The race to second place

by Timothy B. Corcoran on August 7, 2012

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In a recent post I casually referred to law firms’ tendency to race to be second.  Perhaps it’s due to Olympic Games fever, a time when each nation celebrates the accumulation of first place gold medals, but I had several offline requests for clarification on this point because my characterization was not fully embraced.  As one writer suggested, “Every lawyer I know is extremely competitive and hates to lose.”  So why would I suggest that some lawyers would prefer not to win a competition?

In business school jargon, the benefit of being first to market is called the “first mover advantage.”  Simply put, a provider of goods and services that reaches a new market first has an opportunity to establish a dominant position, perhaps establish a brand standard that all followers must overcome, and ideally harvest significant profits before followers can gain a foothold.  There are numerous examples of companies launching something so new and creative, sometimes creating an entirely new category, that it leads to astounding growth before others catch on and offer competing offerings.  Think of Crocs, for example.  In a very short time frame, these low-cost, low-maintenance comfortable casual shoes rocketed from obscurity to over one billion dollars in revenue (CROX). (No, I don’t wear them myself, but I can respect their market position nonetheless!)

Law firms have, at times, sought to be first to establish an office in a foreign jurisdiction, for example, or launched an innovative new practice.  But by and large the well-documented risk-aversion that characterizes most lawyers leads to caution rather than speed when it comes to innovation in business practices.  (See here for multiple observations on this topic from noted management consultant Rees Morrison.)  This notion is illustrated in an undoubtedly apocryphal and now outdated anecdote in which a managing partner reading the American Lawyer survey results in the summer of 2000 notes the significant increase in Y2K practices in competing law firms over the past year, and declares to his colleagues that “the practice is now mature enough for us to enter.”   (Translation for our younger readers: Y2K practices had to do with the mitigation of risk in the transformation of dates in computer code from a 19xx scheme to a 20xx scheme, an effort leading up to and essentially concluding with the turn of the clock from December 31, 1999 to January 1, 2000.)

Experienced managers will quickly note another business school concept known interchangeably as the “first mover disadvantage” or the “second mover advantage.”  Many companies have achieved a dominant market position not by being first to market, but by improving upon earlier but lower quality entrants.  Apple, for example, launched the iPod and nearly overnight eliminated dozens of weaker competitors in the portable MP3 digital music category.  It then did the same with the iPad to achieve dominance in the tablet PC category.   This is the same Apple that first offered a personal desktop computer and a graphical user interface, neither of which helped the company escape a market position that was a mere rounding error to Wintel machines’ market share for over 20 years.  Apple is rightfully lauded for its innovation, but in not all cases has it been first to market.  First movers sometimes invest huge sums of capital to create a new category, only to watch later entrants incorporate newer technology or processes and achieve a better market position and better profits.  Racing aficionados know this as drafting, the technique of sliding behind a competitor to reduce wind resistance.

My comment about the race to be second was a reference to law firms’ tendency to risk aversion, not lauding them for cleverly waiting to embrace a second mover advantage.  In some markets, it’s only clear after the fact whether it was smarter to have moved first or to have waited until others paved the way.  But in today’s evolving market, law firm leaders’ reluctance to embrace legal project management, alternative fee arrangements, continuous improvement, client satisfaction programs and sophisticated business development programs are examples of law firms purposely lagging so as not to be too ahead of the market, in many cases because the lawyer-leaders hope for a return to normalcy that will eliminate the need for hasty and disruptive changes.  The message could not be clearer:  law firms that lag in adapting to the new normal will have a significant competitive disadvantage.  The appearance of Legal Process Outsourcing (LPO) providers is just one example of law firm clients seeking an alternative when the usual supplier, the typical large law firm, is unwilling or unable to adapt with sufficient speed.

The reluctance to invest and adapt is, at times, more than mere risk aversion, it’s a deep-seated belief in precedent.  Lawyers who lead firms are trained in the importance of precedent, and absent a clear demonstration of a new business model working effectively in a firm much like their own, these leaders are content to take a wait-and-see approach.  Or they dismiss the notion of change as unnecessary, as Bruce MacEwen in his recent interview with an LPO executive suggests, “Firms (not all, but the vast majority) will point out that their model has worked brilliantly for a century and will be comfortable dismissing the threat; analysis will stop right there.”

What is tomorrow’s leading law firm?  Will it look like the successful law firm of today?  Will it even be characterized as a law firm, in the traditional meaning of the phrase, or is it more likely to be a business providing exceptional legal services to clients who are, not surprisingly, less concerned with protecting the legal guild and more concerned with their own productivity and profits?  No one can say with certainty.  But for those lawyers with a competitive streak, weary of sitting on the sidelines and allowing others to dictate the future of legal services delivery, perhaps it’s helpful to heed the words of Ricky Bobby, “If you’re not first, you’re last.”

 

Timothy B. Corcoran delivers keynote presentations and conducts workshops to help lawyers, in-house counsel and legal service providers profit in a time of great change.  To inquire about his services, contact him at +1.609.557.7311 or at tim@corcoranconsultinggroup.com.

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Mike O'Horo August 7, 2012 at 7:34 pm

I think the key to all of the laggard issues you cite resides in the last sentence of your penultimate paragraph: “…their model has worked brilliantly for a century.”

The result of such sustained economic success is complacency. Not even the severe downturn of 2008, with its precipitous drop in legal service demand, motivated most law firms to re-evaluate the key elements of their business. Other than draconian cost-cutting and headcount-reduction, little changed meaningfully.

Most outside observers continue to scratch their heads at law’s denial that anything might be strained, much less broken. Hence, “If it ain’t broke, don’t fix it.”

I realize that my next comment risks being interpreted as that of a hammer, to which everything appears to be a nail. However, I’ll argue that business development is the canary in this coal mine, with particular emphasis on two factors:
1. Continued reliance on a part-time, untrained, volunteer sales force
2. An almost complete reluctance to place any serious business development expectations on partners, or, more pointedly, associates, and the related refusal to invest in BD skill development for either group.

There are two credible sales-force strategies available to law firms, both of which require abandoning the longstanding guild mentality that Tim cites in favor of the division-of-labor that enables predictable, sustainable revenue generation. Those are:
1. Create, train and reward a dedicated sales force without non-sales responsibilities. These can be willing, committed JDs trained for the purpose, or non-JD salespeople who team with JD content experts, much as it’s done in the enterprise software business.
2. Approach business development as analogous to litigation, i.e., where they get discrete contributions from a large number of people who each know their role, and know that their contribution is inherently necessary and, therefore, inherently valuable.

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