Ron Baker left one of his usual insightful comments on the 3 Geeks blog this week, so I wanted to address some of the issues he raised in relation to the concept of Efficiency.
Ron notes: “There's a fundamental problem with this relentless focus on efficiency. A business isn't paid to be efficient; it's paid to create wealth for its customers.” He goes on: “Excellent customer service is not efficient--ask Nordstrom or Disney. These companies sacrifice efficiency for effectiveness, the true source of all competitive advantage …”
Ron’s point is that efficiency is doing the same thing better, which is not a true source of competitive advantage. Effectiveness is a better goal to have for remaining competitive.
In essence, I agreed with Ron’s comment via my post on Legal Project Management. I feel this approach is truly doing things the same way only better, and will only get you so far. All that being said, I still see significant value in a focus on efficiency, especially in the short-run.
- For Clients. They serve up repeated messages on wanting to see efficiency gains. For them this means getting the same service at a lower price. Having engaged in direct conversations with GCs, my attempts to redirect the dialogue to value and effectiveness fall on deaf ears. So for now, efficiency is perceived as a differentiator by the customer.
- For Law Firms. With market prices dropping, efficiency means profits. In the short-run, cutting the cost of delivering the same service means maintaining profit margins. From the law firm perspective this is not about competitive advantage, but plain ole being competitive.
Back to Ron’s point - every business should have an on-going and “relentless focus on efficiency.” As Ron points out, “Any efficiency gain will be copied rapidly by all players.” This means that market players who don’t maintain this focus, drop out. I believe the reason efficiency is such a compelling topic in the legal market today is that it is a relatively new concept. In turn this means there are likely numerous inefficiencies that currently exist in the business model. So significant reductions in cost (for clients) and measurable gains and/or maintenance of profit margins for law firms will result from new efficiencies.
In the long-run, Ron’s view must rule. Competitive markets drive down margins which incentivizes innovative behavior.
Which brings us back to the value of KIIAC and technologies like it. These technologies are about being more effective. Lawyer time is not spent reviewing and regurgitating content. Instead, time is spent on higher-value efforts.
I understand and fully appreciate Ron’s POV and frustration with this short-term thinking. However given our market’s upheaval and transition, this short-term behavior will drive a more rapid movement to understanding and ultimately embracing the concept of Effectiveness.