The latest issue of CIO Insight features a lead article called, "Most Companies Struggle to Measure the Value of IT," and headlines:  "No right way has emerged to measure IT value, and the most common measures fare the worst."

To hear them tell it, we are truly in the wilderness on this one, folks.  For starters, one clear finding that emerges from their study is that there is no one "right way" to measure the value of IT—and the companies that use the most popular metrics are also the worst at measuring value.

There's enough blame to go around, starting with executives on the business side:  In "four out of five" companies, they report, different executives want to see different metrics, "forcing IT to provide this potpourri."  But the very existence—and continued tolerance of—a "potpourri" testifies to the deep intellectual confusion surrounding this topic.  Consider that the single most popular way of getting one's arms around the ROI of IT, "time to payback," is used at 49% of firms who believe they "accurately capture the value of our IT investments"—but also at 73% of firms who believe their metrics do not accurately capture value.  Or that another perennial favorite, [(savings + additional revenues) - cost], is used at 38% of firms who believe their numbers are good but at 69% of firms who distrust their numbers.

If there's an ironic silver lining to this, it may be that an amazing four out of ten companies don't try to measure the value of IT at all, including two out of ten with revenues north of $1-billion/year.

This may not last, however, as a strong majority of CIO's report that CEO's and/or CFO's are looking for "new and better" ways of demonstrating IT value, and that the pressure to quantify the dollar value of IT's intangible benefits has increased in  recent years.   

Something fundamental is amiss here, and maybe the only good news is that CIO's and CEO's alike are skeptical of business-value metrics.  Across the board, roughly two-thirds of companies say that "it's difficult to calculate the ROI on IT;" 52% of IT executives believe business executives are skeptical of efforts to measure the business value of it, and among business executives themselves an indistinguishable 50% deem themselves "skeptical." 

But doesn't IT demonstrably improve productivity?  Didn't Our Esteemed Former Fed Chairman Himself testify to that effect in the late 1990's, attributing the economy's unprecedented ability to grow with low inflation and historically low unemployment to the beneficent productivity improvements of the technology revolution?  Or consider this more recent data point:

"In the first quarter of 2006, productivity in the U.S. grew 3.9 percent, according to the Bureau of Labor Statistics, considerably higher than historic levels. According to Federal Reserve Chairman Ben Bernanke, among others, information technology is a major reason."

Doesn't, in fact, common sense just tell us that IT improves productivity?  How did we ever get anything done in the days before the Internet?  Doesn't the drastic shrinkage in the ranks of secretaries give us visible proof, as we walk down the halls of our firms, that lawyers can and are getting more done with less?  Assuming your senses aren't lying, who can rationally question IT's contribution?

I'd like to suggest an entirely different approach to this debate, which appears to be stalemated. 

The brilliant advances in IT during our lifetimes—and shockingly, blindingly brilliant they have been—have, from the perspective of firms and organizations, constituted something of a technology "arms race," where equipping one's workforce with the latest is merely the cost of doing battle with one's competitors, who are simultaneously doing exactly the same thing.  Productivity increases, to be sure, but no competitive advantage is gained, and any claim (outlandish or conservative, it hardly matters) about the magic pixie dust of IT is rejected because it doesn't feel that progress is being made.

Nicholas Carr, the writer and former Executive Editor of The Harvard Businesss Review, famously stated this case in his 2004 book, "Does IT Matter?"   Essentially, the argumetn of that book is this:

So, yes, you are more productive.  But just as the BlackBerry raised client expectations surrounding responsiveness to hitherto unimaginable heights, you may not feel more productive:  You just may have learned to type your own letters when your secretarial support was downsized.

Can we, then, measure the ROI of IT?  Particularly in our world of intangible services, where client satisfaction is the metric of all metrics, I would simply say it's the wrong question.  Because there is no question IT helps us serve our clients.  And if that's true, I for one think the debate is over.

My friend Prof. William Henderson of Indiana University Law School/Bloomington has diligently worked on an analysis of the profits-per-partner of single-tier vs. two-tier law firms, which was just published in the  North Carolina Law Review (Indiana Legal Studies Research Paper No. 29, North Carolina Law Review, Vol. 84, May 2006), and a summary of which is now up on law.com. 

I'm personally very familiar with the piece, not only having read it in its entirety (and parts of it more than once)—you can download the entire thing from SSRN at Bill's page—but having co-presented an earlier draft of it with Bill to the Washington, DC office of Jones Day last year.

So the purpose of this piece is two-fold:  First, of course, to shamelessly promote Bill as one of the emerging leaders of "empirical legal studies" (data-based, quantitatively focused research on the entire legal industry food chain from law schools and law firms to bar associations, state regulation of the profession, etc.), and second to clarify and correct law.com's summary of what the paper does and doesn't show.

