This is live blog post from the Ark Group’s Managing Partner’s Law Firm Pricing & Profitability Conference. This session: The Buy-Side: Are You Selling What I Want to Buy? . [Please forgive any typos as I will post this as session ends].
Lynn D. Krauss, Assistant General Counsel Business & Finance Section, Law Department, Dow Corning Corporation;
Karen Dunning, Senior Director Legal Operations, Motorola Solutions, Inc.;
Lauren Trapp, Principal Program Manager Legal Operations, Motorola Solutions, Inc.;
Susan O’Brien, Principal at Sourcing Logics (former Manager, Legal Sourcing, Pitney Bowes),
Dr. Silvia Hodges, Adjunct Professor of Law, Fordham University School of Law (and Director of Research Services, TyMetrix)
Why does procurement get involved in buying legal services? Often the CFO, CEO, or VP Procurement recognize legal spend is big and the company should get a handle on it.
At Dow Corning, lawyers evaluate law firms and decide on the acceptable set to consider. Procurement and Legal work together to articulate what services will be purchased, milestones, and deliverables. Procurement has much more experience than lawyers in scoping work. Procurement decides how the company will evaluate suppliers and how they will be paid. For example, they decide if an RFP is warranted or just a discussion with a couple of firms.
Criticality Grid (a 2x2) determines approach to purchasing. Axes are Spend and Number of Options
High Spend and Many Options: Market Driven
High Spend and Few Options: Strategic
Low Spend and Many Options: Standard
Low Spend and Few Options: Critical
Market driven means bidding (RFP). Fixed fees and aggregation occur in this quadrant.
Strategic means going after top firms and don’t expect same type of bidding; experience more important but cost still matters. Looking for a partnering arrangement. May or may not talk about fixed fees.
Critical area may not be a big spend but could be very important to company. More likely to go to a boutique firm because company wants the matter (or portfolio) to be important to the firm.
Standard: minimize company involvement and standard. Give work to low cost resources Example in this quadrant is contract review.
Law firms need to know in which a quadrant a project falls. That should determine how the firm tries to sell its services.
What procurement adds when it work with lawyers to buy services:
- Increased professionalism (engage strategic partners when necessary, do bidding process for repetitive work)
- Scope of work is better defined
- Payment terms articulated
- Increased emphasis on price / value
- Budgets established and then monitored
- Invoice may be reviewed multiple times
- Hourly rates may be fixed on discounted
- Selection of team at the onset
- Limitations on redundant work
- Supplier feedback
Motorola Solutions, Inc.
Motorola Solutions, Inc. has developed a repeatable procurement process. Will concentrate today on benchmark process and analytics. Use rate, spend, and attorney benchmark studies from TRI, CT TyMetrix, among others. Use a ‘visual ladder’ to show lawyer rates. Then creates a scattergram per law firm showing rates by lawyer, segmented by associate and partner and compare it to the CT Real Rate Report benchmark.
[See also Tweet stream for additional discussion.]
This is live blog post from the Ark Group’s Managing Partner’s Law Firm Pricing & Profitability Conference. Stuart J T Dodds, Director, Global Pricing, Baker & McKenzie Global Services discusses Navigating the Pricing Maze: Establishing a Pricing Capability/Function within Law Firms. [Please forgive any typos as I will post this as session ends. This post captures only certain highlights of his talk; I have Tweeted some other comments he made.].
Baker & McKenzie pricing and delivery framework:
- ‘Set’ the price: pricing and agreed fee approach
- ‘Get’ the price: value proposition and negotiation
- ‘Manage’ the price: ability to manage and delviery approach
- ‘Review’ the price: opportunity to improve service or margin
Stuart has seen more emphasis on Set and Manage so far but focus is shifting to Get and Review.
Where should law firm pricing function sit in the organization. Stuart is in Marketing, which lets him become engaged earlier in the intake process than if he sat in Finance. But says there is no one right answer for where pricing should sit. But all functions - finance, marketing, KM, strategy, and other staff departments - must coordinate on pricing.
Highlights the rising role of law firm knowledge management (KM) professionals. The KM teams are best positioned to help firms how to drive costs lower, do the work better.
