Survey clearly shows law firms who their biggest competitor really is – their client!

I have long held (see this post from September 2017 [‘Do you know who your competitors are?‘] and this post from July 2014 [‘5 steps to take when you client becomes your biggest competitor‘]) that in a hyper competitive legal market, your client – and not any of your more traditional law firm competitors in private practice – is actually the biggest competitor you face when trying to win new work.

Given this, it should come as no surprise that I found the graph below in the recent (September 2020) Gartner publication ‘2021 Legal Planning & Budgeting – Preview: State of the Legal Function‘ of interesting:

Take note all you private practice lawyers, in a three year period between 2018 and 2020, ‘The ratio of legal spend in-house vs outside‘ moved from 50.2% / 49.8% in 2018 to 57% / 43% in 2020.

That equates to a 13% swing of legal spend in-house over this timespan.

In a period when legal spend on outside lawyers actually grew! (Probably providing a false sense of security!).

And, these numbers pre-date COVID. So it is highly likely this movement of work in-house has, and will continue to, grown.

So, next time your firm is doing a SWAT and/or Competitor Analysis, make sure to keep some room for the biggest competitor out there – your client!

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Happy Australia Day

Happy Australia Day for all of us who celebrate it.

For this week’s post I thought I would share with you a quote from the recent ‘2021 Report on the Legal Market‘ by Georgetown Law and Thomson Reuters:

“One of the most effective strategies for managing the costs of external [legal] services may, however, be tied to a significant change in the organisation and management of corporate legal departments themselves.”

For those of you out there who think this presents a great opportunity for law firms, I refer you to this post and to this.

Have a great day – enjoy the bbq, and most importantly stay safe!

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Some thoughts on COVID-19, being #FutureReady and 2021

In the early days of what we now call COVID-19, I saw the meme below. It made me laugh out loud. It was so accurate!

The only problem is, as with most memes, it turned out not be as true, accurate, and funny as I had first thought.

In 2020 I ended up working from home 174 days. Others that I know, especially those in Melbourne, ended up working from home a lot more (if that’s possible).

But here’s the thing,

How were we able to work from home for all that time, so quickly?

From where I sit, the answer to this question is that most law firms (of any size at least):

Were already #FutureReady.

We should be thanking the CTO, CIO, and Head of KM. They did an amazing job in 2020. I hope they get amazing bonuses.

In the meantime, let’s go out there, and enjoy what challenges the year ahead brings us (without trying to predict a thing!).

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BLC Question: ‘How does your organization handle COVID-19?’

If you have not been following it, Silvia Hodges Silverstein‘s Buying Legal Council has been running an interesting question since April 2020:

How does your organisation handle COVID-19?

For clarity, ‘organisation’ here is in-house.

Tracking the responses to this question over a six month period (see graph above) has been interesting.

  • Extending payment terms; which I thought would have ballooned, has actually contracted.
  • Ask for (additional) discounts; which I would have thought would be leading the pack, has actually held relatively steady.
  • Bring more work in-house (outside of a blip in June) has held relatively steady. But more on this one in a second.
  • Hire alternative legal providers has actually ballooned, and may go some way to explaining why may believe the alternative legal services providers have been the real winners from COVID-19 – there time has come.
  • Renegotiating terms with law firms – more on this one below.
  • Pushing non-urgent work to a later date. No surprises with this one, makes perfect sense.
  • Cut non-essential costs: this one has shrunk relatively significantly since April. Not sure if that tells us there isn’t much ‘fat’ in in-house teams?
  • Reduce internal head count; is on the increase again and would seem to suggest a conflict with the “bring more work in-house” response above. Alternatively, in-house teams are really busy at the moment, which coupled with the rise in the use of alternative legal providers could well be very true.

Anyhow, the purpose of this post was to remake on the significant rise in clients ‘renegotiating terms with law firms’.

While this BLC reports (from what I could find) doesn’t define how this renegotiation process is happening, my experience has been that since May of 2020 there has been a significant increase in pitch and tender activity. Many clients are looking for significant savings and are looking to lock law firms into those savings for lengthy periods of time.

And I would have to say that I expect this trend to grow, so if you are a private practice lawyer who hasn’t yet locked-in expert pursuit/pitch/pricing expertise, you’re probably in for a rough 2021.

In any event, keep an eye on BLC – seeing where this trend tack us will be interested in the coming months.

