Report: What was the top reason for switching law firms in the last 12 months?

The most recent Altman Weil Chief Legal Officer Survey (2017) asked a question close to many business developers heart:

In the last 12 months, have you shifted a portfolio of work worth $50,000 or more from one law firm to another for any of the following reasons?

  • Client service
  • Lower fees
  • Legal expertise
  • Managing matter efficiency
  • Conflicts
  • Our key partner(s) changed firms
  • Size or depth of firm resources
  • Inability to handle our geographic scope
  • Predictable fees
  • Data security reasons
  • Technological sophistication

Wow – there’s a lot in there:-

Innovation. Fixed fees. Cyber-security. Critical mass. Lateral hiring. Globalisation. Legal Project Management (LPM). Legal Process Management. Legal Process Outsourcing (LPO). Conflicts. Subject matter expertise. Industry matter expertise. Being cheap. Being expensive.

But the winner is…

reasons for switching firms

client service.

At the foremost – despite all talk of innovation, fixed fees and New Law, we should never lose sight of the fact that this is a P2P (person to person) industry.

Automate the process for sure, but never forget that the people who seek legal help need to trust that their lawyer cares.

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Is putting profit before culture such a bad thing for law firms?

In 2004, while working at Linklaters, Tony Angel – the then recently appointed Managing Partner of the firm – introduced a new strategic direction that was to become known as ‘Clear Blue Water-– A Vision for Linklaters in 2007‘. Much as was being advocated in Renée Mauborgne and W. Chan Kim’s Blue Ocean Strategy, published around the same time, the intention of Angel’s Clear Blue Water strategy was to create a clear space (as opposed to red oceans) between the firm and it rivals.

For many of us who worked in the firm at the time, this represented a high-water mark. It was made very clear to all that Linklaters was now very much a business: profit trumped culture.

Sure culture was nice to have, but not if it had any material impact on profit.

But was this such a bad thing?

As someone who lived through the 2004-2007 era at Linklaters, I can honestly say “no”.

To be clear, there is little doubt in my mind the firm became more “professional”. Many of the business development, marketing and knowledge management work that had traditionally been done by lawyers was taken off them and given to dedicated teams. The firm introduced key account programs around their top clients. Blue Flag (Linklaters online client portal – that included early use of HotDocs) was a flagship program. Precedents and ClauseBank were core strategic projects.

But importantly, financial analysis was undertaken to determine the difference between revenue and profit and how both revenue and profit could be increased (which didn’t necessarily mean a reduction in costs – for example, the business case behind Blue Flag was the first example of an alternative revenue stream I saw in a law firm).

All of this was then extended to sectors when clients started to say they valued, and appreciated, sector specialists (Linklaters was the first place I worked at that had a virtual practice – The Indian Desk, back in 2005-ish which operated from London, New York, Singapore and Dubai).

Despite – or even because of – an overall strategy to significantly increase profit, large amounts of money were invested in putting in place strategic teams that could help implement and execute on this strategy. Professional KM, marketing and business development people came in to the firm from all walks of life and people who had never worked in professional services firms previously were now doing so.

Importantly, my personal experience was that their voices, counselling and advices were being taken onboard. Sure partners may disagree – and ultimately we all knew that the buck stopped with them, but it was also made clear that they appreciated and valued our input.

Another important aspect of Angel’s Clear Blue Water strategy though was transparency.

Everybody in the firm knew what we were trying to achieve. We knew what was required to get us there (including I might add an absolute understanding that this would involve an incredible amount of hard work). We knew how we were tracking and which parts of the business were struggling to achieve their goals. From my memory (and it was 10 years ago now), this wasn’t done with malice but so that we knew who needed help.

In short, the strategy bred a culture. A culture that many who were not in the firm may have considered elitist, but a culture nonetheless: to be at Linklaters at that time was to know you worked among the best (and if you doubt that, track the CVs of many of the leading BD/Pricing/KM people around the world and see who they worked for during that time).

So why, 10 years after I left, have I decided to bring this all up now?

HSF

The answer to that lies in the decision this week by Herbert Smith Freehills (HSF) to open a second office in Sydney.

This second office will be at 66 Talavera Road, Macquarie Park, while the principal office will remain at 161 Castlereagh Street. It is currently being reported that between 200 and 300 support staff (that may not – for now – include BD people) will be moved to this Macquarie Park office.

To my mind, this move eradicates all pretence of a ‘one firm’ culture having anything to do with the running of this firm. Conversely, it cements the ‘us’ and ‘them’ culture. If you are in Castlereigh Street, you’re ‘in’. And if you are in Macquarie Park, well you’re not! Worse, if you get moved from Castlereigh Street to Macquarie Park, you could consider it a demotion (especially given there will be no train line servicing that office for 10 months in the next year or so!).

