258 posts categorized "Legal Business Trends"

February 10, 2016

The evolving role of directors of legal project management (Part 1 of 3)

By Jim Hassett and Jonathan Groner

As recently as five or six years ago, it was easy to calculate the number of law firms that had hired directors of legal project management (LPM): zero. As the field has grown in the last few years, it has gotten much harder to get a precise count. But there is no doubt that the number is growing.

As Hildebrandt Consulting and CitiPrivate Bank reported a few weeks ago in their 2016 Client Advisory:

An increasing number of law firms are making greater use of project managers, who are tasked with helping partners determine necessary resources, stay on budget and avoid scope creep. We expect to see greater use of project managers, as well as pricing specialists, to help partners understand the true cost of running a matter (p.10).

However, there is a great deal of uncertainty about the job description for these new positions and about how well different tactics are working. To gain insight into these critical issues, we recently interviewed 15 people who currently perform the role of LPM director:

  • Kim Craig, Global Director, Legal Process Improvement, SeyfarthLean Consulting
  • Stuart Dodds, Director of Global Pricing and LPM, Baker & McKenzie
  • Pete Elliott, Director of Legal Project Management, Benesch Friedlander
  • Chris Ende, Managing Director for Pricing and Project Management, Goodwin Procter
  • Alex Erines, Pricing and Project Manager, Crowell & Moring
  • Bart Gabler, Director of Pricing and LPM, K&L Gates
  • Keri Gavin, Director of Pricing and Project Management, Winston & Strawn
  • Bree Johnson, Director of Value Pricing and LPM, Stinson Leonard Street
  • Rick Kathuria, National Director of Project Management and Legal Logistics, Gowlings
  • Jennifer Mapp, Director of Pricing and Project Management, Dechert
  • Linda Novosel, Chief Pricing and LPM Officer, Steptoe & Johnson
  • Melissa Prince, Director of Pricing and Legal Project Management, Ballard Spahr
  • Peter Secor, Director of Strategic Pricing and Project Management, Pepper Hamilton
  • Tom Snavely, Manager of Legal Process Improvement and Project Management, Faegre Baker Daniels
  • Kathleen Thompson, Strategic Pricing Analyst and Legal Project Manager, BakerHostetler

To maximize the frankness of their responses, we promised that while their names would be listed in the article, every quote we used could be reviewed by them in advance and none would be attributed to a particular person or firm.

We were quite surprised by the wide range and the variability of the responses.  After reading and re-reading the interview summaries several times, our main conclusion was that there is a striking lack of consensus both on what the LPM director role should be and on what works best.

If we had interviewed 15 law firm executive directors or CFOs about their jobs, we would have expected to find some variations among firms but an underlying foundation of consistency on the central role. We did not find that kind of consistency here.

If, based on these interviews, we summed up the state of the art of law firm LPM directors’ role in a single word, the word would be “pioneer.” Like the pioneers in the American west, some are likely to end up with greater success than others. Which tactics work best? There is no shortage of consultants who will provide advice on this important question (including LegalBizDev; we are guilty as charged). But in this time of great change in the legal profession, a consensus has not yet emerged.

The people we interviewed did strongly agree on the benefits of LPM. As two interviewees put it:

Clients are more interested than ever before in requesting data from lawyers and in talking about costs and budgets and the value that they receive from the lawyers’ work.

LPM improves the client experience by driving efficiency and value.

Indeed, LPM helps not just with clients but with the way lawyers perceive their work:

The client feels it is getting good value and the lawyers feel that they are improving the way in which they work.

But there is much less agreement about how to get from here to there. For example, consider the role of LPM directors in selecting and supporting new software. One described the main goal for 2016 as:

Expanding our software program and showing firm management some quantifiable results from its use.

Several others also felt this was the most important aspect of their job:

Our main achievement to date has been to build an in-house software tool based on Excel that the lawyers can use for project management.

One of the first things I did after accepting this position was to look for software that would help the firm’s lawyers answer LPM questions. But we haven’t yet found software that satisfies our needs.

Our biggest challenge centers on the lack of technology in the market. There are a great many software packages on managing to budget but very few or none that put together all the pieces of LPM, including staffing and document management as well as budgeting. So our firm built a budgeting and tracking system internally from scratch…. This took a full year. We are very pleased with the results. Not all the partners are using it, but a fair number of partners are on board and at least use some pieces of this tool.

In reviewing these comments and other off-the-record conversations, we were reminded of the split of opinion regarding software that we reported in the book Client Value and Law Firm Profitability, based on interviews with AmLaw 200 leaders, including this negative example:

We spent an incredible amount of time and resources coming up with a very sophisticated reporting system that would allow people, with a couple of clicks through our intranet, to go into any particular matter that had a budget, and see down to the timekeeper and task level, exactly how they were doing. Nobody uses them, as far as we can tell—literally, nobody. All they care about is the high level. Lawyers want an email once a week saying, where am I with my budget? They don’t care about the more detailed information (p. 118).

Perhaps that is why one LPM director described an important part of the job as:

Handling the firm’s roll-out of LPM technology effectively, since lawyers resist using technology unless it works well the first time.

And while some we interviewed emphasized their role with software, others did not mention it at all.

