195 posts categorized "Legal Business Trends"

April 16, 2014

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

Using existing staff to perform these functions

Some firms have adopted a different approach, preferring to utilize the skills of people already on their staff to run project management and pricing:

Pricing has become a big part of our portfolio, but it’s done by an MBA who has been here for a long time, who studies pricing and speaks about it.

For some time, we’ve had a group within the firm that we refer to as our practice economics group. They have been tasked with serving as a resource to practices, client teams, relationship lawyers, and the like, to help with the kind of analysis that is important at the front end, figuring out how to respond to an RFP or to price a project. But as time has gone on, the services that the group provides have expanded to include various types of knowledge management and process management efforts as well. They can help design reporting systems, feedback loops, and the like, so that a team can stay current with real time data as the project proceeds, to know how they’re doing against a budget or a bid. We think that capacity has been extraordinarily valuable to us. More than 20% of our revenues at this point come from alternative fee arrangements, including some very large fixed fee engagements. Our comfort in moving more significantly into that arena, particularly taking on some of the engagements where clients have used fixed fees in conjunction with a very strong push to reduce costs, has been very much influenced by having not just the up-front analytical ability, but a team that can work with the client and engagement team to help successfully manage those types of projects.

We hired a new CFO within the past few years, with a focus on identifying someone who could really help us do this kind of stuff. So we haven’t really created a new position but we’ve begun to focus on that type of analysis.

Recognizing the need to do more in this area

Eighty-six percent of the firms that commented on this issue reported that they plan to do more in this area. The exact details vary from firm to firm:

We are thinking about making the process more formal, centralized around a pricing director. A lot of law firms, ours included, have administrators embedded in larger practices. But we need to recognize that if you have, say, a $200 million corporate practice by revenue, you should probably have someone acting like a CFO for a $200 million subsidiary of a $600 million enterprise. Therefore, you want someone who can help drive pricing, process efficiency, technology, and balance sheet management – the sorts of things that a CFO would do in a subsidiary in corporate America. I think that role needs to be morphed out of the general administrative function. The issue is that the skill sets are very different, and that leads to difficulty, because you’ve got long-tenured administrative staffs who have been very helpful over the years but who don’t necessarily have the skill set needed today. So then it can become a question of whether you add incremental cost to the enterprise to fill these new roles.

We haven’t added any new internal staff positions. What we’ve done in all of those areas is to have existing people engage as best they can on a catch-as-catch-can basis. The problem is time management and just getting it all done otherwise, but it is what it is.

I don’t think we’re where we want to be, because we’ve got to hire somebody. As much as I try to do it, I’m just too busy.

Clearly, this trend is growing and evolving quickly, especially in relation to pricing.

 

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.

 

March 19, 2014

Research update: Contract attorneys and outsourcing, Part 2 of 2

In Part 1 of this series we focused on successful uses of contract attorneys and outsourcing, but not all experiments in this area have ended happily.

Some failures

Some participants reported that their experiments in the area had been failures:

Although we haven’t given up on them, we’ve not been successful in using lower cost associates, contract associates, or alternative track associates that give us a lower cost. There was a time when we thought that existing associates might like it if we took the demands of being on the partnership track off them, gave them a lower salary, and charged a lower rate for their work. The reason it hasn’t succeeded probably has a lot to do with people thinking they’re in the realm of second-class citizenship. Now we have more of a focus on hiring people who have the expectation of not being on the partnership track. But I think we labored under the misimpression for a couple of years that it was something that may be attractive to our existing associates.

We had a two-year experiment with the use of contract lawyers in India to lower costs. It failed.

As a result of our client interviews, we heard a lot of clients complain about our competitors who use contract lawyers. Probably the most common complaint is that they are not well managed or well supervised and that the quality of the work is extremely poor. So while the price may be low, so is the value.

Some still on the fence          

We haven’t committed to it big-time yet. I think we’re open to contract attorneys. We know what the ethical standards are. For example, say we want to use somebody from India. We’ve studied what our ethical obligations are, and we know we’re going to meet those ethical obligations. Are we at the point yet where we’re ready to do a lot? No, not yet. But we are seriously considering coming up with a new category of attorney who is not on partnership track, who would be considered a contract attorney. We’re talking about hiring some younger kids and maybe bringing them in for three years as sort of an apprenticeship program, paying them less, billing them out at less, and letting the winners rise to the top.

We have some lower cost offices where it might make sense to do some of our commodity price work more efficiently and build a little warehouse of attorneys who can kind of churn through the high volume stuff, but we haven’t done anything like that yet.

