value

Tribes, Teams and Pricing the ‘New Normal’

The goal isn’t to find people who have already decided that they urgently want to go where you are going. The goal is to find a community of people that desire to be in sync and who have a bias in favor of the action you want them to take.

Seth Godin

TRIBES

In around 2009 I recall reading Seth Godin’s, then recently published, blockbuster ‘Tribes: We Need You to Lead Us‘ and thinking this would have a profound impact on the way clients engage law firms. To give this thought some context, it was around the same time as we had started talking about a new fad called ‘unbundled legal services‘ (which would later also become known as ‘limited scope representation‘ – see ‘The great unbundling of legal work‘ in the Australian Financial Review). It was also a time when ‘disaggregation‘ and the rise of Legal Process Outsourcing (LPOs) (predominately in India at that time but later this would extend to South East Asia and South Asia) would have many of us who worked on bids and tenders discussing issues around disruption of the legal services supply chain – if for no other reason than clients were asking us to provide answers to these questions in their requests for tenders.

A cold wind, amounting to real structural change, in the way clients purchased their legal services was coming (Pfizer Legal Alliance).

THE ‘NEW NORMAL 1.0’

Fast forward a decade and probably the only person who still talks to me about Seth’s Tribes is my good friend Julian Summerhayes, and it is never within the context of an RFT or legal services more broadly.

Nope, in short tribes, disaggregation and unbundling, while definitely remaining vogue, never really had the impact and penetration that I – and I would suggest many others – thought they would.

The ‘New Normal 1.0’ had, to all practical purposes, failed.

KRYPTONITE TO THE ‘NEW NORMAL’ – TEAMS

Probably the biggest obstacle to the growth of tribes post 2009 has been the role that teams have historically played within the legal profession.

Since the times of Dickens a junior apprentice lawyer has worked with, and been mentored by, their senior (supervising) partner. It has always been thus, and with it has come an almost umbilical cord tie between lawyers who have worked in the same team.

Many an in-house General Counsel has sat at the foot of the table of the private practice partner to whom they send instructions. A relationship that has been forged within the confines of a team structure.

TRIBES REBOOTED – TRIBES 2.0

It’s my opinion that one of the biggest likely outcomes COVID-19 will have on the profession is the re-emergence of tribes – tribes 2.0!

There are a number of reasons why I think this might be the case, but probably the biggest is that in-house counsel have, over the past three months, become used to working with remote teams.

It should not, then, be too far removed to say that in-house counsel will be happy working with subject matter experts across firms who can enable them to achieve their objectives rather than with an individual firm that might get them across the line.

In short, on the right deal, in-house counsel will be happy to work with a group of lawyers from various law firms rather than one firm – a tribe over a team.

THE CHALLENGES

Moving from teams to tribes is not a foregone conclusion, it faces challenges.

High among these will be:

  • How is risk allocated?
  • Who wears the professional indemnity risk?

My own view is that these can be overcome with:

  • properly scoped Engagement Letters
  • proper use of Legal Project Management
  • a good understanding of Workflow Process Methodology

But that still leaves the issue: How do we price the ‘New Normal 2.0’?

HOW TO PRICE THE ‘NEW NORMAL 2.0’?

The cynic in me says that many law firms will not have the first idea how to price the New Normal 2.0. This presents a significant problem because if they cannot price it, then they cannot sell it (pricing still remains the principal form of credentialisation despite, or rather because of, whatever experience you claim to have).

ONE ANSWER – THE ROLE OF SCOPE PRICING IN THE ‘NEW NORMAL 2.0’

Scope pricing will play a critical role in the pricing in the ‘New Normal 2.0’.

Unlike a fixed fee, capped or fee estimate pricing, scope pricing does it exactly what it says on the tin – it prices to the scope of work being undertaken by the relevant lawyer. This means that proper use of scope pricing should allow in-house to teams to unbundle the legal work within their project – either between the role the in-house plays and the role the private practice firm plays; or, in the case of this post, the role that multiple lawyers with subject matter expertise from various firms play in a project.

