Predator Not Prey: Why You Should Disrupt Your Own Company

Posted on December 29, 2015

A new breed of predator sees your profitable, established business as a tasty lunch. Don’t wait to be devoured.  Follow this strategic plan to help increase sales and business growth.

Originally posted on Forbes online: https://www.forbes.com/sites/robertsher/2015/12/29/predator-not-prey-why-you-should-disrupt-your-own-company/

 

A new breed of predator sees your profitable, established business as a tasty lunch. Innovative startups use new technologies to disrupt an industry’s business model, then rise to the top of the food chain, feasting on the toppled companies. Will you become one of these innovators, or will you become prey?

Software-based innovation is disrupting nearly every kind of business, with VC-funded startups reaping many of the rewards. The VCs are licking their chops. “We are mining opportunities where large incumbents are vulnerable to disruptions both in their business model and technology stack,” says Doug Dooley, venture capitalist at Venrock. “Our portfolio companies are toppling giants by deconstructing their old businesses and delivering a fresher approach.” Everyone knows the disruption stories of Netflix and Uber, but many more upheavals are percolating.

As startups attack sectors from healthcare to finance, no incumbent is safe, even in conservative industries like law. Companies in such safe and steady industries have long favored growth through incremental changes. Typically, these firms develop a new product or service feature, or reduce costs a point or two – but avoid cannibalizing the core business.

Disruptive startups, however, seek to devour the incumbents’ core businesses – by rolling out new business models and technologies that customers find more convenient and valuable.  So tweaking a feature or reducing costs by 5% won’t save your firm from a disruptor. You’ll just lose more slowly.

Risk- and change-averse law firms have always billed by the hour, and increased profitability by raising rates, or using more junior lawyers vs. senior lawyers on a case. (This is called “leverage”). To boost efficiency and cut costs, many law firms have introduced project management and moved to less expensive offices.

Smart moves, but many big law firms have crumbled in the last 10 years, as clients demanded more value at lower prices.  Some of those clients insourced aspects of the work they used to give to law firms, like digital discovery.  Others have shopped the work around.

Can a large, traditional law firm disrupt itself? The case of law firm Littler Mendelson offers lessons on how to do just that – whether your industry is law or not. Founded in 1942, the firm specializes in representing employers in labor and employment matters.  Currently the biggest employment law firm globally, with over 1,000 attorneys in more than 70 offices, Littler supports multinational clients with thousands of workplaces. Law firms on this scale are not known to be nimble. But Littler made a decision not to become prey. Let’s examine six components of its disruptive innovation success.

1. Strike first

The first lesson: Don’t wait for some VC-funded startup to disrupt your world. You have customer relationships in place. You understand the industry. You have free cash flow from your core business. Do what it takes to see your customer’s needs through fresh eyes, and invest in new technology-driven approaches to disrupt your competition, before someone else disrupts you. Know that you may need to cannibalize your own business, depending on what you learn.

For incumbents, big-idea innovation starts with your customers, your data, and the way you work. The unmet needs are there, if you examine systematically.

Ask customers about their wishes and frustrations. Ask employees how they would work differently, if starting fresh. Listen with open ears, suppressing defensiveness and excuses. Also, use big data or analytics tools to spot trends that matter to customers. “Big data presents an incredible opportunity to understand, model and predict consumer behaviors and unleash disruptive innovation”, says Phani Nagarjuna, a big-data thought leader and CEO of Nuevora, a leading big-data analytics platform. “Take any professional services business such as medical services, accounting, legal, recruitment, payroll, etc., they are all ripe for disruption through smarter analytics in producing more meaningful & personalized outcomes.”

In Littler Mendelson’s case, the pressure to change the business model came straight from customers, starting in 2008’s economic downturn. Every law firm faced tremendous pricing pressure. Littler’s big retailing clients faced huge layoffs, declining sales, and acute pressure to reduce legal costs as the number of employee lawsuits rose (typical in downturns). One large client pushed hard for better pricing. Veteran litigator and shareholder Scott Forman sought to meet the client’s needs, while still turning a profit for Littler. To succeed, he had to disrupt the firm’s business model.

2. Take a disciplined approach to innovation

But Forman resisted the ready, fire, aim approach. Midsized firms (having revenues between $10 million and $1 billion) with healthy core businesses can’t afford to squander time and money with reactive, ill-informed, attempts at growth. Nor can firms afford to generate many interesting ideas but advance none of them. Smart firms that wish to grow through innovation take a disciplined process.

These firms collect ideas on how to fulfill unmet customer needs and evaluate them using a phase-gate process, a project management approach wherein the project must pass muster at multiple steps or “gates.” Firms must deeply understand the competition (both entrenched players and new entrants) and construct a business case to vet each idea. (See a useful template here.) High-performance firms examine the case and test market assumptions repeatedly.

At Littler, Forman organized a multidisciplinary team that mapped out the firm’s workflows in detail for the most common and costly kind of job: defending administrative charges of discrimination (filed with the EEOC and similar state and local agencies). The team asked at each step, “How can we do this better?” The team looked at new technology choices, as well as how the firm staffed cases. They created a flex time attorney model using U.S. based attorneys who focus on specific tasks within the legal process, reducing legal spend and allowing for greater quality and consistency due to their singular focus and subject matter knowledge.  .  These attorneys work from home, using a custom-built, proprietary collaboration platform. This would cut facilities costs while improving work-life balance. The team planned for a full year, then in August 2010 began the pilot test for the program—today called Littler CaseSmart—for just that one large client. In 2011, the firm launched the program for other clients, and it later began the same rigorous planning for managing single-plaintiff and class action lawsuits.

