by Patrick J. McKenna

Why strategic planning does not work...and what you should be doing about it! While some claim that profit-per-partner is growing, and for some it has been, don't be fooled. It is not going to last much longer for those playing the game by following the same old rules.

To see the future, you must first, systematically deconstruct your old notions and ideas. When partners sit down to think about their firm's strategy, too often they take 90 percent of the way things have been done in the past as a given and allow the past to become a major constraint. Instead, you must reject the past, reject precedent, and determine that you are not going to be bound by it anymore. In effect, in looking for new directions, you are not going to begin at the same old starting point.

The way the RPL winners get to strategy is by challenging their partners to think differently about how they have been practicing law. Do we have to practice in that way? They look at their firm's service offerings. Do these have to be delivered in the way we're been delivering them? They look at the basis upon which firms have chosen to segment the market. Is there a different way of doing that? They look at the parameters of competitive differentiation that are being used. Are there other parameters? They look at the assumptions their partners have made about whom is and who isn't the client.

Thus to see, and get to the future first, requires that you embrace an attitude of strategic innovation.

Identify Innovation as a Top Strategic Initiative for the Coming Year

Law firm management committees just naturally focus their attention on that which is presented to them. Most often, what is presented are internal problems: partner performance that falls below budget, juniors that are not achieving according to expectation, and clients that are not being fully serviced. Firm leaders are usually given written reports on many of these issues. They will often receive a computer printout giving quantitative evidence of the performance shortfall. Then at meetings of the management committee everyone sets to work on reviewing and suggesting remedial action steps to address the problems. While these problems may consume the agenda time of management committee meetings, they should not be on the agenda of any session concerned with crafting strategy. Your strategy sessions should only be concerned with looking externally, looking to the future, and looking for growth opportunities. To do anything less allows growth opportunities to die of neglect.

It is not sufficient for a managing partner to simply say, Okay, I think it is time that we developed a (new) strategic plan for our firm. Your firm must be made receptive to the concept of strategy, innovation, and made comfortable with perceiving change as an opportunity rather than a threat. We often hear the question, But, how can we overcome the resistance of certain of our partners to the idea of innovation? Even if we knew the answer, it would still be the wrong question. The better question to consider is, How can we make our firm more receptive such that individual partners embrace innovation and are prepared to devote some of their precious non-billable time to working for it?

When strategic innovation is perceived by partners as the flavor of the month, the very concept rankles and there will be no innovation. Innovation must be part and parcel of the ordinary, the norm, the routine. The concept must be communicated in such a way as to be made attractive and beneficial to partners.

We have observed that the high performers will make a strong case for the need to change by creating a sense of crisis and urgency from which to direct the partner's attentions to taking advantage of change. The management of these firms tells the partners, We see some potential changes on the horizon that may either present an opportunity for us, or if left unattended could have an adverse effect on our collective, personal fortunes. Here is what we see . . . What do you think we should do? What actions might we initiate that could have the potential to transform these changes in our favor?

Still some partners may say, Why should we do anything? Things are going well without our messing around. High performers recognize this as the opening for them to educate their partners as to what those competitors who are a little more alert might do, if we wait and miss the opportunity window. These firms work to create a clear understanding throughout the firm that innovation is the best means to preserve and perpetuate the firm's wealth and individual partner's continued personal success.

According to a February 2000 Economist article, a Price-WaterhouseCoopers study on innovation claimed: Innovation will be the dominant value proposition for the next century. Innovation is the basic imperative for new approaches, new processes, new delivery systems, new services, and the prerequisite for sustainable growth.

Your primary strategic challenge is not to find new sources of funds to fuel innovation, but rather to discover new ways to change attitudes and mind-sets throughout the firm. Every professional in your firm must come to understand that it is his or her job to think of new solutions and new ways of doing things.

The message is to shake up old patterns or behaviors, break old routines, and begin thinking differently. A certain degree of zeal and importance needs to accompany the announcement of innovation as a priority. It must be seen as a new way of doing business and as the essence of the growth strategy for the firm. The message is that we value newness over sameness.

