The book and academy-nominated film Moneyball chronicles how the Oakland A’s transformed the business of baseball by proving statistics rather than subjective observations are a better measure of a team’s success.

Taking a page from Moneyball, I set out to prove that objective measures are a better predictor of performance in the legal industry as well. Here is what I found:

By analyzing  law firm business risks and opportunities in the context of three performance indicators — Business Climate, Demand, Competitive Landscape — firms can pinpoint the type of client and nature of work for which they are best positioned to compete. They can then evaluate external and internal data to identify opportunities and make informed decisions about how they pursue their business objectives.

In my new report, “The LVS Law Firm Performance Index,” I use a matrix that compares nature of work (low to high risk) against type of business (SBE to Multinational). The LVS Law Firm Performance Index includes the full matrix so firms can assess their current competitive position against their goals and chart a plan toward success.

What makes the work exciting is that for the first time lawyers can use objective criteria to address a variety of ongoing business challenges, including:

• How do we retain existing clients and attract new ones?
• Should we brand around individual attorneys or the firm as a whole?
• What is the optimal size of our firm?
• Should we market our practice expertise or our industry knowledge?
• How can we be more profitable?
• What can we do to build a firm culture allowing us to attract and retain talented lawyers?
• How should I develop my own practice to achieve my personal career goals?

The LVS Law Firm Performance Index is an initial effort to define the measures that contribute to law firm success. It is my sincere hope that through this research, we will be able to help law firms address their most difficult business challenges so that lawyers can focus on what they do best: Serving the public through the practice of law.

Interested? Share your thoughts or contact me to discuss is more detail.

“If we act like the New York Yankees in this room, we are going to lose to the Yankees out on the field.”

- Billy Beane, Oakland A’s General Manager

Like baseball, the law firm competitive landscape is not an even playing field. Large firms continue to consolidate. The richest firms are getting richer. They are able to attract the best lawyers and win the highest volume of premium work. Where does that leave everyone else?

It depends on what you want.

Traditionally, the U.S. legal market was divided into two segments “Big Law” (often defined as the AmLaw 200 in the annual rankings by The American Lawyer magazine) and everyone else. The market, however, is quickly bifurcating into sub-groups based on global economic trends.

Although these groups will evolve, Legal Vertical Strategies segments the current market into five tiers:

Tier 1: U.S. firms LVS believes ultimately will be a part of a Global 25 based of the most profitable law firms. Currently, this tier includes 18 U.S. firms.

Tier 2: The remainder of the AmLaw 200 firms based on revenue.

Tier 3: Regional firms with muti-city offices.

Tier 4: Single office/city law firms

Tier 5: Solo practitioner

What do you want from your legal practice?

Big Law has a number of competitive advantages because of  geographic reach, ability to staff cross-practice/geographic/ industry teams, ability to compensate talent, and market themselves at a national and global level. That means Tier 1 and Tier 2 firms will win the largest share of premium work and will continue to offer the highest compensation opportunities. It is also having a significant impact on law firm loyalty, culture and the concept of professional partnership. Large firms tend to have a greater pack mentality. Innovation tends to be slower and decisions often hinge on what their counterparts are doing.

Smaller firms will miss out on opportunities with multinational clients and large public companies. They may have trouble retaining quality talent due to lower compensation models. However, they also have competitive advantages as it relates to their ability to create niche practices, cultivate stronger client relationships, integrate technologies to differentiate themselves and build stronger firm cultures and attorney teams.

To be sure, there is no one size fits all definitions within these tiers. But Tier 3 and lower firms cannot compete for legal services in the same way that Tier 1 and Tier 2 firms do. A realistic assessment of a firm’s competitive position, therefore, can help firms define and clarify their long-term objectives.

By Debra Baker

“I do not start with the numbers any more than a mechanic starts with a monkey wrench. I start with the game, with the things that I see there and the things that people say there. And I ask:Is it true? Can you validate it? Can you measure it? How does it fit with the rest of the machinery? “

- Bill James, 1985 Baseball Abstract, as quoted in Moneyball by Michael Lewis

Understanding the client base of a given market is akin to fielding a team based on the totality of circumstances — the opponent, the stadium, the talent pool.

Legal Vertical Strategies analyzes the legal landscape from three perspectives: Demand, Client Base, Competition. Each has its own set of measures that provide insight into the overall market. The second perspective, Client Base, provides insight into the mix of legal needs that exist and how decisions about who to hire are made.

