Posts Tagged ‘pricing’
Make it Memorable – my recent article on pricing professional services published in BRIEF
In Articles on 28 July 2020 at 12:21 pmLegal technology products: A new trick for old dogs
In Articles, Commentary, Legal Technology on 29 November 2019 at 1:46 pmFull text of my op-ed first published in the Australian Financial Review on 28 November 2019
According to The Economist, advice on strategy accounts for only 10 per cent of revenues for McKinsey and its peers, Bain & Co and Boston Consulting Group. The balance comes from sources including designing and developing technology products for their clients.
So if meat-and-potato strategy advice has become a side dish for the major consulting firms, will legal advice become a niche product for premium law firms?
I don’t think so, but some are seriously asking the question.
AFR article print edition
Tier 1 law firm Allens currently has nine legal products in its a+ solutions portfolio. One of these, SmartCompile, pulls together publicly available company information for due diligence reports. The firm is also working on new risk assessment apps, a FIRB notification app and a contract workflow solution.
A quick review of other premium law firm offerings suggests the ripple of new legal products will turn into a wave in the years ahead.
With that in mind, I posit that law firms have to learn five new tricks to make their legal product strategy a success.
New measures
Current law firm KPIs (key performance indicators) such as utilisation, leverage and realised rates are irrelevant in a world of legal products. New indicators should cover factors such as product life-cycle cost, annual recurring revenue, channel profitability and subscription retention rates.
The time frame around KPI targets also needs a rethink. The rules of thumb around time to break even and profit cycles are vastly different for technology-based products. It took Amazon 10 years before it started to generate any cash profit, never mind recover its investment costs.
The challenge ahead is for firms to redesign their KPI dashboard to include service and product measures, but also balance short-term and long-term strategic objectives.
New channels
Most traditional commercial legal practices rely on two primary channels to market: direct selling to clients and referrals from intermediaries.
There are far more options when it comes to getting products to market: app platforms, a dedicated sales force, accredited resellers or agents, other technology vendors or via competitors.
Other channel-related choices include compensation payments, sales incentives, spotter fees, territory allocation and channel exclusivity.
New roles
Hall & Wilcox’s client solutions director Peter Campbell is tasked with providing technical support to the firm’s partners and clients as they develop and implement new products.
Other new roles like product manager, channel strategist and deployment specialist will start to emerge in law firms.
Existing positions will also be reshaped. Partners and senior associates will need to be trained to identify product opportunities and drive sales efforts. Marketing will need to hone their online retailing skills. IT will have to embrace working with both internal and external clients.
Interestingly, Allens has set up cross-functional “squads” to help develop new legal product concepts, test them and bring them to market – quickly.
New pricing
Technology-enabled products are usually priced via a licensing or subscription model. It can fluctuate based on the number of users or volume of transactions.
Setting the right price level will be tricky as there is often no clear frame of reference or way to compare prices for these products. In some cases, firms will be making the market or creating the category. Go too high, and there will be limited trial and take-up. Go too low, and the product will never be valued highly (or be profitable).
New norms
Many traditional law firms will need to adopt new norms in selling products.
Practitioners need to resist the buzz that comes from creating something new from scratch each time. The big egos need to get used to the idea of clients buying branded products, not them. Partners need to get comfortable with product-push campaigns rather than waiting for clients to call with a specific need.
In some ways, the most significant barrier for new legal product success is the firm itself.
If it does not adjust its business model, there will be little opportunity for these products to mature and flourish. Long-term, this will mean these old dogs won’t learn any of these five new tricks.
Tackle this law firm profit problem or go for a surf
In Articles, Commentary on 5 October 2019 at 9:32 amFull text of an opinion piece first published in the Australian Financial Review on 4 October 2019.
With the march of technology, law firms face a profit problem if two trends persist.
The first trend relates to how firms charge for their services. Recent Acritas data reveals that time-based pricing still predominates across the legal market. This includes both billing retrospectively via hourly rates as well as upfront capped or fixed fee pricing based simply on an estimate of time multiplied by hourly rates.
The second trend relates to investment and advances in legal technology. Over $1.75 Billion has already been invested in new legal technology across the globe in the nine months to September 2019.
The published version of the AFR article
Today, technology is used primarily for email, word processing, legal research and in discrete areas like e-discovery. At a very simplistic level, one could say that software is currently about 5% of the “average” service product.
In five years, sophisticated technology will become integral to service delivery. It will be used legal document preparation, contract review, advice in rules-based legal areas, due diligence, case prediction and in process automation. Many elements of a firm’s IP will be incorporated in smart precedents and algorithms.
As best as we can predict, in five years legal technology will make up roughly 25% of the legal product. This percentage will be much lower in brain surgery practice areas, but higher in volume more commoditised work types.
The profit problem arises because it’s really hard to charge for software in 6-minute increments!
Using the simple percentages noted above, revenue for 25% of the legal product will not be captured if firms just bill or price based on the time that humans are involved.
Moreover, given that much of the new technology is focused on lawyer efficiency, revenue will decrease by having fewer human hours in service delivery. Costs will increase to procure, tailor and deploy software, and in capturing firm IP.
Find a new model
The financial impost will be huge unless law firms find a new model.
Value-pricing is one approach that can be used, in part, to address this problem. Rather that setting fees based on inputs and time, price is set by reference to client perceived benefits. A fee is agreed upfront based on client preferences, context, scope of work and anticipated outcomes, both short- and long-term.
