A blog by Joel Barolsky of Barolsky Advisors

Posts Tagged ‘planning’

Law firm partnerships could give BHP a productivity lesson

In Articles, Commentary on 7 September 2019 at 10:03 am

Full text of my opinion piece first published in the Australian Financial Review on 6 September 2019.

CEO Andrew Mackenzie and the top 200 global executives at BHP Billiton do not dig for iron ore, or cart coal, or drill for oil. They are 100 per cent dedicated to the task of leading and managing their company.

In contrast, almost all of the top 200 global partners in Herbert Smith Freehills (HSF) are involved in legal service production in some way. This includes advising clients, supervising the legal work done by juniors and pursuing new opportunities.

A BHP vs HSF comparison points to one of the key differences between law firm partnerships and corporations; almost all senior people in law firms have a producer-manager-leader (PML) role.

As producers they win and deliver legal work; as managers they organise and control people, processes, resources and facilities; and as leaders they help set direction, align constituencies, innovate and inspire others to perform at a higher level.

There is strong evidence that most law firm partners bias production over their management and leadership roles. The reasons for this are both structural and personal.

Proof of legal excellence and client followership are the most common ways people get promoted. Production-related outcomes are the things that are celebrated and rewarded – acquiring new clients, winning high profile cases, beating budgets, winning awards and ranking higher in directories.

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Entitled Millenials

Ask partners what they enjoy the most in the job, the most common response is helping clients solve really important complex problems. The thing they enjoy least is dealing with entitled millennials.

As the business of legal becomes more complex and competitive, so does the importance of effective leadership and management.

As firms grow there are more cats to herd.

As legal technology evolves there are bigger strategic bets to place.

As client expectations and sophistication rises, so firms have to deliver more for less and still make a buck.

As younger lawyers leave the profession in droves, firms have to do much better at engaging top talent.

One obvious solution to deal with this production-bias is to employ full-time specialised managers and leaders and let the lawyers just do law.

This thinking is seriously flawed.

Rather than blindly follow what corporations do, law firms should wholeheartedly embrace the PML model and just work harder at addressing the problems listed above.

Empowered self-managed teams

PML results in law firms being run as a network of highly empowered self-managed teams. There’s no middle management pushing papers and inventing new reports. There’s no CBD head office tower filled with bureaucrats. There’s no intricate incentive system to extract more discretionary effort from senior executives.

In the main, premium law firms are highly profitable perpetual engines of productivity. As an organisational form, traditional partnerships create wealth, share wealth and reduce risk very effectively.

Boris Groysberg of the Harvard Business School mentioned during his recent Australian tour that many large corporations are in fact trying to move towards the PML model. They see the obvious benefits of reducing overheads, fostering empowerment and having executives much closer to customers.

The key lesson is for law firms to reframe their whole talent system around the PML model. This means hiring more rounded legal graduates. It means providing non-legal training, especially in people skills, at all career stages. It means fast-tracking those with obvious leadership potential to senior roles more quickly. It means adding new elements to the symbols and measures of success.

It also means support for incumbent partners to better manage the trade-offs and tensions across their current portfolio of responsibilities.

The frequently cited claim that the partnership model is an anachronism is misguided. Having an empowered organisation with almost everyone on the tools in some way would make BHP’s Andrew Mackenzie think he’s discovered another Pilbara.

Five lessons from successful lawyers

In Articles, Commentary on 8 July 2019 at 9:14 pm

The full text of my opinion piece first published in the Australian Financial Review on 5 July 2019.

There are five stories worth retelling in comparing the 2019 AFR Partnership Survey to the one reported 10 years ago in July 2009.

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Original AFR article

#1 Resilience

Over the past decade, numerous commentators have predicted the end of BigLaw. Headlines such as, ‘Large law firms are about to have their Kodak moment’, ‘BigLaw is dead. Long live NewLaw’, and ‘Law is ripe for consolidation and disruption’ has attracted readers’ attention, but it is safe to say that these predictions have simply not yet come true.

