Wednesday, September 08, 2010

Efficiency Translates into Effectiveness

Toby Brown has captured a wonderful discussion between himself and Ron Baker about the distinction between efficiency and effectiveness.

I'll leave it in the readers' hands to come up to speed, but would like to add an observation. I agree with Ron about our obsession with efficiencies, which are easily replicated by market competitors. My continuation thought here, is how important it is to see the connection between the two qualities.

As Toby notes, doing things in a more efficient way often helps both sides, including creating larger profit margins. Margins which potentially translate into lower pricing, maintain profits, or both. However, if we tighten up those margins and can't take our eyes off the goal of efficiency, creating anything above & beyond a bare bones service becomes more difficult.

Chances are, the same clients who may be happy in a weak economy with a simplified service, will not feel the same way when things improve. The problem, as I see it, is that firms who trim their margins extensively may be changing their business model. Do you want to be the firm that bags groceries and helps your clients to the car? Or the no-frills alternative? There's no right answer to this question, but it is an important distinction. These are two different businesses; two different markets.

On a related point, Toby says: "Competitive markets drive down margins which incentivizes innovative behavior". That's partially true, because it does incentivize the innovation of efficient behaviour. A distinction I would make, though, is that those firms with a reasonable amount of profit built into their services, are in a much better position to create innovative effective behaviour.

Why? Consider what kind of service you've created by competing solely on price and tight margins. Does the tight margin firm do any of the following:
  • Conduct client surveys, or collect feedback in any formal way? And if they do pay tribute to this process, how much time is invested in analysis?
  • Spend any amount of time or money recruiting talent? In-house training programs? Outside training and certification?
  • Spend any amount of time or money on understanding the client's business generally, or the market they serve?
  • How about quality assurance and fact checking? Think those qualities never take a hit in the tight margin law firm?
  • How about legal research? Ask the many research lawyers & librarians who are currently being sacrificed in the name of efficiency.
Ron's point is worth noting, "...make efficiency gains where we can. But let's not be naive enough to think that gains in efficiency will amount to a sustainable competitive advantage".

Spot on. This isn't an argument against efficiency. Firms should take efficiency gains wherever possible and stay competitive. But we do need to question how that efficiency then translates into effective qualities. My gut feeling is that in five years time, there will be a number of lawyers who are unhappy with what their firm has become, and in how they deliver services. And arguably, most of those tight margin firms still won't be competitive on price.


Post a Comment

Links to this post:

Create a Link

<< Home