And, if done properly, the biggest upside to scope pricing over any other type of pricing of legal services is that, by definition, there really shouldn’t be any scope creep – what you see [in the tin] is what you get!

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‘Imposter syndrome’, how it effects your pricing, and what you can do about it

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Imposter syndrome‘:  “The persistent inability to believe that one’s success is deserved or has been legitimately achieved as a result of one’s own efforts or skills.”

For some time, sparked through the conversations I’ve had on the topic with Katherine Mountford, I’ve been interested in the concept, theory, and roll that imposter syndrome plays within the legal profession.

My interest was given a nudge over the past week by a LegalSpeak podcast that included some great thoughts by both Albert Farr and Jay Harrington, who talked about their experiences with imposter syndrome in the early part of their legal profession [noting that Farr is actually just starting out his career in law] (Calming the Imposter Monster: You Don’t Know Everything, And That’s OK.) and a post by Susan Harper on the issue of ‘What is Imposter Syndrome and How May It Be Affecting Your Leadership?‘ which looks at the broader implications of imposter syndrome at a more advanced stage of your legal career.

Read together they give a pretty good balance on some of the major crisis of confidence issues that can plague lawyers.

What am I worth?

While I am in no way qualified – nor do I profess to be – to talk to the diagnosing and/or treating of any medical conditions associated around imposter syndrome, or mental health issues in the legal industry more broadly, with over 20 years’ experience in the industry, I have no doubt whatsoever that most lawyers wake up in the morning and ask themselves (if no one else) ‘What am I worth?‘ – ‘What is an hour of my labour worth?‘.

Adding to these frustrations, and doubts, is the fact that, in private practice, in most cases, a lawyer’s intrinsic value is not determined by them. Nor, importantly, is it determined by their clients in recognition of their craft.

No, more often than not, a lawyer’s worth is determined by the Accounts Department and/or a Senior Management committee who have worked out [this should probably read, “been told”] how much the capital [equity] partners want to be paid this year (including bonus). Having determined this we then work backwards and determine the number of hours that will need to be worked in order to achieve this, taking account of historic realisation rates, and minus any leave, and then looking at the relevant leverage and required multiplier needed to ensure that the required amount is met.

All of this is then wrapped around a completely meaningless ‘industry survey’ that costs a fortune and suggests your law firm’s hourly rates are 10-20% less than your competitors and you really should be doing a better job!

If this sounds convoluted and over complex, or if you have any doubts about my sincerities here, read ‘Associates Want a Break on Billable Hours as Pay Cuts Roil Law Firms‘ by Dylan Jackson.

Little doubt then, in my opinion, as to why lawyers would suffer from imposter syndrome (or mental health issues more broadly).

Taking back control – how to demonstrate value to your customers

Adding insult to injury, having not had much say in the hourly rate they charge, and with little or no training, lawyers are then asked to go to market and justify why they are worth the amount they charge.

So can lawyers take back some control?

The short answer is: ‘yes’; there are several ways that lawyers can take back that control – one predominately relates to internal processes and the other to external communication.

Change the internal process: Establish a Value Council

If you want to adopt greater transparency and conversation around the amount that your lawyers charge – relative to the value they are delivering to your customers – and at the same time get greater collective buy-in from your lawyers, then I would suggest you take the power away from your Accounts Department and establish a Value Council.

The mission statement of your Value Council should be to establish:

‘a collaborative platform to discuss and exchange views and information about value to ensure outcomes that are mutually beneficial to all.’

Progressive law firms will include customers of the firm in their Value Council and consider adopting a Pricing Charter.

To be effective, it is suggested that your Value Council consist of no less than six and no more than 10 participants who, crucially, are willing to invest time in the process.

