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When Google Comes to Legal

In Articles, Commentary on 10 June 2019 at 10:02 am

Full text of op-ed that first appeared in The Australian Financial Review on Friday 7 July 2019.

The ‘legal supply chain’ can tell us a lot about the future for lawyers – and how much technology will disrupt the industry.

Will they become middlemen for technology providers?

Will the race to provide operations software yield a winner with extraordinary leverage over the legal sector?

Original AFR article

Traditional law firms have been at the core of the supply chain for well over 150 years. In-house legal has a phenomenon of the past 30 years. Law companies – those providing legal process specialists, managed services and contract lawyering – have become a force over the past five to seven years.

Legal technology providers are the newest kids on the block, but the growth has been remarkable. Stanford Law School’s TechIndex points to 1,051 legal tech startups across the globe since 2016, all wanting to be part of the supply chain.

There are six broad entities that are involved in the delivery of commercial legal services in the modern era; the law and legal system; legal technology, algorithm and data providers; law firms and law companies; in-house legal; client organisations; and end-consumers.

Not all legal services involve all six entities, many don’t follow the chain sequentially and some services start and end at different stages. However, its still a useful conceptual framework for those who don’t’ have a crystal ball.

Many lawyers will become value-added resellers

Fast forward five years and legal technology will have matured to the point that it will become integral to legal advice and delivery. Many commercial lawyers will become value-added resellers of sophisticated technology developed by third party vendors.

To illustrate, Contract Probe software allows users to do a comprehensive review of draft NDA, service, supply, consultancy, IP license or employment contracts within 60 seconds for a fixed fee of $100 or less. Created by former Allens TMT partner, Michael Pattison, Contract Probe generates an overall quality score out of 10, highlights key omissions and errors, and makes suggestions for improvement. Contract Probe uses a machine learning approach which means it gets better each time it is used.

In this world, there will be fewer junior lawyers doing the grunt process work but a greater demand for the ‘human’ elements in the client-lawyer exchange, i.e. empathy, problem-solving, creativity and judgement. Competing as a reseller will require lawyers to have a profound understanding of how the technology works, and how it doesn’t. They will also need to get a lot better at pricing their service to capture value beyond charging for their time. Resellers will live or die based on the depth of their client relationships and their ability to be true trusted advisors.

Powerful platform providers will emerge

PwC and KPMG both recently announced collaborations with Australian providers of legal operations software for in-house legal teams. This SaaS technology provides a single scalable low-cost solution for in-house lawyers to transact with external counsel, manage internal workflows, prepare and store documents, service internal clients, communicate value to the C-suite and stay in control of their budget. While this software has been around for a while, attaching it to the world’s most powerful B2B brands with deep change management expertise is a gamechanger.

Fast-forward ten years and one of the Big 4, or another provider like Elevate or Xakia, will have won the battle to be the dominant platform for in-house legal teams. They will have unrivalled data around law firm performance, pricing, client satisfaction, in-house productivity and a myriad of other benchmarks. They will own the screen of every in-house lawyer giving them extraordinary influence and leverage along the entire legal supply chain.

In this future scenario, the Big 4 winner will become the intermediary that premium law firms, law companies and technology vendors have to deal with. They won’t compete as clones of traditional firms but rather as Google of the legal world.

A single platform will most likely lower transaction costs and improve choice, quality and responsiveness for client organisations. It won’t displace or disrupt incumbent law firms, but it will most likely reduce their relative bargaining power.

It is worth noting that data security and legal conflict concerns are major obstacles in the way of a single legal operations platform developing. Notwithstanding these issues, the momentum for change in the ‘more for less’ era is significant.

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Stop trying so hard to be different

In Articles, Commentary on 6 May 2019 at 4:33 pm

Full text of op-ed that first appeared in The Australian Financial Review on 3 May 2019.

99% of Australia’s full-service law firms have a strategy based on seeking clear market differentiation. In my view, they’re largely wasting their time and money.

