Four Powerful New Capabilities: Adapt or....

Yesterday's post about the Hildebrandt/Citigroup annual 2004 recap said nothing about a topic they dwelt on which I deemed sufficiently distinct and newsworthy in itself to merit separate commentary.

Specifically, they cited four developments in firm structure and operations deserving of discussion:

1. "rationalizing" partner compensation structures to fit market realities;
2. a focus on formal "client relationship management" (CRM) systems;
3. the ongoing evolution of practice group management as "the key driver of firm strategy;" and
4. recognition of the importance of comprehensive professional development programs.

Partner Compensation

The good news is that profits per partner have never been stronger; the bad news is that "grid creep" means some partners are being compensated above what their contributions justify and/or above what they could command in the open market.  The tactical responses to this anomaly take various forms, but all have the goal of increasing case-by-case flexibility, including:  paying more compensation in the form of bonuses; "stretching" the point spread both at the top and at the bottom; forcibly moving some partners down in points or tiers. 

Second, firms just below the top tier find themselves exposed to the threat of losing their highest-performing partners to the first-tranche firms; the response, predictably, has been to increase compensation at the very top of those firms, even driving some to produce ratios as high as 10:1, including top-end bonuses.  (A more typical top-tier firm ration in the US and the UK is 3:1 or 4:1.)

Lastly, invoking "you pay for what you want to get," teamwork has emerged as a formally recognized component of evaluations.  Origination credits, beware!

CRM

While relatively new to law-firm-land, CRM systems have been common for years in the world of large accounting, investment banking, and management consulting firms.  As with knowledge management, getting CRM to truly work in a law firm is 98% cultural and 2% technological.  There is no "one size fits all" here, either across firms or across practice groups or clients within a firm.  If your firm (or its key partners) reacts to the notion of CRM with, "What's in it for me?," I highly recommend this marvelous, accessible, plain-English, clear-eyed overview of what enlightened CRM is and what it can accomplish (courtesy of Stanford University).

The bottom line?  Firms that intelligently and enthusiastically adopt CRM will enjoy a truly distinctive competitive advantage over those who don't.

Practice Group Management

Paying lip service to practice group management is, by now, all but universal, but the news here is that firms are getting serious about making it effective, by:

• aligning compensation metrics to encourage contributions to practice group activities;
• clarifying the role and authority of practice group leaders;
• dealing with partners—"including major rainmakers [!]"—who visibly undermine it; and, most importantly
• the continued evolution of the role of "Practice Management Professional."

Since this last item itself essentially embodies firms' commitment to practice group management, it's worth quoting directly how they describe the position:

"These persons are high-level business managers who assist department chairs or practice group leaders in running departments and practice groups. In many firms, they are now given significant authority for financial management, dealing with partners on issues such as client and profitability management, workload allocation, and input in evaluations. The roles are designed to take as much of the day-to-day management burden off practice group leaders as possible, so that the leaders can focus more effectively on those issues that can only be addressed by a partner or the leader of the group."

This strikes me as simplicity itself:  Let lawyers practice law and let the business-minded manage.  Breathtaking, isn't it?

Professional Development

It cannot be said too often:  Your associates are your future, and your partners are your current, revenue stream.  It is literally an act of insanity (in the sense of being divorced from reality) to be inattentive to these indispensable, core assets.

More importantly, leadership skills are not taught in law school, but today's complicated, globalized firms demand both strong and nuanced leadership ability.  Leadership is difficult to develop, but that's all the more reason to devote focused attention to it.  ("Reed Smith University" being a prime, laudable, example.)

So what?  So you now have a checklist of what the best and brightest of your competitors are doing.  To the extent they succeed, clients will notice; and if you aren't trying as hard as another firm, how do you plan to respond to your clients who do notice the other guy?