Chapter 9: The role of CI in shaping

By Andrew Hedley challenging the status quo and historic precedents that robust paths can be created. “IF YOU are ignorant of both your enemy It is only by imagining a world in which the and yourself, then you are a fool and certain taken-for-granted rules of competition are to be defeated in every battle. If you know turned on their heads that agility, flexibility yourself, but not your enemy, for every battle and responsiveness of current approaches won, you will suffer a loss. If you know your can be stress-tested. This calls for creativity enemy and yourself, you will win every battle.” in thought and action, which can be a challenge for many businesses. When Sun Tzu penned The Art of War in the Lawyers and law firms are particularly sixth century BC, the issues at stake were those challenged to take a creative approach to of life and death, not business gain or loss. solving problems, for several reasons. They However, the principles of his advice (and have historically enjoyed a highly regulated indeed that of other writers and protected environment. Through such as in On War) are lawyers’ legal training and the risk-averse applicable to those concerned with charting a personalities of many who are attracted course through the increasingly choppy waters to the profession, they learn to perceive of commerce in the 21st century. past decisions as those that govern future Having a clear understanding of the decisions. This respect for precedent has role that competitive intelligence plays led to a hard-wired culture within both the in the strategy process, coupled with a legal profession and the larger legal services determination to unearth insights that industry that values highly old ideas and will serve to enhance strategy and create behaviours and distrusts new ones that have advantage, will help all law firm leaders not yet been tested. increase their certainty and confidence Like a parachute, the mind works far in the outcomes of their deliberations. better if it is open. Unfortunately for law In short, there is a clear opportunity to firms, the scarcity of parachute thinkers is a create through major pinch point in strategy development, the acquisition and use of high quality , a willingness to adapt to new competitive intelligence. ways of working and a redefinition of the competitive environment. The importance of competitive Traditionally, firms have relied upon, and intelligence in law firm promoted, the logical, incremental, process- strategy development oriented personality in terms of Preconceived notions are the enemy of and decision making – that is, people with a the strategist. It is only by questioning and strong left-brain orientation. Conversely, the

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right-brain, lateral, creative thinker has an information sources (both internal and uphill struggle in many business situations. external) that are available to them. This is For longer-term success, a balance is vital if coherent thinking is to prevail over needed. Whilst right-brain thinking is vital an inherently ad hoc approach. Intelligence in the generation of ideas, the left-brain must be marshalled to create meaningful process approach is crucial to their testing, analysis, providing robust forecasts and the development, selection and implementation development of a range of scenarios (with in law firms that are increasing in size, accompanying strategy toolkits charting complexity and footprint year on year. This potential courses of action). is not a call for increased bureaucracy but Clearly scenario planning and sensitivity rather for sensible and prudent consideration analysis techniques should accompany any of opportunities, risks, challenges, resources, well-informed strategy process but these competencies, competitor responses and are an anathema to many law firms. Why attractiveness to clients. is this? Perhaps because such an exercise Any process should follow the might illustrate unacceptable risks or extreme overarching guideline of being as complex exposure to economic sensitivities on which as necessary but as simple as possible the proposed strategy could founder. This without losing sight of the need to be attitude is foolhardy at best and plain reckless comprehensive. What this means in practice at worst; burying one’s head in the sand is is that strategic analysis and intelligence not a proven method for avoiding disaster. gathering should focus on providing a good Of course, one should not constrain understanding of: competitive intelligence to simply the competitor sphere. As we demonstrate later „ Resources such as core competencies, in this chapter by using thinking based on skills, strength in depth, talent the five forces model, competitive forces management and geographic reach. extend much wider than just to competitors Where do we need to build (or shrink) in in the impacts those forces can have on a terms of people, places or skills? law firm’s success. By looking at competition „ Expectations, objectives and power of more broadly at an industry level, and partners including aspirations, ambition, not just at the rivalry between individual culture, governance and decision making. competitors, we can identify other drivers What sort of firm do we want to be part of that impact our competitive performance and what sort of work do we want to do? and incorporate those into our strategic „ The environment faced by the business thinking and planning. including clients, sectors and competitors on a timescale that is relevant to the Always think about the strategy horizon. Where will future strategic triangle competitive advantage come from, Many law firms fail to appreciate the where are the threats emerging and what importance of competitive intelligence in will happen to current and future clients terms of client-relationship development and and sectors? revenue growth. Right from the first opportunity to A challenge for many organisations is the service a client, a clear understanding ability to filter and refine the multitude of of competitive position and competitor

