Mapping Law Firm Capabilities

Not so many years ago, running a law firm was a simpler process. If you were good at legal research, drafting documents, arguing cases and attracting and advising clients, the business took care of itself. But today, managing a legal practice, particularly for large firms, is more like running a large, sophisticated, multinational business.

Additionally, law firms have been largely unable to take advantage of modern business improvement methods such as Six Sigma and the Theory of Constraints ' complex techniques that have been applied to manufacturing processes with much success. These methodologies are measurement-based strategies that focus on process improvement and variation reduction.

Methodologies such as Six Sigma look at how something is done, with an eye toward continuous procedural improvement. One of the byproducts of the Six Sigma technique is a flowchart that can be used to examine a particular process. While flowcharts can be excellent tools, in a law firm setting they fail to take into account larger considerations such as business strategies and the environments in which the law firm operates. They fail to consider the what of complex legal practices. What does a large firm do, and need to do, in order to conduct the firm's business?

Fortunately, there is a new model law firms can use to improve their practices without having to invest significant time and energy learning a complex methodology. One of the results of this new technique is a map that captures information in a simple and objective schematic. More than a process flowchart or a diagram detailing improvements in the firm's IT architecture, this map can be used by law firms to analyze their overall business and to identify steps that can be taken to improve it.

A New Capabilities-Based Approach to Enterprise Architecture

Recognizing the limitations of existing quality improvement tools, Microsoft Corp. developed Motion, a new methodology designed to organize, measure and evaluate an organization's business capabilities. Because the process works well with service-based enterprises, the capabilities-based approach is well suited to law firms implementing complex business strategies.

The result is an entirely new ap-proach to helping law firms plan and manage their existing business, and their futures.

Examining Strategic and Existing Capabilities

In a law firm setting, all of the activities performed in the ordinary course of conducting business are considered capabilities. Examples of capabilities include: practice of law-related skills, such as conducting legal research; drafting memoranda; and negotiating and managing mergers and acquisitions. Everything associated with those activities ' sales and marketing, payroll administration, matter management and so forth ' is also considered capabilities.

When applied to the practice of law, a capabilities-based methodology examines five firm business areas within the framework of the greater environment in which it exists. First, it seeks to understand the law firm's existing strategy. Then it tries to understand which capabilities are important for the firm to be able to execute its strategy. Next, it evaluates the firm's existing skills, knowledge and expertise; analyzing what the firm does and how well it does it. Recently developed benchmarking tools can assist law firms in their efforts by providing specific data for assessing the firm's internal skill levels, both empirically and relative to peer firms. The results of all these analyses are two diagrams, or heat maps. Ultimately these maps are joined, or layered, to produce a third: a diagram that identifies the firm's strategic capabilities and their relative importance, compared with the relative strength of the firm's existing capabilities.

The process of applying a capabilities-based methodology to a legal practice begins with the analysis of five aspects of the business (see Figure 1, below):

[IMGCAP(1)]

Figure 1. A capabilities-based methodology examines five firm business areas, the framework of the greater environment within which it exists.

1. Innovation. The capability of designing and developing new services and processes, or refining existing ones.

2. Client and Market Management. The capability of acquiring and maintaining clients and client relationships, pricing, business intelligence and business development.

3. Practice of Law. Providing services (eg, litigation, transaction assistance, legal and business advice, law making), capturing and recording client matter transactions, client matter billing.

4. Financial Management and Law Firm Operations. Accounts receivable, capital asset management, budgeting, accounts payable, risk management, talent management, payroll and related areas.

5. Firm Strategy and Management. Determining the overall firm strategy and plan, practice group management, enabling technologies for the practice of law, partner development.

None of the preceding occurs in a vacuum. Law firms live and practice in distinct ecosystems. A typical environment consists of clients, alliances, outsourcing providers, suppliers, governmental and regulatory bodies, financial services providers and related entities.

The Business Capabilities Mapping Process

In a practical setting, the capabilities-based methodology begins by analyzing the law firm's existing business strategy. Once the firm's strategy is understood, the next step is to consider the resources, skills and knowledge the law firm requires in order to execute its business strategy. These capabilities vary in degree of importance. The process of mapping the firm's strategic capabilities reflects their relative importance (see Figure 2, below).

[IMGCAP(2)]

Figure 2. The capability mapping process examines the firm's existing capabilities (Current Performance), and strategic capabilities (Firm Strategy). Both are combined when layering the two maps to create a third heat map.

While the preceding process involves identifying and understanding the law firm's range of strategic goals (including some short-term, mid-term and long-term goals), the resulting map doesn't necessarily identify those goals. The map identifies the capabilities required to achieve a particular goal, and its relative importance to the process.

For example, if one of the firm's major goals is to open an office in China, one of the necessary capabilities to accomplish that goal is the technology infrastructure required to communicate with that office. The firm also needs the financial capability to pay Chinese taxes, operate the Chinese office, and move partners or associates to China. The firm needs foreign and/or international marketing expertise. These are just some of the capabilities the firm needs in order to execute its China strategy.

