Is building your firm's institutional capital on your to-do list?

A new financial year recently started for many UK-based law firms, and managing partners are turning their attention to the uncertain and probably bumpy road ahead. Budgets - a major part of a firm's shorter-term operational plan - should have been set and action plans are hopefully in hand to achieve results this financial year. However, although it is never easy to think very far ahead when endurance and survival are the leading priorities, planning in law firms should never be entirely short-term focused.

It often works well to create and develop one straightforward long-term strategic project that can galvanise and inspire partners and staff. One such possible project is to focus on those parts of a firm's intellectual capital or intangible assets that sometimes get overlooked or starved for attention.

Most firms, when they think about their intellectual capital, turn readily to their human capital and their relational capital (brand, clients, referrers and networks) for their action planning, at the same time as careful management of the firm's economic capital and shorter-term business recipes.

What many firms ignore (and even at times fail to understand) is their structural capital (or institutional capital), which is made up of those features that make them unique and competitive, such as their systems, processes and know-how.

An additional and important part of any firm's institutional capital is its ethos, internal ecology, expected sets of behaviours and ways of doing things - in other words, its unique organisational culture. A set of institutional capital projects could therefore include one or more of three separate parts, but it has to be recognised that none of these is easy to introduce and implement.

1. Processes and systems

The first and most topical of these is ?the improvement of the firm's processes and systems. Legal process improvement (LPI) is steadily gaining traction in the ?legal profession in order to streamline ?legal services, minimise waste and increase efficiency.

In parallel, many firms are also seeking to improve their business support functions by optimising their organisational business processes. Whichever approach is taken, it is vital ?for the firm's leadership to support, sponsor and coordinate the project.

2. Know-how

A second possible institutional capital project should be the development of know-how. Knowledge management (KM) has been around in the legal profession for at least two decades and most firms have had a crack at developing a coherent and useful system. However, most initiatives have been unsuccessful, either because the lawyers have consistently failed to contribute their know-how to a central system, or because a mass of material is left sitting idle and under-utilised on the firm's databases. ?It is, of course, hard for a managing partner to gain enthusiasm from ?partners and members for yet another ?KM project in circumstances where ?previous initiatives have failed.

A good starting point would be to invest in a bit of internal education, as many partners do not really seem to appreciate that the profession is at yet another tipping point, brought about by client pressures and the advent of new providers, both of which take the provision of KM very seriously. Sophisticated clients perceive that ?under-emphasis on KM drives inefficiency. New legal service providers embrace best-in-class KM systems as vital ingredients in their strategy and success.

The next step would be for the firm's leadership to work out and demonstrate compellingly to their partners exactly how investment in a KM system could improve performance and result in financial success and performance pay-off.

3. Cultural change

Culture change may be the most important of the three proposed institutional capital projects. Culture is, however, so intangible and amorphous that it is sometimes hard to know where to start.

The best way is to try to establish both what your firm's culture is now and what you and your partners would like it to be, in the context of the firm's strategy and conditioned by the values, mindsets and aspirations of the partners. A number of qualitative and quantitative methodologies and instruments are available to achieve this step. The next step would be to have some action planning to move the firm from its present state towards its desired state.

Difficult and painstaking

What is clear is that the building and development of structural or institutional capital - specific to the firm rather than its individuals - is difficult and painstaking. These projects are therefore easy to avoid in deference to shorter-term plans for growth and increased profitability. However, it should be in the job description of every managing partner to take a balanced and long-term view to the development of the firm's intellectual capital and intangible assets.

?Nick Jarrett-Kerr advises law firms worldwide on strategy, governance ?and leadership development ?(www.jarrett-kerr.com)