Analysis of 2009 vs the 2019 Top 30 lists shows:

  • Average firm size is quite similar and there has been very little consolidation. In fact, the largest firm in the land by partner numbers was 297 in 2009 (Minters) compared to 266 in 2019 (HWL Ebsworth).
  • The business models of the Top 30 firms are by and large very similar to those from 10 years prior. They still operate within traditional professional partnerships, they make money through leverage of people, and they price directly or indirectly based on time.
  • While there are a number of global brands in the 2019 list, the Australian-based partnerships of these firms are still broadly the same set of people, putting aside obvious partner promotions and retirements. The vast majority of Australian legal work is still done by Australians in Australia.
  • For all the hype about the Big 4, PwC Legal does not make even it to the Top 30 list in 2019, and the other three are way behind.

#2 The shadow

In July 2009, DLA Phillips Fox had 164 partners and 434 fee-earners. It was the 7th largest firm in the land, the first trans-Tasman integrated partnership (excluding Perth) and a market leader in insurance, government and transport.

Ten years later the AFR Survey shows that DLA Australia has only 70 partners.

UK-based DLP Piper may be very happy with the slimmed-down version that their Australian branch office has become, but it seems amazing to me that nearly 100 of those original Phillips Fox partners who put up their hands to vote ‘yes’ for the DLA tie-up, left the firm they owned within a relatively short time period. Why did so many get it so wrong?

#3 Spot-changers

Much is said about law firms’ and lawyers’ resistance to change but it is worth highlighting the success that two firms are having in changing their gender profile. The 2009 AFR survey revealed that 16.3% of Allens’ partners were female. Ten years later this percentage is 33.1%. Over the same time period, Maddocks has shifted its female partners from 16.9% to 36.6%. Interestingly, the pioneer in this area, Gilbert + Tobin, has seen its proportion stay roughly the same: 36.2% in 2009 versus 35.7% in 2019.

The numbers do not reveal the specific strategies to become more inclusive, but they do show that a real commitment to a goal can make some leopards become less leopard’ish.

#4 The trainers

The firms listed in 2019 AFR survey hired 1,222 graduates over the past financial year. Most of these firms will spend the next three or four years of training these graduates to become independent legal advisers. Back-of-the-envelope calculations indicate that this is around 1.5 million hours of training at a rough cost of $90 million.

Assuming one-third leave the profession, the market cost of this attrition is $30 million. Assuming 20% go into in-house roles, the law firms are providing an $18 million training cross-subsidy to their clients (now how’s that for a value-add!). Assuming firms are expanding their training programs to include digital literacy and related topics, these costs are only going to escalate.

All this data points to the cost of not getting significantly better at talent management.

#5 New and old friends

The 2009 AFR listing included IP specialist firms Davies Collison Cave and Griffith Hack. Both of those firms are now part of ASX-listed entities and playing a very different game.

The 2019 AFR survey includes points to two emerging strategic groups:

  • The multi-disciplinaries or MDPs – firms that include significant consulting and adjacent (to legal) offerings. The standout members are the Big 4 legal arms plus Minter Ellison. Others that have a foot or toe in this pond include Corrs, Clayton Utz, Herbert Smith Freehills and McCullough Robertson.
  • The global boutiques – firms that are focused on just one or two service line or sectors in Australia and tied to a mothership back in UK or USA. Obvious examples include Seyfarth Shaw, Clifford Chance, Allen & Overy, Clyde & Co, Squire Patton Boggs, Jones Day, White & Case and Quinn Emmanuel.

In conclusion

There are lots of other interesting case studies behind the AFR surveys. They provide a rich history of our legal market and we should be very grateful to the participating firms and the AFR that the data is there to be shared and stories to be told.

When Google Comes to Legal

In Articles, Commentary on 10 June 2019 at 10:02 am

Full text of op-ed that first appeared in The Australian Financial Review on Friday 7 July 2019.

The ‘legal supply chain’ can tell us a lot about the future for lawyers – and how much technology will disrupt the industry.

Will they become middlemen for technology providers?

Will the race to provide operations software yield a winner with extraordinary leverage over the legal sector?

