The full text of my opinion piece first published in the Australian Financial Review on 18 October 2019.
‘Culture eats strategy for breakfast’, is a frequently cited quote attributed to Peter Drucker.
My recent experience with three firms suggests that Drucker, whom some call the father of management thinking, might just be right. These firms have consistently outperformed their peers and recorded double-digit profit growth. This success has come without superstar rainmakers, with undistinguished brands and with no fancy-schmancy disruptive business models.
So, what is it that has made them so successful?
Original AFR article
It appears to me that the secret lies in their organisational culture, that is, the set of shared assumptions, values and beliefs that underpin how people do their work and relate to each other.
It’s their implicit management system that creates order and provides inspiration without the need to codify each and every activity.
I posit that there are seven areas where culture really matters.
#1 Productive politics
In firms with highly politicised cultures, enormous energy is expended addressing internal matters like who takes credit, who earns what, who ‘owns’ which client and who can and can’t work for whom. Power struggles and infighting between divisions, office locations, practice team and individuals distract from time with clients and staff.
A managing partner of a leading law firm once revealed to me that he spent around 40% of his time making and justifying partner remuneration decisions. In other words, splitting the pie, not expanding it.
#2 Collaboration
Research by Harvard’s Heidi Gardner reveals there is a significant financial upside when partners work together to solve wicked client problems. She distinguishes this kind of integrative collaboration from cross-selling. The former is about drawing together a diversity of knowledge and experiences to add value to clients, the latter is merely an arms-length referral to a colleague.
#3 Consistent high standards
In a recent panel discussion, I asked three General Counsel what distinguished top firms from the rest? ‘Consistency’ was the universal response. Leading firms were characterised by extremely high technical and service standards delivered consistently by all staff at all levels.
Successful firms are those that have cultures that are intolerant of mediocrity and expect, and get, high standards from everyone.
#4 Discretionary effort
Organisation cultures that are perceived to be purpose-driven and genuinely caring, trusting and fair tend to get the best out of people. Staff are more likely to go the extra mile, to act above and beyond the call of duty, or just do that little bit more. Toxic cultures often result in lower productivity, higher absenteeism and substandard output.
#5 Continuity
Continuity builds deeper client understanding and fosters trusting relationships. In a study in a large bank, the researchers found that where a client had five different relationship managers over a two-year period only 40% of clients were satisfied. This jumped to over 80% where there had been only one relationship manager.
Positive firm cultures facilitate retention and ensure continuity. A stable workforce also reduces the direct costs associated with staff churn.
#6 Self-management
Each of the three firms mentioned in the introduction is characterised by a lean management structure. All senior people, but excluding the managing partner, still retain significant practices. Each team within the firm has an ethos of self-sufficiency. They don’t see themselves as paralysed subordinates waiting for orders.
Alignment around firm direction, trust in leadership and a strong culture provide the glue that binds the collective but at the same time encourages individual empowerment.
#7 Accountability for action
Strange as it seems but many firms struggle with simply doing what they say they will do. An accountability culture is one where there’s a bias towards keeping promises and there’s less denial and deflection in cases of inaction. Successful firms have the disciplines to implement strategy and the fortitude to overcome obstacles that might emerge.
In conclusion
It is common for law firms to describe their cultures as ‘collegiate’, ‘respectful’ and ‘friendly’. In these tough times, I don’t think just being nice is going to be enough.
It is incumbent of every professional service leader to strive towards a cohesive, productive, healthy and disciplined culture.
This type of culture will take care of breakfast, but it will also allow the firm to have strategy for lunch and glass of the finest champagne over dinner.
Relationship Capital 
business, business development, client relationships, culture, executive leadership team, growth, internal collaboration, pricing, professional service firms
How your law firm can limit virus hit to bottom line
In Articles, Commentary on 7 August 2020 at 3:42 pmThe full text of my 7 August 2020 opinion piece first published in the Australian Financial Review.
There is every chance that COVID-19 will mean a big hit to your firm’s revenue for the 2020-21 financial year. So, what levers are you using to limit the downside impact on profitability?
Greg Keith, the chief executive of accounting firm Grant Thornton, recently indicated he was anticipating a decline of 8.5 per cent in revenue and 33 per cent in profit.
It means that for every 1 per cent drop in income, they are forecasting a fall of nearly 4 per cent in profits.
Accounting firms, like law firms, are mostly high fixed-cost businesses that are super-sensitive to changes in revenue – both on the downside and the upside.
To limit the profit impact, firms tend to first cut non-essential spending like travel and entertainment. After these “easy” savings are exhausted, reducing staff numbers comes into the frame.
While there are obvious short-term benefits – staffing can comprise 60 per cent of all expenses – there’s a significant risk of not having enough of the right resources on hand when demand picks up. So, the 2020-21 saving needs to be weighed up against the full cost of re-hiring and training in the future.
In my view, there are two areas where firms could do a lot better to enhance profitability without letting people go – pricing and the sharing of resources.
Pricing for profit
Over the last few years, most mid-sized and large firms have worked on their pricing practices.
With a significant market downturn and price war on the cards, one firm recently redoubled its support for partners to preserve and capture value through price. This included video training modules on value articulation, gamified programs around price negotiation, improved analytics, new pricing tools [like Price High or Low 😀] and more direct hand-holding for new business pitches.
Some firms are adopting a range of creative strategies to meet client needs rather than merely dropping price. They include:
One law firm offers its clients three pricing options on every new matter. They’ve adapted Qantas’ pricing approach by offering the equivalent of the airline’s Red e-Deal, Flex and Business Class options. As with Qantas, each option has the same core benefits around quality and reliability but differ in terms of the format of the deliverables, roles, timing and scope.
Another firm analysed their top 100 clients to determine how each was being affected so they could tailor messages and offers. In one instance, this led to a new digital service offering as some clients moved to virtual selling and distributed operations. In another case, they shifted to a self-service model for a client going through a major cost-cutting exercise.
Resource sharing
I was recently advising a law firm where analysis of time records revealed that some individuals and teams were extremely busy while others were well below capacity.
When I asked why resources were not shared to even out workloads, the most common response was that lawyers could not easily work outside their area of specialisation.
Not satisfied with that objection, I delved a bit deeper. My enquiries revealed a range of constraints – cultural, structural and personality – to collaboration. For some partners, “letting my people go” was a sign of failure. For others, they didn’t see any direct financial incentive to share resources, so they didn’t bother. In one office, each practice team saw itself as a self-contained business, and the prevailing mindset was more competitive rather than co-operative.
In good times, there’s often enough fat in the system to ignore these problems, But if your firm is looking at an equation that means every 1 per cent drop in revenue leads to a 4 per cent drop in profits, then you might need to change your thinking.
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