Clearly, the idea of lowering costs through contract attorneys and outsourcing is here to stay. Although contract attorneys and outsourcing account for just a small percentage of annual law firm work, they can have important implications for a firm’s flexibility and bottom line. Like other tactics described in this chapter, this can lead to greater efficiency, client satisfaction, and profitability.

However, everything has costs and risks, and outsourcing work raises a number of new management challenges. On August 3, 2011, the Wall Street Journal published an article entitled “Objection! Lawsuit Slams Temp Lawyers.” It reported on a case in which:

J-M Manufacturing alleges that McDermott Will & Emery failed to adequately supervise contract attorneys who inadvertently produced privileged documents to the government… While this may be the first eDiscovery malpractice lawsuit specifically dealing with the lack of supervision of contract lawyers, it surely won’t be the last.

As of this writing, that case has not been resolved, but it has focused attention on the need to manage contract attorneys and outsourcers to assure high quality.  (For more on the topic, see our 2 blog posts on Managing Outsourcing and eDiscovery.)

March 12, 2014

Research update: Contract attorneys and outsourcing, 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.

One tactic that many law firms are experimenting with to lower cost is simply to pay less to get the work done. This can be accomplished by directly hiring lower-cost contract attorneys or by outsourcing this function to a growing number of legal process outsourcing firms such as Axiom, Pangea3, and Novus Law.

There is considerable evidence that this trend is growing. In their 2014 Client Advisory, Hildebrandt Consulting and Citi Private Bank reported that in the 10 years from 2002 to 2012, the percentage of “temporary/other” lawyers in large firms grew from 2.4% to 6.1% (p. 7).  The report also noted that “In the Law Firm Leaders Survey, 82% of respondents answered that they are using temporary or contract lawyers. Additionally, 70% responded that they are using permanent, lower cost, non-partner track lawyers” (p. 6)

In our sample, 97% of the firms who discussed this issue had used contract attorneys who were paid as little as $30 per hour, and 59% had experimented with outsourcing, which can be even cheaper. About one-third of the firms are planning to increase the work done this way (31% for contract attorneys and 36% for outsourcing).

Some successes

These experiments have taken a variety of forms, some more successful than others. Here are a few of the examples mentioned by our participants:

Our staff lawyer and e-discovery business has been very successful for us, and very, very profitable.

We’ve had a discovery center alternative staffing model for a number of years. It used to be just for litigation. Now we probably have over 300 clients that run through there. It’s used for everything from government investigations to contract reviews, real estate projects, and M&A due diligence. One of these days, we’ll probably open a second center somewhere else, because we’re at capacity.

We have a contract counsel manager in our firm. We have both direct hire and indirect hire contract counsel. For indirect hire contract counsel, we have relationships with various staffing firms, for large due diligence document review and e-discovery type projects. But we also have our direct hire contract counsel program, where we hire principally alums: people who have dropped out of the regular work force to raise a family or for health or other reasons, but want to do some work. They’re fine lawyers. We developed what we call our “law firm in a box.” We can drop an office into their home. It has a voice over internet phone with a black box computer attached to the back of it. All they have to do is plug the keyboard, terminal, mouse, and printer into the phone, plug the phone into a high speed internet connection outlet in their home, hit a button, and they are a firm office. They can work from home with full functionality.

We have implemented what we call staff attorneys. We are crawling before we walk. We have probably hired eight staff attorneys over the last two years. We really want it to succeed, and so we’ve been careful. Ironically, we’re probably more careful in hiring those people than we are with our full-time associates. But I think we’ve had a good success, and relatively good acceptance among the partners of the concept, such that we will continue to roll it out over time.

We were recently involved in a large project where there were probably 40 to 50 contract attorneys. They were paid $30 an hour. But it is a challenge to align these lawyers’ expectations with reality. Not everybody is going to be on a partnership track, even if they’ve done extraordinarily well in law school, and even if they do very, very well in the law firm. Our goal will be to assure people that they have a future, set expectations, define their career path, and deliver on it. All of these goals will need to make sense inside each firm’s model. Figuring out the correct model for your firm will help in delivering value to clients, but it will be one of the toughest challenges the industry is going to face going forward.

We have non-partnership track associates who have a flexible schedule. They are employees, but they bill at a lower cost. Economically, this is incredibly sensible and works well. But one of the challenges of having non-partnership positions of people who are paid at a lower salary and having them housed in the same place as people who are making high salaries, is that you have some retention issues and morale problems.