Change the external communication

For years lawyers have liked to brag about the hourly rate they charge. It’s up there with the mount of billable hours they have worked this year as ‘badges of honour’. The reality that most lawyer’s Average Billing Rate – the amount clients are actually paying for that lawyer’s time – are nowhere in the region of that lawyer’s hourly rate is conveniently forgotten.

But there is an alternative. Rather than going to market bragging about how much you cost, why not change the conversation up and talk about how much value you bring to your customers. How you help your customers? How you change outcomes to their benefit.

Dare I say it, you move the conversation away from you and onto them. In doing so, it is hoped you will take a critical step down the path of the Value Conversation; because, as John Chisholm wrote back in 2018:

“Before we price, we need a scope of work; before we have a scope of work, we need to have a scope of value and you cannot have a scope of value without first having a value conversation.”

That seems like a good place to put a line in the sand to this week’s post. I will add though that if you are one of those lawyers who questions their value, who may question if they deserve to be where they are or who suffers some form of imposter syndrome, keep in mind that around 90% of the profession is right there with you (and listen to Episode #182 of the Soul of Enterprise) .

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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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Progressive pricing – the “essence of fairness”

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Value is shared with customers rather than extracted from them

Following on from my ‘Will We See Hourly Rate Load Pricing In The Legal Industry?‘ post of last week, during the course of this week I had the chance to read a January 2019 Whitepaper by Jean-Manuel Izaret and Just Schurmann ‘Why Progressive Pricing Is Becoming a Competitive Necessity‘ published by Boston Consulting Group and the Henderson Institute.

For those who have not read it, Izaret and Schurmann’s Whitepaper provides some really thought-provoking insights, including:

  • Progressive pricing scales prices up or down on the basis of the value an individual customer derives.
  • the levels of pricing under progressive pricing are value-based, not means-based
  • Progressive pricing seems to violate the rules of traditional economics, which assume that customers buying the same product or service will pay the same price.
  • Progress pricing enables providers to offer each customer a fair, personalized product and price point.

In essence, progressive pricing enables service providers, such as law firms, to calibrate the value they provide at an individual customer level.

But, importantly to Izaret and Schurmann (see #4 of their ‘four most important differences between progressive and traditional pricing approaches‘):

Progressive pricing is a fairer way to determine prices, because customers pay a price proportional to the value they receive, rather than paying the same fixed price others pay.

For any supporters of value-based pricing, the above quote is pure gold.

But, the caveat in next line of Izaret and Schurmann’s piece is probably more crucial:

But the firm must make the case for this perceived fairness

QED, it is the duty of the firm to communicate the value the customer is getting, not the customer!

As a growing advocate of value-based pricing in professional services, one of the greatest take-outs for me was this line:

Making progressive pricing a profitable day-to-day reality can happen only if firms change how they create, define, and measure value so that they can share it fairly.

All I can say to that is “amen” – because it isn’t going to come out of utilisation and realisation rates, no matter how hard you look!

It is such a great piece I’m going to leave you with the following three quotes from this paper:

  1. Companies must first step back and re-imagine the concept of value in their market. How can a business combine its own capabilities with the close personal knowledge of its customers to create something that fundamentally changes a customer’s life?
  2. Can you define value, measure it, and get everyone to agree on what value is?
  3. Most firms are accustomed to expressing prices in units of product or some other basic metric such as hours. If they can instead calibrate prices in terms of unit of value, then the price per unit of value can remain constant and the amount a customer pays can scale in proportion to the value demanded. That is the essence of fairness.

Great read. If it is not on your list – add it* (*then get back to me and let me know if you agree)!

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‘Bears and Alligators’

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Happy New Year to all.

I trust everyone had a relaxing and enjoyable holiday period. I certainly did, and took the opportunity to catch-up on some podcasts I had missed towards to the end of 2019. One of those was Episode 47 of Mark Stiving’s weekly Impact Pricing.

In this episode Mark has a free-ranging talk with Kevin Christian on all things pricing related under the appropriately named ‘Two Pricing Experts Talk Pricing(published 9 December 2019) and, while the whole podcast is great, things get particularly interesting  around the 19 minute mark when Kevin asks Mark:

“If a bear gets in a fight with an alligator, who wins?”

