xs / Gen Ys. The changes that people talk about today are challenging the very foundation of the way in which legal services are being provided to clients.

The good news is that just as electricity was around for 40+ years before it was fully adopted, so many of the solutions to the problems facing law firms today are also out there, in plain sight, in the market. The challenge is not so much in finding the solution, as in overcoming the corporate inertia of the firm’s business model, to get those solutions implemented.

Billing by the hour a problem? Fine … replace it with value pricing or risk sharing models. But how does one actually do that with the same ease as filling in time sheets? (My view on the billable hour is that it is an excellent example of something that will eventually go the way of the dodo, but first the "factories need to be reinvented.")

“Generation Y’s” want flexible work arrangements and a work/lifestyle balance? Fine … let them work from home and other remote locations. But how does one actually do that while maintaining teamwork and service quality?

You want to be able to harness the combined intellect of your firm whenever necessary, to craft strategy, to develop virtual client teams, to share knowledge? Fine … create an online collaborative system using one of the emerging Web 2.0 internet based tools (see here and here.) But how does one actually do that in an environment where there is deep suspicion about such tools?

Performance levels differ widely amongst individual lawyers and sometimes, truth be told, some (ever more expensive) junior associates do better work and are more valuable to the firm than some of their senior colleagues. Fine … develop a system that easily measures performance and links it to reward in a way that is seen to be transparent and fair. But, how does one actually do that where the hierarchy of partners and associates/assistants developed over a century is heavily entrenched, true performance is difficult to measure and compensation discussions are often a source of considerable stress?

Some firms are quicker than others in developing ways to implement solutions. Market changing revolutions that effectively deconstruct the environmental parameters of a profession, like those that will follow final enactment of the Legal Services Bill in England and Wales will catalyse a whole slew of innovations and firms elsewhere would do well to watch those in England carefully. Likewise developments in Australia. Sometimes, there may be some “first mover advantage” for firms that adopt new practices quicker. More often that not, though, it is the “second mover” that gains the real advantage. Innovations are typically adopted sequentially. First: by small, fringe firms with entrepreneurial leaders and less corporate inertia. Second: by market leader firms that can afford to “try” something new without the change (or possible failure) being threatening. Last: by the mainstream in the middle, who are driven (rightly, in most cases) by precedents.

If you are a leader in a mainstream firm, the key is therefore to constantly be a thoughtful observer of what your competitors are doing and what your people are saying. Then, to have the courage to shamelessly “steal” the best ideas that others come up with and build them into your firm.

Hat tip to Alan Greenspan, who wrote of Edison and the adoption of electricity in industrial America in his book The Age of Turbulence: Adventures in a New World, on page 474-475.

Business Pundit's post by Rob May, titled Why The Dunning Kruger Effect Is Ruining Your Business, provides a new perspective on a phenomenon that I blogged about some time ago, that bears repeating:

"Those that are most confident are often the least competent."

Rob May takes this a step further, explaining how the Dunning Kruger Effect explains why most people think they are worth more money than everyone else they work with, even when the evidence is firmly to the contrary.  In the absence of concrete performance metrics, many under-performers genuinely believe that their performance is better than their peers in the firm. Even when fixed performance criteria do exist, though, they still often explain their shortcomings away by insisting, sometimes most eloquently, that their under-performance in one area (e.g. low billing / poor client satisfaction / bad interpersonal relationships within the firm) is outweighed by stellar performance in other (usually difficult to measure) areas. The collegial, conflict-averse culture of many law firms (and firms in many other professions too) makes it very difficult for them to even have frank discussions around this topic.

This can be a real problem where the end result is that those that contribute most to the firm find themselves under-appreciated and the "confidently incompetent" are disproportionately rewarded. Inevitably, resentment sets in.

What to do about it? There are a few pointers in my previous post on this topic, courtesy of the Department of Psychology at Cornell University.  Rob adds these three:

1.    Use as many measurable standards of performance as possible. Even idiots have a difficult time refuting concrete performance goals.

2.    Encourage dissension and debate. This is tough, because if this is not handled properly, it can build a culture of negativity and risk aversion. Your goal shouldn't be to avoid risk, just to expose and understand it.

