Ten Questions to Ask About Your Firm's Future
This essay is the last of a three-part series. Part one told the story of how Steve Jobs led Apple Inc. to the greatest market share story in modern history. Jobs used the “focus principle”: starting with the needs of the customer and working backward to the technology [“How to Take Market Share,” November 2015].
Part two described how Am Law 200 firms can recapture market power and take market share. By applying Jobs’ focus principle, firms can become best-in-class in a handful of practice areas and industries that fit the needs of the firm’s current and prospective clients [“Your Firm’s Place in the Legal Market,” December 2015].
Do you believe that the winning strategy is to work backward from the needs of the client? If so, what must be done to maximize your firm’s likelihood for success?
Many of the questions below are challenging because they impose strategic trade-offs. As Jobs famously said, “Focus is not about saying yes. It’s about saying no.” Firm leaders should first ponder the questions alone, thinking about where the firm is today and where it needs to go. Then they should discuss them with their management team.
1. ON WHICH TYPES OF CLIENTS SHOULD OUR FIRM FOCUS?
(a) Closely held businesses where the client is the owner.
(b) Large public or private clients without a sizable legal department.
(c) Fortune 500 companies, including those using RFP and procurement processes to buy legal services.
What is the business rationale for your choice? Why is this the right long-term focus?
2. HOW MANY PRACTICE AREAS SHOULD WE CONTINUE TO SUPPORT?
(a) Many practice areas.
(b) A handful of practice areas.
(c) One practice area.
How do these practice areas fit together to deliver best-in-class service to your current and prospective clients? Why are these practice areas important?
3. WHAT IS OUR CURRENT INDUSTRY FOCUS?
(a) No industry focus.
(b) Selected industries.
(c) Single industry.
Before answering this question, did you analyze your client base, profitability, and the competitive landscape of other legal service providers?
4. WHICH OPTION BEST CHARACTERIZES OUR STRATEGY REGARDINGGEOGRAPHIC PLATFORM?
(a) To be near clients that operate in our region (regional, superregional).
(b) To be near specialized labor pools of lawyers and other professionals (national, international).
(c) To be near hot spots of client need (e.g., national labor & employment firms).
(d) To be everywhere (bigger is better).
Firms are becoming increasingly more dispersed, yet Lawyer Metrics research shows a strong negative correlation between office-based geographic dispersion and profitability. Are your clients looking for bigger firms or better firms?
5. WHAT SERVICE DELIVERY MODEL(S) IS MOST RESPONSIVE TO OUR CLIENTS’ SPOKEN AND UNSPOKEN NEEDS?
(a) Trusted adviser.
(b) Developing technical expertise not found elsewhere.
(c) Portfolio of work from institutional clients.
(d) Managed services staffed by nonpartner track.
Which models above most strongly resonate with your current clients? What is the most useful and valuable bundle for your clients?
6. WHAT IS OUR WORK AND STAFFING MODEL?
(a) Artisan. We have partners and associates who handle client needs on a matter-by-matter basis, mostly by the hour.
(b) Project-based. We have a mix of partners, associates, staff lawyers and other professionals working together according to a work flow we plan in advance.
(c) Process-driven. We use process, technology, and people systems to optimize on quality, cost and delivery time.
Do you need to do additional research before answering this question?
7. WHAT IS OUR STRATEGY FOR HUMAN CAPITAL?
(a) We build our human capital: hire entry-level, train, retain, track alumni according to system.
(b) We buy our human capital from competitors and oth- er legal service organizations after they have acquired useful technical skills.
(c) We build and buy our human capital.
Paul Cravath had a business logic for the Cravath system for hiring and training junior lawyers. What is the business logic for your human capital strategy? Will this strategy result in lawyers who are much better than your competition?
8. WHAT IS OUR PHILOSOPHY TOWARD DISTRIBUTABLE IN- COME, WORKING CAPITAL AND INVESTMENT CAPITAL?
(a) We seek to maximize net distributable income.
(b) We retain and reinvest a percentage of our earnings to finance a multiyear strategic plan.
(c) We have developed ancillary business units that generate investment capital.
(d) Our equity partners accept that more skin is required to stay in the game.
Firms with older equity partnerships are likely to struggle with this question. Consider also asking: What is your partners’ true time horizon—short-, medium-, or long-term?
9. WHAT IS OUR CULTURE?
(a) Lawyers compete internally for credits and resources.
(b) Lawyers are collegial and internal competition is avoided, but large-scale collaboration is rare.
(c) Lawyers routinely collaborate across practice areas with virtually no attention paid to turf and client credits.
In our experience, lawyers often cite their firm’s culture as a primary competitive advantage because they like and respect one another. But these same lawyers worry about culture as a source of resistance to change. In this way, culture can simultaneously be one of the firm’s great strengths and its greatest obstacle to improvement.
10. IS OUR CURRENT COMPENSATION SYSTEM IN FULL ALIGNMENT WITH OUR LONG-TERM STRATEGY?
(b) No, and there is a widespread perception that it needs to be changed.
(c) No, and it will take a major coup or confrontation to correct it.
(d) Correcting the compensation system is a priority, but the best timing for that discussion is not today.
In the early 1990s, Latham & Watkins changed its compensation compression from 4-to-1 to 3-to-1 in favor of younger partners. The older partners got smaller proportionate slices, but over the next two decades, the overall pie got dramatically larger.
The previous questions are all connected to what the great management thinker Peter Drucker referred to as “the theory of the business.” As Drucker wrote, that theory cannot be developed or reset “without controversy.” [See Peter Drucker, Management: Tasks, Responsibilities, Practices (rev. 2008).]
After firm leaders complete this exercise on their own, we recommend that they gather their firm leadership team and share answers. Identify areas of agreement and dis- agreement, but don’t try to resolve differences immediately. They should grasp the importance and complexity of the issues by listening to one another. Then they should work together to prioritize the topics and the desired answers.
Finally, think through how to engage the partnership about the 10 questions. Be direct and honest with them. Paint a picture of the future where the current team of talented professionals works backward from the types of clients your firm is best positioned to service. Yes, it feels (and is) risky to present an alternative vision of the future. This is a fear you need to face to lead your firm to long-term stability in the face of a rapidly changing legal market.