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strengths and weaknesses will play a part through a comparative lens – what will each in winning new business as well as being give me and at what price? fundamental to staying one step ahead in In order to choose, the client needs offering services that enhance current client to make a comparison. To make this relationships and provide opportunities to comparison he needs to understand two broaden and deepen the client franchise. things – what a firm can offer and why this Picking up on this theme, it can be argued offer is better (in a way that is important that competitive advantage flows from to the client) to that promised by the other managing the interplay of three things: the firms competing for the same work. It follows client, the competition and the firm. that a firm that understands the points of We need excellent competitive difference on which a client will choose intelligence to understand all three and has an advantage in being able to invest in devise an effective approach to managing being better at the things that matter most. and monitoring each individually, as well as their interplay. However, all three are moving Using CI and client preference to all the time and we only have direct control create service and influence over our own firm. Having an in-depth understanding of the A variation of a model first suggested by other firms competing for a slice of the strategy guru Kenichi Ohmae can be useful action is hugely important. These are the in framing the challenge that firms face and specific players your differentiation strategy which enhanced competitive intelligence can needs to centrally consider, since it is with help them to overcome. The strategy triangle this relatively small group that you will fight gives us a simple framework within which to most of your battles, win most of your clients consider the impact of competitive intelligence and inevitably lose a few skirmishes along on business success (see Figure 1). the way. It must be the case that, when a client Of course, taking this competitive has legal work to source, he considers those view of the market allows firms to develop firms likely to be able to service his needs much more focused, tactical responses to specific opportunities. To be effective at this level Client often means differentiating through being one per cent better at a host of small things rather than a couple of silver-bullet differentiators that many firms seem to search for endlessly but that are as elusive as the pot of gold at the end of the rainbow. When combined, these

Wider business environment Your firm Competition small differences allow your firm to stand out Figure 1: The strategic triangle from the pack in a way

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High Target zone for key service factors Reprioritise efforts unless hygiene factors

on service competency Service factors to be prioritised

Firm’s relative performance Firm’s for investment Low Low High Value of service competency to client

Indicates value performance position of a single service factor e.g. Responsiveness, transparency, fee level, etc.

Figure 2: Mapping service competencies to client value

that is valuable to the client and hard for importance of various law firm service competitors to replicate. attributes and benchmarked the clients’ In this approach to differentiation views of how law firms performed against there is no stand-out single point of them. By linking importance to performance, competitive advantage but rather a host it is possible to identify areas where of smaller factors that, when combined, clients’ needs are satisfied (or even over- make the firm simply better than the pack satisfied in some cases) and those in which with which it is competing. improvements would be both desirable and To create enduring success firms must create advantage. have excellent competitive intelligence. In Moreover, the relative weight (or score) my experience, too few firms undertake attached to each of these service factors regular , benchmarking provides a basis for differential investment their performance across a range of decisions aimed at delivering improvements variables – both financial and non-financial. in the areas of most significance to clients. It Moreover, firms need to ensure that their also allows gap analysis to identify potential competitive intelligence is always highly opportunities for differentiation as well as relevant to the decision at hand, allowing areas that need to be strengthened. This decisions to be made quickly and with high approach can be mapped as seen in Figure levels of certainty. 2, with service factors being conveniently There has been a reasonable amount analysed on the basis of client importance of research looking at a wide range of and relative competitive performance. purchase criteria within groups of clients. On the face of it, the service factors These studies have looked at the relative that should be prioritised for investment and

