Did the downturn in the economy give you an opportunity to 'Rightsize'?
Why do we continue to tolerate slackers or unproductive processes? Come on admit it, you have some products, processes, employees, administrators, associates, partners, etc. that are sacred cows and do not carry their weight. Why do we keep them? In these times, we should be stacking the deck not slacking it. Did the downturn in the economy finally give you the ability to jettison the underachieving processes/workers, or are you still carrying them on your firm's balance sheet?
We have one brave guest blogger that gives us an great perspective as a former law firm CFO about tolerating slackers in a down economy. We also have an Alternative Fee, Information Technology, Internet Marketing, and Law Library perspective of how the downturn enabled some rightsizing within the structure of each of these areas.
Next week's Elephant Post question is listed at the end. Let me know if you'd like to try your hand at being a guest blogger (come on... you know you do!!)
Alternative Fee Arrangements Perspective
Size Doesn't Matter - Shape Does
From an AFA/KM perspective, success in the future is much less about having your firm resize (a.k.a. fire a bunch of people) than it is about re-shaping. For me the term 'Right-sizing' implies cutting unnecessary people and services to correspond to a lower volume of work (brought to us by The Recession). I feel the bigger opportunity here is to re-shape and restructure a firm to survive under new conditions. As Darwin aptly stated, it's not the fittest who survive change, it's the most adaptable.
So for me the real question is: Are law firms adapting? Are they reshaping to address a new environment? The short answer: No.
At an ILTA session last week on KM and AFAs, one attendee asked the question to those in the room: How many firms have altered their compensation system to encourage and motivate new behaviors? (Insert sound of crickets chirping.) Finally someone mentioned firms going away from lock-step associate pay systems. However this was dismissed (at least by me), since these new approaches primarily reward billable hours.
The Elephant in the Room on this issue is law firm compensation. The response from the ILTA crowd is indicative of the profession, as I have heard of zero firms making bold modifications to their compensation, such that entirely new behavior is rewarded. Absent a move like that: The Size diminishes, but the Shape remains the same.
It's Not About the "New Thing"... It's About Getting Rid of the "Old Thing"
Information Technology Perspective
The economic downturn certainly spurred a lot of attention on improving processes, realigning resources and putting greater focus on projects that support the firm’s direction. It also put a lot of pressure on resources. Like everyone else, IT is being asked to do more with less. Doing more work with less (resources, funding, time) makes it difficult to deliver the level of service already established. When doing more includes introducing new technology, you are greatly increasing the workload for those involved in implementing the change. And, you are also taking resources away from implementations already in place.
“The challenge of introducing the next “new thing” is not the new technology; the challenge is getting rid of old technology.”
Before implementing the next new thing, IT must consider whether we have the right resources to deliver it. Can IT re-purpose our current workforce to support the new thing? Yes, with time to learn new technologies and patience from our users, we can reshape IT as needed. However, re-purposing IT resources assumes that IT is able to do away with older technologies. This turns out to be one of the most difficult challenges. How do you stop working on and supporting the current tools in order to design, deploy and support the new thing? While we receive a lot of support for the movement toward the new thing, we struggle with the maintenance of our old systems, which has a negative impact on the entire enterprise.
Most IT shops were already running lean before the economic downturn. The downturn gave us an opportunity to educate ourselves and management on process improvement. It has given us an opportunity to re-purpose IT resources for better business alignment. Along the way, we have found a few IT personnel that did not want to be part of the new process. For those few, time is limited (if they are even still with us). With some patience, communication, support and opportunity, I am encouraged to report that IT is moving in the right direction. It is a slow process, mainly because we need to continue to support the care and feeding of systems that are being replaced but have not yet been retired. In this case the elephant in the room is not the new thing, it’s the old thing that we cannot seem to jettison.“The cost of supporting old systems while introducing new systems with the same amount of resources is the cost of time.”
Internet Marketing Perspective
Show Me the Money!
For IMM, the essential response always "is _X_ driving traffic to our site"?
A huge proponent of measuring results, if a product is not driving traffic to the site I am going to want to cut it.
Yes, there is some value in brand awareness, but when you are slashing to save, any activity that doesn't give me some tangible return on my investment is not going to make it during these kinds of times.
Law Library Perspective
Tell Me… Is It Nice, Needed, or Necessary?
When the downturn in the economy hit the legal market, many looked at what we were doing and immediately started categorizing people, places and procedures in order to determine if they were really worth keeping. Of course, even during good times, everyone says that they keep a close eye on their budgets to make sure they aren't wasting money on programs, books, subscriptions, people, etc., but it takes a recession to really determine which of those is really necessary, or if it is merely another sacred cow that we keep around because we've always had it around.
For libraries, everything we spent money on fell into three categories:
- Nice - These were the things we have that are great to have around, but as the saying goes… "nice guys finish last." Or, in this case, nice things get cut first.
