Blaqwell is a pre-eminent consultancy that advises top law firms on high-level issues, such as strategy, mergers & acquisitions, compensation systems, performance measurement and lateral hiring strategies.
KM/JD Consulting advises leaders of Am Law 200 firms how to improve practice group productivity and achieve real follow-through from lawyers on internal initiatives.
This post is Part 1 of a 3-part series on strategy. It describes what a strategy is (and is not) and why having a good strategy is essential to law firm success in today's market. Our next post (Part 2) will explain the available directional choices dictated by the current market for legal services: grow broadly or grow deep. Part 3 will explain how to flesh out a directional decision to grow deep into a detailed strategy.
Is this your firm?
- Overall net income has remained flat or even declined over the past several years.
- Profits per equity partner have remained stable, or have increased, only because the firm has trimmed the less productive equity partners.
- The firm's only “plan” for growing income and profits after it has cleared out all the unproductive equity partners is to
- raise rates and hope they stick,
- nag partners to do better at business development, and
- work longer hours.
If this is your firm, you are far from alone. But the future of your firm is in jeopardy. It needs a strategy. Even if this is not your firm, can you answer the next questions?
Can your firm answer these questions?
- What do your partners want the firm to look like in 3-5 years in terms of success in the marketplace and their own professional satisfaction?
- What are the metrics that will tell the firm when it's reached the goals, and allow it to measure progress along the way?
- What half dozen key actions must the firm take to achieve those goals?
- How will everyone in the firm – partners, associates, senior administrators and staff – unite behind achieving those goals?
- What support systems will reinforce and motivate everyone in the firm to pursue the firm's goals in that unified manner?
If the firm does not have crisp answers, the firm is not operating strategically.
Why does a firm need to act strategically?
To win in today's increasingly competitive and specializing marketplace for legal services, a law firm needs to stand out - based on what it does well, the kinds of clients it serves, and what it does not do. Differentiators can include practice or sector specialties, successful track record and bench depth, network breadth, and flexibility in pricing and delivering services.
The opposite of standing out is blending in – being full service, trying to be all things to all clients, having the standard website, etc. All of that frequently boils down to competing only on price. Quality and efficiency are not distinguishing factors, but are table stakes - the minimum required even to be considered for a client's work.
In any market, as competition increases and client options proliferate, the firms that can cope best with this change will excel. Today's general business trend, applicable to law firms as well, is that the firms that can best use their resources, often fueled by technology, will race ahead of those who can't or won't. Not surprisingly, since 2008, a group of financially successful law firms – neither the usual crop of best legal brands nor the industry's largest players but rather a shrewd set of superior operators – are increasingly pulling away from all the others based on performance. We believe the key to their success in most cases is a good and well-executed strategic plan.
Without a strategy, a firm risks
- drifting in a competitive sea,
- failing to differentiate itself in the marketplace,
- failing to seize opportunities and tune its legal service offerings to meet demand,
- operating different parts of the firm at cross-purposes, and
- falling behind other firms in competing for client work and for talent.
What is a strategy?
A strategy is like a roadmap. It sets the destination and the path to arrive at the destination. And the destination is different than that of competitors.
Elements of a strategy
A strategy is
- a mutually reinforcing set of initiatives
- designed to build a competitive advantage
- that will achieve the firm's aspirations
- in a sustainable way.
You haven't got a strategy unless you are clear on
- Objectives. The firm's purpose and objectives – why it exists and what it should look like in 3-5 years;
- Metrics. How progress towards the objectives will be measured, monitored and adjusted in response to events and to learning;
- Actions. Most important, a short list of 3-6 action steps to achieve the objectives, with accountabilities;
- Management. Disciplines, systems and governance to reinforce goals, motivate the right behaviors and oversee the actions; and
- Communication. Reasonable means to communicate all these and ensure everyone's pulling in the same direction behind the agreed objectives and actions.
Benefits of a strategy
If you have a good strategy,
- everyone in the firm will be pulling in the same direction towards a concrete goal, with no silo-ed and possibly conflicting efforts;
- competing views about what should be done will be resolved in an orderly way based on how well they achieve the concrete goal;
- you can measure progress along the way based on metrics, and therefore hold people accountable; and
- you can resolve competing demands for limited people and monetary resources based on the strength of their contribution to the concrete goal.
These are not strategies
A document. The paper in the drawer is not the strategy. While, of course, writing the strategy down is useful, it's the action that matters.
A process. Merely going through a “planning” process so everyone feels good is not enough. Unless the plan makes tough choices that will disappoint some, and then is implemented, the result is not a strategy and will not move the dial.
Resolution of a single issue. Leaders at many firms have a single issue weighing heavily on them, such as a new office or practice or a merger discussion. Resolving these alone does not result in a strategy.
A budget. Building a budget does not create a strategy. Strategy is about priorities, not only money. Budgets come after the strategy.
A straight jacket. A strategy will allow for flexibility and opportunism and provide criteria to evaluate unexpected opportunities. It should explicitly also allow for feedback and modification.
