international law firm

Survey: The role pricing specialists play [or don’t] in RFP responses

Last week the USA’s J Johnson Executive Search, Inc and the UK’s Totum published their combined ‘RFP Survey Responses: U.S. and U.K. Data 2016‘.

A fairly evenly distributed demographic of large (defined as being 600+ lawyers), mid-sized (defined as being 100-600 lawyers) and small (up to 100 lawyers, for the U.S. only) law firm respondents, insights from the survey include time spent responding to RFPs, persons within firms charged with project managing responses, as well as tools and expertise made available to responding teams, in both the U.S. and the U.K.

As with most surveys of this nature however, it is the role that pricing plays that typically grabs my attention and given this survey’s combined U.S. and U.K. perspective even more so in this case.

Given ongoing market pressures, it should surprise no one that responses of “strong” from the U.S. (58%) and the U.K. (64%) to the question of what current “price pressure” for proposal & RFPs were fairly similar.

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A little more surprising to me was the difference in responses between the U.S. (40%) and the U.K. (60%) to the question “when developing proposals and RFPs, I have easy access to” the answer was “pricing guides/professionals“.

 

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Now don’t get me wrong, even these days I think it is particularly progressive and somewhat comforting to know that 60% of my colleagues in the U.K. have access to some sort of “pricing guide/professional”.

Until, that is, you get to see who actually gets to sign-off (i.e., the “decision maker”) on the all important issue of pricing in RFPs in the U.K.. Here, and I kid you not, the response in the U.K. of “pricing specialist” (that same person who 60% claim to have some form of access to – either via guides or in person) was 5%.

I think that is worth repeating – 5%.

Put into context, that means in the U.K. pricing in your RFP is more likely to be signed off by Marketing & BD (9%) or Finance (14%). Indeed, in the U.K., “It varies” is likely to have more of a say on final pricing in the RFP response than the so-called pricing specialist.

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I’m not so sure why the results of this particular survey so surprise me. After all, time and time again survey results show that we typically say one thing about pricing, but do quite another.

What I will say though is this: if you have access to a pricing specialist, and pricing by your pricing specialist is being determined in 5% or less of your RFP responses, my guess is going to be one of two things: (a) you have no idea if you are making money from your RFP “wins”, or (b) more likely, you are leaving money on the table big time!

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* images should be enlargeable, apologies if they appear a little blurred.

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Independence Day & The Billable Hour

Two things got my attention on Friday. The first was the decision by the UK to exit the EU (so-called “independence Day” by some of the more fanciful politicians and “Brexit” to most of the rest of us). On a much smaller scale, the second was an article in The Australia Financial Review that “Ditching the billable hours case a struggle“. (print edition – NB: online the article title is “Billable hours to always hold a place in law firms“).

With the first of these two items, I have very little to no control over and am left at the mercy of others.

The second on the other hand is absolute rubbish!

To be clear, mention of the billable hour in the opening four (4) paragraphs of this article are all to internal metrics; specifically how many hours fee earners need to bill each day to make budget (and a side note here, anyone else note how this changed from an annual figure of 1,400 hours to a daily figure of between 6 and 7.5 hours depending on which firm you work for? Is this because a daily figure is much easier to live with than an annual figure that daunts you by its task? If so, kind of simplistic thinking towards people who are supposed to be in the top 1%).

Anyhow I digress as this has nothing to do whatsoever with how clients are charged, much less how they want to be charged, and whether or not the billable hour needs to remain the “go to” fee arrangement of choice by firms and paragraph five (5) of the article tackles this issue head on when it says:

“However, the majority of firms said they worked with clients and offered alternative fee arrangements if suitable.”

You’re kidding right?

For those of you who have not seen it lately, here is the Thomson Reuters Peer Monitor ‘Chart of Billed and Collected Realization Against Standard‘ for the period 2005 to 2015:

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That squiggly little line in free-fall tells you realization rates have fallen from roughly 93 cents in the dollar in 2005 to just over 83 cents in the dollar in late 2015. It also tells me that you are not doing a very good job if you are working with your clients vis-a-vis how you charge them for the work you do and it puts to rest any attempt to suggest that billable hours are the preferred method of clients to be billed (unless, that is, you’re suggesting that clients know they can get discounts, or just not pay, bills that accrue on an hourly basis).

So over the weekend I got to think: like the article says, pretty much all of the reasons why the billable hour continues to be a struggle to ditch are down to internal measurement metrics. So, maybe, just maybe, like the UK did on Friday, it’s time for Australian law firms to opt out of the known and disruptive itself – and maybe the rest of the world with it!

