October 13, 2005
Law Firm Growth vs. Competitive Advantage
Bruce Greenwald, at Columbia Business School in New York, and Judd Kahn, with Hummingbird Management, authored the book Competition Demystified, available at http://amazon.com. One of the concepts that they expound is the notion that all strategy is local. To put it in other terms, their basic premise is that you need a tightly drawn market to achieve and maintain a competitive advantage. Expansive markets have too many players to develop business strategies or to achieve a competitive advantage.
When you apply this notion to law firms, it means that you are more likely to succeed and achieve higher margins and per-partner income in either a small niche market or a geographically limited market. Expansion dilutes any advantage given to you by your market share. The barriers of entry your competitors previously experienced become less effective due to your smaller market share. Competition drives down prices and increases operating cost, and per-partner income declines.
Their scholarly work brings into question the strategy of growth through acquisition or expansion into new markets. They would deem most of such growth as a distraction, a diversion, from the job of securing and maintaining your present competitive advantage.
Of course, there is more to their work and business insight than I have described here. They address business globally. I mention this aspect of their work because it fits with my experience observing the aftermath of law firm expansion, especially growth acquired by acquisition. When it is all said and done, the sum is often less than the parts.
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