Strategic Choices and Key Success
Factors for Law Firms
June, 2010
Alan Hodgart
The Association of Danish Law Firms
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Four critical components (plus a key capability)
create and sustain success in ‘people
businesses’ – override everything else
Vision
&
Strategy
Leadership
&
Management
Organisational
Effectiveness
People
Execution Capabilities
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There are a few ‘natural laws’ in any competitive
industry
Businesses segment into peer groups
Each group has similar scale and scope
Focused on a similar part of the market
Scale matters – a consequence of the drive for critical mass in core practices
Clients question why one firm is much smaller than another (in a peer group)
Consolidation follows – driven by the need for scale
And the fact that ‘winners’ develop faster than others
Concentration occurs around value/industry segments
A few win greater market share than the majority
Concentration mostly starts around higher value segments of the market
Consequently markets demonstrate a high level of stratification
Firms compete within their peer group, less so outside it
Legal Services markets have undergone
enormous change over the last decade
Increasingly sophisticated clients – of all sizes
Segmentation of markets into ‘identifiable’ chunks
Increasing levels of competition – especially for higher value work
Concentration of work around “leading firms”
Consolidation – massive growth in size at upper end
Segmentation of firms by perceived strengths at other levels
Rise of Global/International Firms
Major shift to better / more strategic leadership and management
All markets segment as they mature – an
ongoing process
Clients demand greater value without a consequent increase in price in all markets
Progressively all markets will follow a pattern
Practice areas have a group of ‘expert’ firms – seen as capable in the higher
value end – in each market
Critical issues can be addressed ‘effectively’ by only a few
Consolidation in the high value end
Clients see a narrow, high value end – (‘bet the company’) with a wider ‘midmarket’ segment
Consolidation follows in the mid-market
Other options emerge further down in the market
Specialization by practice, by geography, by industry
Client sophistication is the primary driver of
this process
Clients segment services by the value to them – based on the importance of the
issue
Higher value services are less price sensitive than lower value – but carry much
greater expectations about performance
Firms are ranked by their perceived strengths in specific areas – and level of
value delivered
High value work is a small part of the market
Likely to decrease in relative terms
Hard for most firms to focus solely here – required critical mass will require a
wider focus
The high value end of any market always becomes dominated by a few – others
move/forced into lower margin clients: work
A commodity end in all markets is emerging with ‘not much in the middle’ in some
cases
There is significant confusion about strategy
and planning in many firms
Majority of firms in the professions have something called a “strategic plan”
Often more a ‘wish list’ than a strategy - lack of external focus
A ‘plan’ should be no more than a summary of the thinking processes
An effective strategy guides the resource use towards areas that build long term
competitiveness
Links the ‘internal’ and ‘external’ dimensions of a firm
Strategic options can be developed only with a deep understanding of ‘market’ trends
Need to define ‘the market’
Understand the starting point
Understand the availability of positions given the required competitive capabilities
A tendency to see ‘full service’ as a market position
No sophisticated client buys a ‘full service ‘firm - they buy a specific service
Need to identify particular strengths in the range - linked to the market position
Slaughter and May’s ‘success’ process (1/3)
Very clear, long term vision, strategy and market position
Has adapted over time – but not changed
Clarity around core business – clients, practices
First class work, first class clients, first class people
Rigorous process of recruitment and promotion
A clear profile of a Slaughter’s person
Consider the ‘one of us’ question as much as technical skills
High levels of consistent processes
A ‘what is the best approach?’ rather than ‘my way is the right way’
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Slaughter and May’s ‘success’ process (2/3)
Effective leadership
Light handed
Restate the ethos regularly - the constant repetition of a simple message
Huge levels of self-imposed discipline
Integrity internally and externally
Willing to make tough decisions when something is in conflict with strategy or ethos
Rigorous in the recruitment process
Rather lose the ‘right’ person occasionally than recruit a number of ‘wrong’ people
Seek to challenge associates by delegating work one level above their capability
Rigorous in the promotion process
Clarify career paths
Provide training and feedback
Effectively an ‘up or out’ organization
Slaughter and May’s ‘success’ process (3/3)
The firm is very strict about the quality of clients and work that it accepts
A demonstrable dedication to clients - know the profit will follow if clients feel they are
‘part of the Slaughter family’
Low on financial targets - high on client interaction
Will do low value work for core clients if clients want it - but no where else
Tough client acceptance and conflict management procedures
An unstated but clear culture focused on excellence and adaptability
And on working with clients to get commercial solutions
Cravath follows a very clear path to success
Absolute clarity around strategy