Now I can hear you saying: “What has this got to do with law firm business development and pricing issues?”, but – pun intended – ‘bear’ with me.

Because, as is music to the ears of every lawyer, Kevin explains,

‘it depends’ –

on where the fight is taking place.

If the fight is taking place on land then the bear is more likely to win; but if the fight is taking place in water then the alligator is more likely to win.

Que?

Here goes – bears and alligators are analogies to the ‘value’ discussion such that, as Kevin states, if you are:

  • Talking about the ‘Value of your Solution’: then you are in the seller/vendor territory and the seller/vendor is going to be leading and benefiting from the conversation;

whereas:

  • If you are only talking about the ‘Price of your Solution‘, without talking about the value, then you are in the buyer’s territory.

Takeout – what does this mean?

In a world when we deal with procurement and other agents who are not looking at the value of the service we provide, but are constantly looking at the cost of that service; then, as law firms, it becomes imperative that we explain the value being provided and have ourselves a land battle with the alligators.

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Does your law firm use personas in its tender response preparation?

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I first came across the use of “personas”, in the buying-cycle, in ‘This is Service Design Doing’ by Marc Stinkdorn, Edgar Hormess, Markus, Adam Lawrence, and Jakob Schneider. This is one of those books that have a pivotal impact on your thinking and go directly into your Top 20 reading recommendations.

But it has been a while since I last picked the book up. And so when I was reading ‘Personas – A Simple Introduction’ by Rikke Dam and Two Siang  this week (as material for this week‘s newsletter)  it brought me immediately back to Service Design Doing; especially, or probably more particularly, who Dam and Siang define “persona” as being:

Personas are fictional characters, which you create based upon your research in order to represent the different user types that might use your service, product, site, or brand in a similar way. Creating personas will help you to understand your users’ needs, experiences, behaviours and goals. Creating personas can help you step out of yourself. It can help you to recognise that different people have different needs and expectations, and it can also help you to identify with the user you’re designing for.

How many law firm business development / tender / pitch / pursuit / etc professionals use this concept  in their bid/no bid process? Not many would be my guess.

But think of the benefits of your law firm role playing (or at least giving a chair to) the following personas in any tender “bid/no bid” discussion:

  • the Procurement person’s persona
  • the Legal operations person’s persona (increasingly) – CLOC / ACC and the growth of legal operations
  • the Client/user persona
  • the Client/payer persona
  • the GC persona
  • the CFO persona
  • the CEO persona
  • the In-house lawyers persona
  • the Business Managers persona

And the list can go on and on.

If your firm played this game, do you think you might start to get a little better at wining tenders?

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

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It doesn’t pay to be a loyal customer

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The Chanticleer column in this weekend’s Australian Financial Review is titled ‘It doesn’t pay to be a loyal customer’. The article is a post-Hayne, post several reductions in interest rates, look at bank mortgage rates and analysis undertaken by Matthew Wilson at Evans & Partners that suggests:

“In Australia, the banks enjoy a profit benefit of about $3 billion a year from exploiting the difference in mortgage rates between existing and new customers”.

I’m not going to comment on whether or not that statement is correct/true (although a hunch would suggest it is), but it did make me think that in the professional services (read ‘legal’) sector it absolutely holds true that it doesn’t pay to be a loyal customer/client.

What do I mean by this?

Well when pricing services to new customers/clients – especially in tender situations, law firms are far more willing to:

  • Buy the work to cement the relationship
  • Offer volume discounts
  • Deeply discount on rack-rates
  • Agree to discounted fixed fee arrangements
  • Agree to risk-sharing arrangements

Indeed, more often than not the average billing rate (ABR) and the average realisation rate of a long-term customer/client will be higher than a new client, while lock-up days will be lower.

As Chanticleer says, it really doesn’t pay to be a loyal customer these days!

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

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