Once the firm's strategic capability requirements have been identified and mapped, the process examines the firm's existing capabilities. This step looks at how well the firm currently executes a given capability. Again, mapping is used to identify the relative strength and weakness of the firm's current capabilities.

The two maps created from the preceding process are called heat maps because they identify those capabilities of least and most important.

After the two maps have been created, they are, in essence, layered. A resulting third heat map begins to identify areas in which strategic capabilities do not properly match current capabilities. Using the heat map, if the strategic capabilities fall into the 'most strategic' category and the current performance is rated low, it means the firm is not very good at the capability, and its relative importance is high. This would identify areas that need to be improved if the firm is to successfully execute its strategy.

Alternatively, a law firm may have other sophisticated systems where the relative importance of that capability in achieving the firm's business strategy is low. Ultimately, the firm may decide to outsource those capabilities or re-allocate internal resources to better fit its strategic goals.

The heat map begins to identify where the firm should be focusing its energies and attention from an operational perspective.

The Importance of Benchmarking

A key issue in understanding law firm strategies and existing capabilities involves benchmarking. Competitive intelligence and knowing current market trends inform the firm's business strategy. If, for instance, a firm is contemplating opening an office in Southern California, it might be good to know how many of its competitors are either already in Southern California, or are anticipating a move into that region.

With regard to existing capabilities, unless law offices have a relative sense of how good or bad the legal industry is in a particular area or skill set, determining its own efficacy is like navel-gazing, or failing to understand the broader view of the industry in which the firm operates. The firm might rate its current international marketing skills as relatively poor. However, an examination and understanding of the international marketing expertise of similar law offices might cause the firm to recalibrate its perceived skill level.

Benchmarking tools provide law offices with invaluable information about their markets and internal skill levels, informing both their strategic and existing capability analyses.

Why is capability mapping such an important, powerful tool? First, simply working through the process helps organize the firm's thinking about its overall business strategy. Second, the resulting heat map becomes an excellent visual communications tool the firm can use to not only evaluate its strategic and current capabilities, but also convey them. And finally, lawyers are well educated and often have strong ideas and opinions about the direction in which their firm should be headed ' and how it can best be achieved. The capabilities-based heat map begins to inform the entire firm about its overall strategy and current capabilities. Once understood, the resulting map can help guide, focus and marshal the firm's resources to achieve its ultimate goals.

Not so many years ago, running a law firm was a simpler process. If you were good at legal research, drafting documents, arguing cases and attracting and advising clients, the business took care of itself. But today, managing a legal practice, particularly for large firms, is more like running a large, sophisticated, multinational business.

Additionally, law firms have been largely unable to take advantage of modern business improvement methods such as Six Sigma and the Theory of Constraints ' complex techniques that have been applied to manufacturing processes with much success. These methodologies are measurement-based strategies that focus on process improvement and variation reduction.

Methodologies such as Six Sigma look at how something is done, with an eye toward continuous procedural improvement. One of the byproducts of the Six Sigma technique is a flowchart that can be used to examine a particular process. While flowcharts can be excellent tools, in a law firm setting they fail to take into account larger considerations such as business strategies and the environments in which the law firm operates. They fail to consider the what of complex legal practices. What does a large firm do, and need to do, in order to conduct the firm's business?

Fortunately, there is a new model law firms can use to improve their practices without having to invest significant time and energy learning a complex methodology. One of the results of this new technique is a map that captures information in a simple and objective schematic. More than a process flowchart or a diagram detailing improvements in the firm's IT architecture, this map can be used by law firms to analyze their overall business and to identify steps that can be taken to improve it.

A New Capabilities-Based Approach to Enterprise Architecture

Recognizing the limitations of existing quality improvement tools, Microsoft Corp. developed Motion, a new methodology designed to organize, measure and evaluate an organization's business capabilities. Because the process works well with service-based enterprises, the capabilities-based approach is well suited to law firms implementing complex business strategies.

The result is an entirely new ap-proach to helping law firms plan and manage their existing business, and their futures.

Examining Strategic and Existing Capabilities

In a law firm setting, all of the activities performed in the ordinary course of conducting business are considered capabilities. Examples of capabilities include: practice of law-related skills, such as conducting legal research; drafting memoranda; and negotiating and managing mergers and acquisitions. Everything associated with those activities ' sales and marketing, payroll administration, matter management and so forth ' is also considered capabilities.

When applied to the practice of law, a capabilities-based methodology examines five firm business areas within the framework of the greater environment in which it exists. First, it seeks to understand the law firm's existing strategy. Then it tries to understand which capabilities are important for the firm to be able to execute its strategy. Next, it evaluates the firm's existing skills, knowledge and expertise; analyzing what the firm does and how well it does it. Recently developed benchmarking tools can assist law firms in their efforts by providing specific data for assessing the firm's internal skill levels, both empirically and relative to peer firms. The results of all these analyses are two diagrams, or heat maps. Ultimately these maps are joined, or layered, to produce a third: a diagram that identifies the firm's strategic capabilities and their relative importance, compared with the relative strength of the firm's existing capabilities.