3.    Show confidence in your best employees, even when they don't have confidence in themselves.

If any of this resonates with you then, whatever you do, please don't wait until you are staring at the letter of resignation from one of your under-appreciated star performers before you grasp this nettle.

Further to Field Fisher Waterhouse (and probably others) launching a branch of their law firm on Second Life, we now have a fully fledged online dispute resolution ("ODR") service on Second Life too. Oddly enough, inserting "second life" into the search engine of FFW's website yields no results. I wonder why? Too rich for the blood of their conventional clients?

See this post on ICT4Peace and in particular the nine minute video on the e-justice centre. The centre itself was created by  the Portuguese Ministry of Justice in cooperation with the University of Aveiro and the Faculty of Law of the Lisbon New University. Cool architecture too and, indeed, why should 21st Century courts be grandly imposing, intimidating places?

The e-justice centre provides mediation and arbitration services for avatars resident in Second Life, focusing on conflicts deriving from consumer relations and contracts signed between parties. For those unfamiliar with Second Life, avatars may be virtual but they are nonetheless very real, representing very real people. This leads to emerging but very real legal issues.

All this is an indicator, perhaps, for how conflict resolution might evolve. This, as computers in real life reach the threshold of parity with the computing power of the human brain, followed (Moore's Law dictates about 18 - 24 months later) with computers 2x the computing power of the human brain; then 4 x, and so on, then finally laptops and maybe even PDAs [much] "cleverer" than we are. Combine this with the computer's already vastly superior capability for storing and retrieving vast quantities of data accurately, and one wonders where this path will lead over the next 3, 5, 10 years.

As somebody once said: "The future ain't what it used to be!"

Hat-tip to mediator blah...blah...blah. See also: mediation classes on second life.

Further to my blog posting earlier this week ago calling for a more sophisticated approach to the tools that firms employ to craft strategy, herewith an article to be published in December this year in the Annals of The New York Academy of Sciences. Titled Neurocognitive Inefficacy of the Strategy Process , it holds back no punches when attacking either Michael Porter's 'Five Forces' for that ubiquitous old faithful, the SWOT analysis. Thanks to Stephanie West-Allen for the pointer! Click the title above for a PDF of the unedited manuscript, or click below for a brief summary courtesy of yours truly.

Here's a 'sound byte' :

"The application of purportedly  “rational” tools or techniques or protocols or models or frameworks to the problem of new strategy formation appears overwhelmingly ineffectual. Few, if any, organizations actually obtain new or revised strategy from such efforts. When the genesis of a dramatic change in an organization’s objectives and strategies finally is tracked down, it invariably is the result of an “informal” process, more often than not unrelated to the formal planning effort itself."

Fighting talk, indeed!!! I'm pleased to find yet another person pointing out that the strategic planning emperor has no clothes, though! There is just too much at stake for the firms that we serve for the smoke and mirrors that so often masquerades for a strategy process.

The authors of the paper are Harold E. Klein of the Department of General & Strategic Management at the Fox School of Business and Management at Temple University and Mark D'Esposito who is Professor of Neuroscience and Psychology at the University of California, Berkeley. Continue Reading

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

This week, I am in Madrid and busy with a week long PhD residency that is being held at the Universidad Europea de Madrid. A fascinating experience, so far, given the diverse group of people participating both amongst the faculty and the doctoral students.

I am amongst the latter. A PhD, I have been asked by several people over the past few months? Don't I have enough, between a busy professional practice, a lovely wife and two kids, and life in general, to keep me amused? Yes, I do. But ... Continue Reading

Global strategy and management consultants Booz Allen Hamilton publish a journal called strategy+business that often contains very good material for the professional service firm strategist.

The latest edition contains an article titled The Luxury Touch, outlining the results of a current survey on what separates the truly great luxury goods and services companies from the simply good ones. Unsurprisingly, it is their superb level of customer service. The good companies really value and practice customer service of a high standard. The point is: the great companies go further, "beyond the call of duty" and attend to customers in a manner is is noticeably better than even the good companies. This places them in a different category, in the minds of their clients. In strategy terms: they are differentiated.

