THE INNOVATION ISSUE
HOW TO DRIVE STRATEGIC INNOVATION
By PATRICK J. MCKENNA
Innovation. It has everything to do with organization and attitude. Marginal improvement isnt enough anymore. Convert your problem-solving skills into a new value for the entire firm. 10 initiatives.
Are you frustrated at your firm’s inability to move more quickly on initiatives that are critical to future profitability? This is a time to be bold, imaginative and decisive—not with a single novel change, but through a conscious, built-in, continuous process of innovation. But how do you stimulate the right environment for innovation within a law firm?
Most professionals wrongly think that something labeled "innovation" must naturally begin with creativity seminars and lateral-thinking exercises. However, attempts to boost innovation solely by pumping up your people’s creative efforts are likely to fail. Creativity is only one side of the coin. Your partners may have lots of creative off-the-wall ideas, but innovation only happens if you convert those ideas into something of value. You need creative ideas and effective execution. But you must also tackle the strategic imperative.
A great idea effectively executed is only worthwhile if it represents something of value to your clients and, at the same time, offers a means of creating new wealth for your firm. We’re not talking about marginal improvement. To be competitive, and strategically significant, it has to be a serious leap forward.
Strategic innovation means finding ways to differentiate your firm against the competition. It means leveraging the ideas of your professionals and their substantive knowledge. The total dimension means getting people and the firm to think differently, to be willing to take measured risks, to be willing to change and challenge conventional modes of practice and approaches to business. It means the firm has to act.
Here are 10 initiatives that firm leaders can take to build a culture where innovation occurs because of the culture, not in spite of it.
1. Invest Some Management Time Living in the Future
All too often, those in firm management are driving toward the future with eyes fixed firmly on their rearview mirrors. But then, typical managing partners usually don’t see themselves as the locusts of new business creation. They most often see themselves in the guardian’s role—running the firm’s existing practices to meet the budget targets and ensure that all partners are billing to maximum potential.
In our consulting work, my firm often asks managing partners something that painfully illuminates where they spend their time: "What proportion of your management time is spent solving problems versus what proportion is spent exploring new opportunities?" This question usually elicits a response of about 80 percent on solving problems, versus 20 percent on exploring opportunities.
Let’s analyze what this division of time infers. It would seem that the firm leaders spend 80 percent of their time and energy looking backward and fixing things, while spending only 20 percent looking forward and creating things. Firms operating in this mode will never lead in their marketplace. (And we suspect that the real division is worse—more like 95 percent of time solving problems and 5 percent exploring opportunities.)
How did law firms get to this point? Well, it should be obvious that most professionals are veteran problem solvers. We are trained to resolve the issues, or put out the fires. Some powerful gravitational pull moves us toward correcting instead of innovating, toward restoring instead of increasing, toward reacting rather than being proactive.
However noble, though, fixing things simply restores the prior performance or condition, which is comfortable but limits value. If your focus is on improving value, inspiring entrepreneurial endeavors or being innovative, then your intent is not to restore the status quo. It is to develop a level of performance that far exceeds previous standards. (See the sidebar, "Stuck in the Present or Geared Up for the Future?")
Attention is the most powerful management tool. If your firm wants its people to focus on innovation, nothing speaks louder about what’s of bedrock importance than where and how the leaders choose to spend their time. Firm leaders make daily choices about what to do and with whom: It is not a matter of chance.
Strategic innovation can begin at the meeting table. Every firm holds numerous meetings, and every meeting has an agenda, whether written or unwritten. The cumulative content of those agendas clearly signals executive priorities and concerns—and therefore, it functions as a powerful signaling device. Most meetings are simply status reports on present conditions. If you are serious about promoting innovation, make sure that each meeting devotes 25 percent of the time to listening to ideas for improving systems, generating new revenues or developing new services. In addition, the items that get the managing partner’s swift and detailed follow-up will always be perceived by your people to be of the highest importance.
Don’t burn up precious time and waste resources looking backward. This is a time for action, not introspection.
2. Take Advantage of Change Events
In day-to-day dealings, "steady as she goes" is the watchword for many professionals. There are, however, times when firms are confronted by some form of change that clearly allows for an upheaval in normal operating procedures. These events are, essentially, innovation triggers. Their order of magnitude may be dramatic or moderate. They may run the gamut from a merger or downsizing, to an office move or a new market survey. (See the sidebar, "Top 10 Change Events." Each event presents a window of opportunity for commencing innovation initiatives.)