Turn innovation into job one. Identify and articulate, with a sense of urgency, all of the various reasons why your professionals need to come up with new ways to:

• go outside the confines of the current practices into new areas
• offer clients new benefits
• apply new technologies
• target new market segments
• develop new-to-the-firm ideas and new-to-the-profession innovations

Our fundamental question to any managing partner is, How much of your last strategic planning effort was spent in actually creating new-to-the-firm and new-to-the-profession competitive strategy options?

One managing partner expressed it this way:

I used to spend most of my time worrying about the how--how we did things, how we operated, how efficient we were (the internal). Now I spend much of my time worrying about the what--what opportunities to pursue, what alliances to form, what technologies to back, what experiments to start. (The external.)

Effective innovation also requires effective teamwork--professionals with complimentary skills who can view a client's problem from different perspectives and bring in alternate solutions, build momentum, and orchestrate an action plan. Innovation requires an in-depth understanding of clients--their lives, routines, problems, frustrations, hopes, fears...and their needs.

Ascertain the Needs of Both Clients and Prospects

When we are looking to the future, many of us tend to think in terms of improving what we currently do. As lawyers, we tend to look at our current ways of doing things and how we can improve our methodologies, rather than taking a step back and thinking about what our clients may actually want. If we are concerned for our future profitability we have to think about what is it that we do as lawyers that adds value or helps manage the risks that our clients face.

That sounds like a line from a screed on getting close to your clients, doesn't it? The sermon on knowing thy client is a good and worthy one. And it has been delivered so loudly and so often for the past several years that many firms have taken it to heart. Those firms--the stellar performers-- know quite a bit about their clients. But we are talking about something else that they do.

Creating new wealth requires more than simply responding to market demand. Think about some of the path-breaking innovations that you have personally observed during the past few decades. For example, no car buyer walked into a Chrysler dealership in 1983 saying that what he really wanted was a van mounted on a car chassis with folding seats--and don't forget some cup holders. No customer told Sony that the only thing wrong with its tape players was that you couldn't strap one on your head.

We're talking about crafting a competitive strategy based on being innovative in recognizing client needs, preferably even before the client may know that they have the need.

Imagine a simple 2x2 matrix (heaven forbid!) in which your existing clients and potential new clients are on the horizontal dimension. Now construct the vertical dimension by articulated and unarticulated needs.

When we say we need to be client-focused, what we are trying to do is to better understand the articulated needs of existing clients. Your future-oriented challenge is to understand the unarticulated needs (the what could be), especially of new kinds of clients. Seeing the future first is very seldom about responding to articulated needs. It's about understanding deep-down frustrations and anxieties that people have, and creating new alternatives for them. We call this finding the white space opportunities in which you have no competitors!

Thus, the question is not, How might we better serve our clients? That is an example of working from what is. To work from what could be, the central question becomes, What service might we provide that clients are not yet asking for? Your challenge is to encourage your people to continually ask, Whom do we serve? How do we do it? What new service offering that clients haven't even thought to ask for yet, can we surprise and delight them with?

Some partners may think that this is the proper role of the marketing department. Unfortunately, the marketing function is about the worst possible conduit for bringing insight into this process. That is because marketing--particularly through the use of market research--tends to be a prisoner of the existing concepts. The only solution is to put your partners right up against existing and prospective clients, to live with them, breathe with them, understand their frustrations. Only then might you have the chance of developing deeper insights. You have to take off the blinders.

The problem with most of us in the profession is that we are all too often blind. The deepest reason for this is our inability to look outside of current experiences. If we think about it, most firms converge around how they perceive what business they are in and what clients they want to serve.

Think about the effects of everyone going to the same legal seminars and conferences, hearing from the same pundits, reading the same gossip rags, and trading partners back and forth. Is it any wonder that firms obsess and spend their time focused on what every other firm is doing--watching to see what Skadden Arps or Jones Day is up to--rather than sharpening their own views of the world?