In parts 2 and 3 of this series, we’ll discuss other tasks performed by LPM directors and staff.

January 27, 2016

To develop new business, focus on your personal strengths

According to traditional stereotypes, “a good salesperson can sell anything.” That good salesperson was probably on the football team in high school, is fun at parties, mixes easily at networking events, and can quickly become anyone’s new best friend. For all people who do not fit this profile (including most lawyers and me), the logical implication is that we were not born to sell, so we should not waste our time trying.

But when the Gallup organization collected systematic data on 250,000 sales representatives over forty years, they found that the “salesperson who could sell anything” was a myth.  In fact, top producers in one industry often perform poorly in another, because different types of selling require different skills. As Benson Smith and Tony Rutigliano put it in Discover Your Sales Strengths:

The strengths that make someone an excellent pharmaceutical salesperson are different from those required to excel in selling real estate, or jet engines, or strategic consulting. 

Just as Michael Jordan found that basketball skills did not help him get to first base, a sales star in one industry may do poorly in another.

Gallup also found that each successful salesperson develops a unique selling style based upon their particular personality strengths. In their surveys, one of the items best correlated to sales success is the statement: “At work I get to do what I do best every day.”  High agreement links to job satisfaction, effective performance, profitability, and customer loyalty. And the more strongly you agree with this statement, the more productive you are likely to be.

Think about the top legal rainmakers you know. Chances are, some of them have succeeded by providing greater value, some through public speaking, some through community involvement, some by becoming active in professional groups, and some by taking clients to football games. Each has found how to apply their personal interests and strengths.

So when you plan your business development activity, think about what you like to do, and how you can focus on your personal strengths to build relationships and provide more value.

If parts of the process lie outside your comfort zone, remember that selling is a skill that anyone can learn, like golf. Not everyone will become great, but everyone can play the game.

The most important point for lawyers is that selling is a skill. To start learning, you must identify the tactics that fit your clients and your personality, and master a few basic techniques, such as listening.

Also like golf, selling is a lot harder than it looks. The good news is that you do not need to be great to win; you just need to be a little better than your competition.

Until a few years ago, that was easy, because other lawyers were so bad at it. But these days the bar is going up.

When one law firm succeeds in training its lawyers to get new business, it usually takes the work away from a second firm. When I interviewed chief marketing officers for an article a few years ago, several mentioned that when they compete with most firms, it’s easy to take away business by providing exceptional service. But when they compete with other firms that also provide exceptional service, getting new business becomes much harder.

How can you expect to keep up, if legal sellers become more sophisticated year after year? It’s going to take more time and money, and is a kind of arms race. Most lawyers find it is more efficient to hire sales experts as coaches and collaborators, rather than to spend the time to become sales experts themselves. Great golfers have coaches, and more and more legal rainmakers do as well.

Can you really expect to compete in this arena if you are not a natural salesperson? Yes. Natural ability is overrated. Focus on your personal strengths, follow up consistently, and you will succeed.

This post was adapted from my Legal Business Development Quick Reference Guide.

January 20, 2016

How to improve the process of defining legal scope:  The case of Levenfeld Pearlstein (Part 2 of 2)

By Gary Richards and Jim Hassett

Managing partner Rob Romanoff provided a specific example of how our scope workshop related to an ongoing matter where a client requested some work for a flat fee:

This was in an area where we typically work on an hourly basis because there are so many things that can’t be predicted.      We only represent one of the parties, and we don’t know the other party’s lawyer, so this could go on a while. But in the email where our client said he wanted us to do this work, he repeated more than three times that he wants it done for a flat fee…

One of my partners who wasn’t at the scope workshop said “we really can’t do this for a flat fee.”  My response was that the client had made it very clear he wants a flat fee. We can’t simply say “no”!

So the pricing partners broke down the core phases with a detailed analysis of scope, and we agreed to work on a flat fee basis for drafting the documents. When we begin negotiating with the other party’s lawyer, at that point it will be billed on an hourly basis going forward.

It could be a win-win both for the client, in terms of certainty of costs, and for us, either not being taken advantage of or having to take on all the risk that the other lawyer will delay the process and drive up the fees. 

David Solomon, another workshop participant and a partner in the Corporate & Securities Group offered a different fixed fee example, and explained how the course had led him to refine and improve a process that the firm was already using:

In the past, we have set up our budgets based on a pricing matrix which combines our experience with some input from our pricing people. Then I’ve been putting together simple intuitive spreadsheets to show the client the status of the budget and taking time with our bills to allocate out all of our time to each bucket of the project. Then I’ve been sending it to the client without any editorial comments.

But for the last couple of project budget status reports since the workshop, I’ve sent quite a few editorial comments about exactly where we are, especially if we are higher on certain things, and telling them where I predict we’re going to be. This helps set the stage for when there may be scope changes, as opposed to waiting until there actually has been a scope change. It’s been very effective.

Stuart Kohn, Head of the Trust and Estates practice group, gave another example of how the workshop helped him improve a process that was already in place:

A lot of the work we do for estate planning is based on flat fees that cover creating the documents.  But for work after they sign, such as funding their trust, we bill them hourly. We state that in the engagement letter, but I think the need to have the conversation again to remind them and to clarify is really important, and that was a good highlight of the workshop.