The key finding is that, even after correcting for the proportion of firms' lawyers in New York City and other "global" markets (which are universally recognized, I can say without fear of serious contradiction, to generate higher profits-per-partner than all other markets), single-tier firms generate significantly higher PPP than two-tier firms.  Here's to my mind the key table:

And this is how Bill summarizes the results himself in the paper's abstract, which I've taken the liberty of reproducing in full:

"During the last decade, many of the nation's largest law firms have converted from single-tier to two-tier (or multi-tier) partnerships. A two-tier firm contains separate tracks for equity and nonequity partner. The equity tier typically controls the firm and enjoys a larger per capita share of the firm's profits. At present, two-tier partnerships make up 80 percent of Am Law 200. The conventional explanation for the growth of the two-tier system (or, conversely, the abandonment of the single-tier) is that it produces higher profits per equity partner (PPP), thus solidifying the prestige of the firm and improving its ability to attract the best legal talent. Drawing upon a comprehensive dataset of Am Law 200 firms, this study documents that average PPP is significantly higher in single-tier firms, even after controlling for geographic market segment and firm leverage. The higher profitability of single-tier firms appears to be a function of higher levels of reputational capital, which enable single-tier firms to (a) attract and retain a more lucrative client base, and (b) run a more rigorous promotion-to-partnership tournament.

" Based upon a ten-year longitudinal sample, this study also found negligible statistical evidence that the two-tier structure, after controlling for relative starting position and geographic market, is associated with larger gains in PPP. In light of its uncertain financial benefits, the author theorizes that the two-tier structure is primarily a bonding mechanism used by less prestigious firms to institutionalize a marginal product method of partnership compensation and consolidate managerial control for the benefit of the firm's most powerful partners. Failure to switch to the two-tier structure leaves the firm vulnerable to defections and possible collapse. As a result, the primary economic benefit of the two-tier format may be firm stability rather than higher average PPP. Finally, this study provides some evidence that the appeal of permanent nonequity partnership status, which typically entails fewer professional demands, may set in a motion an adverse selection problem at the associate recruitment level, thus undermining some of the perceived benefits of a two-tier (or multi-tier) format."

There are several things the paper does not demonstrate, nor attempt to demonstrate, perhaps the primary one of which is that being single-tier in and of itself causes higher PPP.   Rather, the causality seems to run this way:

• Single-tier firms are more prestigious, or put in economese, have "higher reputational capital," than two-tier firms.
• This prestige both means that they can retain and attract high-end corporate transactional and other "money center" work.
• Which are intrinsically more lucrative and less fee-sensitive.
• Yielding higher PPP.

One of the most interesting "unintended consequences" of the switch to two-tier that Bill's paper elucidates is the effect on the composition of the base of lawyers two-tier firms are able to recruit from, and the composition of lawyers who stay at the firms to make their careers:  They are, to put it bluntly, less ambitious than those gravitating towards single-tier firms. 

As unintended as this may have been for firms making the switchover to the two-tier structure, in the past decade or two, it's blindingly foreseeable.   A non-equity partner enjoys, the vast majority of people would probably agree, an enviable life:   Relatively high pay and relatively high prestige for essentially the indefinite future barring malfeasance or a sudden fit of slackerhood.    From the individual's perspective, "what's not to like?"  But from the two-tier firm's perspective, they have accomplished two things:

• Created, for all practical purposes, a permanent class of "super-salaried" associates who, by hypothesis (otherwise they'd be equity partners) are not gifted at business and client development; and
• Created an "adverse selection problem" by removing the draconian up-or-out incentive to perform at an exceptionally high level.

Finally, Bill's paper does not remotely show that switching to two-tier was "a mistake" for firms in general or any particular firm.  There are clearly cultural advantages to firms that do not unilaterally dismiss people who may be performing at a very high level but still aren't Olympic medalists.  Nor can we perform the counter-factual experiment of looking at how those firms would have done had they remained single-tier.  For a variety of reasons upon which Bill elaborates, they might have done far worse than they're doing today—even imploded.

I commend the whole thing to you.

Legal Week argues that "ensuring the best individuals make it up the partnership ladder has never been harder."

They (properly) cite the landmark McKinsey study of nearly ten years ago, The War for Talent, which surveyed 6,000 executives from the "top 200" ranks in 77 large US companies across a variety of industries to conclude that the ability to attract the "best" people raised shareholder returns significantly over firms who couldn't recruit or retain the best.  Since you as an equity partner are the shareholder par excellance, I assume you're paying attention.

Why has it "never been harder?" 

"Critical talent is scarce and about to get even scarcer because of two looming trends," [their report] stated, "the retirement of ‘baby boomers’ and the growing skills gap."

But don't law firms already have the selection process for the winners of the "war for talent" tournament down pat?  For internal, "home-grown" people, it's the simple hire-from-top-law-schools, up-or-out, process.  To be sure, a third-year law student or a first-year associate (essentially, indistinguishable commodities) are unknowns, but "time will tell."  There's a comforting belief in survival of the fittest to be partners. 

And while I myself have argued that the best series of sequential selection-gates for a career that involves punishing hours in exchange for high prestige and high pay is eight to twelve years of punishing hours in exchange for high prestige and high pay, we all know at bottom that being a successful partner bears little resemblance to being a successful associate.  Or, at least, "fitness" as an associate is necessary but by no means sufficient to demonstrate "fitness" as a partner.  In other words, what if our "survival of the fittest" contest primarily selects for "survival" and a lot less so for "fittest?"

