Smart Growth Part 2: Your Strategy Must be Much More than a Plan
In our prior post, Smart Growth Part 1: The Why and How of Growth, we reviewed the reasons for and types of growth that law firms typically follow. In this post, we will explore the role that strategy plays in growth and why firms must be much more aggressive, creative, forward-thinking and discerning than ever before when developing a strategy.
Many law firms use the words strategic planning, strategy and planning somewhat loosely and interchangeably. In too many firms, strategic planning has become an exercise of going through an analysis of the recent financials, skills, staffing, projected talent needs and gut instincts about where the practice will go or be in a few years. This conventional approach to planning often results in run-of-the mill plans that are not distinguishable (most consultants will tell you that the strategic plans of most law firms all resemble each other – you could white out the name of the firm and substitute it with almost any other firm.)
Strategy as Competitive Differentiation
According to management guru and Harvard Business School Professor Michael Porter, “the essence of strategy formulation is coping with competition… deliberately choosing a different set of activities to deliver a unique mix of value.” Competitive differentiation and unique positioning are things that a few firms aspire to, but most firms still look to their competitors to see what they are doing so they can follow or try to beat them at their pricing or positioning strategy. How many firms make it their focus to stand out from and be unique relative to their competitors? How many law firms truly have a sense of urgency about who their competition is now and who it will be in two years, ten years?
Porter’s Five Forces model suggests that competing on price alone destroys strategy. He suggests the following influences must be considered to develop a sound strategy:
- Threat of New Entry: How easily can others enter your market? What are the barriers to entry? How can you make your business scalable? Have you protected key IP, technologies and other proprietary knowledge?
- Threat of Substitution: How likely is it that clients will replace your services with an alternative provider or solution that solves the same need? (This is happening now at rapid speed.) What differentiates your service? What unique benefits does it offer? What would it cost clients to switch to another provider and how easy/difficult would it be?
- Bargaining Power of Suppliers: How many outside vendors does your firm rely on? How unique is their service or product? Are there other alternative vendors you can find and rely on? How expensive would it be for you to switch vendors? How easy is it for your vendors/alliance partners to raise their prices?
- Bargaining Power of Buyers: How many clients do you serve? How many generate the top 80% of your revenue? Could clients easily switch to another firm/provider? What is the measurable value your service delivers and do your clients see it that way? Would it be easy for them to find and use other service alternatives? How prevalent and easy is it for your clients to drive down your rates/fees/profitability?
- Competitive Rivalries: Who are your competitors? How many are there and where are they? Are they only law firms or are you including in-house departments? Alternative legal service providers? “New model” law firms? Technology solutions providers? The Big 4? How does the quality of their services/solutions compare with yours?
Porter concludes that an organization can decide on one of two competitive strategies: it can become a cost leader, i.e., do what every other firm is doing but spend less and charge less doing it, or differentiate its product – offer/deliver something no other firm can, become a niche player. If you compete on price, however, Porter argues that that just shrinks the pie and causes profitability to decline for the whole industry.
Strategy: Pursuing New Markets with No Competitors
In this time of radical disruption in the legal industry, firms cannot survive if they follow the status quo. Blue Ocean Strategy takes Porter’s conclusion that organizations need to differentiate/be unique a step further. It uses “value innovation” as its cornerstone and addresses the development and alignment of value, profit and people. Blue oceans denote unknown market space which is untainted by competition because demand is newly created, not fought over. There is ample opportunity for growth that is both rapid and profitable since there are no competitors yet in the space. Often, clients aren’t even aware of the need for the blue ocean strategy until it is offered.
Red oceans represent all the industries and markets in existence today – the known market space. The competition is vast and known and boundaries are defined. As the market space gets more crowded with competitors, growth and profits decline and services/products become commoditized. The experts that developed the Blue Ocean theory, W. Chan Kim & Renée Mauborgne, believe that organizations need red oceans in their strategy but cannot sustain high performance and profitability without also creating blue oceans.
Law firms aren’t differentiated, and they usually want to follow other law firms and compete by trying to do things better or cheaper. This will not lead to sustainable or profitable growth. Clients say it is difficult to distinguish one law firm’s offerings from another. As the 2019 Altman Weil Law Firms in Transition Survey reflects, even law firms themselves do not believe they have a distinct or distinguishable brand. When asked “In your most candid assessment, do you believe your firm is clearly and specifically differentiated from competitor law firms?,” nearly 47% of firms said no.
So What Can/Should Law Firms Do?
This is a time for BHAGs and imagination, for innovation and change and for a drive to find solutions that will be needed in the future. As developed by Jim Collins, author of Good to Great, BHAGs stand for: Big, Hairy, Audacious Goals. The concept is for leaders and organizations to be aggressive in their development of bold, new ideas and to set ambitious goals that push the envelope and get people excited and energized about pursuing these goals. BHAGs reflect and generate a sense of urgency.
- Create a sense of urgency. Unfortunately, 2019 Altman Weil Law Firms in Transition Survey concludes that most partners and law firms do not feel a sense of urgency to change the way they do things, but the market trends and numbers don’t lie, so paint the picture of the future and get stakeholders behind the need for change.
- Embrace innovation and inculcate it into every level of firm management and client service. Ask every lawyer and staff member to innovate – find ways to bring value, do something better, identify a blue ocean. Measure their performance and celebrate and reward the efforts and success.
- Elect leaders who think forward and big, who are not satisfied with where the firm is today, but where it needs to go and grow to be differentiated, competitive and profitable. Ask them to set a vision with BHAGs and lead others to achieve this vision.
- Thoroughly analyze Porter’s Five Forces, taking a far-reaching look at your competition in every aspect of what you do now, but most importantly what that landscape will be in three, five and ten years.
- Aggressively explore and pursue blue oceans – understand client and prospect needs before others have developed a solution for them. Be the first into a market, a new service solution or innovation. This means taking risks and failing and investing time and capital into projects that may not immediately or ever bear fruit.
- Be willing to eliminate practices, offices or even partners that don’t fit the future or who aren’t willing to challenge themselves to seek blue oceans.
- Once you differentiate and develop new markets/solutions, have an aggressive but disciplined plan for growth and positioning. Be first to market and focus first on discussing with and selling your new solutions to clients and prospects in order to capture the market before you promote it too widely (or your competition will quickly step in and grab it.)
- Ultimately, you will need written plans for the firm and practice groups to execute on strategy, but these should only be developed after employing new, forward-looking and out-of-the-box visioning, market research and resources as well as making some tough decisions about what you no longer will do/offer.
RainMaking Oasis provides consulting, training and coaching services to law firms and lawyers in the areas of business development and growth strategy, innovation, client retention and expansion, succession planning and leadership and personal effectiveness skills. Please contact Susan Duncan at firstname.lastname@example.org.