Also, we already use an estate administration checklist internally to guide our work and activities on a matter. But now we will take that one step further and incorporate that description of our work into the engagement letter.

Another key reminder was that it is better to talk with the client along the way about scope changes as opposed to waiting till they get a bill and complain, and we deal with it after the fact.

Overall, I thought it was a great workshop. Incredibly helpful!  The materials are really valuable and I have gone back over them a couple of times.

The benefits of the program extend not just to client interactions, but also to internal communications within the firm.  Marc Fineman noted that:

The value of a specific scope statement carries over to delegating and supervising tasks that are assigned to others. That means that you have to 1) give people on your team the benefit of knowing the scope of work that has been developed and 2) make sure that they operate within that scope of activities… so that things don’t go off the rails. I realized after the workshop that this is something I need to work on myself, and I’ve already started.   

Similarly, David Solomon reported that:

I can have it all in my head and know what the budget is, but everybody that is working on it also needs to know. So at our last team meeting, I showed everybody’s budget, how it was spread and especially in their particular area. And I urged them “…when something seems to be going awry, raise your hand and tell me.”

I certainly think the team will benefit from seeing the entirety of what has to happen, and this will help get their agreement/ buy-in to all the things that go into the plan. Also, their involvement will help me to make sure that when I’m creating a budget I’m not forgetting something.

Executive director Angela Hickey summed up the workshop’s benefits as follows: 

Instead of avoiding conversations about scope, our partners now recognize that this is a business process and that it only gets better with more give and take, as opposed to just hiding from the discussion, and hoping it all will work out in the end.

In addition, the workshop tips for how to handle a fee increase negotiation has had a positive impact on our partners to rethink the client relationship. I heard some light bulbs coming on in conversations among our partners when they discussed how negotiating is sometimes a natural part of the process. It’s not distasteful, it’s not bad, it’s something that we should embrace, expect and plan for. And it does not have to be adversarial. It could, instead, be a way to get to every party’s interests.

After all, it is a business transaction and most clients are used to negotiating the terms of everything: contracts, agreements, standards, and processes. Clients don’t find it distasteful to negotiate. It’s just business as usual.

December 30, 2015

Alternative fee arrangements: The state of the art (Part 4 of 4)

Whether one uses a narrow definition of AFAs or a broad one, from a law firm’s business perspective, one of the most important questions about AFAs is whether they are profitable.

In 2002, the ABA Commission on Billable Hours Report (American Bar Association, 2002) predicted that the non-hourly approach would be a financial boon to law firms: “Alternatives that encourage efficiency and improve processes… increase profits.” 

Many consultants love to spread this good news message, and when law firms and law departments talk publicly about the topic, they too often focus on the upbeat side. For example, James D. Shomper and Gardner G. Courson argue that “if properly structured, an alternative fee arrangement should result in a win-win scenario for client and law firm.”

To cite another example, a New York Times article about alternative fees quoted Carl A. Leonard, a former chairman of Morrison & Foerster, about AFA profit potential:

In one case... Morrison & Foerster negotiated a fixed fee for defending a company in court, covering work up to the point of a motion for summary judgment.

On top of the fee, if the case settled for less than what the company feared having to pay if it lost in court, the law firm got a percentage of the amount saved. The arrangement made sense when the goal was to resolve the dispute quickly....

Lawyers on the case negotiated a settlement for much less than the client’s worst-case number, Mr. Leonard said. “The effective hourly rate was something like 150 percent of our hourly rates,” he added. “We made money, the client was happy.” 

However, the data suggests that such happy outcomes are not the norm. It can be very hard to turn fixed prices into win-wins, especially in a highly competitive market.

Lawyers have been rewarded for their entire careers for putting in extra hours to analyze every risk from every possible angle. Many will have a hard time learning to deliver the quality they are comfortable with when they must work within strict funding limits. And law firm managers will have an even greater challenge when they try to juggle staff on dozens or hundreds of projects with constantly shifting deadlines. If a firm expects lawyers to bill 1,800 hours per year or more and shifts a significant portion of their work to a fixed price basis, many will find that goal unreachable.

One of the biggest pressures on AFA profitability is the fact that in many firms, lawyers are paid more if they bill more hours. Several participants in the LegalBizDev Survey of Alternative Fees noted that without proper management, AFAs can be seen as a giant loophole, a place where lawyers who have too little to do can bill as many hours as they like without risking client complaints:

It takes a lot of discipline to manage a contingent matter. When lawyers track hours on a traditional hourly project, they know that clients will review the results, and that creates a certain discipline. On contingent matters, lawyers may think no one will look at the hourly record for years.

One of the lessons [we’ve] learned is that somebody has to be the point for cost control. It often happens that alternative fee matters, particularly large ones, [end up being] a dumping ground for individuals who may not be fully employed because you are reportable to the client for the result, not the cost. [When lawyers work unnecessarily on a project] your profitability looks bad, so in order to really determine the profitability, we need to deal with that issue.

Some relationship partners we’ve worked with encourage associates to put in extra hours on AFA matters. Associate salaries are a sunk cost, the partners reason, so they might as well put in extra time to assure quality and client satisfaction on fixed fee matters. It’s more productive than Googling or staring out the window.

