#BizDevTip

How about applying the “Moscow” process to your next costing letter

Over the weekend I read a post over on the www.pmhut.com website by Chuck Snead – An Agile Primer: Agile Estimating and the “MoSCoW Process” – which contained an interesting process that I would like to share with you today.

Although the www.pmhut.com website (the “pm” here standing for “Project Management”) doesn’t do posts that relate directly to either law firm business development or marketing, I enjoy reading their posts as I find many of the concepts they cover can easily be applied to the industry. As was the case this weekend, with a guest post by Snead which threw up a very interesting acronym and concept that I had not previously heard of – the “MoSCoW Process” – and which I now believe should be tailored to form part of any law firm costing/engagement/fee proposal letter process with your client.

So here goes.

Snead stipulates that:

MoSCoW is an acronym for prioritizing feature development along the following guidelines:

MUST have features that are required for the project to be called a success.

SHOULD have features that have a high priority, but are not required for success.

COULD have features which would be nice to have, but are not high priority.

WON’T have features that stakeholders agree should be in a future release.

Now let’s apply this to the law firm costing/engagement/fee proposal letter process you go through with your client and agree that your next costing/engagement/fee proposal will include the following:

a section in the letter setting out all of the actions/tasks that MUST be done in order for the client’s objective to be met [Category 1 critical]. Here, assign who will be given the task and either the fixed or estimated cost to achieve these tasks; next
a section in the letter setting out the actions/tasks that would it would be ‘nice’ (SHOULD) if they were done, but they are not critical to the achievement of the client’s objective(s)[Category 2 critical]. Again, assign who would be given the task if there is sufficient time/budget/desire, etc and either the fixed or estimated cost to achieve these tasks; next
a section in the letter setting out the actions/tasks that are [remote] ‘possibles’ (COULD) that may arise out of the client undertaking the action they are planning to take. It should be noted that this should be remote variables/possibilities [Category 3 – variables]. Again, assign who would be given the task if one of these remote variables were to arise and wherever possible attach a fixed fee or estimate against the task; finally
set out clearly in the letter those actions the law firm WON’T be taking (is not instructed to take). Now it could be the case that these actions are still needed in order for the client’s objectives to be met, but they will be undertaken elsewhere (eg, in-house or through an LPO) [Category 4 – won’t dos]. Note, this is not a ‘disclaimer’ or limitation on liability section per se, but assigning tasks so that each party knows exactly what is and what is not required of them.

Anyone else out there think we may just have a few less angry client complaints if we went through a process like this each time we took on a new matter?

This process might not be perfect, and it could well need a tweak here and there, but I do think it will go a long way to helping lawyers fully understand the scope and nature of the instruction(s) they receive from their client(s) and lead to less misunderstanding in the industry.

And if that’s the case, the result is a win-win all round.

‘Stupid is as stupid does’

In the 1994 movie of the same name, Forrest Gump is asked:

“are you stupid or something?”

to which Forest replies:

“stupid is as stupid does”.

Some 20 years later (yes, it really has been that long!), in general parlance this phrase has come to mean that:

‘an intelligent person who does stupid things is still stupid’ – (Urban dictionary)

and I have to say that this thought went through my mind earlier this week when I read that a third of [UK] commercial firms are likely to raise their rates in a bid to boost their profits (Solicitors Journal 6 May 2015 – “Number of law firms planning to raise charge out rates increases“).

Leaving aside the issue of whether a direct raise in your rates will equate to increased profits (for example, the psychological impact of rising rates/budgets on fee earners with no increased salary (cost)) – what in the world would make 26 (1/3rd) of so-called intelligent finance directors of the UK’s Top 100 law firms say “it is likely their firms will increase their charge out rates in order to improve profitability in the year ahead“?

As I have blogged countless times before (the most popular being: ‘Is it time for law firms to break with the RULES when looking at profitability?‘), hourly rates are but one of the metrics in calculating profitability. And it’s probably not even the biggest metric driving your firm’s partner profit levels, which almost certainly would be better achieved via an increase in your realised rate.

Putting this mathematically (admittedly not my strongest area), say my hourly rate is $100 and my realization rate is 90%, then I’m being paid $90-. Taking this forward I’ve decided to increase my hourly charge-out rate to $110-, but find that my realization rate has now fallen to 80%. If my maths is correct, I’m now being paid $88-.

In other words, in real terms, I’m losing money!

Don’t think this could happen? Then take a look at Charts 4 & 5 from the ‘2015 Report on the State of the Legal Market‘ published by The Center for the Study of the Legal Profession at the Georgetown University Law Center and Thomson Reuters Peer Monitor (at page 5)

Those charts don’t make for pretty reading.