Buyers of legal services vary based on size, market reach and relative sophistication. Legal needs range from day-to-day matters – perceived as part of the cost of doing business – to high-risk, premium matters where price plays little, if any, role in who gets hired. The larger an organization, the more complex the legal needs are likely to be. The buyer profile of a given market, therefore, provides insight into the value (cost) of different types of legal needs and the decision-making process for selecting who to hire.

In general, businesses can be categorized into four clusters: Multi-nationals, Large Companies, Medium-sized Companies, and Small Companies. Combined with an analysis of market demand, insight into the client base of a given market provides informs decisions about:

1. What clients to target;
2. How to reach decision-makers and key influencers;
3. How to focus marketing and business development resources around the highest value opportunities;
4. Projecting revenue and developing creative pricing strategies.

Lawyers and law firms should evaluate how much of their client mix is dependent on clients in this region and ensure that growth strategies take into consideration the nature of work this client base has and how these clients make decisions.

By Debra Baker

“Baseball was theater. But it could not be artful unless its performances could be properly understood. The meaning of these performances depended on the clarity of the statistics that measure them.”

- Michael Lewis, Moneyball

Like baseball, the legal profession is as much art as it is discipline. But if objective measures will provide clarity as to how legal services are defined, what are those measures?

Legal Vertical Strategies analyzes the legal landscape from three perspectives: Demand, Client Base, Competition. Each has its own set of measures that provide insight into the overall market.

Demand identifies what opportunities exist, with whom, and the relative value of those opportunities, informing decisions about:

1. Target practices and industry groups;
2. Talent development;
3. Maximizing marketing and business development investment;
4. Aligning resources.

Economic, industry, regulatory and geographic trends all impact demand.

Economic climate. A strong economy contributes to legal needs driven by opportunity – deal flow, investment, joint ventures and strategic alliances. Weak economic confidence stifles deal flow, lowering overall demand for transactional services.

Regulatory environment. The more regulations, the more complexity to running a business. Heavily regulated industries and states created environments increase demand for legal services.

Industry Trends. Industry trends can create or deter demand for legal services within specific sectors.

Geographic Trends. With increased globalization, geographic trends are important to understand even when evaluating the legal services market of a single region. Businesses inside that market do not limit their business to a given reason, so their legal needs bleed into other geographies.

Law firms need to understand the impact of these factors on the markets they serve in order to assess what type of work in their areas of expertise will be in demand. It will assist firms in identifying common characteristics among businesses with specific needs that can be used to more effectively target and market the practice.

By Debra Baker

Competition for a share of the legal services market has never been greater. Most firms struggle to identify how best to use limited marketing and business development time and dollars. Too often firms use subjective criteria when making decisions. They do what they’ve always done without measuring return on investment. They do what everyone else does because everyone else is doing it. Or, they do nothing, hoping their existing client base will be enough to get them through the future.

The reality is it won’t. The market has changed. Competition is increasing. Buyer expectations are greater. In the book and academy award-nominated film Moneyball, Oakland A’s General Manager Billy Beane applied objective measures to the business of baseball, focusing on statistics rather than “look and feel” to field his team. Author Michael Lewis observed:

If gross miscalculations of a person’s value could occur on a baseball field, before a live audience of 30,000, and a television audiences of millions more, what did that say about the measure of performance in other lines of work?

Legal Vertical Strategies is taking a page from Moneyball to help law firms use objective data to develop strategic growth plans, focusing on three aspects of the market that impact how law firms win new business:

• Overall demand for legal services
• How purchasers of legal services make decisions on who to hire
• The law firm competitive landscape

These external insights – demand, decision-making, and competitive landscape – combined with an analysis of internal insights related to attorney expertise, existing client base, industry knowledge and current market position provide an objective framework around which law firms can plan for future growth.

I’ll be discussing each of these three areas and presenting a framework firms can use to analyze the data in the contact of their own strategic growth in future posts.

Often described as the Google or Apple of its day, Kodak was a true titan of industry that thrived on a relatively simple formula— investment in people, investment in technology and the ability to understand the needs of its customers (“You press the button and we do the rest.”).

To be sure, there were many factors that led to Kodak’s downward spiral. So far, however, little attention has been paid to its commitment to human capital.