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Original AFR article

Traditional law firms have been at the core of the supply chain for well over 150 years. In-house legal has a phenomenon of the past 30 years. Law companies – those providing legal process specialists, managed services and contract lawyering – have become a force over the past five to seven years.

Legal technology providers are the newest kids on the block, but the growth has been remarkable. Stanford Law School’s TechIndex points to 1,051 legal tech startups across the globe since 2016, all wanting to be part of the supply chain.

There are six broad entities that are involved in the delivery of commercial legal services in the modern era; the law and legal system; legal technology, algorithm and data providers; law firms and law companies; in-house legal; client organisations; and end-consumers.

Not all legal services involve all six entities, many don’t follow the chain sequentially and some services start and end at different stages. However, its still a useful conceptual framework for those who don’t’ have a crystal ball.

Many lawyers will become value-added resellers

Fast forward five years and legal technology will have matured to the point that it will become integral to legal advice and delivery. Many commercial lawyers will become value-added resellers of sophisticated technology developed by third party vendors.

To illustrate, Contract Probe software allows users to do a comprehensive review of draft NDA, service, supply, consultancy, IP license or employment contracts within 60 seconds for a fixed fee of $100 or less. Created by former Allens TMT partner, Michael Pattison, Contract Probe generates an overall quality score out of 10, highlights key omissions and errors, and makes suggestions for improvement. Contract Probe uses a machine learning approach which means it gets better each time it is used.

In this world, there will be fewer junior lawyers doing the grunt process work but a greater demand for the ‘human’ elements in the client-lawyer exchange, i.e. empathy, problem-solving, creativity and judgement. Competing as a reseller will require lawyers to have a profound understanding of how the technology works, and how it doesn’t. They will also need to get a lot better at pricing their service to capture value beyond charging for their time. Resellers will live or die based on the depth of their client relationships and their ability to be true trusted advisors.

Powerful platform providers will emerge

PwC and KPMG both recently announced collaborations with Australian providers of legal operations software for in-house legal teams. This SaaS technology provides a single scalable low-cost solution for in-house lawyers to transact with external counsel, manage internal workflows, prepare and store documents, service internal clients, communicate value to the C-suite and stay in control of their budget. While this software has been around for a while, attaching it to the world’s most powerful B2B brands with deep change management expertise is a gamechanger.

Fast-forward ten years and one of the Big 4, or another provider like Elevate or Xakia, will have won the battle to be the dominant platform for in-house legal teams. They will have unrivalled data around law firm performance, pricing, client satisfaction, in-house productivity and a myriad of other benchmarks. They will own the screen of every in-house lawyer giving them extraordinary influence and leverage along the entire legal supply chain.

In this future scenario, the Big 4 winner will become the intermediary that premium law firms, law companies and technology vendors have to deal with. They won’t compete as clones of traditional firms but rather as Google of the legal world.

A single platform will most likely lower transaction costs and improve choice, quality and responsiveness for client organisations. It won’t displace or disrupt incumbent law firms, but it will most likely reduce their relative bargaining power.

It is worth noting that data security and legal conflict concerns are major obstacles in the way of a single legal operations platform developing. Notwithstanding these issues, the momentum for change in the ‘more for less’ era is significant.

Stop trying so hard to be different

In Articles, Commentary on 6 May 2019 at 4:33 pm

Full text of op-ed that first appeared in The Australian Financial Review on 3 May 2019.

99% of Australia’s full-service law firms have a strategy based on seeking clear market differentiation. In my view, they’re largely wasting their time and money.

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AFR Legal Affairs op-ed

Conventional strategy thinking suggests there are two sources of sustainable competitive advantage: [1] having the lowest cost, or [2] differentiating from competitors on things that matter most to customers. The former strategy allows firms to win by having greater price-setting discretion. The latter strategy allows firms to extract a price premium for added benefits.

When it comes to the legal market, this theory starts to get a bit wobbly.

Research shows that while most law firm clients can distinguish firms between groups of firms, such as Tier 1 versus Tier 2 or domestic versus global, they really struggle to clearly discriminate between specific full-service firms within a group. To clients, many of these firms look and feel the same.