So when, as the article reports:

“…firms realise this is not going to be an easy sell to clients who are likely to negotiate hard to keep fees down, so their approach to increasing charge out rates is likely to be softly softly, rather than gung-ho”

my response would be: “why bother?”.

Instead,

try keeping your charge-out rate the same over the next 12 months;
try not to give discounts;
try to increase your realisation rate (by 3 to 5 cents in the dollar);
try to reduce your lock-up days;

and see where you end up.

You may just find that has a better impact on your partner profitability numbers than the likely impact that is going to come your way when you go annoying and off-siding your clients with the almost obligatory 1 July 10% rate increase letter.

But I could be wrong…

Your law firm’s brand recognition: How much does it really matter?

Earlier today Dr George Beaton (@grbeaton_law), Partner in Beaton Capital and an associate professor at the University of Melbourne, posted the following question to Twitter:

“Which firm is the ‘world’s strongest’? Skadden or Baker & McKenzie or Jones Day. Confusing”

With a twitter pic link to an article on the Global Legal Post website that contains links to the following “Related stories”:

Leaving aside the issue of financial strength, as George’s tweet clearly infers brand strength, the question I always ask when I see news items and survey responses of this nature is this:

Does it really matter?

And the answer to that really depends on what my firm’s overall strategy is.

Taking a step back, whenever I’m asked in my role as a business development consultant by law firm partners of the importance of such survey findings I will often respond by asking them the following question in return:

Imagine we are on a long distance flight on an important business route – say Sydney to London or Tokyo to New York. Now, say I give out a questionnaire to all 300 plus passengers on that plane asking them the simple question of whether or not they have heard of your firm. Would you prefer:

A. a greater percentage of passengers in first class to have heard of you?

B. a greater percentage of passengers in business class to have heard of you? 0r

C. a greater percentage of passengers in economy class to have heard of you?

Now if your firm’s business plan is to be doing “premium work for premium clients”, then my guess is you’d want a greater percentage of first class passengers to have heard of you. Similarly, if your business plan is to be working with the top ASX 200 companies, then I would hazard a guess you would want to be known by both first class and business class passengers, with the edge being on the greater brand recognition among the business class passengers. Finally, if your firm’s business plan is to be a leading B2C law firm, that I’m guessing you wouldn’t mind if your brand is widely recognised by the economy class passengers.

A very simplistic way of looking at this issue? Very much so.

But, at the end of the day, despite headlines that read ‘Top legal brands grow 45pc faster than others over last four years‘, I’m very much of the view that surveys of this nature fail to ask a more critical question, namely:

Do you regularly, or have you ever, instructed one or more of these firms you have heard of in the last three years?

Because, does it really matter if you have heard of me but never given me any work (ie, fed me)?

And all of this is before we get into the even more interesting discussion of whether or not you instruct individual lawyers (lawyer name [brand] recognition) – either at my firm or elsewhere – regardless of which firm they work for (lateral hire movements)?

After all, we have a long flight ahead of us…

Beware of wolves in sheep’s clothing

“Beware of the false prophets, who come to you in sheep’s clothing, but inwardly are ravenous wolves.” – Matthew 7:15

It might seem a little melodramatic to start a business development related post off with a biblical reference, but when the global leader of EY Law, Cornelius Grossman, says “I don’t think any firm should feel threatened“, vis-à-vis the march of accounting firms into the legal space, and particularly why law firms have nothing to fear from accountants practising law, it seems entirely appropriate.

On further reading, the firms Grossman says he is refusing to target – and thus by extension don’t need to feel threatened by the continued march of accountants into this space – are those doing “the highest level – “bet the company” – work and premier corporate clients” and who “have established their brands over hundreds of years…”

In other words, so-called Magic Circle firms, their work and client base are safe from the invasion.

But, as Grossman then goes on to say in this legalweek.com article:

“he believes EY Law will succeed with multi-disciplinary teams doing mid-market transactional work”.

adding further that:

“We [EY Law] want to be known for compliance jobs that span over tens of jurisdictions and for large international reorgansiations.”

In other words, the work that just about 80 per cent of us have been trying very hard to secure for a couple of decades now (and in many case incurring significant losses while we try and secure this work)!

