The Strategic Law Firm

February 6, 2011

SPurani | I recently had the pleasure of speaking with Duncan Hart, a seasoned Duncan Hartsolicitor, barrister, and strategic management consultant, as he shared insights stemming from his decade-long tenure as managing partner of a ten-partner legal practice and as Regional Managing Director of one of Australia’s largest law firms.  Duncan has written about his experiences and presents a strategic management methodology for globally focused law firms and legal organizations in his new book ‘The Strategic Law Firm”.

We had a great conversation which encompassed not only his views and expertise on the management issues law firms are faced with today, but also about the methodology he suggests should be employed by firms he writes about in his book.

Innovation is one of the themes covered in the text, and when asked about what he curiously refers to as ‘disruptive’ innovations, he discusses how legal outsourcing fits into the innovation picture for firms as they look toThe Strategic Law Firm sharpen their competitive edge in the legal services marketplace.  It seems legal process outsourcing presents itself as just the right type of disruption a firm needs to re-visit it’s strategic business model if it hasn’t already.

LPOSavvy: Duncan, I appreciate you taking some time out of your schedule to discuss your new book, The Strategic Law Firm.  My readers will appreciate your perspective and I’m sure will have much to take away upon reading it.
Can you describe a little about your background and how it enables you to write The Strategic Law Firm.  I understand you take your own professional experiences and have applied them in the book, correct?

DHart: Certainly my 30 plus years in the law in various firms ranging from 5 to 200 partners has provided a rich vein of experience to mine from. When I finally resigned as a managing partner of an international firm in 2002 and set up my own consultancy I was interested in how others tackled similar issues to those I had struggled with over the years and those assignments have taken me all over the world. It would be a mistake however to confine the learnings that I have attempted to capture in this book as being derived solely from the legal sector – it owes a heavy debt to management theory and practice derived from a very wide range of industries and much to those who have written about organizational change and the development and implementation of strategy.

LPOSavvy: How do you envision the legal profession evolving in the coming years?  And why is it necessary to enact the methodology you have laid out in the book?

DHart: One of the main ideas developed in my book is a plea for, and a discussion about, ‘tools’ that firms can utilize to better understand how and most importantly why they are organized and structured. Most firms still subscribe to a few very basic strategies in developing their practices particularly around growth, leverage and the like. More thoughtful firms are far more nuanced and reflective about what areas of law they practice in and look to consider a wide range of possible business models in considering where and how to develop their practices. My prediction is that it is those firms that will develop the necessary flexibility and resilience to withstand the greater volatility that is evident in our wider economy.

LPOSavvy: You have applied an interesting methodology in the approach firms should take in assessing and implementing change in their organizations.  Do you feel that firms are not looking at themselves in this manner already?

DHart: All of the nine key elements in the business model analysis approach I have used are all, at some time or other prominent in any managing partner’s mind. The merit of considering all of those elements simultaneously and developing your strategy accordingly is the strength of the business model approach. Most of us realise that all the key elements are related but often act as though they aren’t – pricing is an excellent example. Just as importantly as understanding this approach is appreciating how useful it is in getting across to all of the firm’s teams the key messages and actions that need to be implemented if the firm as a whole is to move towards its preferred objectives. It is therefore
• a useful analytical tool
• a terrific means of communicating and building consensus
• drives outcomes within firms.

LPOSavvy: You write of the need for the firm’s need to innovate to remain competitive, yet you feel that that there are disruptive models that should be avoided.   Are there some examples that come to your mind that demonstrates your thinking in terms of how to innovate effectively?

DHart: Not at all – firms can choose to be innovative by adopting ‘disruptive models’ as Clay Christensen uses the term – at the very least they must always be scanning the horizon for emerging models that may impact their business. I give outsourcing a good deal of prominence in this area because I see it as genuinely disruptive and firms ignore such innovations at their peril.

LPOSavvy: So by Disruptive, you actually mean it as a positive for firms to seek out?  Can you speak a little about how you see outsourcing as an innovation yet as a disruptive one?

DHart: By disruptive I mean innovations that may fundamentally undermine the model firms are working on currently – that model relies very heavily on generating profits from highly leveraged junior lawyers. If that opportunity is denied to the firm because of outsourcing by a client then the whole current model faces disruption. An analogy would be the impact of Craig’s list on the classified advertising profit component of daily newspapers. Attack the classifieds and suddenly the whole model of the metropolitan daily falls – it is no longer sustainable.
Outsourcing is not just an innovation at the margins therefore- a mere operational efficiency that firms can chose to adopt or not. It has the potential to provide clients with the ability to seek far cheaper advice with much less involvement of their usual on-shore advisers. Now firms must take that threat very seriously indeed – some will chose to set up their own captives and attempt to leverage profit from utilizing those resources but even if they do the client is going to want to see a much more attractive pricing thus reducing the scope for leverage to the extent it is enjoyed today.

LPOSavvy: There are some who may feel they do not have a reason to revisit and/or tweak their business model.  What would you say to the successful firm that has a strong track record of growth yet is feeling the pinch in today’s economic environment?

