Some time ago, clients recognised that by downsizing the number of firms on their panel, they could buy legal services more effectively. Now they are wanting to down-size their legal budgets full stop. The power driving this cost-cutting diet is the financial director, supported by the procurement department. Law firms urgently need to realise a strategy to preserve profitability and avoid the slide towards price competition.
FTSE 100 companies are consistent in their praise for the service the legal profession provides; they are impressed with the depth of resource and expertise that allows a 24/7 service in the biggest firms, the professional standards that are so meticulously maintained and the efforts particular partners go to to provide a good service. So if everything is so rosy in the garden, why the need for a sponsored slim? Unfortunately, in the competitive dynamics of the modern market, professionalism and expertise is not enough.
Two years ago, in our first study of in-house counsel in FTSE 100 companies, the word procurement was barely mentioned. By 2004, it was rarely not mentioned. In-house counsel are feeling the pressure from their financial directors and want their external advisers to work with them to deflect that pressure. In all our interviews, we found only piecemeal evidence of firms responding to that challenge.
The question is, what should law firms do to combat this clear and present danger?
The short answer is to seek ways of adding and demonstrating value. This may seem like management speak but is, in fact, client speak. We have condensed nine key ways to add value based entirely on what respondents described they wanted from their advisers.
Commercial understanding and advice
From a list of 12 different service criteria, ‘understanding the client’s legal requirements in a commercial context’ came out as the most important. It was more important than ‘responsiveness’, ‘depth and breadth of expertise’ or even ‘price/ value for money’. It may have topped the importance ratings but when firms’ performance was measured, far from being in the top spot, it was only seventh equal.
"If you take the basic legal advice as read, then [the lawyer] needs to demonstrate greater commercial understanding of your business and where and how they can add value," said one in-house counsel.
Focus on key clients
Every firm has its key client programme. The problem is that although clients think they are treated well, they consistently did not recognise any particular benefit as a result of being a key client.
"I think they are missing out something on the relationship side: a role for a senior partner, a different channel for feedback," said one respondent.
Stay close to clients
Even those firms judged to be the best in terms of service scored less well on maintaining the relationship when they were not being instructed. By contrast, US firms were judged to be strong in this area. As one in-house counsel says: "It comes back to understanding our business, our risk tolerance, what we want to achieve, where we want to be. They could get better at this. Being innovative in terms of a relationship."
‘Systematic’ loyalty
There is little to prevent firms switching their loyalties. Providing some form of proprietary systems that are beneficial to clients is one means of ‘locking in’ clients more effectively. Few firms were perceived to be doing this.
"[I would like] more innovation and R&D around case management, contract management," reports one client. "If I were in the firm, I would want to develop barriers to exit and actually there are none," added another.
Passive value billing
Respondents reluctantly accept that their legal advisers are joined at the hip to hourly billing. However, they are increasingly insisting on some form of retrospective value assessment in conjunction with what is on the clock.
Firms that do this proactively, amending their own bills according to value delivered, are a step ahead of the game. The perception that US firms ‘bill to the death’ will put them at a disadvantage in this area.
"Charging by the hour is a damaging thing for law firms to do, but they make a lot of money, so why should they change when schmucks like us are prepared to pay?" observes one client.
Invest non-chargeable hours
"Lawyers need to stop seeing ‘non-chargeable’ time as negative; it can be a positive investment," says one respondent to the survey.
Clients are calling out for any indication of partners who are prepared to stop the clock and spend time investing in the relationship in whatever way is most appropriate. This is not about free advice, it is about commitment.
Values for advantage
Clients still stress that they follow individuals, not firms. Explore the reason for this in more depth and lurking beneath the service is, aside from size and location, the fact that law firms are seen as largely undifferentiated.
Partners are differentiated. A clear set of distinct values that the whole firm consistently works to would be a good start in providing meaningful differentiation. This is something that most firms are less than comfortable with.
As one respondent put it: "If they asked their own people what they stood for, they would get a pretty clear picture, but what they try and present to clients is so anodyne and watered down."
One-to-one marketing
Mass marketing, whether it is newsletters, hospitality or even seminars, no longer cuts it. Clients are fed up of being bombarded with newsletters; many cite them more as an irritant than an asset.
Marketing needs to be bespoke, more functional in offering clients real benefits they value and less about trying to curry favour. "Anything that is tailored to us I am impressed with," says one in-house counsel.
Performance measurement
Procurement departments are there not to select law firms, but to ensure that best value is being achieved in the selection. Law firms need to take the lead in demonstrating best value — and using performance measurement tools is an important part of that.
"Independent reviews seem to be dead in the water," one respondent says. "Senior partners may ask how it is going and do a grip and grin with the new general counsel, but not a review."
Clients like the legal service they are getting. Big and small firms each bring their own benefits. But clients are less than happy with the price they are paying for it. They do not always think they are getting value for money and they are now under pressure to make sure they get it.
This does not necessarily mean reducing the price, it does mean adjusting the service to deliver more value. "[Firms] need to work with us on efficiency and economics to harness our combined power together, but it is not in their economic interest to do so," one in-house counsel says.
That economic interest is dependent on whether one’s viewpoint is short-term and revenue-maximising or longer term and profit-maximising. The view from the market is that the profession is going short term and, despite the excellence of its core service, clients want it to go long.
Tim Nightingale is a director of Nisus Consulting.
News
The client is key
Published: 22/07/2004 00:00
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