Letterman White Consulting The Business of Law. The Psychology of Business

Letterman White Consulting

The Business of Law. The Psychology of Business

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THE WAY WE DEFINE OUR PROBLEM INFLUENCES THE WAY WE SOLVE IT

Capacity Solutions Can’t Solve Complexity Problems

Susan Letterman White

Cutbacks in the number of associates, staff, and now partners along with reductions in salary, attempts to increase rates while delivering the same service, closing offices or hiring people just to generate enough cash-flow to cover rent are all examples of capacity solutions. Capacity solutions are best suited to solving capacity problems.

"Capacity problems are those that require more, fewer or different resources," Ron Ashkenas, managing partner of Robert H. Schaffer & Associates in Stamford, Conn., wrote in a blog post for Harvard Business Publishing. For example, if you have an abundance of a product at a profitable price that is in high demand by consumers, then you need sufficient resources to create and distribute the product to effectively meet the need and realize a reasonable profit.

LAW FIRMS FACE A COMPLEXITY PROBLEM

The problem faced by lawyers and law firms is often phrased in a way that makes it sound like a capacity problem, and, partly, it is. There are too many lawyers competing to sell something that is in low demand by the available pool of clients. It sounds like the solution is one of capacity. If we reduce the number of lawyers or increase the sale price, then the problems should be solved, right? But, what if we look deeper at the problem? Is it about resources or is it about the "something" that we are trying to sell and how we are trying to sell it? What if the organizations and people we want as clients do not want what we are trying to sell as strongly as we wish? This is a complexity problem. These types of problems require a "new thinking and a creative approach," Ashkenas wrote.

Complexity problems challenge us to think differently and make connections where they seem nonexistent. Ashkenas highlighted the capacity versus complexity perspective in considering the question of adding more troops to solve the problem in Afghanistan. Are the business problems of the legal community like the problem of Afghanistan, perhaps requiring both complexity and capacity solutions? What if we are we trying to solve a complexity problem with only a capacity solution?

Let's see whether analogizing the current problems of the legal profession to those in Afghanistan survives the straight-face test. I listened to Suzanne Zalvidar, a consultant who, in 2008, took part in a capacity development project in the public sector of Afghanistan. She assured me that Ashkenas' list of challenges in the country is accurate and consistent with her experiences. First, the country and culture is not well understood by those attempting to solve the problems. Second, there are internal challenges. These include tribal and local loyalties that are much stronger than allegiance to a central government, a history of fierce independence against foreign forces, tenacious adherence to the status quo and resistance to change, lack of economic opportunity and little experience with successful democratic institutions. How does the legal profession in the United States compare?

First, I don't believe that we, who are trying to find solutions, really understand the nuances, effects and power of our culture; i.e., the way we, as lawyers, get things done. Culture is expressed through our law firm structures and processes, the way we think and our individual values and goals. Culture is our hidden assumptions and subconscious beliefs that affect the way we perceive and feel about everything and ultimately motivate the actions we choose to take. We, who are trying to solve our problems, need to understand ourselves better.

Second, many of the internal challenges stem from the fiercely independent nature of lawyers. We, by nature and years of practice, tend to value our independence and autonomy more than our group membership in practice groups, law firms, regional groups or local, regional or national associations. This preference for autonomy is often further reinforced through the performance evaluations and compensation processes of law firms. Superimposed on this is our resistance to change, which we see in the length of time it takes to change the law and in our conservative and risk-averse choices that define our culture. Some would say that there is little economic opportunity and most would agree that opportunity is difficult to find. Finally, we've had little experience with doing things collaboratively, which means that if collaboration is needed to forge a meaningful solution, we will feel doubly challenged. All factors considered, I believe the analogy works and that both are pictures of complexity problems.

