A Different Way to Look at Law Firm Strategy

The professional services firm management guru David Maister, in the introduction to his latest book Strategy and the Fat Smoker, states as follows:

“In the last two-and-a-half decades, I have been trusted to see a large number of strategic plans from a wide variety of professional firms around the world, including direct competitors. What is immediately noteworthy is how similar (if not identical) they all are.”

Noting that the underlying ideas remain the same around the world, over time, and from competitor to competitor, Maister states that:

“Real strategy lies not in figuring out what to do, but in devising ways to ensure that, compared to others, we actually do more of what everyone knows they should do.”

Arguing that the necessary outcome of strategic planning is not analytical insight but resolve, Maister’s book focuses on the idea that law firms can distinguish themselves in the marketplace via their comparative discipline and out-execution of the same goals of their competitors.

In contrast, INSEAD business professors W. Chan Kim and Renee Mauborgne in their best selling book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant argue that a different strategy framework is more effective. Rather than assuming that the operating environment for a business is a given and compete head on with competitors, a firm could instead employ a reconstructionist strategy that seeks to reshape the competitive environment. Specifically, to innovate, firms should break out of the traditional “red ocean” cycle of intense direct competition and sail into the open “blue ocean” by using a strategy of creating new markets where none previously existed.

Kim and Mauborgne argue that the blue ocean strategy is more profitable. Of 108 companies they studied, the authors state that 86% of business expansion emanated from existing competitive business. This type of expansion produced 62% of total revenues but only 39% of total profits. Blue ocean businesses almost reverse the figures: their expansions accounted for 38% of total revenues and 61% of total profits.

The concept of “value innovation” is the cornerstone of blue ocean strategy. This is contrasted against a conventional value-cost trade-off strategy, i.e. the concept that companies can either 1) create greater value for customers at a higher cost or 2) create reasonable value at a lower cost. In contrast, value innovation is breaking the value-cost trade off and creating a new blue ocean of market space, by pursuing value for the customer and low cost for the company at the same time.

Competition-based red ocean strategy such as the one set out by Maister assumes that an industry’s structural conditions are a given and that firms are forced to compete within them. In contrast, value innovation is based on the view that market boundaries and industry structure are not given and can be reconstructed by beliefs and actions of industry players.

Some basic tools of a blue ocean strategy are:
• The strategy canvas – to chart the competition and exploit their shortcomings
• The Four Actions framework
• The Eliminate-Reduce-Raise-Create Grid
• The initial litmus test for blue ocean strategy: focus, divergence, compelling tagline

The goal of the strategy canvas is to capture the current conditions in the known market space and to allow you to understand where the competition is investing, the factors the industry currently competes on in products, service and delivery, and what customers receive from the existing competitive offerings on the market.

Then you must begin to re-orient your strategic focus from competitors to alternatives, and from customers to non-customers of the industry. As you shift your strategic focus from current competition to alternatives and non-customers, you gain insight into how to redefine the problem the industry focuses on and thereby reconstruct buyer value elements that reside across industry boundaries.

Next, a firm should employ the Four Actions Framework to attempt to break the trade-off between differentiation and low cost and create a new value curve. There are four key questions to challenge an industry’s strategic logic and business model:
How to drop cost structure:
1. Which of the factors that the industry takes for granted should be eliminated?
2. Which of the factors should be reduced well below the industry’s standard?
How to lift buyer value and create demand:
3. Which of the factors should be raised well above the industry’s standard?
4. Which factors should be created that the industry has never offered?

A supplementary analytic to the four actions framework is the Eliminate-Reduce-Raise-Create Grid which pushes companies to fill the grid with the actions of eliminating and reducing, in addition to raising and creating. It is also easily understood across the organization and drives companies to consider each factor the industry competes on.

Finally, an initial litmus test for a successful blue ocean strategy is focus, divergence and a compelling tagline. A good strategy has focus; the company doesn’t diffuse its efforts across all factors of competition. It diverges; the shape of the value curve diverges from other players, a result of not benchmarking competitors but instead looking across alternatives. And, it has a clear and compelling tagline.

One of the methodologies to assist with reconstructing market boundaries is to look at the horizon for emerging trends. To exploit a trend, it should pertain to your business, have momentum and cannot be reversed. For example, Apple recognized an emerging trend when it captured the music downloading market.

Blue Ocean Strategy Applied to Heritage Law:

1. Legal Services Marketplace: www.heritagelawonline.com

One of the trends in today’s legal marketplace is the impact of technology on and the commoditization of law, leading to potentially the End of Lawyers, as Richard Suskind so provocatively phrased it.

Most private practice lawyers today provide customized solutions for individual clients at high hourly rates, which is expensive for the client and unscalable for the lawyer. The democratization of information and forms on the internet, client demands for more cost effective solutions and the increasing encroachment on the profession by non-lawyers using new technologies will result in significant changes to the legal profession. Rather than putting our heads in the sand and hoping for the best, at Heritage Law we decided to try take a leadership role in addressing these coming changes head on.

