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April 09, 2014

Research update: New staff positions in pricing, value, and LPM, Part 1 of 2

This two-part post previews results from my book Client Value and Law Firm Profitability, which will be published this summer.  All quotes are from managing partners, chairs, and other senior decision makers at AmLaw 200 firms.  Each participated in 30-minute in-depth interviews and spoke freely based on the understanding that they could review their quotes before publication, but they would not be quoted by name.

 

As law firms compete aggressively with their peers by offering more value to clients, many are establishing new staff positions to oversee pricing, legal project management, and other aspects of the “new normal.”  A few weeks ago, we reviewed the book Law Firm Pricing: Strategies, Roles, and Responsibilities about the rise in pricing directors.  In our research, we asked more generally about new staff positions in several related areas and found:

 

Do you have new internal staff positions in pricing, value, legal project management, and/or related areas?
Hired new people Used existing people No one devoted to these functions
49% 28% 23%

 

Hiring new staff members to meet new needs

Many firms reported it was a very successful move for them to hire people with the right business backgrounds and to empower them to use their skills to help the firm make crucial decisions on pricing and on efficiency. Consider this testimony from the managing partners of two AmLaw 100 firms:

I think what’s had the greatest positive effect is our business managers. They can much more impartially sit down and analyze profitability. They build up a database of what it costs us to do things, and they’re just invaluable. They work with enough lawyers, they’re able to focus on the numbers and their minds work differently. I think we’ve been very effective at actually developing tools to help people price things. It’s a pretty basic tool, but the lawyers say it is very sophisticated and very helpful. I see it as Finance 101, but I’m glad the lawyers like it. So I think what’s had the greatest effect is the non-lawyers who really are focusing on the business side of the equation and what it costs to do things; pushing back, and helping lawyers have a little bit of backbone. They can now show them a model and say, No, that’s too low, you’re going to lose your shirt.

I think that the role we’re asking our client value director to play, which is part consigliore, part expert, part preacher, is going to have a very positive impact, not just on the project management, but on the pricing side, including a better understanding among the partners about what agreeing to certain conditions means. I think we’ve made a lot of progress on this because we’ve had to, but we still have a long way to go.

Senior managers from three other AmLaw 200 firms added this:

On the pricing side, it’s been one of our great successes. We have three people working on pricing. Two of them are analysts who initially were hired just to be analysts, but we’ve now developed them to the point where they communicate directly with clients. They’ve become fairly sophisticated in understanding not just the pure data side, but also recognizing the differences among clients and how they view our relationship. And that triggers what price arrangements they are or are not willing to offer. As the firm’s CEO, I spend five or ten percent of my time on pricing issues, either working directly with clients or dealing with our lawyers in trying to think about how we should price something. It’s worked out well for us.

We now have a pricing director, and he and I really split the work. He’s incredibly effective with my partners and very good. It’s an interesting job that we both have, trying to facilitate partners’ entrepreneurial instincts and helping them to get business, while guiding them in the transition into this new world of pricing. But we’re also the police for bad deals. He’s fantastic. He has a staff, and we do this function of reviewing every non-standard pricing matter, checking the assumptions, checking the projected profitability. And that’s a critical part of having a strong value-based billing program, especially as clients are expecting, really demanding, alternative fee structures.

We’ve added three positions in the last two years related to pricing and value. The person who heads our group has experience doing program and project management in the software industry, but also has a finance background. So we’re starting to get into the project management side. I think it has been successful, because three years ago we had a lot of difficulty in winning fixed fee and other alternative fee cases, and now we’re getting more of them. We never really did that before.

Part 2 will appear next week and will include quotes from senior management at firms that are assigning new responsibilities in this area to existing staff rather than hiring new people.

 

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