But then there are always laterals to fill the gaps, right?  (After all, if the associate selection/retention/promotion process were perfect, there would be a far smaller lateral market, reflecting primarily shifts in prominence and attractivenes of practice areas and the need for seasoned practitioners in previously unexpected areas.)

But if you believe Legal Week, the price tag on a "big player just below partner level" is £2M, or US$3.5M—taking into account all the associated costs including six months to a year of being relatively unproductive.

Are you depressed yet?

I'm here to tell you it's not as hard as they'd like you to believe. On this score, the original McKinsey piece has words that ring clear for law firms.  For example, while most corporations have very low turnover among their "top 200," this is not what they should be focusing on (emphasis supplied):

"It is the early and middle ranks of managers three to eight years out of college, their basic training already paid for, that represent a company’s investment in its future. [...] The situation will come to a head as the number of 25- to 34-year-olds continues to decline over the next decade, and as their perception of future opportunities dims with the preponderance of older executives occupying the top positions in most companies.

"Paradoxically, it is the companies that have done the best job of recruitment and development that may be most at risk from poaching. But every company needs to understand why its high performers are leaving. Attrition must be tracked by performance level. The common practice of tracking voluntary as against involuntary attrition is not good enough: it’s probably your high performers who are choosing to leave.

"Creating and delivering a great employee value proposition is clearly the best way to retain people, yet only 16 percent of those surveyed say they are effective at giving high performers more exciting jobs to retain them. What can you do? Start by giving them a sense of belonging; as John Doe of Arrow Electronics points out, "It’s harder to quit if you are having lunch every quarter with your mentor." Send them a clear message that they are valued: two very well-run companies recently discovered that several high performers had no idea that they were highly regarded and were being groomed. And wherever possible, give them a great boss.

"Just as account managers nurture and develop their key accounts, someone in every company should be responsible for nurturing and developing each key employee. Top-potential people should never fall off the screen."

I recently was invited to attend a day-long meeting of the managers of an AmLaw 200 firm on the strategic question of what to do with an office in a very challenging marketplace which they had opened some years earlier because the opportunity arose, but which had never benefited from an integrated vision of how it would cohere with the rest of the firm.

In fairly short order, a consensus arose that making strides in the difficult marketplace was all about "talent"—finding it, recruiting it, retaining and growing it.  Surely, if this is true for corporate America, it is true in spades for law firms. 

The question remains:  What armaments are available to fight this war?  How exactly does one wage the talent war?

Here the Legal Week piece calls for "flexibility in career structures...in line with broader lifestyle aspirations."  How often have we heard this before, and how often is it honored in the breach?

McKinsey reports dramatically divergent news.  Here are the most, and least, important contributors to career satisfaction, and the percentage of people citing them:

• firm's values and culture (58%)
• freedom and autonomy (56%)
• exciting challenges (51%)
• a well-managed firm (50%)
• career advancement and growth (39%)
• [...]
• respect for lifestyle (14%)
• job security (8%)
• acceptable pace and stress (1%)

"Flexibility" and "lifestyle" are almost below the horizon.

So you can just work everybody 2,200+ hours/year and assume that if your firm's "values and culture" are outstanding (which indubitably they are!), you have no attritution problems?   Not exactly..

You must also:

• Challenge people by putting them in jobs before they're entirely ready
  • and monitor them closely
• Put a good feedback system in place
  • and actually use it
• Truly understand your attrition problem
  • you could start by telling the stars that you think they are stars
• Move decisively on unsatisfactory performers
  • weak performers cause negative vibes and depress morale.

None of this is rocket science; but the £2M you save could be your own.

Rarely do the stars align to find David Maister, Richard Susskind, and Kieran Flatt (Legal IT) all writing about the same thing at the same time, but when it so happens the opportunity to try to synthesize their thinking is too rich to pass up.

The common topic du jour is essentially the payoff of IT investments in law firms:  Do, in a nutshell, investments in IT pan out positively in revenue and profitability growth?

Kieran is squarely in the skeptical camp:

"I for one have yet to see any sort of technology that really does deliver a substantial competitive advantage to medium-sized City practices. Turn the clock back a few years: some of the leading firms had bugs, glitches, performance problems or stability issues with their document management systems (DMSs). Most, if not all, of these gremlins have now been sorted out, but for a long while the affected firms had to carry on running older, less sophisticated software — and they continued to make money at pretty much exactly their usual rate.

"Rather than proving anything about the respective merits of the various DMS platforms on the market, I would argue that this case proves DMS is nowhere near as critical a resource as it is usually made out to be."

He is not only a skeptic, he's an IT Minimalist:  "Only three aspects of a firm’s IT function really are mission-critical. You guessed it — the telephone and e-mail services and the billing system."

To be sure, he readily admits that the Clifford Chance's of the world could not exist in their current form without sophisticated globe-spanning IT infrastructures, but how many firms are in Clifford Chance's league?   Here's the dilemma he sees; firms have essentially two choices.  You could call the first the Clifford Chance  Model and the second the Wachtell model:

"Either get big and global, rely on good management and innovative systems, commoditise much of your business and slash your margins to compete — which gives the leaders of the IT department a vital role in driving profitability and running the business — or just focus on providing good support IT, keep costs to a minimum and expectations low, and let the fee-earners and partners get on with making the money."

