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!


Coming of Age in Asia

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2014 is slowing to drawing to a close, and with it a notable milestone in my career:-

2014 constitutes 18 years since I started working in the Asia-Pacific region; hence, the year I consider myself as coming of age in Asia.

If I’m completely honest, the start of my career in Asia was more of an accident than a plan. Having backpacked my way through South East Asia (SEA) in 1991, I had returned for a “brief” visit to see friends before moving on to live in Australia for a while. While there, I met a group of young lawyers who were looking to set up their own firm. They were full of vigour and had a zest for life I found infectious and, as luck would have it, it would be another 12 years (and several coup d’états) before I made it to the shores of Australia!

And so, in a reflective mood of nostalgia, I have decided to write down 10 things that remind me of those times to see how far, as a profession, we have progressed.

1. There was a financial crisis

I had hardly got my feet under the table when the Asian Financial Crisis (AFC) would hit in 1997.

What’s more, I was squarely in the epicentre of this crisis – later to be called the Tom Yum Goong effect (following the forced float of the Thai Baht) – and a whole bunch of lawyers in the region would find themselves retraining from being project finance, M&A and capital markets lawyers to bankruptcy and restructuring lawyers tout de suite.

The “internet” (pre-Google) was our new best friend and Chapter 11 was the new buzzword!

Not that I knew it then, but the AFC would play a major role in my career for many years to come.

(NB: I was later to arrive in Australia in 2007, a few months prior to the Global Financial Crisis (GFC))

2. International law firms were in expansion mode

International law firms operating in SEA in 1996 largely consisted of Baker & McKenzie and Freshfields. A number of others did have “best friend” status with local firms, but they had not made the move to hanging their own shingle on the door just yet. The operating strategy of the day was still “fly-in, fly-out” from Singapore or Hong Kong.

The considerable upswing in workout work following the AFC would fundamentally change this approach and it would not be long before Allen & Overy, Clifford Chance and Linklaters would all have local operations. Norton Rose would follow later. Coudert Brothers and White & Case would also operate locally (Coudert Brothers on the back of Freshfields closing down its operations).

Unlike later expansions undertaken by these firms however, all flew-in international partners (a number, including Linklaters, would later reduce or eliminate their “international partners” from on the ground in SEA for a “local partner” strategic approach), and all cited “assisting global clients locally” as the rationale for opening locally.

(NB: It is worth noting that a number of international law firms would continue to offer services in Indonesia and the Philippines on a “fly-in, fly-out” basis).

3. India and China were the future

Everyone you ran into in those days talked about the future being India and/or China (it would be some time before I would hear of the acronym “BRIC”, but accept it may have been in use then). The only problem at the time was that (a) India’s market was regulated, and (b) China’s market was very embolic – in those days, not too long after Mao, it was extremely difficult to find a mainland Chinese qualified lawyer who spoke English. Add to that the restrictions in place on mainland qualified lawyers and foreign firms acting on the ground in mainland China, and it was rare to find an international firm who had such an offering.

As would transpire, our approach to India would arguably prove to be the blueprint to the “sector” approach that would become all the rage in years to come. In India’s case, practices were set up in Singapore and Dubai (for proximity purposes) with “India desks” in London, Hong Kong and New York (at that time, most capital raisings being undertaken by India companies were NY-based 144a deals and if I was to be paid a $1 for every time I heard a NY qualified lawyer complain about direct flights between HK and Mumbai I would never have to work again!). The notable thing about these Indian practices? – they included capital markets, corporate and commercial, and finance lawyers sitting together in the same space.

18 years later and India and China are still the future. Meanwhile, a generation of lawyers have passed through the system.

4. Fee pressure was immense

Fee pressure was immense following the AFC – period!

99 per cent of the work assigned to lawyers went out on a competitive tender basis and, in many cases, firms would tender to do the work on a loss leading basis. Often the reason cited for this was “to keep our lawyers busy”.

Needless to say, those firms who didn’t smarten up to the tendering process and how to price work profitably were pretty quickly destined not to hang around.

(NB: so prevalent was competitive bidding at the time, that I heard of one occasion – unverified – where a firm ended up bidding against itself.)

5. Alternative fee arrangement (AFAs) were the rage!

The first AFA I ever saw was an agreement to do the legal work on an IPO in exchange for shares in the listing company (a practice that would later be prohibited by the regulators). I would soon see a “success fee” arrangement for a competitive bid of bankrupt assets and more “fixed fees” for loan workouts and debt repayment applications than you can poke a stick at.

All of these pre-dated the GFC in 2008.

So when I say to people there is absolutely nothing new with AFAs, I mean I can actually cite examples dating back to 1997 where we used alternatives to the hourly rate on a daily, if not hourly (pun intended), basis.

(NB: a firm I worked with had an annual retainer for a client in place in 1998)

6. Technology

Anyone remember the Y2K bug?

Oh what fun we had with that one! I don’t think I ever did work out how much we must have spent making sure we didn’t lose all of our clients’ records overnight. In a day when most of our computers weren’t even networked, technology was something we thought about constantly.

7. Outsourcing

A debate was taking place in the business at the time as to whether or not support services should be outsourced and lawyers should “concentrate on lawyering”.

At least one firm I know went down this path and outsourced its accounting and secretarial services (and later, marketing would also be outsourced). That firm is still operating on that basis to this day.

Another firm I know spun off its support services function into a limited liability company and then charged back the support services to the firm on an “as needs basis”. Unlike the previous example, this practice became too contentious and, as far as I am aware, the support service was brought back into the mainfold of the firm (but it is worth noting that a number of in-house legal teams would operate on very similar structures down the road).

8. Support services became its own business

Prior to 2000, most lawyers I knew did their own marketing, wrote their own tenders and were in charge of their own knowledge management and client updates.

A significant increase in global panel tendering for financial institutions and corporates, together with project based pitching, changed this approach. Add into the equation the rise of corporate events and directory listings (at that time, Martindale Hubble was the only real regional directory listing but Chambers and APL500 were just about to take off) meant a business case could now be put forward for specific support services.

Likewise, the need for precedent documents to help keep costs down when pricing for work, as well corporate intelligence on clients (used in things such as client meetings and tenders), client legal updates, and more general information management saw the development of the “professional support lawyer” / knowledge management role.

In sum, between 1998 and 2005, in my part of the world, support services rapidly became a business in its own right. Which is probably just as well for me.

9. Relationships trumped all

The relationship between a lawyer and their client trumped all – and it was as simple as that.

There was no such thing as “commercial” and “legal” conflicts, because there was a complete understanding that you would never act against the interests of your client. This was ingrained culturally. In times that pre-dated key account management, global account management, etc. lawyers knew everything about their client. They spoke with the client frequently and often met informally.

There were, however, two prevailing problems with this approach: (1) many client relationships were not that profitable and (2) we hadn’t yet worked that out yet!

This would change with time, and while I would argue that relationships still trump all in Asia, the level of sophistication surrounding the profitability of a relationship has improved significantly since those days.

10. It was fun!

Last, but not least, we had a lot of fun!

Yes, we worked long hours. But, we were young. And, we grew up together. Many of us went to each other’s weddings. We celebrated each other’s children being born. And we went to significant other events in each other’s lives.

(p.s., in days before the Asian Financial Crisis there was a restaurant in the old Stock Exchange of Thailand (SET) building on Wireless Road that would set its lunchtime buffet price according to the [lunchtime] closing bell. It occurred to me when writing this post that it’s probably only now, 18 years later, that they would be able to get away with doing that again – if they still existed)