AFR Legal Affairs op-ed

Conventional strategy thinking suggests there are two sources of sustainable competitive advantage: [1] having the lowest cost, or [2] differentiating from competitors on things that matter most to customers. The former strategy allows firms to win by having greater price-setting discretion. The latter strategy allows firms to extract a price premium for added benefits.

When it comes to the legal market, this theory starts to get a bit wobbly.

Research shows that while most law firm clients can distinguish firms between groups of firms, such as Tier 1 versus Tier 2 or domestic versus global, they really struggle to clearly discriminate between specific full-service firms within a group. To clients, many of these firms look and feel the same.

One of the reasons for this is market fragmentation. Unlike most industries with three or four dominant players (think airlines, grocery retail or banking), the Australian commercial legal market has nearly 30 firms claiming in some way to be leaders in legal expertise and client focus. Australia’s largest law firm by partner number, HWL Ebsworth, has less than 5% share of the total market. Carving out and keeping a unique and relevant market position in such a crowded market is next to impossible.

Another reason for a lack differentiation is a self-inflicted one. Most full-service firms present themselves as being all things to most people. Within the partnership model it’s political suicide not to give every partner a guernsey in describing what the firm is really good at.

So, what’s the solution?

The first part of the answer is to worry less about being known for being different and focus more on just being known. Strong brand awareness still counts in opening doors and staying top-of-mind.

The second part is to encourage more differentiation at the practice, partner and/or product level. With a more micro approach, differentiation usually come from legal specialisation combined with a focus on a particular market segment or industry. So, for example, a general commercial litigation team can distinguish themselves by positioning as class action defence specialists for ASX200 companies.

The third element is to concentrate firm strategy on how the firm competes. ‘The how’ refers to the resources, skills, standards and systems used to win. These are collectively called capabilities, or as Pier D’Angelo, Allens’ Chief Strategy Officer, calls them, the organisation’s “muscles”.

Most full-service law firms need work on these five muscle groups and the inter-play between them:

1. Firm and team leadership – setting and aligning everyone around a clear direction; inspiring others to meet/exceed expectations; and providing support with accountability.

2. Talent management – recruiting, developing, engaging and retaining the right workforce for the firm to flourish, both now and in the future.

3. Winning work and capturing value – developing trusting relationships with clients and referrers; converting more of the right opportunities; and pricing profitably.

4. Collaboration – shifting the mindset from ‘my’ to ‘our’ client and combining expertise from inside and outside the firm to solve clients’ wicked problems.

5. Operating with discipline – having an efficient and effective operating platform; ensuring adherence to agreed policies; executing plans consistently; and optimising leverage and utilisation.

Spending more time at the law firm gym will, over time, create a form of cultural and operational distinctiveness. Paradoxically, this will most likely be reflected externally and create a firm that both top clients and top people will want to work with and for. They will be authentic points of difference not created by spin doctors but radiating from a firm truly fit for the future.

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account planning, business, change management, client relationships, culture, growth, innovation, key account management, marketing, planning, professional service firms, strategy management

What’s your Collaboration Agenda?

In Articles, Commentary on 19 October 2018 at 9:11 am

The benefits of deeper collaboration within professional service firms are well documented. One practical idea to advance implementation is to get each practice group to complete their Collaboration Agenda.

Here’s an Agenda planning template (with a worked example) for you to use and adapt:

Screen Shot 2018-10-19 at 8.42.11 am

‘Top-down’ and ‘Bottom-up’

I observe that collaboration opportunities are identified both the centre and within practice group themselves. As such, it useful for the FIRM’s leaders to have the first attempt at listing collaboration opportunities, and then for PRACTICE GROUP’s to respond by adding to and refining this list.

Source: strikingly.com

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business, business development, client relationships, culture, growth, innovation, internal collaboration, marketing, planning, pricing, professional service firms, Sales management, strategy management, Training

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.