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improvement are easy to identify – they are should be maintained. Indeed some will those in the bottom right-hand corner of the fall into the next category. chart in Figure 2. These are important to the 3. Hygiene – ‘hygiene factors’ is a phrase client and are areas in which the firm has used to describe aspects of the product a relative competitive disadvantage. While or service that do not create advantage this is correct, there is a further nuance but that are fundamental to staying in to consider. business. They are the ‘table stakes’ of In the top left-hand corner of the grid being a law firm. The example often are those factors that are of low importance used to illustrate the importance of to the client but on which the firm performs hygiene factors is airline safety. Very few strongly. It would be easy, at least with a people select their airline on the basis superficial view, to come to the conclusion of its safety record – it is assumed to that these are factors that can be readily be excellent. They use factors such as abandoned. Saved resources could then be timetable, flight duration, service and diverted to improve performance in areas of price. These are the dimensions on which more apparent significance. airlines compete and seek to differentiate On closer examination, however, themselves. However, any systemic failure experience suggests that there are four types on the safety front will put the airline out of service factors that fall into this ‘high of business. Safety moves from being a competence/low client value’ categorisation, non-issue to being the most important only one of which can be eliminated without issue by a significant margin. So it is with careful further consideration: law firms in terms of hygiene factors such as being an excellent lawyer. Recognise 1. Historic vestiges – there will be some and maintain excellence in the service factors that are historic and that fall dimensions in that top left-hand corner. into the ‘way we have always done 4. Education and appreciation – finally things’ category. They will not be hugely there may be some service factors that symbolic from a cultural perspective and fall into what I term the ‘education and will often be vestiges of days gone by. appreciation’ category. These are factors These are the service factors that can be that add value but often the client does dispensed with. not understand or appreciate them. In 2. Professional status – in the same quadrant this sense they will often be enablers that there will also be factors that are highly provide the foundations for other more important to the psyche of the lawyer. visible service factors to flourish. They These will be concerned with professional are hidden gems. status and the accepted norms of the legal professional, the self-esteem of the In searching for additional sources of lawyer and the cultural environment of added value, firms will often seek to invent the firm and its jurisdiction. Aspects of new approaches or techniques. In some the unique culture of the firm may be cases, simply bringing to the surface and invested in these factors. Provided they communicating effectively the positive do not conflict with modern business benefits of aspects of the current service practices and so undermine the client mix will move them in the mind of the experience, it may well be that they client to the right on the grid given a

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deeper and fuller appreciation of a ‘weight class’ against them, everyone would their importance. score highly on the most important criteria. It is not until the lower reaches of a ranked Recipes not ingredients list that significant differences in performance I have a view of competitive advantage and approach start to appear. Of course it is that is based on recipes not ingredients. important to separate areas where firms are By this I mean that if you asked any just different from those that are ‘differences competent strategist to list the things that that matter’ – by which I mean things that are are important in client choice, they would determinant rather than just different. all produce broadly similar lists. These are the ingredients. The question, however, is Competitor analysis does not equal not about ingredients, it is about recipes – competitive analysis how they are put together to produce an There is a real danger that the broad field of intoxicating dish or a bland mish-mash. competitive analysis is reduced to a narrow High-quality competitive intelligence is focus on the activities of current competitors. needed to ensure that your recipe mix This means that potentially significant forces is more appealing to the client than on a firm could be overlooked with far- that offered by competitor firms since it reaching consequences. allows you to understand areas of relative There are more facets to competitive competitive strength and weakness. intelligence than the already formidable If one were to list all of the performance task of gaining a thorough understanding criteria in rank order and then score firms in of competitor activity, plans, strengths and

Which barriers to entry exist? 1. Economies of scale 2. Product differentiation 3. Capital requirements Threat of entrants 4. Cost advantages 5. Geographic coverage 6. Government regulation

