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This law firm strategy is a waste of time and money

NINETY-NINE PER CENT of Australia’s full-service law firms have a strategy based on seeking clear market differentiation. In my view, they’re largely wasting their time and money. Conventional strategy thinking suggests there are two sources of sustainable competitive advantage – having the lowest cost, or differentiating from competitors on things that matter most to customers.

Law firms are making a mistake by trying to meet their clients' every need, says Joel Barolsky. The former strategy allows firms to win by having greater price-setting discretion. The latter strategy allows firms to extract a price premium for added benefits. When it comes to the legal market, this theory starts to get a bit wobbly.

Research shows that while most law firm clients can distinguish firms between groups of firms, such as Tier 1 versus Tier 2 or domestic versus global, they really struggle to clearly discriminate between specific full-service firms within a group. To clients, many of these firms look and feel the same.

One of the reasons for this is market fragmentation. Unlike most industries with three or four dominant players (think airlines, grocery retail or banking), the Australian commercial legal market has nearly 30 firms claiming in some way to be leaders in legal expertise and client focus.

Australia’s largest law firm by partner numbers, HWL Ebsworth, has less than 5 per cent share of the total market. Carving out and keeping a unique and relevant market position in such a crowded market is next to impossible.

Another reason for a lack differentiation is self-inflicted. Most full- service firms present themselves as being all things to most people.

Within the partnership model it’s political suicide not to give every partner a guernsey in describing what the firm is really good at.


So, what’s the solution?

The first part of the answer is to worry less about being known for being different and focus more on just being known. Strong brand awareness still counts in opening doors and staying top-of-mind.

The second part is to encourage more differentiation at the practice, partner and/or product level. With a more micro approach, differentiation usually come from legal specialisation combined with a focus on a particular market segment or industry. So, for example, a general commercial litigation team can distinguish themselves by positioning as class action defence specialists for ASX200 companies.

The third element is to concentrate firm strategy on how the firm competes. "The how" refers to the resources, skills, standards and systems used to win. These are collectively called capabilities, or as Pier D’Angelo, Allens’ Chief Strategy Officer, calls them, the organisation’s “muscles”. Most full-service law firms need work on these five muscle groups and the interplay between them:

  1. Firm and team leadership – setting and aligning everyone around a clear direction, inspiring others to meet/exceed expectations, and providing support with accountability;

  2. Talent management – recruiting, developing, engaging and retaining the right workforce for the firm to flourish, both now and in the future;

  3. Winning work and capturing value – developing trusting relationships with clients and referrers, converting more of the right opportunities, and pricing profitably;

  4. Collaboration – shifting the mindset from "my" to "our" client and combining expertise from inside and outside the firm to solve clients’ wicked problems, and;

  5. Operating with discipline – having an efficient and effective operating platform, ensuring adherence to agreed policies, executing plans consistently, and optimising leverage and utilisation.

Spending more time at the law firm gym will, over time, create a form of cultural and operational distinctiveness. Paradoxically, this will most likely be reflected externally and create a firm that both top clients and top people will want to work with and for.

They will have/be authentic points of difference not created by spin doctors but radiating from a firm truly fit for the future.


Credit to Author: Joel Barolsky is MD of Barolsky Advisors and a Senior Fellow of the University of Melbourne.

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