"What Are Other Firms Doing?" Wrong!

Have you been struck by how frequently the first question lawyers will ask, when exposed to a new suggestion about how they might run things at the firm (from the smallest to the largest issues) is:  "Well, what other firms are doing that?"

On one level, this is to be expected; we are trained to be creatures of precedent.  Likewise trained to be risk-averse, the answer (assuming it's "lots of other firms") will be reassuring:  None of those other firms has, as far as we know, sailed onto the rocks.  But if the answer is, "well, none, really—but don't you think it's a marvelous idea?," we know the initiative is stillborn.  The analysis hits a full brick-wall stop at the words "none really" and tunes out "but don't you think..."

As someone temperamentally disposed—for reasons I can take no credit for, it's just the way I grew up—to think more like an entrepreneur or businessman, this reaction has always, at some gut level, baffled me, as thoroughly as I nonetheless understand it intellectually.

Then it occurred to me that business does the same thing:  Only they call it "benchmarking."

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."

And the primary reason why internal "support" services must strive to provide "supra-commodity" levels of service is simple.  Commodity levels of service are available elsewhere, cheaper, faster, and better:

"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."

What's the strategy for your service units?  If it's embodied in the answer to the question, "What other firms are doing it?," your strategy, like it or not, is one of guaranteed mediocrity.

Posted by Bruce at July 7, 2006 8:16 AM | TrackBack
Posted to Cultural Considerations | Finance | IT | Leadership | Practice Group Management | Strategy

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