- Needed - These were the things that would cause some pain to cut. Generally these products or people are favored by someone within the firm and get their protection. However, the longer the tough times persist, the weaker the protection becomes.
- Necessary - Here we have the products, procedures and people that fill a core purpose of the firm. Unless the recession turns into a depression, or the group that is supported collapses, these items are usually pretty safe.
The bad new is that you know that you have to be honest and determine what can be thrown out. The good news is that everyone (at least the powers-that-be) also knows that overhead is going to be cut, and that anything remaining has to be defended. So, if I say that the alternative version of a treatise on commercial litigation that we bought for a lateral partner because he or she didn't want to learn how to use the version we already had has to go… it is up to that Partner to defend the product. Eventually, the Partner determines that it was nice to have this product, but not necessary.
The process of cutting overhead is not fun, but quite frankly, if we made everyone categorize products, procedures and people that we bring on during the good times as nice, needed, or necessary then we wouldn't be in as tough a position when the bad times roll in. Recessions give us a chance to grow the backbone that we should have all the time. However, I'm afraid that once things turn around, you'll find that having a backbone will turn back to being a 'nice' thing to have.
The "Reformed" Chief Financial Officer Perspective
The Biggest Elephant in the Room…
Michael White, Reformed CFO… Reborn as a CRM Guy
VP CRM Strategy, Client Profiles
"Why do we continue to tolerate slackers or unproductive processes?"
Non-Productive Partners… Yes, we are going there. From my experience as a former Controller and CFO for three AmLaw 150 firms, on every occasion “right sizing” or “belt tightening” was discussed the following occurred:
Each Administrative Department Head was asked to review:
- All key vendor relationships with opportunities to renegotiate additional agreement benefits; and
- Most importantly, put forth their “sacrificial staff lambs”.
Key Vendor Relationships: Efficient organizations had already milked the final drop from these agreements, I know I did… So, additional cost savings typically led to focusing on those vendors with variable costs associated with their delivery (Outsourcing groups typically.) In general, these cuts led to known cuts in service to the firm and insignificant bottom line savings.
Staff Downsizing: The lambs identified were typically at the low end of the salary scale, playing a key fundamental administrative duty, which was right sized for their pay grade. We would all offer up our team members to be made redundant with a plan to reallocate tasks, identify potential service cuts to the law firm and announce the “new” cutting edge Staff to Attorney ratios the firm would enjoy… with a heavy sigh, the partners would agree that these were difficult decisions, but nonetheless, cuts that needed to be made to run more efficiently… Hallway discussions among the Partners would go something like “finally the Administration Team was aligning with Partners” or “Finally, we are putting a dent in our overhead”
What was not discussed was the impact on the Admin Teams ability to serve their clients, The Partners… Having already cut their teams to the bone, redefined tasks, doing more with less, stretched to the point of breaking, the ultimate result was, great surprise here, less service to the firm and inefficiencies in supporting the lawyers to service their clients. Leading to guess what, key staff exodus… but that’s another posting worthy of discussion.
So, finally getting to my point… Non-Productive Partners. All of the cuts mentioned above, would have been unnecessary, if the partners focused their attention on their brethren in the corner or near-corner offices. The economics associated with moving out 1 or 2 Non-Productive Partners (and their associated team overhead) down the road would have had a much more significant impact on the bottom line. Most importantly, without reducing the core services provided to the Firm in support of our greatest asset, the Clients…
Some Firms today are doing just that, focusing in on more granular financial analysis of the Firm at the Practice Group, Partner and Client/Matter levels of profitability, with very interesting findings. Other “Strategically Managed” firms are taking action by investing financial resources in the Firm to make processes more efficient and providing tools to the lawyers to focus on growing the practice and, in turn, client revenue. While investing, these firms continue to separate themselves from the competition and meet the financial expectations of their Partners; strengthening the foundation of the firm in the process, not tearing it away chunk by chunk.
In closing, from my experience, to “stack the deck” you need to flip the conversation to a top down review, starting with the Partners, looking the Elephant in the Room in the eyeballs.
"What is one of the things that you or your group does very well, but no one seems to ask for that service?"
This question springs from a basic question that I ask every vendor that is trying to sell me their product. I always ask "What is one of the best things that your product do, that your clients don't take advantage of?" It usually stumps them for a moment, but then a light bulb goes on and they suddenly point out a feature that is build in that would help the end user out, but they can't seem to get the end user to take the time to use it.
Think about what it is that you or the group you represent has a talent for, but you just can't seem to get the rest of your firm to see that they need. Is it because it isn't as great a service as you think, or is it that it is over the heads of those that would benefit from this service?
We'll do this all again next Thursday. Email me and let me know if you'd like to take a shot at being one of our guest bloggers for next week.