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4 posts from October 2009

October 28, 2009

Three questions to ask your most important clients

Back in the good old days, before the economy headed South, I wrote a number of posts about how important listening is to develop stronger relationships and new business.  I even posted suggestions to get clients doing more of the talking, including 34 questions for clients and prospects and 24 more questions to ask current clients.

When we coach lawyers on how to develop new business, we often refer to updated and expanded versions of those lists.  Given today’s cutthroat competition, we encourage lawyers to start with defensive marketing to protect their most important clients.  Here are three critical questions that we encourage lawyers to ask every important client:

1. On a scale from 1 to 10, how satisfied are you with our firm?

There are many ways to phrase effective questions about client satisfaction, but the best way is to ask for a numerical rating, which forces clarity and frankness.

We ask our own clients this question at the end of every program we deliver, and to be honest many shy away from giving a number.  The client is always right, so if they don’t want to be pinned down with a number, we go with the flow.  The important thing is to begin a genuine conversation about satisfaction, and to encourage clients to talk about the things you really need to hear, rather than more comfortable vague praise.

If clients do give you a number, there’s a good chance it will be lower than you expected.  I’ve written before about the Lake Wobegone effect, named after Garrison Keillor’s fictional community in which everyone thinks they are above average, and their ratings will be high.

The best place to see this effect in the legal community is in a series of surveys published in Inside Counsel magazine, comparing ratings of satisfaction from clients and the law firms who serve them.  In their most recent survey, 43% of lawyers thought they were earning an A for their work, but only 17% of their clients agreed.  So if you think you deserve an A, you’re probably wrong.

And if your client gives you an 8 or less on our 10-point scale, you need to do something about it.  As noted in my post about Fred Reichheld’s research on the loyalty effect, you might think that 8 out of 10 is a pretty good rating.  But it is not good enough to protect you from aggressive competitors.

2.  What could we do to increase our rating?

Ask this question even if you scored 10 out of 10.  It is impossible for a client to be too happy.

Be prepared with questions to probe how people really feel, such as asking which team members they like to work with, and which they don’t, or what could have been done differently in a recent matter, or how easy your firm is to do business with.  You might even work in some of the questions from previous lists in this blog, such as:
•    How well do we listen to your concerns?
•    How well do we understand your goals?
•    How well do we understand your industry?
•    Do we do a good job keeping you informed?
•    Do we explain legal issues in terms that are easy for non-lawyers to understand?
•    Do you perceive us as genuinely committed to your business success?
•    Do you perceive our lawyers as prompt, responsive, and accessible on short notice?
•    Are our billing statements accurate and complete?
•    Do our invoices include an appropriate level of detail?
•    Do you think our fees are fair and reasonable?
The important thing is to follow this conversation wherever it leads.  Resist the temptation to defend yourself; save that for a different meeting.  This time, just listen and learn what you could do better.

3. Have you heard any interesting ideas from other law firms?

This can be a tricky question to ask, but you need to know what your competitors are doing.  If you ask the question directly at the start of a conversation, it may sound desperate or pathetic.  Plan instead to sneak up on it.

Start with industry chit chat.  When the client mentions another firm, ask “Have you talked to them lately?” and “What are they up to these days?”

If you can turn the conversation in this direction, I’ll bet you a nickel that at least one of your clients will report that she’s been talking to your competitors about alternative fees.  If you want to know more about that topic, see our Guide to Alternative Fees, which is free, and the research report on our Survey of Alternative Fees, which isn’t.

October 21, 2009

An AmLaw 100 senior executive talks about the implications of alternative fees

In the LegalBizDev Survey of Alternative Fees, AmLaw 100 chairmen, senior partners and C-level executives talked frankly about issues that will help and hinder the growth of alternative fees.

Here’s how one AmLaw 100 senior executive (who is also a lawyer) sees the future:
There are a lot of law firms that are sitting back and waiting for the world to return to the way it was in 2006 or 2007.  Our view is that the world is fundamentally changed....We think that there is a fundamental shift, and that the concept of clients being willing to pay for inefficiency is...unlikely to come back.