You have to manage it properly. As with all tools, it’s not right for every job. But we do use them in areas where the work is more repetitive, and in the areas where I’m sure everybody uses contract lawyers – for outsourcing, for discovery review, electronic discovery, management, all that sort of thing.

Next week, in Part 2 of this post, we will quote some senior managers who have been less enthusiastic about this approach.

 

February 26, 2014

Book review: Law Firm Pricing

In the current competitive environment, many law firms are struggling with three key questions:

  1. Pricing: How do I bid high enough to make an acceptable profit, but low enough to get new work? 
  2. AFAs: When are non-hourly alternative fees best?
  3. Managing: After I set a price, whether AFA or hourly, how do I manage the work to make a profit?

Based on the data we are currently analyzing in our study of Client Value and Law Firm Profitability, most firms are making a lot more progress on the first two questions than on the third.

The new book Law Firm Pricing: Strategies, Roles, and Responsibilities provides a guide to this progress.  It was written by two of the leading pioneers in this new field – Toby Brown of Akin Gump and Vincent Cordo of Reed Smith – and provides an excellent overview of the current state of this rapidly evolving area.  (Full disclosure:  Vince has been a LegalBizDev client for the last few years.)

This book should be required reading not just for pricing directors and their staffs but also for managing partners, executive committee members, and pretty much anyone who wants to understand how large law firms are changing the way they price both hourly and AFA work.

In 2012, we wrote an article for Bloomberg Law Reports entitled “The Rise of the Pricing Director.” At that time, despite extensive networking we were able to find only a handful of people who held the title of pricing director in a law firm, or performed that function. Law firms generally move a little more slowly than glaciers, but the growth in pricing directors in the two years since has been meteoric.  There is now even a blog site that tracks the names of senior managers at large firms with the word “pricing” in their title.  The total stands over 70 as this is written, and may be higher by the time you read this. 

With 20/20 hindsight, it is easy to see the reason for the rapid growth of the “pricing director” title and function. The well-documented changes in the legal profession over the last few years have placed intense pressure on profits. It is therefore not surprising that a new host of high-level executives has emerged to help law firms set their prices in a way that will help them to maintain and grow profitability.

This book is quite well written, with a notable absence of legal and business jargon. Brown and Cordo discuss, clearly and thoughtfully, the responsibilities of the pricing director; the director’s multiple roles, both internal and client-facing; the crucial importance of pricing strategy to long-term profitability; the need for data-based solutions in all contexts; and the frequent resistance of law firm partners to many of these developments.

The authors are especially incisive in their analysis of the behavioral incentives and factors that affect law firms, which are after all made up of human beings:

Lawyers live in a reputation world, and [financial] monitoring exposes that reputation to risk. Once lawyers realize that others in their firm can see their financial performance on matters, their behavior often changes. In one example, a lawyer was losing money on the first phase of a fixed fee arrangement. Once a monitoring program was put in place, performance on the second phase dramatically changed – leading to a reasonably profitable result. (p. 39)

They are also extremely thoughtful about the role of technology in today’s law firm and about its limitations:

The core systems of a law firm – the client database, document database, financial database, and people database – all stand alone. Getting data from one to another is very difficult. Therefore, understanding which clients are buying specific types of services, the staff resources committed to resolving the legal challenges, as well as the profitability of the effort, is a significant challenge. (p. 50)

This wouldn’t be much of a review if we didn’t find something to criticize, and there are a number of places where we wished the discussion went deeper.  For example, Chapter 3 – Pricing and Profitability – begins with a two page introduction to how profits are defined differently by different firms, a topic that we think requires far more detail, including the implications of different definitions of realization (which many lawyers confuse with profit) versus cost accounting and other models.  Lawyers will never agree on how to become more profitable if they don’t first agree what the word means.

Another problem can be seen in the book’s discussion of “four drivers of profitability”:  rates, realization, productivity and leverage.  Leverage is defined “as the percentage of partner time worked per matter or per client” (p. 18).  The authors go on to argue that:  “The basic economic concept of leverage is that the more workers work, the more owners (partners) benefit. Workers generate the profits that pay partners. Therefore, the more work is pushed down to them, the better leverage you have and the more profit is generated (p. 19).”

