Value and profitability: Confidential insights from the managing partner of an AmLaw 100 firm (Part 1 of 2)
Last month, I wrote in this blog about a research study I am currently conducting entitled “Client Value and Law Firm Profitability: Insights from AmLaw 100 Leaders.” The study is designed to provide law firm leaders and their clients with advice on how to achieve greater value in a sustainable way that makes business sense for both sides. Since then, I’ve conducted over a dozen confidential interviews with AmLaw 100 chairmen, managing partners, and senior partners and executives.
The name of every individual who participates in the research is confidential, and all published quotes will be anonymous. That’s because we’ve found in past research that this cloak of anonymity is the best way to assure that senior decision makers speak frankly and openly about what works and what does not.
Since we’ve just begun collecting this data, it is too early to report trends. However, in the meantime, I cannot resist sharing the highlights of some of the most thought-provoking interviews, starting today with some comments from the managing partner of an AmLaw 100 firm that has been particularly proactive in changing the way they operate to adapt to this new world.
When I asked how great the pressure has been to provide more value since the 2008 downturn, this managing partner said, “All clients are very much more focused on more value, and it’s been a dramatic change, as dramatic as it could be.”
When I asked exactly what clients want when they ask for more value, he explained that it is very difficult to measure, because value means different things to different people:
Some clients want to pay less to get the same thing they always bought. Some don’t mind paying the same amount, but they want more. Some want greater certainty and predictability, and to shift some of the risk to the law firm. Some want additional things that make their lives easier, whether it’s different reporting or portals into information, or secondment or staff support. Sometimes they’d like lunch and learn and continuing education, or help with pro bono initiatives. So for different clients, some or all of those things end up being part of how we’re making sure they’re getting more value.
When I asked how much pressure this has put on the firm’s profit margins over the same five years, he said:
On a scale from 1 to 10, it’s not quite a 10, but that’s only because we’ve been paying a lot of attention to it. We’ve done a lot of different things to try to meet the client demand and their expectations and still maintain or increase profitability. We’ve started a new staff lawyer program to provide lower-cost internal options and an e-discovery business. We’ve implemented project management training. We’ve implemented professional estimating and value delivery, and lots of other things. If we had not changed anything, then the profit pressure would have been unbearable. We’re having some success at continuing to drive up profitability while still meeting client expectations. But the pressure is not going away, that’s for sure.
Of course the mention of project management training caught my attention, since I’ve often written about our belief that simply educating lawyers often fails to change behavior, unless it is supported by one-to-one coaching with key partners. (For example, see the free downloadable chapter from my book Legal Project Management, Pricing, and Alternative Fee Arrangements.) This firm’s experience supports my view. When asked about which initiatives were most important, and which still needed improvement, this managing partner said:
I think project management probably will have the longest-term positive impact, but it’s been the biggest challenge, because it’s something that hasn’t been easily absorbed by a lot of the lawyers. When busy lawyers start scrambling around, the inefficiency creeps right up… Project management training has not met expectations, although it’s improving, and I do think in the long term project management will have a really big impact.
He then talked about the key role of one senior executive who oversees project management, pricing, value, and more:
I think that the role we’re asking ____ to play, which is part consigliore, part expert, part preacher, is going to have a very positive impact, not just on project management, but also on the pricing side, including better understanding among the partners about what agreeing to certain things means.
Next Wednesday, Part 2 of this interview will go into more detail about how this particular firm is changing, and what clients must do to maximize the benefits of the new normal.