One of the reasons for this is market fragmentation. Unlike most industries with three or four dominant players (think airlines, grocery retail or banking), the Australian commercial legal market has nearly 30 firms claiming in some way to be leaders in legal expertise and client focus. Australia’s largest law firm by partner number, HWL Ebsworth, has less than 5% share of the total market. Carving out and keeping a unique and relevant market position in such a crowded market is next to impossible.

Another reason for a lack differentiation is a self-inflicted one. Most full-service firms present themselves as being all things to most people. Within the partnership model it’s political suicide not to give every partner a guernsey in describing what the firm is really good at.

So, what’s the solution?

The first part of the answer is to worry less about being known for being different and focus more on just being known. Strong brand awareness still counts in opening doors and staying top-of-mind.

The second part is to encourage more differentiation at the practice, partner and/or product level. With a more micro approach, differentiation usually come from legal specialisation combined with a focus on a particular market segment or industry. So, for example, a general commercial litigation team can distinguish themselves by positioning as class action defence specialists for ASX200 companies.

The third element is to concentrate firm strategy on how the firm competes. ‘The how’ refers to the resources, skills, standards and systems used to win. These are collectively called capabilities, or as Pier D’Angelo, Allens’ Chief Strategy Officer, calls them, the organisation’s “muscles”.

Most full-service law firms need work on these five muscle groups and the inter-play between them:

1.   Firm and team leadership – setting and aligning everyone around a clear direction; inspiring others to meet/exceed expectations; and providing support with accountability.

2.   Talent management – recruiting, developing, engaging and retaining the right workforce for the firm to flourish, both now and in the future.

3.   Winning work and capturing value – developing trusting relationships with clients and referrers; converting more of the right opportunities; and pricing profitably.

4.   Collaboration – shifting the mindset from ‘my’ to ‘our’ client and combining expertise from inside and outside the firm to solve clients’ wicked problems.

5.   Operating with discipline – having an efficient and effective operating platform; ensuring adherence to agreed policies; executing plans consistently; and optimising leverage and utilisation.

Spending more time at the law firm gym will, over time, create a form of cultural and operational distinctiveness. Paradoxically, this will most likely be reflected externally and create a firm that both top clients and top people will want to work with and for. They will be authentic points of difference not created by spin doctors but radiating from a firm truly fit for the future.

Why premium law firms are falling behind in a downward trajectory

In Articles, Commentary on 6 April 2019 at 4:54 pm

Full text of my op-ed that first appeared in The Australian Financial Review on 5 April 2019.

The recent Hayne sugar hit can’t hide the fact that the 10-year trend line for legal work done by Australia’s premium firms is on a downward trajectory.

AFR oped 5 April 2019 copy

AFR print edition

One conclusion to draw from this data is that the market for legal work is flat or declining. Another way to look at is that the total market for legal is booming, but the premium firms – those law firms selling their deep expertise and charging higher fees – are losing market share.

There are three key reasons to suggest the latter conclusion is more likely correct:

First is the growth of in-house lawyers. NSW Law Society data revealed a 59 per cent increase in corporate in-house lawyers across Australia from 2011 to 2016.

Second is the growth of  ‘alternative legal service providers’ (ALSPs). Thomson Reuters’ Legal Executive Institute recently reported that ALSPs recorded global revenues of $US10.7 billion ($15.04 billion) in 2017, with compound annual growth rate of 12.7 per cent. ALSPs include firms doing litigation and investigation support, legal research, document review, e-discovery and regulatory risk and compliance.

Third is the growth of regulatory risk and compliance. Over the past 10 years, the Commonwealth Government has introduced roughly 5500 pages of new legislation each year. For every major new regulation there is usually the need for strategic and legal advice; the design and implementation of new compliance systems; and support and investigations when there are breaches. It appears that the demand for legal-related regulatory work has mostly been satisfied by accountants and a range regulatory specialists and software providers.

Vacating low-margin segments

A kind interpretation of the premium law firms decline in market share is that firms have deliberately vacated the segments they’ve perceived to be dominated by low-margin commodity work. By focusing on specialist higher-priced work, firms have been able to maintain partner profits and keep the essence of their business models intact.