So, while Grossman may believe that:

“The threat of accounting firms to the legal market is overstated.”

and that:

“There’s so much work out there that we all compete for – I don’t think any firm in particular should feel threatened by that.”

unless you work for an elite law firm, I would like to suggest that you be a tad weary of wolves in sheep’s clothing telling you that there really is nothing to be overly concerned about and that there really is enough food out there for all of us to feed on.

From the client’s perspective

Overnight (Australian time) Bruce MacEwen, President of Adam Smith, Esq and a leading commentator on professional services, wrote an outstanding blog post – ‘The Client Seat‘.

The post outlines some of the personal experiences Bruce has recently encountered as part of his role as Chair of the Finance Committee of his local church, St. Michael’s Episcopal Church at West 99th Street and Amsterdam Avenue, who own a vacant corner lot abutting the rear of the sanctuary and are looking for ways to realize some value from the asset; and, specifically, as it relates to the process of interviews the church is going through to select and engage a law firm to assist them in this process.

I anticipate there being a lot of commentary written about Bruce’s post – if there isn’t already. It raises a number of thought provoking issues of what it feels like to be sitting in the client’s seat as part of this process and some of the gems that lawyers and law firms come out with to try and impress a prospective client into appointing them to do the work – even where they may not be qualified to do the task at hand.

But what really grabbed my attention in the post was the following observation Bruce makes:

The other asymmetry is one of disclosure and, to be pointed about it, candor: The client needs to tell the firm as much as honestly possible about the engagement and what the client knows, while the lawyers’ instinct and practice is to guard information, hedge predictions, and avoid definitive statements. This is true even when the firm is posed direct questions about simple business arrangements and not ultimate outcomes, such as “Who will be working on my matter?”

This is such an on the money observation of the profession, but think about it for a second:

In an age where open candour and transparency around both your personal and your firm’s credentials will most likely win you and the firm the trust of clients and prospective clients, and thus a lot more work in the long run, why do lawyers still feel the need to be guarded and reluctant to give straight answers to straight questions?

How often do you let your clients know the value you provide to them?

Based on interviews with 188 independent lawyers and more than 500 clients, the LexisNexis Bellwether Report 2015: the Age of the Client (published earlier this week) found that:

“80% of lawyers think they’re delivering above average service…

… but only …

…40% of clients say they’re receiving it.”

What does this mean?

Well, either:

You’re not as good as you think you are; or
You’re not communicating well enough to your clients the value you bring to the transaction/relationship.

I’ll leave it for you to decide which you think applies to you.

A conversation with Lucy Fato, General Counsel at McGraw Hill Financial

Last week Bloomberg’s new Big Law Business website published a two-part extract [It’s All About Relationships and ‘Gut Checks’ Are Better than AFAs] from a recent interview Bloomberg had with Lucy Fato, General Counsel of McGraw Hill Financial (among others, parent company of Standard & Poor’s).

Transcripts from the interview make for interesting reading. While not agreeing with all Ms Fato has to say, her take on the following issues run close to how a number of in-house counsel feel here in Australia:

On the role of in-house counsel:

But my view is that the role of in house counsel is, in many ways, to be the face of the company in these situations. Outside counsel can never really have perfect information about what a board or a CEO is thinking. They can never really step into the shoes of in-house counsel.

That’s how in-house lawyers really add value. They can connect all the dots. I think, historically, general counsel deferred more to outside counsel than what you see today. It’s a process that has evolved.

On the role secondments can play in developing personal relationships with in-house counsel:

Secondments are a great way for a firm to build a relationships. The associate is actually here, in our building, getting to know our people, getting to learn our business, and when they go back to the firm, they bring all of that knowledge with them. It’s especially effective when a firm is new to the company.

On the developments going on in in-house departments:

“In-house departments have become much smarter about how we manage our departments and how we manage our legal expenses. In-house departments are becoming bigger, more global, and many companies, including ours, spend a lot of money on outside counsel. Getting a handle on that is extremely important.”

On the role data plays on the modern relationship between in-house and external legal:

I’m very big on data and having a lot of information to work with…

E-billing gives you enormous visibility into how law firms make money.

On alternative fee arrangements:

Getting better control over who we’re spending money with, how they are staffing deals, how much time is being spent on matters — taking a hard look at those types of questions is more effective over the longer term than trying to do alternative fee arrangements.

On hourly rates:

But I will say it’s gotten a little out of control. It’s eye popping even for me, and I’ve been doing this a long time, when I see an hourly rate that’s over $1,000 an hour. I look at that and think, “Really?”

Ms Fato makes a number of other good observations and comments, both about the evolving role of in-house counsel and the relationship between in-house departments and their external legal advisers, but I wanted to finish this post with probably my favourite:

Firms have to be mindful that their client is not just the lawyer. It’s also the business person.