Dealing with this blindness involves looking deeply within the client to find hidden knowledge.

Think Differentiation

Let's think for a minute. How different is what you are doing right now--the strategies that you are employing now-- from the four or five key competitors in your marketplace?

If your answer is not much, then how can you ever expect to surpass their performance? We all know instinctively that doing the same thing and expecting different results is futile. But that's pretty much the result that conventional strategic planning has provided.

In our strategy sessions with groups of partners we have often posed a simple question to the entire group--a question we believe reflects the primary concern that occupies most prospective clients' minds, what we have come to think of as the defining question. It goes like this: Tell me please, as a prospective client, why should I choose you (your practice group/your firm)? What makes you distinctiveand what added-value can you bring to my business matters--that I cannot get anywhere else? (Please, do notice those last six words).

Simply working harder and improving utilization may achieve enhanced short-term profit but will not get you long-term success. Similarly, focusing efforts on operating efficiencies and improved margins will not do it for you either. The root of all successful strategy lies in being differentiated. Your firm--all of your individual practice groups--must all work at making itself different and intrinsically more valuable to clients.

Break the rules. In every industry and in every profession, there are rule-makers, rule-takers and rule-breakers. Increasingly we've learned that the firms that will be the true leaders will be those that reshape and redefine the profession. A good strategy makes the firm different. It gives the firm a unique position. And a unique position involves the delivery of a particular mix of value to some array of clients.

A firm simply cannot be all things to all people and do a very good job of it. Strategy requires choices. But it's not good enough just to be different. You've got to be different in ways that involves a trade-off with other ways of being different. In other words, if you want to serve a particular target group with a particular definition of value, this must be inconsistent with delivering other types of value to other clients. Firms that end up competing for the same set of clients using the same set of inducements will find that it is a loser's game.

The trouble is that firms hate making choices, because doing so always looks dangerous and limiting. They always want the best of all worlds. It is psychologically risky to narrow your range of services, to narrow the range of prospects you are targeting. And this unwillingness to make choices is one of the biggest obstacles to creating an effective strategy.

Today, the only thing that counts about your strategy is--how different is it from the strategies of your competitors?

HOW MIGHT YOU EVALUATE YOUR STRATEGY?

We believe the measure of an effective strategy is the:

• breaking of existing rules and precedents
• search for a (temporary) monopoly
• ability to differentiate in a meaningful way that attracts clients
• creation of new wealth by creating new markets, new clients and new revenue streams
• achievement of above-average RPL and profitability
• making of hard choices which usually involves excruciating trade-offs
• action plan that folds the future back into the present
• number of small, limited risk, field tests and experiments that get underway

Correspondingly, an effective strategy is not:

• a fill-in-the-blanks boilerplate that some consulting company uses with you and everyone else
• a vision--the blinding insight of a managing partner
• the product of superior analysis
• numbers driven--the development of a five-year budget
• following best practices--more about getting better than getting different
• simply merging your way to competitiveness
• easy to develop--unless you're content to have a strategy that mimics every other firm

Articulate Stretch Targets

Incremental goals fail to bring out the highest and best in law firms or partners. Make no small goals, the old saw goes, for they lack the power to stir our souls. Ritualistic planning is pedestrian. It rarely stirs anyone to sustained action, let alone to produce consistently outstanding results.

Subscribe to radical goals. Imagine what might occur if you declared to your partners that you wanted to achieve a 35 percent growth in revenues-per-partner over the next two years, and then asked them to come forward with ideas as to how each of them could contribute to making that happen.

We had an interesting experience recently in one firm where the managing partner decided to survey every member of the executive committee prior to an important meeting. Using a questionnaire, he asked each committee member for his or her views on what might constitute a reasonable expectation for the firm's future growth prospects. In the questionnaire, he told his partners, Our profits-per-partner have increased during the past five years at an average rate of around 4.2 percent per year. Then he asked, What do you believe is an acceptable annual rate of growth in profitability over the next five years? Now, he did not disclose that 4.2 percent was not the real number, nor did he inform them that 4.2 percent was only about half of what competitive firms were averaging. Quite predictably, based on the information this managing partner provided, nearly all of the partners responded that they would be quite happy to achieve a level of 4 to 5 percent growth over the next five years. The lesson here is very clear. No organization ever outperforms its aspirations. Our beliefs set the upper limit on what is possible.

