‘Top Ten Reasons GCs Value Collaboration amongst External Lawyers’ and what they don’t like!

Heidi Gardner should need no introduction. But in case you don’t know Heidi, see her book ‘Smart Collaboration’.

Following the runaway success of Smart Collaboration, Heidi has recently published a Whitepaper, via Harvard Law School – where she is a Distinguished Fellow, titled ‘Harness the Power of Smart Collaboration for In-house Lawyers‘* [pdf].

It makes for an interesting read.

Of particular [personal] interest are two charts :

1. Top 10 Reasons GCs Value Collaboration amongst External Lawyers

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2.  Signals of Excellent and Deficient Collaboration with Outside Firms.

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Thoughts?

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*As a side note I understand this Whitepaper is a prelude to Heidi’s new book which is due for publication 30 April 2020 – ‘Smart Collaboration for in-house Legal Teams’.

“This is not just a stop-gap solution…”

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…or is it?

For the past couple of weeks, one of the most common themes I’ve been seeing about COVID-19, insofar as it relates to the legal profession, is how it has changed, and continues to change, the industry/profession. COVID-19, I’m being led to believe, is a “game changer”.

To this end, I have seen (and read) articles that I would not thought possible three to four months ago written about:

  • the changing nature of remote working in the profession, and
  • the importance of Zoom/Skype and Microsoft’s Teams,

to name but a few.

But I want us to stop here, take a step back, and ask: “Is this really likely to be the long-term outcome?

When I ask this, keep in mind that this is a profession that has fought tooth and nail to keep to the same business operating model for over 30 years (if not 100) despite having already recently lived through one of the worst global economic downturns of all time (the GFC).

So I ask: “What can we really say is different this time?

For sure we can say we have given our business continuity plans (BCPs) a tough workout. And, to be fair, I’d bet that even the most conservative of BCPs didn’t factor in a COVID-19 event.

And while we now know that most of our workforce can work remotely and, ironically enough, with the use of timesheets, we can also claim that they remain ‘productive’ whilst working from home – whatever that term may actually mean to a knowledge worker, does this truly foreshadow a change in the manner in which the industry is going to be managed?

My take is this:- while all of the above is true, it is taking place in circumstances that most of us had not predicted and many of us feel uncomfortable even being in (I’d bet there are very few people out there who are happy being locked up at home for four weeks – family or no family).

But this is a far cry from saying we will see the dawn of a ‘new normal’ whenever normality (whatever that may look like without a vaccine, which I am told is no sure thing) returns.

Because, while it’s critical that understanding our purpose is now more important than ever, and while we cannot hope to survive if we do not look to find the solutions our clients seek and need – which (as I mentioned last week) will be changing – in a post-COVID-19 world these will not necessarily bring about a change to the structure of how a law firm operates and is managed.

As any reader of this blog would know, it has been my long and strongly held view that to see real change to the business model of law, we need to start with the way in which we incentives and reward our partners and employees.

And to start this process we need to start to truly align our firm’s internal incentives/rewards to those of our customers so that we start to help create value for our customers. In short, our incentives/rewards must be aligned with our customers’ needs and incentives.

And yet nothing I have read in the thousands – possibly even tens of thousands – of words on how COVID-19 will change the legal profession has this even come close to being suggested or even discussed.

So my take from all of this is this:

If we want what we are currently going through to be truly more than a mere ‘stop-gap’ solution, if what we want from a post-COVID-19 world is true structural and ongoing change in the profession, then we need to start to have a conversation around the fact that the way in which we incentives and reward our staff is broken and worry a little less about where our staff are doing their job from.

And right now is the time to be having this conversation.

Failing which, all we really have is a stop-gap solution.

These are just my views, as always interested in your thoughts/views/feedback.

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Survey: Is the perception of value geographic?

Page 7 of April’s Briefing Magazine has a couple of interesting charts on how:

2019 was a mixed bag of business for US firms operating in the UK, with headcount growth hitting utilisation and billing rates requiring attention

As someone who is fascinated in the ‘pricing’ (not costing) of professional services, it was the “billing rates requiring attention” part that caught my attention.

billing realisation rates

The chart above, as titled, is billing realisation rates for US law firms in both the US and the UK.