A business plan or operations manual. In the same vein, a strategy does not dictate specific operating actions (“tactics”, “marketing”, etc.). It does, however, set a framework to evaluate actions according to the degree to which they advance the objectives of the strategy.
A brand. While the firm's brand – the values and behaviors it projects to the marketplace – should be reflected in the firm's statement of purpose, a strategy includes metrics helping define what success looks like and specific actions the firm will take to achieve its purpose.
“Objectives” element of a strategy
The strategy starts with picking the destination – the purpose and objectives element in 1 above. The destination is usually financial, such as “maximizing the wealth of equity partners on a sustainable basis.”
We've also seen law firms develop successful strategies based on factors other than wealth maximization for equity partners. For example, the firm could seek to add all firm employees or future partners to the wealth maximization group. Or it could seek strong economics but not try to maximize wealth, such as by choosing not to take on the most difficult of the actions required by a strategy, believing that the benefits of the rest will suffice.
If the objectives are expressed in terms of metrics – “increase profits per equity partner by 20% over 3 years” – then monitoring progress is straightforward. If the objectives do not have built-in metrics – “become a top 3 firm for biotechnology clients” – they will need to be developed.
Progress toward the goal should be measured, and shared with stakeholders. If progress appears to be lagging, the cause should be analyzed. Perhaps the targeted market has changed. Perhaps there are new competitors. Perhaps the firm is falling down on implementing some of the important required actions (discussed below), such as changing the compensation system, winding down low margin practices or finding a merger target. Once the cause is known, the actions designed to achieve the objectives may need to be revisited.
Once objectives and related metrics are agreed, the next step is for the firm to look outward and inward, analyzing the market and its own performance. The purpose is to determine the firm's unique strengths and weaknesses and craft a set of actions to best capitalize on its strengths and de-emphasize its weaknesses.
“Quality” and “culture” are not sufficient differentiators on which to build the needed list of actions. More specific, and measurable, actions are needed.
Attributes of the actions
A good list of actions is based in reality – fundamental industry trends, an assessment of the firm's distinctive strengths, and available skills, talent and culture.
A good list also includes a clear statement of how the firm differentiates itself. This would include a precise definition of target clients and evidence to explain why they will value the services provided. The list also identifies key competitors and explains how and why the firm will gain share against them.
Number of actions
The most successful strategic plans limit the number of actions to 3-6 high-impact actions that will achieve at least 80% of the goal in the plan. These actions are accompanied by clear milestones by which progress of each action can be measured.
One or two of the actions are internal improvements, such as reorganizing practice groups or changing the compensation system. The remainder are externally oriented, such as adopting a variable pricing strategy to retain or improve market share in certain practice areas, building out specific practices by bringing in lateral partners, downsizing certain practices, opening or closing offices, or acquiring another firm.
Smart firms realize they should resist including too many actions in their strategic plans. They understand it is better to work toward 5 actions that will achieve 80% of the objectives than 10 actions that will achieve 95%. The dispersion of leadership and management attention caused by focusing on many actions results in less effective performance on all of them.
“Management” and “Communications” elements
After selecting the actions it will take, a successful firm configures itself to manage those actions. Perhaps practice groups need to be reorganized. Or a new way to manage across offices needs to be developed. Perhaps new management reports are needed. Maybe senior administrators with new skills have to be brought in. The plan also clearly spells out who's responsible for what, with milestones and performance measures.
Levers to spur change are also needed. For example, the compensation system may need to be redesigned to align with the desired actions. Or a lawyer development program needs to be rolled out to improve understanding of new industries to be served.
A firm with a good strategic plan also institutes a communications program about the strategy. Everyone in the firm is informed about the overall goal, the firm's progress, and the actions they individually are expected to take.
The firm also monitors external information so the strategy can be updated in light of new industry and client trends, competitor moves, market maturation and other ongoing events.
A strategy enables a firm to distinguish itself from competitors and pull ahead. Preparing a strategy requires a tough-minded assessment of the firm's strengths and weaknesses, a disciplined approach, difficult decisions and often the help of an outsider. Implementing the strategy can be even more challenging. But the pay-off can be great, and the alternatives may be attrition and ultimately absorption by another firm.
Future posts will address some aspects of implementation. These will include how to approach M&A transactions as a means of achieving scale, and design of the partner compensation system as a lever of change that aligns with strategic goals.
We keep running into firms that think they have a strategy because they've
- “made some tough decisions on weaker partners,”
- “committed to grow our _______ practice,”
- “opened a new office in _________,”
- “been looking to merge,” or
- “stepped up our lateral hiring.”
We hope we've given you enough flavor to understand why these sorts of tactical goals, important as they may be, are not a substitute for the broader goal setting and action planning needed for success today, which a healthy strategy-setting process will provide.
Our next post (Part 2) will explain the available directional choices dictated by the current market for legal services: grow broadly or grow deep.
[Photo credits: © Can Stock Photo Inc. / Violka08 & kbuntu]