As always, the above represent my own thoughts only and would love to hear yours.

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Should your job title accurately reflect what you do?

It’s something that has troubled me for a number of years:

Is the title of the job you do more important than the job you actually do?

For a long time I thought the whole debate was rather meaningless and irrelevant: do the job, be present, be a part of the team, kick goals.

But last week I read a report by ALM Intelligence report that made me rethink this a little.

So, before I start, the ALM Intelligence report is an important study on equality of revenue (or lack there of) between the sexes in legal marketing. Nothing I write below should detract from that and we should all be horrified by the outcomes of the report.

Which then brings me to the point of this post – a totally unrelated graph in the ALM Intelligence report (I hope) on:

Which made me think again:

Is it the title or the job?

Because while I agree with the many in the discussion I had about this on LinkedIn: that it’s about the job, expertise and experience over the title…

I’m still left wondering…

…are Marketing and Business Development missing a trick here?

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‘Upfront pricing’: when is a ‘fixed fee’ not a ‘fixed fee’?

I recently read, with interest, an article by Emily McNutt in thepointsguy.com about Uber’s new ‘Upfront pricing’ model in the UK (see ‘Know before you go: Uber rolls out fixed pricing in the UK‘).

In short, as McNutt’s title suggests, Uber have introduced an ‘Upfront’ fixed fee pricing model option for its UK customers.

Wonderful news, and encouragingly McNutt writes:

“…with the introduction of upfront pricing, both the rider and the driver will know the exact cost of their trip before they confirm”.

As someone who enjoys knowing what I’m paying for upfront, this is nothing short of brilliant news (even though I don’t live in the UK nor use Uber 🙂 ).

But…

there’s only one small problem…

which is,

more often than not the rider actually doesn’t know upfront what they are paying for.

Why do I say that?

Well, because Uber UK’s ‘Upfront pricing’ offer comes with four [very small but somewhat important] scenarios under which the agreed Upfront price may change.

McNutt’s article sets these out as being:

  • If the rider adds or removes a stop in their journey;
  • If the final destination is more than one mile away from the originally requested destination;
  • If a detour is taken and the trip is further (40% and 0.5 miles further) and slower (20% and two minutes slower) than originally estimated; or
  • If the trip is at least 40% and 10 minutes slower in duration.

Let’s take a closer look at these:

  • If the rider adds or removes a stop in their journey – okay, on first read this one seems fair. But then I re-read this and saw ‘removes a stop‘; and asked myself: ‘How does removing a step make my fare more expensive (unless the change element here is to reduce the fare – which would be fair go!)?’
  • If the final destination is more than one mile away from the originally requested destination-again, seems fair. But it doesn’t say if this final destination is the ‘original’ final destination. If that is the case, why am I paying more for your miscalculation (see below)?
  • If a detour is taken and the trip is further (40% and 0.5 miles further) and slower (20% and two minutes slower) than originally estimated-not sure what a ‘detour’ is, but having been in the UK just before COVID I can tell you we did a lot of detours!

And so we come to bullet-point #4 – If the trip is at least 40% and 10 minutes slower in duration.

Here I have LOADS of issues.

As McNutt writes:

In other words, if you hit traffic and your trip has been extended by a significant amount of time, the fixed cost will likely increase.

Now that sounds a little wrong. A fixed cost that is allowed to increase because of a time-based element.

Taking a step back here, McNutt writes that:

Uber says that it bases the fixed price based on the best-available route between the rider’s pickup and dropoff points. It uses the expected duration and distance of the trip to come up with the exact figure, while taking into account anticipated traffic patterns and known road closures. Costs for tolls and additional surcharges will also be accounted for in the upfront pricing figure. When demand is high, Uber says it’ll account for that with “dynamic pricing” — a new take on surge pricing.

So Uber totally scopes the project, with information the rider likely doesn’t have access to (Google is good, but that good?), but then says: ‘If we got our calculation wrong, we get the right to readjust’.

To my mind this is essentially a ‘get of prison free’ card for Uber, which is fine – but let’s not then say this is Upfront fixed fee pricing, let’s call it out for what it actually is: a cost estimate at best.

And so why this post after so long away?

Well, no prizes for guessing what other (hint ‘professional services’) industry might have this type of fixed fee pricing mentality!!

As always, the above represent my own thoughts only and would love to hear yours.