In the short term, they have a point. But in the long term, this type of thinking is highly counter-productive. It reinforces the bad habits created by decades of hourly billing and substantially increases the chances that AFAs will be unprofitable.

It is not surprising that systematic data on AFA profitability is hard to come by. Law firms are notoriously secretive about their finances, sometimes even with their own partners. And nobody likes to talk about their losses.

The best available data on the topic of AFA profitability comes from Altman Weil’s annual Law Firms in Transition Surveys. When the most recent survey asked, “Compared to projects billed at an hourly rate, are your firm’s non-hourly projects more profitable or less profitable?” the results were 16% more profitable, 38% the same, 32% less profitable, and 15% not sure.

Even more interesting were Altman Weil’s findings about which firms profited the most. When Altman Weil asked, “Is your firm’s use of alternative fee arrangements primarily reactive (in response to client requests) or primarily proactive (arising from your belief in the competitive advantage of alternative fees)?” about one-third said they were proactive (32%) and two-thirds classified themselves as reactive.

When Altman Weil compared AFA profitability for the two groups, they found that it pays to be proactive. For proactive firms, 29% of AFAs were more profitable, compared to 10% for reactive firms.

But if firms are not making more money with AFAs, why are they offering them? Because in today’s competitive environment, many feel they have to.

The perspective of law firms vs. law departments

When both inside and outside counsel talk about alternative fee arrangements, they will probably continue to accentuate the positive and focus on win-wins. People will speak most freely about the matters that make them feel good and look good. But in fixed price deals one side often wins a revenue concession and the other side does less well.

Consultant Jordan Furlong summed it up like this:

It may come down to how we define “winning.” I think a win-win alternative billing scenario right now might look like this: the client wins because it reduces its outside legal spend, or at least improves its legal cost certainty, and the law firm wins because it gets to keep the client for one more day. That’s not the kind of victory lawyers are accustomed to settling for, but I think they ought to get used to it.

In the ALM Legal Intelligence survey, when law departments were asked, “What role did receptivity to AFA pricing play in any changes your legal department has made to its

roster of outside counsel?” 49% said it had indeed played a significant role.

And when the same survey asked law firms to name the top benefits of AFAs, number one on the list was “Attracting or maintaining clients” (49%). (For law departments, the top benefit was “Cost predictability/transparency” at 44%.)

So it is not surprising that twice as many law departments (40%) as law firms (19%) said they were very satisfied with AFAs.

And when asked to predict the growth rate of AFAs by the year 2019, law departments predicted a greater increase in AFAs (34%) than law firms did (24%). They should know. The client is always right.

This post was adapted from the fourth edition of the Legal Project Management Quick Reference Guide, which will be published in October 2016. 

December 23, 2015

Alternative fee arrangements: The state of the art (Part 3 of 4)

Before leaving the discussion of types of AFAs, it is important to note that the ALM Legal Intelligence survey also included the category of blended rate, which was reported by 39% of firms. These are 100% hourly arrangements in which a single middle rate is charged for senior lawyers who normally charge more and junior lawyers who normally charge less. Whether the client or the firm benefits from this arrangement depends on the actual numbers in a particular situation.

For example, consider a case that is expected to require 100 hours of senior time at an average of $500 per hour ($50,000) and 100 hours of junior time at $300 per hour ($30,000), for a total of $80,000. A firm might offer a blended rate of $350 per hour, which reduces the predicted cost of the matter to $70,000 ($350 times 200 hours).

But now suppose that once the matter is underway, the firm discovers that almost all the work could actually be performed by more junior lawyers. If the senior lawyers only need to spend 20 hours supervising the matter (which would have cost $10,000 at the original rate of $500 times 20 hours), and junior lawyers put in the other 180 hours (which would have cost $54,000 at $300 times 180 hours), the client who pays the blended rate will actually pay more ($70,000) at the blended rate than they would have at the non-discounted rate ($64,000).

Now you could argue that it’s still a win-win, because if the firm had not offered blended rates, senior lawyers would have delivered 100 hours out of the 200. The client won by paying $70,000 instead of $80,000, and the firm won by charging $70,000 instead of $64,000.

From a marketing perspective, that is a terrible argument. In essence, it implies that senior people never should have been doing the work in the first place and the client must agree to be overcharged a little in order to avoid being overcharged a lot.

Blended rates invite gamesmanship, as individual lawyers may be tempted to manipulate predictions to maximize profit. And they encourage the use of more junior level lawyers, even when it may not be to the client’s benefit. Here’s how the general counsel at Marriott International described his unhappiness with his blended rate experience: “The law firm only assigned to the matter those lawyers whose regular hourly rate was at or below the blended rate, and more senior lawyers were unwilling to engage in significant supervision.”

We will leave it to others to argue about whether blended rates are a good thing or a bad thing. In this context, what is important is that there is a philosophical difference between two types of AFA definitions: narrow and broad. These days most people use the narrow definition, which reserves the term “alternative fee arrangements” for fees that are fully or partly non-hourly. The broad definition used by the ALM survey and others also includes blended rates which are 100% hourly, but offer a single hourly rate that applies to all lawyers on a matter.