The process of applying a capabilities-based methodology to a legal practice begins with the analysis of five aspects of the business (see Figure 1, below):

[IMGCAP(1)]

Figure 1. A capabilities-based methodology examines five firm business areas, the framework of the greater environment within which it exists.

1. Innovation. The capability of designing and developing new services and processes, or refining existing ones.

2. Client and Market Management. The capability of acquiring and maintaining clients and client relationships, pricing, business intelligence and business development.

3. Practice of Law. Providing services (eg, litigation, transaction assistance, legal and business advice, law making), capturing and recording client matter transactions, client matter billing.

4. Financial Management and Law Firm Operations. Accounts receivable, capital asset management, budgeting, accounts payable, risk management, talent management, payroll and related areas.

5. Firm Strategy and Management. Determining the overall firm strategy and plan, practice group management, enabling technologies for the practice of law, partner development.

None of the preceding occurs in a vacuum. Law firms live and practice in distinct ecosystems. A typical environment consists of clients, alliances, outsourcing providers, suppliers, governmental and regulatory bodies, financial services providers and related entities.

The Business Capabilities Mapping Process

In a practical setting, the capabilities-based methodology begins by analyzing the law firm's existing business strategy. Once the firm's strategy is understood, the next step is to consider the resources, skills and knowledge the law firm requires in order to execute its business strategy. These capabilities vary in degree of importance. The process of mapping the firm's strategic capabilities reflects their relative importance (see Figure 2, below).

[IMGCAP(2)]

Figure 2. The capability mapping process examines the firm's existing capabilities (Current Performance), and strategic capabilities (Firm Strategy). Both are combined when layering the two maps to create a third heat map.

While the preceding process involves identifying and understanding the law firm's range of strategic goals (including some short-term, mid-term and long-term goals), the resulting map doesn't necessarily identify those goals. The map identifies the capabilities required to achieve a particular goal, and its relative importance to the process.

For example, if one of the firm's major goals is to open an office in China, one of the necessary capabilities to accomplish that goal is the technology infrastructure required to communicate with that office. The firm also needs the financial capability to pay Chinese taxes, operate the Chinese office, and move partners or associates to China. The firm needs foreign and/or international marketing expertise. These are just some of the capabilities the firm needs in order to execute its China strategy.

Once the firm's strategic capability requirements have been identified and mapped, the process examines the firm's existing capabilities. This step looks at how well the firm currently executes a given capability. Again, mapping is used to identify the relative strength and weakness of the firm's current capabilities.

The two maps created from the preceding process are called heat maps because they identify those capabilities of least and most important.

After the two maps have been created, they are, in essence, layered. A resulting third heat map begins to identify areas in which strategic capabilities do not properly match current capabilities. Using the heat map, if the strategic capabilities fall into the 'most strategic' category and the current performance is rated low, it means the firm is not very good at the capability, and its relative importance is high. This would identify areas that need to be improved if the firm is to successfully execute its strategy.

Alternatively, a law firm may have other sophisticated systems where the relative importance of that capability in achieving the firm's business strategy is low. Ultimately, the firm may decide to outsource those capabilities or re-allocate internal resources to better fit its strategic goals.

The heat map begins to identify where the firm should be focusing its energies and attention from an operational perspective.

The Importance of Benchmarking

A key issue in understanding law firm strategies and existing capabilities involves benchmarking. Competitive intelligence and knowing current market trends inform the firm's business strategy. If, for instance, a firm is contemplating opening an office in Southern California, it might be good to know how many of its competitors are either already in Southern California, or are anticipating a move into that region.

With regard to existing capabilities, unless law offices have a relative sense of how good or bad the legal industry is in a particular area or skill set, determining its own efficacy is like navel-gazing, or failing to understand the broader view of the industry in which the firm operates. The firm might rate its current international marketing skills as relatively poor. However, an examination and understanding of the international marketing expertise of similar law offices might cause the firm to recalibrate its perceived skill level.

Benchmarking tools provide law offices with invaluable information about their markets and internal skill levels, informing both their strategic and existing capability analyses.

Why is capability mapping such an important, powerful tool? First, simply working through the process helps organize the firm's thinking about its overall business strategy. Second, the resulting heat map becomes an excellent visual communications tool the firm can use to not only evaluate its strategic and current capabilities, but also convey them. And finally, lawyers are well educated and often have strong ideas and opinions about the direction in which their firm should be headed ' and how it can best be achieved. The capabilities-based heat map begins to inform the entire firm about its overall strategy and current capabilities. Once understood, the resulting map can help guide, focus and marshal the firm's resources to achieve its ultimate goals.