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

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account planning, Audit, business, business development, change management, client relationships, culture, growth, innovation, internal collaboration, key account management, marketing, pricing, strategy management

Transitioning your low-profit clients, aka saying 4Q to the Q4s

In Articles, Commentary on 11 May 2018 at 1:21 pm

“Manage customers for profit, not just sales”, recommended Harvard’s Benson Shapiro in his famous HBR article way back in 1997. Three decades later, many law and accounting firms still haven’t got the message. Yes, revenue growth is really important in firms with high fixed-costs, but paying lip-service to client profitability is a major missed opportunity.

The Client Profit Matrix

Shapiro and his friends offered a useful tool to map your firm’s client portfolio. On the vertical dimension is relative price and on the horizontal is relative cost-to-serve, as illustrated below.

Screen Shot 2018-05-08 at 7.07.42 am.png

The Q1 Hi Price Hi Cost segment has those clients purchasing new-to-the-world offerings which require senior practitioner input and bespoke processes. It also includes those clients requesting full-service ‘turnkey’ solutions.

The Q2 Hi Price Low Cost segment includes those clients that think the best of you and that really value your services. Q2 also includes uninformed purchasers and unchallenging price-takers.

The Q3 Low Price and Low Cost segment are the bargain-hunters, no-frills and commodity buyers.

Q4 Low Price High Cost include those high-revenue (often labelled “strategic”) clients who leverage their bargaining power and demand value-adds, special services and reporting. It also includes the soul-destroying clients that require an inordinate amount of handholding. The third group, the ‘tail’, are very small clients that barely cover the costs of account establishment and maintenance.

The Power Axis and the Value Axis

Over time, Q4 clients are not sustainable. A special effort needs to made to move these clients closer to the value axis, the blue line in the chart where value is shared roughly equally in the exchange between the firm and the client.

The red line in the matrix is called the power axis. The part of the line in Q2 is where the firm has relative power over its client and bottom right Q4 where the client has more power than the firm.

Transitioning Q4 Clients

There are five broad strategies dealing with Q4 clients:

1. Reduce cost-to-serve – offer similar client benefits but deliver them at a much lower cost. This approach might include a combination of redesigning delivery processes, switching to lower cost resources, automation and cost-transfer i.e. get the client to do more. The banks’ strategy of shifting basic transactional banking services from retail branches to the web and smartphones is a brilliant example of this.

2. Service augmentation – create new higher value products and services and charge more for them. Part of this approach is to develop a deep understanding of which specific elements of value are important and tailor the offer accordingly (see this post for more). Branded technology companies are particularly adept at charging their customers premium prices for new models and inventions.

3. Unbundling – demarcating different product-markets along the value axis and negotiating different prices for each. The Big 4 accounting and consulting firms are quite adept at charging eye-watering hourly rates for their top corporate tax advisors while charging the same clients low fixed fees for commoditised compliance services.

4. Renegotiating – approaching the client with an open-book and requesting the relationship to be reset with a pricing and cost structure that’s fairer and more sustainable. There are many examples where new ‘co-created’ solutions yield better outcomes for both client and firm, but also strong incentives for long-term efficiency gains and innovation. The Perkins Cole-Adobe model is one recent example of this.

5. Say goodbye – if all else fails saying, “4Q” to Q4 clients is the best option. Retaining a value-destroying client over time is clearly not in the firm’s interest and walking away is the bravest and smartest thing to do. Gifting soul-destroying clients to your competitors can make you stronger and them weaker. There may be opportunities to transfer Tail clients to other providers better suited to meet their needs, in return for ‘right’ client referrals.

Client life cycles and migration paths

The Client Profit Matrix can also be a useful analytical tool to track client migration paths over time. One theory is that a typical client relationship will go from Q1 ==> Q2 ==> Q3 ==> Q4. At the early stages of a relationship, costs and price are higher as the parties get to know each other. As the relationship matures and other firms start to contest the client’s spend, prices start to drop. Over time, cost-to-serve rises as more bells and whistles are added.

Clearly, service innovation and better value communication are essential in slowing down this maturation cycle and keeping clients in the top-left of the matrix for longer.