That is certainly how firms thought about profit under the “old normal” pyramid model, but the world has changed.  For example, in a fixed price environment, efficiency is king, and leverage can lead to higher costs and more unbilled time.  Suppose a $1,000 per hour senior partner can solve a problem in one hour, but a $300 per hour associate will require ten hours to come to the same answer.  If the firm is paid the same fee regardless of who does the work, it is obvious that solving the problem at the unleveraged partner “cost” of $1,000 is more profitable than at the leveraged associate cost of $3,000.  (Of course, billable rates are really not a cost, but let’s keep it simple.) 

In a post I wrote in 2009 entitled the “Law Firm of the Future,” I quoted Fred Bartlit, founder of Bartlit & Beck, as noting that to maximize leverage “some big firms traditionally hire over 100 new associates per year, and that most leave within a few years.  This means a significant portion of the firm’s workforce is inexperienced.  ‘Who cares? Their inefficiency is billable,’ he said.  ‘In the future, the ideal firm will be underleveraged with about 50 partners and three associates in training.’”  Thus, in Bartlit’s view of the future, leverage is not a driver of profit, it is a driver of loss.

But enough quibbling.  Discussions like this can get very complicated very fast, and it may be years before law firms reach a consensus.  So this criticism of the profitability chapter says more about the state of the art of pricing than it does about the book.  I am hoping that in a few years Toby and Vince will write a second edition with the expanded explanations we are waiting for.   

In the meantime, the practical experience of these two industry leaders places them in the forefront of critical changes in the legal industry, and they have written an extraordinarily valuable book.

As they summed it up: “From the authors’ experiences, the pricing director role has been very challenging, but quite rewarding. It exists at the vanguard of change for an industry in desperate need of it. . . . The last word on legal pricing is that it is a roller coaster ride and nobody is sure yet exactly how it will end.” (p. 2)

 

This post was written by Jim Hassett and Jonathan Groner.

February 19, 2014

The most successful business development program we’ve seen: The case of Adams and Reese (Part 4 of 4)

To fully understand the success of the Adams and Reese coaching program, there is one more factor that cannot be ignored: the firm’s ability to deliver the kinds of legal services that clients are looking for these days.

An extremely important ingredient in sales success is having a product that people want to buy. You’ve probably heard the cliché that a great sales person could “sell ice to Eskimos.” But when the Gallup Organization reviewed 40 years of research on sales (in the book Discover Your Sales Strengths), they found evidence that “a good salesperson can sell anything” is a myth. No matter how talented the sales person may be, or how well they are coached, they will not get rich selling Betamax recorders or 3.5-inch computer disks.

These days, what most legal clients want to buy is value, They want the same high quality legal services they have been getting for years, but they also now expect firms to be creative, transparent, efficient, and cost-effective. As a regional firm with more than 300 lawyers but significantly lower overhead than name brand firms based in cities like New York, Chicago, and Los Angeles, Adams and Reese is in a very good position to offer the kind of value that many clients are looking for.

A few months ago, the Wall Street Journal blog posted an article with the headline “Smaller Law Firms Grab Big Slice of Corporate Legal Work… Midsize Firms Nearly Double Share of Big-Ticket Litigation.

The data behind the headline is described in a Harvard Business Review HBR Blog Network post which was co-authored by Firoz Dattu, the founder of AdvanceLaw, “an organization helping its general counsel clients identify top lawyers at firms vetted for quality, innovation, efficiency, and client service.”

AdvanceLaw clients include companies like Google, Deutsche Bank, NIKE, Nestle, Starwood Hotels, 3M, Mastercard, eBay and McDonald’s, all of whom are looking to lower costs and increase efficiency.

At this time, only 10 law firms in the United States have been vetted to belong to this value providing network. Adams and Reese is at the top of the list on the AdvanceLaw web page. (All right, it’s in alphabetical order, but still…)

So you could say that another reason for the success of this particular coaching program was that as a growing regional firm, Adams and Reese was well positioned to provide the high value services that clients are demanding these days. (Not all firms are so lucky, which is one reason legal project management has become so popular as a way to increase efficiency.)

At the end of the day, developing new business ultimately comes down to understanding what clients want, and giving them just a little more. Derek Anchondo, an Adams and Reese special counsel who does transactional work for oil and gas clients in the Houston office, agreed. As a former in-house counsel himself, he often sees things from the client perspective. Business development coaching helped him sharpen this perspective and frame it in a way that gained the trust of prospective clients.

“When you go into a client meeting, you need to be totally prepared to hear the client’s point of view,” Anchondo said. “Just listen. Don’t go in with a forceful sales pitch right away, just let them talk. You can learn so much by listening.”