Philadelphia Bar Association Chancellor-elect Scott Cooper addressed the association Dec. 8. He identified the "forces coming to bear on our profession." These are not about the numbers of lawyers or the cost of services. The British will soon permit private equity investment into law firms and collaboration between lawyers and non-lawyers in business in ways that our ethical rules might discourage. The Australians already permit the public trade of law firm shares. Technology has already changed the way legal services are delivered. It has fueled the creation of the virtual law firm, has allowed lawyers to create products to license in place of delivering a service and created a platform for massive knowledge flow and interpersonal connection through social media. These forces join the corporate cutbacks in legal services. Does anyone really think that the best strategic response to these forces rests in changing the amount or type of resources we are already using? Kudos to Cooper for seeing this and offering the bar association as a partner in seeking out better solutions. One important question to ask ourselves: Will we be able to collaborate successfully and quickly enough?

3 RULES FOR RESOLVING A COMPLEXITY PROBLEM

There seems to be consensus that the old law firm models aren't working very well anymore, so why introduce a solution that "sets no incentives for better stuff to be made?" These words come from Umair Haque, who recently wrote about the "unnovation" of Google's introduction of Vevo for Harvard Business Publishing. The capacity solutions add to the inertia behind maintaining the status quo. We aren't going to find a better way of running the business of law until we stop reinforcing the current business models and engage in innovation. Reducing the costs of running our firms or changing the fees we charge our clients only reinforces the current business model. It may be a necessary step to bring us an opportunity to move into the future successfully, but it does not offer us a sustainable way to operate in tomorrow's world.

Here's the first rule of finding better solutions: The right solutions will set incentives for improving the business of law. The questions to ask about any change you're considering are this: What actions will this change incentivize? If we do this, what will happen? Ask these questions of any of the strategies listed in the first paragraph and compare it with Orrick Herrington & Sutcliffe's merit-based evaluations and compensation system and what do you learn?

The right solutions will be creative and, as Apple CEO Steve Jobs has been often quoted as saying, "Creativity is connecting things." The ways in which we connect Cooper's observations with our practice of law will matter. The way we answer the following question will also matter: What are the questions, problems and ideas that we can pull from different fields and how can we connect them? The reason I used the Afghanistan comparison was to spark a different way of defining and thinking about the problems we face.

Back to Haque's Vevo example. Vevo is like Hulu. It is another distribution channel for music, just like Hulu is for movies or TV. To paraphrase Haque, if we need new kinds of property rights, then we aren't going to fix the problem by building a solution directly on existing copyrights. If we need new legal service models, we aren't going to fix the problem by introducing solutions that reinforce the current ineffective models. In fact, we'll be left with nothing but an anachronism if the British, Australians, Axiom and Bryan Cave lawyers are right and we don't start thinking about catching up and building upon the ideas they have already generated. This brings us to the next rule for finding the right solution: The right solutions will deliver "thick value" to our clients. Haque defines thick value as sustainable, meaningful value in another post for Harvard Business Publishing.

Basic legal information is a commodity. It doesn't matter who delivers it and much of it is inexpensive or free. It's thin value.

There are questions to ask that will help locate the thick value in the legal service market. The way we answer these questions will matter. Is thick value in the counseling? If so, what are we doing to increase that value further? Is it in dispute resolution, the advocacy, the deep knowledge and analysis? If so, where is the deepest value in each? Who are your core clients? Which core clients will keep coming back and are prepared to invest heavily and for what return? This leads to another interesting question: Do boutique firms have an advantage in creating and delivering deep knowledge and analysis? What can you provide that is inimitable? Real value that clients want and need, distinguishable value that is inimitable, is thick value.

Value and values are closely interconnected. This brings us to the final rule for finding the right solution: The right solutions will align the truest values of the profession, deepest personal values of ourselves as lawyers, and the value we create for our clients. We can't be expected to deliver thick value if our own values are compromised in the process. At its core, what are the deepest principles supporting the practice of law? Which values does the profession bring to you? Compromise those principles and the result is unnovation and dilution of the very incentives needed to create and maintain a thriving business.

Share your ideas, thoughts and questions, and I'll compile a list to share with others until we collaboratively create multiple solutions to our complexity problems.

SusanLettermanWhite@gmail.com 610.331.2539