3. Use a separate team to identify incremental improvements

It’s smart to send two teams down different innovation tracks, one pursuing disruptive innovations like Littler CaseSmart, and another pursuing incremental changes. Even as a firm actively looks for disruptive innovations, it must also create a steady flow of smaller improvements. Otherwise, the firm will lose ground to traditional rivals.

But don’t let your disruptive innovation team be satisfied with incremental improvements. After all, VC-funded startups either hit it big (allowing for a few tweaks), or fail. You want to pursue and nurture that kind of big-innovation intensity inside your firm.

4. Ensure CEO support

That nurturing will require culture change. In the shorter term, disruption may lead to layoffs and force employees who remain to learn new skills. So disruption almost always breeds fear. Disruptors don’t prove popular. Without strong CEO support, most organizations eventually shut down or neuter internal disruptors.

Changing a business model or core process is a big bet for a CEO and his lieutenants. Not all executives can spot possible disaster down the road. Moreover, internal disruptors need CEO support long-term, since disruptive innovations can take years to build to a meaningful scale.  The average time from seed funding to exit velocity for technology startups is now eight years, according to Venrock’s Doug Dooley.

At Littler, innovation represents one of the firm’s key values.  When the economic downturn hit, company leadership actively sought new ideas. “Our managing director at the time, Marko Mrkonich, understood that the legal landscape had forever changed, and innovation was the path forward,” says Forman. . That commitment has continued under the firm’s current leaders Tom Bender and Jeremy Roth who are devoting significant resources to expanding Littler CaseSmart and investing in other technology solutions.

After developing the Littler CaseSmart concept, Forman updated the board throughout the pilot test. “Our initial success with the first client handling EEOC administrative charges paved the way for continued expansion of the program, first to other clients, then to single-plaintiff lawsuits, and now to class action work. We showed the board and shareholders our successes every step of the way,” he says.

5. Focus IT on creating strategic advantage

Wielding technology to create a competitive advantage must become a core competency in your company, inside and outside of the IT group. Truly innovative companies break down organizational walls between departments like IT, marketing, and R&D, so that groups can pursue new tech-driven ideas together, with each team bringing different strengths.

In the old-world model, IT departments acted like utilities, focusing on keeping company servers and end-user PCs running. Today, while this work must still be done, much of it can be automated or outsourced, freeing up IT professionals to do more strategic work.

Once your firm identifies a disruptive idea born of customer need, you need to execute on the necessary technology initiatives with confidence.

“To deliver at this level, you must start with the right leader and synchronize I.T. activity with your business goals,” says Michael Stoyanovich, a veteran IT leader with more than 20 years experience, and the technology principal at CEO to CEO. “Add a good set of guiding principles and a business-focused team culture, and I.T. can be the corporate differentiator.” This article lays out how.

6. Relentlessly measure performance

When you successfully disrupt an industry, the business scales rapidly. With this kind of of speed, you can’t manage based on “feel.” Financial intelligence, analytics reporting and dashboards prove critical, helping you quickly adjust to optimize results.

These financial intelligence tools matter greatly, since fast-growing firms spend furiously, even before becoming cash flow positive. How fast can you spend? Where are you seeing the greatest returns in growth and competitiveness? To answer that, you’ll need a strong CFO, historical data, and tools that closely track factors such as sales pipeline and operational performance.

In early 2015, the Littler CaseSmart team grew from 29 to nearly 60 FlexTime Attorneys, and made plans to double that number yearly. While the team was winning more business from key clients, they needed more granular financial performance reports. Some of the relevant metrics were new to the firm. For example, Littler CaseSmart charged based on productivity, not by the hour.

For help, the team engaged experienced financial consultants from Robert Half. “We needed information to help us tune the system we were building,” Forman says. “Our approach was novel for the legal industry, and we needed the expertise and experience that Robert Half’s consultants could bring from other industries.”

Andrea Tiller, a full-time consultant with Robert Half, led the engagement, building separate operationally-focused P&Ls for Littler CaseSmart as if it were an internal business unit, using the previous seven quarters’ transactions.

Analysis showed that the Littler CaseSmart team had outperformed initial targets in some areas, but needed adjustments in others. Tiller set up key performance indicators to gauge performance going forward. She also created an agile, an adaptive rolling forecast system that tracks performance goals and automates reporting. “Any growth company that succeeds in becoming disruptive must assume they will have smart, well-funded competition six to 12 months behind,” says Tiller. “You need data and dashboards so you can sprint faster and smarter to keep ahead of new entrants.”

True Competitive Advantage

Littler CaseSmart today stands at 57 flex time attorneys. The team doubled its year-over-year revenue in 2015. To date, the team has handled over 12,000 administrative charges and 400 lawsuits. Clients report reductions in legal costs ranging from 10% to 35%.  Littler is winning new clients based on that newfound efficiency.

But Littler CaseSmart delivers more than reduced costs. The platform provides rich data analysis about legal risks. Consider a client with a thousand locations. Littler CaseSmart not only helps the law firm manage the case load, it helps the client identify litigation patterns, to head off potential trouble. For these reasons, The Financial Times named Scott Forman one of North America’s top 10 legal innovators in December, and in the same month, he was named a litigation trailblazer by The National Law Journal. Littler truly gained a competitive advantage.

Disruptive innovators loom in every industry, developing ideas like Littler CaseSmart. Running your business like you did yesterday isn’t safe. By the time an incumbent business notices a threat, it’s often too late.

So don’t wait.  Examine unmet customer needs, do competitive analysis, then invest in a new approach, to disrupt your own company. Better to become predator than prey.