I think we are in the second inning of that development as an overall industry.  I think it is going to go significantly further along, and well beyond just the fact that we’re seeing clients taking advantage of the greater competition among law firms today....The days of paying $400 an hour for first-year associates to pore through documents on major litigation matters is largely gone.
In this expert’s opinion, alternative fees are an important part of this new environment, and can be used in almost any situation:
There really is something that will work for every client....[When we are] able to sit down in a very open dialogue with our clients regarding their needs, what works best for them, and what works best for us – including how staffing impacts our economics and how we focus on trying to put the right person on the right task at the right cost – we believe that we can tailor a fee arrangement that will work for our clients and will work for us.
Note that does not imply that the billable hour is dead, only that non-hourly billing will grow in importance:
I don’t foresee a world in which there will be no more hourly billing. There are a lot of circumstances where hourly billing makes a lot of sense. A lot of clients prefer...discounted hourly rates, even in many situations where we believe that a different model may be more in their interest. But I think that this overall sea change is leading to a world that sees less inefficiency being borne by the client and shifting more risk to the law firms.
Like the AmLaw 100 chairman quoted a few weeks ago, this expert believes that when alternative fees do grow, firms will need to operate differently, starting with the way they manage projects:
For most of the past decade, I was a senior executive at a publicly-traded real estate company. And I like to say that the two most important people we had in the company were the estimator and the project manager. And law firms historically have had no one play either of those roles. It’s very dangerous to move into a world of fixed fees if you don’t have somebody who’s capable of estimating and you don’t have somebody who’s capable of project managing it.

I think that a movement towards alternative fees without a cultural shift, and without putting tools in partners’ hands to effectively project manage, will have dire economic consequences to law firms. It’s a lot easier to come up with an alternative fee than it is to teach somebody to project-manage.
For more from this interview, and 36 other interviews from AmLaw 100 decision makers, order your copy of the LegalBizDev Survey of Alternative Fees or Download LegalBizDevSurveySummaryZ.  For background on the issues behind the survey, see the third edition of our free LegalBizDev Guide to Alternative Fees.

October 14, 2009

Alternative fees survey: Preview edition released today

Over the last few months, I interviewed chairmen, CEOs, CFOs, CMOs and senior partners at 37 AmLaw 100 firms about how they are using alternative fees.  (For background on the survey, including a list of the firms interviewed, see my recent progress report.)

The survey data will take a few months to analyze completely, and the final report will be published in December.  This morning, we released a 27-page .pdf Preview Edition describing initial findings, including:

•    While there has been a significant increase within the last year in the frequency of alternative fees, AmLaw 100 firms have many years of experience in structuring fixed and contingent billing arrangements.
•    78% of respondents said that alternative fees work well in every practice area.
•    There was significant disagreement about only one practice area: some felt alternative fees work well in litigation, others did not.
•    With experience, firms can predict the types of matters that will work best with alternative fees.
•    Every single survey participant predicted that AmLaw 100 firms will use alternative fees more often in the future.  However, there were dramatic disagreements about how much more often.
•    Estimates of the projected five year growth rate in alternative fee revenue ranged from 20% to 900%, with an average of 198%. 
Today’s report also provides data on how firms track alternative fee revenue internally, and on their radical differences of opinion about the percent of AmLaw 100 revenue derived from alternative fees not just in the future, but even today.

The December complete report will tie these conflicting opinions to increasing differentiation among AmLaw 100 firms.  Some large firms are aggressively pursuing the development of alternative billing, while others are taking a much more conservative approach.

Since the survey interviews were anonymous, senior decision makers spoke frankly and openly about issues that will help and hinder the growth of alternative fees.  For example, here’s what one chairman said about law firm culture, associate salaries, and costs:
I think it hurts lawyers’ egos to suggest that all of the work that they do is not brain surgery. And then when you suggest that they might be able to get away with using people who are not junior brain surgeons, almost everyone will say, “Oh, no no no. To do my stuff, you really need to be a brain surgeon like me.” And it’s just ridiculous....I think that there’s an odd and irrational pride in wasting money. It’s gratifying for people to brag to their friends about how much they have to pay summer associates, and how much they pay starting associates, like “Isn’t this a crime? We’re paying young associates more than judges, but hey, they’re brilliant. They work for me.” And so it’s an odd situation. But I think we’ve been able to do that because the market has paid to deal with it. And that may all be over.
For more comments from another survey participant, see last week’s post.

