A blog by Joel Barolsky of Barolsky Advisors

Posts Tagged ‘client relationships’

The future of law has fewer seats for grads

In Articles, Commentary on 16 September 2018 at 10:53 am

First published in the Australian Financial Review, 14 September 2018

slide1.jpeg

The pyramid has been the foundation operating model in private practice law firms for the past century. Put simply, a typical pyramid has a partner at the top, one or two senior practitioners below him or her, and then three or four juniors below them. These ratios obviously vary from practice to practice. Leverage and utilisation of the mid and lower levels of the pyramid are the primary profit engines of most firms that charge by time.

More recently there has been much talk of the pyramid losing its bottom left and right corners and becoming a rocket. In this model, there are far fewer junior lawyers and their work substituted by a combination of technology and lower-paid process workers.

The shift towards the rocket model is being driven by both the demand and supply side. Sophisticated clients are stating that they’re happy to pay premium rates for highly-trained senior practitioners to provide strategic advice, insights and judgement, but they’re not willing to pay high rates for junior lawyers to do largely process work.

On the supply side, many NewLaw and legal technology providers have seen the market opportunity to supply legal process services directly to corporate legal departments, to SMEs, to private clients and to law firms. Catalyst Ventures estimated the global LegalTech market to be worth over $US 16 billion in 2017.

There are four major strategic implications for private practice law firms in moving towards the rocket model.

#1 The role of partner

Law firm partners will no longer get by by just being great advisors and team leaders. Project management will become a critical element of the partner role. This means partners need to become adept at configuring the most appropriate mix of legal, process and technology resources to solve a client’s problem. They need to be able to design, prepare, price and sell project plans. To manage projects effectively they will need to be both digitally and economically literate. Teaching old dogs these new tricks will be a very big challenge in many firms.

#2 Size and access to capital

Economies of scale have not traditionally been a key success factor in labour-intensive law firms. New York’s Wachtel Lipton is one of the world’s most successful firms despite being a relatively small single-office partnership.

With the addition of product, process and technology to the business model, firm size and access to low-cost capital may bring specific advantages. These include the ability to wear the risks of R&D, and the ability to invest in high-potential start-ups, technology infrastructure, marketing capability and big data. There is also a defensive argument in that if your firm can’t afford the new bright shiny toys some clients might stop playing with you.

#3 Recruitment and development

Screen Shot 2018-09-16 at 10.50.44 am

Source: strikingly.com

The pyramid model creates a “tournament” where a large group of aspirants start at the bottom and are encouraged to beat their peers on the way up. The rocket model potentially changes the game with far fewer recruited at the bottom and a philosophy of retention rather than competition. It also challenges the apprenticeship system of learning and development.

Firms will need to make profound strategic choices around whether they ‘make or buy’ talent. If clients are not prepared to pay for junior development and apprenticeship, then some firms may prefer just to poach mid-level staff trained by others. However, this free-rider approach may negatively impact firm culture and ultimately drive up labour costs.

#4 Pricing and measurement

Imagine your firm offers a new compliance solution for its clients that incorporates legal advice, training and a suite of software tools. You cannot bill for the software tools using hourly rates. Charging for the training by the presenter’s time severely undervalues the IP. Tracking staff utilisation in this scenario would not only be meaningless, but dangerous.

It is clear that time-based pricing will be less prevalent in a talent + data + technology world. New pricing models will be required to set, communicate and capture value. This will include things like user license fees, subscriptions and incentivised retainers. What constitutes a “fair price” will become more complex, and need to factor in development costs and risks, IP fungibility, the scale and scope of application, and duration of benefit.

Measurement will shift away from input measures like utilisation towards more outcome measures like client results and clients’ propensity to refer.

In conclusion

The rocket model scenario poses some profound challenges but it also presents many significant opportunities. There is clearly a benefit to be ahead of the curve in thinking through these issues and shaping your future. Not only it is critically important, the journey to becoming closet astronauts can be quite fun.