Absolutely.

The two types of efficiencies law firm associates need to become familiar with…

Really interesting article [‘What Associates Should Know About In-House Rates and Efficiencies‘] by Gina F. Rubel was published overnight (7 April 2015) on The Legal Intelligencer website – discussing the two types of efficiencies that law firm associates should become familiar with – contains a gem of a quote from an in-house general counsel that I wanted to share/pass on.

First, to put some context around the quote below by Gino Benedetti, as Rubel states:

“There are two types of efficiencies with which lawyers need to be familiar. The first is general efficiency, which is the state or quality of being efficient and the actions designed to achieve optimal results. The second is economic efficiency, which requires optimal production and distribution of a firm’s resources.”

And while both are extremely important to in-house counsel, the following quote in the article by Gino Benedetti, General Counsel of SEPTA, should give some indication to private practice law firm associates which of the two bears more commercial importance to their in-house clients:

“Associates should understand that every case does not require a full-court press,” said Gino Benedetti, general counsel of SEPTA. “Associates add value when they think creatively by identifying the core issue in dispute and focus their case work on things that impact that issue. Often, associates work on an aspect of the case that does not have any meaningful impact on the ultimate outcome. So, associates should appreciate that their time may be less expensive, but that does not justify inefficiency. Associates should communicate often with the partner or the client directly so that the client’s objective is understood and the work is driven by that objective.”

If you haven’t already, I’d like to suggest you go over and read the entire article. It’s full of sage advice from several in-house GCs.

In the meantime, if you are a private practice law firm associate, the next time your supervising partner asks you to undertake a task on behalf of your client why not ask yourself which type of the two types of efficiency you are going to bring to the task…?

Does your firm have a ‘Customer Loyalty Program’?

Interesting post on the Harvard Business Review blog today: ‘Why Your Customer Loyalty Program Isn’t Working’ by Michael Schrage.

I found the following particularly relevant to law firms:

Organizations need to identify the loyal behaviors that most deserve explicit recognition, reward, and investment. How should loyalty from the best and/or most valuable customers be recognized and rewarded differently from that of typical or average customers?

Precisely.

However, leaving aside internal facing Client Account Teams, which are typically created for cross-selling or cross-serving purposes, or even client facing Client Listening Programs – both of which I strongly advocate – I do wonder how many law firms run a client loyalty program? And if so, what does that entail and what are the criteria used to qualify for the program (and are clients aware of how they can qualify for the program?)?

For example, are discounts offered on volume work a form of client loyalty program?

You may initially think this to be the case, but I if I were to run an audit of your firm’s client files I bet I would discover that partners offer NEW clients much better discount offers than they do EXISTING and LOYAL clients.

If so, then volume discounts aren’t a loyalty program as I could probably do better going somewhere new (even with you) than I do staying with you.

Are invites to golf days a means of a client loyalty program then? Again, possibly, but by what criteria are invites to such events made? I’m not sure there are any – in which case, they aren’t a form of client loyalty program really.

All of which is to say, I think it will be interesting to see whether or not law firms adapt to implement formal ‘client loyalty programs‘ in the future as I definitely see them as being a differentiator.

As Schrage says:

True loyalty doesn’t just serve and preserve valuable customer relationships; it creates and inspires more valuable customers. Loyalty is a mutual investment, not just an exchange.

If you haven’t read the post, I would like to suggest you do.

And if you are a law firm thinking of implementing a client loyalty program, then my cousin just happens to run one of the very best in the world.

Pinsent Masons joins the #Auslaw party!

Some 15 months (December 2013) after Pinsent Masons initially appointed Maddocks ex-chief executive David Rennick to lead the firm’s review of growth opportunities in Australia, and three months after the vote to appoint John Cleland as new global managing partner that appears to have confirmed the firm’s stated international growth strategy , Pinsent Masons has, today, announced that it will launch a 5 partner led local Australian practice in May of this year with offices in Sydney and Melbourne that will initially focus on infrastructure related work.

Given the firm’s overall strength in infrastructure related work in Asia – partner-in-charge of Asia Ian Laing has significant PPP and PFI experience – a strategic focus in this area would appear to be sensible.

That said, Pinsent Masons decision to open here (with an as yet undeclared number of lawyers and support staff) does nothing to deter from the fact that the legal market in Australia is a very competitive and crowded one, a trend that is likely only going to increase with the growing interest of international brands – so the very best of luck to this firm going forward and welcome to the Auslaw party!