Stuart is spending more time on legal project management now. Pricing is ultimately set by the market, so the firm cannot control it. But the firm can control how it does the work, which is in the firm’s control (and can drive profitability).
The essential skill set for pricing:
1. Very strong communication and stakeholder management skills
2. Commercial and entrepreneurial
3. Analytically strong
4. Intellectually curious
5. Not scared of technology
Getting started with law firm pricing:
1. Ensure strong and active leadership support
2. Start with specific product areas or relationship managers first
3. Set measurable objectives for the role (e.g., at the practice or client level)
4. Start potential initiatives with some current clients
5. Get some early wins
6. Capture and review the results, learn, communicate, and improve
1. Doing nothing is not an option - it’s too important to ignore
2. Ensure organizational buy-in
3. Have at least one person own or support the pricing process
4. All the function to evolve - don’t try to do all at once
5. Do something.
This is live blog post from the Ark Group’s Managing Partner’s Law Firm Pricing & Profitability Conference. First up is Steven J. Harper, author, contributingeditor to The American Lawyer, and adjunct professor at Northwestern University’s Law School and former Partner at Kirkland & Ellis LLP. His topic: Thinking Beyond Short-Term Metrics. [Please forgive any typos as I will post this as session ends].
Steven will describe how he became a commentator on the business of law after a long career in law practice. He started as full-time associate at K&E in 1979. One-half of 60th floor was the library, which has the ’state of the art Lexis terminal”. At no point during orientation, did he hear anything about billable hours. It was not on the radar screen at K&E in 1979. Of course lawyers billed time but it was not a topic of conversation. Lawyers worked very hard but the focus was not on hitting targets, though he did learn his billable hours at the end of the year. So what happened? What’s changed?
In 1985, American Lawyer published its fir Am Law 50 issue. It published partners per profit. Steven calls this a ‘watershed event’. In real terms, PPP doubled from 1985 to today. In 1985: leverage was 1.76; 80% of firms had single-tier partnerships; path to partner was 8 to 10 years; and there were no guarantees of partnership but “decent odds of advancing.” Today, leverage is 3.54 (2x in 1985); 80% of firms have 2-tier partnerships; 11 to 12 years to partnership; and fewer than 10% of associates make partner. [Note: leverage ratios denominator is only equity partners.]
More metrics: In 1985, top to bottom equity spread was 3 to 1; few firms had mandatory billable hour requirements; hourly rates were low enough that firms could take small cases the enhanced associate morale and training. Steven said as 2nd and 3rd year associate, he was able to lead cases - it was unusual then but it never happens today because of high hourly rates. Today, the partner comp spread exceeds 1o to 1 in many firms (Dewey has “barbell” approach [RF: bimodal distribution]); most firms have mandatory minimum billable requirements, usually 2000 hours per year; hourly rates have “soared” from 1998 to 2007.
And still more metrics: In 1985, firm incentives rewarded mentoring and other partnership qualities; firms valued institutional clients and encouraged inter-generational continuity; lateral partner moves were rare. Tells story about Fred Bartlitt, his mentor, who was interested in ‘building a practice’. Today, short-term metrics - billings, billable hours, and leverage - determine partner comp at most firms; as a result of these pressure, partners build client silos ‘because they eat what they kill’; ‘lateral partner hiring frenzy continues’.
So today, there is three-legged stool. Says first leg is billable hour is one and that there is much evidence of a movement away from billable hours, talk of AFA notwithstanding. 80% of AFA are discounts from hourly rates. 16% of big frim revenues from AFAs. Second leg is billings: partners need to build silos so partners can hang onto their clients and their billings. This also gives them portability to move laterally. Third leg is still-increasing leverage. I ask if leverage has really continued to go up: answer is that it’s been about steady since 2010 BUT there is more hiring of counsel and the average of partners has increased. Conference Chair Paul Lippe points out that Big 4 and McKinsey have mandatory retirement but in BigLaw, often those over 60 are the biggest earners.
The downside of the shifts:
- Five year associate attrition exceeds 80%. This means less client continuity.
- Associate morale has plummeted.
- Money has not bought partner hapiness.
