At the intersection of:
- technology
- globalization, and
- demographics
we have, according to Robert Reich (Secretary of Labor under President Clinton and now Prof. of Public Policy at Berkeley), the challenge of "the economics of people" for the next few decades.
I would probably not be the first to observe that Reich, famously short at 4’10", has generated more controversy per inch than almost anyone since Napoleon (and even CIO Insight, the magazine interviewing him, calls him one part "polemicist"), but he’s saying something important here, reasonably well divorced from his ideological premises, and it’s worth pondering.
Reich’s first observation is that "globalization" is less about trade than it is about direct investment. The result is that
it’s not just IT, help desks, and such that are being "outsourced," but rather that "all management is becoming globalized: Wherever something can be done cheaply and at the right level of skill, it will be done there."
Now add in technology, which permits, enables, and ultimately compels the following: "In the future, anything that can be done routinely or can be reduced to software code will not be done by a person. And software is becoming ever more sophisticated."
Last is demographics:
"The baby-bust generation, people born in the U.S. between 1965 and 1990, will be in relatively short supply. Companies will have to worry even more about recruitment and retention than they do now. Immigration will become an ever more contentious issue."
In law firm land, still after all these years measuring contribution by hours worked, the "baby bust" statistics combine with the anti-workaholic attitudes of Gen Y to wreak a double whammy: Fewer people, who are each inclined to work less, given their druthers. Reich cites both "recruitment and retention," and "immigration" as germane to this. The first is self-evident, but I want to highlight the second. Instead of (just, or only) moving document production to India, should your firm start looking at importing Indian lawyers to New York, San Francisco, and Chicago? And training them as you would Harvard, Stanford, and Yale grads?
If you haven’t thought about this already, my prediction is you will—or at any rate, your competitive set will.
Over the next few decades, as technology and globalization make it increaingly irrelevant where work is performed, and as "direct investment" (vs. trade) grows in importance, the competitive differentiator for firms will, more and more, be the sheer level of their talent. Being down the block, or in the same time zone, or in the same country—out the window.
Reich expresses it this way:
"The competitiveness of any place in the world, including a place called the United States, depends less and less on the profitability of companies headquartered in that location, and more and more on the capacity of the people that live there to add value to this increasingly integrated global economy."
If you believe that (I do, in spades), you will know intellectually and rationally what I hope you’ve long known emotinally and in your gut: Your firm’s only irreplaceable asset is its people. It’s not capital assets, which scarcely exist and certainly aren’t material, and it’s not even client relationships, although this could be sounding heretical. High-quality professionals will attract clients; high-quality clients will not suffer mediocre professionals. (And I recently learned of a study finding that some typical AmLaw 100 firms lost 1% of their client billings per month through personnel changes, attrition, and the general effects of entropy: This may not sound like a lot, but I characterize it as one-fourth of your client base every two years, you might have a different view.)
Is there any good news in what sounds like an increasingly Darwinian, not to say jungle-esque, landscape? I think so: The good news is that if you have those highly talented professionals, they can build your firm’s reputation off each other. Reich puts it this way:
"Relational capital is one of the most important and yet most neglected areas of capital formation. Companies need to utilize IT so that everyone in an organization can take maximum advantage of everybody else. It used to be called knowledge management. It’s more complicated than that, as we’ve all discovered. But because all other entry barriers are dropping so fast, we need IT systems that rapidly connect the right people to each other so that there are real synergies."
Today I was privileged to see a prototype of a new KM system
at the New York headquarters of an AmLaw 10 firm, and Reich’s comment about "rapidly connect[ing] the right people to each other" could be taken as the design thesis for this system. (I hope to be able to report more on this in the near future.)
So it comes down to: Intelligently deploying technology to deal with the ineluctable onrush of globalization and thereby to surmount the challenge of demographics.