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How are Australian law firms fairing in this post-pandemic world?

Citing a recently published Thomson-Reuters ‘State of the Legal Market 2020‘ report, The Australian Financial Review (AFR) published two articles last Friday (28 August 2020) that, collectively, provide one of the first insights in to how Australian law firms are fairing in this post-pandemic COVID-19 world.

How is Australia doing compared to the rest of the world?

The first article ‘Law firms prove world-beaters as virus strikes‘ by Michael Pelly would, at first blush, seem to suggest that law firms here in Oz are doing far better than the rest of the world.

Looking at the five key metrics of:

  1. billable hours,
  2. hourly rates,
  3. fee revenue,
  4. productivity, and
  5. lawyer growth,

Australia’s results look spectacular.

But kick the tires a little and you’ll see that a June Q19 to June Q20 period is an Australian Financial Year – and not all, in fact none of the other regions, works to that same time line.

So these results should be read with caution, in that they are a moment in time which may not be a true reflection of how the other markets are fairing (it would be interesting to run those same numbers on a Jan to Dec timeline which would probably be a truer period [admitting that even then the UK numbers would be out] because, as we know, not every month is equal – in that we don’t split an annual budget by 12!).

Nevertheless a good result for the Oz firms – but that ‘red blip’ of productivity would be a concern to me if I were a Managing Partner.

Which leads us to…

…who is doing the work?

One of the more interesting takeaways from the chart above is how the hourly rate in every geographic region has increased, even where fee revenue and number of billable hours has decreased (and in some cases significantly).

If you are asking yourself how can that possibly be, look no further than my post of two weeks ago – ‘When does the law of supply and demand not apply? – when you’re running a law firm of course!‘ – and this is also (in my opinion) reflected in the second of the AFR articles last Friday: ‘Law firm partners working harder during pandemic‘:

Look at that spike in partner hours!

For those who may not have read my post of two weeks ago there are, in my view, two reasons why you get that kind of spike:- (1) the work is more complex and needs more grey-haired thought, or (2) senior lawyers need to protect their budget – your choice.

So where are we at really?

I’d treat the financial results of the Australian law firms above with a pinch of salt till the end of February 2021, which -in my opinion – will be a truer barometer of how the industry is doing down here.

As always, the above just represent my own thoughts and would love to hear your thoughts (and; ps: if you want to know why I say end of Feb 2021, email me).

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This week’s photo credit shout-out goes to Joey Csunyo on Unsplash

If you are going to discount: ‘Discount with dignity’

In Episode 748 (7 July 2020) of HBR’s Ideacast podcast (23.04), Curt Nickisch interviews Rafi Mohammed, founder of the consulting firm ‘Culture of Profit’, on the topic of ‘Pricing Strategies for Uncertain Times‘.

During the course of the conversation Nickisch states that with COVID-19 service/product providers will be under intense pressure from clients/customers to offer discounts, to which Mohammed replies:

Clearly, in the short-run, you have to offer a discount. And what I would be focused on is what I call discounting with dignity in a manner that doesn’t devalue your product in the long run. And so, that’s really important because once you set a low price, it’s very hard to recover when demand eventually does come back.

And so we turn to how this really important concept applies to law firms

Blind Freddy can tell you that clients are under intense pressure to cut costs. I doubt there is a CFO out there who has not phoned (or even Zoomed) his/her GC and told them to cut costs.

And I suspect there are few GCs out there who have not responded by calling, zooming or even emailing the law firms on their legal panel to tell them to reduce rates by X%.

And, having lived through the Asian Financial Crisis of 1997 and the GFC of 2008, I suspect there are few law firms partners who have not passed along this request to their Finance Department with a note to “make it happen“.

But if this sounds familiar, and if a law partner you know would or has done this (*because it is never us*), then you would be missing out on Mohammed’s very powerful ‘discount with dignity‘ concept.

Because, as much a I hate advocating or agreeing to discounts, Mohammed is right:-

If you offer a discount to customers/clients merely because we are going through turbulent (or should I be saying ‘unprecedented’ 🙂 ) times, then what you are really doing is devaluing your service/product in the long term.

Because what you are saying to your customer/client when you unconditionally agree to a discount request of this kind is that “you have been over paying me all this time” – I’m not really worth what you have been paying me.