A less glowing view is that these law firms have been blindsided by the new entrants, in-house lawyers, the accountants and software providers – and that they are slowly losing the battle of being the most relevant legal advisers to companies and government organisations. They are become niche specialists called in only when there is a really complex legal issue or a dispute and/or where the client organisation wants to transfer risk.

At the recent Managing Partners Forum, Anthony Kearns of Herbert Smith Freehills stated the top concerns of many his firm’s general counsel (GC) clients were more managerial than strictly legal.

They included issues such as:

  • How can we enhance the value of legal to our business?
  • How can we enhance the performance of the legal supply chain?
  • How can we build a platform of influence within our organisation?
  • How can we meaningfully contribute to the development and delivery of our organisation’s strategy?
  • How do we do more for less?

Gap for Big 4

His thesis was that if law firms didn’t start to help their GC clients with these problems, then the Big 4 and other consultants would.

On the surface, it would seem law firms might not have the expertise to assist. But on closer examination most of the larger firms are full of highly specialised HR, IT and marketing and operations people that are highly skilled in dealing with lawyers. At the moment, they’re just facing inwards not outwards.

So, our premium law firms are facing another strategic choice whether to accept this opportunity to help their GC clients, or leave it to other advisers to fill the void?

My prediction is that a small number of premium firms will say “yes” and pursue these and other adjacent business opportunities with vigour. The majority will stick to their knitting and retreat to what they know best – being legal specialists.

There are some interesting times ahead.

Avoiding the Bermuda Triangle of law firm management

In Articles, Commentary on 2 March 2019 at 8:50 pm

Full text of my opinion piece first published by the Australian Finance Review on 1 March 2019.

Is your firm getting trapped in the Bermuda Triangle of law firm management? It might be and, worse still, you might not even be aware of it.

In the early 2000s, Professor Ashish Nanda of Harvard Business School commissioned a study to test whether the concept of economies of scale applied in commercial law firms?

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AFR print edition

He plotted profit per equity partner (PEP) against the number of fee earners for over 200 firms in the United States. The results disconfirmed the scale economy theory but revealed something even more interesting: PEP was relatively high for small boutique firms focused on specific market segments, and for very large firms who were able to compete for larger bet-the-company M&A transactions, projects and disputes. However, a majority of mid-sized firms had lower PEP relative to their much smaller and much larger peers. While the graph had dots everywhere, the best-fitting line looked like a large ‘U’.

Two theories were put forward to explain the U-shape. The first was that many of the mid-size firms found it hard to differentiate themselves and as a result were unable to secure a price premium. The proposition was these firms were in the ‘mushy middle’ losing out smaller and larger firms that were better positioned in the market. A deeper analysis of the data revealed high- and low-priced firms across all the three groups and therefore market differentiation was concluded to be a relevant factor but not the full story.

Growth pain zone

The second theory was that many law firm partnerships suffered heavily from growing pains. Small firms benefited from quick, informal decision-making and lean management processes. Large firms had the advantage of more mature and formal management practices and leadership capability. Problems emerged when shifting from small to large. Professor Nanda called this growth pain zone the ‘Bermuda Triangle of Law Firm Management’.

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The Triangle phenomenon can be explained as follows.

Growth in the number of fee-earners, office locations, service range and clients often results in more management complexity. There are more day-to-day decisions around who to hire, fire, promote, take leave, reward and sanction. There are more issues to deal with in regard to administrative processes, technology and systems. Marketing and business development decisions such as client pursuits, pricing and conflicts become trickier. At a strategic level, there’s more at stake when making major investment decisions and signing long leases for larger premises.

Many law firm partnership struggle with this increase in complexity. A common response is to allocate more partner time to deal with management issues. As decisions become more complex, more and more time is taken up in internal meetings and management conversations. Partners are drawn away from the things that matter most, that is their clients, prospective clients, referrers and people. Firms become internally-focused at the very time that an external market-orientation is most critical. This collective distraction has a material negative impact on firm performance and competitiveness.