Whatever the specific trigger, when a firm is buffeted by a change event, some members will feel a loss of control. Others will relish the transformation.
Consider the example of Pillsbury Winthrop. As part of its efforts to break from the past following its merger, the firm initiated a deliberate program to identify and eliminate "sacred cows." It capitalized on the merger to establish a special task force charged with unearthing and eliminating ingrained habits that were wasting money and slowing the firm’s ability to change. Task force members brainstormed issues, generated new ideas, viewed old problems in new ways and identified more than 100 sacred cows. Specific lawyers and administrative professionals were then assigned responsibility for achieving and reporting progress by specific deadline dates.
Sacred cows were discovered, for example, in the processes used to bill clients and collect overdue payments. So, over the objections of several senior partners, the task force implemented a simpler, more centralized system for these routine tasks. The new system decreased the average time in which clients paid their bills, from 4.5 to 3.2 months, and reduced labor costs by more 25 percent—adding several million dollars to the firm’s bottom line. As a direct result of dozens of incremental changes, the AmLaw’s 1999 rankings of the top 100 law firms indicated a 44.2 percent increase in Pillsbury’s profits-per-partner, the fourth largest percentage increase among firms in the survey.
Proactive leaders pull the fire alarm when they spot critical changing conditions and see trends becoming a looming crisis. Everyone is urged into immediate action. What change events are you undergoing that should prompt you to pull the alarm and call for action within your firm?
3. Reach Out for New Voices
There are new voices in any firm. There is the younger practitioner who has grown up in a different time with different skills and values. The lateral hire who questions why in the world your firm does certain things in certain ways. The partner residing in a remote office, or practicing in a fringe specialty, who sees the entire profession differently from your typical partner. And there is the occasionally disruptive partner who just sees the world from a peculiar mind-set. All can make valuable contributions to a quest for innovation— if you choose to reach out to them.
Perhaps the tallest hurdle a firm must clear in pursuing innovation is to abandon the tightly controlled cliques that dominate most strategic thinking. In firms of all sizes, it’s not uncommon to hear comments like these: "If we can’t manage to convince these partners of what direction this firm should take, we will never convince the other partners. These partners thoroughly understand the marketplace and our competition. These folks are largely responsible for our success up to this point." Such preoccupation with historic success behaviors (which is subjective at best) assures that the firm will be unwilling to engage in behaviors that provide for innovation.
Think about the individuals selected to sit on the typical firm strategy committee. You’ll perceive a couple of inherent shortcomings, not the least of which is that all their views have already been well articulated. You can just envision these senior partners huddled together in some richly paneled inner sanctum. They know each other so well they can finish each other’s sentences unprompted. One can safely wager that any forthcoming scheme will incorporate conservative action plans steeped in "best practices" and posing little threat to the behavioral patterns of the most staid professionals. No wonder most strategy conclaves produce tepid ideas that are too little, too late.
The collective brain. Individual professionals instinctively support, believe in and show enthusiasm for a firm direction that they themselves have some active part in formulating. Planning together, and having people make their own decisions, increases the likelihood of commitment to implementing new initiatives. To successfully set your firm’s direction, you must find ways to involve all your professionals—initially and then again at the practice group level.
Consider the approach taken by Deloittes Consulting, which believes in proactively involving the collective brain of the entire firm. Deloittes sponsors contests among all its professionals for the wildest innovations, under a proposition that offers cash incentives and allows people to eagerly compete for a chance to have their personal vision impact the firm’s future. Deloittes’ most recent event reportedly stimulated more than 176 ideas competing for a $10,000 cash prize.
Younger voices. You also need to recognize that organizational aging encumbers innovation. Your firm’s response to embracing innovation alters both as the firm ages and your senior power partners grow older. As a firm matures and achieves a measure of success, it unfortunately loses much of its appetite for being entrepreneurial—able to quickly respond to market opportunities, pioneer new service offerings or initiate change. It simply makes sense to look to your younger professionals for new energy.