GE was one of the first organizations to institutionalize the idea of stretch goals. According to Chairman and CEO Jack Welch, stretch means moving beyond being as good as you have to be or achieving the budget--to being as good as you possibly can be--setting impossible goals and then going after them. He adds, If you do know how to get there, it's not a stretch target.

Make Practice Groups the Key Building Blocks of Your Firm's Direction

One of the most disastrous developments happens when firm leaders or a select committee of power partners takes it upon themselves to develop the firm's plan and then make their pitch to sell the plan to the rest of the partnership.

Recently, that lesson became evident to us again when observing the strategic planning process unfolding at a prominent Washington, D.C. firm. This particular firm decided that it desperately needed to develop a new direction and as a result, the managing partner, executive director and a retired McKinsey & Company partner decided to develop the firm's new strategic plan. The plan was completed and the general partnership meeting was convened. That all transpired in early 1999, and to this date the firm still does not have an agreed-upon strategic plan.

There are a number of inherent problems with developing a strategy from a top-down perspective.

First, it assumes that all wisdom reposes within the firm leadership. Now that is not meant to be a disparaging comment. Centering the process on the thinking of the firm's executive committee may certainly involve some of your best and brightest, but unfortunately it does serve to harness only a portion of the firm's creative potential. Look at any emerging development, being undertaken by any law firm, anywhere, and ask yourself a question. Did that initiative develop at the executive committee? Or, did some monomaniac, in some practice group, perceive an unmet client need and then make it his or her personal mission to initiate an innovative course of action? In many cases, our observation is the later.

We find that in the best performing firms, management looks to practice groups to make a meaningful contribution from their particular vantage point. They are especially looking to practice groups that are doing things better and doing things differently. They single them out, celebrate their achievements, and consistently ask, What are you doing, or not doing, that the rest of us could learn from?

They are also asking individual professionals for their personal ideas on how things could be done better and differently. They tell these professionals, I want to hear about your personal career aspirations. I want to hear where you see the greatest opportunities for your group and for the firm. And, I want your ideas on what you would like to see us try that is new, that would develop new service offerings, and provide new ways of reaching clients.

Secondly, if one of your goals is to differentiate your firm in a meaningful way that attracts clients--and it should be--you will find it difficult to project a differentiated position for the entire firm, unless you are a boutique practice. Most clients will talk about the dominant strengths of a particular practice group, but rarely about the entire firm, no matter how much we invest in branding programs. Therefore, any attempt to develop strategy without looking to the practice group as the primary building block is likely to miss the mark.

Your strategy-crafting process at the practice group level should be concerned with three things:

1. How do we identify those areas where we have potential to truly be differentiated and become a preferred provider? The good news is that, in many firms,hidden diamonds already exist within some of the out-of-the-ordinary client matters that have been successfully handled in the past. To exploit the potential that lies hidden requires a bit of analysis.

For example, within one firm, we began the practice group strategy process by having a professional interviewer construct with each partner, a profile of any recent, out-of-the- ordinary client transactions. We asked each partner to tell us about those particular matters they had handled over the past 18 months that presented a new and inspiring challenge. We asked who the particular client was and what might have made the client's situation rather unique. We then explored with the practice group whether the lessons learned from any of these transactions might suggest new client, new market, and new revenue opportunities.

Deconstructing past client experiences can provide a means of escaping the myopia and put you in touch with the deeper capabilities that can be brought to bear in other commercial ways.

The practice group must examine every out-of-the-ordinary transaction with the questions:

• What would it mean for us if we exploited our success with this?
• Where could it lead us?
• What would we have to do to convert it into a business opportunity?
• How do we go about it?

