A blog by Joel Barolsky of Barolsky Advisors

Posts Tagged ‘executive leadership team’

Key takeouts from major new legal market report

In Articles, Commentary on 28 August 2015 at 10:14 am

I’m proud to be lead author of the Thomson Reuters Peer Monitor report on the Australian legal market, prepared in collaboration with the Melbourne Law School. The report received good coverage in the Friday 28 August edition of the Australian Financial Review.

In summary, the report reveals that the Australian legal market bears all the hallmarks of a mature industry: declining demand, increased price-based competition, worktype decomposition, entry of market disruptors, technology substitution, and growth in both consolidators and niche players.  While market conditions are tough, they’re not calamitous. The larger firms generally have shrinking profit pools but have kept their heavy-hitters happy by de-equisiting other partners and cutting headcount. The contention that a firm cannot cut their way to greatness probably doesn’t hold true if one looks at how the larger firms have performed in recent years. However, the point when cutting comprises the underlying business model of scale, range and reach cannot be far off.

Coffee art AUIn my view, the biggest structural change in the market has not been NewLaw entrants or even globalisation, it has been the dramatic shift of work in-house and an increase in buyer power and sophistication. This trend has been prevalent in Australia for over a decade but its impact is really being felt in a benign economy and a demoralised political environment.

Some specific takeouts

  • While the long-term trend is negative, the last quarter of F15 saw an increase in demand and the first half of 2015 saw firms rehiring lawyers. It would be great to predict a bottoming out of the market and upside from here on end, but it’s foolish to pick a trend from one data point.
  • It’s been Christmas all year for firms with strong property and construction and M&A practices. It’s been Good Friday all year for firms with big banking and finance practices.
  • In the global versus local scrap, it appears the domestic firms are winning in litigation, IP and general corporate, with the globals making headway in property and M&A. It begs the question whether a global brand puts a firm at a disadvantage in targeting work perceived as domestic or jurisdiction-specific?
  • The data suggests that the firms that have gone down the global route have had a greater drop off in demand but have increased profits per equity partner. Perhaps it is these firms that have had more radical changes in their equity partner ranks and downsizing some practices.
  • In these tough times it appears that technology is the biggest investment area of the larger firms. In other sectors of the economy facing maturity, marketing and BD expenditure tends to increase relative to other areas. The signs are that law firms are banking on technology to make step-change improvements in efficiency and effectiveness.
  • The headhunters and recruitment firms supplying the legal market are popping champagne corks. Expenditure increased over 10% in this area in 2015 versus 2014.

Image sourced from www.theaureview.com

Advancing the retreat

In Articles, Commentary on 21 January 2015 at 8:12 am

Planning to run a partners retreat, off-site or conference later this year? As a facilitator of many retreats I thought you might find these five design principles helpful in crafting your 2015 agenda.

#1 Open Eyes

The retreat needs to go beyond the regular monthly performance update. It should open partner eyes to the true strategic health of the firm – the good, the bad and the ugly. The aim should be to tell the truth in a constructive and considered way. A glossy state of the nation address serves no one’s interests.

As a practical example of this, I was recently engaged to interview 10 clients, 10 competitors and 5 consultants to provide a fresh independent perspective on how a particular firm was positioned to meet the challenges of the Australian legal market. This strategy health check yielded a rich discussion on the firm’s distinctive strengths as well as one or two blind spots.

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#2 Open Minds

Many professionals are trained sceptics. This scepticism, coupled with stellar career success, leads to very conservative thinking and behaviour – what’s worked in the past will be the foundation of success into the future. This mindset is dangerous in a rapidly changing, intensely competitive environment.

Some of the best retreats I’ve been at have included “light-bulb” presentations from outsiders opening partner minds to fresh perspectives and methods. These outsiders have included, in descending order of impact, leaders of successful peer firms, key clients, heavy hitters from industry, respected alumni, market commentators, researchers and content experts.

Another approach I’ve seen work really well is to run live “what-if” simulations. The firm’s P&L is presented and then a series of scenarios presented to demonstrate the long-term impact on partner income. The discussion then opens up and what-if questions are then simulated and the results revealed in real time. This is partly firm economics 101 in disguise, but also it’s a really useful way to show the long-term impact of things like margin erosion, cost containment, staff engagement and strategic investments or divestments.

#3 Open Hearts

“Building relationships with colleagues”, often tops the best things list in post-retreat feedback. As firms grow in both size and footprint it gets harder for partners to partner. They simply do not know their colleagues, what they’re like as people, what they’re really good at and how they might add value to clients.

Structuring (but not over-structuring) social time and activity is critical. It amazes me how often firms will book retreats at expensive resorts with glorious recreational facilities and then spend 95% of the time in meeting rooms observing other guests enjoying them.

#4 Open Questions

Retreats are often good opportunities to work on the business and solicit partner views as owners and stewards of the firm. One constructive way to address this is to ask a few carefully crafted open questions and to structure a debate around these dilemmas. For example, “Australian patent firm Spruson & Ferguson IPO’ed late in 2014 and now has a market cap over $570 million. Should we do the same?” 

These open question sessions can be set up with a presentation of relevant background data and commentary. The key is to let the discussion be open and unstructured while at the same time keeping it insightful, strategic and relevant.