Kodak’s early investment in people was revolutionary. The company was able to attract top talent from around the country and bring them to Rochester, New York, the company’s global headquarters.

While other companies battled the labor unions, Kodak took a decidedly different approach by incentivizing their employees to such a degree that they had no interest in unions. Kodak built a movie theater, basketball court and even a bowling alley exclusively for its employees.

As a native of Rochester, the “Yellow Box” was an integral part of our community. I attended birthday parties at the Kodak bowling alley. Kodak was one of my first jobs — I had a high school internship that paid me $5 per hour, a fortune during a time when the minimum wage was $3.03.  And I grew up in a neighborhood full of Kodak dads, even though mine was one of the few in town that did not work there. For a long, long time, Kodak was a great source of pride the city.

Somewhere along the way, Kodak lost its rhythm. In 1975 it invented the first digital camera. Instead of paving the path for digital imaging, it refused to bring the camera to market in fear that it would cannibalize the film industry. By the 1980s foreign competition hit Kodak hard.

Around this time, Kodak’s investment in people also took a sharp turn. More than 16,000 employees were laid off. The bowling alley and movie theater closed. By the time I graduated from college in 1991, the only jobs available at Kodak were as independent contractors. No perks. No benefits.

That was more than 20 years ago, but Kodak was never fully able to recover and it’s more recent troubles have been heavily reported in recent weeks.

Shift gears back to the legal industry. In the 25 years leading up to the Great Recession, Big Law profits increased seemingly exponentially year in and year out.

When the economy crumbled, law firm managers acknowledged the need for fundamental change to its business model. The Wall Street Journal reported on the death of the billable hour. But instead of fundamental change as it related to the use of technology, legal project management and efficiency models, Big Law responded with layoffs and lots of them.

Three years later, at the first sign of clearing, are law firms looking at the long-term need for change? No. They have remained short sighted. The Big Law business model has survived and even thrived as law firms have started posting record setting profit per partner earnings.

In The American Lawyer’s recent Law Firm Managers survey, the number one challenge facing managers was failed lateral integration initiatives – and by a wide margin. Yet, according to author Steven J. Harper, (The American Lawyer, “Fed to Death,” December, 2011), “Tellingly, the non-economic well-being of their firms isn’t even on the responding managers’ screens, but it should be.”

Has Big Law proved that its business model can weather any economic storm or, like Kodak, is it merely at the beginning of long, protracted decline? I’d like to think positively, but — to borrow a line from Harper — “Unfortunately, the predicted phenomenon illustrates a persistent case of lessons not learned.”

In the eyes of most lawyers, you can not take the knowledge that’s been developed over years of training and practice and force it into a “process” that can be measured. Or can it?

The Harvard Business Review thinks it can. In an October article, “Lean Knowledge Work,” authors Bradley R. Staats and David M. Upton, argue that knowledge-based professions in IT, finance, engineering and law can benefit from the same principles that manufacturing companies like Toyota have employed. Their argument:

1) A substantial amount of knowledge assumed to be tacit doesn’t have to be.

2) Knowledge can be captured if the organization makes the effort to pull it out of people’s heads.

3) All knowledge work includes some activities that have nothing to do with applying judgement and can be streamlined by training employees to continually find and root out waste.

4) Systems and rules to guide interactions can be developed to improve collaboration even when knowledge is genuinely tacit.

Lawyers are trained to follow legal precedent. Although there is little precedent in applying lean principles to the legal profession, models do exist for transforming business practices in other industries. Maybe all we need is a little creative lawyering to apply those principles to the practice of law.

Vision is one of those lofty words that can be off putting to some, but that should not diminish its importance. Vision is really about knowing who you are and what you want to be. I co-hosted a panel sponsored by the Center for Competitive Management earlier this month where I described vision as a practice group’s “WHY.” Another way to think about it is, “What does success look like?”

Regardless of how you ask the question, developing a short, concise statement of what you aspire to be is an essential component of a successful practice group plan. To ignore vision is to ignore defining what you are trying to accomplish. Equally important, from the perspective of building a strong practice group, a clear vision provides other benefits:

1) A vision provides your practice group with an identity. This aids in decision making about work that should or shouldn’t be done. It also drives decisions about the people side of the practice.

