May 22, 2006
Shutting Down Failed Law Firm Strategies
Paul Brown’s article, in the May 13 issue of The New York Times reported on issues surrounding failed strategies, projects, and business activities. It clearly applies to the law firm itself, and his proposed solution is worth clipping for those situations where a client or friend asks you for advice.
According to Brown, there are four psychology traps that would cause a law firm to hang on to failures (new offices, new practice classes, new technology projects) even though they are hemorrhaging cash and turnaround efforts have failed:
- Confirmation bias. Executives seek information to support their point of view and disqualify data that does not.
- The sunk cost fallacy. Managers add up all the money they have already spent and conclude it would simply be too costly to walk away.
- Escalation of commitment. Executives decide to throw even more resources at the problem, convinced that is the way to resolve it.
- Anchoring and adjustment. Estimates of the potential worth of the project or business are revised upward to justify all the spending.
His simple solution is a wise one. ”One simple way around these biases is to have a senior executive who is not involved do a thorough assessment about whether it is worth continuing.”
For a law firm, the partners can agree to give the task to a partner not involved in the project or the decision to pursue it. If no partner fits that bill, go to someone outside of the firm–preferably a business person or respected non-competitive (or retired) business-minded attorney. Another view can help those involved admit “… that sometimes things just do not work out and it is simply best to kill the project or shut the division to free up resources and improve their ability to embrace new market opportunities." For clearly failed efforts, I suspect that just the suggestion of independent review will bring the shutdown decision to finality.
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Filed under Planning by Tom Collins