Law Firm Leadership and Change Management
Change is usually driven by realization or suffering. Because humans are hard-wired to resist change, this means that an individual or an organization will only change if they have a compelling vision of the outcome if they have suffered enough in their current situation.
Change affects all parts of an organization or a system. In law firms specifically, any change will ultimately affect the people, processes, and tools that handle the firm’s work.
The many challenges brought forth by innovation and growth are more likely to drive radical levels of change in law firms that have newer, developing cultures. The people within the firm are not overly attached to the particular firm processes or tools requiring change, and they realize the benefits change can bring. Changes made through realization allow this firm to take corrective action sooner in the process when more options are available.
In firms with more established cultures and processes that “have always worked”, these challenges will only lead to change after the firm has dealt with some level of pain and suffering. For instance, when a firm ignores certain challenges, the firm may develop deficiencies in their service abilities or caliber of attorneys. When these deficiencies are not addressed or corrected in a timely manner, financial distress is a common consequence that causes additional suffering.
While not all change is good or even necessary, managing change is essential.
Change in Law Firms
Change in law firms happens for rational and irrational reasons. It is foolish to ignore the impact of personal challenges in the lives of the equity members, key lawyers and staff. These challenges can drive more change in a law firm than any market innovation or other disruption. As it is impossible to fully anticipate these types of changes or even effectively manage them the longer they persist, productive change can only happen in stable environments.
Productive change in law firms is often the result of market disruptions in supply or demand. For example, a tight labor market will force firms to increase wages and improve working conditions to ensure they can recruit and retain the best fit legal and administrative talent.
Most law firm management teams can respond to a single change in market factors but struggle when faced with multiple challenges. Assume the tight labor market also comes with downward pricing pressure. If the firm’s most powerful partners have lower margin books of business, the firm is facing a real headwind in trying to make productive change.
In this instance, change through realization may require improvements to financial reporting and changes to compensation and incentive plans. Anyone who has managed a law firm for any period knows how difficult it is to implement these types of changes. Most firms have to suffer economically before making real change. Sometimes, change is made in time for the firm to endure. Other times, change is made to late or not at all and the firm fails.
Organizational changes affect people, processes and/or tools.
People-related changes include job duty redefinition, responsibility shifts, retraining, replacements or staff reduction.
Process-related changes entail eliminating, redefining or adding procedures and workflows.
Tool-related changes often include replacement or addition of technology.
Unfortunately, law firm managers do not always see the need for change in response to a growing challenge or issue. Denying, ignoring or simply missing new realities are familiar mindsets. The law firm industry and the legal market are constantly changing. For all but a few, sooner or later competitive strengths and advantages are neutralized and firms can fall behind.
When ignoring important developments and simply sticking to what has worked in the past, leaders risk their firm’s long-term competitiveness. Arrogance due to past and current success can become detrimental to the firm’s future. Other leaders lose sight of the big picture and miss warning signs, due to busy schedules including legal work demands and day-to-day operations management. In baseball, there is an old saying that a slump follows a hot streak, and law firms are no different.
Strategic planning is a critical element of law firm management that allows a firm to anticipate developments and necessary changes early on to avoid issues that can be detrimental to the firm’s health. Ultimately, strategic planning entails a continuous evaluation of the firm’s competitive position in the legal industry and market under consideration of the external and internal environment of the business. Most firms suffer from weak strategic planning processes and tools.
The identification and resulting forced recognition of industry and market trends is an important exercise to understand the external environment of the firm. Trends can pose challenges and/or opportunities. It is the firm leadership’s responsibility to recognize them as such and develop corresponding goals and objectives. An analysis of the political, economic, social and technological environment of the firm, PEST Analysis, can support this exercise.
While it is crucial for the management team to understand how external rends will affect the law firm, it is equally important to address the internal environment of the organization. Challenges and issues are typically related to people, processes or tools and can negatively affect performance related to productivity, communication, collaboration, case management and client service, cash flow, and marketing.
