A blog by Joel Barolsky of Barolsky Advisors

Posts Tagged ‘pricing’

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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?

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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.

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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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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

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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

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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.

 

 

 

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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.

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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:

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#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:

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#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:

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#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:

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From pyramids to rockets to ecosystems

In Articles, Commentary on 19 October 2017 at 8:36 am

The pyramid has been the foundation operating model in professional services 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 four or five juniors below them. These ratios obviously vary from practice to practice. Leverage of the mid and lower levels of the pyramid is currently the profit engine of most professional firms.

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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 juniors and their work will now be done by a combination of technology and lower-paid process workers. The rocket is being driven by powerful clients demanding that services be ‘disaggregated’ (using Susskind’s term), that is, highly-trained practitioners doing advisory and judgement tasks and technology and para-professionals doing process activities.

In my view, the rocket is not the destination but merely a stepping-stone. The rocket model doesn’t really take into consideration the growth of client co-creation and client involvement in the delivery of services. It largely ignores the role of third-party software vendors, freelancers and experts in adding value to the firm’s offering. And lastly, it underplays the potential impact of HR, IT, BD and Pricing functions.

Take this recent case study for example. In August 2017, Allens-Linklaters won the highly-coveted ILTA Innovative Project of the Year award for its Real Estate Due Diligence App (REDDA). Allens’ Chief Legal Technology Officer, Beth Patterson, stated that REDDA was “the result of a collaboration between partners, real estate lawyers, technologists, project managers and business analysts at Allens, client representatives and artificial intelligence provider Neota Logic.”

This case study illustrates a future with a delivery model where a partner or project leader will configure up to six different types of resources, in the form of an ecosystem, to address a client’s need or solve a problem (see diagram above).

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Source: vocative.com

It’s important to distinguish this ecosystem model from a multi-disciplinary offering. The latter involves multiple professional services or technical disciplines working together. The former is focused on one service line, such as legal, integrating multiple resources, both people and technology and both firm and client, to provide the most cost-effective solution.

Even if I’m half right, there are profound implications of moving to the ecosystem model for firm strategy, culture and operations. Almost everything is likely to be impacted, most especially the firm’s basic economic model and profit engines. It will also profoundly change recruitment and development, measurement and reward, pricing and firm governance.

How ready is your firm for this kind of future?

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10 questions for your PLAN B

In Commentary on 1 June 2017 at 8:04 am
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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.

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