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Will a ‘One Asia’ strategy work for BLP?

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I spent just over a decade in Asia between the 1990s and mid-2000s. In all the time I spent there I never considered the Region as ‘One Market’ – but rather as a multitude of diverse and different markets.

By way of example, almost everything we did in Asia was “ex-Japan“. This wasn’t because we didn’t see Japan as part of “Asia” – as it very much is – but rather because the international legal market there (NB, the Japanese local legal market is a very different issue) has far more in common with the US market than the Asian. As a result, we lumped Japan in with the US when discussing strategy (and you’re free to question that thinking/strategy).

Likewise, any strategy discussions we had that involved Singapore almost always included India, the Middle East and the Philippines. Similarly, strategy discussions that involved Hong Kong included not only mainland China but also Indonesia.

Finally, SE Asia (Thailand – where I was located, Myanmar, Laos, Cambodia and Vietnam) was its own regional discussion.

All up then, when discussing “Asian” strategy we had four or five discussions – not one.

That said, I worked with (but not for) firms (notably Herbert Smith as it was then) who operated on a fly-in fly-out basis. In my day we called this the “hub and spoke” approach, where the expertise went to the client need and, I have to assume, strategic discussions were done on a Regional basis.

While not criticising firms who took this approach – some did very well out of it – I didn’t think it worked for the firms I worked with as we held the view that, probably more so than any other market in the world, Asia operates on a relationship basis. Our experience was that relationships trumped expertise, and in the very family operated business world of Asia at that time, cost.

So why the history lesson?

Last week, in the Asian Lawyer, I read Bob Charlton – Asia Managing Partner of Berwin Leighton Paisner (BLP) – comment, following the firm’s Asian retreat, that:

“…in broad terms we agreed we must have a one Asia approach.”

Interesting, I wonder what BLP could mean by “a one Asia approach“?

Fortunately the article sets out exactly what that means:

“BLP’s “one Asia” strategy means the firm is doing away with the concept of geographic and practice area distinctions, focusing instead around sector groups. These groups include aviation, construction, oil and gas, private wealth and shipping.”

Now that really is interesting because, frankly, I’m not sure it is going to work.

A sector focus in Asia is a sensible move. A sector only approach to market in Asia is gutsy to say the least.

I say this for two reasons: (1) ‘relationships still trump in Asia’, and (2) Asia is not now, nor will it be for a very long time (if ever), one economic zone. That’s the case both for inbound and outbound work. And even if you don’t want to have people on the ground (which I would strongly recommend you do), you need to consider the geo-political economic implications separately.

And I’ve said all of this without mentioning the elephant in the room: “AdventBalance”. I wonder if they take a sector approach to their strategic thinking in Asia…

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Report: Collected realization plummeted to 82.2% in Q1 2016

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Thanks to an article by Dave Galbenski of Lumen Legal – ‘Overcapacity, Underutilization and Realization Rates Plummeting‘ – I have just been made aware of the publication last month (May ’16) of the Q1 2016 Executive Report (.pdf download) undertaken by Peer Monitor Index (Report).

While the Report gives glimmers of hope (demand slightly up for certain practice areas), the overall message is bleak. And none so more than this:

“After showing some recent signs of stabilizing, collected realization took a sudden and sharp drop in the first quarter. For most of the past two years, collection rates have hovered around the 83% mark. But in Q1, collected realization plummeted to 82.2%. Not only is this a new historical low, it was the largest quarterly drop in more than three years.”

OK, two things here:

  1. a collected realization rate of 83% is not a benchmark we want to be heading to, but away from.
  2. if you keep putting your hourly rates up (recently BTI Consulting’s The Mad Clientist asked: ‘Is $5,000 an Hour Next?‘) but your collected realization rate is “plummeting”, then you’re most likely losing money (as well as the respect of your clients I might add).

My only other thoughts are:

  1. why do we insist on the hourly rate model as our primary means of charging if our collected realization amounts to 82 cents in the dollar? Seems absolute madness to me; and
  2. how many law firms out there can continue to operate on such an “historic” low collected realization rate? I know a number of accountants and bankruptcy lawyers who’ll happily tell you: “not many”.

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AFAs accounted for less than 10% of all matters in the US last year

This month saw publication of the End-of-Year 2015 edition of the Enterprise Legal Management Trends Report by LexisNexis and CounselLink.