A simple SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis considers both internal and external factors and is a helpful tool to understand current and potential challenges and to determine ways to overcome them. Some major challenges that law firms currently face are billing, collections and cash flow shortages, pressure on rates, technology adoption, client acquisition, as well as attorney development and senior partner transition.
Formulating strategic and financial goals and objectives after completing internal and external environmental assessments to give direction to change efforts is recommended. While change often happens in immediate response to a crisis, it will properly sustain or increase competitiveness when driven by a strategic plan in anticipation of growing challenges and opportunities. A high-level strategic plan should at least address the following areas:
Vision and Mission
Internal and Competitive Strengths
Financial and Strategic Goals
The idea behind these plans is to show where the firm is now and where the firm wants to go, in other words, a comparison of the current versus the desired state of the firm.
Transformation plans are concerned with the definition and scheduling of necessary changes on a near-radical basis. These change initiatives should be informed by the strategic plan, which gives direction as well as a definition of the desired performance. Consider the variety of areas that transformation plans can cover:
Training and Development
Billing and Accounting
Billings, Collections and Cash Flow
Financial Reporting and KPI’s
Data Capture and Control Environment
Marketing and Business Development
Client Acquisition and Retention
Growth and Expansion
Market Demand and Client Needs
Practice Area Diversification
Infrastructure and Appliances
Technology Updates and Adoption
Applications and Processes
Compensation and Incentives
Recruiting and Retention
Firm Definition (vision, mission, values and culture)
Partner Transition and Retirement
Capacity and Capability
Orderly Transfer of Equity
An extensive transformation plan can be overwhelming for firm leadership. A successful implementation, therefore, demands a proper change management skill set from those in charge. Important components include industry and market knowledge, project planning skills, and forecasting and budgeting support. Firm leaders also must not underestimate the importance of organizational thinking and commitment (rather than personal fear) as aspects of effective change management.
Transforming a law firm, strategic group or even a process is usually painful and exhilarating at the same time. It always requires a great deal of energy. In many cases, the implementation of the transformation plan and achieving productive change fail for these reasons.
When managers and leaders achieve thinking organizationally, they understand the law firm as the sum of its members. Its performance, therefore, depends on each member’s ability to contribute to the firm’s mission and goals. It is management’s duty to assess whether their people, processes, and tools are in optimal condition to achieve the organization’s goals and meet expectations.
Leaders need to ensure and sustain a commitment to a transformation throughout the implementation of the plan. Firms with multiple leaders or managers have to address commitment throughout their ranks first. In other words, they need to be on the same page, which is no small feat.
Regarding the rest of the organization, understanding and communicating how planned changes will affect people, processes and tools will help individual members and the entire firm prepare for new and often unknown approaches to their work. Leaders need to communicate a positive vision of the future to minimize resistance to change.
A detailed plan addressing high-level strategic goals and specific tactical components is helpful to anticipate the scope of change. On the strategic level, a good transformation plan is informed by clear definitions of challenges or performance issues, as well as SMART (Specific, Measurable, Attainable, Relevant, Timely) goals to overcome them.
On the tactical level, responsibilities, tasks, checklists, timelines, and milestones are all necessary to ensure a complete and timely plan implementation. Tools like automated surveys, interviews, reports and performance metrics to measure outcomes can ensure the plan is understandable and relevant.
Whether you are trying to make incremental changes or implement a full-blown transformation plan, a proven process, quality tools, and experienced advice can determine success or failure. Often the timeframe for change is short and waiting is usually a bad choice.
About the Authors:
Brian Kennel (L) is Law Firm Management Consultant providing advice and implementation support for improving law firm operating results. As CEO and Lead Consultant at PerfomLaw he understands the opportunities & challenges that exist in law firms.
Jan Sander is Process Analyst at PerformLaw. Jan focuses on the development of operational processes to improve effectiveness and efficiency in key areas including: associate and partner performance, growth management, marketing planning, practice planning, strategic, transition and transformation planning.