A Suggested Alternative Approach

Much like scoping in Legal Project Management methodology, when it comes to discounting (and I’m realistic enough to know that there needs to be some consideration of discounting in current times), you need to be considering what you take out of the basket when you offer that discount.

Which is to say it isn’t a ‘like for like’ for less conversation – you don’t get the same for less. If you take 15% off, you take 15% out of the basket. And you look to alternatives to how that can be sourced – either in-house or some other way (including LPOs/ALSPs).

And, if it really does need to be ‘like for like, but for less’ then it needs to come with a risk sharing collar. For example, I will accept 80% of my fees, but if we get past COVID-19 and your share price returns to pre-COVID highs within 6 months of completing this deal, then you agree to pay me 120% of my fees.

And, in the very worst of scenarios, your invoice should include a line item that states the discount being given is a one-off COVID-19 discount (and Mark Stiving, of Impact Pricing, has an interesting thought on this issue).

Regardless of what it is, you do need to do something. You cannot standstill for less. Because we will get past COVID. And in the ‘new world’ (even if that is a world where we merely live with COVID) there will be a ‘new, new normal’. And if you have agreed to discount your rates now without taking anything out of the basket, then what you have actually done is recalibrated your value in the new world.

And you won’t recover from that.

As always, the above just represent my own thoughts and would love to hear your thoughts.

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This week’s photo credit is Chrissie Kremer on Unsplash

When does the law of supply and demand not apply? – when you’re running a law firm of course!

The Law of Supply and Demand
The law of supply and demand is a theory that explains the interaction between the sellers of a resource and the buyers for that resource. The theory defines what effect the relationship between the availability of a particular product and the desire (or demand) for that product has on its price. Generally, low supply and high demand increase price and vice versa.

Results published in Peer Monitor’s Q2 2020 Report last week suggest that the broader economy has a lot to learn from running a law firm.

Why would I say this?

Well, what would you think would be the logical outcome from:

  • Average demand for legal services decreasing by 5.9%, and
  • Productivity across all fee earners declining by 7.2%?

In normal circumstances you would be given credit for thinking that prices would come down, or at least hold firm. But as we know, running a law firm is anything but normal circumstances because as the Report goes on to state:

  • Average worked rate charged across the market was 5.2% higher than at the same point last year.

That’s worth repeating: Higher! 5.2% Higher!

If you are wondering how that can even be possible, the answer is relatively simple: ‘partners [of law firms] have begun completing a higher proportion of [the] work by volume.

I would be the first to admit that one possible reason why this [partners doing more of the work in a leverage model – see my post here on leverage] can be the case is because the type of work being done by law firms has become far more complex since the onset of COVID-19 and this requires more grey-haired advice with a higher proportion of leverage at partner level. After all, none of us have lived through a pandemic of this nature and so there really isn’t much precedent for young lawyers to go looking for and so partners and senior lawyers are needing to be more hands on when it comes to file time.

But the cynic in me also thinks that’s a likely to be load of rubbish. Law firms (like many in the economy I will add) have been furloughing staff and making staff redundant during the pandemic. On the flip-side, budgeted number of billable hours for individual lawyers do not appear to have been reduced (other than pro-rata to the number of days lawyers may need to be taking off).

And so we find ourselves in this position where individual billable hour targets still need to be met, but overall demand for legal services is falling.

So what happens when this happens?

If we learnt anything from the data of Great Recession it is this:

In times of signifiant economic downturn, holding individuals to individual budgets results in an upstreaming of work.

  • Partners will hoard work in an attempt met their budget first
  • Special Counsel will hoard work in an attempt to met their budget second
  • Senior Associates will hoard work in an attempt to met their budget third.

And if you are outside of the gold, silver or bronze medal positions you’re pretty stuffed!

So what can we do about this?

For those sitting around wondering what can be doe about this, the answer is appears to be pretty clear – do away with individual utlisation and budgetary targets. Even in the best of years these so-called budgets are arbitrary in determining law firm profitability (primarily because they work on an opportunity cost profit basis rather than a real in the bank profit analysis), but more importantly because they create silos – individuals in law firms with personal incentives that outweighs those of the group/society.

And, they sustain bad behaviour in firms – ‘me’ over ‘us’.

But critically, firms that work like this create ‘Motels for Lawyers’ – not law firms.

As always, the above just represent my own thoughts and would love to hear your thoughts.

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Photo credit Alexander Mils on Unsplash