In the course of his piece, Kieran refers to David Maister as "the high priest of profitability," and tags David as a disciple of the second alternative—empower the fee earners to make money and get out of their way—and characterizes David's view as one that "focus[es] almost exclusively on excellence .... with much less emphasis on strategy, processes, technology and management structure than is the norm."  Strategy and IT be damned, in other words.

David's gentle rejoinder and "clarification" put the stress on actually changing the behavior of professionals rather than on grand strategic visions.  And he exposes (some firms') use of technology as a smokescreen for avoiding the hard work of actually improving the quality of human interactions, which are the only source of sustainable and distinctive success in a professional services firm.

"Too many places put in new tools so that the front-line senior people won't have to change what THEY do, - ie, they pass the task of achieving competitive advantage on to the techies. Firms have taken this approach for a long time - they would rather spend money on low ROI activities than change personally. They did this in marketing, always looking for something (branding, PR, brochures, websites) that could be done by somebody else, so they (the front-line senior professionals) wouldn't have to change the way they dealt with clients and customers."

Technology may be great in the hands of enthusiastic and energetic people, but if the availability of sophisticated IT tools leads people to the view that IT is primarily, or even substantially, responsible for the firm's success, you have taken your eye off the ball of your professional offerings and your clients.

 Richard Susskind squares the circle by asking, "SHOULD lawyers be technology pioneers?", and proposes three possible reactions of law firms when confronted with (say) an encomium to the fabulous promise of wikis and blogs:  They can of course resist; they can prepare to take action; or they can be pioneers and lead the way. 

Richard notes the rigors of true pioneering:  "Successful pioneering in IT is not temporary pacemaking. It is about striving to keep ahead of the pack and reaping substantial rewards as a result."  It's not a one-off sprint, in other words, but an ongoing and sustained distance race.

The question remains:  Is it a race worth running?

You can also count Richard in the Scottish verdict ("not proven") camp:

"It is not yet clear whether it pays for lawyers to innovate in IT. Did great benefits accrue to firms that led the way, for instance, in advanced financial systems, document management systems or in human resource systems? Was the investment in the early bespoke systems worth it or might it have been better to wait for off-the-shelf solutions?"

His true belief is that any system, no matter how well-crafted and effective, that faces inward to benefit the way the firm works, will never provide a competitive advantage.  Only systems that face outward to engage clients—and to make those clients' "switching costs" (to another firm) extremely high, will provide sustainable competitive advantage.

I know of one firm that's actually doing this today. 

So we have three luminaries converging on one tentative hypothesis:  If IT in law firms doesn't:

• face towards clients;
• give practitioners tools they can use enthusiastically; and
• enable migration towards higher-quality, more effective personal one-on-one interactions,

then it is not worth the candle.

My friend Professor Bill Henderson of Indiana University Law School/Bloomington continues his fascinating empirical research into the legal profession with a new piece which analyzes, over the past 20 years, the geographic migration of large law firms and their lawyers vis-a-vis the migration of the Fortune 500.

Before we get to the data, I want to give you a chance to hypothesize about what it will show.  The migration of Fortune 500 headquarters has been...?  Indeed, largely from the Northeast and Midwest to the Southeast and Southwest.  But the migration of AmLaw 100 firms—and their concentration of lawyers by headcount, which is actually the statistic of greatest interest—is perhaps not so intuitive to divine.

In reviewing academic and popular literature on geographic factors and trends, one is immediately struck (certainly Bill was) by the ink spilled over the subject of "Global Cities" or "World Cities."  They are, in short, centers of international business and finance.  What makes a city "Global?"  Researchers obviously have their different methodologies (airline links, concentration of banks and securities firms, etc.), but one that all agree is non-negotiable for a city to qualify is a high concentration of sophisticated service providers:  Accountants, advertising executives, investment bankers, management consultants, and lawyers.

Bill theorizes that the two "primary drivers affecting the  geographic growth patterns of large U.S. law firms" are what he calls "Follow the Client," and "Follow the Lawyer." 

I happen to agree, as these coincide with the demand (client) side of the law business and the supply (lawyer) side.   AmLaw firms will "follow the client" by migrating to the Southeast, Rocky Mountains, and Southwest.  But by the same token, clients will "follow the lawyer" by selecting high-end legal services from providers in Global Cities, when the last word in sophistication is called for.  In the US, says Bill, that means New York, Chicago, Washington, DC, San Francisco, and Los Angeles—with New York "always number one."

Finally, the irrepressible quant in Bill creates a statistic to compare the relative regional concentration of AmLaw 200 lawyers to the relative regional concentration of Fortune 500 firms.  For lawyers, it's the region's percentage of all AmLaw 200 lawyers and for the Fortune 500 it's the region's share of F500 revenue.

And the bottom line is?

Despite the fact that both the Northeast Corridor and the Midwest have been losing Fortune 500 firms at rougly the same rate, the two regions diverge sharply when looking at changes in AmLaw 200 lawyer headcount.  As Bill writes, the Northeast Corridor "has emerged--or consolidated its position as--the center of the large law firm universe.  Although it accounts for only 30% of the Fortune 500 revenues, it has 48% of the Am Law 200 lawyers."  And it's a strong net "exporter" of legal services, whereas the Southeast and Southwest are large net "importers" of legal services.