Power Threat from Power

of current of

suppliers competitors clients

Suppliers in legal services? Client 1. Professional staff 1. Increased sophistication 2. Business support staff Threat of substitutes 2. Panels & reviews 3. Outsourced services 3. Pricing pressure 4. Property costs 4. Service demands 5. PI costs Substitute products 1. Alternative approaches 3. In-sourcing 2. Outsourcing 4. Commoditisation

Figure 3: Five forces model

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weaknesses. For our purposes I will use the some extremely complex areas. However, five forces model (see Figure 3) as a lens it should also be clear that there are areas through which to assess the competitive of legal practice that are not complex and pressures facing the legal sector in addition in which the use of protectionist practices to those posed by current competitors. restricted new entrants to the market to the This model was first proposed by ultimate detriment of the client. as a way of analysing industry In many jurisdictions there are active competitiveness and can be applied to the moves to deregulate the legal profession legal services sector. It considers the interplay as economies operating in global markets of five different forces, which each affect recognise the inherent inefficiencies of any overall competitiveness and ultimately the unnecessarily protectionist regimes. This can return on investment of players in any industry. be seen most sharply in the UK. When the Critics of the five forces model may say Legal Services Act comes into full force in that it encourages confrontational thinking October 2011, England and Wales will have with clients and suppliers being presented the most deregulated legal services industry as adversaries to be overcome. This is a in the world, allowing external investment in simplistic view of the approach – the model law firms and the establishment of law firms does not suggest that the relationship with by non-lawyers. other parties cannot be developed in a Interestingly, aside from the ‘none shall spirit of business partnership but rather it pass’ barrier imposed by regulation, the is a recognition that each of these forces other barriers to entry are not significant creates competitive pressures that need to for a corporate entity looking to enter the be understood at the strategic level and legal services market. The differentiation responded to at the tactical one. of the core legal service is low within firms Taking each of the forces in turn (aside operating in the same markets, skills are from current competitors which have already generic within the profession and so, by been considered), we can review the role the act of hiring professionals, an that competitive intelligence has to play organisation becomes equipped instantly in ensuring that a firm fully understands with these core competencies. the current and future issues at stake and Differentiation is being forged by firms is consequently able to make the most with an excellent client-service orientation appropriate strategic choices. and with the ability to leverage their legal skills through the effective use of IT. There Threat of entrants are many potential entrants to the market For a non-law firm, entering the legal that are highly competent in creating services market has been historically differentiated offerings on the basis of client extremely difficult at best and in most cases service and IT leverage. impossible. This was principally due to This is a very significant competitive regulatory regimes that restricted access to threat to incumbent firms and it should be qualified firms and individuals governed by expected (in legal markets that are becoming rules of professional conduct and local bar increasingly deregulated) that there will be or law society regulations. There is also, powerful new entrants. It appears likely that for a portion of the work, the intellectual the initial wave will target the high street requirement to understand and advise in (or main street, to use the US vernacular)

