Does your firm have a "Chief Strategy Officer?" Thinking about it? Tried it and didn’t like it?
Well, apropos the news a couple of weeks ago that Cravath has a first ever director of strategic planning, we thought it would be timely to review what’s known about "CSO’s." But first, a word to the wise: Do not assume that Cravath’s move is one to emulate in all respects. When Legal Week got in touch with Cravath to learn more, this was their report:
"We figured the firm would be happy to talk about the new hire and share some details on Johnston’s charge going forward. When we reached presiding partner Evan Chesler by phone, he dismissed our interest in the comings and goings of what he calls “administrative people”. Johnston is "a very nice guy", says Chesler, though he didn’t recall his new strategist’s title.
"This is just a support job to help us out in our work," says Chesler, who explained that a group of nine Cravath partners, which he chairs, will continue to formulate firm strategy. "The strategy is entirely set by the partners of the firm," he insists."
And there’s more:
"[Johnston will be] gathering information, doing the staff work, the kind of stuff that any committee would have a person doing the staff work for," says Chesler. "We have a very busy administrative staff [and] people were simply overburdened by trying to do that in their spare time."
Despite the addition, Chesler says Cravath’s strategy is the same as it has always been: to remain the country’s best law firm.
"That was the strategy, by the way, when I got here 33 years ago," Chesler adds. "So I don’t want to see a headline that says that we just came up with that idea."
But this is actually a piece about firms that are serious about CSO’s, so let’s pick up where we left off. [Full disclosure: I suspect Cravath is a lot more serious about Bill Johnston’s position than they’re letting on to the mainstream press, and I’m meeting Bill later this week to check my intuition.]
Let’s start with the fact that the position of CSO is new, and therefore undefined. To be more precise, it has various definitions. Trust McKinsey to assemble a roundtable of high-profile CSO’s to give their views on what the job entails, how to do it right, and what the payoff might be. The panel included:
- Edward C. Arditte, senior vice president of strategy and investor relations at the multi-industry company Tyco International;
- Marius A. Haas, senior vice president of strategy and corporate development at the technology company HP;
- Dan Simpson, vice president, office of the chairman, at the cleaning-products group Clorox;
- Annabel Spring, managing director in charge of strategy and execution at the investment bank Morgan Stanley; and
- J. F. Van Kerckhove, vice president of corporate strategy at the e-commerce company eBay.
While all CSO’s agree that the real chief strategy officer is the CEO, from there the consensus seems to dissolve. But given the centrality of the CEO to setting strategy, a close CEO/CSO relationship is a job requirement. You might have an alienated or disaffected CFO or CIO and be able to function, if suboptimally, for awhile, but not so with the CSO role.
Part of the CSO’s challenge is to develop strategy in an iterative way between bottom-up and top-down. The goal of this is to build on the collective wisdom, marketplace knowledge, and client savvy of the partners themselves (bottom up) while trying at the same time to attune that wisdom to the competitive realities of the firm’s evolving position in the marketplace and where it aspires to be. This quote from the CSO at Morgan Stanley nicely articulates the challenge, and comes from someone in an environment not dissimilar to today’s sophisticated global law firms:
"Our role is to get feedback from the business units, overlay the global trends, and make sure that everybody has identified the right issues. We then prioritize the opportunities across the business units and provide a strategic element for that prioritization. Feedback from the business units is also critical for maintaining that entrepreneurial edge. Morgan Stanley is so specialized and yet complex and global, which is hard to balance."
Another aspect of the CSO’s role is that it’s intrinsically dependent on the state of the market. In plum times, one has the luxury of thinking long-term, being visionary and planning investments. In times like these when the market is tough, it may be more about restructuring and retooling your people and refocusing your practice areas.
How do you ensure that "strategy" has bite, that it actually has an impact?
Probably the most straightforward way is to integrate it with individual evaluations, to make people see how their performance is (or isn’t ) aligned with strategy. At numbers-driven companies like HP, this can take on forms that would seem extreme in a law firm, but they exemplify how concretely expectations for implementation of strategy can be tied to a business unit’s planning:
"An implementation plan that has clear milestones and owners is a must. Execution sits in the business units. At HP, we won’t make the hand-off until the business owner understands, accepts ownership, and acknowledges the need to deliver. As to the strategic plan as a whole, we’ve gotten a lot more disciplined. Now we can say, “Here are the levers within our plan that we need to execute in order to deliver. We know the plan, the capacity, and what we can do incrementally. If you’re going to show me a number, you’ve got to tell me how you’re going to get there.” Management has changed how people’s performance was going to be measured at a granular level."
Lest all this seem too abstract, think about actively and consciously segregating your practices into three primary business areas each with its own composition of clientele and economic goals:
- Emerging opportunities and markets;
- Mature but healthy and constant practices; and
- Marginally declining areas that nevertheless help generate cash flow.
Invest in each–investments in people, geographies, and managerial talent–appropriately.
Many people confuse strategy with financial planning. Don’t be a victim of this. Planning has to do with internal budgeting and resource allocation, but it has little if anything to do with your market, your clients, and why corporations come to your firm vs. another. (At Clorox, they are so disciplined about this segregation of strategy from finance that they don’t permit financial perspectives or exhibits in the first rounds of strategy meetings, in order to enforce the disciplined focus on market positioning rather than internal resource allocation.)
What, then, is the value of strategic planning? If your firm is struggling "operationally," the real problem more likely than not can be laid at the door of strategy, as explained by Dan Simpson of Clorox:
"Execution problems are often symptoms of trouble upstream in the strategy-development process—the strategy process has failed to realistically assess current reality, to honestly understand organizational capabilities, to align key players with those who do real work, or, at the end of the day, to create a compelling, externally driven vision of success."
This is wisdom distilled, so let’s take a moment to break it down:
- "failed to realistically assess current reality:" Does your firm have a realistic grasp on what it can aspire to be? On how your clients perceive you? On how recruits perceive you? The media?
- "honestly understand organizational capabilities:" What are your lawyers capable of? How ambitious are they? How amenable to change? How prepared to march in a given direction once it’s explained to them?
- "to align key players:" Are your 800 pound gorillas on the team and behind the strategy? If not, return to go.
- And "to create a compelling, externally driven vision of success:" Too many firms have "visions" of "success" that are, alas, out of touch with the marketplace. They are inward-looking, not "externally driven." Be brutally honest about this component. The price of losing contact with reality here is exacting.
Finally, let me conclude with the koan with which McKinsey ends, which sums up the intersecting challenges of (a) internal vs. external; (b) short-term vs. long-term; (c) one practice area vs. an other; and (d) upsetting dead orthodoxies vs. staying true to your firm’s enduring verities:
"Internally, the toughest issues are exposing orthodoxies that constrain our thinking and options, as well as spreading priorities and resources across time horizons and business unit boundaries. Part of strategy’s role is to define external imperatives at a higher level so that investments spanning different time horizons or organizational units actually reinforce each other."
So do you have a Chief Strategy Officer? Whether you do or whether you don’t, your work is cut out for you.
