It’s no secret that the recession has prompted firms to take dramatic steps: delaying new hires, laying off associates, and instituting pay cuts. What may be less obvious is the extent to which economic and technological forces have fundamentally changed the legal
profession. With the decline and collapse of many Fortune 1000 businesses, firms are chasing a diminished pool of clients, and those clients are in the driver’s seat. Outsourcing and the use of sophisticated knowledge management systems have given clients the means to rein in spending on outside counsel. Clearly, it’s no longer business as usual.
Like every other enterprise hit by the meltdown, law firms need to rethink their entire business model. Doing so could be the key to making it through the crisis. For particularly forward-thinking firms, this recession could be an opportunity to adopt a new business model that helps them thrive.
So although lawyers are not accustomed to it, they need to look beyond their current business practices to innovative approaches outside the law firm world that can help them gain a competitive advantage. They should begin with the presumption that their traditional business practices are not good enough anymore.
One of us (Pat Chew) is a law professor, and the other (Robert Kelley) has, along with his company, spent 25 years studying what separates stars from average performers in intellectual-capital jobs at such companies as Hewlett-Packard Company and 3M Company. Law firms could use this business research to get higher productivity from their partners. Instead of firing less productive partners, get a higher return on your investment in them by teaching them how to become star performers. Instead of being satisfied with your current solid-performing partners, improve their productivity even more.
Success is not just about having expert knowledge on a legal subject, managing clients’ work well, or bringing in business. These things are a partner’s baseline job. Instead, partners need to learn how to perform these basic functions with optimal outcomes. This requires an understanding of the work strategies that star performers use.
Stars use nine interlocking strategies to boost their productivity [see "Standing Out," page 48]. They weave these strategies into a consistent pattern of day-to-day behavior. Any lawyer can do the same.
For lawyers, perspective is a particularly vital strategy. Many lawyers suffer from tunnel vision, getting locked into the traditional way of doing business. Star lawyers, in contrast, step outside their own take on the world to adopt other viewpoints. They get inside the hearts and minds of others so they can see the big picture: What are my competitors thinking? How would government officials view this case or our actions? What would my partners say about this? How would the client see it?
Stars know how they add value and can measure their impact. They know the answers to such questions as: What is your value to your clients? How are you meaningfully different from your competitors? From the customer’s perspective, how are you not a commodity?
When we ask law firms to distinguish themselves from others, they often tell us that they are big, so they can handle clients of any size; that they can offer one-stop shopping by having a broad range of specialties; that they have a client list containing Fortune 1000 companies; and increasingly, that they have a global presence. But which top 20 firm can’t give the same answer? Unless a firm offers something truly unique that a customer highly values, it is a commodity, regardless of its size.
Another aspect of perspective is understanding that client contacts—general counsel, for instance—may not be the real customers. They simply represent the real customers. It’s like a client chain, and lawyers need to understand that dynamic. A lawyer’s job is to make the client contact (such as a general counsel) look extremely competent to those other customers (such as a CEO or board of directors).
Stars also know what the “critical path” is from their customer’s perspective. The critical path is the most direct path between a lawyer and highly satisfied and highly profitable repeat clients. The lawyer’s goal is twofold—first, to close any gaps between what the client wants and what the lawyer provides, and second, to shorten the critical path by making all activities along it more efficient and effective.
Too many firms fall short of this goal because they operate for their convenience, not the client’s. The high-priced associate model is one example. Firms use this model primarily because it’s a form of leverage that makes more money for the partners and subsidizes the training of associates. But few clients think this model is in their best interest, because to get the partner’s work, they need to pay the associates too. It’s comparable to a standard restaurant practice. Even if you have a reservation and your table is ready, they’ll still suggest you wait in the bar for a few minutes. The reason is that the profit margin on drinks is high. With one round of drinks, the restaurant can double the profit it gets from your visit.
Grocery store layouts do the same thing. By placing necessary items like milk, eggs, meat, and diapers in the back, they force the customer to walk through the store and increase the chance of impulse purchases. This lack of customer focus created an opening for convenience stores, which cut substantially into the sales and profits of the grocery store business. Will “convenience” law firms confiscate part of the critical path from you?
Being client-driven and focusing on the critical path does not mean that firms have to give away the store. Instead, to make it through the short term and prosper in the longer term, firms need to learn how to be lean but maximally productive. Let’s return, briefly, to the restaurant business. It is suffering comparably to law firms. But P.F. Chang’s, the first Chinese food chain to reach $1 billion in sales, saw operating margins rise 14 percent and profits go up 38 percent in the first quarter of 2009, and its stock price doubled. According to industry reports, the company accomplished this feat by scouring the critical path to search for efficiencies that didn’t disrupt the customer’s experience. The company cross-trained workers like the prep cooks so they could not only cut the food but also chip in to cook it when the line cooks were too busy. It found a new scheduling tool to make more efficient use of staff. Individually, these efficiencies were small, but taken together, they made a big difference.
What can your law firm do to be more effective without compromising your clients’ satisfaction? Consider these questions:
• Have you examined the flow of paperwork and document storage and retrieval from the perspective of what best serves your customers?
• Have you thought through the types, number of, and methods of client contacts so that each client is getting the contact that makes it feel valued and highly satisfied?
• Does your hiring process produce a high percentage of star-performing partners who stay with the firm? Is it cost-effective?
• Does the apprentice model of hiring inexperienced young lawyers who stay for three or four years really serve clients well? Is it the best way to leverage partner time and expertise?
• What is the cost of making your firm a more humane place to work through a better life/work balance? Might this cost be offset by lower turnover, higher morale, and greater productivity?
Now is the time to rethink every aspect of your business to determine which business practices improve the critical path and which ones create obstacles. Law firms are in precarious economic times. Instead of sticking to business as usual, take advantage of the opportunity to reenvision how your firm can be more customer-driven and help your partners be star performers. It could be the difference between winning and losing.
Robert Kelley, a management consultant and author of How to Be a Star at Work, is on the faculty of the Tepper School of Business at Carnegie Mellon University. He can be reached through his Web site, kelleyideas.com. Pat Chew is a professor of law at the University of Pittsburgh School of Law. E-mail: email@example.com.