But again, as someone who has advocated for the outsourcing of support services in law firms (in much the same way as a number of firms in Asia did post the Asian Financial Crisis) for more than 10 years the question should be: is this such a bad thing?

And my answer to that is “no”.

But my answer comes with an important caveat from someone who has been through similar strategic processes, and that is this: everyone at the firm in now on notice – perform, or you’ll be in Macquarie Park – or even out altogether – before you know it!

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Altman Weil’s latest report: ‘Cost certainty trumps process efficiency’

Following on from my post last week that the ‘Billable hour remains the pricing method of choice for Australian law firms’, Altman Weil’s ‘2017 Chief Legal Officer Survey’, published later in the week – and now in its eighteenth year – throws a different light on this debate.

The big take-out for me can be found on page vi of the Executive Summary – namely that in-house lawyers now see ‘cost certainty‘ as being more important to them than ‘process efficiency‘.

Specifically, page vi states:

Screen Shot 2017-11-20 at 8.06.11 pm

“Costs over process”.

Think about that for a second – because it’s massive if you happen to be in private practice.

Crucially, though, is this comment (also on page vi of the Executive Summary):-

It is easier for law departments to demand cost reductions from providers and let them determine how to achieve lower fees.

So what do we have here?:-

  • cost certainty over process efficiency, and
  • private practice being allowed to determine how to achieve lower fees.

QED: If you’re in private practice and don’t have, (a) a robust Legal Project Management system/program, plus (b) data and analysis on the profitability of fixed fees that you can/should be offering…

… then your firm is likely in a lot of trouble.

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Report: Billable hour remains the pricing method of choice for Australian law firms

[This post first appeared on my LinkedIn page on Tuesday 14 November 2017]

Despite the rhetoric we read each and every day around NewLaw, law firm innovation, value-based pricing, fixed fees and alternative fee arrangements, Macquarie Bank’s recently published ‘2017 Legal Benchmarking Results – An industry in transition’ report confirms that the crusty old ‘billable hour’ remains the pricing method of choice for the majority of Australian law firms.

While the report evidences a ‘gradual transition’ away from the billable hour – with 33% of law firms stating that they planned to use a method other than billable hours as their primary pricing method going forward, the term ‘gradual’ here would probably be better described as ‘glacial’ – as this figure is up a mere 2% since 2013.

fees

Interestingly, the report breaks down the preferred pricing method of choice by State (see image above), with Victoria and Queensland leading the way on ‘value-based billing’ (15% and 14% respectively) and NSW smashing it on ‘fixed fees’ (at 26% – which looks to be mostly property related matters) [Anyone else out there as surprised as me with the QLD result?].

Disappointedly, ‘value-based pricing’ is not the term used in the report (and thus I have to assume not asked) as ‘billing’ implies an after the fact approach which almost certainly means there has been no upfront discussion around needs, process maps, project management, white-boarding or any of the other methods of communicating a mutual understand of ‘value’ before a task is undertaken.

At the end of the day though, this report seems to show/indicate that roughly 2 out of every 3 matters undertaken in Australian law firms is being done ‘on the clock’ (i.e. billable hour). And while it doesn’t show what the realisation rates are around this method of pricing, it does provide evidence that law remains a highly profitable business – thus, by extension this method of pricing.

Overall though I found reading the results in this report depressing.

Why?

Because I actually enjoy reading all that rhetoric every morning about how law is changing and becoming more innovative – and to be confronted with evidence this may not actually be the case is, well, depressing.

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[ps, if you haven’t downloaded and read the report – do!]

Would your clients agree to pay you for ‘computer time’?

An old friend of mine, Alex Hayden-Gilbert (aka @thaipirate on Twitter), recently kindly shared with me a costing proposal from March 1994 that included a line item for ‘computer time’ – something we may consider outrageous today.

Screen Shot 2017-10-16 at 8.00.02 pm

But, giving this some more thought, I wonder:-

is charging clients for ‘computer time’ such an outrageous concept today?

To answer this, let’s break this down:-

  • you work for a law firm that charges by the hour,
  • you are of an age where typing with one finger is acceptable (Baby Boomer or Gen X), and
  • you work for a law firm who has cut costs to increase profit per partner and part of that cost cutting includes a reduction in WP and secretarial services – resulting in you needing to do more typing yourself.

Get where I’m going with this?

Yep, from where I’m sitting unless your client has made you pass a typing competency test (say 80 words a minute), then the reality is they are still – some 23 years later – paying for ‘computer time‘.

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Does competitive tendering deliver best value for money outcomes?

“Efficiency isn’t just about doing more for less. It is about finding the right balance between money, time and quality.”