Know the work and clients NOT to take on
Very clear about the role of a partner and the relationship with clients
Client needs are first and foremost
Associates are promoted on this as much as technical skills
Demanding of associates but challenge them to perform at high levels
Light handed management - but ruthless to non-conformers
High levels of integrity, commitment and discipline
A constant focus on the Firm, the people and clients
A strong culture that focuses on excellence and innovation
Successful firms can be found in
different parts of the legal market
Part of the mantra of law firms in general is to claim excellence in everything they do
Being very good does not mean excellence – and many are simply good – not very
Achieving excellence in what a firm does and then sustaining it is extremely difficult – it is
a market differentiator
“Successful” firms pay attention to a huge amount of detail – every day
But there are four critical areas that create and sustain excellence
And Partners focus particularly on these – see it as key part of their role
Lead others in doing the same
Successful firms make mistakes – but are able to recover quickly
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Difficult to develop strategic options without a
long term vision for the business
The long term vision and current market position will guide the choice of options
Particularly what to reject on grounds of ‘no fit’
Long term visions are rarely overly specific
Clarifies the broad positioning of a firm
Provides development guidelines - geographical positioning, value position, peer
group competitor types, product/market scope, sense of differentiation
Long term visions can change when people see new opportunities or a declining
attractiveness in the present
Be prepared to revisit when studying options – see it as a guide not a straight
jacket
Avoid a ‘butterfly approach’
A strategy must provide alignment
between vision, market trends and
competitive capabilities
Vision
New
Competitors
Client
Demand
Trends
Competitor
moves
In 3 years
Market Position
Behaviour
Image
Structure
Value Position
Systems
Skills
Today
Today
Market Position
Behaviour
Image
Structure
Value Position
Systems
Core clients
Processes
Core services
Culture
Competitive basis
Economics
Political,
Economic
and Social
Trends
Skills
Core clients
Core services
Competitive basis
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Processes
Technology
Culture
Economics
Resource
Supplies
In Denmark 2005 there was a clear gap between
the “Big 4” and the second group of firms
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Source: European Legal 500, 2005
The “Big 4” still dominate the market in 2010
but the second group is closer
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Note: Black dot indicates 2010 position, red dot indicates 2005 position.
Source: Legal 500, 2005 and 2010
Strategic options flow from a firm’s existing
market position
Positioning in professional services markets is defined around four criteria
Core client types
Practice area competitive strengths
Value proposition
Geography
Defining a firm’s position today around these criteria is critical
The starting point will determine the actions required to achieve a specific
position in the future
A strategic vision should make the future market position clear
“A Top 10 firm” leaves the question open
Needs more precise definition
Essential that there be partner ‘buy in’ to a strategic vision
Understanding the segmentation of a market
along with current trends is hard work
Traditional SWOT analyses tend to be based on a static view of a market which limits their
value
Also identify real competitive strengths and weaknesses – not ‘entry cards’
Essential that the analysis be based on a dynamic analysis
Projecting forward carries risk but less so than not doing it
Must be carried out via data collection and analysis
Avoid the “okay, let’s do a SWOT analysis in an hour” approach
People working a segment are not always the best to spot trends
Look backwards and forwards in the data collection
Collect data from businesses in the segment plus desk research
Requires careful analysis and interpretation
There will be various bases to market
segments
One segment might be size
The Global Fortune 1000
A commonality of service line need and value
Big Four accountants; global investment banks; global capital markets lawyers
Another might be by ‘generic’ features
Owner managed; FMCG’s; SME’s
A commonality of ‘service’ needs plus a size issue
Specific industry groups
Industry knowledge; commonality of ‘service’ needs
But need to ensure there is a differentiation available
Otherwise they are a useful marketing channel only
A segment must have some cohesiveness – common competitive basis
Identifying attractive segments is the next
step
This analysis will produce a range of service line:market options
Match these against the long term strategic vision of the firm – ‘what we want to be in the long
term’
Eliminate incompatible options (or change the vision)
Map the reduced set of options against the firm’s existing organizational capabilities
Evolution or step change?
Identify the implications of building a competitive position in each option
What are the competitive requirements to succeed?
Could we build these? Do we want to build these?
How long will it take to do this?
Further critical dimensions need to be
developed
What level of value is the objective in a segment? High end, medium or low? How
large is this part?
What are the core service lines into a segment? What are the secondary service
lines? Do they match our desired position?
What is the required size of the secondary service lines in order to fulfill their role?
