10 reasons why culture eats strategy for breakfast
Despite talk about the importance of embracing disruptive business models, success for law firms is more likely to come from cultural differentiation rather than market differentiation, writes Joel Barolsky.
During the past three years, I have worked with three professional service firms that have outperformed their peers.
Despite operating in hyper-competitive markets, they have consistently recorded double-digit revenue and profit growth. This success has come without superstar rainmakers, with undistinguished brands and with no fancy schmancy disruptive business models.
So what is it that has made them so successful? To me, it is cultural differentiation. Not market differentiation, but an internal culture that creates value, both internally and externally. It is a culture that is eating strategy for breakfast, as famously proclaimed by Peter Drucker.
Based on these three case studies and other research, I posit that there are 10 areas where cultural differentiation really counts.
1. Productive politics
In firms with highly politicised cultures, enormous energy is expended addressing internal matters such as performance measurement (i.e. who takes credit), partner remuneration, client ‘ownership’ and resource hoarding/sharing. Power struggles and infighting between divisions, office locations, teams, practices and individual partners distract from value-creating time with clients and staff. A managing partner of a leading law firm once revealed to me that he spent about 40 per cent of his time on an annual basis making, negotiating and justifying partner remuneration decisions. Politics is inevitable, but firms that effectively balance collective, individual and directed power have a huge competitive advantage.
2. Smart collaboration
Recent Harvard Business School research has revealed that when different practice teams are able to collaborate around client needs, there is a massive positive financial impact. In one case study, the average annual revenue per client increased from US$150,000 to US$800,000 by having seven practice groups offering an integrated solution versus cross-selling seven discrete services.
Those firms that have transitioned from a “my client” to an “our client” culture usually outperform those where partner autonomy reigns supreme.
3. Consistent high standards
I recently chaired a panel discussion with three senior buyers of professional services. One of the questions put to the panel was whether there was a difference between top-performing firms and the rest? Consistency was the consistent response. Top firms were characterised by extremely high technical and service standards delivered consistently by everyone. In other firms, they felt it was a bit hit and miss.
There is much evidence to support the proposition that successful firms are those that have cultures that are intolerant of mediocrity and expect, and get, high standards from everyone.
4. Discretionary effort
Organisational cultures that are perceived to be genuinely caring, trusting and fair tend to get the best out of people. Staff are more likely to go the extra mile, to act above and beyond the call of duty, or just do that little bit more. Toxic cultures often result in lower productivity, higher absenteeism and substandard output.
In their bestselling book, The Service Profit Chain, Heskett, Sasser & Hart cited research which showed that client satisfaction increased significantly with staff continuity. In situations where a financial services client had five different relationship managers during a two-year period only 40 per cent clients were satisfied or very satisfied. This jumped to more than 80 per cent when there had been only one relationship manager. Continuity builds understanding of the client and fosters deeper relationships. These factors are critical in client choice, loyalty and advocacy.
Positive firm cultures facilitate retention and ensure continuity. A stable workforce also reduces the direct costs associated with staff churn.
Each of the three case study firms mentioned in the introduction to this article are characterised by a lean management structure. All leaders across the firm, but excluding the managing partner, still retain significant practices. In a way, each team or cell within the firm has an ethos of self-sufficiency. They do not see themselves as paralysed subordinates waiting for orders.
Alignment around firm direction, trust in leadership and a strong culture provide the glue that prevents anarchy; but at the same time these factors allow individuals and teams to be empowered. Self-management results in a significantly lower investment in planning, control and oversight and, therefore, more time on winning business and delivering work profitably.
In most professional services, busyness begets busyness. There is much evidence to support the notion that smart, highly motivated professionals seek to master their craft by doing good work for good clients. ‘Bring it on’, most say. In my experience the assumption that better work-life balance creates more staff engagement only applies to a minority. Consequently, one can conclude that a positive productive work culture creates more capacity to do even more work (within limits of course).
If your firm is changing more slowly than the competitive environment around it, you are going backwards! Firms with strong market and client-oriented cultures are really good at two things:  sensing and predicting trends, and  being willing and able to make the necessary changes to adapt to different conditions. Agility and adaptability are cultural elements that are the hallmarks of successful firms in turbulent times.
9. Fire in the belly
Business development is both a relationship game and a numbers game. Without some personal connection, it is very hard for a prospective client to develop enough trust to say ‘yes’. Equally, there will be fewer sales opportunities if you do not show up. In tough times, there is usually a reward for those professionals with some fire in the belly and who show up more often than others. The hunger to win is more intense and bears fruit in fuller pipelines and better strike rates.
The last cultural element is related to all the others but is worthy of a mention on its own. It relates to the efficiency and effectiveness of implementing strategic decisions. It is the ability to make it happen, to have the discipline and fortitude to overcome obstacles and to follow through on agreed actions. It seems so obvious, but so many firms struggle with this ‘simple’ ability to execute.
It is common for professional service firms to describe their cultures as ‘collegiate’, ‘respectful’ and ‘friendly’. In these tough times I do not think just being nice is going to make a difference, or to generate real value. Thinking beyond nice is incumbent of every professional service leader. Striving for true cultural differentiation will allow you to have culture for breakfast, strategy for lunch and champagne over dinner…
Joel Barolsky is managing director of Barolsky Advisors, Senior Fellow of the University of Melbourne and creator of the Price High or Low smartphone app designed to help with pricing projects. Visit www.barolskyadvisors.com for more details.