Scenarios for the Legal Industry

The 23rd Legal Marketing Association annual meeting begins April 1, 2009 at the Gaylord Conference Center on the Potomac. Conference attendees will be tweeting from the conference at #LMA. LMA has asked speakers to share some of their materials with those who will be following these tweets. Good idea! And so . . .

On Wednesday morning, April 1, 2009, Bill Fiora of Nixon Peabody, Ann Lee Gibson (of Ann Lee Gibson Consulting) and I (Ken Sawka of Outward Insights) will lead a three-hour workshop on scenario-based strategic planning for senior law firm marketing professionals. Below is a summary of four possible futures we have developed for participants' use during the session. Working in small groups, they will identify core and contingent strategies for success under the different scenarios and challenge their own and others' assumptions and strategies. In doing so, they will explore how scenario-based strategic planning enables organizations to develop strategies for future competitive success that start with the premise that the future is unknowable and unpredictable. Instead of basing strategy on a single, preferred vision of the future (which has a zero percent chance of actually coming true), scenario-based strategic planning enables organizations to explore multiple, plausible futures, and to set strategies that address numerous threats and opportunities.

Each of the following scenarios describes a possible future for the legal industry intersecting somewhere between two dimensions: (1) timing of economic recovery (early 2010 vs. 2011-12) and (2) legal services delivery models (aggregated vs. disaggregated). The scenarios are summarized below.

Note to workshop participants: You will receive and work with scenarios that are much more detailed than the following summaries.

Scenario #1 -- The Great Pretenders describes a world where economic recovery begins in early 2010, the earliest anyone now hopes for. Global M&A activity, one of the earliest indicators of the recovery, surges as market-leading companies and those with large cash reserves acquire competitors and suppliers weakened by the recession. The strong are eating the weak and getting even stronger.

In this world, law firm leaders feel they have made it through the tough times and look forward to life as they once knew it. The recession was tough, but it encouraged necessary discipline and weeded out the weak. 2010 promises to produce the most law firm mergers and acquisitions ever recorded.

Scenario #2 -- Shattered! describes a legal industry dramatically altered by a perfect storm of events that created a PR nightmare for BigLaw. In this possible future, the recession’s impacts on the legal industry pale in comparison to other events that also grabbed the public’s attention. Inside BigLaw, the survivors of the 2008-09 layoffs still suffer from depression and guilt. In 2009, a runaway bestseller and a summer HBO TV series set the stage for a Wall Street BigLaw disaster fueled by debauchery and hubris. One of America’s most respected law firms has been brought very low, rocking New York society and BigLaw to its core. Law firms may never be the same.

As a result, the legal industry is reversing its bigger-is-better trend. Dozens of start-up law firms, prospering mid-sized and regional firms, mega-networks of telecommuting lawyers, and new legal vendors leap into the breach. It’s possible the growing economic recovery will allow BigLaw to repair its embattled reputation and rule again, but one thing everybody understands is that for the first time in a long time BigLaw has many serious competitors.

Scenario #3 -- The Big Chill is a future where the hoped-for 2010 recovery has not appeared and does not seem imminent. All governments and economists now agree the recovery will not appear until 2011 or later. Federal stimulus plans have dramatically slowed home foreclosures, but failed to thaw banks’ lending practices. The only bright spot in the corporate legal services market comes from the huge corporate M&A deals being struck in pharma, transportation, real estate, and energy at enormous fire-sale prices.

Corporate legal clients have much smaller legal budgets, but still face an overwhelming burden of legal issues, including bankruptcy, financing, litigation, and regulatory changes. In response, all firms survive by cutting costs to the bone and learn to compete on price. The largest companies discover they have no energy to deal with scores of smaller firms. The exchange of large amounts of commodity work for law firms and the BigLaw promise of safety for corporations becomes the two-ingredient glue that keeps big companies with big law firms. It is a painful time, particularly for legal vendors. Competition becomes cut-throat, pitting firm against firm—and in a surprising twist, some firms against some clients.

Scenario #4 -- Davids vs. Goliaths sees corporate legal clients having a radically different response to the continuing economic deep freeze. In a world already full of risk, they see little extra risk in moving from one law firm to another. All relationships are up for grabs. Some clients cancel their convergence programs, turning to procurement agents or consultants to deliver the best combination of price and expertise on each matter.

The legal industry is rapidly disaggregating. The fiction that big firms could develop and benefit from economies of scale is now seen for the naked emperor it always was. In BigLaw, some of the biggest rainmakers decide they’d rather not share their pie, and form their own boutique firms. In fact, new firms of all kinds are sprouting up all over. Technology vendors reorganize to provide turnkey services and compete directly with firms. Many law firms outsource everything but their most core legal services. Clients are buying legal services directly from India and China. The only certainty is that this is a time for pragmatists, not purists. Everyone who hopes to survive this era is now brutally scrutinizing their beliefs, styles, processes, and goals.