Coincidentally, Fortune just came out with its "Global 500" for 2006, which aside from ranking companies, interestingly, ranks cities by number of Global 500 firms headquartered there, and shows total annual revenue of those firms as well.  Here are the top 5, although I'd actually argue the first four are in "a league of their own," given the more than 50% dropoff between #4 and #5:

Lastly, for fun, Fortune mapped cities into visual size-by-revenue charts, which gives us the US, the UK, Germany/Italy, and Japan.  (Countries are not to the same scale.)

Are you looking at the face of the future distribution of your firm's lawyers?

If so, you may not be alone.  Indeed, Harvard Business School professors Clark Gilbert and Joseph Bower have recently published a new book, "From Resource Allocation to Strategy," explaining the forces that can shape strategy in unintended ways and make the "realized" strategy different than the "intended" strategy.  In an interview with Harvard's Working Knowledge, they explain the fundamental insight of their research:

"If you add up what [a firm's managers] actually do, which ideas they choose to bring forward, and which of those get funded, the consequences of that activity is what adds up to the strategy of the company, not words on paper."

After all, "what people actually do" reflects internal factors such as their incentives and the reporting structure, as well as external factors such as clients, competitors, and marketplace trends.

And there's another factor:  Much of what ends up being your strategy is generated farther down in the organization, not within the executive committee.  For example, what if a loyal client expresses an interest in, say, project finance?  My bet is you are about to find you have a shiny new project finance practice group—whether or not that was part of The Strategy.   Being business school professors, they have a label for this phenomenon:  It's the client "capturing the resource allocation process."

Or, consider this real-world example from the post-dot-com era: 

"[S]enior management at a U.S. newspaper company says, "We need to get into the Internet, we need to prioritize this and make a big investment."  But then at the operating level of the firm you have a sales rep who is used to selling a display ad for $40,000. The new business has a lower gross margin, the customer who is buying it isn't the rep's traditional customer, and the price point isn't the same. And so that sales rep says, "Well, I can sell a $40,000 display ad, or I can go out and find one of these new customers and sell them a $2,000 banner ad.""

In other words, "line" and operating managers can have a powerful impact on whether or not The Strategy takes wing.

At your firm, suppose The Strategy calls for growing the share of revenue that comes from new clients, since management is afraid you're overly dependent on a few huge clients, the loss of any one of which would be extremely painful.  Now let's suppose billing partners are equally rewarded for every dollar of business under their wing, whether it comes from new clients (hard and time-consuming to get) or existing clients (pick up the phone and they're there).  

If that's your firm—or if anything resembling it where there's a disconnect between The Strategy and the factors affecting how managers choose to allocate resources is your firm—the incentives for allocating resources will trump The Strategy every time.  

A fascinating, and wonderfully serendipitous, example of this occurred a few decades ago at Intel.  As far as "corporate" was concerned, Intel was a memory chip company.  But in the manufacturing organization, the key performance metric was maximizing gross margin per square inch of silicon wafer.  As the computer industry evolved, it became clear that microprocessors offered bigger bang per square inch than memory chips, and the transformation of Intel was for all intents and purposes irreversible.

What are the good professors up to next? 

They promise to pursue research into strategic redirections in new, small, and startup ventures, where nimble mid-course corrections can be the difference between life and death of the enterprise, and are looking into "What are the things that will help those redirections occur?"

Finally, lest this piece seem to add yet another incalculable layer of complexity to your challenge of getting a bunch of autonomy-seeking Type A's to ever ever agree that the battlefield is that-a-way, the professors are on your side:

"One consequence of this research is that we have begun to get a picture of just how complex a job it is to manage a large [firm]. And in this way, in a sense, we have gained a much better sense of how the corporate office adds value. So my work right now is trying to express what corporate value added is. Most business units think that "corporate adds overhead and that's about it." But in fact, great corporate offices do a number of very important things in driving a company."

That's what The Wall Street Journal is reporting on today, and while it's not my practice—indeed, I intentionally avoid it 98% of the time—to cite pieces in the WSJ (on the theory that you've all seen the piece already, or shortly will)—this one begs for a brief gloss, if only to comment upon how breathtakingly obvious are the measures these firms are taking.

The firms, all New York-based, I am quite proud to say, are Curtis, Mallet-Prevost, Colt & Mosle (dead last), Cahill (second to last) and Proskauer (third to last).   What's the gripe?  Essentially, it's all about communication:  The lack thereof.  

One Cahill associate reports (in the original piece in The American Lawyer) that his mentor "just yells at me" when giving quote-unquote feedback.  At Howrey, one offers up this:  "Learn to communicate. It is easier to hack into the CIA computer network than to learn about executive committee decisions that affect everyone." At Proskauer, associates learned about two highly material developments—the opening of a Boston office and the acquisition of litigation boutique Solomon Zauderer—in the press!  (You cannot make this stuff up.)   Another Proskauer associate reports that she came to her annual review prepared to discuss specific, scarcely radical, suggestions for how she could improve her skills (more involvement in depositions, e.g.) and the partner dismissed it all as something she shouldn't trouble herself with "at your level."  It was, she reports, "like talking to dead air."