Across the US, many law firms deliver legal services to their clients entirely over the internet. Web-based technology is used to offer individual clients legal forms bundled with legal advice for an affordable fixed price.

Our idea at Heritage Law was to create an online branch office of our firm, www.heritagelawonline.com, to deliver 100% online legal services directed to the approximately 50% of BC residents who become disabled or die without any estate plan in place. It is intended to be a public service to provide low cost, basic estate planning legal services to an unserved population. People who require more sophisticated advice would be referred to public resources, our firm and two other firms at their option for further information and possibly traditional legal advice.

We entered into a contract with DirectLaw in the US to build the website and automate the forms and requested permission from the Law Society of BC to practice entirely online. We received notification from the Law Society on Friday, January 8th that “it is proper to carry on a virtual law practice as you have outlined in your letter.”

The Eliminate-Reduce-Raise-Create Grid for www.heritagelawonline.com is as follows:

Eliminate
Physical location
Meeting with client
Reduce
Specialized drafting from scratch for each client
Raise
Cost effectiveness for client
No intimidation of having to go to a lawyers office
Create
Convenience – legal services from anywhere, 24/7

The focus is: convenience, accessibility and cost effectiveness. Our tagline is “lawyer assisted estate planning for BC residents at a cost effective price – available anywhere, 24/7”.

Although www.heritagelawonline.com will be an interesting exercise, I don’t expect that it will generate a significant profit or be a central part of the future of Heritage Law. The barriers to entry are low, not only from other lawyers but also non-lawyer competitors who will differentiate on price. As prospective clients will not always recognize the inherent value of legal advice on what they perceive are commoditized documents, the race to the price bottom will likely be swift.

2. Lawyer Talent Marketplace: Heritage Law as a Virtual Firm

The more central strategic promise for Heritage Law is the marketplace for legal talent, where a prospective lawyer hire can be thought of as a “customer” we are competing for against other law firms, in-house departments and government.

Another key trend in law is the current demographic issues facing the legal profession. The Law Society of BC Report on the Retention of Women in Law Task Force notes as follows:

– Women have been entering the legal profession in BC in numbers equal to or greater than men for more than a decade, yet represent only about 34% of all practicing lawyers in the province and only about 29% of lawyers in full-time private practice; and

– The legal profession in BC is aging and there will be a net reduction in the number of practicing lawyers – a looming shortage – as older lawyers retire without a corresponding increase in younger lawyers joining the profession.

Women, 50% or more of law school graduates, are leaving the profession in droves, just as law firms are beginning to face a shortage of qualified lawyers to serve their clients. This is not unique to law: a combination of an ageing workforce and a more skill-dependent economy means that all industries will have to make better use of their female employees in the “war for talent”.

On December 20, 2009, the Economist ran an article entitled “Female Power”, headlining that “across the rich world more women are working than ever before. Coping with this change will be one of the great challenges of the coming decades.” The article notes that despite almost equal representation in the workforce, women still represent lower percentages of professional firm partnerships, upper management and CEO positions. Interestingly, the author states that:

“the biggest reason why women remain frustrated is more profound: many women are forced to choose between motherhood and careers. Childless women in corporate America earn almost as much as men. Mothers with partners earn less and single mothers much less. The cost of motherhood is particularly steep for fast-track women. Traditionally “female” jobs such as teaching mix well with motherhood because wages do not rise much with experience and hours are relatively light. But at successful firms wages rise steeply and schedules are demanding. Future bosses are expected to have worked in several departments and countries. Professional-services firms have an up-or-out system which rewards the most dedicated with lucrative partnerships. The reason for the income gap may thus be the opposite of prejudice. It is that women are judged by exactly the same standards as men.”

It’s not just women who are seeking greater work life balance from employers to enable them to juggle the demands of child rearing with a professional career. Millenials, even in this recession, still value work-life balance above all else when listing top characteristics of an ideal employer. Men increasingly are taking more significant role in raising children and seek to pursue other interests concurrent with paid employment.

In response to this demographic trend, Heritage Law has built a firm culture predicated on balance and flexibility with applied technological solutions to facilitate it, which has enabled Heritage Law to access top talent and retain it.

The Eliminate-Reduce-Raise-Create Grid for Heritage Law as a virtual firm is as follows:

Eliminate
Requirement to go to physical office
Reduce
Training – hire already trained lawyers
Raise
Compensation – more money for less hours
Autonomy – lawyer owns own practice and guides his or her own direction
Create
Flexibility to work when and for how long the lawyer wishes

Our focus is flexibility, autonomy to guide own direction and more money for less hours.

Our tagline is “have it all: a professional practice, a good income and work-life balance”.

Law is an honoured, ancient profession, but it is also a business facing increasingly competitive pressures. I hope this concise outline of strategic business concepts and an application to our firm will encourage you to map out your firm’s future journey to success.