Coping Mechanisms for Future Uncertainty

Frustrations abound over most organizations’ inability to effectively deal with future uncertainty, despite a general awareness of the sources of such uncertainty. How can organizations better counter unexpected external developments and surprises?

At the Frost & Sullivan Growth, Innovation and Leadership Executive Congress (San Francisco, September 15-16 2008) I asked 25 director, VP and C-level executives to identify the major sources of strategic surprise in their external environments. The key sources of surprise included:

• Rapid technology advances

• Unforeseen customer demands and needs

• Economic conditions

• Competitor activities and behavior

Perhaps as frustrating as the recurrence of such developments is the near-total lack of control companies have over them. Furthermore, there was widespread agreement that the time and resources firms spend on monitoring the external environment was grossly out of proportion with the time and money spend tracking internal information, further contributing to this “lack of control” feeling.

Similarly, the coping mechanisms companies use to deal with external surprise were fairly consistent -- but deemed, for the most part, to be ineffective. They include conducting ad hoc research studies, conducting one-off brainstorming sessions, and, sadly, doing nothing.

Conduct research. When faced with unforeseen external developments and an urgent need to take action, many companies retrench behind a facade of more information. Consultant studies, project-based research and other variations of data accumulation failed, according to the executives, to yield a greater understanding of the implications of the external events, nor a stronger sense about what to do. Instead, research and data gathering led to a state of “analysis paralysis” that further acerbated the feeling of frustration and hopelessness over companies’ ability to deal with external stimuli.

Brainstorming sessions. While the variety of strategy workshops, brainstorming sessions, and ideation groups tend to result in innovative solutions and approaches for uncertainty management, the transition from idea generation to implementation is weak. The main reason? Lack of clear ownership of response tactics targeted at addressing competitive environment surprise.

Do nothing. Not surprisingly, the least effective approach. Nevertheless, it is not uncommon for companies to ignore external surprises in the hope that they will simply go away.

What, then, can companies do? I believe there are three ingredients to maintaining an effective posture against future competitive uncertainty.

Avoid -- or at least minimize -- surprise in the first place. Companies can begin to reverse the imbalance between external versus internal information monitoring by pursuing an indicator-based intelligence early warning system. Such a process helps organize external intelligence gathering against a set of indicators, or signposts of future change, for which significance has been determined and a strategic response already decided.

Develop flexible strategies. By employing techniques such as scenario-based strategic planning, companies can pursue strategic plans that have flexibility built in, allowing for rapid responses to unforeseen developments within a consistent overall strategic framework.

Link intelligence analysis with strategy implementation. Organizations must ensure that intelligence insights can quickly be communicated to those responsible for owning strategic response implementation. Keeping intelligence gathering and analysis several layers beneath strategic implementation will ensure that relevant insights never get the chance to influence strategic response.

Competitive Intelligence Driving More Corporate Decisions

It's a classic good news / bad news report: more US corporations are using competitive intelligence to drive critical strategic and tactical decisions than ever before, but an alarming number of companies still do not have structured way to deliver intelligence to decision-makers in their organizations. Is the chasm between companies that value CI and those that don’t growing?

Outward Insights conducted its second “Ostriches and Eagles” CI best practices survey, which gauges the effectiveness and use of CI among US companies across industries. The first survey was conducted in 2005. The biggest finding this time around? More and more companies are “getting” the value of competitive intelligence. Most reassuring was the growth among respondents who said that CI was “an integral part of operational or tactical decisions” over the 2005 survey.

Another positive finding was the 72% of respondents that claimed to use CI to “anticipate and thwart competitor strategies” compared with 64% in 2005. This uptick reflects the increasing value executives place in the early warning applications of competitive intelligence.
Among other key findings:

• More respondents (28%) integrate likely competitor reactions into their plans for launching new products than in 2005 (21%)
• The use of scenario planning nearly doubled from 30% in 2005 to 59% this year
• The percentage of respondents who believe CI is “an integral part of the strategic planning process” was at 85%, the same as in 2005.

Despite these findings, obstacles still impede corporations from realizing the full value of competitive intelligence. For example, the survey found that nearly half of respondents say that their CI programs are not sufficiently funded. In addition, 37% of respondents said that CI does not have “sufficient stature” within their organizations. The gains that are evident in the strategic application of CI may be short-lived if these programs are not funded adequately and given proper stature in the organization. The survey also found that almost one in five executives believes that senior managers do not value the competitive intelligence they receive, and 24% of respondents said that their companies lack a formal CI process altogether.

There were some notable differences in the responses from the seven industry groups surveyed: consumer products, energy, financial services, insurance, high-tech, manufacturing, and pharmaceuticals. For example, consumer products companies were least likely to have an organized intelligence function (62% vs. 76% of all respondents), while energy companies were least likely to make CI an integral part of their strategic planning process (71% vs 85% of all respondents).

We conducted the survey in June and July 2008. The survey consisted of telephone interviews with 100 senior executives at US corporations. More than two-thirds of the companies participating had revenues of $1 billion or greater. To request a complete survey report, contact us at info@outwardinsights.com.