Knowing the Enemy – and Setting up Battle Lines
All over the world, the legal profession remains a fragmented sector with a bewildering choice of possible legal advisers facing every client. It is very difficult for law firms to be truly differentiated or set apart from competitors in terms of developing and marketing unique products or services or being or becoming the only show in town. Some firms aim to achieve differentiation through niche specialisms and services or by a sectoral focus but although this can help to make the firm attractive, it does not necessarily make it “differentiated” as distinct from “segmented.”
Segmentation is concerned with where a firm competes in terms of groups of clients, localities and services. A segmented market is one that can be set apart according to the characteristics of clients and their demand. Differentiation is concerned with a firm’s positioning within a market (or market segment) in relation to the service and image characteristics that influence client choice. By locating within a niche or segment, a firm does not necessarily differentiate itself from its competitors within the same segment.
In order to seek or develop meaningful differentiation, law firms must develop a deep understanding of their competitors, and many firms fail even to attempt this, believing instead in the power of their own self-image and perceived market position. Over the years, I have looked at a multitude of strategic and business plans for both law firms and practice groups. What I have noticed is that these plans often fail either to address competitor analysis completely or have simply provided a list of firms that the group considers as its main rivals. Frankly, just naming names is not enough.
The extent to which a firm can differentiate itself from its competition is an important element in achieving competitive advantage. Key differentiation questions faced by every firm include:
- How do we stand out from the opposition?
- Why would clients choose us as opposed to other firms?
- What do we do which is different, cheaper or better than our competitors?
- How can we demonstrate more value to existing and future clients than our rivals?
Firms need to know both themselves and their competitors to answer those questions and to help gain or maintain any sort of competitive advantage.
There are three key areas of competitor research and analysis that will allow firms to understand its markets and to plan their competitive strategies.
- Identify how your rivals are positioned
Positioning is always comparative. Identifying how and in which markets rivals are competing can be a powerful strategic tool, helping the firm to rate other firms relative to itself. One facet of positioning is to be found in the various directories that rank law firms by reputation and skills in key areas.
Positioning can also be seen in the sorts of clients rivals act for, their pricing strategies and what they say about themselves on their websites. It is also worthwhile profiling the business models of competitors to know where and how the firm can compete with them. Are they volume providers, mid-market players or guru-style specialists? How dominant are they? What seems to be their positioning on pricing?
- Analyse the resources and capabilities of rival firms
Size is not everything, but I am frequently surprised how little firms know about each other and, in particular, about the size and make-up of their competitors’ teams, the skills that they bring to bear (and their skills gaps), their profitability and even their culture. Most, but not all, of these features can be obtained readily from your own desk.
In addition, clients, referrers, former partners and past employees can also be tapped for knowledge. Client interviews can ask how clients rate competitors and why. Formal tender feedback can also help.
It can also be fruitful to analyse the strengths and weaknesses of rival support teams – you need to be very watchful of firms that are investing strongly in training, knowledge management, systems and process improvements, for example.
The key here is to maximise the benefits from the areas where your firm is stronger than its competitors and to work hard on areas where it is weaker. Equally, if your firm’s business development drive can be focused on areas and offerings where rivals are weak, it makes it difficult for those rivals to respond.
- Assess your rivals’ strategic, financial and market goals
Particularly for practice groups, competitors’ levels of activity in their chosen marketplaces can give important clues about their strategies. Growth in numbers, interesting lateral hires and team acquisitions provide evidence of a firm’s confidence in its future and its markets.
Marketing, profile-raising and promotional activities can show anything from complacency (where activity is low) through to aggression and drive (where activity is high). Many firms generate a lot of self-publicity, which can be an excellent source of competitive information. Statements by firm leaders often show what is important to their firms and whether they are driven by financial results or the pursuit of market share.
The current performance of rivals is difficult to assess without insider knowledge, but radical strategic change, accompanied by a change in the firm’s leadership, can indicate that performance levels may be falling.
A stunning year, a key new hire or a merger may well have given your firm a temporary advantage in the eyes of clients, but other firms will be progressing their strategies as well. What’s more, it is extremely difficult for a law firm to achieve true differentiation; a deep understanding of the intensity, dimension and drivers of competitors is key to success.
Law firms therefore ought to have Sun Tzu’s words from the Art of War committed to memory: “If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle”.