An attorney’s business clients exist in an industry or a number of industries, and operate within a geography or a number of geographies, never in a practice area. Yet, attorneys have traditionally favoured taking a practice-centric perspective to the world. This practice-centric perspective is, by necessity, changing among many law firms. This article explores why this is happening, the implications and what are some for the key factors for success if a firm is to realise the full benefits of such a shift.
The shift from a practice-centric focus toward industry has been adopted by other professions for some time, most notably management consultants, accountants and investment banks. Their reasoning has been simple: success lies in demonstrating (better than the competition) a deep understanding of the client’s requirements, of its needs that are directly shaped by the industry and geographies in which the client operates, and of its strategic and commercial pressures.
Across many of the more mature jurisdictions, law firms are also building and embedding a strong and deep industry-sector focus. Despite challenging trading conditions recently, this focus on specific sectors has served these firms very well in terms of relative profitable growth and market share.
The Strategic Context
Competition across the legal sector has become increasingly intense over that last few years. The forces driving this transcend cyclical supply-demand economics. These continue to reshape industry structure and competitive dynamics. They have driven consolidation, segmentation and a growing polarisation between the winners, losers and ‘also-rans.’
Two primary drivers are a t the heart of the intensifying competitive dynamics . First, clients have become increasingly sophisticated, demanding and discriminating in the selection and use of law firms. The second is the response of (some) law firms that have invested to develop the key capabilities required to compete within those sectors they deem most lucrative.
As a consequence, law firms are fighting harder than ever to develop and sustain meaningful (lucrative and long- term) client relationships. The market is crowded with great law firms that can do the job. So how can the client hear and recognise the best above the cacophony of noise emanating from the firm’s marketing machines?
The Differentiation Challenge
The ability to stand out and to be distinctive in a way that is most valued by the clients (i.e. to achieve differentiation) has become more challenging. Many firms, particularly (but not exclusively) those in the mid-market, have opted to communicate a brand that is deliberately focused on a limited number of industry sectors in which they have the skill and capabilities to build a winning market position.
This aligns well with the buying criteria adopted by sophisticated clients. In selecting external legal advisers, such clients inevitably ask the following questions, which lie at the heart of the differentiation challenge:
- Do you understand my business and the competitive context in which I operate?
- Can you serve me adequately in locations where I have a requirement?
- Do you understand my specific issue and have the capabilities to address it?
- Can you meet my requirements regarding performance, service delivery and value?
- Can you deliver more effectively and efficiently than your competitors?
It goes without saying that top- quality practice expertise is key to capturing high- value client opportunities. So, quality alone is seldom an adequate basis of differentiation any longer. For many firms, meeting the differentiation challenge leads to a more client-focused approach, one that can truly demonstrate and deliver a deep and credible understanding of the client’s business.
The Power of Focus
Focus is the cornerstone for building powerful strategic advantage in today’s highly competitive world. Firms find themselves having to stop doing some things to concentrate on others. When the areas of focus are carefully chosen, it results in a gradual realignment towards the areas of greatest business potential.
Many law firms now recognise that focus upon a small number of carefully selected industry sectors offer a viable and potentially attractive way of growing market share. At the most superficial level, such law firms project that focus via their websites by listing the industry sectors in which they have some experience. This is not enough. To be able to build a sector focus that truly differentiates the firm from its ‘general service’ competitors, firms need to develop real depth in the scale of their experience in those sectors, and tailor their service offerings to the specific needs of those sectors. The most common cause of failure is where firms focus too broadly, investing too few resources into too many areas. Our experience suggests that most firms have the resources to really target a limited number of sectors, perhaps two to five, depending on size and reach.
Shaping Internal Capabilities
Once the firm’s focus has been clearly articulated and it understands in practical terms what that means for how it serves its clients, it can move to develop and enhance the capabilities necessary to build a winning position.
Re-engineering the firm to become more truly industry sector-led raises a number of key organisational and management issues. Where best to focus resources and how much priority and emphasis do we give? How to generate the industry insights and to leverage these as a point of differentiation? How best to deploy resources? How do we get people inside the firm to recognise that success is not just about the practice, but also growing profile, position and market share in selected sectors?
As I have stated already, attorneys tend generally to view the world from a practice-centric perspective, and law firms tend correspondingly to organise by practices. Attorneys come to recognise that they are rewarded primarily by what happens in the practice group and how well they, individually, perform in the current year. To be successful in building a sector focus, the firm must take a fundamentally different perspective.
- Investment and sustained effort is required, which in turn requires a long- term, strategic perspective. Concentrating on this year’s numbers alone rarely will deliver the necessary long- term benefits.
- Key resources need to be internally deployed onto the effort of building the sector focus. Firms can go about this in several ways. One is through the creation of a small multi-practice team, lead by a strong partner who has the responsibility to lead the firm’s drive into a particular industry sector, and is appropriately empowered to do so.
- Ensure that the firm’s reward systems are sufficiently adapted to reward metrics consistent with growing a position within a target sector, for example, monitor and reward a partner’s success in building market share, or profile and reputation within strategically important sectors, rather than simply on the hours billed, regardless of where those hours originate.
This presents a major leadership challenge for many firms. Is it easy? No, but it pays massive strategic and business performance dividends. For many firms, we see that building a strong sector focus for their business is not simply an option, it is a strategic imperative. Fortune will favo r the bold who grasp the challenge and take the lead.
David Temporal is a partner in the London office of Venturis Consulting Group, an international firm of management consultants specialising on the legal sector.