Friday, July 09, 2010

Is that Blue in the Red Ocean?

The economic recession of the 21st century has impacted more lives than any other recession in modern times. Some economists contend that the current recession has had a greater financial impact than the Great Depression. However grave the impact, this recession has, and will continue to, provide the soil of survival. People and organizations alike, being pushed to the limit must survive. Survival is an interesting concept; in the animal world it is the fight or flight response. In the modern day economic world it is downsizing to reengineering. What ever the action, the strong survive.

Organizational survival depends on culture and the willingness to change. Change is the tool of organizational survival. The ability to change puts an organization ‘in’ the game, not on the sidelines. All too often organizations, who reach a monopolistic level, believe they can weather any storm, only to find that they have been left behind because of their unwillingness to change. A while ago I had the opportunity of speaking with a senior board member of a global financial institution. As we were discussing organizational evolution she shared a story of the hiring process for a new CEO of the company. When the incumbent was asked what would be their first task as a new CEO, the reply was ‘I will make change’. It was this phrase that sealed this candidate in the CEO chair. The company’s resistance to change made them antiques in the marketplace.

In Spencer Johnson’s book, Who Moved my Cheese, the author takes a look at human behavior and how the unwillingness to change leads to death. The most riveting quote, I feel is, “If you don’t change, you become extinct”. It this inability to change that has lead to the fall of many organizations.

Over the past few years I have written on how organizational culture places organizations along the ‘survival’ continuum. The organization’s willingness to step outside of current and historical practices to find a new way to survive will be the organization that not only survives, but the one that becomes the leader of the pack. How do organizations ‘step out’? Stepping out requires a new perspective on how the business model operates. It is ALL about perspective. In the 1989 movie Dead Poet’s Society, John Keating, played by Robin Williams, has the students stand on their desks to get a “new” perspective on their class – world.

A new perspective on a historic vocation brings new demand from the quagmire of stagnation. How have companies, amidst heavy competition and economic downturn, like Casella Wines, Cirque du Soleil and Southwest airlines stood out head and shoulders beyond their peer groups? These organizations chose a new perspective and redefined their market space.

I believe the economics of the present day is the impetus for organizations to redefine themselves. Since 2008, North American law firms have shed thousands of legal and support staff. In addition, many legal practices have simply locked the doors and turned off the lights. Those that remain have either been sufficiently large to weather the storm, or have cut back costs to stay afloat. With little view of economic recovery in the near future, the pressure on professional services will continue to be high. The market place has become a red ocean; a kill or be killed strategy. What professional services need to do is recreate their market space away from a zero sum game. This re-creation is creating a Blue Ocean Strategy, according to W. Chan Kim and Renee Mauborgne; in their book of the same name.

Professional services have long been a self-fueling machine of inefficiency. What other organization charges their customers for training staff and being inefficient? The infamous billable hour is the ball and chain of inefficiency, and clients have unhappily dealt with it. One perspective contributed by “HK” on social media exemplifies the feeling “The billable hour, with its bizarre, client-unfriendly incentive structure, has made lawyers and their clients miserable for long enough.” In any other industry, paying for incompetence would not be tolerated. To parallel this archaic model, one would be faced with an increasing cost of groceries the longer one had to wait in the check-out line.

Historically, I have argued that the billable hour is archaic and inane. Over the years, such approaches as fixed fee engagements and contingent cases have stepped onto the scene, but nothing has really taken hold. Realistically with all of the wealth of knowledge and precedents within the legal community, surely something better than the billable hour should have made its way from the swamp to dry land!

Change happens. I believe the fertility of the marketplace is at its highest for a new approach. Recently I stumbled across an article of a law firm with a fresh new approach. Sue Wang, partner at Clarity Law Group, uses the following description for her firm, “Clarity Law Group is designed like a timeshare, where clients pay a set fee for access to the entire firm.” According to their website, the firm provides the convenience of in-house counsel without the costs and headaches associated with the employee/employer relationship. In addition, the firm exploits 21st century technology to minimize cost and inefficiencies.

Clearly the billable hour is inane, just look at the receivables of any legal practice. Clients simply hate to be charged for ‘training’ and inefficiencies. If the business model was fair and reasonable, firms would not carry such huge receivables all year and have to discount them within the last ten weeks of the year! It is very possible that the Clarity Law Group may have created their own Blue Ocean and, in time, will leave the billable hour mongers wondering “where did my clients go?”

1 comment:

Anonymous said...

Hello Don!

You will know me because I was there when you first met your wife in Mississauga, ON. I have tried to get your phone number but to no avail because I would like to talk with you. It's been a long time and I did see our buddy Richard a couple of years ago.

My number is 905-825-9079.

Robert Kover