There’s a fascinating article in the December issue of the Harvard Business Review that ought to be required reading for the leaders and owners of the world’s leading law firms. Called Knowing When to Reinvent, the essay describes what I think of as the Aetna Corporate Health Test, one that managing partners might start taking each year along with an annual physical.
The essay is part-narrative and part-analysis of Aetna’s efforts to confront and adapt to a changing marketplace. In short, the third largest health insurance company in the land found itself with record revenues but a troubled, restless customer base and a changing regulatory environment. Rather than simply doubling down on its successful strategy, the company began asking questions about its market, its product, its metrics, and, most important, its customers. At the end of the process, Aetna shifted its business model away from focusing on corporate purchasing managers toward serving individual consumers and health care providers. The Aetna leadership found “fault lines” in the marketplace and chose to act before the earth started moving beneath them.
The main message of the article is that all businesses need to search continually for fault lines. As the authors write, “No business survives over the long term without reinventing itself.” And law firms, despite what the scolds say ad nauseam, have been adept at reinvention. They’ve just called it different things: following the client; crossing jurisdictional borders, inventing new tiers of partners, changing staffing models: you know the litany. So, law firms know how to reinvent themselves. But what they often lack is a systematic process and, on occasion, the will to act. The Aetna test provides the process.
Some of the Aetna process will be familiar to this audience. For example, in the annual Client Advisory they published last month, Citibank and consultant Brad Hildebrandt once again advised that law firms maintain or increase their focus on their clients. What makes the Aetna prescription valuable is the sum of its parts.
The process is a healthy mix of external and internal examination. Either alone, while interesting, will not suffice. The fault lines play off one another, and their impact will vary by industry and company. Aetna and its analysts identified five:
- Customer Needs
- Performance Metrics
- Industry Position
- Health of the Business Model
- Talent and Capabilities
To oversimplify, the process asks:
- Customer Needs What do their customers value, where are they headed, and how might we meet their unaddressed points of pain?
- Performance Metrics Are we measuring our ability to deliver what our customers want rather than focusing obsessively on our financial success?
- Industry Position Where do we stand in our sector? Who is encroaching on our business? Will predictable technological or regulatory changes meaningfully change the market?
- Health of the Business Model The authors put it bluntly: “Is the way we make money aligned with how value is created for customers?”
- Talent and Capabilities Do we have the right mix of talent to cope with the fault lines and take advantage of the opportunities uncovered by the first four inquiries?
According to the HBR essay, analysis of this sort led companies such as Nestle, Netflix, Adobe, and Xerox to change their business models and thrive, or at least survive. To my eye, the Aetna process is useful whether or not a firm concludes that it needs a dramatic new strategy. At the very least, firms that run this battery of tests will have a better idea of where their clients are headed, and where they stand in a confusing, demanding market.
This process is also a useful push toward becoming a client-focused operation. Law firms now better understand their business imperatives. Many are no longer blinded by top-line growth; they can whip out profitability tables as quickly as their clients. But some still stumble in anticipating client needs and measuring how well they meet them. The Aetna process can help fix that.
I am less confident that law firms and their clients will address the business model question. To answer the HBR authors’ question, the way law firms make money is generally not aligned with how clients create value. Billing for time and paying for time is not about value. But as best I can tell, clients may be even less interested in changing than their law firms are.
All of which suggests that firms that understand what else their clients value—from predictability to prevention to single- or double-sided memos—and then embark on measuring and meeting those traits will have a better chance of succeeding. If there’s one thing that I have learned over the last year it’s that law firm-client relationships can’t be too carefully examined or managed. And if a medical insurance company—the stereotypical Dr. No—has figured that out, so can a law firm.