This is my second blog post about strategy, which follows on from my recent MBA module on the topic. Read the previous one, Avoiding Bad Decisions, here.
This post looks at Michael Porter’s Generic Strategies and how these can be applied to KM within law firms and how they may affect KM strategies.
Michael Porter developed his “Generic Strategies” in 1985 (details at end).
From empirical evidence, Porter noticed that there was often higher profitability in firms with high or low market share and the least profitable organisations were those with a moderate market share. He concluded that businesses which tried to be “all things to all people” suffer below average performance because of the inherent difficulty of trying to balance reducing costs and supplying added-value. He averred that long-term strategic advantage would only come from following strategies in the following fields – cost leadership and differentiation. These two fields broke down into three generic strategies:
- Broad Cost Leadership – being the leader in low costs in your industry
- Broad Differentiation – selling a unique product or service with a unique value to your customer, often for a premium price
- Focus – cost leadership or differentiation for a target segment
He advised that businesses which failed to focus on one of these would end up “stuck in the middle” and struggle to compete with businesses utilising cost leadership, focus or differentiation, because those competitors would be better placed to compete in any segment.
So what does this mean for KM in law firms?
If your firm is following a Generic Strategy, how can your KM strategy support your firm in this?
Cost Leadership entails producing your product/service with a level of features which is acceptable to many clients, but at a lower cost than your competitors, which can enable you to reduce your charging rates lower than your competitors (although “cost leadership” isn’t always synonymous with lowest price – you may be able to capture the difference as additional profit, at least in the short term).
If your firm is committed to achieving Cost Leadership, you will need support it by a focus on cost leadership within KM. The following is a list of ideas, by no means exhaustive, but hopefully sufficient to spark a few ideas of your own, which are particularly relevant to your firm:
- reducing staff costs, perhaps by hiring less expensive staff and training them up, and/or by reducing staff turnover
- reducing training costs by devising in-house schemes for sharing skills and knowledge amongst team members
- utilising seasonal capacity – if you know one department tends to have a busy season and a quiet one, arrange to utilise this downtime with Knowledge work
- reducing expenses by using technology such as video conferencing and webinars
- investing in technology which has benefits for processes and service delivery, and can increase leverage (case management systems, document automation)
- analysing the cost-benefit of outsourcing non-proprietary knowledge services
- focussing on the features that clients really appreciate and drop the nice-to-haves, particularly in relation to client-facing KM
A Differentiation Strategy requires a focus on quality, exclusivity, high client-care levels, rapid innovation and generally trying to create a service which is difficult or expensive for its competitors to try to replicate.
If your firm is pursuing a Differentiation strategy, you will need to be clear how it is differentiating itself and support it in that, perhaps by:
- understanding what value clients place on different aspects of legal service and support fee earning staff in offering value-added services
- improving customer service by offering KM services to select clients
- supporting fee earning staff in their training and learning to enable delivery of exceptionally skilled and experienced services
- encouraging and supporting fee earning staff in their collaboration and innovation to develop new and unique services
- fostering a general culture of knowledge-sharing, continuous improvement, innovation, collaboration and learning
- supporting fee earning staff in providing a quality service (which may mean investing in expanding your KM team and other resources)
- reducing KM staff turnover and improving their motivation
- helping to reduce fee earner staff turnover and improve motivation through closely aligning KM offering with fee earner needs
- supporting perceptions through client-facing knowledge-based marketing (seminars, newsletters, social media etc)
If your firm has chosen a Focus strategy, you will need to be clear about what knowledge or expertise will add value for your niche clients that isn’t available to broad market competitors. Many of the strategies involved in a focussed strategy will be similar to those in cost leadership and differentiation, but focussed on the needs of a particular niche.
Of course Porter’s Generic Strategies aren’t without their critics. In summary, these are:
- being “in the middle” needn’t be a mistake and a “best-cost provider” focus may be difficult to achieve but it can provide a long-term competitive advantage (e.g. Toyota)
- cost leadership strategies often initiate price wars, which are unsustainable over the longer-term
- in the 1980s business environments may have been fairly stable, but today they are highly volatile, with disruptive technologies, and rigid business strategies do not allow for agile responsiveness to change
- there has been some disagreement over the data upon which Porter based his theory, with some finding that those businesses with hybrid strategies are more profitable than Porter thought and may even be more profitable than those with generic strategies
- Porter’s theory is very industry focussed and instead of competing “better”, businesses ought to look outside their present market at new ones where market demand isn’t being met at present (search for the “blue ocean”)
What do you think? Is your firm following one of the Generic Strategies? If so, how do you support it within your KM department? Or do you know a firm which has a really good Generic Strategic focus or indeed one following a really successful hybrid strategy? How does its KM department play its part?
Michael Porter “Competitive Advantage: Creating and Sustaining Superior Performance” The Free Press, New York
Kim, Chan & Mauborgne “Blue Ocean” Harvard Business School Press
Do you want an occasional (approx monthly) email with updates about my latest blog post and open training events? Sign up here.
I teach KM Strategy each July in London and also talk about it in my popular “KM: The Works” foundation training day (Jan/May/Sept). Find out about the latest events on Eventbrite here.