As featured in “The American Lawyer” on October 23, 2018.
Only when each part of a firm is working toward the same business goals can it truly flourish.
When it comes to law firm performance, does alignment matter? The answer is an emphatic yes. In our collective 65 years entrenched in law firms, we’ve seen well-aligned firms soar and succeed while poorly aligned firms have foundered and failed. But what exactly do we mean by alignment and why is it important?
There are law firms where everything is in sync. Like the vertebrae in a well-formed spine, elements of the business seem aligned. Members of the firm’s leadership team have collaborated to create a very clear business strategy and they’ve communicated that vision throughout the partnership and associate and administrative ranks. The partnership has worked together to support the strategy through a host of appropriate tactics: developing new practice areas, forming a firmwide compensation system in support of a mission, and fostering a culture allowing them to retain and develop top professionals and talented staff. For partners, they’ve put into place both extrinsic (compensation) and intrinsic (peer approval) rewards to reinforce those behaviors the firm prizes. These firms have agreed on a purpose and have established a plan for healthy growth.
Then there are firms that have no alignment. Management may once have developed a detailed strategy to achieve growth, but never got around to communicating the strategy to associates or support staff. They continue to fund programs that fall outside of the strategy and delay making changes to their compensation structure to support the new goals, because, as they say, it’s “just too much to handle right now.” The firm’s leadership prefers not to bring their C-suite executives into the picture, except on a need-to-know basis.
Alignment is more than an orthopedic objective or a marketing buzzword. Alignment is an essential principle for a law firm’s survival.
In past years, alignment may not have been a requisite for success. In fact, a certain amount of misalignment was accepted.
In the pre-2008 years, significant annual demand growth of almost 4 percent and rate increases enabled most firms to achieve double-digit revenue growth without breaking much of a sweat. These seemingly healthy dynamics actually masked underlying problems at many firms. These firms succeeded despite misalignment. In the new world order where law firm clients have many more options, firms simply cannot afford the luxury of misalignment. In this tepid demand growth environment where rate increases have been less than half the levels enjoyed during the earlier period, there will be winners and losers. And we believe alignment is the key differentiator.
Research demonstrates that there is a strong correlation between an organization’s success and the amount of focus it places on organizational health. Focusing on health involves managing alignment based on creating a common vision, providing tactics to execute on that vision, and constantly innovating to bring new ideas and improvement to the organization.
According to McKinsey & Co., organizations that work on these aspects not only achieve long-term measurable improvements in their organizational well-being, but by starting to focus on alignment, companies demonstrate tangible performance gains in as little as six to 12 months. In Deborah’s work interviewing more than 55 professionals for her book “Best Practices for Law Firm Business Development and Marketing,” she found that those law firms with leaders who could easily talk about how the various elements of vision, culture and compensation worked together were more likely to lead firms that were profitable and had a better outlook for a long-term future.
McKinsey’s research for its Organizational Health Index shows a strong correlation between a firm’s culture and its performance. Firms that align their compensation and other recognition methods with their key goals and objectives, demonstrate a high degree of transparency and reinforce their vision with communications are more likely to demonstrate success than those that are merely average.
Alignment applies to large, multi-practice firms and small firms alike. How does a firm’s management begin to put alignment into place? Some ways to begin include:
- Operational and marketing tactics should all be based on a well-defined and articulated strategy.
- Strategy must be communicated, up and down the organization. Sharing strategy both with direct reports and throughout the organization leads to greater loyalty, a shared sense of purpose, and collaboration. The time spent communicating these decisions is an investment that pays off in multiples.
- C-suite members should have a role on the executive committee to provide input in the development of the firm’s strategy and vision. Not only will C-suite involvement build loyalty, these executives will be allies in plan implementation.
- Compensation metrics should be transparent and reward those behaviors that a firm values. Consider rewarding not just for business development activity, but where there is collaboration across all practice areas.
- During compensation time, look at qualitative metics for more than simply self-reporting. Consider asking partners not only to self-report, but to answer assessment questions, such as: “Over the past year, which partner outside of your practice, helped you build your practice the most?” Third-party recognition will give a more robust picture.
- Leaders of the firm, practice areas and committees should be those who emulate the values of the firm and further its strategic mission. Bad behavior that goes against firm policies and standards puts the firm at risk, erodes culture and communicates a message that the mission is not a serious one.
Firms can no longer afford to think that aspects of a business are purely tactical. There is too much at stake. Costs are high and competition is intense. Every tactic needs to branch out from a carefully defined core strategy. Culture and strategy need to be aligned and to reach all of the bones of an organization. Getting alignment right leads to superior performance; getting it wrong leads to places better not to contemplate.