Irvin Hankins, the managing partner at Parker Poe in Charlotte, understands the importance of hearing from younger voices. In an effort to encourage foresight, Hankins initiated an endeavor—his "2010-30/45 Project"—in which he called on all the lawyers in the firm between 30 and 45 years of age. He asked if they would undertake an effort wherein they would be divided into three separate task forces, but with each group tackling the same project. Their mission? To formulate a written scenario of what the legal profession might look like by the year 2010. Their goal? To collectively examine the various scenarios and what implications they hold for the type of proactive actions the firm would need to initiate to get ahead of the future.
New hires. Some of the best ideas can come from your newest professionals. One firm has a program called "Fresh Eyes" to tap into that insight: The new hire gives the firm a formal performance review after the first 30 days of his or her tenure. With impressions of the firm still fresh, the new hire meets with the managing partner to provide a candid review of initial experiences, and to ask hard questions such as, "Why aren’t you doing it this way?"
In sum, you need to add new thinking to your strategy discussions—novel ideas that can turn the status quo inside out. Fight the urge to work on your strategic innovation solely with an inner circle of senior professionals.
4. Take a Cue from Your Clients
Firms truly devoted to innovation reach even farther outside the inner sanctum and call on clients for fresh insights.
The impetus behind one of the fastest growing new practices at Exton, Pennsylvania’s Croft Drozd & Company didn’t come from the accounting firm’s professionals. It was inspired by the firm’s advisory board—outside businesspeople charged with providing a fresh perspective to help the firm target its service offerings more effectively. The 12-member board meets every two months. It includes four clients, four referral sources and four non-clients. Managing director Carl Croft says, "We want to put our resources into developing one or two new products each year that clients really want, and the advisory panel has proved ideal both as an idea generator and a focus group."
How many firms have a formal mechanism for directly involving clients in conceptualizing and developing new services that clients might value? All too often, we don’t bother to involve clients, or even pay attention to what their evolving needs might be.
Take the case of Lawrence O’Donnell, executive vice-president and general counsel of Houston-based Waste Management, Inc. In an interview in the July 30, 2001, National Law Journal, he says that when a litigation file is ended, outside counsel love to close the file and walk away. Not O’Donnell. Instead, he has begun a tactic he calls his "legal autopsy" wherein, win or lose, his department analyzes the case to see what can be learned. He then shares the results with operations personnel affected by the lesson. "This might have been an expensive lesson, so let’s at least learn from it so we don’t make the same mistake somewhere else in the company," O’Donnell says.
This comes at a time when we are seeing study reports that indicate only 24.7 percent of the Fortune 1000 would recommend their primary law firm. Moreover, 44 percent plan to reduce the number of law firms they use, and 63 percent cite poor service as the primary reason for a breakdown in their relationship with outside counsel. Thus, it is staggering to consider that law firms haven’t thought of an innovation like O’Donnell’s before now.
It is also curious to note that the international banking sector was advocating online dealrooms well in advance of the most progressive professional services firms. How long did it take before a handful of firms finally initiated the innovation? How many firms today still don’t get the point? You will not be considered for the big-ticket transactions if you don’t have an online dealroom!
These kinds of innovations are not just the domain of large firms. The 20-lawyer London technology and corporate boutique Kemp Little, for example, has launched a work-in-progress service that enables clients to view their current unbilled time details online. Kemp Little’s system publishes a daily snapshot of time-recording data on a secure extranet, and clients access their data on-screen by entering a password. According to managing partner Richard Kemp, "Visibility of what’s on the clock at any given time is the thing that clients told us they most wanted. So we’ve put the system there to reassure clients that we’re spending their money wisely."
There are countless opportunities to leapfrog over competitors simply by collaborating with clients and being sensitive to their needs.
5. Steal the Best Ideas from Other Professions
Innovation is often the product of someone spotting an old idea that can be used in new places, new ways and new combinations. Taking an idea that is common in one business and moving it into a fresh context can spark entirely new approaches— if you are paying attention.
To enhance innovation within your firm, try initiating an internal committee of interested lawyers to monitor new developments and trends going on throughout the other professions. Or, have your administration staff monitor industry and news media, and provide a summary of clippings that highlight the business activities, emerging issues and innovations being promoted by firms in related professions.
Cap Gemini Ernst & Young holds brainstorming meetings with academics, clients and researchers to identify important issues and opportunities three to five years before they appear on the radar screen of most everybody else.
