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June 10, 2015

How to change law firm culture (Part 2 of 5)

By Jim Hassett and Tom Clay

For anyone who follows the legal marketplace, it will come as no surprise that corporate clients are exerting enormous pressure to receive greater value from their law firms and that law firm profit margins are being squeezed as a result. What remains a surprise to many firms is how urgent the need for change is and how difficult it is to get lawyers to change their behavior.

It’s something wave seen both in our consulting work with law firms and in the results of several research studies. When, in Altman Weil’s “2015 Law Firms in Transition Survey,” 320 managing partners and chairs opined on which of 14 current trends were most likely to be permanent, 93 percent put an increased focus on practice efficiency. That’s right, 93 percent. When have you ever heard of 93 percent of lawyers agreeing about anything?

Other surveys have found similar results. In the American Lawyer’s December 2014 report on its “Law Firm Leaders Survey,” Michael Heller, Cozen O’Connor’s CEO, sums it up very simply: “Law firms are being forced to completely change the way they practice law.”

While clients are demanding efficiency, law firm leaders are struggling to figure out how to provide it. But as long as compensation systems reward lawyers for putting in more hours, it will be a tough nut to crack. Firms must stop focusing on simply generating more revenue, whatever it costs, and instead focus on the much harder issue of generating greater profits. As one managing partner put it in our recent research on Client Value and Law Firm Profitability, “I have a $10 million practice. But that could be a disaster for a firm, because it could cost them $11 million to get $10 million. But nobody ever talks about it that way.”

What are firms doing about the demand for greater efficiency? Not nearly enough.

When the “2015 Law Firms in Transition Survey” asked, “Has your firm significantly changed its strategic approach to efficiency of legal service delivery?” only 36.9 percent said yes. (35.5 percent said no and the remaining 27.6 percent said changes are “under consideration.”)

As negative as these figures seem, in our day-to-day experience the reality is much worse. In many cases, firms that have “changed their strategic approach” have done so only on a piece of paper. In the trenches, most of their lawyers are still practicing the way they always have.

In 1962, Professor Everett Rogers published his influential text Diffusion of Innovations, which is now in its fifth edition. The book explains the elements that determine how quickly a new idea spreads. In this context, the most important idea is his argument that the people who adopt a new idea are distributed in a normal curve in several sequential categories: innovators (2.5 percent), early adopters (13.5 percent), early majority (34 percent), late majority (34 percent), and laggards (16 percent).

At some point, Rogers argues, successful social change reaches a critical mass in which the number of adopters is large enough so that the speed of adoption becomes self-sustaining and further spreads the idea. This is, of course, very similar to the central idea in Malcolm Gladwell’s best seller The Tipping Point: How Little Things Can Make a Big Difference. According to Gladwell’s definition, a tipping point is “The moment of critical mass, the threshold, the boiling point.”

The introduction of legal project management (LPM) is a good indicator of a law firm’s commitment to improved practice efficiency. The field of LPM is so new that there is still some disagreement about exactly how to define it. For this article, we use the very broad definition proposed in our book Legal Project Management, Pricing, and Alternative Fee Arrangements: “Legal project management adapts proven management techniques to the legal profession to help lawyers achieve their business goals, including increasing client value and protecting profitability.”

While there is no systematic data as to exactly where LPM stands on Professor Rogers’ continuum, based on our experience talking to a wide number of firms, we strongly believe that LPM is still at the early adopters’ stage. The bad news is that clients want faster progress. Many law firms have done an excellent job at putting out press releases announcing that they are leaders in LPM, and indeed many individual lawyers have achieved success. But when it comes to changing the way an entire practice group or firm does business, they have fallen far short.

The good news is that innovative law firms still have an enormous opportunity to get ahead of competitors. We believe that the key issue for most firms today is to find the LPM tipping point for each practice group. In our experience, the required percentage varies widely depending on the pressure the group is under as well as on the internal political dynamics of a practice group led by a few strong leaders versus one in which each lawyer acts as an independent agent.

Clients are certainly not impressed by law firms’ efforts to date. In Altman Weil’s “2014 Chief Legal Officer Survey,” 186 in-house general counsel rated how serious law firms are “about changing their legal service delivery model to provide greater value to clients” on a scale from 0 (not at all) to 10 (doing everything they can). The median answer was 3, a ringing indictment of the low level of effort.

In this context, LegalBizDev recently published the book Client Value and Law Firm Profitability, which summarizes in-depth confidential interviews with chairs, managing partners, and other leaders from 50 AmLaw 200 firms. Many of those leaders reported gaps between the firm’s strategy and what actually gets done.

To assure that strategies are executed properly, you’ve got to start with metrics. As consultants are fond of saying, “What gets measured gets done.” When law firms outline strategies without metrics, the follow-up quickly gets fuzzy. You’ve got to have a way to show people they are making progress. Defining effective metrics is not easy. In the case of LPM strategies, where metrics exist, they tend to be subjective measures of increased client satisfaction and new business. As the field matures, more sophisticated measures are likely to emerge.

In most other businesses, implementation is clearly seen as a four-step process that includes goals, actions, scorecards, and accountability. Most law firms never get past the first step of setting the goals. They fail to identify the actions – specific measurable behaviors – that are required to achieve the goal.

Some identify the actions but lack a scorecard or measurement system to track who is taking action and whether it is working. And the few who do have a scorecard often lack accountability. The lack of centralized power at many firms means that it is every partner for him- or herself.

 

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. 

 

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