Anchondo learned that sales progress is possible only after learning the prospective client’s needs. Then – and only then – can he decide which members of his firm might best meet those needs

“We wanted to build work from one particular client, and we realized that our challenge stemmed from their existing relationship with a different law firm,” Anchondo said. “My coach and I brainstormed ideas. We had four or five meetings, and I familiarized them with our fees and services available in the Houston office. Now they are thinking of expanding their work with us to include tax and OSHA work. It took that many meetings to swing the pendulum, but the approach worked.”

No matter how you do it, business development simply takes time. Many law firms have strategic plans that call for growth, but Adams and Reese is one of the few we have seen that is investing the time and money needed to achieve their goal. The investment has already paid for itself and is continuing to produce ever higher returns.

Adams and Reese plans to continue business development coaching with appropriate lawyers in the firm.

This series was written by Jim Hassett and Jonathan Groner.

January 22, 2014

The most successful business development program we’ve seen: The case of Adams and Reese (Part 1 of 4)

Over the last eight years, we have helped lawyers increase new business throughout the US and around the world. But we are now in the middle of a business development coaching program for Adams and Reese in which the results are off the charts. This four-part case study explains why they were so successful.

The firm has over 300 lawyers in 17 offices throughout the southeast. In 2012, they implemented a new five-year strategic plan that was built around growth. According to Managing Partner Chuck Adams, “We saw a unique opportunity for regional firms like ours, and realized that to take advantage of it we would need to re-focus every lawyer on increasing client satisfaction and re-energize our business development initiatives.”

They conducted a national search for a consulting firm to help, and ultimately hired LegalBizDev to develop and deliver a customized coaching and training program.

Current plans call for at least 50 lawyers to complete coaching over the first two years of the program. This case study focuses on the 26 lawyers who have completed our nine-call coaching program so far.

The average Adams and Reese lawyer finished the program in about five months, although most legal business development takes much longer than that. We usually measure success by reporting “advances” – specific actions that move a new matter forward such as holding a meeting or getting an introduction to a decision maker. This group recorded a total of 1,669 advances, or more than 64 advances per lawyer, far above our averages with other clients.

More importantly, whenever we coach a group of lawyers, inevitably some new business comes in while we are working with them. When it does, we always ask, “Do you think this new business was related to the coaching?” If the lawyer says no, we move on. But if they say yes, we record the details in our monthly reports and make sure that everyone knows that the process is working. The most amazing thing about this group was that they reported a total of 68 new matters before the coaching even ended, or about 2.6 new matters per lawyer. The net value of this new business far exceeded the cost of the training program.

And as business continues to grow for these lawyers after the coaching, the return on investment continues to rise.

To cite just one example of how it worked, consider the case of Deb Oliver, a litigation partner based in Tampa who said her coach emphasized that the most important goal of the training was “accountability to yourself.”

“Client development is largely a game of numbers and of being in the right place at the right time. This just requires persistence,” said Oliver.

“You need to set interim benchmark goals that you can live up to,” she continued. “These can be current clients that you wish to grow, or new clients. My list of existing and potential clients was long, so I learned that the key was to use my contacts list religiously. I needed to schedule a series of calendar appointments to set times to remind these people that I exist.”

Oliver’s task was somewhat complicated by the fact that most of her clients and contacts are not in Tampa. “Sometimes for me, staying in touch involves looking six months out and scheduling trips out of town, just to get in front of people,” Oliver said. “I really had to carve out time and organize that time well. I learned how to develop tools to do this as efficiently as possible.”

Another important lesson Oliver took away was that business development “is very much about listening and understanding a client’s real objectives. Litigation clients can have many goals; you need to understand the particular goals of each individual to fulfill your duties.”

As a result of more actively initiating dialogs about client needs and satisfaction, Deb brought in several new matters which she attributed to the coaching.

In the remaining parts of this series, we’ll provide more details about how the coaching works and all the things that Adams and Reese did right to make this the most successful program we’ve seen to date.

This series was written by Jim Hassett and Jonathan Groner.

January 08, 2014

Research update: How to gain a competitive advantage

Regular readers of this blog know that for the last few months, I have been interviewing managing partners, chairs, and other senior decision makers at AmLaw 200 firms for our study of Client Value and Law Firm Profitability.  An updated description of our research approach is now on our web page, including a list of the 50 firms that participated in 30-minute in-depth confidential interviews.

Now that the votes are in, we are starting to analyze several hundred pages of typed transcripts.  The complete report will be published in May.