When the December report is published, it will include a list of the most common types of alternative billing arrangements, and discuss when and how to use each.  It will also offer detailed guidance to those who want to increase the use of alternative billing, whether they work in a law department, a large firm, or a small one.

The total cost for the printed report plus the preview edition is $395 plus shipping ($5 in the US, $30 outside the US).  If you order your copy today, we will send you the Preview Edition pdf immediately, and ship the printed report directly from the printer the day it is released in December.  For more details and an order form, see the alternative fees section of our web page or
Download LegalBizDevSurveySummaryZ.  For background on the issues behind the survey, see the third edition of our free LegalBizDev Guide to Alternative Fees.

October 07, 2009

Alternative fees survey: An AmLaw 100 chairman speaks frankly about RFPs and project management

Last week, I posted a progress report on our alternative fees survey.  This week’s post includes sample comments from one of our interviews.

When I asked the Chairman of one AmLaw 100 firm whether general counsel could improve the RFP process. he had some strong opinions about what is broken:

The RFP process is somewhat out of control...many RFP competitions are run on the "more process is better" theory.  They tend to require firms to put in a huge amount of effort to submit a lot of information which I’m not sure ends up being important in the decision-making process.

And it doesn’t necessarily change the behavior of the in-house legal staff...you go through all this, you get on the new, smaller list, and then you wake up and realize you are getting the same stuff you had before.  The relationship is not getting deeper and firms who are not ‘on the list’ are still getting work.. 

Most general counsel and chief legal officers don’t micromanage what their people do, so you find that people down the line are still using the same firms they’ve always been using.

We’re starting to pass on some RFPs, because they’re just not worth the effort. Common sense needs to be brought to the process.

Later, the interview turned to the question of how alternative fees will change the way large firms and their clients manage relationships and projects:

I think the profession needs to start looking at some fundamental questions. What kind of relationship do you want with your outside counsel? Is it transactional, or is it relationship-based? Are you doing an isolated engagement and looking primarily for the lowest price or are you trying to build an ongoing supplier relationship that is sustainable for both parties and can be improved through "partnering" - i.e., working together to improve service and reduce costs?

I think the greatest potential for improving the value of the services that legal departments and outside firms together provide to the ultimate client is to look at the whole process and re-engineer the parts that are working well and evaluate performance on a joint basis.  General counsel are appropriately critical when law firms do not perform well. But it is very difficult for a law firm to tell a client that a matter is not going well from a cost or process point of view because of what is going on in the legal department.

Assuming that alternative fee arrangements do increase in number and variety, I think both law firms and clients have a lot to learn about how to make them work well. Other fields have developed methodologies that work.  Lawyers should be willing to learn from them.  

For example, in the world of construction, architects and engineers and contractors have been working on a fixed price or non-time and materials for a long time. There is a body of learning about how to estimate, how to contract, how to define scope, how to manage changes, how to allocate risk, and how to manage fee disputes, delays, changes in scope, and so on.  This could probably be adapted to the legal profession, without our having to go through the long history of disputes, litigation and losses that the construction industry did to get to the current state of the art.

Lawyers and their clients will need to learn to be more careful and disciplined about  making fee deals: defining scope, managing changes in scope, dealing with changed circumstances, dealing with the impact of client delay and...managing the contractual relationships. The same can be said of managing the project.  Some legal projects are massive and yet the level of skill applied to managing them - not the legal content, but just managing the project - is not at the level that is practiced in other professions....

The art of managing a large project also requires an eye on the relationships and the ultimate goals.  For example, the best project managers I have seen in the international project field understand the need for some give and take.  An ability to reach quick and practical agreements is far preferable to a consistently contentious relationship which generally increases costs and produces unsatisfactory results.

I think we’ve all had experiences over the years with in-house counsel who are too easy on us, those who are reasonable to deal with, those who stand up for what their companies need and understand what their law firms need, and those who are just not good managers....A lack of skills in project and relationship management on the part of either in-house counsel or the project leaders in a law firm can increase cost and reduce the quality of outcomes.  I believe both sides could use more training in these areas.

For more from this interview, and 36 other interviews from AmLaw 100 decision makers, order your copy of the LegalBizDev Survey of Alternative Fees or Download LegalBizDevSurveySummaryZ.  For background on the issues behind the survey, see the third edition of our free LegalBizDev Guide to Alternative Fees.