DHart: If economic history has anything to teach us it is that ‘creative destruction’ is a fact of life – this is most clearly demonstrated in the continual evolvement of new models and the demise of whole industries that hung on too long to the ‘old model’. The core message is to know upon what key assumptions your model and its continued success is based. If those key assumptions look shaky then you have a choice – either you change your model which may require quite dramatic innovation or, as many firms decide to do , they grimly hang on hoping that they will make it to the ‘retirement line’ before they actually have to do something about the way they do business.

LPOSavvy: You have a chapter dedicated to the role outsourcing may play in a firms strategy.  What type of role do you foresee legal process outsourcing playing in the global legal services industry?   To your mind is there a less-than-obvious impact that LPO will play moving forward?

DHart: When one looks across the tectonic changes that have arisen as a result of ‘outsourcing’ in the world of manufacturing and speculate that services may well experience something similar, it is hard to point to ‘less than obvious’ factors. Let me speculate however on the possibility that if the economic centre of gravity continues to moves eastwards then the ‘rules of the game’ will be increasingly out of our hands. We have a tendency to think issues of this type can be managed by our own institutions, laws and practices or at least those that have been dominated by the West since WW2 – this will almost certainly not be the case.

LPOSavvy: That’s an interesting thought.  So do you feel that the ‘west’ should proceed cautiously when pursuing legal outsourcing?  In a sense perhaps some sort of regulatory mechanism to control the ‘rules’?

DHart: I think the existing centers of legal innovation and advice ‘the west’, will find as economic growth is more evenly shared across the globe, i.e. moves ‘east’, it  less able to control the levers of regulation or institutional control it might have turned to in the past. India and China will increasingly set the rules they want to play by as will no doubt Brazil etc. If as some predict ‘Chindia’ becomes pre-eminent, we in the ‘west’ may be pleased to be the outsourced agents serving clients and law firms in the east! Again there are ready examples like Toyota/Sony and Lenovo not to mention Mittel where western firms and governments are falling over themselves to have these companies set up in their cities, act as their distributors etc. Why will the law be so very different??? We can see trends in medical services being provided far more cheaply in some countries than at the ridiculous prices similar treatments are provided in our own countries.

The real message therefore is to understand what impact outsourcing will have on your clients and hence business model. Be creative in understanding how it might be utilized to your advantage and take your client’s on the journey rather them set off without you. Manufacturers source their inputs from all over the world – we have nothing to be shy about in expanding our horizons to include clients and outsourcers wherever they may be located. We will only fail if we cling doggedly to the old ‘gas guzzling models’ when the real growth lies elsewhere and could be just as profitable. Sure there are different skills to be applied, concerns about quality etc but if Wal-Mart and 1000s of manufacturers both large and small can manage why can’t we? In the final analysis the client’s will vote with their feet and pocket books – I doubt a return to ‘protectionist’ policies will work and I for one would prefer to take a more aggressive approach.

LPOSavvy: How would you tailor your advice to small and medium sized firms versus the larger law firms? What are the types of things smaller firms should take into account that applies to them?

DHart: As with the development of ICT technologies [information and communication technology] outsourcing provides a great opportunity to level the playing field if the firm, no matter what its size can develop the right skills to manage such relationships. Size is a very uncertain metric; I would be more focused on the client base, type of work and capability of the practice or more specifically the ‘team’ concerned. One of the other key concepts I explore in the book is the ‘large firm’ which is less than the sum of its parts because of its disjointed and largely unworkable business model. Small firms if sufficiently focused are in an excellent position to promote the benefits of outsourcing to their clients.

LPOSavvy: How would your approach to molding appropriate revenue models apply to the growing legal process outsourcing industry? Are there aspects that are transferrable to that area of legal services?

DHart: This is an area I have insufficient data to really offer much. The strongest models I have seen appear to be those where the outsourcer is dealing directly with the client rather than through a law firm as such. Certainly the larger outsourcers are moving in that direction and becoming extensions of the corporation’s in-house legal department. This promotes longer term contractual relationships, better management from both perspectives and more transparency in revenue streams.

LPOSavvy: Is there anything that surprises you the most about the evolution of legal outsourcing?

DHart: Most of the factors that are leading to its growth have been widely predicted. What is surprising is how, in recent years, there has been almost a ‘perfect storm’ of events which will give that change a mighty big push! I refer here to ICT, the learnings of the outsourcing model in the manufacturing arena, the emerging strengths of eastern economies, the huge supply of unemployed graduates, the financial/debt crisis in the West, globalization of markets and deregulation in the UK.

LPOSavvy: What kinds of insight can you give to LPO managers as they cater their services to the types of firms who follow the methodology you write about in the book?

DHart: The key messages about examination of a firm’s business model which enables them to see clearly where LPO can assist them combined with an understanding about how they can be adversely impacted if they don’t appreciate the likely impact of outsourcing on their model are the biggest ‘take-outs’. I reflect upon the relatively slow introduction of ICT in the legal profession in the 70s/80s – most saw it as merely a productivity enhancer for generating increased typing output and getting the invoices out at the end of the month! Let’s hope the profession has developed a more aggressive and perceptive attitude toward such innovations as LPO represents in the 21st century.

Read more: The Strategic Law Firm


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