As far as I am concerned, the most interesting question in the study asked participants whether there was an advantage to moving more quickly than competitors to increase client value and to protect profitability with initiatives such as legal project management, knowledge management, hiring pricing directors, and using contract attorneys.

Every respondent said yes, speed matters.  Being lawyers, a third of them carefully qualified their answers to apply only to certain types of clients and situations (such as commodity work), but not a single person in our survey said no.  Here are a few of the more forceful confidential quotes from these senior partners and executives:

I think the market’s going to shake itself out. I think firms that can’t deliver more value will fail.

Lawyers are about as dumb as you could possibly be about understanding how our product is made.  The lawyers who understand how to make it, and the components that go into making it, and can manage that process efficiently are going to be the winners.

I know that the cynical view would be this is just “the flavor of the month.”  But just from a pure business and economics discipline standpoint, it only makes sense that of course they will have a competitive advantage.

I think the firms that are most effective are going to do well, and I don’t think everybody will survive. In the last several years, there have been several firms that went away. And I believe that’s going to continue.

It’s all about differentiation. There are lots of lawyers out there who can do great legal work.  But the real issue is, how do we deliver better value to our clients?

If lawyers think speed is so important, are most moving quickly?  No.  In our sample about half have not started moving at all.

When I asked the question:  “In the last five years, what percent of the lawyers at your firm have started to change the way they practice law to provide more value while maintaining profitability?” the average answer was that 51% have started.  The other 49% are still operating exactly the same way they did in the very different legal marketplace that preceded the great recession of 2008. 

More interesting than the average was the variation between firms.  At one end of the continuum, the lowest reported that only 5% had started, and at the other end, two firms reported 100%.  But the key word here is “started.”  As the managing partner of one firm put it:

I think 100 percent of them have started to change the way they practice, because we make it such a feature in everything we do and everything we talk about that it’s sort of impossible for anybody to be here and not have changed somewhat. I think, however, that the upside is still very high, and very few, have changed enough that they can fully meet client needs. I think probably a few have, but less than 10 percent.

To sum it up:  law firm leaders believe that moving quickly to implement legal project management and related changes will provide a valuable competitive advantage in a very challenging environment.  But most are moving slowly.  Why?

Anyone who has ever worked at a law firm knows the answer.  The very organization of law firm partnerships and committees makes it hard to act quickly on anything.

One of the firms that is most widely recognized as a leader in the “new normal” is Seyfarth Shaw.  In 2012, several years after starting their SeyfarthLean initiative, chairman Steve Poor wrote in the New York Times DealBook:  “Never underestimate the resistance to change from lawyers… The continuous move forward takes persistence and, perhaps, a bit of stubbornness.” 

So far, firms that are making any progress at all have already seen the competitive benefits.  Two years ago I wrote in this blog about the experience of one of the first clients for our LPM just-in-time training program.  She reported that change had been much slower than she had hoped, but it was leading to new business, because “If you move like a turtle but you're racing a bunch of snails, it all works out in the end.”

As legal competition continues to intensify, the pace of change is accelerating and being as fast as a turtle may no longer be enough.  The good news for lawyers is that to succeed in developing new business, you just have to be a little better than your competitors.  A few years ago, most competitors were not even trying to deliver more value or increase efficiency, so they were easy to beat.  The bad news is that law firms have increased the pace, clients are watching, and the competition is getting tougher:   

Clients are getting smarter. They don’t just ask, “Are you doing anything on project management?” They’re asking, “Tell me what you’re doing in project management. Have you hired anybody? Are you training? Are you working with clients on it?” They’re asking much more detailed questions now. And if your answer is yes in general but you can’t provide details, they consider your answer to be no.

As one of our research participants summed it up:

We’re still in the beginning of the process. Some famous economists have talked about disruptive technologies and disruptive business processes. I think there’s a lot of evidence out there that the legal profession is being subjected to those pressures. Five years from now, if I turn out to be wrong, that will be great. But if I’m right, then I have to believe that those firms that adapt more quickly will have a competitive advantage, and the firms that don’t adapt quickly enough will be out of business.

 

December 25, 2013

Research update on knowledge management: Opinions are split

Next week, I will finish interviewing AmLaw 200 managing partners and senior executives for my study of Client Value and Law Firm Profitability, and in January we will begin formally analyzing the results.  But I’ve been doing a lot of thinking about the data we’ve collected so far, and I must admit that the area I am most puzzled about is knowledge management (KM).  Some of the firms I’ve interviewed have been extremely pleased with their results, and others have been very disappointed, and I am still trying to figure out why.

