the-search-for-new-opportunities-in-the-legal-marketWhy ‘Blue Ocean’ strategy may work for law firms

We all know the Conventional Wisdom about the legal market: It’s never been more competitive! And we’ve all heard the obvious solutions: Try harder! Take market share! Merge with a thousand lawyers you don’t know!

Roch Parayre has a different idea. A strategy partner at Heidrick and Struggles, Parayre thinks that smart law firms would benefit by looking for places in the market that their competitors haven’t inundated—he calls them patches of Blue Ocean—and sailing toward them. Firms can choose to battle in the overcrowded space they know too well, or they can start creating new market opportunities.

That was the central message of Parayre’s invigorating keynote presentation at the second meeting of The Somerville Forum last month. The Forum, run by Bernero & Press and sponsored by Bloomberg Law and RR Donnelley, brings together in-house counsel, and senior law firm partners and executives to explore the future of the legal market. We have scheduled three session of The Forum for its first year; the third, focused on the power of collaboration and constructive conflict, will be held in January.

Because we think that the legal market is too insular, The Somerville Forum features experts, such as Parayre, from outside the legal market. And because we believe in the importance of hands-on exercises, we spent the second half of the Forum working through Blue Ocean discovery exercises.

Blue Ocean strategy has been around for as long as businesses have innovated but it was only a decade ago that a pair of professors at INSEAD, the French business school, put a label on the practice. The core idea calls for either identifying a new product that will serve or redefine a market—Henry Ford’s Model T for transportation or Steve Jobs’ iPod for portable music—or creating a new market opportunity by, for example, focusing relentlessly on costs of production (Wal-Mart), or improving processes (General Electric and Toyota).

While there are prominent examples of Blue Ocean techniques working in the legal market, Parayre says that professional service organizations tend to resist embracing the concept. “If you can get from Red (Ocean) to Pink, that’s already a victory,” he said.

This isn’t work just for radicals or disruptors. He cited research of century-old companies, using their longevity as a proxy for organizations that had learned to adapt. What they had in common, along with sets of shared internal values and a fiscally conservative approach, were two powerful and related traits. First, these companies were skilled at using their peripheral vision, and, second, they excelled at experimenting “at the edges” while protecting their “core” products. “A culture of scanning the periphery, of minding weak signals, is valuable,” he said.

Easier said than done, he noted, but not so difficult for even risk-averse organizations to manage. How are such cultures created? By, among other things, celebrating successful experimental efforts and adding them to the foundation stories the company and its leaders tell about themselves. Companies that want experimental behaviors need to encourage and reward them. He pointed to Google where managers are expected to have “Googlets,” projects that they are testing to expand Google’s ever-growing reach.

Many of those efforts at Google and at other successful companies fail, and failure can be a harsh idea in law firms. Parayre said that too many lawyers equate failure with being wrong. And being wrong is intolerable: “it’s the mindset that says ‘wrong is fatal’.” To Parayre, the problem is that so much effort goes into “not being wrong, that you are completely paralyzed.”

While it’s a mistake to “try to go Blue with a Red culture,” he said that firms could tip toe into the Blue Waters. They could, for example, encourage their young associates to speak up about what they’re seeing that looks like change—both at their jobs and in their lives. And, they could talk with clients who often see business changes long before their lawyers. Gathering that information is the easy part; doing something with it is the real institutional challenge.

Like other Blue Ocean strategists, he cited a handful of familiar but evocative examples. They included:

  • Who could ever challenge Ringling Brothers, which long dominated the circus business? Parayre told the story of Cirque de Soleil, which reinvented the market by taking out costs—animal acts and high-priced “star” performers—and adding elements that would appeal to audiences more comfortable in theatres than Big Tops.
  • What could be more staid and decentralized than coffee shops? Starbucks changed all that by creating a consistent customer experience that projected an aura of hipness and operated at a scale that drove down its cost of production.
  • Could air travel become something besides a punch line for weary travelers? Southwest Airlines found a budget niche by turning crowded flights into a jolly trip for passengers while cutting minutes off turnaround time for its aircraft.

So, what does this have to do with the legal market? The lore of the business of law includes several Blue Ocean examples. There’s the legendary Joseph Flom who built a market-leading law firm at Skadden by developing an expertise in hostile take-overs at a time when Wall Street firms refused to swim in those Blue Waters. There’s Larry Sonsini who went to Palo Alto to help create Silicon Valley while the leading Bay Area firms tended to their banking and industrial clients. More recently, Pangea3 and Axiom identified unmet needs in the legal market and helped create a demand for Legal Process Outsourcing.

David Perla, a co-founder of Pangea3 who recently left his post as president of Bloomberg Law, opened the Forum by telling the history of P3’s creation. He said that he and his colleagues correctly anticipated a change in the market as clients sought more efficient help with document review and other front-end services. They approached about 100 law firms and were rejected by all. Their second important insight was to go directly to clients. There they found an untapped market eager for a different sort of service. “In effect we created a scale of market that LPOs took on and took over,” Perla said. “Law firms, if they had seen the world differently, could have been there first.”

It’s never easy to see the openings in tight me-too markets. Law firms may not be as resistant to change, as they are slow to act. Any or all would dearly love to discover a new land in the manner of Flom or Sonsini. But they would be wiser to heed the lessons of Soleil’s acrobats and clowns. Reexamine your processes. Reimagine your products. Reconsider what your audiences want, and start, on the margins at least, delivering repackaged services. Embracing a spirit of experimentation can be a natural act for a learned profession, even if it depresses short-term profits. As Parayre likes to say, “short-term experiments are costly. But in the long term, not experimenting is more costly.”

 

This essay originally appeared on Bloomberg Law’s Big Law Business.

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