Seven Tests for a Strategic Opportunity
Every year we encounter firms that – part of the way through the lifetime of a strategic plan – are presented out of the blue with strategic opportunities Examples often include an opportunity to merge with or acquire another firm, to recruit a team or partner, to open an office in another place, or to invest in new premises or technology.
On each occasion the strategic implications can be lost as the firm rushes to seize and implement the opportunity; after all, it is easy to get carried away with enthusiasm, to be flattered by an approach or lured by the chase.
I offer seven ways (there may of course be more) of stress testing an opportunistic initiative. This is summarised in the image below
Test Number One – Does the opportunity align with the firm’s strategic goals? Any of the opportunities that I have listed could of course be specifically part of the firm’s strategy or could generally align with the firms strategic objective to grow, develop new expertise of broaden its footprint. Equally, the possibility that now is presented may well not have been in the contemplation of the firm at the time of the last strategic review. In that case it is important to test for alignment. Does it fit with the firm’s general growth strategy? How would the prospect fit into the firm’s practice group or departmental structure? Does it add to the firm’s skill set in a complementary manner? If it does not align, is this a showstopper or does it imply the firms strategy is out of date and needs revising?
Test Number Two – Does it help us play to our Strengths? It is important to recognise that growth in size does not necessarily mean growth in substance. Increasing in scale may in some cases help a firm, but sometimes provides more complexity and less efficiency, putting an increased burden on the management team.
Test Number Three – Does the opportunity add more value to clients? It is always a good test of any strategic initiative to work out how the initiative would be presented to clients. An initiative that is driven by no other purpose than a profit motive is hard to explain to clients in terms that that they might find useful. In contrast, deeper or wider expertise, for instance, may be compelling, as would a stronger base from which to invest in efficiency measures.
Test Number Four – Does it integrate with the firm’s culture and values? This test is particularly important in the case of merger or acquisition. Different firms’ methodologies in compensating its people and sharing profit form stark reminders of the difficulties of integrating new teams or people. A firm’s culture can be divided into four categories. The first is collegiality – the manner in which people within a law firm deal with each other. The second is strategic focus – the degree to which the firm has a clear identity, both to itself and in relation to other firms. The third is governance – the manner in which the firm deals with its people, and compensates them and includes the way that its lawyers and staff deal with the firm. The fourth is values – the belief systems that represent the collective aspirations of the firm. I always recommend taking an inventory of the factors on any merger or acquisition to test the areas of difference in the ways that people do things in different firms. From there is it almost always possible with hard work over time to redress any inequalities
Test Number Five – Does the opportunity help the firm to position the firm competitively? As one example, I have previously described niche or boutique firms as “Designer Label” firms, able to compete with market leaders for clients in their chosen areas of expertise. It is entirely possible for such a firm to lose its august status, reputation and competitive position by, for example, becoming part of a larger more generalist firm. So the issue to analyse is whether the opportunity helps the firm (to a greater extent than before) to stand out from the crowd in ways that its market finds compelling.
Test Number Six – does the opportunity give us a return on investment in the long term? One example or the need to work out a return on investment is given in our new book (Managing Partner Performance – Strategies for Transforming Underperforming Partners, of which Jonathan Middleburgh and I are consulting editors). Dr Heidi K. Gardner has kindly contributed an excellent chapter on lateral hires and in that chapter she states that two to three years of strong performance are needed to recoup recruiting costs and compensation during the transition period of a new lateral hire. This same thinking can be applied to any strategic initiative including new office premises and equipment.
Test Number Six – Does it improve our economic position? The financial case for any strategic initiative – not just the return on a capital investment – always needs rational consideration and should not be just a matter of hope and general aspiration. It is often the case that an investment will provide a temporary dip, so what is needed in terms of risk and reward is the soberly calculated expected benefit to the firm over time
Conclusion
To restate an old principle, firms should never invest in haste and repent at leisure. The need for due diligence in assessing any strategic opportunity can never be overstated. A failed test is not necessarily a showstopper if the firm the takes care to address the imbalances or shortfalls.