What are the service level issues? What is the level of market maturity/sophistication
of buyers?
What are the likely pricing issues in a segment?
Who is serving this segment at present? Are we ever likely to be able to compete?
Merger/acquisition?
What are the underlying competitive trends in a segment? What does this suggest
about future professional needs and competitive drivers?
The ‘quality’ of people is a critical success
factor
Recruit people based on both skills and attitude - too much focus is on skills and qualifications
Seek to ascertain that they fit the culture
Develop career paths for all levels of partner and staff
Clarify the role of a partner and work down from there
Establish targets for each fee earner - demonstrate what needs to be achieved to progress
Provide training, coaching and support tailored to the role - business skills at a more senior level
Ensure regular feedback is given
Address underperformance fairly but with rigor
Cannot fudge the issue on this
Maintain motivation through effective delegation of work
Ensure fee earners feel challenged
Build cultural behaviour into performance assessments
People are assessed on how well they fit the cultural norms through their behaviour
Maintain focus on the strategic objectives and actions
‘The constant repetition of a simple message’
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Many firms tend to demonstrate similar
inhibiting characteristics
No clear long term vision - at least a realistic one
Often based on being ‘ a leading firm’ with little definition
Hence partner buy-in is patchy - means what people want it to mean
Confuse the owner/producer role
See management more as administration rather than strategic implementers
Lack of discipline in implementing strategic decisions
Partners do what they want rather than what is required
Part of the lack of strategic buy-in
Tend to not delegate sufficiently
See their role as ‘doing’ rather than ‘managing’ the work
Give inadequate attention to staff development
Generally unwilling to share clients within the firm
A lack of trust in others
Less willing to make significant investments for long term benefits
A more short term approach
A critical aspect of success is commitment
and self-imposed discipline (1/2)
These start at the top – partners, directors
Senior people believe in the firm, in the business and in their people
They want the firm to be successful in the eyes of their clients – to have made a
difference using the skills and capabilities of the organisation (not just themselves)
Committed to seeking improvements in all they do
Never (almost) do the same thing twice
A sense that ‘what I did today can be done better tomorrow’
Want the best way even if it comes from others
Take the firm’s vision and strategy seriously
Seek to understand it and articulate it to others
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A critical aspect of success is commitment
and self-imposed discipline (2/2)
People act with integrity
Do what they are “required” to do and don’t do what they shouldn’t - practice integrity
Act with integrity towards clients and the Firm
Put enormous effort into developing people
Themselves and those around them
Behave as leaders – and owners of the business
Leave the firm in better shape than when they joined
Hence no need for ‘heavy handed’ management, tight controls and bureaucracy
Rigorous in the selection of people
Clear career paths and performance feedback
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A powerful differentiator – the willingness and
ability to execute on an effective strategy (1/2)
The clarity of strategy and an understanding of what it requires people to do is
fundamental
The self-imposed discipline of people is the second fundamental aspect of achieving
excellence
People take seriously the responsibility for executing the Firm’s strategy
Prepared to accept personal discomfort
Willing to let go of some things and take on new tasks, roles etc.
Everyone seeks to make themselves ‘redundant’ every year
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A powerful differentiator – the willingness and
ability to execute on an effective strategy (2/2)
Execution occurs mainly in work groups
People devote time to management
Partners work together to get things done
Partners accept responsibility for execution at Group level
There is a clear management structure: responsibilities are both understood and taken
seriously
The firm provides a vast amount of support to partners in taking on this role
Management and leadership positions are prized and seen as critical to their firm’s
success
Everyone recognises the importance of people managing
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Long term success requires a firm’s strategy to be
capable of clear articulation – and ‘buy-in’
The strategy must be one people want to pursue, feel able to pursue and which is capable
of achieving the desired objectives
Everyone requires an understanding of it
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Level One
Desired market position spelt out
Level Two
Clarification points
Level Three
Core client requirements
Level Four
Core practice area requirements
Level Five
Core areas of differentiation from competitors
Level Six
Critical areas of organisational change
Sustaining success as a professional firm
requires alignment of four critical components
All competitively strong professional firms have four fundamental components aligned plus
an essential capability
Vision & Strategy
Leadership &
Management
Organisational
Effectiveness
People
Position
Structure
Behaviour
Quality
Image/Brand
Buy In
Systems
Skills
Differentiation
Trust
Processes
Capabilities
Consistency
SelfDiscipline
Long Term
Vision
Economics
Integrity
Attitude
Execution Capabilities
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