- Billable hour regime has encouaged inefficiency and cost clients money
- Several large law firms are gone. (Heller Ehrman, Thelen, Howrey, Dewey.)
- Continuity in client relationships becomes problematic.
“Not everything that can be counted counts and not everything that counts can be counted.” The challenge: what set of metrics should we use? Steven points out that life is more than about money. Being in the “flow state” is what most professionals want but system today does not focus on providing this. So, he offers ideas for clients:
- Fight the lawyer’s instinct for precedent
- Turn the billable hour metric against itself. For example, do a histogram (my words) of associate distribution billable hour years. This would show which firms work too hard. This may or may not matter to clients directly. But suppose clients showed that for each fee earner, they could see prior 12 month billable hour total. Analogizing to limits on truck driver and pilot time on job, clients might sense the diminishing marginal utility of lawyer time. Discussion though if clients really care - audience member says clients only care about results. Steven says clients would sometimes care, depending on nature of work and circumstances.
- Force and reward inter-generational transition. Clients should want lawyers of multiple ages on cases for long term continuity.
Ideas for law firms:
- Create reweard structure for long-term institutional stability and client service
- Change partner comp to discourage building client / partner silos
- Partners need to remember how they arrived where they are - they should mentor
- Encourage a culture that creates ‘flow’
The College of Law Practice Management presents the Futures Conference on October 26-27, 2012 at Georgetown Law in Washington, DC. Anyone interested in the future of law practice and legal business should attend. Click here to register
Below you will find the program in chronological order. I am a Trustee of COLPM and conference co-chair with with Steve Nelson of The McCormick Group.
NEW MODEL LAW FIRMS
Big Law has never been the only option for general counsel. Today, many alternatives exist, including “new model law firms.” This panel will examine how these firms do business, practice law, differentiate, serve clients, and offer lawyers a different work experience. We will also hear from the founding visionaries on where they think the law firm market is heading.
Moderator: Ron Friedmann, Fireman & Co. Consulting
Panelists: Mark Cohen, Clearspire; Ben Lieber, Potomac Law Group PLLC; Andy Daws, Riverview Law, and Patrick Lamb, Valorem Law Group.
THE CHALLENGES OF DIVERSITY IN A NEW STAFFING ENVIRONMENT
Law firms are adjusting the traditional personnel model, reducing the number of equity owners and adding new tiers of service providers. But the challenge of diversity remains. A nationally-recognized expert in diversity issues within law firms and other legal settings, Verna Myers will address what legal employers can do to tackle this critical issue.
Speaker: Verna Myers, Verna Myers Consulting Group LLC, author of Moving Diversity Forward.
PRESENTATION OF 2012 INNOVACTION AWARDS
The 2012 InnovAction Award Winners present.
Moderator: Tim Corcoran
LEGAL ACADEMY RESEARCH PROJECT
Reports on two research projects underway at the Center for the Study of the Legal Profession, Georgetown Law: Integration and Fragmentation in the Modern Law Firm; Developing Attorneys for the Future: What Can We Learn from the Fast Trackers?
Moderator: Mitt Regan, Georgetown Law
Panelists: Juliet Aiken, Georgetown Law; Heather Bock, Georgetown Law and Lisa Rohrer, Georgetown Law.
THE CONSUMER LAW REVOLUTION
The panel will consider such questions as: How is technology changing delivery of legal services to consumers? How is technology changing how lawyers who serve consumers practice? Do we see signs today that consumer law developments are already doing so? Will constraints - for example, client or lawyer conservatism, immature technology, or ethical barriers - limit a more rapid evolution or a real evolution?
Moderator: Tanina Rostain, Georgetown Law;
Panelists: Stephanie Kimbro, Burton Law LLC; Michael Mills, Neota Logic, and Marc Lauritsen, Capstone
EXPLORING THE NUANCES OF VALUE
In 2011, a panel focused on defining value. Now, in this panel discussion, we take the next step, as law firm and inhouse representatives explain how alternative arrangements are developed and tweaked so that both sides can derive value.
Moderator: Aric Press, American Lawyer Media
Panelists: Toby Brown, Akin Gump; Mark Chandler, Cisco Systems.