 

 

 

10 ways to describe the Client Relationship Partner (CRP) role

In Articles, Commentary on 29 August 2018 at 11:41 am

Client Relationship Partners or CRPs are responsible for the overall success of the firm’s long-term relationship with each key client. Listed below are 10 different ways to describe the CRP role each with its own nuance and emphasis. These descriptions are useful in creating clarity in expectations, CRP selection, capability development and accountability.

Screen Shot 2018-08-29 at 11.05.58 am

Source: strikingly.com

#1 The firm luminary and client advocate

The CRP faces outward and represents the firm to the client. At the same time, they face inward to ensure the voice of the client is heard and client’s interest are appropriately served. Read David Maister’s famous post to dive deeper into this job description.

#2 The pedestal seller (aka the Tinder Tactician)

The CRP networks actively within the firm and the client organisation, and brokers new relationships. They put colleagues and client contacts on a pedestal and talk them up wherever they can. They start their day by thinking about who they can introduce for mutual benefit.

#3 The strategic account leader

The CRP has the primary role of leading the team of practitioners and functional specialists servicing the client. As with any leadership role, their job is to set direction, communicate the strategy, inspire, motivate, cajole and align the various constituencies to execute this strategy. They span across formal organisation boundaries and facilitate collaboration in the core client team and with everyone in the broader client community. This job is made especially difficult in professional service firms because they usually have signifcant responsibilities without formal authority. They typically would have an internal network map looking like Partner 2 from Heidi Gardner’s recent research:

Screen Shot 2018-08-29 at 10.22.06 am

#4 The planner

The CRP documents a clear set of activities that will help build a successful firm-client relationship over the short-, medium- and long-term. Their plan may look something like this:

Screen Shot 2018-08-29 at 10.11.05 am

#5 The front-door

The CRP is the client’s first point-of-contact and the key person to address any service failures or concerns. They help redirect work to the most appropriate person within the firm that can service their need. They help make the client’s experience frictionless and engaging. This CRP role is a little more passive than the other models described, but it may suit a ‘care and maintain’ relationship that has little profit growth potential.

#6 The rainmaker

The CRP’s job is to maximise revenue and profit from the account. Full stop.

#7 The co-creator

The CRP facilitates the process of aligning the client’s strategic needs with the firm’s capabilities. They explore in some depth the client’s critical problems and opportunities and help bring together integrated bespoke solutions often involving multi parties, technologies and vendors. The CRP’s role would be to understand deeply the key elements that create value for the client. Page 1 of their client plan would be Bain’s 40 elements model applied to their key client:

Insurance-elements-infographic

#8 The intrapreneur

Most relationships need ongoing renewal and inspiration in terms of product, process, people and pricing. The CRP role is to generate new ideas that add value and help get the best ones implemented.

#9 The elder

The CRP role is that of senior door opener, shmoozer, steward and repository of institutional memory. The role is less hand-on in terms of day-to-day account management but they do what’s necessary to influence key decision-makers and help win major new projects.

#10 The relationship choreographer (MY PREFERENCE)

The CRP orchestrates a set multi-lateral connections, value exchanges and mutually beneficial projects. They work internal and externally, strategically and tactically, short-term and long-term. The CRP brings the best of the firm to the client; and the whole of the client to the firm. Their job to drive the pink process to win more blue:

Screen Shot 2018-08-29 at 10.14.25 am

10 questions for your PLAN B

In Commentary on 1 June 2017 at 8:04 am
52eaec9e26b7f8374633e6086e2e7d5b

Source: CoffeeStencil

MY 50th BLOG POST…

What’s your firm’s PLAN B?

PLAN B addresses the scenario of your firm primarily selling talent, to selling a combination of talent, technology and data. It means moving from the pyramid to the rocket business model (read this BCG report if you don’t know I’m talking about). It’s about the digitisation of professional practice.

These 10 questions may be helpful in crafting your PLAN B:

#1 How big do we need to get?