So: why do two different offices of the same firm have such different realisation rates just because of the Atlantic Ocean?

After all, you would assume the clients are largely the same. You’d also assume the work types are largely the same. You’d probably be okay thinking the leveraging is largely the same. You may even reasonable expect the person reviewing the bill in Finance is the same. And, you may reasonably expect the hourly rate in London to be lower than that in New York for all said lawyers.

So why is it that realisation rates are roughly 5% higher in the US than in the UK? Especially when you’d think it would be the other way round.

And what does this mean more globally? Where would Asia, Africa, and South America fit on this scale?

More importantly, does this say that the perception of value is geographic?

I have my thoughts/views, but as always interested in yours.

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Pricing is a point of differentiation in difficult times

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In my working career to-date I have experienced, first-hand, four economic downturns:

  1. The first was in the late 1980s in the UK (when I had just moved to UK from Southern Africa) and everyone walked around with negative equity for a few years (at least, those that hadn’t had their homes repossessed).
  2. The second was the 1997-1998 Asian Financial Crisis (AFC). This was shortly after I had just moved out to Asia and it completely redefined my legal career as I moved from someone working in Project Finance and Major Projects work to someone who did an awful lot of Debt Restructuring and Workout work (Chapter 11 stuff).
  3. The third was the Global Financial Crisis (GFC) in 2007-2008 – shortly after I moved to Australia (anyone else seeing a trend here?). Fortuitously Australia didn’t suffer the GFC nearly as badly as the rest of the world and technically we haven’t had a recession in 30 years (although many of the States in Australia have, the country has not).
  4. The fourth is what is now know as COVID-19 in 2020.

Out of all of these, the uncertainties around COVID-19 concern me the most.

Having said that throughout history, every example of adversity has also provided us with a chance at opportunity and this latest economic downturn is no exception. While there are many who sadly won’t survive, there will be many who do.

And, in my experience, those who do survive will be the firms who both understand the circumstances they face and plan for how to deal with those circumstances.

The problem with ‘value’ in economic uncertainty

The perceived ‘value’ your customer sees in your services should be core to how you price those services – in that it’s not about the cost of your services, but the value of the services you deliver.

The problem with this theory is that in economically uncertain times, your customers’ perception of value will change.

It therefore becomes critical that all in your law firm understand that now is the time to provide solutions to your clients problems and not a service.

The elephant in the room: The unused capacity issue

The traditional professional services business model is one based on capacity. In my experience, one of the immediate results of an economy that falls off a cliff is that firms run around looking for work their excess capacity can do.

And one of the go-to strategies to achieving this is that firms will look to drop their prices to gain competitive advantage.

But, as my experiences of 1997 and 2008 have shown me, this is a short term solution to a long term problem.

In both those downturns lots of law firms dropped their prices significantly in response to the AFC/GFC, who were then never able to recover the lost ground.

Essentially they smashed the value perception equation and couldn’t recover it.

You can still drive growth and profit in difficult times

All doom and gloom aside, there are some pricing-relating things that you can start to put in place to get you through this without putting yourself out of business. These include:

1.  Do an audit of your work types

Do a deep dive audit and look at the types of work your firm does. Are these the types of work we are likely going to need in a post-COVID-19 world? If not, what types of work are we going to need? And can your firm provide this (or will you need to laterally hire it in)?

2.  Stay away from the traditional Alternative Fee Arrangements of discounted hourly rates and capped fees. These will only lead you to a race to the bottom.

3.  Align your law firm’s incentives with your customer’s

Over a decade ago Jeff Carr – Vice President, GC and Secretary of FMC Technology – introduced an Alliance Counsel Engagement System (ACES) on its outside counsel panel. Part of ACES included a methodology of aligning the incentives of the outside firm and FMC through a hold back incentive scheme under the terms of which it was possible to get remunerated more than you billed if you provided a good service outcome (dependent in part on an early form of NPS feedback – Carr was ahead of his time!). 

Take out: What is your firm doing to ensure it incentives its team to financially align with those of your customers?

4.  It’s time to think outside the pricing box

For most of my career as a pursuit and tender manager I have read law firm material about how innovative they are in pricing and how they think outside the box. In most cases this simply isn’t true.

Now is the time when you can change that.