FUTURE OF MANAGING PARTNERS
The future demands a new focus in law firm management. This panel, featuring extraordinary managing partners, examines the critical roles and responsibilities of MPs in firms of all sizes—and what the panelists see as the future challenges and opportunities in firm management, including managing talent at all levels and “getting things done” in ways that most benefit the firm, its people and its clients.
Moderator: John Michalik, JJeyEm Consulting and author of The Extraordinary Managing Partner, Reaching the Pinnacle of Law Firm Management
Panelists: Thomas Grella, McGuire Wood & Bissette, P.A.; Fredrick Lautz, Quarles & Brady LLP; Charles Vigil, Rodey, Dickason, Sloan, Akin & Robb, P.A.; Ward Bower, Altman Weil, Inc.
THE NEW NORMAL FROM THE GENERAL COUNSEL PERSPECTIVE
General Counsel face continuing pressure to control costs while coping with growing demands for legal advice. In a panel organized by the Association of Corporate Counsel, you will hear how experienced law department leaders respond to this pressure and what it means both for their department operations and the law firms they retain.
Moderator: Amar Sarwal, ACC
Panelists: Scott Chaplin, Jorge Scientific Corporation; Susan Hackett, Legal Executive Leadership and Eric Margolin, CarMax, Inc.
LEGAL SERVICES UPDATE
2012 has been a year of intense pressure on low-income people facing legal problems and unfortunately, intense pressure on the legal aid organizations that serve them. In these tough times, law practice management expertise and best practices are needed more than ever to improve efficiency, buoy up morale, tune up staffing and employ new technologies. During lunch, Jim Sandman, President of the Legal Services Corporation and a 2012 College fellow-elect, will update attendees on bleak conditions facing LSC and describe a new mentoring initiative in the planning stages that will expand the pro bono consulting the College can offer to legal aid.
Skip this post if you believe the BigLaw market will return to its pre-2007 state. If not, does your firm have a strategy to control and reduce costs?
Two reports last week remind us of the tough market Biglaw faces. Bruce MacEwen, aka Adam Smith, Esq., has written three masterful installments on why Growth is Dead (Part 1, 2, 3). Separately, the Wall Street Journal blog reported on a Wells Fargo survey of 115 law firms: a “grim outlook”. Revenue is up 3% but expenses are up more than double that, at 6.5%.
Associate compensation is a big number - new lawyers earn $160,000.. So too is overhead - it typically exceeds $200,000 per lawyer, and pushes $300,000 at many firms. Getting the lawyer headcount right is hard but firms give this a lot of thought.
It’s not clear, however, that as many firms give as much thought to overhead and to cost control and reduction. But that may be shifting. Last week Bingham McCutcheon announced that it will open a low cost service center in Lexington, KY with 250 staff. Other firms with publicized domestic low cost service centers are Pillsbury (Nashville, TN), WilmerHale (Dayton, OH), Reed Smith (Pittsburgh, PA), and Orrick (Wheeling, WV).
An owned and operated service center lets firms benefit from the lower labor and occupancy cost of a smaller city relative to lawyer offices in major cities such as NYC, DC, DC, Chicago, LA, or SF. Smart firms also save with efficiency gains from centralizing staff, improving processes, and deploying better technology. Similar benefits are also available by working with outsourcing companies.
The interesting question is whether the BigLaw market will soon tip in favor of centralized services, whether in an owned-and-operated low cost center or via a third party outsourcing provider. With BigLaw moving in a pack, can it be long before partners press the COO to at least investigate a lower cost support options?
The recently released LexisNexis® RFP Activity Summary Report summarizes the results of a July 2012 survey on law firm responses to Requests for Proposal (RFP). The results are eye-opening for law firm managers who want to improve results or reduce costs.
Many law firms “simply do not know the level of RFP activity underway at their firms.” Of those that do, under 60% track the win and loss rate. If writing proposals were easy, then not knowing or tracking might not matter. Given the time per proposal, however, at 20 to 25 hours, I find the lack metrics shocking. Firms with 500+ lawyers field an average of almost 200 proposals a year - that’s a lot effort to not track. [The time estimate is likely low because it may not include partner or market research time to support proposal writing.]