Economies of scale have not traditionally been a key success factor in talent-heavy professional services. One shining example of this is Wachtel Lipton Rosen & Katz, which is one of the world’s most successful law firms despite being a relatively small single-office partnership.

With the addition of technology and data to the mix, there may be specific advantages that larger firms may have over smaller rivals, including…

  • deeper pockets, that is, the ability to wear the risks of technology-related R&D, software and start-up acquisitions;
  • bigger footprints, that is, the ability to deploy new technology in more relationships and in more markets; and
  • more data, that is, the ability to develop better analysis, insights and products.

Small may be more nimble and cosy, but if you can’t afford the new bright shiny toys clients might stop playing with you.

#2 What’s our dividend policy?

Be they partnerships or incorporated entities, many traditional professional service firms tend to do more handing-out than hoarding when it comes to profits.

The “cash burn” phase of new technology acquisition is generally much longer than that of new talent. It took Amazon over 20 years to turn a profit. Firms need to re-align their dividend policy and balance sheets to suit their business models. Without patient capital, firms won’t be able to invest in or acquire the new tools necessary to compete.

#3 How do we (re)structure ourselves?

The rocket model raises a range of interesting organisational design issues:

  • Do we keep the suits and skivvies separate or together?
  • How do we structurally protect the core traditional business, while we invest in creating the new?
  • Is there a structural solution to the problem of improving the digital literacy and experience of everyone in the firm?
  • Do we structure our new firm primarily around practices, processes, products or technologies?
  • Do we separate sales from delivery?
  • How far do we locate the laboratory from the surgery?

#4 Who can become a partner in our firm?

Most firms see “multi-disciplinary” as adding more work types or professional disciplines. With the onset of the rocket model, this definition might need to widen to include designers, technologists, project managers, marketers and sales engineers. It is interesting to note that Herbert Smith Freehills (HSF) recently appointed the head of their ALT business as an HSF partner.

#5 What do we measure?

David Maister’s profit formula (Leverage X Hourly Rate X Utilisation X Margin) has been the foundation of measurement (and therefore reward), practice management and pricing for the past four decades. The key assumption in this model is that the core asset being leverage is human capital. With new tech-based assets and products, firms will need to radically transform what and how they measure things. To illustrate, if a firm sells compliance systems and AI tools via a subscription model, tracking staff utilisation will not only be meaningless, but dangerous.

#6 How do we price?

Time-based pricing will be less prevalent in a talent + data + technology world. New pricing models will be required to set, communicate and capture value. This will include things like user license fees, subscriptions and incentivised retainers. What constitutes a “fair price” will become more complex, and need to factor in development costs and risks, IP fungibility, the scale and scope of application, and duration of benefit.

#7 Who are we competing with?

In 1960, Ted Levitt published a brilliant HBR article called Marketing Myopia. He cited the example of US railway companies going out of business because they defined themselves as competing in the railway rather than in the transport industry. In a world, where the client solution includes a combination of talent + technology + data, your biggest competitor may not be the lookalike firm three floors up, but rather the software vendor who is using your firm to iron out bugs before attempting global domination going directly to your clients.

#8 Which clients do we say ‘no’ to?

There is a general trend towards more co-created integrated solutions between firms and their clients. In this environment, firms may be forced to choose target clients, not on size, scope or sector, but rather on systems sophistication and complementarity. One could imagine a very progressive firm not being able to service clients who were technology laggards. Platforms and standards could equally determine relative client attractiveness.

#9 How do we adapt our talent pipeline?

The pyramid model creates a “tournament” where a large group of aspirants start at the bottom and are encouraged to beat their peers on the way up. The rocket model potentially changes the game with far fewer recruited at the bottom and a philosophy of retention rather than competition. It also challenges the apprenticeship system of learning and development.

On the plus-side, the rocket model opens up a number of new career pathways and facilitates a more diverse talent pool.