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where revenues are large, there is an potential threats coming from outside the opportunity to build a powerful consumer legal services industry will be increasingly brand, the complexity of legal work generally important as deregulation opens doors to undertaken is not challenging, and the organisations that, instead of competing model lends itself to automation and a with law firms head to head, seek to replace service-led approach. the services of the lawyer with a different However, firms operating in more service altogether. commercial areas would be very unwise to A trend for non-lawyer organisations to be complacent. It should be anticipated that, offer new services that replace those that having cut their teeth on the high street, have been the staple of many traditional these new entrants will move into mid-market law firms is likely to be a fast-growing commercial law over time. competitive threat. Identifying the areas Horizon scanning will be increasingly that are likely to be most under attack from important in the run-up to 2011 and beyond. substitute products is vital. The firm must Firms will need to be better at anticipating then make a choice to either build entry and responding to possible scenarios (an barriers or diversify its service mix to reduce approach discussed later in this chapter and risk. This will be an important area in which described in much more detail in Chapter competitive intelligence can contribute to the 11 of this report) because the rate at which strategy of firms. new competitors will develop products, enter new markets, change strategies and address Power of clients market opportunities will be much faster than The client is king and, quite simply, wants its anything that incumbents have experienced services delivered better, more quickly and before. Service life cycles will shorten more cheaply every year. Firms need to be and firms will need to be innovative able to understand these trends and take to prosper. measures to reshape their businesses to be Scenarios can be developed to anticipate competitive in this new paradigm. how a firm would react to changes in Enduring downwards pressure on fees the economic, political, technological, and moves to new charging models aimed environmental, regulatory or social regimes at creating more certainty for the client in the geographies in which they operate. (primarily through fixing the maximum fee Scenario planning can be highly effective exposure in one way or another) will mean in anticipating potential future changes, that firms need to shift their operating mapping options available to the firm and models from ones that drove profit by making plans for actions should these spending as much time as possible on a anticipated events unfold. Interestingly, there matter to one that is predicated on spending are few law firms in my experience that have as little time as possible on that same matter a formal horizon scanning or scenario- in order to maximise profit. planning approach. Understanding the ways in which this might be achieved, how other firms are Threat of substitutes responding to these pressures and how Competitive intelligence also needs to client requirements will continue to develop uncover the dangers posed by substitute are topics that are central to an effective products. Gaining an understanding of the competitive intelligence function.

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Power of suppliers the concurrent implications of these new Within the legal services sector, supplier models do so at their own peril. This pressure comes from the main cost centres confluence among pricing, productivity and of the firm – people, premises, professional- compensation is an important area in which indemnity cover and technology. long-range CI can contribute significantly to Understanding how these pressures are the firm’s growth and prosperity plans. likely to change in the future allows a law firm to put in place good contingency plans Using CI intelligently and to ensure it gets its timing right in terms A comprehensive competitive intelligence of implementation. programme – combining client listening, For example, over the ten years in the competitor analysis and market evaluation run-up to the start of the current recession, – should guide and inform growth in law firm turnover has been strategic choices. matched by growth in associate salary A world in which no firm invests in expectations and competition between firms, competitive intelligence is akin to the first which has driven salaries to unprecedented sentence in Sun Tzu’s statement: “If you are levels. Consequently turnover growth has not ignorant of both your enemy and yourself, been reflected in the sort of leveraged partner then you are a fool and certain to be profit increases that one might expect. defeated in every battle.” This has been the The pressure of the recession, in which historic status quo but the position is fast the market is constrained by demand rather changing. During this transitional period and than by supply, means that firms have beyond, there will be significant commercial accepted reduced and often fixed fees. advantage to be gained by those that can The traditional model operated on the achieve a fully rounded perspective from basis of an associate lockstep in which lawyers which to develop their strategy. received a salary raise each year based on year of post-qualification experience. This Andrew Hedley is the founder and worked well in a market founded on the hourly principal of Hedley Consulting, a boutique rate model (where increased salary equalled consultancy advising the leaders of law increased hourly rate equalled increased firms on strategy, business development profit) but raises serious profitability issues and change projects. In addition to project in one that is moving to fixed fees (in which assignments, Andrew is a sought after increased salary means decreased profit unless strategy group guide, partner retreat there is demonstrable further added value to speaker, workshop facilitator and coach. justify the rise). Consequently many firms are He is a contributor to specialist management now moving away from associate lockstep to publications, a regular conference an approach that is competency-led. speaker and the author of Developing However, a law firm must take great care Strategic Client Relationships (Ark Group, to model these related changes in pricing, 2008). Andrew can be contacted at productivity and compensation before [email protected]. implementing them so as to understand very well their reciprocal implications. Firms that replicate in kneejerk style competitors’ fixed-fee prices before understanding

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