The underlying intent of a ‘loss-leader’ strategy is to go quickly from Q3 ==> Q2 or Q1. It is interesting to track how many of the clients, in fact, make that move and what facilitates this migration. One recent example of this comes from Allens-Linklaters who acquired Canva via its low-cost, low-price online Accelerate platform. They recently reported helping Canva to grow to a $1 Billion market valuation.

Doing a longitudinal heat map of the Client Profit Matrix can be a very useful tool to track your firm’s overall strategic health. In the graphic below, one can clearly see the firm is losing ground and becoming weaker over time.

Screen Shot 2018-05-08 at 9.53.35 am.png

Call to action

Have a go at mapping your firm’s client portfolio. It will reveal your entrenched Q4s and force an honest strategic discussion as to which of the five transitioning strategies to pursue.

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business, business development, change management, culture, executive leadership team, governance, marketing, Measurement, planning, professional service firms, Sales management, strategy management

Formula won

In Articles, Commentary on 29 March 2018 at 1:21 pm

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Source: Kazuki Yamamoto

Formulas, equations and rules of thumb continue to be a popular way to communicate important principles in leading and managing professional service firms. For your interest, here are the ones I use or refer to most often…

CHANGE

David Gleicher: D x V x F > R. D = level of dissatisfaction with the status quo. V = a vision of a future state i.e. clarity of what we’re moving to. F = first steps in a clear action plan. R = level of resistance to change. If R is more than the multiple of the other three, then no change. Click here for more. A graphical variation of this formula:

eqn-for-change

STRATEGY

A.G. Lafley and Roger Martin: Firm strategy = 5 questions – What are our winning aspirations? Where will we play? How will we win? What capabilities do we need? What systems and enablers are required? Click here for more.

Mehrdad Baghai et. al: McKinsey 3 growth horizons – concurrently manage both current and future opportunities for growth. Spend roughly 70% of your time on H1, 20% on H2 and 10% on H3. Click here for more.

George Beaton: Firms that fly = a shared vision + a strong culture based on shared values + shared power across the firm and key stakeholders + strong leadership and management to pull it all together and sustain it. Click here more.

Joel Barolsky: In the past… Firm Success = Ability x Stability (firms succeeded if they were competent practitioners and were able to keep the firm stable and collegiate). Over the past decade with the increase in client power and sophistication… Firm Success = Ability x Stability x Affinity (firms that have close trusting relationships with their clients outperform others). In a VUCA future… Firm Success = Ability x Stability x Affinity x Agility (firms that can make changes that add value quickly and efficiently will outperform others). Click here for more.

BUSINESS MODEL

David Maister: Profit per Partner = Leverage x Utilisation x Realisation x Blended Hourly Rate x Margin. Click here for more.

Ron Baker: Profit = Intellectual Capital x Effectiveness x Value-based Price. “Effectiveness” is a measure of the outcomes achieved for the client, not like the Maister equation which focuses on the cost of the inputs used to create the service. “Intellectual Capital” includes leveraging human capital, structural capital and social capital. Click here for more.

ORGANISATION DESIGN

Dunbar’s Rule: Our brains are only capable of sticking together within a community of around 150. Design organisations, offices, divisions, etc. with this number in mind. Click here for more.

REMUNERATION

J. Stacy Adams: People will trust a remuneration model when they perceive, [1] there is a sense of fairness of their contribution relative to their reward, AND [2] there is a sense of fairness of others’ contribution relative to the reward that others receive. Click here for more.

INDIVIDUAL PERFORMANCE

Mitchell and Porter: Performance = Motivation x Ability x Environment. Click here for more

David McClelland: Match jobs to an individual’s relative needs. People have three core needs, usually with different weights – Need for Achievement, Power and Affiliation. Achievement – the drive to excel, achieve in relation to a set of standards, strive to succeed. Power – the need to make others behave in a way that they would not have behaved otherwise. Affiliation – the desire for friendly and close interpersonal relationships. Click here for more.

Dan Pink: Drive = f(Purpose, Mastery, Autonomy). Click here for more.