Part of the problem may be that there are so many approaches to KM, and even different definitions of the term.  KM is built around the idea of systematically leveraging the value of firm-created intellectual property such as documents, insights and experiences, but there are many different ways to do that ranging from informal sharing to sophisticated computer systems.

While some experts treat KM as an independent area, we see it as a key component of the larger discipline of legal project management (LPM). For example, in our LPM coaching programs, lawyers often share and improve checklists that they already have, and some of these quick wins evolve into more ambitious and formal KM efforts. At a recent workshop we conducted for the Ark Group, client John Paris described one of the sophisticated templates Williams Mullen has developed to increase efficiency: a “Road Map for Undertaking a Rule 506 Private Placement” outlining best practices for the firm’s private equity group. Similarly, as described in last week’s post, Bilzin Sumberg, another client and Ark panelist, has established an LPM sustainability committee whose mission includes identifying existing firm documents that can be used as templates for future legal projects so that professionals at the firm don’t constantly have to reinvent the wheel.

A fair number of the decision makers I’ve interviewed for my current research are in the process of expanding their KM programs. Consider, for example, these quotes from three of the interviews:

We are launching a brand new intranet here in about three or four weeks. I think it will be a game changer in a lot of ways, because we’re doing it in a way that it should improve the way every single person in this firm performs their job. We have built certain efficiencies into the program, and lawyers will have access to much more information than they’ve had in the past. It’ll be really interesting to see if we can accomplish all that we want to through this change, much of which is driven by trying to leverage our knowledge management…

 

Knowledge management has come to the fore a little bit in the last year or so, as we have heard and begun to realize that there is some value in it. We’ve had actually a pretty robust version of that institutionalized for many years. But at the practice group level now I think there’s beginning to be a greater appreciation for the value that that brings to client service… I’ve seen some progress on the understanding that our internal work product has some value and can be shared and leveraged more than we have been accustomed to doing, and that you can bring that to bear for more efficient client service.

 

We’re starting to do more knowledge management, with the expectation that it will improve efficiency and allow us to deliver the same legal services in a more cost-effective manner.

 

But will they get the benefits they are looking for? Some firms certainly have, as you can see in these quotes from three other firms that are further along in their KM efforts:

Knowledge management has been very, very positive for us… We have 12 attorneys in a firm of nearly 1,000 that just do knowledge management. So we’ve spent a lot of time there.

 

We’ve been at the knowledge management business for years… Our corporate group, our funds group, and our private equity group have done an especially good job.

 

We have brief banks, and we have form files, but we may need to accelerate our efforts there to keep up in terms of innovations and the way we deliver services.

 

But, on the negative side, here’s what three other firms said about their experience to date:

I think it’s tough to make a KM investment pay off, because it’s such a huge project to really maintain it, and we’re not in the widget business. We have some commoditized practices, but that’s a very small percentage of our overall work. It’s questionable whether the knowledge management model is really worth the effort.

 

We, like many other firms, have been disappointed in the knowledge management systems that have been available to firms over the past decade. The systems have not produced the productivity gains promised.

 

We put a lot of time into our knowledge management system before the lawyers working on it got frustrated because everybody had their own idea about how it should be set up. It’s very hard to get several hundred lawyers all committed to the same exact system and to put in the time necessary to make it work… We just haven’t found the best ways to make documents prepared by lawyer A easily findable and searchable for lawyer B. People aren’t going to sit down and do the type of indexing that you really need, and it’s always tweak this or tweak that, and there are still people who say, well yeah, this document was so negotiated, I don’t want anybody else to see it, and then there’s people’s general reluctance to allow access to work that someone else may criticize. We just don’t have as good a knowledge management as I know we ought to be capable of generating.

 

Exactly what’s the difference between KM initiatives that work well and those that don’t?  As we analyze the data over the next few months, we hope to find some hints.  But in our research, the KM discussions were short since this is just one small part of the much bigger picture of value and profitability.  Those who want a complete answer may have to wait for someone to do a study that focuses exclusively on KM and exactly how it is implemented at different types of firms.

As with so many things in life, the basic idea is easy to agree with:  of course it makes sense to share documents and leverage the value of a firm’s intellectual property.  But when you dig into the details of exactly how to do this, the answers get more complex and controversial.