For some time Ron Baker and Ed Klees have talked about subscription pricing being the new Value Pricing 2.0 (Google it). And now really is the time to consider pricing the relationship, not the transaction. Think about what services clients are likely going to need as a result of COVID-19, whether that is Employment, Safety, General Contracting, Debt Recovery, Workouts, Restructuring, Loan Borrowing – and think about this:

Which of these services can bundled into a subscription package?

To End

For a long time I wasn’t sure I held with Deloitte’s ‘Pricing and Profitability Management’ theory that a 1% improvement in price equaled a 12.3% increase in Operating Profit.

Don’t get me wrong though – I KNOW that any pricing improvement kicks the sh!t out of any cost reduction. I know it because I have lived it.

And that’s why I can say with absolute confidence that how you price your services over the next few weeks/months/years is never going to be more important to the ongoing success of your firm than now!

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18 questions to ask when analysing your client stickiness

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Recently I was listening to an encore episode of Season 2 of Scott McKain’s Project Distinct podcast on how to analysis your current client situation. In the podcast Scott suggests applying what he calls his ‘cub reporter’ questions to any stress test you undertake on the strength of your current client relationship, by asking:

  • How?
  • Why?
  • Who?
  • What?
  • When?
  • Where?

Applying Scott’s approach to law firm client relations has me asking some of the following foundation questions:

  1. How did the client hear about you?
  2. How well did you do when you first talk to the client about their problem?
  3. How serious are you about investing in this relationship?
  4. Why did your client need your services in the first place?
  5. Why did the client chose you?
  6. Why would they stay with you [over the competition]?
  7. Who [at the client] decides to send work to you?
  8. Who [from your firm] talks to that person?
  9. Who, from your firm, should be talking to that person [and is not]?
  10. What services [at your firm] are they using?
  11. What other services [at your firm] should they be using? 
  12. What would cause the client to change firms?
  13. When did you last talk to the client?
  14. When did the client last use your services?
  15. When is the client’s busy season (secondment opportunities?)?
  16. Where does your clients use your services (Their office? Your office? The internet? All of the above?)?
  17. Where can you improve the client experience?
  18. Where else could your clients use your services?

Hopefully a useful starting list and if you have not previously listened to Scott’s Project Distinct – a daily podcast that runs for a relatively short 10 minutes, I would like to strongly suggest you do.

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Does your law firm apply a Minimum Discount Benchmark?

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Pareto Principle‘: The Pareto Principle, named after esteemed economist Vilfredo Pareto, specifies that 80% of consequences come from 20% of the causes, asserting an unequal relationship between inputs and outputs. This principle serves as a general reminder that the relationship between inputs and outputs is not balanced. The Pareto Principle is also known as the Pareto Rule or the 80/20 Rule.

source: Investopedia

Most of us are aware of the Pareto Principle, but it wasn’t until recently, when I was listening to Episode 47 of Mark Stiving’s weekly Impact Pricing podcast, that it occurred to me that we could use this same theory in respect to the discounts we offer customers.

Now don’t get me wrong, I haven’t suddenly gone soft and think discounts are great. I’m still very opposed to them! But I’m also realistic enough to know that most law firms offer customers discounts and customers happily accept them.

If this sounds familiar, then here is a little tip that Kevin Christian gives Mark in the podcast:

  • Look at your historical [discounting] data for the last 12 months. Lop-off the bottom 25% of these discounts – by percentage – that you have been offering clients. This new figure becomes your new Minimum Discount Benchmark. Any new discounts you offer customers must exceed this new minimum threshold.

Which is to say, if you offer customers a range of discounts from 30% to 5%, then the 25% of discounts at the 30% end need to be discarded to give you a new Minimum Discount Benchmark – say, hopefully, a 20% discount rate.

Now any new discount you offer customers cannot be greater than 20% – as this has become your new Minimum Discount Benchmark.

Three months later repeat the process.

At this point your minimum Discount Benchmark should be closer to 10 to 15%.

Repeat again at 6 months.

And within a year, you should be close to a 0% Minimum Discount Benchmark.

Word of warning: if utilisation is your primary reward mechanism, then offering customers a discount is an incentive scheme and the above process likely won’t work as there are competing/conflicting interests between the customer and the lawyer.

As always, interested in your thoughts/views/feedback.

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