STAFF TURNOVER AND PRODUCTIVITY

Mornell: If you make a mistake in hiring, and you recognise and rectify the mistake within six months, the cost of replacing that employee is two and one-half times the person’s annual salary. Put another way, the wrong person earning $50,000 will cost your company $125,000. Click here to read more.

Revenue per employee: In most industries, above-average firms produce revenue per employee that exceeds three times their average employee’s salary. Interestingly at Apple, it exceeds nine times. Click here to read more.

CLIENT RELATIONSHIPS

David Maister and Charlie Green: Trustworthiness = (Credibility + Reliability + Intimacy) / Self-orientation. Click here for more.

Joel Barolsky: Long-Term Relationships = (Understanding + Reliability + Value + Affinity) / Complacency. Click here for more.

Ford Harding: Geometric growth of social networks. With 90 strong connections in your personal network, you can make around 3,500 matches i.e. introduce one person to another for mutual benefit – see chart below. Click here for more.

Screen Shot 2018-03-28 at 7.18.08 pm

SALES

Sales 101: Your Revenue = Number of Opportunities x Average Value x Overall Strike Rate. Click here for more.

Andrew Sobel: Number of Opportunities = Number of initial conversations you have or initiate x % that convert to a proposal. Click here for more.

McKinsey’s 2-4-8: Directors in McKinsey need to be working on 2 major assignments, be the process of proposing for 4 more, and in communication with 8 more prospective clients. Management within McKinsey follows up to ensure that 2-4-8 is a reality. Click here for more.

PRICING

The Discount Matrix: The amount of additional revenue required to make up for the lost profit as a result of a price discount:

Screen Shot 2018-03-28 at 7.46.53 pm

SERVICE EXPERIENCE

Frederick Reichheld: Net Promoter Score = % Promotors (i.e. clients that score 10 or 9) – % Detractors (i.e. clients that score 1 to 6) on the question, “What’s the likelihood of recommending XYZ to a friend or a colleague?” Click here for more.

Customer Effort Score: “Firm XYZ made it easy for me to handle my issue!” (on a Strongly agree / disagree 7-point Likert scale. Click here for more.

Screen Shot 2018-03-28 at 8.08.29 pm

What formulas or rules of thumb do you use? Please share using the comments feature…

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business, business development, client loyalty, executive leadership team, growth, innovation, key account management, marketing, planning, pricing, professional service firms, strategy management

What law and accounting firm clients really care about

In Articles, Commentary on 28 February 2018 at 8:19 am

Last week, Bain published a simply brilliant article in the Harvard Business Review exploring what B2B clients really care about. There are so many rich insights and applications for law and accounting firms, including five practical ideas described in this post.

40 Value Drivers

The Bain framework presents 40 ways in which your firm can create value for its clients, categorised into five areas: Table Stakes; Functional Value; Ease of Doing Business Value; Individual Value and Inspirational Value.

Screen Shot 2018-02-23 at 8.00.24 am

Five practical ideas to use in your firm

Idea #1: Have value conversations

Sit down with your client, take out the 40 Value Drivers diagram and ask them to identify the most important value drivers for them personally, their team, their procurement department and their organisation more broadly, and why?

During the conversation explore which value drivers are likely to be more important in two years time.

Get your client to evaluate your firm’s current service offering and relationship and how it compares with key competitors. Use it to explore opportunities to create more value and to test ideas for new offerings. Ask what they’d be prepared to pay more for? Ask what they’d prefer not to have if it meant a lower overall cost?

Idea #2: Re-clarify your value proposition

Your value proposition (VP) is your promise of value to clients. Your VP should be perceived to be superior to clients’ other choices and deliver a sustainable return.

At a firm level, you may wish to explore which of the 40 drivers are core to your firm’s VP or brand promise. Do you go wide and promise lots of things, or go deep and promise one or two things better than anyone else?

Next time you’re pitching for work or writing a tender document, use the framework to get real clarity of your unique selling proposition or USP.

Idea #3: Reassess your firm’s purpose

How does your firm’s current purpose statement measure up in the Inspirational Value category? Does it inspire and truly resonate with stakeholders?