6. Consider Packaging Your Intellectual Knowledge
Pose this to your partners: "Some firms have packaged their intellectual knowledge into a viable commercial product, while others have created subsidiary operations to provide and market services ancillary to the basic legal services. Do you have any ideas on what we could do in either of these areas?" Based on our experience, in most cases between 14 to 22 percent of partners might already have a potentially viable idea in this regard. So it’s likely you will get a pleasant surprise.
Now, is it likely that any of your partners’ ideas will have commercial significance, with the slightest potential for being revenue generating and of value to clients? Absolutely.
Have any of these partners been among those chosen in the past to sit on your firm’s core strategy committee? Probably not.
Have any of these ideas been brought to firm management for serious consideration? Not likely.
Does anyone see a problem with this picture?
Contrast that picture with how the non-lawyer arm of Littler Mendelson is rapidly becoming the firm’s largest revenue source by far. Employment Law Training, Inc. (ELT), is a half-owned subsidiary founded in 1998, through which firm lawyers provide office seminars on employment law. Indeed, Littler has become a virtual multimedia publishing house and seminar sponsor that produces books, CD-ROMs and video training programs.
How did this entrepreneurial initiative come about? Largely from a group within the firm exploring how they might package some of their knowledge into a more tangible product that they could offer clients, allowing the client to do its own internal training and providing Littler with a fairly handsome return on its packaging efforts.
One wonders … What opportunities possibly exist for your people to package what they do for clients, thereby developing an entirely different and profitable redefinition of leverage?
7. Champion Your Internal Entrepreneurs
Asking your partners for their new ideas about services is, essentially, a tactic for uncovering assets that are as yet undetected in your firm.
Take the case of John Tredennick, Jr. at Denver’s Holland & Hart. After 20 years as a litigator, Tredennick was tired of practicing law, but he was intrigued with making the practice of law more efficient. He approached the firm about spinning off its Web and litigation support activities. After what he describes as "much internal debate about exposures, conflicts and all the other things that lawyers are trained to worry about," the partnership approved the spin-off in May 2000. Tredennick expects that the spin-off—CaseShare—will bring in about $10 million in new revenues from the first year’s operation.
Not to be outdone by the legal profession, Atlanta’s Habif Arogeti & Wynne is believed to be the first paperless Top 100 accounting firm in the nation. Spearheaded by Dan Sims, the technology partner, the firm eliminated paper files in 1998, driving down labor expenses by 18 to 45 percent on audits and an average 30 percent on tax engagements. Habif Arogeti also reports annual savings of $40,000 in paper and supplies, and $70,000 in salaries (from shrinking a seven-person word processing department to just two people). On top of that, the firm expects a $120,000 annual savings with the elimination of in-house file storage. And new six-figure revenue streams are being realized ($350,000 for FY2000) as Sims’ group trains other firm’s professionals in software that assists with paperless audits.
What is highly interesting and relevant about both of these examples is that these innovations didn’t come about because of direction, intervention or incentive provided by firm management. They came largely from, as management writer Peter Drucker first expressed, "having a mono-maniac with a mission!"
There is an incredibly valuable lesson here. If you want rule-breaking, wealth-creating ideas to come to the forefront in your firm, you need to identify, nurture and champion those professionals chomping at the bit to try new ways of doing things. The maniacs exist. The innovative ideas exist. The missing factor is the internal champions.
You must view your practice groups as the basic building blocks for constructing your firm’s innovation strategy. It is only when you begin to explore "hidden assets" at the practice group level that real opportunities emerge.
8. Rethink Assumptions About How You Operate
Every partner has a set of built-in assumptions, biases and presuppositions about what clients want or don’t want, who the competition is or isn’t, what services the firm should or shouldn’t offer, and how the partner should conduct his or her individual practice. We are all, to some degree, prisoners of our past experiences. Nowhere is that more pronounced than in the individual quest to maximize billable production.
In countless sessions that my firm has conducted with members of various practice groups around the country, we have asked partners to brainstorm on this question: "How do we find ways of doing our kind of work that would incur less cost to us?"
Notice that how you bill the client is not the issue posed here. The issue is, with the type of work, deals and transactions that you do, is there a bit that could, in fact, be done at a lower cost to the firm? If you can find ways to do something at a lower cost, you can pass the savings on to clients and get hired more often, or you could use the money to increase partner profits.