Now, to the firms' reactions:  What's remarkable is how simple it is to avoid landing in this particular uncomfortable corner, and how the moves the firms are making to address the problem are so elementary they barely qualify as Management 101:

• Cahill Gordon told its associates what the American Lawyer numbers on revenue were likely to show before the piece was published.
• Proskauer held "town-hall" meetings where associates could ask questions of management, and began putting associates in the loop about the firm's finances and strategy.
• Curtis, Mallet initiated quarterly meetings with associates, and invited associate participation on a handful of firm committees.

Essentially, the firms vowed to behave as though associates (a) had opinions (b) which were worth listening to.   Not a bad start, when you consider that, as Roger Meltzer, chair of Cahill's hiring committee, puts it: "Whether they're mid-level or senior associates, they're the next partners of the firm."

However, in the "be careful what you wish for" category, we now have a study out of Harvard Business School, examining a small advertising agency (given the sobriquet "Maverick Agency," not its real name) determined to embark on an unconventional path by, among other things:

• creating ad hoc teams for every client project, of people who would come together, do the project, and disband;
• working for clients only on a project basis, rather than the conventional "brand stewardship;" and, critically
• preaching—starting with the CEO—the virtues of openness, diversity, unpretentiousness, a sense of community and lack of hierarchy.

Interestingly, the professors first approached "Maverick" as a case study in team creativity; it was only as they got deeper into the research, and spent time at the firm interviewing employees and watching them interact, that they changed the focus of the study from team creativity to what happens with corporate values gone wrong:  Namely, "Employee Cynicism."

Here's their core finding:

"As we conducted our interviews with employees, there was a recurring theme: values. Many employees told us that the best thing about the company was its values. But employees also said that the worst thing about the company was that the CEO had been, from their point of view, breaching the values that he himself had developed for the company. Unwittingly, even a committed leader may appear to followers to be violating principles he or she has espoused."

How does this happen?  Through what the professors label as, and what we've all experienced:

So if a core value is "a sense of community," as it was at Maverick, don't be surprised if employees think that value is being breached whenever someone receives a negative performance review or a senior person makes a unilateral decision without seeking consensus (potentially for any one of a number of very good reasons, by the way).

How, then, to avoid the impression of hypocrisy?

It starts, as so many management/leadership issues do, with communication, thorough airing of what the firm is trying to accomplish, and continuous opportunities for two-way dialogue.  Fleshing these out, senior management needs to:

• Acknowledge, explicitly, that different core values of a firm can actually be in conflict, and make sure the debate about which receives priority in what context is wide-open and conducted with all cards turned face up.  For example, the value of "professional development" can be in conflict with the value of "the client always gets our most experienced person for their issue."  Talk about this.
• Provide a "comfort zone," or a psychological safety zone, as the authors put it, within which employees can express their fears, misgivings, and even their distrust or budding alienation.  Within this zone, speak as candidly and comprehensively as possible.  For example?  Well, they cite the case of Dreyer's Grand Ice Cream (known here in the East as Edy's), which due to a combination of skyrocketing commodity prices and intense competition had to undertake a drastic financial restructuring in 1998.  Rather than simply announce the news to the financial community and let middle management carry out the dirty work, senior management flew to every Dreyer's facility in the country and explained, until no more questions were forthcoming, to all employees why they needed to do what they were and what the implications would be for everyone.

What else is to be done? 

While bare naked hypocrisy is not an approach anyone this side of Caligula would endorse, recognize that circumstances can transpire to paint one into that nasty box: 

"Hypocrisy may be unavoidable for leaders in the modern world. With rapid changes in the environment, it can be very hard for leaders to keep promises at "Time 2" that they made at "Time 1.""

If this happens to you—if, say, you've promised associates will be up for partner in their 7th year, and for competitive reasons you have to change it their 9th year—then it's time for what will be one of the more painful, albeit essential, public grillings you'll get.

Like the senior executives at Dreyer, you'd best be prepared to stand in the well of the auditorium (symbolically at least), taking questions from the floor until there are no more questions.  And do it again on a regular basis until the storm has passed.

Don't like it?  Think that it's unfair that someone such as yourself of unquestionable upright moral fiber could ever be accused of hypocrisy, when all one has at heart is the firm's best interests?

As they say on the ball field, "Suck it up."  And as I say on "Adam Smith, Esq.," "That's what you get paid for."

Hence to Harvard Business School's Working Knowledge to see what the managerial wisdom has to say on this topic, and here's the best piece, from earlier this year, "When Benchmarks Don't Work." 

Their definition of benchmarking: 

"The ongoing activity of comparing one's own process, product, or service against the best-known similar activity, so that challenging but attainable goals can be set and a realistic course of action implemented to efficiently become and remain best of the best."

Unlike too many definitions, this one actually embodies some insight into what the activity under consideration is designed to achieve:  And it reveals an internal contradiction.  It simultaneously asks one to "compare...against the best-known similar activity," and then, as an utter non sequitur, proclaims that the goal of that comparison is to "become and remain best of the best."

