Finally, one last challenge in the form of a few lessons, from Lafley: In May 2008 he was interviewed at Harvard Business School (the link includes a video) and the moderator summarized his takeaway as follows. I’ve added my thoughts in brackets following each:
1. In an age of disruption, growth is getting increasingly difficult. [That’s precisely the point.]
2. Companies need to take the long view. Lafley said he finds it hard to watch CNBC for more than 7 minutes because the focus is so short term. [Thank goodness we don’t have CNBC; may I point out we have now had PPP figures published for 25 years.]
3. The customer needs to be the center of the innovation equation. When Lafley took over as CEO in 2000, he said he saw too many managers on their cellphones, or buried in spreadsheets, in essence “showing customers their behind.” [Ring a bell? Anyone?]
4. Experimentation is key. Lafley talked about the value of giving customers even crude prototypes to test an idea. He also described how different parts of his organization approach innovation differently, and that’s a good thing. [Not directly applicable to us, perhaps, but when was the last time your firm showed a client a “crude prototype” of something you were thinking of doing? Thought not.]
5. Complex organizations need to simplify to successfully innovate. Lafley said he seeks Sesame Street simplicity. [When was the last time involving dozens of lawyers reduced complexity?]
6. The CEO has to be the “Chief External Officer” to manage external pressure and the “Chief Innovation Officer” to push the innovation agenda forward. [Neither of which roles comes naturally to most lawyers.]
To repeat, I dwelt on P&G under Lafley because they faced a market landscape with intrinsically limited growth, as do we, and he approached it in ways we would never dream of, including inviting ideas from outside the firm and developing totally new products in segments thought to be stagnant.
The American Lawyer just published “The 2012 Global 100: A World of Change,” which opens as follows:
The legal sector used to be such a nice, calm place to do business. Partners and clients would occasionally come and go. The odd practice would falter, while a few firms made slightly more money than everyone else. But the market historically lived up to its reputation as a bastion of sleepy conservatism and resilience. Then came the financial crisis, which forced the legal elite to adapt to the most turbulent market conditions for a generation.
As firms tussle for position in this new world order, the pronounced uptick in law firm merger activity has transformed our Global 100 rankings. New giants are emerging to dominate our charts, thanks in part to the increasing use of looser organizational structures that have facilitated these combinations.
The net result of all this change is that The Global 100 has become more top-heavy. The upper echelons of the international legal market, as measured by revenue, are becoming increasingly dominated by a smaller number of larger firms. And the gap is widening.
LegalWeek reported at the end of September that the UK’s top 20 law firms saw 439 partners leave in 2011—2012, “as firms continue to actively manage their partnerships.”
In particular, the Magic Circle posted partner departure rates of 2—4%, partly reflecting the “increased mobility of partners,” but also “the trend for de-equitisations.”
Lest you think this is a post-Great Recession fad, here’s what a leader of one, willing to be quoted on the record, had to say (emphasis mine):
A&O managing partner Wim Dejonghe said: “Greater financial and operational discipline is definitely necessary in order to remain competitive in a low-growth environment.
“For us, it’s been a question of balancing the need for growth in the global network with continued focus on good housekeeping.
“The same challenges exist for all our competitors and everyone has to make a choice about where that balance lies and what’s right for their business – it’s just a reality of the market we live in today.”
On this side of the pond (although all these firms are global in the most profound sense), K&L Gates Chairman and CEO Peter Kalis was interviewed on the occasion of being re-elected to another five year term, and among other things had this to say (emphasis mine):
Kalis says his hardest day-to-day challenge is constructing a “modern business enterprise suitable for the 21st century.” He likens the process of growing the K&L Gates brand, cultivating cutting-edge information technology, and managing the myriad other aspects of the firm’s finances to “building a bridge in wartime.“
Both Dejonghe and Kalis, at the top of two of the largest law firms in the world, are telling us we’re subject to the discipline of the market “in a low-growth environment,” and that we must be 21st-Century business enterprises or…perish.
I dwelt on A.J. Lafley and P&G earlier because they confronted these Darwinian pressures of the marketplace a dozen years ago, and responded in an enormously creative, not to mention successful, fashion. Will we have the imagination, the applied intellectual horsepower, and most critically of all the unswerving resolve, to do the same?
I wish I could tell you I have confidence in us all to do that.
I don’t, and in the final installment in this series I’ll try to explain why.