value

Survey: The 6 most important criteria in-house counsel consider when evaluating law firms

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In last week’s post I looked at the Top 5 Reasons Clients Switch Firms as recently reported by Wolters Kluner. Conveniently this same Survey also reports on the ‘6 most important criteria in-house consider when evaluating law firms‘ – so here’s a quick look at what they are:

The in-house view

1. Specialization

In recent years I have heard it said on a number of occasions that in-house counsel no longer differentiate lawyers/law firms they ask to do work for them on the issue of ‘specialisation’ – it is a given that you know your topic and this merely gives you a seat at the table.

The results of this Survey clearly show that impression to be wrong – specialisation (at 23%) remains top of mind to in-house.

Unfortunately the term used in the Survey is ‘specialisation’ as opposed to ‘niche’. While there may not appear to be much of a difference between these two terms, for many there is and I would be interested to see the results if this was an option.

2. Technology

The fact that a lawyer’s ability to use technology ranks equal top (23%) with specialisation shouldn’t be too much of a surprise in a survey conducted on technology adaptation in law firms.

That said, the use of technology in collaboration efforts should raise some eye-brows as it clearly shows, in my opinion, further evidence that in-house counsel want shared platforms and that knowledge sharing among law firms who continue to develop stand-alone technology platforms are likely wasting their money.

3. Ability to understand client needs

At first the fact that ‘ability to understand client needs‘ came third in the list at 19% surprised me.

But then I thought: not many clients truly know what their needs are – maybe this question would have been better phrased as: ‘Understanding our business/sector?’

4. Price – and 6. AFAs

Price gets 16% of the vote. AFAs gets 9%. If you combined them, they get 25%. And would top the table.

But they are not combined.

They are seperate.

Which make me wonder: Why?

Also: if your law firm is really offering value – price, whether it be hourly rates or AFAs, would be the last thing that matters.

5. Process innovation

I found the fact that process innovation only got 10% of the vote interesting, because if you read the rest of this survey a core message is that law firms need to get better at demonstrating efficiencies.

This result somewhat undermines that message.

The law firm view

I was pleasantly surprised how consistent the law firm view was to that of their in-house clients.

Of course there will always be one significant difference of opinions between law firms and their clients (in the law firm’s mind) as to why they were chosen: ‘Price’.

And what this Survey shows, as many before it have, is that law firms need (finally) to start moving away from that needle.

As always, these just represent my thoughts and always interested to hear your views.

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Survey: Top 5 Reasons Clients Switch Firms

If you’ve recently lost a client to a competitor and have been wondering how that happened, wonder no longer. The recently published ‘2020 Future Ready Lawyer Survey: Performance Drivers‘ by Wolters Kluner has the answer.

Surveying 700 in-house and private practice lawyers across the US and EU in January 2020, this is probably the most comprehensive survey post COVID (although most of us were not entirely sure what this meant in January so I look forward to a survey report that has been conducted post March this year).

The Top 5 reasons cited as to why a client might leave your firm are:

The client no longer trusts your firm can meet their needs,
Your firm doesn’t specialise in the area of law needed by the client,
Your firm failed to communicate its value proposition properly,
Your firm did not demonstrate efficiency and productivity, and
Your firm’s leverage was/is all wrong.

And three of these are essentially because you messed up on sourcing, communicating and delivering on your pricing promise.

Take-away top tip: want to make sure you keep clients and keep them happy – make sure you (and your team):

understand(s) your value proposition and are able to communicate this,
get your team’s leverage right [hint: don’t hoard work at the top end just so you can meet budget this year!], and
understand the scope of what you are being asked to do and project manage both the scope and the client expectations (especially if out of scope creep occurs).

Manage this well, and you’ll be three-fifths of the way to keeping your client happy!

Demonstrate Efficiency

As a bonus, think about how you demonstrate efficiency to your client.

Is this by saying you have the relevant expertise/experience so that you can do this faster than others,
Is this by saying you have the appropriate IT systems that allow you to get the job done faster, or
Does efficiency even really matter – should the conversation not be about being an effective lawyer?

As always, these just represent my thoughts and always interested to hear your views.

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Now is the time to focus on your existing relationships

I read an article on Inc.com last week by Damon Brown in which Damon writes that if you run a business in a post COVID-19 world ‘You Need More Customers, Not Higher-Paying Ones’ – which [as someone with an interest in pricing] caught my attention.

There is no doubt that right now the appeal of diversifying your customer base and revenue stream is going to look appealing. As Damon writes, “your business needs varied and multiple customers” for essentially three reasons:

Diversify income streams
Lessen the over-dependence effect – security in numbers
Protect your business against Black Swans

My mother would have called this: “avoid putting all your eggs in the same basket”.

But while insulation from risk is undoubtably core to a lawyer’s heart, right now – appealing as it may seem – would be the wrong time to be looking to expand your client base. And I say this for the following three reasons (in inverse order to Damon’s):

This is a pandemic, not a Black Swan, event: in that none of us have a clue how we got here or how we will get out of it – we are not here because of strategic issues.
Pareto: notwithstanding how large your client base is, the facts are in -: 80% of your revenue comes from 20% of your clients. Expanding your client-base isn’t really going to have much beneficial impact on this, rather it’s going to suck-up much needed diminishing resources.
Diversify income streams: isn’t a customer-based issue in professional services firms. If you truly want to diversify your income stream you don’t need to expand/diversify your client-base, you need to expand/diversify your product offering. That’s a whole different problem (and one which could be achieved).

In short, you don’t need to be expanding your client-base, what you need to be doing is focussing and developing your relationships with those top 20% of your clients.

Or, as Ron Baker has written: “It’s one thing to get more business, it’s another thing to get better business”. And while predictability and certainty of revenue is great:

“…if you bring in those customers at the wrong price, you have done nothing but add layers of mediocrity to your firm”.

Some thoughts to consider before you start chasing rabbits down holes…

Again, these just represent my thoughts though and always interested to hear your views.

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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:

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?

Can you define value, measure it, and get everyone to agree on what value is?

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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