With the noble pursuit of partner equality, fairness and sense of proprietorship many firms are reluctant to take away any decision rights from partners. With this approach, almost every decision, from the colour of sticky notes to staff parking policy needs consultation and consensus. This often results in extensive delays and lowest common denominator decision-making i.e. doing what all can agree on rather than on what’s right.

Major blind spots

In some growing firms, partners take on designated management role in key functional areas like HR, IT, Marketing and Finance. While this helps share the load very often the partners overseeing these functions have next to no training or experience in these areas. They have major blind spots and often make sub-optimal decisions that ultimately cost the firm. Even when firms hire specialist managers in these business support areas it is quite common for partners to second-guess these professionals and override their decisions.

The most critical element in navigating through the Triangle is effective leadership and followership. If the firm has a competent leader, they tend not to over-invest valuable partner time in governance roles, they make the right decisions quickly and implement them. Effective leadership builds trust amongst the partners who are happy to cede many of their low-level decision rights. Good leaders provide the right support and intolerance for partners to perform to their full potential. They facilitate a culture that is focused on delivering a superior client and employee experience. All these things matter.

A quick review of the high growth firms in Australia over the past decade confirms this hypothesis. Many have a strong, effective leader or a leadership group that have helped minimise growing pains and navigated through the Triangle. The words of the Bear Hunt, “they haven’t gone over it / they haven’t gone under it / they’ve gone through it.”

10 ways to describe the Client Relationship Partner (CRP) role

In Articles, Commentary on 29 August 2018 at 11:41 am

Client Relationship Partners or CRPs are responsible for the overall success of the firm’s long-term relationship with each key client. Listed below are 10 different ways to describe the CRP role each with its own nuance and emphasis. These descriptions are useful in creating clarity in expectations, CRP selection, capability development and accountability.

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Source: strikingly.com

#1 The firm luminary and client advocate

The CRP faces outward and represents the firm to the client. At the same time, they face inward to ensure the voice of the client is heard and client’s interest are appropriately served. Read David Maister’s famous post to dive deeper into this job description.

#2 The pedestal seller (aka the Tinder Tactician)

The CRP networks actively within the firm and the client organisation, and brokers new relationships. They put colleagues and client contacts on a pedestal and talk them up wherever they can. They start their day by thinking about who they can introduce for mutual benefit.

#3 The strategic account leader

The CRP has the primary role of leading the team of practitioners and functional specialists servicing the client. As with any leadership role, their job is to set direction, communicate the strategy, inspire, motivate, cajole and align the various constituencies to execute this strategy. They span across formal organisation boundaries and facilitate collaboration in the core client team and with everyone in the broader client community. This job is made especially difficult in professional service firms because they usually have signifcant responsibilities without formal authority. They typically would have an internal network map looking like Partner 2 from Heidi Gardner’s recent research:

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#4 The planner

The CRP documents a clear set of activities that will help build a successful firm-client relationship over the short-, medium- and long-term. Their plan may look something like this:

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#5 The front-door

The CRP is the client’s first point-of-contact and the key person to address any service failures or concerns. They help redirect work to the most appropriate person within the firm that can service their need. They help make the client’s experience frictionless and engaging. This CRP role is a little more passive than the other models described, but it may suit a ‘care and maintain’ relationship that has little profit growth potential.

#6 The rainmaker

The CRP’s job is to maximise revenue and profit from the account. Full stop.

#7 The co-creator

The CRP facilitates the process of aligning the client’s strategic needs with the firm’s capabilities. They explore in some depth the client’s critical problems and opportunities and help bring together integrated bespoke solutions often involving multi parties, technologies and vendors. The CRP’s role would be to understand deeply the key elements that create value for the client. Page 1 of their client plan would be Bain’s 40 elements model applied to their key client:

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#8 The intrapreneur

Most relationships need ongoing renewal and inspiration in terms of product, process, people and pricing. The CRP role is to generate new ideas that add value and help get the best ones implemented.

#9 The elder

The CRP role is that of senior door opener, shmoozer, steward and repository of institutional memory. The role is less hand-on in terms of day-to-day account management but they do what’s necessary to influence key decision-makers and help win major new projects.