2) Discussions about vision offer an opportunity to emotionally engage members of the practice group. How often have you sat in practice group meetings, where colleagues eat their lunch, nod in the appropriate places and then go back to work without truly participating in the discussion? Meetings focused around vision offer an opportunity to engage your group. The point is not so much the words you end up using as it is the process of keeping your purpose at the forefront of everyone’s mind.

3) Vision guides planning. Once you have a clear vision, planning is easier. It also gives you a framework for ensuring your plans stay on track.

To be sure, law firms as a whole need to focus on vision. If your firm has a defined vision statement, then that should be the starting point for your practice group discussion. That said, even with firms that do have a vision statement, many attorneys are not aware of it or have not been part of the discussion to create it. Bringing vision to the practice group level offers multiple benefits in engaging attorneys. It’s a leadership opportunity.

But lawyers and marketing professionals who are thinking about how to reposition their firms to thrive in the future should consider the role Legal Project Management can play in that effort. Differentiating a law firm is harder now than ever before. The market is converging. The gap between the top firms and the rest of the playing field is widening. The firms at the top are getting the choice matters and are cherry picking the talent. There are few areas in which the rest of the field can still compete…. with one exception.

Firms of any size have the opportunity to demonstrate their unique value to clients by working more efficiently. Legal Project Management (LPM) principles provide the framework around which to do this.

LPM applies traditional project management concepts to the control and management of legal cases or matters. As explained by Jim Hassett in the July/August issue of Managing Partner (subscription required), there are eight elements of LPM:

• Setting the objective and defining the scope
• Identifying and scheduling activities
• Assigning tasks and managing the team
• Planning and managing the budget
• Assessing risks to the budget and schedule
• Managing quality
• Managing client communication and expectations
• Negotiating changes with clients

These elements are inherently part of any case or matter. The difference with LPM is that these steps are managed in an ongoing and consistent way. From a marketing standpoint, that translates into the following opportunities:

1. Enhanced Client Communication. Survey after survey reveal that client communication (or lack of it) is a primary driver of corporate decision making when it comes to hiring a law firm. With LPM, law firms have the tools they need to stay responsive and address issues in a proactive way with clients. LPM provides the tools for planning and managing a budget. It allows you to better manage quality. It also allows you to address unanticipated changes that invariably occur during the course of most matters.
2. Demonstrate ROI. The consistency that LPM brings to the table means there is an opportunity to demonstrate a quantifiable return on investment to clients — something very few firms have mastered successfully. Consider having the ability to conduct a post-matter client debrief in which you can evaluate the actual costs incurred against the original estimated budget, and then using that hard data to discuss ways in which you and the client might be able to improve management of a particular type of matter in the future.
3. Alternative Fee Arrangements. As we all know, everyone wants AFAs, but few people know how to put them together confidently. Fewer still know how to do so profitably. LPM provides the tools to effectively looking at the true cost of a matter, and the tools for better managing the matter during the project.

LPM as a discipline has the opportunity to make a lasting impact on how lawyers do business. But we all know change is slow to come, particularly if left up to the lawyers alone. Marketing professionals should get involved with their knowledge managers, IT and pricing colleagues to help drive this change.

Having recently returned from ILTA, I was struck this year by the inertia I felt from many of the attendees. This is not a criticism of the conference itself. ILTA continues to provide high quality programming and the event is always run seamlessly. This year, though, participants, seemed… tired.

My focus for the show was on Legal Project Management. I wanted to learn more about what firms are doing and what success they were having. I talked to at least a half dozen AmLaw 100 firms, as well as a handful of vendors playing in the space. I quickly learned that few firms are making significant headway in this space. The universal frustration: the Lawyers.

It seems that project management is much simpler than change management. Unfortunately, in the legal profession, you can’t achieve the former without the latter. Unless there is a partner driving the change, there is little energy around trying to formalize the management of legal matters to create true businesses processes that can be used for creating best practices and alternative fee arrangements.

This brings me back to the Intelligent Change post, which concisely defines the problem — Change is hard, especially for lawyers; There are other more pressing problems (e.g. cash flow); and,  it’s hard (what worth doing isn’t?)– but makes an even more valid point. Just do something. Some thing.

It is not necessary to develop a strategy — whether for legal project management or something else — that solves all of the world’s problems. Build version 1.0 and maximize that to the hilt. Then move on to version 2.0 or even 1.5. In the end making any forward progress is better than standing still.