To do so requires more than commitment. The customer focus needs to be proactively embedded in the company's structure, systems and culture. The strategy+business article identifies four things that the truly great companies like Nordstrom and Ritz Carlton and Lexus actually do, to breathe life into their customer focus:
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It appears that foreign law firms will soon be able to hang their shingles in India, according to a posting titled UK Law Firms In Seduction Dance For Entry Into India on the blog Offshore Outsourcing World. This is, of course, very big news indeed.
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The Movies are what Tom Cruise’s character Maverick (in the 1986 movie Top Gun) would call a “target-rich environment,” when it comes to metaphors for strategy. My colleague Gerry Riskin and I got to discussing this while watching the Academy Awards in a hotel room a few nights ago. He mentioned a really good one featuring Jack Nicholson in the 1970 movie, Five Easy Pieces. I was in Grade 4 in 1970, so I doubt that many others my age or younger have heard about it. So here goes … Continue Reading

Well, I suppose that it is possible that somebody might publish something earthrending in the last two weeks of 2006 but, presumably working on the assumption that the best is already with us, Harvey Schachter of The Globe and Mail in Toronto has just published his list of the top ten business books of 2006. They are: Continue Reading

Want to read that new book that has just been published but don't have a couple of hours to spare? Wikipedia has just launched a new service that may help. Called WikiSummaries, it contains book summaries in the form of articles and chapter summaries.

There are not that many books yet in the database, especially not business books, but that will no doubt change quickly. In the meantime, here are links to the WikiSummaries of Jim Collins' Good to Great, Malcolm Gladwell's The Tipping Point and Blink, and Steven Levitt's Freakonomics. Is this the beginning of the death knell for enterprises selling book summaries? (Who can compete if someone else is giving away what you sell, for free?)

Being a wiki, the summaries are contributed by the public at large and may be edited by the public at large, with contributions being moderated to ensure quality and avoid malicious vandalism.
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While competitive intelligence (CI) has long been a standard tool in mainstream industry and in consulting firms, it has only recently come to the fore in law firms.

This is according to an e-brief received from the Society of Competitive Intelligence Professionals (SCIP) earlier to day, quoting an article in the Boston Globe and another in Legal Technology.

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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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There's nothing new under the sun, so the saying goes. That's as true in change management as anything else. Of course IT has given us new tools to communicate and collaborate in driving change, but the underlying principles are constant. To illustrate, here's a quote from Niccola Machiavelli from his book on statemanship called The Prince, first published in 1512:

"There is no more delicate matter to take in hand, nor more dangerous to conduct, nor more doubtful in its success, than to set up as a leader in the introduction of change. For he who innovates will have for his enemies all who are well off under the existing order of things, and only lukewarm supporters in those who might be better off under the new."

This is clearly as true to the modern day strategist or change agent as it was 500 years ago. Here's another Machiavellian quote, perhaps more aimed at the strategist him/her self:

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Surely the most dramatic mythological example of rebirth and renewal, is the Phoenix (or "Firebird.") It is found in ancient Egyptian mythology, various myths derived from it and, most recently, in Professor Albus Dumbledore's study in Harry Potter.

Said to live for 500, 1461 or for 12594 years (depending on the source), the phoenix is a bird with beautiful gold and red plumage. At the end of its life-cycle the phoenix builds itself a nest of cinnamon twigs that it then ignites; both nest and bird burn fiercely and are reduced to ashes, from which a new, young phoenix arises. The bird was also said to regenerate when hurt or wounded by a foe, thus being almost immortal and invincible.

Imagine, for a moment, that you were able to regenerate your firm in this way. Miraculously, you were able to instantly transform it into an organization of the highest performance with, what's more, that performance being sustained.

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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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Blindspot analysis uncovers flaws in the process of strategic decision making that are caused by bias and misinterpretation. Most strategy models rely on rational and objective behaviour and ignore the mental filters through which individuals process information. This often results in the decisions made being flawed, perhaps fatally, without the firm even knowing it.

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