At more senior levels, the prerequisites for partner promotion might need to shift to include digital literacy, project management and solution integration. Partners need to be able to supervise people who are not like them. They also need to be able to align clients’ needs with the firm’s full talent + technology + data offering and be confident in selling it.

#10 What kind of culture do we want to become?

Many professional service firms have technical excellence as the dominant cultural norm. In the end, it’s scarce specialist knowledge, advice and skill that clients are willing to pay for. In changing the business model, firms need to question the kind of culture they’d like to become and what constitutes “cultural fit”. The new culture could be anchored around things like…

  • the client experience,
  • the client relationship,
  • navigating change,
  • digital literacy,
  • experimentation/innovation,
  • collaboration, or
  • operational excellence.

Your next strategy workshop

Rather than focussing on reviewing or tweaking PLAN A in your next strategy workshop, run an “alternative futures” session and flesh-out your PLAN B. As stewards of the firm, you owe it to your partners to have thought through these possible futures and your contingency plans. An expert independent facilitator would add considerably to the discussion. Call +61 417 305 880 to speak to one.

Are your practice groups primed to win?

In Articles, Commentary on 26 April 2017 at 8:23 am

If each of your practice groups is primed to win, then there’s a pretty good chance your firm will win as well.

With this in mind, there’s much benefit to be derived by assessing all of your practice groups on two dimensions:

  • A winning strategy – from strong to weak, and
  • Execution capability – from strong to weak.

 

Illustration of portfolio map – not real data

 

If most of your practice groups are in the weak-weak quadrant, perhaps it’s time to take that call from the headhunter. If all the groups are strong-strong, don’t change a thing! If you have a mix of everything, it’s time to get to work…

A winning strategy

There is a range of factors to take into consideration to assess whether a practice group has a winning strategy for the next three years:

  • Does the practice have clear aspirations to win? Is there a stretch intent?
  • Are they competing in sizeable, growing and profitable market segments?
  • Does the practice have a compelling value proposition, that is, clear reasons why clients should choose them over others?
  • Does the practice have a profitable and sustainable business model? Bonus points if the model is scalable.
  • Is there a Plan B if non-traditional competitors strengthen?
  • Are there pilots and experiments in place creating options for future growth?
  • Is there a clear implementation roadmap with accountabilities, measures and timing?
  • Is it clear what they say ‘no’ to, and why?

Execution capability

On paper, the practice group might have a world-beating strategy but it may not have the skills, resources and systems to implement it.

a cup of coffee on the wood table.cafe latte with tulip latte art pattern on the wooden background.

Source: fotolia

The first, and most important, the question is whether you have the right practice group leader. Is she a true leader or merely a convenor? Does she lead or just manage? While she might seek to lead, does she have loyal followers? Does she have the ability to inspire and support team members to be their best? Is she strong enough to stand up to the recalcitrants?

Other questions to ask around execution capability:

  • Is the team a real team or just a loose coalition of colleagues?
  • Does the team generally follow-through on their commitments?
  • Does the team own its strategy and take accountability for it?
  • Does the team have the right talent necessary to win, now and in three years time?
  • Does the group have access to the right technology, processes and systems to underpin its business model?
  • Is there sufficient open-mindedness to adapt to new inventions and work methods?
  • Are there mechanisms in place to regularly review progress and tweak their plans?

The portfolio

While it’s important to assess the competitiveness of each practice, there’s also a lot of value in assessing the inter-dependencies, synergies and gaps across the portfolio. Another portfolio overlay is the amount of partner equity allocated to each group and expected ROE (return on equity).

A review of the portfolio should indicate which practices require investment, divestment or just be maintained. Handling the politics of these decisions is a topic for another post, or three.

In conclusion

While a firm is more than just the sum of its parts, the parts play a critical role in sustaining success. Your firm’s strategy needs to reflect firm-wide themes like overall market positioning, culture, brand, strategic clients, talent, R&D, infrastructure and support. It also needs to deep dive into the practice portfolio, making sure each plays its part and leverages the strengths of the whole.

%d bloggers like this: