In some ways I wish I had read Zone to Win: Organizing to Compete in an Age of Disruption, Geoffrey Moore’s most recent book (2015) while researching the content for Remaking Law Firms (1). On the other hand it’s pleasing to have come to much the same conclusions as Moore about the urgency in resolving the prioritisation crisis, in my case the crisis faced by BigLaw firms.
Chapter One of Moore’s book is titled A Crisis in Prioritization. His first paragraph is masterful in succinctly capturing the essence the prioritisation crisis, which applies as much to BigLaw firms as it does to all businesses. Here’s a key paragraph:
“What makes a modern business different? Simply put, speed plus disruption. Wave after wave of next generation technology is continually transforming the landscape of business, both inside the tech sector, where new offers are germinated, and everywhere else outside it (emphasis added), where they are largely consumed.
“This results in two imperatives for any established enterprise (in other words 99.9% of law firms built on the BigLaw business model – click the link for an explanation of the BigLaw business model and its implications). In markets where you want to be the disruptor, where you want to play offense, you must catch the next wave. At the same time, in those markets where your current franchise is the incumbent and myself under disruptive attack, you have to play defense in order to prevent the next wave from catching you”.
Which way should BigLaw firms be looking to resolve the prioritisation crisis?
In the first instance for the vast majority of firms the answer is to play defence, that is avoid be swamped in the tsunami of change. I say this because incumbent law firms are risk-averse partnerships with no balance sheets, at least to speak of. This means the first priority is to survive in ways that assure their continued capacity to serve clients profitably.
My colleagues and I – as well as a growing number of others, Bruce MacEwen for example – have documented the reasons the environment of BigLaw – see this recent post and the others cited, for example– is now an irreversible buyers’ market. As little as a decade ago all forces affecting the ability of law firms to extract superior profits for their work were benign, i.e. it was a sellers’ market. Now the there is hyper-competition, substitutes are growing in number, types and influence, clients’ have the power in setting prices, and lawyers willing to work in the tournament for partnership are becoming fewer and fewer.
Job #1: Remake your firm
We interviewed 40 people around the world in researching our forthcoming book, Remaking Law Firms: Why and How (to be published by the American Bar Association in March 2016). One of these is Stuart Fuller, Global Managing Partner of King & Wood Mallesons. Stuart used a memorable metaphor in explaining the challenge of preventing the next wave from catching you. Here’s an extract of what he said: We are rebuilding it (the business model of King & Wood Mallesons) as we speak. I like to use an aeroplane analogy; it’s like rebuilding a 787 mid-flight as we continue to fly the plane and that creates challenges.
So it’s not just the media, advertising, travel, hospitality, retail, automotive and transport industries that are being disrupted by Netflix, Google, Airbnb, Amazon, Uber and Tesla. It’s law too with Axiom, IBM’s Watson, Riverview Law, and Neota Logic – to name just a few of the 100s of substitutes for law firms and lawyers.
Substitutes are not always competitors. Many are also complements for those firms that see the opportunity and grasp it. For example, read this article An industrial revolution is coming to law by Michael Mills. And this analysis I wrote earlier this year 10 reasons BigLaw managing partners are not sleeping very well setting out the opportunities and threats.
How much time do BigLaw firms have?
For globalising firms, Stuart Fuller suggested it was no more than five years in our interview, positing that there were only 15-20 firms likely to achieve leading global status and scale. Readers may want to dip into my post on this subject Will we see a $10 billion BigLaw firm?.
For BigLaw firms taken as an industry, I think the answer is ‘It depends on what your expect to achieve before your firm is severely affected’. By ‘severely affected’ I mean a halving or more of the profit per point of equity that the firm currently enjoys. The reasons for this assertion that profits are likely to halve in the majority of firms are set out in my September 2012 post PPEP levels are doomed without re-invention (note the year this was written!).
The realpolitik prioritisation crisis for BigLaw
This is how I see the realpolitik prioritisation crisis for BigLaw. Changing a firm’s business (aka operating) model is not hard in theory. Yes, it’s a massive task – Remaking Law Firms devotes more than 100,000 words to explaining the how to do it – but the real challenge is managing the investment required. As Moore puts it on page 25 “Not only is this going to be expensive to undertake, but also the ROI will come entitle out years, making a highly unattractive dent in the current years’ performance“. There’s the rub for firms whose partners expect every feasible dollar of profit (and sometimes more) to be distributed every year. That means virtually every firm, with a handful of notable exceptions.
Some BigLaw firms are showing the way
It’s not that all BigLaw firms are sitting on their hands and waiting for the tsunami. Thankfully there are publicly acknowledged pathfinders such as Seyfarth Shaw, Allen & Overy, and Gowlings, all of which have generously shared their experience in Remaking Law Firms. And there are smaller, perhaps less well-known examples too, ranging from Inksters to Valorem to Hive Legal.
The prioritisation crisis in BigLaw firms
The prioritisation crisis in BigLaw firms can be avoided. It takes an acute understanding of the environment, clarity of vision, leadership, and change management competence.
More on this and related topics can be found in these posts
+ What lawyers learn from clowns: Blue Ocean strategy by Warren Riddell
+ Why BigLaw firms go down the money hole by Ed Reeser
+ For most law firms the pyramid has to change by George Beaton
+ Is anything really changing in BigLaw? by George Beaton
+ Fresh thinking on the evolving BigLaw–NewLaw taxonomy by George Beaton
Remaking Law Firms: Why and How by George Beaton and Imme Kaschner will be available in March 2016, published by the American Bar Association.
Stay informed. Subscribe here to the Beaton Capital Bigger. Better. Both? blog.
The post Resolving the prioritisation crisis in BigLaw firms appeared first on Beaton Capital.