Are you sensing the same cognitive disconnect I am?  By hypothesis, comparing yourself to others is at odds with becoming the "best of the best."  (To be sure, it's mere managerial good hygiene to know what the competitive landscape looks like, but if you're counting on scrutinizing that familiar territory to spark the Eureka moment transforming your firm into a Wachtell, write me about it when you're done.)

But back to our friends at Harvard Business Review.   They clearly demarcate the value of benchmarking for internal commodity-like processes, services, and functions, from its utter inappositeness if applied to core functions.  More strongly, they posit—with inarguable correctness, in my mind—that even internal "support" services should provide more than commoditized levels of service (emphasis supplied in the following): 

"But benchmarking also has its limits. When you ignore the differentiated output that internal support or shared services groups provide, such straight-across cost or numeric comparisons become meaningless. Today's successful support unit earns its keep by being a trusted partner to the business units it serves. So, comparing its results to those in a benchmarking survey is counterproductive. Companies should save the benchmarking surveys for commoditized processes or services."

"Perhaps many HR, IT, and finance departments do indeed strive to be low-cost suppliers of standardized services. But if so, they are not likely to remain internal departments for very long. After all, an outsourcer of these services enjoys economies of scale that virtually no internal support unit can hope to match."

What does this mean on the ground?

For HR, it means that an "expensive" department that takes professional development seriously is earning its keep.

For IT, it means that supplying analytic applications and decision support methodologies individually tailored to your practice groups take it well above "commodity," transaction-processing mode.

For finance, it means that if it provides practice group leaders and billing partners highly granular information on the profitability of individual matters, clients, and sub-specialties, it is earning, conservatively, 10 times the extra amount it "costs" to offer that expertise.

This is the bottom line, and what your "support" departments should aspire to:

"[S]ervice units whose goal is to provide differentiated services and to upgrade the skills and capabilities of their professionals will necessarily spend more. They are not less efficient than their low-cost counterparts; rather, they expect to create even more value for their enterprise. Their strategy is fundamentally different."

Today's lesson features Greg Jordan of Reed Smith, who recently engineered the merger of his firm with Richards Butler of London, and who, according to The Lawyer, is the "one man who can pull it off."

Start with these numbers, showing percentage change over the last five years (and this year's PEP):

All of these are top AmLaw firms, and I will also tell you that all three have made serious strides on the international front in the past five years.

Any guesses as to the identities?

• A = Jones Day
• B = Mayer Brown
• C = Reed Smith

As The Lawyer puts it (emphasis supplied), admittedly Reed Smith is growing off a smaller base:  "Its PEP has only just overtaken Jones Day and lags behind MBR&M. But Reed Smith is closing the gap - and it has momentum."

Part of Reed Smith's secret weapon is simply Greg Jordan, the managing partner.  Did you make the Wheeling, West Virginia connection before reading it here?  (I confess that while I knew it as a fact, I never connected the dots.)

"One of the things that Reed Smith has going for it is Jordan himself. If you ask senior Richards Butler partners why they think the combination is a good one, it always comes back to Jordan.

"Jordan grew up in the small town of Wheeling, West Virginia, as did Orrick Herrington & Sutcliffe's charismatic chairman Ralph Baxter, and both share that evangelical zeal for their firms that has been essential as they globalise. Indeed, Jordan acknowledges: "Ralph is a great leader and role model for me.

Compare Jones Day and MBR&M: Quick—name the US heads of either firm.   Sorry, they're not in my Rolodex either.   Now, anonymity isn't the worst thing:  But making serious strides across the world stage requires rallying the troops and making every one understand what the game is and why they should feel (and behave) as if they're on a winning team. As Jordan puts it:

"You can't underestimate this. The enthusiasm and excitement of this change does cause people to be fully re-energised and we expect to see that in both firms.

"Secondly, there is already, even before the vote, an influx of new business. The new business that the combined firm attracts as a result of the combination tends to be at a higher value level.""

Michael Pollack, Reed Smith's chief strategy officer (who is relocating his family to London to oversee the integration), observes wisely—but how many others actually walk this talk?—that "neither firm is necessarily better than the other.   Sometimes we use the Reed Smith way of doing things and sometimes we use the other firm's way of doing things.  We never come at it with a dogmatic approach."

Few remarks augur better for the merger.

Finally, note they've already bitten some of the hardest financial bullets:

• all equity partners in either firm automatically join the merged firm as equity partners
• all non-equity partners in either firm automatically join the merged firm as income partners
• profit pools will be merged in full as soon as the merger is effective.

Lastly, the line that got my attention more than anything in the entire piece is buried nearly at the end, when Richards Butler Chairman Paul Johnston says:  "The executive [committee] is on the back seat.  It's a check and balance to the management team, which makes the decisions.  It just ratifies those decisions."

Imagine that model!  But with Jordan and Pollack the core from the Reed Smith side, the omens are good.  I'll give Michael the last word:

"Greg is clearly the cheerleader, but one of the great things about our management team is that ideas are flying around among us all the time."

Does this sound like your management team?  If not, why not?

As I say, people make the times.  Don't let the times make you.