While value-pricing has much appeal, there are constraints on both the supply and demand side. Some lawyers are reluctant to take on the risks of promising outcomes and in fixing fees. Others really struggle to quantify and communicate the value they provide. They prefer selling time as it facilitates practice autonomy and it covers up any inefficiencies. Many law firms have an entrenched culture of using time records to assess productivity.
On the demand side, it appears most large corporate and government clients are very comfortable with the transparency and comparability of conventional time-based methods. They back themselves, or their e-billing software, to critically review proposals and bills, and not pay for any obvious time padding or wastefulness.
Almost every major client panel tender in Australia over the past three years has asked firms to propose “alternative fee arrangements”. Very few clients adopt any of these alternatives and most resort to discounted hourly rates to compare firms and to pay for services rendered.
Enough fat
Some clients view technology, project management and other non-lawyer time as ancillary benefits or ‘value-adds’ that firms have given away in the past and they should not need to pay extra for in the future. They see high hourly rates as having enough fat in them to comfortably cover all the elements that go into service delivery.
So, if the tech wave is unstoppable and hourly rates are entrenched, what options are on the table?
- Do nothing and just wear the cost.
- Focus exclusively on highly complex and bet-the-company matters where rates can be increased to maintain margins.
- Redouble efforts to collaborate with clients to find new pricing models where the total value created is captured and shared fairly. This would include negotiating a mix of time, value-based and technology pricing models including license fees, subscriptions and platform payments.
- Scale-up, merge with competitors and accelerate the adoption of technology and other tools to be the lowest cost provider and have more price-setting discretion.
- Close-up shop and go surfing.
Feel like a surf, or are you up for the challenge?
When Google Comes to Legal
In Articles, Commentary on 10 June 2019 at 10:02 amFull 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.
Stop trying so hard to be different
In Articles, Commentary on 6 May 2019 at 4:33 pmFull 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.
The future of law has fewer seats for grads
In Articles, Commentary on 16 September 2018 at 10:53 amFirst published in the Australian Financial Review, 14 September 2018
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
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 amClient 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:
#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:
#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:
#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:
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.
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.
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.
What law and accounting firm clients really care about
In Articles, Commentary on 28 February 2018 at 8:19 amLast 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.
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
business, business development, client relationships, culture, executive leadership team, growth, internal collaboration, pricing, professional service firms
How your law firm can limit virus hit to bottom line
In Articles, Commentary on 7 August 2020 at 3:42 pmThe full text of my 7 August 2020 opinion piece first published in the Australian Financial Review.
There is every chance that COVID-19 will mean a big hit to your firm’s revenue for the 2020-21 financial year. So, what levers are you using to limit the downside impact on profitability?
Greg Keith, the chief executive of accounting firm Grant Thornton, recently indicated he was anticipating a decline of 8.5 per cent in revenue and 33 per cent in profit.
It means that for every 1 per cent drop in income, they are forecasting a fall of nearly 4 per cent in profits.
Accounting firms, like law firms, are mostly high fixed-cost businesses that are super-sensitive to changes in revenue – both on the downside and the upside.
To limit the profit impact, firms tend to first cut non-essential spending like travel and entertainment. After these “easy” savings are exhausted, reducing staff numbers comes into the frame.
While there are obvious short-term benefits – staffing can comprise 60 per cent of all expenses – there’s a significant risk of not having enough of the right resources on hand when demand picks up. So, the 2020-21 saving needs to be weighed up against the full cost of re-hiring and training in the future.
In my view, there are two areas where firms could do a lot better to enhance profitability without letting people go – pricing and the sharing of resources.
Pricing for profit
Over the last few years, most mid-sized and large firms have worked on their pricing practices.
With a significant market downturn and price war on the cards, one firm recently redoubled its support for partners to preserve and capture value through price. This included video training modules on value articulation, gamified programs around price negotiation, improved analytics, new pricing tools [like Price High or Low 😀] and more direct hand-holding for new business pitches.
Some firms are adopting a range of creative strategies to meet client needs rather than merely dropping price. They include:
One law firm offers its clients three pricing options on every new matter. They’ve adapted Qantas’ pricing approach by offering the equivalent of the airline’s Red e-Deal, Flex and Business Class options. As with Qantas, each option has the same core benefits around quality and reliability but differ in terms of the format of the deliverables, roles, timing and scope.
Another firm analysed their top 100 clients to determine how each was being affected so they could tailor messages and offers. In one instance, this led to a new digital service offering as some clients moved to virtual selling and distributed operations. In another case, they shifted to a self-service model for a client going through a major cost-cutting exercise.
Resource sharing
I was recently advising a law firm where analysis of time records revealed that some individuals and teams were extremely busy while others were well below capacity.
When I asked why resources were not shared to even out workloads, the most common response was that lawyers could not easily work outside their area of specialisation.
Not satisfied with that objection, I delved a bit deeper. My enquiries revealed a range of constraints – cultural, structural and personality – to collaboration. For some partners, “letting my people go” was a sign of failure. For others, they didn’t see any direct financial incentive to share resources, so they didn’t bother. In one office, each practice team saw itself as a self-contained business, and the prevailing mindset was more competitive rather than co-operative.
In good times, there’s often enough fat in the system to ignore these problems, But if your firm is looking at an equation that means every 1 per cent drop in revenue leads to a 4 per cent drop in profits, then you might need to change your thinking.
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