Your firm is a combination of a private enterprise delivering profits to its owners and a social enterprise delivering a broader community benefit. There is an emerging generation of clients and staff that connect much more deeply with a firm purpose that reflects both social and financial outcomes.

In an era where true differentiation based on service and quality is almost impossible, there’s a good chance Inspirational Value will become the battleground of the future.

Idea #4: Foster creative thinking

Running a hackathon, design thinking or ideation workshop? Go through each of the 40 value drivers and explore three or four fresh ideas in each. Deep diving around the client and their needs is always a great place to start.

Idea #5: Update your CRM

Tweak your CRM to make sure you capture insights around what your clients really care about and what drives value for them. Add five new fields to your CRM around the five categories of value creation with drop-down menus of each element and comments.

Your ideas

I’d love to hear your ideas on how to use this brilliant new model.

Source: strikingly.com

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business, change management, culture, governance, growth, innovation, marketing, planning, professional service firms, strategy management

The State of the Legal Market

In Articles, Commentary on 27 September 2017 at 4:26 pm

This is my conclusion, as lead author, to the 2017 Thomson Reuters Peer Monitor Melbourne Law School report on the state of the Australian legal market…

Screen Shot 2017-09-27 at 4.18.55 pm Over the past 30 years, larger law firms in Australia have had to make only two major strategic decisions: [1] whether to become a national firm and how, and [2] whether to become an international firm and how?

They now have to make a third.

The 2017 Peer Monitor data leaves little doubt that technology is changing the practice and business of law and that firms need a clear and coherent strategic response. Firms might decide to be pioneers investing in lawtech start-ups, teaching their lawyers how to code and experimenting with new cognitive technologies. Other firms might prefer to keep their powder dry and wait to see what works, which platforms take hold, and what their clients prefer. Either way, an active choice needs to be made. Each comes with their own risks and opportunities.

A key challenge in investing in a new way is that the current core business is still very successful. The 2017 Peer Monitor data suggests that despite a flat market overall, a fair number of firms are still making healthy profits. The challenge comes in balancing the old with the new.

One way for firms to address this balance is to think about strategy as two parallel streams: one being Exploit and the other Explore (based on the work of O’Reilly and Tushman). Exploit refers to efforts to leverage current strengths and capabilities to make the current core business as good as it can be. Explore refers to new exploratory and experimentation efforts that will hopefully bear fruit in the future.

One approach is to make the whole firm ambidextrous, that is, change the firm’s culture so that everyone embraces Explore AND Exploit in their everyday work and client interactions. An alternative approach is to keep the Explore and Exploit far from each other and avoid cross-contamination. In this instance, Exploit is the cash cow and hires the suits, and Explore is a cash burner and hires the black skivvies. A third approach is to try to do both.

Source: academiedecafedemontreal.com

In an environment of rapid change and hyper-competition, every firm needs a healthy portfolio of both Exploit and Explore initiatives. A genuine commitment to Explore will most likely mean substantial changes to the firm’s dividend policy and capital structure. Firm governance and structural arrangements are also likely to be impacted, as will marketing, pricing, IT, operations and HR.

The role of managing partners is to lead the thinking around these issues and prepare the firm for its third really big strategic decision.

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account planning, business, business development, change management, client relationships, executive leadership team, governance, growth, innovation, internal collaboration, key account management, marketing, planning, pricing, professional service firms, Sales management, strategy management

A professional services value chain

In Articles, Commentary on 31 August 2017 at 2:00 pm

Michael Porter’s famous value chain did NOT have me at hello. I’ve never found it a particularly valuable tool in crafting professional service firm strategy. Most firms don’t talk about “Inbound and Outbound Logistics” or have “Procurement” as a major support function. Distinguishing between “Operations” and “Service” in a service business is just plain confusing.