Effective marketing requires tracking results. Without knowing the win and loss rates, firms have no rationale basis to adjust how much time they put into responses or to which types of RFPs they should respond. Marketing does not stand alone: many firms have little or no data about other support services. With economic pressures continuing to loom, law firms must run their support operations based on evidence, not guesses.
Metrics is only part of the answer. Automation is also essential. For example, in the RFP realm, LexisNexis now distributes and supports, with assistance from Kraft Kennedy, ANSOR software, which streamlines proposal generation. (I have seen a demo of ANSOR and think it is good but have not systematically evaluated the choices.)
In general, I believe that most law firm can improve and automate most of their business support processes. Staff cutbacks over the last few years reduced cost. If times stay tough or get worse, smart firms will seek to improve processes, track inputs and outputs, and automate, not simply cut.
Last week I attended the 2012 International Legal Technology Association (ILTA) annual conference. Rather than summarize it - an impossible task - I offer my impressions and musings.
Legal project management and alternative fee arrangements remain hot topics. This is not news, merely confirmation. Each year more of my KM friends ‘do LPM or AFA’. Each year, I meet more BigLaw professionals focused on pricing. Only one other legal market trend - law firms merging and globalizing - seems as powerful. Like that one, expect LPM and AFA to be on the agenda for years to come. For just one reason why, see Bruce MacEwen’s excellent blog post today, Growth is Dead: Part I.
E-discovery remains hot, judging by both the program and the number of EDD vendors in the exhibit hall. I still cannot explain why the vendor market has not consolidated. To help both customers and vendors through the complexities of matching requirements and capabilities, George Socha and Tom Gelbman continue to build and refine their service, Apersee.com, which allows vendors to specify capabilities and customers to select them based on multiple criteria.
The many EDD vendors compete vigorously for sales talent. I had an interesting conversation with Jared Michael Coseglia, president of TRU Staffing Partners, a search firm focused on legal technology and e-discovery. Jared points out that vendors constantly seek top sales talent outside their companies and bid up compensation. He believes vendors should grow their own talent and has interesting ideas about how to make that happen. So I look forward to hearing more from him.
Legal process outsourcing (LPO) was never big at ILTA. Recent years had at least one session focused on it, albeit not well attended. The one 2012 outsourcing session, based on the speakers (I could not attend), seemed more about tech outsourcing than LPO. Whether that reflects the market at large is unclear. A September 3rd Managing Partner article, Law firms are losing work to LPO providers, suggests LPO remains robust. I suspect ILTA participants lump LPO in with managed review services, which have grown rapidly.
Legal technology outsourcing, however, may be on the upswing. I spoke with the principals of Keno Kozie, who tell me that both their help desk outsourcing and managed services business are growing nicely. I remember a decade+ ago suggesting to a law firm that it outsource its help desk; the idea was shot down without consideration. Technology outsourcing may not be right for every firm but I do not understand how firms or CIOs can dismiss it out of hand.
I was sorry I did not have time to attend more sessions, especially the ones on knowledge management. Fortunately two of the best legal market bloggers live blogged many KM session: Mary Abraham at Above and Beyond KM and David Hobbie at Caselines.
Both the ILTA professional staff and the many member volunteers deserve tremendous thanks for organizing another fabulous annual conference.
Update: (5 Sep 2012)
Andrew Davis of Boxless in Melbourne, Australia asks in a comment “Just wondering what the mood was in relation to public cloud offerings such as Google Apps? Are law firms embracing those sorts of services, or are they holding back?”
The great thing about ILTA is its diversity of topics. I did not spend time on the cloud topic but I know there were many sessions on it. Anecdotally, I know the topic is on the agenda for many CIOs but there is also a lot of concern about security.
I hear more firms are moving to NetDocuments, which arguably is one of the first cloud services - outsourced / cloud document management to replace legacy enterprise DM. (I recall two firms migrated to it about a decade ago and more since.)
If I were a CIO again and working for a firm interested in competitive advantage, I would be wanting to move as much of my infrastructure to the cloud as possible. That way, IT and the firm could shift focus from maintaining infrastructure to using tech for competitive advantage. This may be the minority view.