#10 The relationship choreographer (MY PREFERENCE)

The CRP orchestrates a set multi-lateral connections, value exchanges and mutually beneficial projects. They work internal and externally, strategically and tactically, short-term and long-term. The CRP brings the best of the firm to the client; and the whole of the client to the firm. Their job to drive the pink process to win more blue:

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Measurement matters more than money

In Articles, Commentary on 24 July 2018 at 7:56 am

A firm’s profit-sharing model is a poor determinant of collaborative behaviour.

Motivational theory predicts that firms with equal-share or lock-step model would be far more collaborative than those with more performance-based reward systems. The logic is that in equal-share firms there is a strong financial incentive for partners to grow the collective pie by sharing clients, staff and other resources.

I can think of a number of firms where this theory simply does not hold true.

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Source: strikingly.com

Despite equal profit share, partners in these firms hoard work and clients, they hold onto resources and they operate primarily in silos. They continue to do this despite all the evidence that better collaboration will result in higher profits, more staff engagement and stronger client loyalty.

SO WHAT IS GOING ON?

In many firms, partner performance measures are oriented around financial metrics like personal and supervised production, fees billed, fees collected, work referred, utilisation, write-offs and WIP. They are usually reported monthly in arrears and are transparent to the rest of the partnership.

It appears to me that silo’ed behaviour is driven by a reaction to the measurement system by three different types of partners.

Insecure Overachievers

Insecure partners view their relative ranking on performance reports as a signal of their worth, both to themselves and others. The data is a form of validation or redemption. Getting higher up the individual billings league table takes on new meaning, that is, proving that they’re ‘okay’. At the extreme, one hears of stories of partners gaming the practice management system and manipulating data so as to rank higher. Perhaps in an eat-what-you-kill firm, this behaviour is more understandable, but in an equal-share firm, it just smacks of paranoia.

Inflated Egos

Those with above-average egos use individual reporting as a competitive scorecard signalling that they’re winning and the others are losing. While some internal competition is healthy, in some firms, it strays into a dog-eat-dog culture where collaboration is the last thing on people’s minds.

Tenureds

‘Tenuritis’ is my term to describe the mindset of a partner who feels that as an owner they have a self-directed job for life with next to zero accountability. For those even partially inflicted with tenuritis, the performance reports have little impact. They’re mostly ambivalent about the data and care little whether they sit at the top, middle or bottom.

With the Insecures and Inflated Egos it is the symbolic power of measurement that’s primarily driving behaviour. With the Tenureds it is the over-reliance of measurement as a leadership tool which, with these individuals, has very limited power.

SO WHAT CAN YOU DO ABOUT IT?

The key issue here is that measurement should not be used as a proxy for leadership. It’s just plain lazy (and a little cowardly) if firm leaders send out the monthly reports and then think their job is done.

Effective leadership is about [i] providing regular feedback – the good, the bad and the ugly, [ii] active listening, [iii] setting direction, [iv] developing capability, [v] offering support, [vi] opening doors, and [vii] removing constraints.

In equal-share firms, effective leadership is crucial to mitigate the measurement system risks outlined above. It is also fundamental to restoring a sense of fairness across the equity partnership and to get everyone performing to their full potential.

Without effective leadership, meritocracies run the risk of letting the “money do all the talking”. The differential in reward might address the perception of fairness but it does little for partner development, especially for those not intrinsically motivated by the Dollar. Profit-share, on its own, is a blunt pseudo-precise deferred performance management tool.

I believe a firm’s leadership capability is a far better determinant of one-firm collaborative behaviour than its profit sharing model. There are thousands of examples of deeply collaborative public and private companies that operate with merit-based rewards. There’s no reason why professional service firms should be any different.

CALL TO ACTION

If cross-firm collaboration is on your strategic agenda, don’t just jump to the reward lever and expect everything to change. Rather take some time to think about what and how you measure and the critical role your leaders play in driving one-firm behaviour.