– [UK] Network Rail Infrastructure General Counsel of routes, Dan Kayle

One of the biggest challenges a General Counsel faces these days is finding a way for his/her company to procure legal services in a way that:

  • ensures a quality service, at
  • a price that is fair to the company, while
  • ensuring that the service provider remains a viable and ongoing business.

For a number of years in Australia the primary mechanism for achieving this has been ‘competitive tendering’. But evidence is now coming to light that competitive tendering may not actually be delivering  the best value for money outcomes that clients had hoped for. Which raises the question:

Is competitive tendering the best way to procure legal services? And if not, what, if any, are the alternatives?

For those (living under a rock) who may not be aware, ‘competitive tendering’ in Australia comes in many guises: panel, project, parcel and combinations of all of these.

For the purposes of this post however, I’m going to state that ‘competitive tendering’ happens whenever a company ‘pitches’ its service needs among one or more of its providers. I’m also going to extend this by saying that the evaluation weighting of the winner of this process favours ‘price’ (read lower) over ‘outcomes’ (read performance).

And herein lies the flaw with competitive tendering that has prompt this post: because in deciding to go with one service provider over another based on an evaluation criteria of price, it is arguable that such a decision comes at the cost of quality.

To be clear, I am not suggesting that legal service providers purposely undermine the quality of the advice they give. Nor am I saying that there is a lack of understanding that there is a trade-off between cost and quality – after all, you don’t get a Rolls Royce at the price of a Mazda and most lawyers today know that.

What I will suggest however is that if law firms are being asked to go through a competitive tender process, which is often followed by a BAFO (Best And Final Offer) process, then in-house counsel have to accept that there will be a fall off in the quality of the service they receive.

Which leads me to this: Is there a better way of doing this?

Negotiated Contracts

I would argue that if you’re trying to achieve an outcome at a price that is agreeable to your company, then negotiated contracts far out-weigh competitive tenders.

To be clear, negotiated contacts can – and often are – competitive.

But the biggest difference between a competitive tender and a negotiated contracts is that the client has pre-selected a set of achievable outcomes – with a group of providers that they believe can deliver on those outcomes.

And we can all work towards that (i.e. it is not all price driven; so-called ‘race to the bottom’).

+-ve / -ve debate

  • Competitive tenders stimulate and promote competitive behaviours. Among a group of adversarial and highly competitive lawyers, will this provide the best results for your company?
  • Costs associated with competitive tenders can be  enormous: is this the best way to conduct a relationship?
  • Competitive tenders deliver the most competitive outcome, which is not the necessarily the best value and price to your business.
  • Negotiated contracts can be the first step in setting out your Legal Project Management (LPM) approach to the matter.
  • Negotiated contracts facilitate a discussion around the client’s different value points.
  • Negotiated contracts allow all sides to come to a clear understanding of what the various expectations are.

Now don’t get me wrong, despite evidence showing that competitive tendering isn’t working, and that we continue to reward poor performance – provide it is done at the right price, all I’m asking is this:

Isn’t there a better way of doing this?

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Do you know who your competitors are?

In a highly competitive market such as the legal industry, understanding and knowing who your major competitors are is crucial to the successful identification and implementation of your firm’s strategy.

When assessing this issue, most of us naturally look outward at our traditional, and even new, market competitors. In short, we try, as best as we can, to compare apples with apples.

That’s why the publication of results from a new survey in yesterday’s Legal Futures, one of the UK’s leading legal news websites, makes for an interesting read. Because, to my mind, understanding and deciphering who your firm’s principal competitor is would seem to  remain a misunderstood issue.

Why do I say this?

Well, in the article Legal Futures (quoting from a recently published market survey) states that:

“more than two-thirds [of London City firms] see other professional services firms as the overwhelming competitive threat among recent entrants to the profession.”

By “other professional services firms“, what they mean is the Big 4 accountants.

While the re-emergence of “other professional services firms” (and for that matter so-called “new law” firms) is concerning, they are currently a long way from being the “overwhelming competitive threat” to law firms.

No, that title belongs to another group much closer to home: your clients.

With the level of work that clients are now taking back in-house, or not bothering to do at all, they are without doubt the “overwhelming competitive threat” to the current law firm business model. And, this is not cyclical but structural.

Crucially, understanding this is of paramount importance if firms wish to survive the next 5, 10, 15 years. Because it reshapes everything we do. How we try and win work. The type of work we are trying to win. And even the nature of the relationship we have with our client.

In the long term it will determine the way we measure and reward. It will dictate how we charge, and it will determine whether we succeed or fail.

And for good measure, here is another thing that is rapidly changing: who the client is can no longer be taken for granted or assumed. Because more often than not, it’s no longer the person you have the working relationship with.

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