The fact that two conflicting definitions of AFAs are in wide use adds considerable confusion to an area that was already confusing enough. If a firm claims that 50% of its work is performed on an alternative fee basis, that could mean that they are moving away from the billable hour (under the narrow definition), or it could mean that they are engaging in some creative hourly rate discounting (under the broad definition).

Some have a vested interest in maintaining this confusion. Announcing that a firm offers 50% of its work on an alternative fee basis sounds much more thoughtful and less desperate than saying, “Half the time, we have to slash our hourly rates because we need the business.”

This post was adapted from the fourth edition of the Legal Project Management Quick Reference Guide, which will be published in October 2016.

December 16, 2015

Alternative fee arrangements: The state of the art (Part 2 of 4)

There is no universally accepted taxonomy for classifying all the possible types of AFAs, but there is good data on which types are most common. The graph below is based on a recent ALM Legal Intelligence survey and includes the seven most common types of arrangements:

Percent_of_firms_using_AFAs

The most common arrangement (reported by 60% of firms) is a fixed fee, which is a mutually agreed sum for a set of well-defined services. It could apply to a single matter or a portfolio of matters, such as a single fee for handling all of a Fortune 100 company’s US labor and employment litigations in a single year. In order to succeed with this approach over the long run, defining scope clearly at the start is absolutely critical. It also helps if firms have many fixed price deals, since they will surely win some and lose some. This arrangement can be risky with new clients until mutual trust and understanding has been established.

Next most common are contingent fees (43% of firms) which are paid only if the firm succeeds in producing a financial recovery or other mutually agreed result. This approach has long been used by plaintiffs’ lawyers, but it is now becoming more common for the defense to use as well.

With partial contingencies or success fees (37% of firms), a law firm typically receives part of an hourly fee or fixed fee, and a lump sum—or success fee—at the end of the matter, but only if it achieves a result desired by the client. Criteria for success fees are sometimes spelled out at length and sometimes left entirely to the client’s discretion. Clearly this can have the benefit of aligning the interests of clients and their law firms.

With capped fees (36% of firms), hourly rates are charged up to an agreed maximum amount for a particular matter. Beyond that, if additional work is required to complete the matter, the law firm pays for it. Of course, this is really just hourly billing with a twist: a hard limit on the maximum. Some lawyers see fee caps as the worst of both worlds—you can do worse than hourly, but you can’t do better—and refuse to do business this way. While this arrangement does clearly benefit the client more than the law firm, other firms see fee caps as an inevitable element of the changing legal landscape, and an important way to get new work.

Next most common are phased fees (30% of firms), in which firms have a separate fee—whether hourly or AFA—for each phase of a matter. This can be especially useful in situations where it is relatively easy to predict the amount of work required in the short term but where the long term need is uncertain. In essence, both the client and the firm agree on one predictable phase at a time.

Risk collars, the sixth most common type on this list (17% of firms), are in my judgment the most interesting, because they can truly align the interests of clients and law firms by offering incentives to both. The term generally refers to a billing arrangement built around an estimated budget for a particular matter in which the client pays a bonus if work is completed under budget and/or gets a discount if the work goes over the budget. The ways risk collars can be structured are limited only by the imagination of the lawyers involved. The table below provides six examples reported by interviewees in the LegalBizDev Survey of Alternative Fees. Example 1 is the “best” for clients and firms that want to share risk equally and fully align their interests.

Table

However, it must be pointed out that many clients want the law firms to take more risk. Indeed, in the ALM survey they did not ask about the familiar term “risk collar” and instead used the term “flat fee with shared savings,” which is a particular kind of risk collar in which client and firm share any savings if the hourly fees turn out to be less than a fixed fee. In this arrangement, if the hours exceed the fixed fee, only the law firm is at risk. Presumably this definition was selected by ALM because more firms are taking risks these days than clients are, since it is a buyers’ market. If they had used the more neutral and more common term “risk collar,” the total would have been greater than 17%.

Finally, the seventh and last type of AFA used by more than 5% of firms was the holdback (9%), an arrangement in which the law firm is guaranteed to receive part of its fees but where the other part is paid only upon achievement of a certain milestone or result. For example, a firm may receive 80% of its negotiated hourly rates while a matter is underway. At the end of the matter, the firm may be awarded the remaining 20%, or less, depending on the client’s satisfaction with the result.

This post was adapted from the fourth edition of the Legal Project Management Quick Reference Guide, which will be published in October 2016.

December 09, 2015

Alternative fee arrangements: The state of the art (Part 1 of 4)

One of the main forces driving interest in LPM has been the growth of non-hourly alternative fee arrangements (AFAs), especially fixed fees. Nothing gets a lawyer thinking about efficiency faster than knowing that if they go over budget, they will have to use their own money to pay for the cost overrun.

In 2008, when the AFA buzz was first building, we interviewed senior decision makers at 37 AmLaw 100 firms for the LegalBizDev Survey of Alternative Fees. Those interviews revealed a significant split of opinion about the future of AFAs. At one extreme, some chairs and managing partners said AFAs could rapidly replace the billable hour in many practice areas. At the other extreme, some felt AFAs were just another fad that would soon fade away.

