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.

1. 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?

2. 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.

3. 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.

True Differentiation

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”.

Playbooks Aren’t Just for Coaches!

For those of you who have had the patience (of Job!) to read my previous articles on law-firm differentiation and client-experience innovation, you have heard me extol the virtues of a “law-firm playbook.”

Team sports coaches create playbooks to write down on paper the tools, strategies, and methods their players will use to defeat their opposition. Similarly, a law-firm playbook can clarify for its own players – its lawyers – how they will help their clients “win.” It should be a thoughtful compilation of a firm’s own best practices, operating procedures, and way of doing business; it should emphasize the less obvious as well as the more conventional inputs that produce legal work; and it should tell a compelling story of process richness that lets the market know that good client experiences with your firm are no fluke.

So, build your own firm playbook! Below are some thought points I suggest our law firm clients keep in mind relative to playbook development.

Where to Begin? The best law-firm playbooks are comprehensive, and reveal to playbook readers (your lawyers, clients, perhaps prospects) the secret sauce of why your firm (or practice group) is different and, therefore, better. I encourage firms to start off their playbook planning by thinking about the three following firm or practice-group feature sets:

1. Compelling sources of differentiated value that are perceptible to clients when they rely on your work product; e.g., “We have arbitrated and never lost an investment manager ‘raiding’ case in ten years . . . .”
2. The different methods, processes, and structural attributes of your firm that, while not perceptible to your client, help you produce a better set of insights and better work product; e.g., “We are not a very leveraged firm by design, as most of our clients want our more senior lawyers to have more exposure to their matters . . . .”
3. Areas of technology, process and structural innovation that will allow clients to consume your service differently; e.g., “We have a documented and technology-supported matter-management process on which all lawyers are trained from Day One, so that clients know that no hour will be invested in a client’s matter casually . . ..”

Identity Building Playbooks also shape and inform culture, and give your attorneys a unified sense of identity. As a result, lawyers will engage their prospects and clients with conviction.

Culture Building Playbooks don’t just reflect culture externally but rather help build it internally. When your lawyers read a cogent formulation of your firm’s way of doing business they will mobilize around it and reflect it.

Example Playbook Structure

• Unique M&A Transaction Structuring Strategies
  • Engineer the deal structure from the earn-out backwards
  • Using an expert system to support due diligence contract review
• Proactive Client Value Management
  • Authoring a tailored ROI model that allows clients to determine return on investment in acquired companies, and legal fees associated with structuring acquisitions
  • Aggregating multiple data sources to help client with deal sourcing, not just deal execution
• Relationship Development & Management
  • “January meetings” – at the beginning of each year, require key clients to educate you about the priorities coming out of their annual planning process
  • Review annual departmental plans of your client to better understand the functional areas of the business (and, thereby, the legal work they likely generate) that are likely the most active internal clients of the law department
• Practice Innovation and Management
  • New service and product development function to create a pipeline of new capabilities to address emerging client problems
  • Shadowing the non-legal thought leaders and consultants to your clients’ industry sector to gain an early warning on new business gaps that need to be addressed

One-Firm Integration

The development of the playbook should be a collaborative and internally integrating exercise for your firm and its lawyers. Clients and prospects who know about the playbook and how it was developed will give your firm a lot of credit for having a “one-firm” integrated culture from which they will benefit as clients.

So . . . make your firm’s “secret sauce” a little less secret, and develop your own playbook. After all, playbooks aren’t just for coaches!