#5 Open Doors

Almost every retreat I’ve attended starts out by welcoming new partners – both internal appointments and lateral hires. Other than a cursory mention of their name not much else is done to truly open the door to those joining the club. I think this is a missed opportunity to get fresh perspectives on the firm and to avoid group think.

One firm I know asks all their lateral hires to do a short presentation comparing their old firm to the new on five dimensions: culture, governance, pricing, work practices and strategy. This is really helpful in three ways: profiling competitors, benchmarking and showcasing their new partners.

In conclusion

While retreats can be a black hole in terms of time and dollars, many successful firms continue to see a return from this type of investment. The trick is not to view it as an extended partners meeting but rather as a major opportunity to build the spirit and the strategy of the partnership.

Three essential topics for your 2014 strategic agenda

In Articles, Commentary on 14 January 2014 at 11:26 am

This is a good time to do a quick stress test of your firm’s 2014 strategic agenda.

Looking at the list of strategic priorities you should be asking: [1] is there a reasonable balance between today’s business and tomorrow’s business; [2] have we been brave enough in tackling our sacred cows; [3] have we adequately addressed client, market and competitive challenges; [4] is the list too long/are we trying to do too much; and [5] is everyone committed to the same list?

You may wish to take your stress test one step further by asking whether these three critically important topics have been considered:

  1. Innovation
  2. Co-venturing
  3. Leadership capacity.

Innovation

Late last year I was quoted in The Australian Financial Review and The Australian on the rapidly changing dynamics of the legal and accounting markets. What’s clear is that these markets are displaying classic signs of market maturity: new entrants, product commoditisation, mergers and client demands for more and to pay less.

Latte-Art-16The old saying, “when the going gets tough, the tough get going”, could not be truer. Firms that are not looking to innovate and make step-change improvements will simply fail. The market will no longer tolerate mediocrity.

The problem with “innovation” is that it’s very broad concept and means many things to different people. My strong advice is that if you want to address innovation in your firm, you need to define it for yourselves. Without this clarity, everything will quickly be lumped into the innovation bucket and when it’s everything, it’s nothing.

To illustrate how you might commence on this innovation journey, I recently ran a successful half-day “kick-start” innovation workshop for a client (XYZ). The workshop yielded two key outcomes: XYZ’s specific definition and approach to innovation and five high-impact innovation opportunities for the firm to action.  The workshop covered:

  • Why is innovation important
  • Types of innovation inc.  process, product, people, pricing and positioning
  • Reshaping culture to become a more innovative and agile firm
  • Case studies in successful innovation amongst professional service firms
  • XYZ’s definition and approach to innovation
  • Brainstorming XYZ innovation opportunities
  • Priortising the XYZ’s best ideas
  • Action plans to advance XYZ’s innovation approach and to develop the top few ideas.

Co-venturing

The second strategic agenda topic is about asking the question: “which other businesses in your universe would be best to partner or co-venture with?” Co-venturing might enable rapid entry into new markets, accessing new technologies, acquiring complementary capabilities and de-risking new product development. Partners might include other types of professional service firms, suppliers, intermediaries and even competitors.

Traditional firms might be able to leap-frog the innovation and R&D process by partnering with a start-up business with a new service delivery model. This is one option to avoid disrupting your core operations and to bypass conservative cultural constraints prevalent in many firms.

One great co-venturing example is the initiative between environmental engineering firm, Energetics, and accounting firm, BDO. They’ve worked collaboratively to provide carbon auditing and assurance services in Australia. The two parties have brought complementary capabilities to the table enable each to compete more effectively:

  • BDO –  audit process and risk management; in-depth knowledge in the audit of company finances, financial accounting systems and performing transactional-based audit analytics.
  • Energetics – well-recognised emission knowledge and reputation across wide range of industries; largest group of technical specialists in Australia in greenhouse reporting, grants and renewable schemes. 

Leadership capacity

The third critical issue that all firms should examine is their leadership capacity. I see many firms with highly skilled CEOs or Managing Partners but with moderately competent team leaders. Teams, be they client, work-type, office, internal service, project or industry teams, are where all the action happens. They’re the bedrock of the firm.

In the past, a buoyant market masked the lack of leadership talent and allowed teams to thrive largely on auto-pilot. This, in my view, is no longer the case. If your firm does not have the current and future capacity to lead teams, it will always under-perform and succession will become a major headache.

Developing leadership capacity is not a quick-fix, easy issue to address. It’s NOT about running a 2-day leadership training program and expecting everyone to walk out as Nelson Mandela. 27 years in jail is not a feasible alternative either!

Building leadership capacity is about a systematic developmental approach tailored to each individual. From experience, it’s expensive, risky and delivers returns over a long time period. In other words, a prime candidate for the ‘too hard basket’. Notwithstanding this, there is much merit in doing an honest assessment of your leadership talent and to develop a plan to address the key gaps and to realise the potential that’s there.

Dread or delight

In 2014 we have the FIFA World Cup in Brazil, the Winter Olympics in Russia and a mouthwatering cricket test series in South Africa to look forward to. With a robust strategic agenda in hand, hopefully you are looking forward to 2014 with more delight than dread. I wish you and your firm everything of the best for the year ahead.

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