It is precisely because these hidden diamonds jolt us out of our preconceived notions, our assumptions, our certainties, that they provide such a fertile source of innovation.

2. How do we become more valuable to clients by specializing our skills and expertise in those areas that are of greatest emerging client demand? The point here is that in the early stages of any new industry, any new market, any new trend, or any new regulatory development, there is an opportunity to search systematically for an opportunity to develop and apply specialized skills.

This strategic move aims to obtain a practical monopoly in a small area of practice and become the leaders. This monopoly must be obtained by developing specialized skills very early on--skills that serve to put the practice group far ahead of competitors, making it difficult for anybody else to try to challenge them. To attain a leadership position always requires something new, something added, something that is genuinely innovative.

3. How do we involve clients directly in discerning their needs and actually helping us develop new innovative ways to serve them? The best practice groups take their draft strategies to the clients for input on whether the group is on the right track. This step becomes the natural follow-up to those one-on- one meetings with clients to discern their latent, unexplored, and future needs. (Any internal and important issues of hiring, training, organizing and delivering legal services then all flow from these externally focused determinations.)

Develop Strategy in Action

When it comes to executing a strategy, the end target may be clearly visible (for example, I want to climb that mountain over there). However, much of the route may be invisible from the starting point. The only way you are going to see the path ahead is to start moving. Thus while your strategy starts with foresight, it evolves through experimentation.

The most successful strategies start as small, inexpensive, limited-risk field trials. This is often far more effective than protracted analysis or market research--and always more reliable. Your market will tell you when you get it right. Craft strategy as you go, mixing thought and implementation into the process. True partner commitment can only be expressed in actions.

In many firms, the quest to follow precedent and achieve perfection drives out experimentation. One question we often ask managing partners is, Can you point to 10 or 12 small experiments going on right now that you believe could fundamentally remake your firm? In most cases, the answer is no, there is nothing to point to.

We posed this same rational to the hundreds of partners at McDermott Will & Emery last year during a morning partnership meeting, when we had the honor of addressing the group on the importance of strategy innovation. To our absolute astonishment, the firm's Executive Committee retreated together for lunch and returned to announce that they were initiating a new internal R&D fund of some significant magnitude. Partners were invited to submit individual proposals for any new initiatives they were prepared to personally champion. Then again, is it any wonder that McDermott has achieved the highest RPL growth over the past 10 years of any firm in the Am Law 100?

The more experimentation, the faster you understand precisely which strategies are likely to work. The goal is not to develop perfect strategies, but to develop strategies that take you in the right direction, and then progressively refine them through rapid experimentation and adjustment.

STRATEGY INNOVATION: THE TIME TO ACT IS LONG BEFORE YOUR HORSE STUMBLES

For much of the past decade, most firms have been busy following the conventional rules. They've been wringing every penny they can out of an ever-increasing, internal demand for billable production. What first began in the gut of managing partners as a legitimate means to improve profitability then became an obsession--and the primary strategy for most firms. The ultimate result is that firms are hitting the wall in terms of how many more billable hours they can achieve. What does that leave you with as a viable means for increasing your firm's growth and profitability into the future?

Working with and observing firms that consistently out-perform the average certainly suggests to us the merits of a methodology for developing innovative strategy--one that is dramatically different from past approaches to conventional strategic planning.

Strategy innovation is about rethinking the basis of competition. Strategy innovation does not depend on past success or established ways of practicing, or deep pockets, or having certain types of practices. A strategy steeped in innovation should make every decision a consequence of imagination, not precedent.

We once heard an entertaining speaker describe the situation in this way:

Dakota tribal wisdom says that when you discover you're on a dead horse, the best strategy is to dismount. Of course, there are other strategies. You can change riders. You can get a committee to study the dead horse. You can benchmark how other firms ride dead horses. You can declare that it's cheaper to feed a dead horse. You can harness several dead horses together. But after you've tried all these things, you're still going to have to dismount. The temptation to stay on a dead horse can be overwhelming, but, the time to begin searching for new strategies is long before your horse stumbles.

©2001 Edge International