Unfortunately, even after having identified very viable options for performing some part of a transaction at a lower cost, a number of partners will immediately conclude that there is absolutely no incentive to take action: "Why would we want to do that? It’s just going to reduce the number of hours that I’ll be able to bill the client." We tend not to explore cheaper ways of completing any particular task, because we tend to think only of today. Ultimately, this mind-set will bite a law firm in the rear end.
Look at what Latham & Watkins has done to portray itself as the premier health care compliance group in the country. The firm launched Compliancenet, a resource that helps its hospital clients complete more compliance work on their own—even though it means lower legal fees for Latham. This firm recognized that hospitals don’t relish having pricey lawyers review their contracts, and that the firm that lands compliance assignments has a better chance of doing the more lucrative work that hospitals generate. Latham also knows that having a resource like Compliancenet allows the firm to enter other geographic markets.
Latham went into action while its competitors were still wondering, "Why would we want to invest non-billable hours developing a resource that then only serves to decrease our billable hours?" Daniel Settelmayer, the Latham lawyer who spearheaded the development of Compliancenet, says, "This is a simple idea that anyone else could have just as easily developed. But we did it first."
To cultivate innovation, you need to get on the path of regularly asking questions that challenge the way in which firms have traditionally operated.
9. Begin With Limited-Risk Experiments
The words "experiment" and "experience" are derived from the same Latin verb: experiri—to try. You try out your ideas in the hope of success and, regardless of whether they succeed, what happens next creates your experience.
Your best hope of success lies in having numerous projects percolating at once. This ups the odds of one of them boiling over. As Linus Pauling, the Nobel-winning chemist, once said, "The way to have lots of good ideas is to have lots of ideas and throw away the bad ones." Early successes breed optimism, enthusiasm to do more and the commitment to try again.
Set up small, relatively inexpensive, minimal-risk and short-term experiments. Anything beyond six months takes you into the realm of pipe dreaming. Too many things can go wrong. If you have an action plan pushing beyond the six-month limit, break it into smaller tasks that fit into shorter time frames. This way, your firm is continuously knocking off fresh objectives, experiencing success, staying on track, moving quickly and raising motivation to continue.
10. Help Your People Get Comfortable
Should you suggest that your firm focus more attention on experimenting, or being more entrepreneurial, your partners may well respond: "We’re not comfortable with something we don’t truly understand."
Many of the systems that support innovation can provoke discomfort. The unfamiliar often provokes a negative initial reaction. Research shows that, independent of other factors, the more often people are exposed to something, the more positive they feel about it. So you must seek to educate before you seek to change. Here are a couple of educational activities you can begin almost immediately.
P Bring in a regular menu of outside speakers (other professionals, academic leaders and business entrepreneurs) to speak at a monthly partners’ luncheon. Focus on individuals in your community who are actually taking action to reshape their organizations through innovative means. Have them speak about what specifically they are doing, why they are bothering to invest in initiating new directions and what success they are having.
Begin this effort without great fanfare. (The worst thing you can do is "announce" some new program.) Make partners’ attendance completely voluntary. Just say, "I happened to be talking with this individual and was particularly struck by what she’s doing in her firm. So I asked her to join us for lunch. I think you’ll find it interesting and perhaps of value in dealing with your own clients."
After a couple of these luncheons, you should see growing interest in why these other professions and companies are pursuing innovation, a greater comfort with the concept and methodologies, and some enthusiasm for trying out new ideas in your firm.
P Next, consider turning your partners’ eyes to new horizons with a "strategic forum" designed to formally evoke discussion of the future issues facing the profession. Here is your agenda: "What are the forces already at work in our profession that have the potential to profoundly transform the way we may be practicing in five years?" It will be well worth it to sustain a four-hour discussion some Thursday evening (over beer and pizzas) debating the various trends, how they might affect your firm and how to capitalize on opportunities.
Why, you may ask, should you think about innovation at a time when budgets are being cut, the economic forecast is shaky and many firms—perhaps yours—are focused on maximizing the revenue stream? It’s simple: This is all about your future.
You need to see your practice in ways that can reveal new opportunities. You need to uncover the hidden costs of standing still. You need to hone your understanding of the real risks and rewards of your current strategy. The most important step you can take to ensure your prosperity is to reenergize your thinking.
