Try Scenario Planning

10.13.03
By Deborah McMurray and Barbara Harrison Kaye
Published in Legal Times

"There are many methods for predicting the future. For example, you can read horoscopes, tea leaves, tarot cards or crystal balls. Collectively, these methods are known as "nutty methods." Or you can put well-researched facts into sophisticated computer models, more commonly referred to as "a complete waste of time."

--Scott Adams, The Dilbert Future

At various legal industry conferences, when the audience was asked "Does your firm have a strategic plan?" at least half answered that they did not.. Whether a firm does or doesn’t have a strategic plan appears to have nothing to do with size, profitability or scope of practice. The reasons given include:

1) Planning just keeps consultants busy and they are too expensive (or, we can do it ourselves)
2) they take too much lawyer time
3) lawyers hesitate to commit and put a "stake in the ground"
4) we’re a small/medium/large firm and don’t need one, and
5) we did one X years ago and no one paid any attention to it.

For planning-resistant firms (and those that aren’t), there might be a less resource consuming alternative to strategic planning.

Enter scenario planning

In their simplest form, scenarios are stories that you construct about your future. They are not necessarily good or bad, nor are they predictive. Rather, scenarios are a combination of possible circumstances and events that could manipulate the future in different directions.

Innovators of Digital Economy Alternatives (IDEA), a team that researches future opportunities and obstacles that may arise from the adoption of digital commerce technology (smart cards, online banking, etc.), has identified four environmental factors of scenario planning that we have slightly adjusted for law firms:

  • Social dynamics—demographic issues (increased immigration and visible minorities, aging baby boomers, Generations-X and Y, client decision-makers increasingly being women or ethnically diverse, or both) , and the softer issues of values, lifestyle, etc. (associates wanting to work fewer hours and not seeking partnership, lawyers seeking sabbaticals)
  • Economic issues—large trends and forces that shape the economy as a whole (war, terrorism, recession, globalization, consolidation), microeconomics (competition among firms for the same clients) and forces at work inside your firm that require investment (employee training, skills development, office expansion/diversification)
  • Technological issues—direct (updating and innovating technologies/software in the firm to improve client relationship management and firm operations) and indirect (increased need for security and privacy)
  • Political issues—legislation and regulation that affect clients’ operations and industries, increased scrutiny of lawyers and clients in a post-Enron world, etc.

Scenario planning is wise for several reasons. It motivates firm leaders to honestly appraise where they are today (which is a huge first step) and to practically outline where they want to be. It answers the following questions, among others:

1. What do we have to do to get where we want to be?
2. How much will it cost?
3. What staff do we need?
4. What are our competitors doing?
5. How will our clients react?
6. Are our partners, associates, and other personnel on board?
7. Is our business model the right one to keep profitability at current rates?
8. Are we in the right locations?
10. Do we have the right client mix?

Probable law firm scenarios

While there are some differences among law firms due to client mix, practice composition, industries served, size and geography, many firms face similar risks and concerns about their future:

1. Loss of a major client or source of revenue
2. Defection of a major rainmaker (loss of clients and revenue)
3. Defection of a practice group (loss of expertise, clients and revenue)
4. Economic upturn (skyrocketing lease rates, demand for top producers, higher salaries)
5. Economic downturn (lower revenues and profits, lawyer and staff lay-offs, office closings)
6. Hiring a group of laterals from another firm (how long before the group is profitable? How will they fit in?)
7. Expansion to new geographic regions—regional, national, global offices (how long before the new office is profitable? Do we move lawyers there, hire locally or both? What marketing or PR strategies and costs are expected?)
8. Merger with or acquisition of another firm (how similar are our cultures? Are our compensation systems compatible? What client conflicts are there? What redundancies might require lay-offs? What’s the new firm name? Who is the managing partner and what is the new management structure? What is the vision for and positioning strategy of the new firm?)
9. Being sued by a client or employee (loss of reputation, image, cost of defense)
10. Breach of security or privacy (loss of client confidentiality, loss of critical information, cost of damage control and repair)
11. Changing compensation system (how will raising associate salaries affect partner compensation and firm profitability? How will changing to a subjective system from a lock-step system affect long-time, but lower-producing partners? How will an origination-based system affect teamwork?)
12. Changing billing rate structures (what is our cost of doing business?—how do discounted rates affect our profit margin? How does a 10% rate increase affect client relationships and commitments? Can we increase rates across the board or does each market require a different structure?)
13. Changing firm leadership (succession planning, sudden death or departure of a recognized leader and/or rainmaker.
14. What is the best committee structure for our firm? Small executive committee, large management committee, etc.?)

Terrorism is another factor that could significantly alter or even ruin a law firm’s future. Over-reliance on one or two industries, changing regulation/legislation, political instability in foreign nations, and war are other factors that can affect the outlook for law firms. All possible scenarios should be considered.

The right kind of planning

Planning, whether it’s strategic, scenario or other, won’t guarantee better performance for your law firm. According to Jeffrey Pfeffer and Robert I. Sutton in The Knowing—Doing Gap (Harvard Business School Press, 2000), "Planning is essentially unrelated to organizational performance. . . . [p]lanning can be a ritualistic exercise disconnected from operations and from transforming knowledge into action."

Unfortunately, in many law firms, planning is a substitute for action. There are file cabinets and shelves full of lofty ideas, mission statements that mean little to anyone but those who wrote them, and overly general goals and objectives that could never be managed or measured. These plans failed because there was no accountability for action or for changing the firms’ current environment.

Pfeffer and Sutton say, "In a world where sounding smart has too often come to substitute for doing something smart, there is a tendency to let planning, decision making, meetings and talk come to be a substitute for implementation…Managers come to believe that just because a decision has been made and there was discussion and analysis, something will happen. As we have seen, that is often not the case."

The "Smart Talk Trap" that Pfeffer and Sutton describe is a problem in many law firms today. This trap hinders effective communication up and down your organization, and across all practices and offices. But it doesn’t have to be this way. Firm leaders know that the future of their firms is uncertain. They also know that the world tomorrow will be more complex than the world in which we operate today. What systems and processes must be in place to manage this complexity to your firm’s advantage? It’s virtually impossible to answer this question without considering various scenarios and possible outcomes.

Dwight D. Eisenhower once said, "In preparing for battle I have always found that plans are useless, but planning is indispensable." So, perhaps scenario planning is more instructive and useful than the scenario plan itself. It will be worthwhile if it imposes a process or structure around partner discussions, and creates an early warning system that helps you better monitor external factors. And if you build in measurement and accountability, scenario planning can lead to action in your firm.

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