The Financial Times has a special report on "Innovative Lawyers 2006," which I commend to you essentially in its entirety.  It's thoroughly researched, involving soliciting submissions about "innovation" from the largest 200 firms in the UK, establishing an expert panel of judges, and carrying out over 500 interviews between April and June 2006.  In the end, over 300 separate submissions were received from 66 law firms; the FT rounded out the research through canvassing general counsels at FTSE 250 companies for nominations of private practice lawyers they thought stood out on the innovation dimension.

Rigor was the order of the day:  For example, nothing submitted could be more than three years old; the law firm itself, rather than a client or consultant, had to have come up with the "innovation;" and merely excellent practices—which weren't innovative—were rejected.

The highlight/summary article is here.

The Top 10 (the judges' choice) ranged widely, but had in common that no other firm was or had been doing it; that they bent if they did not break the traditional notion of what "business" a law firm is in (for example, Allen & Overy won in the "corporate social responsibility" category for its program of targeted donations to legal aid centers), and they were often the children of single individuals inspired to create something new.  As the FT report drily puts it, "law firms have no tradition of R&D."

Some of the other key insights:

• Since, as noted, many of the innovations were the brain-children of individuals ("mavericks," anyone?), they tend to reflect idiosyncratic views of what's important:
  • Brain Capstick, founder of the London-based top-100 (UK) firm Capsticks (in 1979), started pursuing medical malpractice cases, but in an example of the "poacher becoming the gamewarden," realized he could do better by offering his expertise to help doctors and nurses avoid making mistakes in the first place. 
• Derek Southall of Wragge & Co., formerly a corporate finance lawyer, now leads the firm's strategic development team, and came up with the notion of offering "free" IT strategy reviews to the firm's clients, incorporating the best learning that has come out of the firm's own intranet and extranets.   The FT realized the primacy of technology in this fashion:

  "Technology was the second most subscribed category of innovation. It is ideally suited to the primary nature of the industry, which revolves around processing information to provide advice and build relationships with clients.
  
  "Submissions were ranked primarily on facilitating client needs. “Rather than looking at how they use the technology internally, law firms should focus on using it to enhance the client-service experience,” advises Richard Susskind, a consultant in legal technology."

• Also at Wragge & Co., in recognition of the fact that the employment law market is more cost-sensitive than some other areas with “large employers demanding more law per hour from their advisers," they have done all they can to commoditize case-handling in this area, allowing the use of more junior level lawyers.  According to Wragges, "it has increased success rates to about 99 per cent, and reduced costs by up to half."

Still, for my money, the major "innovations" the FT discusses are important, ground-breaking, and merit attention.

This cannot be, or cannot remain, the case:

"The head of legal at a FTSE 250 company went silent for a few minutes when we asked him to mention an innovative lawyer he had used. Then he said he did not think it was possible for lawyers to be innovative."

Indeed, Allen & Overy dedicated an entire day at its last partners' retreat to the issue of in novation, and David Jabbari, their global head of know-how, says that innovation "is critical because it is the only tangible way we can demonstrate our thought leadership to clients."

And the focus is on clients, not internal:

"Five out of the nine categories of the report are “client-facing”. Law firms which merited a “stand-out” ranking for client service, legal expertise, value for money, billing and IT claim they have shown that their innovations have had real and lasting impact on their clients."

For example?  Well, Brian Capstick has changed the way hospitals attend newborns, lowering birth defects, lowering miscarriages, improving infant health.

Norton Rose is working on "Takaful" insurance products, which are Sharia-law compliant and will potentially allow the 20% of the world's population which is Muslim to have access to insurance.

Mishcon, a mid-market London-based commercial firm, has pioneered the "Tulip" service, essentially a program to help trademark owners fight against counterfeiting; it aims to “turn losses into profits” by attempting to calculate the amount of the ill-gotten gains of counterfeiters so that the brand owners can (a) decide whether the infringement claim is worth pursuing; and (b) have a colorable basis for damages from the start.

 Why aren't more firms being innovative?   The well-known Richard Susskind, author of The Future of Law, puts it nicely:  “It’s hard to convince a room of millionaires that their business model is wrong.  They like the idea of innovation but want it on a plate.”

Finally, the most fascinating aspect discusses innovations in management of firms.

This is how the FT (kindly) introduces the topic:

"[L]awyers have never been at the forefront of management thinking, and that has made this category particularly difficult for deciding the rankings. Examples of innovative management projects were relatively thin on the ground, but some did stand out."

The difficulties, familiar all, are:

• The era of the gorilla rainmakers ascending to the helm, while rapidly waning, are not yet entirely gone.
• The intrinsic nature of a partnership involves a core component of democracy.  If not pure Athenian democracy, then at least "consensus" is a core value; but a $500-million or $1,500-million/year enterprise simply cannot be run along democratic lines.
• For now in the UK, and for the foreseeable future in the US, non-lawyers cannot be granted equity in a firm, so retention and recruitment of the highest-caliber "C[X]O" people becomes an issue.

The best news of all?  There is a series of firms that won Innovation Awards.  And, the more attention this gets in the world writ large, and the more clients attend to it, the more we'll be challenged to ask why, just because it was done that way yesterday, we should do it that way tomorrow.

Who knows?  Imagine the law firm that creates a Director of R&D.