As you forge ahead, remember these principles:
Strategic innovation isn’t about putting out fires or fixing yesterday’s shortcomings. It’s about blazing new trails and preparing for a new tomorrow. Albert Einstein once noted, "You cannot solve the problem with the same kind of thinking that created the problem."
Strategic innovation isn’t about developing detailed and inflexible planning documents. It’s about creating a compelling challenge capable of inspiring people. Most plans are a bit too much like hard steel, with a degree of rigidity that impedes a firm’s ability to explore an ever-changing world. Few things capture people’s excitement more than being part of a vibrant entity and exploring new possibilities.
Strategic innovation isn’t about incremental improvements. It’s about breakthroughs. In a competitive marketplace where there are no time-outs, you will always be eating someone else’s dust if you’re content to be a follower. The pace of change will suck the air right out of your lungs. The classic saying "Lead, follow, or get out of the way" is being replaced with the reality that you either lead or get blown out of the way.
Patrick J. McKenna (firstname.lastname@example.org) is a partner in Edge International and co-author of First Among Equals (Free Press, 2002). He can be reached at (780) 428-1052 and www.firstamongequals.com.
[Sidebar 1, p.36]
STUCK IN THE PRESENT OR GEARED UP FOR THE FUTURE?
After hearing how managing partners divide their time between solving problems and exploring new opportunities, my group poses a follow-up question: "Of the time you spend on exploring opportunities, how much of that time is directed toward pursuing billable production, winning the next big transaction or responding to a competitor (the present) versus pursuing the development of entirely new skills, new services or new technologies (the future)?"
Remember that managing partners reported spending a total of 20 percent of their entire management time on exploration of opportunities. Of that 20 percent, we find, typical managing partners on average spend 60 percent exploring present opportunities and 40 percent exploring future opportunities. These numbers drive a point worth scrutiny:
What kind of a future is likely to be created by a firm leader who spends 8 percent of his or her total management time and energy focused on that future?
And this 8 percent applies in firms with managing partners who spend all their available time on management matters. Managing partners spending less than full-time usually have next to no time for the future—except, of course, during the firm’s annual one-day, off-site planning retreat. (Need we wonder why so many retreat-generated "strategic plans" are dead on arrival?)
— Patrick McKenna
[Sidebar 2, p. 37]
TOP 10 CHANGE EVENTS
Here is a list of the top 10 change events in firms, prioritized by their relative order of magnitude and likely impact on the firm:
- Merger (of some significant size)
- Economic contraction/Recession
- Downsizing (including the loss of a major practice group, death of a superstar, etc.)
- Significant client loss/Client merger (where the client represents 20+ percent of revenues)
- Partners retreat (culminating in specific action plans and implementation)
- New managing partner (depending on the extent of the individual’s authority)
- Office move (to new quarters)
- Merger of two significant competitors (where at least one was local)
- New competitor (moves into the market)
- Results from client survey/Market survey
Magnitude is a reflection of the degree to which the change may affect individual partner behavior. In that light, you’ll note that merger and recession are at the top of the list, while client feedback is at the bottom. That is because a merger or recession can dramatically affect the comfort and behavior of every partner in the firm, as people struggle through coping with the change. A client’s feedback (unfortunately) may only adversely affect the individual partner whose performance is found to be below standards.
This list was largely developed with the input of Edge International clients.
— Patrick McKenna
[Sidebar 3, p. 39]
Cerebral Calisthenics: Online Resources
Exercise your gray cells with these Internet thought builders. When it comes to being innovative, it pays to keep your mind in shape.
- Perform Some Mental Athletics http://freespace.virgin.net/david.weeks5/map
- Take a Creativity Test www.myskillsprofile.com
- Brainstorm www.brainstorming.co.uk
- Dive into the Creativity Pool www.creativitypool.com
- Visit Edward de Bono and Six Thinking Hats www.edwarddebono.com
- Go Spelunking in Charles Cave Creativity Web Site www.ozemail.com.au/~caveman/creative
- Get Unstuck, Get a Free Poster, Get the Idea www.whatagreatidea.com
- See How the Right Brain Works www.gocreate.com
- Mindmap with MindMan Software www.mindman.com
- Walk into the Enchanted Mind www.enchantedmind.com
- Get a Whack on the Side of the Head from Roger Van Oech www.creativethink.com