In the spirit of further developing the theory of the professional service firm, here’s my go at a professional services value chain…

Screen Shot 2017-08-31 at 1.36.26 pm

WAYS TO ADD VALUE

Firms can add to their profitability and competitiveness (my definition of adding value) in the following ways:

#1 Profiling and Pitching

Brand and Network Building – branded premium providers command higher prices and attract top talent. Firms with better networks spend less on mass marketing and get more low-cost referrals.
Client and Industry Insights – firms that really understand their client’s business and industry have better bid-win strike rates and a higher percentage of sole-sourced work.
Selling and Pricing – firms that are adept at selling and pricing capture more value, discount less and win more.

#2 Resourcing and Communicating

Process and Workflow Design – firms that have streamlined workflows use fewer resources for the same outputs. They generally have faster and more predictable response times and enjoy lower error rates.
Resource Planning and Project Management – significantly higher margins can be realised by configuring the right combination of talent, tools and technology for each matter or project. More and more clients are choosing firms based on their ability to plan and project manage their work.
Client Interaction and Co-creation – better client communication and engagement usually increases the chance of client satisfaction and value perceptions. These, in turn, improve client loyalty, pricing and billing outcomes.

#3 Delivering and Controlling

Technical and Commercial Capability – firms that are perceived to provide better quality and more commercially relevant advice are usually able to command a price premium.
Service Delivery, Quality Assurance (QA) and Billing – firms that are able to deliver efficiently, effectively and consistently usually outperform their peers. So too are those that bill and collect fairly and promptly.
Team Engagement – firms that can motivate and inspire their staff will usually enjoy higher productivity, better quality work and less regrettable turnover.

#4 Connecting and Innovating

Client Relationship Management – firms that have wider and deeper relationships with their key clients will usually enjoy lower business development cost, higher share-of-wallet and more predictable revenue flow.
Client Education and Support – firms that support their clients through ongoing education and other activities relevant to their needs will enjoy better client relationships and loyalty. Informed purchasers often brief better, respect their providers and know what they don’t know.
Service Innovation – firms that continue to evolve their service offering to address new market needs will retain current clients and attract new ones. Innovation that lowers costs will give firms more price-setting discretion.

USING THE MODEL

Where to invest

Source: Dreamstime

The value chain model can be used to assess where resources are currently deployed and where they should be. For example, most law firms put a lot of time and energy into just five areas: Brand and Network Building; Technical and Commercial Capability; Service Delivery, QA and Billing; Team Engagement and Client Relationship Management. This means that seven other value-adding areas are potentially sub-optimised. A more deliberate focus in each of these areas could add up to a significant improvement in profitability and competitiveness.

Where to innovate

Many professional service firms are looking to innovate and “digitise” their business. The model can be used to determine what elements of the value-chain should be the focus of change and investment. For example, rather than spreading themselves too thinly, a firm might want to focus their energy and dollars on getting closer to their key clients and enhancing client connectivity and engagement. This would mean an emphasis on Client Engagement and Co-creation, Client Relationship Management and Client Education and Support.

What should we make, buy or borrow

By analysing its value chain, a firm can decide which elements it should make, which it should buy, and which it should borrow. So, for example, one of my accounting firm clients has engaged a specialist lead generation company to help out with Sales and Pricing. They recognised that prospecting for new clients was a key weakness, and that re-training the firm’s partners would be like flogging a dead horse. They pay the consultancy $500 for each meeting they set up within defined ‘right client’ parameters.

How do we compare

The value chain model can be used for head-to-head competitor analysis. Further insights can be gained by examining each of the 12 areas, assessing where a firm is ahead, where it’s at par, or where it’s behind its key competitors. A firm can then use the model to decide its core strategy, that is, how it’s going to win and what capabilities will be needed for success. For example, if very few direct competitors are focusing on Resource Planning & Project Management, this might be a source of competitive advantage in the period ahead.

How do we organise

The final application area of the value chain model is to ensure there is oversight of each of the value-adding areas or categories. For example, a firm may elect to create a Resourcing and Communicating SWAT team, with a blend of Practice, IT, HR, Finance and BD executives, charged with identifying and making improvements.

TO CONCLUDE

I’ve stuck my neck out and come up with an alternative value chain model. What do you think?

Sorry, Michael. Nothing personal. Just business. Professional service firm business.

