Recently, Altman Weil was consulting with the senior management of a mid-sized law firm about its strategic plan and got into a discussion of the importance of measuring profitability by practice group, client, and matter. The CFO dismissed the idea; they had already tried that, he said, but it simply didn’t work.
A few years earlier, the firm had spent several hundred thousand dollars on software to measure profitability. Mathematically, the software was indeed a good way to calculate profitability by matter or by client. But when management tried to roll out the new system, there was an enormous amount of negative pushback from partners. The software was too complicated, partners said, and the assumptions too controversial.
More importantly, almost every lawyer who was told that a matter was unprofitable said there must be some mistake and questioned the way profitability was calculated. After months of acrimony and debate, the firm decided to simply stop using the software and put it on the shelf as a costly experiment that had failed. They wrote off all the time that had gone into choosing the software, installing it, and training lawyers to use it. Not to mention the initial investment of several hundred thousand dollars.
Mind you, management still felt that measuring profitability was an important and valuable strategy. Presumably, it just couldn’t be made to work in that firm’s culture. In any other business, the CEO might have required that the software be used whether people liked it or not. But many law firms are fragile partnerships where firm leadership simply does not have the power to enforce change.
In several decades of working with hundreds of law firms, we have seen many such examples where well-designed strategies have failed because partners refuse to embrace them.
Customer relationship management (CRM) software is another great example. Many firms have recognized the value of tracking client relationships more closely and invested six figures or more in technology to do that. But based on our unscientific count, CRM systems have failed at the vast majority of the law firms that have installed them, due to lawyers’ resistance to sharing information about their clients and their unwillingness to put in the hard work of tracking details in the system. Enormous effort was put into the initial stages of selecting software and implementing it, lawyers pushed back, and in the end management gave up and the money was thrown out the window.
The problem of failure to execute is not limited to software. “Key client programs” to improve service to top clients sound like a great strategy when they are committed to paper, but, when the time comes to act, many lawyers just keep doing what they’ve always done. Practice group planning is another problem area. When 81 managing partners responded to the Altman Weil Practice Group Performance Survey a few years ago, we concluded that “Law firm practice group performance… is mediocre at best across a series of measures.” For example:
Sixty-three percent of law firms say they have a formal Practice Group planning process, but planning quality is inconsistent and many firms fall short on plan execution. On average, on a scale of 0 to 10, firms rate the effectiveness of Practice Group planning at 6.0 and the effectiveness of plan implementation at a meager 5.6.
For every firm that has successfully implemented a strategic plan, several others have failed to execute.
We could go on, but there is really no need. You could probably add several recent examples from your own firm. As management consultants often say: “Culture eats strategy for lunch.” (The original quote has often been attributed to Peter Drucker, and a few years ago Curt Coffman wrote a book with that title.)
Several decades of consistent financial success have led many law firms to develop cultures that are frustratingly resistant to change. As Richard Susskind noted in his widely quoted book, The End of Lawyers?, “It is not easy to convince a group of millionaires... that their business model is wrong.”
Every organization has its own unique culture, defined as the set of deeply embedded, self-reinforcing behaviors, beliefs, and mindset that determine “the way we do things around here…” It controls the way their people act and behave, how they talk and inter-relate, how long it takes to make decisions, how trusting they are and, most importantly, how effective they are at delivering results… Studies have shown again and again that there may be no more critical source of business success or failure than a company’s culture – it trumps strategy and leadership every time.
For example, consider the attitude toward perfectionism at many law firms. As consultant Ron Friedmann wrote in his blog several years ago:
Clients often want to know if there are any major risks: “Let me know if there are any boulders in this playing field.” Lawyers often hear that and think they need to find not just the boulders, but also the pebbles. The fear of being wrong – and of malpractice – runs deep. ‘Perfection thinking’ makes it hard to approximate, to apply the 80-20 rule, to guide in the right direction but with some imprecision.
When lawyers were getting paid by the hour and most clients didn’t seem to care how many hours it took to reach perfection, the mindset was reinforced by the compensation systems that are still found at most law firms: the more hours you bill, the more you are paid.
But clients are increasingly questioning hourly bills and/or asking for fixed fee alternatives. When realization goes down far enough, firms will gradually be forced to change compensation, as Jackson Lewis did when it announced that associates will no longer be compensated for billing more hours. Instead, they will be rewarded based on factors tied to results such as efficiency and client service.
A slightly edited version of this series was originally published in the April 2015 issue of Of Counsel: The Legal and Management Report by Aspen publishers. A pdf of that complete article “Strategies to Successfully Change Law Firm Culture: The Example of Legal Project Management” can be downloaded from our web page.