The end of the club

In Articles, Commentary on 25 June 2018 at 10:09 am

First published in the Australian Financial Review, 22 June 2018

A ‘club’ is a Tier 2 full-service firm of individual practitioners who enjoy each other’s company. It is a nice, collegiate, shared-office environment where partners enjoy a relatively high degree of autonomy and welcome the occasional cross-selling opportunity.

And the club, as a business model, is about to die.

The principal reason for its demise is that most of the individual practitioners that make up the club will not be able to compete. Unless their expertise is unquestionably superior or they have welded-on client relationships, these solo specialists will start to lose out to a combination of freelancers, platforms, networks, focus and one-firm firms.

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Source: strikingly.com

Solo specialists versus Freelancers

Many of Australia’s Tier 1 law firms thinned their partner ranks during the 2010’s (a trend reversed in 2018). This was done through de-equitisation, early retirements and forced redundancy. Ashurst, for example, had 186 Australian partners in July 2013 and 142 in July 2016.

A number of these very accomplished practitioners set up shop as high-end legal freelancers. Using sophisticated cloud-based software, a laptop and a phone, these lawyers have next to zero overheads and the flexibility and agility to practice where and when they like. There is simply no contest when matched to a Tier 2 practitioner constrained by firm pricing policies, high office rents and administration expenses.

Solo specialists versus Platforms

HWL Ebsworth and Mills Oakley stand out as two very successful high-growth platform firms. Their strategy is about aggressively acquiring partners with portable practices and offering them incomes more directly aligned to their total financial contribution, both direct and referred. These firms have strong operational disciplines and lean back-offices. They are well led with partners focused less on office politics and more on things that matter, that is, their clients and staff. HWL prides itself on offering partner chargeout rates lower than many Tier 1 and 2 firms and fixing these rates over time.

These platform firms run harder and faster than the clubs. The energy and discipline they bring to the market gives them a real edge. And if they come across a high-flying solo-specialist in a sleepy club, they’ll make them an offer they can’t refuse.

Solo specialists versus Networks

The past five years have seen the emergence of a number of network law firms and legal staff companies. Examples include Lawyers on Demand, LexVoco and Crowd&Co. There are also a number of legal staff companies aligned with established law firms, such as Corr’s Orbit, Allens’ Adapt and Minters’ Flex. One standout element of these networks is they have a very small team of full-time staff and only contract lawyers to work when there’s a confirmed fixed-fee client assignment.

The toe-to-toe analysis of networks versus solo-specialist yields very similar conclusions to the Freelancer and Platform models.

Solo specialists versus Focus firms

Focus and boutique firms specialise in a narrow range of worktypes or client sectors. Two standout examples in this category are SBA Law, a Melbourne-based corporate boutique, and Thoroughbred Legal, a general practice firm focused on the thoroughbred racing industry.

These firms position themselves as having deep expertise, knowledge and critical mass, and a service delivery model 100% attuned to the needs of their target market.

Beaton data points to technical expertise and understanding of client industry as key drivers of client choice. As such, focus firms will almost always out-credential and out-compete Tier 2 practitioners largely competing on their own.

Solo specialists versus One-firm firms

David Maister coined the term “one-firm firm” to describe a full-service firm where,

  • the firm brand is stronger than individual partner brands,
  • the firm has a ‘house style’ and delivers consistent quality across the board,
  • the firm’s culture is deeply collaborative in regard to sharing clients and resources, and
  • the firm is prepared to invest in new profit growth initiatives without prejudicing individual practitioners.

One-firm firm’s competitive advantage comes from wider ‘institutionalised’ client relationships and the ability to bring many minds to solve complex client problems.

Over the past decade, many larger clients have sought to reduce the size of their panels and form strategic partnerships with fewer (one-firm) firms. This procurement trend effectively locks-out the solo-specialist in a collegiate club.

The preferred strategic option

Over the next five years, some clubs will fold, some will fracture into a series of boutiques and some will be acquired. Most will try to address their situation by trying to become one-firm firms. The leadership challenge of this transformation is huge, and the risk of losing star partners and associates along the way is high. Unfortunately, I expect only a small number will be able to make the necessary changes and survive.

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