Since then, surveys have consistently shown that both extremes were wrong. AFAs have neither exploded in popularity nor disappeared. Instead, there has been slow and steady growth, year after year.

In its annual Law Firms in Transition Surveys for the last several years, Altman Weil has asked firms to estimate the change in non-hourly billing revenue. Since 2011, the percentage of firms who reported an increase in AFA revenue over the previous year has ranged from 43% to 58%, while only 1% to 5% have reported that AFA revenues went down.

Similarly, in the 2015 survey Who Really Drives AFA Use—and Why? ALM Legal Intelligence found that 40% of firms and 48% of law departments reported an increase in “AFA volume” the preceding year.

While most surveys in this area have been limited to the perspective of either law departments or law firms, this particular survey took the unusual step of interviewing both: senior managers at 197 law departments and partners at 114 law firms that use AFAs.  The complete survey includes data on such topics as reverse auctions, whether clients limit billing by first and second year associates, how often do they discuss an AFA but then decide to do hourly, who approves AFAs, what are the perceived benefits by firms and departments (quite different, not surprisingly), obstacles to growth, the use of software, task coding, ratings of law firm profitability and law department savings, and predictions for the future.

In the context of this post, the most important finding is that it is crystal clear that the use of AFAs is growing.  However, it is almost impossible to precisely determine the percent of law firm revenue they represent. There are many reasons this question is difficult to answer, including law firm secrecy about finances, disagreements over the definition of the term “alternative fee arrangements,” and the fact that some firms simply do not know. In the Law Firms in Transition Surveys, 6% to 13% of firms said they did not even know whether their firm’s AFA revenue had gone up or down the preceding year, much less exactly what the percentage was.

While we may never know the average percentage of AFA revenue for all firms, we do know that there are wide differences between firms. In Altman Weil’s most recent survey, about one quarter of firms reported 5% or less of their revenue came from AFAs, one quarter said 16% or more, and the remaining half fell between 6% and 15%. The median value of AFA revenue—that is, the mid-point, with half the firms above it and half below—was 10%.

While in some ways that may not sound like much, if you apply 10% to the $100 billion of annual revenue for the AmLaw 200, it implies that about $10 billion worth of legal work was performed on a non-hourly basis. And the figure is going up.

This post was adapted from the fourth edition of the Legal Project Management Quick Reference Guide, which will be published in October 2016.

November 25, 2015

New survey reveals how clients define value

Just about everyone agrees that legal clients are demanding greater value these days.  But what exactly do clients mean by “value”?  As a senior executive from one AmLaw 200 firm summed it up in my research for the book Client Value and Law Firm Profitability:

The truth when it comes to value is that I’m not sure what our clients mean. It means different things to different people.

While there will always be individual differences between clients, it is useful to start by knowing what clients in general mean.  Altman Weil’s recently published 2015 Chief Legal Officer’s (CLO) survey provides significant insights into this issue based on answers from 258 CLOs.   (Full disclosure: Altman Weil is a strategic partner of LegalBizDev, but I’d write about these findings even if we weren’t.)

From the law firm point of view, I think the most interesting question was “Rate the value to your law department of the following things law firms can do to better understand your organization.”  Here are the results:

Rank

Item

Average value rating*

1

Conversations with you about pricing / budgets

7.7

2

Conversations with you about matter management efficiency

7.3

3

Conversations with you about project staffing

7.0

4

Legal issue spotting and preventative law strategies (at firm expense)

6.5

5

Post-matter reviews

6.2

6

Industry research and issue spotting (at firm expense)

5.9

7

Formal interviews to get your feedback

5.0

8

Law firm participation in industry groups and events

3.8

9

Formal survey program to get your feedback

3.6

10

Visits from law firm management

3.3

* On a scale from 0 (no value) to 10 (enormous value)

If you are involved in legal marketing, it would be interesting to rate the time and money that your firm devotes to each of these ten items.  In my experience, most marketing departments are investing heavily in exactly the wrong things:  numbers 8, 9 and 10 (the old marketing), instead of numbers 1, 2, and 3 (the new marketing). 

Four of the top five items are examples of legal project management.  As I noted in my recent article for Bloomberg BNA’s Corporate Counsel Weekly Why Law Firms Must Change their Marketing Priorities, a few firms are headed in the direction of putting more emphasis on LPM, but most have not yet adapted to the changing needs of the marketplace.

Another important question in this year’s survey asked: “Of the following [ten] service improvements and innovations, please select up to three that you would most like to see from your outside counsel.”  The top three, according to 258 CLOS, were:

  1. Greater cost reduction (selected by 50% of respondents)
  2. Improved budget forecasting (46%)
  3. More efficient project management (40%)

It is worth noting that this question has been asked for the last several years, and these have consistently finished as the top three.  Since LPM leads to #1 and #2, and is the very definition of #3, I like to sum up the results by saying that what clients want most these days is LPM, LPM, and more LPM.

How well are law firms doing in meeting this client needs?  Not very well.  When CLOs were asked “In your opinion, in the current legal market, how serious are law firms about changing their legal service delivery model to provide greater value to clients (as opposed to simply cutting costs)?”  On a scale from 0 to 10, the median rating (with half the firms above and half below) was 3.  These results were almost identical to last year’s, so despite all the press releases law firms are putting out trumpeting their successes in increasing value, clients have not been impressed by the results.