Based on data derived from outside counsel invoices – accounting for US$21 billion in legal spend in the USA – processed through the CounselLink platform, to my mind what makes this Report different to others is this: it provides insights others might miss because while talk can be cheap, the numbers rarely lie.

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From an Australian perspective, a couple of surprising statistics come out of this year’s Report.

  • the use of AFAs, to govern the service payment of matters, only accounted for 9.4% of matters processed through the CounselLink platform. Given all the chatter and whining you hear from law firms, I would have expected this rate to be much, much higher.
  • Employment and Labor (at 17.3%) is a fairly significant practice area leader in the number of matters (but not revenue – see below) using AFAs, but Real Estate accounting for something less than 2% of its practice area matters using AFAs seems out of whack.
  • Nearly 10% of Regulatory and Compliance matters are done under AFA arrangements. At first this seemed a little strange (given the grey hair nature of the advice being sought), but then I thought a large number of compliance programs could be sold using retainers, fixed fees and other AFAs.

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Moving on to percentage of “billings” executed under AFAs and things start to get really interesting.

  • at 12.4%, by far the biggest practice area using AFAs by billings is Corporate, General and Tax (excluding Mergers and Acquisitions, which is a separate line entry). Not sure I would have guessed that.
  • Finance, Loans and Investments ranked third highest practice area using AFAs by billings last year. Again, don’t think I would have picked that.
  • by billings, only 7% of Employment and Labor practice area matters are executed under AFAs. So, 17.3% of Employment and Labor matters were conducted under AFAs, but only 7% of billings. Might just be me, but that seems strange and I’d want to dig deeper into why that might be the case if my practice was showing these numbers. Then again, may just be the Pareto Theory in practice!
  • At roughly 2% of practice area billings, who says Real Estate has become a commoditized practice area? Because these numbers aren’t showing it.

Interesting numbers showing through this Report. Lots of chatter around the rise in M&A activity/revenue and the fact that “New Law” isn’t being hired to do big ticket work, but the use of AFAs and rationalization of legal panels (which I may well blog on later this week) were my two big takeouts.

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Report: Do high growth firms share common traits?

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This month saw publication of the 2016 High Growth Study by Hinge Research Institute. Although not limited to law firms, law firms (along with “Healthcare & Other”) made up 12.9% of the 968 respondents who answered Hinge’s survey and, therefore, the Study’s findings help provide some insight into whether or not “High-Growth” firms share common traits.

First, “High-Growth” was defined as being a firm with:

“Over $1 million in revenue and had an average yearly growth rate of at least 20%”.

Not exceptional. Having said that, of the firms surveyed:-

  • 30% generated over 88% of new revenue growth and were 45% more profitable than their No-Growth counterparts

so most definitely desirable.

So, did these High-Growth firms share any traits? In short, “yes”; and these included:

  • Target Clients: High-Growth firms are 75% more likely to have a highly specialized practice – i.e., not all things to all people or full services firms
  • Client base: High-Growth firms are more likely to target the larger clients (over $10 million in revenue)
  • Research: High-Growth firms are 2X more likely to conduct research on their target client
  • Differentiation: differentiators favoured by High-Growth firms are twice as likely to be easier to prove and are more relevant to clients. Importantly, these don’t include “reputation” and “awards won” (favour of No-Growth firms) and do include “culture” and “people”
  • Marketing investment: High-Growth firms invest 23% less in traditional marketing than No-Growth firms. This is because what marketing High-Growth firms do is targeted and measured

While some of these may surprise, they reinforce that in order to grow in today’s market firms need to have a clear understanding of who they are, who they work for, who they would like to work for, and the value/benefits they provide. In short, they’re focused.

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Medibank Idea Exchange

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For my sins I am a member of Medibank Private Health Insurance. I understand it has something to do with having a young family and the Medicare rebate. Anyhow, regardless the reason I get a lot of emails from Medibank that have always gone to straight to my trash folder. That is, until this morning.

What makes this morning any different? Well, I received an email inviting me to join the Medibank Idea Exchange community. In part wondering why they were suggesting the singular rather than the plural, I thought I would take a look.

What did I find?

Well, while I have no intention of joining, what I found was an offer to join an ‘invite only’ community where I will be able to share my thoughts and ideas on a variety of different topics and issues and:

  • Contribute to discussions and surveys – so you can tell Medibank what you think and help shape future business decisions,
  • Talk with other members – so you can share experiences and handy tips,
  • Earn rewards for participating – that you can redeem on a great range of products and services.

and I thought to myself: “there might be something in this for law firms to learn from“.

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