December 18, 2013

How to sustain LPM progress: The case of Bilzin Sumberg (Part 2 of 2)

A key step in Bilzin’s LPM progress was the purchase of Thompson Reuters’ ENGAGE software to improve both initial budgeting and tracking spending. In our opinion, most of the firms who install ENGAGE or one of its competitors buy the software too soon, at a time when management recognizes the need for LPM but rank and file lawyers do not   Bilzin is one of the very few firms that bought LPM software at the right time:  after their lawyers asked for it.  The initial impetus came not from visionaries on the executive committee, but rather from a broad range of partners who had begun tracking budgets carefully, and who wanted better tools.    

ENGAGE has built-in a set of templates which break complex legal matters down into a series of smaller steps to improve planning and tracking.  Marlon Thompson, a financial analyst and member of the LPM committee, has been assigned the task of talking to every lawyer who went through the LegalBizDev coaching process to ask each of them about the templates they are already using in their day-to-day work.  He then adapts the ENGAGE templates to match the lawyers’ experience and needs.

Executive director Michelle Weber summed up the advantage of this approach:  “By the time lawyers are on ENGAGE what they’re looking at is familiar and something they liked.  This builds on one of the parts of the LegalBizDev program that I appreciated the most:  lawyers don’t have to change their world. They just have to change what they do a little bit.”

Thompson described his responsibility as support – to “help the attorneys create and adhere to their project plan, and to convert it into dollars and cents.  It’s one thing for us to say we have a budget and a plan, and it’s another thing when clients want to hold us to that.  The software tools that we have can help us do exactly that, and to minimize the costs to the client and the firm.”

Thompson said that he is the key point person for the firm in terms of training attorneys to use ENGAGE and that the firm is now going through a beta testing process.  “There is so much more to be done,” he said. “One of the key aspects is the use of phase and task codes.  This enables us to analyze our work down to the smallest possible unit. It is impossible to budget without them.”

Thompson said the firm started with the American Bar Association’s phase and task codes but added carefully tailored task codes for the firm’s practice groups, codes that are unique to the firm yet fit within the ENGAGE software.  “I am now beginning the training of the testing team of attorneys – at least one from each practice group – to develop the task codes and apply them to their work,” Thompson said.

Paul Vandermeer is also an active member of the LPM committee, and reported:  “As soon as the committee got started, I developed a document for each practice group to keep track of their use of LPM. We are now working with the groups to keep it up to date.”

KM is a very important part of that process.  “For example, the land use group has certain documents that they want created – including some saved searches that they use all the time,” Vandermeer recalled. “So I made sure to save these key searches on the intranet of our document management software.”

“Even in the library, we receive daily reports of Lexis and Westlaw usage by attorney, and we can help each attorney reduce his or her costs to the firm if he or she is not searching as efficiently as possible,” Vandermeer said. “These days, one needs to search for as much efficiency as possible in every area.”

Some examples of how all this works in the trenches came from Jay Sakalo, head of the firm’s bankruptcy and restructuring practice, and also a member of the LPM committee.

 “Let’s say we want to do a motion to lift the automatic stay in bankruptcy court,” Sakalo says. “We want to create forms to show what such a motion looks like. It’s important for us to start with a bank of such documents so that our clients don’t overpay us.”

Sakalo says his group is constantly deciding which documents – created by Bilzin attorneys or by others – should go into the firm’s document bank. These can include litigation documents or bankruptcy documents like plans of reorganization or asset sales.

“The way we work in our department,” said Sakalo, “is that everyone in the group has access to each document in the index.  But we will have a conversation before the lawyer just takes it. Before we use a document, there is a human process.”

Sakalo said that since bankruptcy lawyers usually file petitions in court to be paid for their time, they have been using task- and category-based codes for decades to substantiate the time they are claiming.  “As we move toward the use of task codes as a firm wide requirement because of the need to implement LPM, my department is looked to as a guiding light…  At the firm level, all practice group leaders now try to ensure that they maximize the use of LPM in their practice – each group in its own way because one size does not fit all,” he concluded.

What does Bilzin have planned for the future?  Partner commitment has reached critical mass, and no further coaching is required.  However they are currently considering how to train associates to continue to push the firm through the uncharted wilderness of a complete transformation to new levels of efficiency.

In terms of what they have accomplished so far, Steve Barrett, the LegalBizDev principal who coached all 26 partners at Bilzin, ended most of the coaching programs by asking for written summaries of lessons learned in key areas.   After reading all these reports, Executive Director Michelle Weber said “if I were to distill the entire program into one highlight, one thing that everyone learned and changed, it was improved communication. It sounds so simple, but improving communication with clients and within the firm is very hard, and we still have a lot of work to do.”   

This post was written by Jim Hassett and Jonathan Groner.