February 2017

The title is simple enough: success = experimentation.  Here is Peter Diamandis’ thesis:

Today’s most successful companies, the ones that are “crushing it,” started as a series of crazy ideas, followed by experiments to test just how viable those ideas might be.

Experimentation is a crucial mechanism for driving breakthroughs in any organization.

If you want to create a successful, hyper-growth company, you’ve got to focus on empowering your teams to rapidly experiment.

The key is building a culture of experimentation.

The only constant is change, and the rate of change is increasing.

Ultimately, standing still equals death, and the only way to succeed is to be constantly experimenting and innovating (think of it as Darwinian evolution in hyperspeed).

Hyper-growth and experimentation are very closely linked.

Jeff Bezos likes to say, “Our success at Amazon is a function of how many experiments we do per year, per month, per week, per day…”

Is there a law firm, anywhere, that has built such a culture?  Doubtful.  But there should be.

You just can’t make this stuff up.  A recent ABA Journal article, Some law firm leaders question associate pay hikes amid tepid year, caught my eye. The Peer Monitor report stated:

Firms were squeezed by a perfect storm of slumping demand and rising headcount.

The ABA Journal article reports:

The economic forces have led some law firm leaders to question widespread associate salary hikes that raised starting pay to $180,000, according to Gretta Rusanow, head of advisory services at Citi Private Bank.

But here’s the money quote:

The associate pay hike is creating pressure for law firms that raised salaries for competitive, rather than performance, reasons, Rusanow writes in the Am Law Daily. “In our conversations with firm leaders,” she wrote “many express bafflement as to why so many firms adopted the increases when their productivity and profitability results couldn’t support them.

Firms may not have control over demand (arguable), but they have control over headcount and compensation.  It is pretty fundamental (perhaps day 1 of Econ 101) that if you raise expenses–like headcount and compensation–without a like increase in revenue, profits will decrease.  Were law firm leaders assuming growth in demand despite all the data that suggested?

I fully expect the reaction to this loss of profit will be to further increase rates to try to drive revenue.  (Now picture law firm managing partners with their heads buried in the sand over the caption “Addressing those pesky realization issues.”)

Lamb--Art of ValueKirk Bowman has become one of the leading voices on value billing. Kirk produces the “Art of Value” podcast. He has interviewed an range of people who have offered so many great ideas on value, pricing and billing, including Ed Kless, Michele Golden, Peter Carayannis, the great Ron Baker, John Chisholm, and so many others whose names I did not recognize but who taught me so much. So I was honored to be invited to participate in a podcast, which you can find here. Thanks Kirk!  And if you are interested in value and value billing, you owe it yourself to listen to Kirk’s podcasts.

On Saturday, I was sitting in my home office and I heard an episodic beeping sound that sounded like a smoke detector with a battery that needed replacing.  I checked all the smoke detectors and none were chirping, so I continued my investigation.  I eventually discovered that the float trigger on our sump pump had failed.  I thought about waiting to call a plumber during the week when I would be charged normal rates, but the beeping was incessant and annoying.  So I figured this would be a good DIY project, and off to the local Home Depot I went.

Two and half hours after I successfully (I hope!) installed a new float trigger, I sat back and thought for a minute about how long it would have taken a  plumber to complete the chore.  I decided that a semi-experienced plumber could have completed the task in 15 – 30 minutes.  Using the longer time estimate, my pride in having completed the task evaporated when I realized it took me 5 times longer (at best!) to do so.  Plus I am left with the lingering uncertainty that I did it right!

The application of this to my on-going discussions about value billing and the value of experience is, I hope, obvious. Experience counts for much.  Experience creates greater value.  Or at least comfort that the best possible job was done.  But what is clear that that time, as in many instances, bears an inverse relationship with quality.

My last post recounted McDonalds’ creation of its own ad agency and posited the question whether bespoke law firms could be far behind.  Enter GE.  Yes, that GE.

According to CFO.com, GE is transferring about 600 of its tax professionals to PwC:

Reacting to what it sees as increasing uncertainty about tax rules in the United States and the rest of the world, PwC will hire more than 600 lawyers and public accountants from General Electric’s tax team and incorporate GE’s tax technologies and processes. In exchange, GE will get to shed salaries while still benefiting from the expertise of its legacy team.

The deal was further described:

Although GE declines to say what costs it will shed in the deal, Gosk said in the release that the company is “pleased to advance our longtime relationship with PwC in a way that provides an opportunity for other leading companies to tap into the world’s best tax team while providing outstanding career opportunities for those legacy GE professionals.”

Under the five-year agreement, which is slated to take effect April 1, PwC will be adding accountants, lawyers, and other tax professional from GE’s corporate division and the company’s other businesses, including GE Capital. About 20 corporate tax employees will stay on at GE to work on consolidated financial reporting, mergers and acquisitions, and other strategic efforts, along with managing the PwC relationship. An additional 250 tax employees will remain with company to service GE’s individual businesses.

The arrangement was struck after GE “looked to reevaluate the optimum delivery of these critical global tax services now and into the future,” the PwC press release said. “The new Global Enterprise Tax Solutions team will sit within PwC Tax and will provide managed services not only to GE but also to other PwC clients as well.”

So we have lawyers and others going to PWC.  The interesting part is that PWC plans to leverage the GE professionals to provide services to other clients, and GE will share in the revenue stream.

In the space of a week, we see two examples of major companies designing solutions to address ordinary corporate needs that involve custom designing a solution outside the company.  Shedding headcount is a positive for most companies and the idea of better leveraging what were corporate assets has to be enticing.  The question remains, when do law departments dip their toe in this trend.