Value Doesn’t Have to be Virtual
April 15, 2010 | Filed Under Value, Law Firm Trends
There’s another article about former big-firm lawyers practicing in a smaller-firm environment.
This time it’s in the UK, and the firm is Temple Bright.
It sounds like there’s an office, but no staff or paper. (I always wonder about that last item…).
The three founders:
… have deliberately shunned the classic law firm pyramid structure, with Mr Summers saying SME clients are increasingly unwilling to pay for plush offices and large teams of junior lawyers and administrative staff.
“The market for legal services in the UK is worth £25 billion,” he said. “But how much of that is actually spent on the high quality legal advice clients need to make critical business decisions or conduct their transactions?
(Note: SME is small and medium-sized enterprises).
That’s probably one of the best ways to describe what clients are looking for. If a modest office in a less-pricey neighborhood helps get and keep clients or attract good people, it works. With technology, it’s not like you have to be at the office to practice every day. You could even be meeting with the client, face-to-face, something that many lawyers rarely do anymore.
As the value mantra works its magic on the legal industry, firms will work however good clients want them to and will pay for. The fact is that many large firms have legacy costs and delivery models that were supportable only by high fixed rates, applied topically daily. Even if they are fortunate enough to be busy and able to charge higher rates now, they understand that their clients have choices, and are more open to change than ever.
And there is one thing that any law firm doesn’t want to turn out be virtual: clients.
Why Value is not a Virus
March 15, 2010 | Filed Under Alt Billing, Value
One thing about change in the legal industry: it is happening everywhere, popping up globally in much the same way at virtually the same time.
John Chisholm writes in the New Lawyer about the status of the billable hour in Australia, capturing the universal tipping point rather succinctly:
Sure, it probably annoyed some clients that whatever their legal spend was they couldn’t actually budget for it accurately, but this was a small price to pay for the benefits they were getting out of their firms. And there was no alternative anyway. Most law firms were offering the same rates, and it wasn’t as though any firm could give them a fixed price.
Since clients are becoming enlightened everywhere at once, it’s clear that value isn’t a virus. No amount of marketing or sales tactics will inoculate clients against it.
So what’s the new reality if clients are infected with new knowledge and increasing support (i.e., motivation) for change? It’s simple: there’s no going back. Fully 80-90% of corporate legal work will be priced to market. My real takeaway is this:
only top end work will be value priced.
What’s this “top end?” Think of things like deals, major disputes, key regulatory matters. Law firms will hope this is 10-20% of work. For many clients in normal years, it may be less than 10% (although more than 10% of the outside counsel budget since it will be priced at a value premium).
For the remaining 80-90%, it’s good work, but most of it will be seen by clients as what it is: a commodity. Law firms will struggle to differentiate and clients will know more precisely over time what a 10-site package of commercial leases in the Northeast costs. More pricing knowledge for clients equals easier shopping between firms and quicker switching if you need to. Bundling commodity work may get a slightly higher effective rate, but nowhere near that for top-end work.
Thus the fundamental strategic question for major law firms: can you do both (value work and commodity)? Should you? To do this, a firm would need two of everything: pricing structures, staffing models, talent pools, comp plans. It’s like merging Wal-Mart with Tiffany: I’d really like to see that ad copy.
Clients are coming off a 20-30 year bout of the billable hour flu. For a lot of corporate legal work, “value” is not a panacea, it may be something else.
(Update: Both Ron Friedmann and Steven Levy respond to this post; excellent stuff and I’ll continue with a round 2 later this week).
When $975/hr is Value Pricing
March 8, 2010 | Filed Under Alt Billing, Value
Sometimes billing by the hour beats the alternative.
Yesterday’s Washington Post profiled (reg reqd) Robert Barnett of Williams & Connolly. Mr. Barnett has a virtual hammerlock on representing high-profile political and public figures who want to add “author” to their resume.
It’s a two step approach:
1. Find a niche that’s being over-charged:
Barnett’s rate of $975 an hour is a lot of money, but his transformational insight was to apply a lawyer’s fee structure to the work of an agent. Then it’s not necessarily so much money.
2. Realize that fee and hourly rate are not the same.
A traditional literary agent charges 15 percent of an advance. Barnett helped Bill Clinton sell “My Life” for a record $15 million. Clinton would have paid an agent $2.25 million; Barnett says he put in far fewer hours than the 2,308 he would have needed to work to bill $2.25 million.
His clients can do the math. “For someone like me, the savings are extraordinary,” author (James) Patterson says.
Mr. Barnett is certainly an exceptional lawyer with a unique practice.
But this part of his practice shows that billing by the hour can qualify an alternative fee arrangement.
How Google Meets its Value Challenge
March 4, 2010 | Filed Under Value, Change
Many law firms are finding it hard to come up with a clear value proposition and delivery model for clients.
So step back from the law for a moment and take a rare glimpse inside Google. You may be familiar with their work.
This is courtesy of an interview in the Silicon Republic with Google’s European sales chief, John Herlihy.
(First, there’s a mini-bombshell that Google sees the future in mobile, not on the desktop. That’s one reason for the development of lawriver. –Ed).
Mr. Herlihy describes what Google does to promote innovation and implementation at Internet speed:
It’s not good enough to apply normal management disciplines – we think that scarcity breeds clarity. If, for example, we have enough resources invested in something, we halve it and eliminate overheads.
When we build something we strive for ubiquity in usage and adoption. That helps us understand how customers react and then we build a revenue model.
We measure people every 90 days. We get 360-degree feedback on people every 180 days and that feedback is published to the whole company. People want reality. Ninety per cent of the rewards end up going to 10pc of the people.
Customers today have more choices and are more aware of our competitors’ offerings. Unless we can serve them 24/7, 365 days a year, competitors will eat our lunch. […] At the end of the day it’s the customer who owns the cash. That’s why we construct our organisation to deliver value. The underlying framework is to make it easier for people to do business, solve problems and move on.
That last sentence is not a bad mission for most companies, law firms included.
Clearly the Google model is not for the faint-hearted, or for partners wanting to slow down a bit after years of 2,000+ billable hours.
Scarcity, excellence, and value before revenue. Now that’s an alternative arrangement.
ACC Value Index - A Few Good Firms
February 9, 2010 | Filed Under Legal Ratings, Value
The ACC announced last week that law firms would be given some access to performance feedback being gathered as part of the “index phase” of the Value Challenge initiative. The press release is here; Corporate Counsel has more today here.
Part of the CC article gives equal time to a former ACC national chairman, who:
… said law firms have expressed concern because the survey’s evaluators are anonymous, and outside counsel couldn’t see what they said.
In reality, certain firms saw Code Red last year when they first heard about the Value Index. These firms (not all large law firms, of course) appear to view shared client feedback as something to be challenged, as opposed to an evolving part of the puzzle that their clients are solving to better manage legal spending.
So, as mentioned earlier by ACC, law firms can see part of their feedback gathered by the Value Index.
Can you handle it? What are you going to do about it?
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