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account planning, business, business development, change management, client relationships, culture, governance, growth, innovation, Leadership capacity, marketing, Measurement, planning, strategy management, Training

From collegiate to collaborative

In Articles, Commentary on 14 July 2017 at 3:25 pm

With increasing competition from freelancers, boutiques and solo specialists, most professional service firms are realising that their primary source of competitive advantage is the ‘collective’. By winning and delivering together, they can offer things the one-person bands can’t. The edge is not from economies of scale, but rather in more holistic advice and lower client transactions cost. The value proposition is not cross-selling but integrated cross-practice problem-solving.

So why not just do it

The biggest constraint to collaboration is that autonomy is an intrinsic motivator for many professionals (see the work of Larry Richards and Dan Pink). Your firm is full of Frank Sinatras looking to do it my way. It’s messy and clunky to collaborate, especially with other smart independently-minded sceptics. For many, the perceived loss of control is too great.

Heart shape latte art coffe in black cup on old wooden desk , top view

Source: fotolia

Most firms have built their measurement and reward systems around the individual. A partner’s personal financial contribution is often the #1 criterion used to determine reward and progression. It’s going to be pretty hard to be deeply collaborative as a firm when what really counts is scoring well on individual performance reports.

A vast majority of client relationships start out as one-to-one engagements. The partner that wins the initial work tends to keep on going and develops strong personal relationships with key buyers and influencers. Whilst these personal bonds are great, they can become to define the overall relationship and limit others stepping into the frame and joining the club as equals.

Some firms are in indeed challenged by very high variability in technical ability and inconsistent service standards. When you are to be judged by your weakest link, there is often a strong reticence to involve or trust others that are perceived to be less capable.

Seven areas to work on

If you’re keen to deal with these constraints and move from being a nice group of colleagues to a deeply collaborative one-firm firm, then your list of priorities should include some or all of the following:

Address the sceptics.
Your firm will most likely have its fair share of soloists, deal junkies and control freaks. Getting the majority on the collaboration bus is crucial to realise your firm’s potential. Providing objective research evidence for collaboration (see Heidi Gardner’s work) and actively addressing concerns is a good pace to start to winning hearts and minds, or at least just minds.

Set the right signals.
Firm leaders need to set the right measures, incentives and sanctions to facilitate teamwork across the firm. While it’s tricky, it’s not impossible. Magic Circle firm, Linklaters, is just one recent example of a firm attempting to adjust their partner compensation model to enable deeper collaboration.

Develop your boundary-spanners.
The Client Relationship Partner (CRP) role is the most important boundary-spanning position in your firm. CRPs lead the community of practitioners servicing the client over time. The financial returns expected from collaboration will be a function of CRPs’ empowerment, energy and capability. Many firms are now running strategic account leadership programs for just this purpose.

Create the right technology platform.
Technology can assist in connecting your partners with the right opportunities and knowledge. It can also help mitigate the many barriers to collaboration. Software products like Performance Leader, Objective Manager and Trello have been used very effectively for sharing client knowledge and collaborative planning and execution.

Revamp client governance.
Many firms introduce a key client program and then shift into “set and forget” mode. Ongoing client governance is crucial to driving a client-centric strategy. This includes inter-alia, [i] making the behavioural expectations shockingly clear; [ii] redeploying resources to accelerate the growth of strategic clients; [iii] supporting the apostles and tackling the recalcitrants; [iv] tweaking the client portfolio, and [v] providing guidance and injecting fresh ideas on key client strategy.

Drive consistency.
As stated above, variable quality in advice and service makes it really hard to go to market with a compelling one-firm value proposition. The key here is to listen to your clients, find the weakest links and act promptly, fairly and forcefully.

Live your values.
If your firm’s values reflect something about respect, integrity, teamwork, service excellence, or similar ideas, then there’s enough ammunition here to start and win the battle. It’s really up to the firm’s leaders as to take up the fight and ensure the firm’s values move beyond wall decorations and screensavers.

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A blog by Joel Barolsky of Barolsky Advisors

Relationship Capital

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