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Want to disrupt the industry? It’s time to run a different race

My guest article for LexisNexis The Future of Law blog.

http://lexislegalintelligence.co.uk/intelligence/blawg/2013/06/want-to-disrupt-the-industry-its-time-to-run-a-different-race/

We have seen many examples of efforts to improve efficiency and to reduce costs since the start of the great recession. We have witnessed firms conduct restructurings, enter into outsourcing arrangements, implement process reengineering, invest in IT and knowledge management systems, reshape partnerships and consider alternative business structures and external investment.

The core challenge, however, lies in developing strategy which is not centred on running the same race as everyone else, only faster or better. Such “me too” strategies in a law firm context are difficult to sustain in the longer term. This is because, within a peer group, incremental operational efficiencies can be relatively easily replicated and so any cost or profit advantage that has been achieved is fast eroded. The risk is that the reality of pursuing such strategies over an extended business cycle is simply a reduction in fees-charged per unit of activity in what fast becomes a race to the bottom. That is not to say that innovation in operational efficiency is not important but rather that it is unlikely to be sufficient.

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Changed Expectations

“It may be hard for an egg to turn into a bird: it would be a jolly sight harder for it to learn to fly while remaining an egg. We are like eggs at present. And you cannot go on indefinitely being just an ordinary, decent egg. We must be hatched or go bad.” 
C. S. Lewis

The legal sector is full of decent eggs; firms which are technically competent, deliver good service, price their work the way they always have and are structured along historic lines. They are operating a cottage industry model and are woefully ill-equipped to deal with the fundamental and far reaching change which is sweeping the market.

There are two dimensions to the challenges which firms must address. The first is external, dealing with a new set of client expectations and fast-emerging competitive forces. The second faces internally and is concerned with operational efficiency, new ways of working, structure and governance.

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Outsourcing Competitive Advantage?

There are a number of core strategic questions which firms need to answer when entering into an outsourcing arrangement.  The most significant is to what extent a firm should be prepared to outsource areas of potential competitive advantage.

If one takes the view that outsourcing is driven by a desire to reduce costs, by buying into a consistent set of scalable processes which are shared across a number of organisations, then it follows that none of these areas should (or could) be sources of unique competitive advantage.

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Keep Running Faster – You Might Win the Race to the Bottom!

“We can’t solve problems by using the same kind of thinking we used when we created them.”  Albert Einstein

Operational efficiency is necessary but not sufficient. Simply being better at doing things the way that they have always been done may provide some respite, a way to carve profit from a market in which downwards pressure on price is unrelenting, but it is not a long-term solution to the structural changes which are affecting the industry. By running faster, you might win the price-cutting race to the bottom but the real issue is whether you will have a sustainable business when you get there.

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Blue Sky not Required

“Innovation distinguishes between a leader and a follower.” Steve Jobs

A dictionary would support the proposition that innovation is simply introducing something new – nothing more, nothing less. It follows that innovation can take many forms. It can be internal or external and “new” can mean new to a particular use, sector or situation rather than new to the world.

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Innovation Imperative

“Do not go where the path may lead, go instead where there is no path and leave a trail.” Ralph Waldo Emerson

Innovation can take many forms. Delving into a dictionary would support a proposition that innovation is simply introducing something new – nothing more, nothing less. Business innovation is also highly contextual; in many instances that which is considered innovative is not new to the world but rather to that industry.

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Running a different race

“If I had asked people what they wanted, they would have said faster horses.” Henry Ford

Consensus among professionals can be difficult to achieve but on two issues there is widespread unanimity – the business world in which we operate has fundamentally changed and the pace of change will continue to accelerate as a world emerging slowly from recession intersects with increasingly deregulated professions, new entrants and fierce inter-firm competition.

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Points of Inflexion

Students of differential calculus would define a point of inflexion as the place at which the tangent crosses the curve itself. Those of us in the commercial world (and less mathematically gifted!) might say that it is a turning point at which a major shift occurs in the business environment. This can have either positive or negative outcomes depending on one’s market position and ability to respond to opportunities and threats. As Andy Grove, the founder of Intel, said it is “an event that changes the way we think and act”.

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