The complete survey includes a great deal of additional information on law departments, and can be downloaded for free.  Now that’s what I call value.

 

November 18, 2015

LPM Case Study: Hanson Bridgett (Part 3 of 3)

By Jim Hassett and Jonathan Groner

 

As noted in Part 1 of this series, every lawyer at Hanson Bridgett had the option of adding an extra month of coaching to the standard program. Catherine Johnson, who has more than 25 years of experience in environmental litigation, counseling, and compliance, took this even further in her coaching with Gary Richards. As part of Hanson Bridgett’s first group that experimented with several options, she completed just one month of coaching in 2013. Two years later, she applied for a supplementary program and ultimately completed five additional months with Richards.

Johnson says the LPM training has substantially changed her day-to-day practice of law.

“For every new client matter, I now develop a brief paragraph summarizing the strategic objectives,” Johnson says. “I give it to the client for review before I begin the project. For two matters now, through this process I have been able to identify different priorities that were not self-evident in my initial conversation with the client.”

Then Johnson develops a matter plan with detailed descriptions of the tasks involved, an estimate of the hours for each task, who will conduct the task, and when the task is due. She shares this plan with everyone on the team. Thus, she is better able to anticipate what steps must be taken to complete the project.

Johnson says this technique “is particularly helpful in working with others, since there is less misunderstanding about when projects are due and how it all fits in to the big picture. Additionally, team members can plan their own time better.”

In order to best take advantage of these tools, Johnson has been talking to the firm’s IT department about developing a simple “Client Toolkit” for each project so that she can have the Excel charts and forms in one place for each client. She is also looking into the most efficient way to consolidate her matter plans and develop a master schedule, ideally with a weekly schedule printed out at the beginning of every week.

In addition, Johnson says, Richards helped her develop a new AFA product for consultations for contaminated properties by showing her how to plan for it – identifying, for example, the tasks that must be done sequentially rather than concurrently, how to account for every significant piece of time that will be involved to minimize the possibility for error, and how to give a business perspective on a legal project.

“This product will be launching soon on a pilot study basis,” Johnson says, “and whether it is successful or not as an AFA product (and I think it will be) the planning and marketing can be used for other non-AFA products to provide more efficient service to our clients.”

In summary, Johnson says, the idea of LPM gets “a huge thumbs up from me.”

“Not only has this been useful to me, but it has really been fun,” she says. “I wasn’t expecting that. At a certain point, after almost 30 years of practicing law, I thought there wasn’t anything much new for me to do or learn. Now I have new goals and objectives, and every day I think about how I can improve what I do and offer better and more cost-efficient service. It is something new and something creative, so I feel energized and engaged.”

In our LPM programs for a wide variety of firms, ranging in size from eight lawyers to over 4,000, we have consistently found that the most effective way to change LPM behavior and build momentum is for motivated attorneys to directly experience immediate benefits and then become internal champions who spread the word, just as they did here.

Our most successful programs, like this one, have also had another factor in common: senior management made a continuing commitment to building on initial success and adapting the approach to the firm’s unique culture. For example, in a previous blog post, I described how Hanson Bridgett developed an application to identify the most promising candidates, based on their answers to this brief questionnaire:

  1. Have you used any flat fee or other alternative fee arrangements in the past?
  2. Are you willing to commit at least two to four hours per week to your participation in this program?
  3. Describe two challenges you commonly face in managing your work.
  4. What benefits or skills do you hope to gain by participation in our project management coaching program? 
  5. With greater or improved use of project management, describe the impact or long-term benefit you hope to achieve for the firm or on behalf of firm clients.

As a result of this approach, clearly the lawyers described in this case study saw benefits to their clients and to the firm. But lawyers excel at skepticism, and some are sure to ask for more systematic proof of LPM’s benefits.

We would love to be able to provide definitive statistics that would prove LPM’s benefits to the most hardened cynic. But the legal profession has long struggled with systematically measuring the impact of programs like this.

The most prestigious annual conference on LPM is the Legal Marketing Association’s P3 conference. (The name comes from the three related Ps of pricing, project management, and process improvement.) At last year’s conference, one of the most heavily attended panels was entitled “Finding and Measuring LPM Success.” I went to this session like many other audience members, hoping to leave with the Holy Grail of measurement: a metric that could be used to unequivocally prove, or disprove, the impact of a particular LPM program. But I did not walk away with the Holy Grail.

After the session, I talked to a number of others who were in the audience with me, and we all felt the same way: the panel certainly reviewed a number of possible metrics, such as revenue, profitability, leverage, and percentage over or under budget. But all of them could be influenced by many factors beyond LPM, and none provided the simple and unequivocal proof that many firms are looking for.

I’ve written several times in the past about why this is so. During the P3 session, I raised my hand to bring up what I see as the key question: If a lawyer completes an LPM coaching program and later sees increased client satisfaction, how can you prove to skeptics that it was the coaching that made the difference, as opposed to some other factor?

I did not get an answer, but in fairness to the speakers, I am afraid that nobody has one. I just couldn’t help asking, because hope springs eternal.

In the 10 years I have been writing this blog, I have often quoted the best sales training speech I ever heard. The speaker was Tom Snyder, now the managing partner of VorsightBP, a sales and strategy consulting firm. One of his main points was that it is impossible to definitively link any particular program to a particular sale in any type of business. In essence, his message was, “Don’t overanalyze. This is marketing, not a science experiment. If you got more work, you won.”

So unless someone can figure out how to do a double blind experiment on LPM, we will all have to be satisfied with case studies. When lawyers say that LPM helped them to improve client satisfaction or get new business or increase realization, as the people above did, you should believe them and move on.

That’s basically what Hanson Bridgett Managing Partner Andrew Giacomini has done. “I don’t have any statistics,” he said, “but if I didn’t believe that LPM was producing a return, I wouldn’t keep investing in it.” After each program concludes, “You can see the energy that lawyers are putting into applying it to their practices. As they pass these tools along to others, it creates new strengths for the entire firm. And if our lawyers become the best at LPM, they will get noticed.”

November 11, 2015

LPM Case Study: Hanson Bridgett (Part 2 of 3)

By Jim Hassett and Jonathan Groner

 

Transactional partner Leslie Keil worked with coach Gary Richards to break down the work and costs involved in one client’s corporate reorganization.

“I worked with Gary to put task codes on every aspect of the matter,” Keil says. “The idea was to check on progress at every point and to build a very detailed budget. This worked well even though I had already given the client a fee estimate for the matter. But when I broke it down with Gary, the number of tasks on the list doubled, though my overall fee estimate remained the same. I identified tasks I hadn’t thought of before. That increased the client’s and my team’s understanding of the project and of its costs.”

In order to do this, Keil had to work with the associate and the paralegal on the project to review exactly what they do on a project like this and plan how long it would take them.

“Now we have a better idea of the work that will be delegated, and to whom, well in advance,” Keil says. “And we developed a spreadsheet and a template that can be used in similar matters. As an incoming partner, LPM is a very important skill to have these days.”

“One of the things that we can now do,” she concludes, “is to use these tools to review past projects so that we can see how much work was involved in each category and at what rates. This helps us understand our own costs and estimate better in the future.”

Adam Hofmann, a senior counsel who was coached by Natasha Chetty, says the main advantage of LPM is developing the mental discipline “to think about the process and better advise my clients, because we can predict our projects and costs in a more reliable way.”

Hofmann does most of his legal work for public entities such as local governments and special districts. One of his main practices is in eminent domain matters where the government is legally obligated to pay fair compensation for taking someone’s private property for public use. Often, the main issue is the value of the property and the amount of compensation due.

“Since most eminent domain cases go roughly the same way,” Hofmann says, “this type of practice is ideal for LPM. We lay out each step and who will do what – will it be me, someone else on my team, or the client? – at each stage. From the moment that the government decides that it needs the property, there is always a standard series of steps. So for each case, we want to identify early what are the tasks and who will take responsibility.”

“I had some idea of how this type of planning and standardization worked even before, but now, having learned from people who have been through it, I am even more motivated,” he says. “It’s good business, and it’s not rocket science.”

Hofmann says this “gives us an advantage over other firms that don’t use LPM. A client can now see behind the curtain a bit, so that they can really understand how we are reaching good results. Sometimes a client may see lower bills but may not know what went into that. We show them that the lower bills are based on ideas that we had right from the start, from the initial thought about that client. We try to communicate that to the client very directly. The client will appreciate seeing the forms that standardize our work and seeing the other aspects of how we organize each matter. Some clients will see the value immediately, while others will understand it a bit later, but they will always see it.”

Kathryn Doi is a health care litigation partner who joined the firm in November 2014 from a smaller law firm. She brought in a specialty to the firm – litigation on behalf of health care providers who claim that they have received insufficient dollar reimbursements from the Medi-Cal program or private insurers, or are challenging the Medi-Cal program’s proposed adjustments to health care providers’ reimbursement rates.

“The way my coaching worked was very straightforward,” Doi says. “Mike Egnatchik and I identified certain types of cases, and we talked about the implementation of LPM principles in these cases. I had not even heard the term LPM before we started, but the idea immediately resonated for me. Lawyers like me are always trying to be mindful of the need to be efficient, to bring value to their work, and to meet or exceed client expectations.” Doi also worked with Senior Value Pricing Specialist John Murphy and CFO Roger Robles to create budget and planning estimates.

As a result of her coaching, Doi notes, “I began to think more like a client – to see what we do through the lens of a client.”

Doi represents a major air ambulance company that, at any given time, is pursuing a large number of small claims. With help from Egnatchik, she developed templates and “road maps” for these types of claims based on the firm’s past experiences of its budgeting and workload for these cases.

Now the client is sent a summary of where each active case stands on a regular basis, along with results that allow the client to compare results with expectations and anticipate future workload. “I have received very positive feedback from the client on providing this type of regular communications,” she says, “and it has resulted in a stronger client relationship.”

“The client was going to follow me from my prior firm,” Doi says, “but by doing this, we were able not only to rebuild the work but to create a more efficient model for the work. The client needs to know on a high level what is going on with its matters. Now they have a work flow matrix that can be plugged into all the cases to give an immediate sense of where each case stands.”