LegalBizDev

The latest post from Jim Hassett’s blog Legal Business Development.


Research update: New staff positions in pricing value and LPM, Part 2 of 2

Using existing staff to perform these functions

Some firms have adopted a different approach, preferring to utilize the skills of people already on their staff to run project management and pricing:

Pricing has become a big part of our portfolio, but it’s done by an MBA who has been here for a long time, who studies pricing and speaks about it.

For some time, we’ve had a group within the firm that we refer to as our practice economics group. They have been tasked with serving as a resource to practices, client teams, relationship lawyers, and the like, to help with the kind of analysis that is important at the front end, figuring out how to respond to an RFP or to price a project. But as time has gone on, the services that the group provides have expanded to include various types of knowledge management and process management efforts as well. They can help design reporting systems, feedback loops, and the like, so that a team can stay current with real time data as the project proceeds, to know how they’re doing against a budget or a bid. We think that capacity has been extraordinarily valuable to us. More than 20% of our revenues at this point come from alternative fee arrangements, including some very large fixed fee engagements. Our comfort in moving more significantly into that arena, particularly taking on some of the engagements where clients have used fixed fees in conjunction with a very strong push to reduce costs, has been very much influenced by having not just the up-front analytical ability, but a team that can work with the client and engagement team to help successfully manage those types of projects.

We hired a new CFO within the past few years, with a focus on identifying someone who could really help us do this kind of stuff. So we haven’t really created a new position but we’ve begun to focus on that type of analysis.

Recognizing the need to do more in this area

Eighty-six percent of the firms that commented on this issue reported that they plan to do more in this area. The exact details vary from firm to firm:

We are thinking about making the process more formal, centralized around a pricing director. A lot of law firms, ours included, have administrators embedded in larger practices. But we need to recognize that if you have, say, a $200 million corporate practice by revenue, you should probably have someone acting like a CFO for a $200 million subsidiary of a $600 million enterprise. Therefore, you want someone who can help drive pricing, process efficiency, technology, and balance sheet management – the sorts of things that a CFO would do in a subsidiary in corporate America. I think that role needs to be morphed out of the general administrative function. The issue is that the skill sets are very different, and that leads to difficulty, because you’ve got long-tenured administrative staffs who have been very helpful over the years but who don’t necessarily have the skill set needed today. So then it can become a question of whether you add incremental cost to the enterprise to fill these new roles.

We haven’t added any new internal staff positions. What we’ve done in all of those areas is to have existing people engage as best they can on a catch-as-catch-can basis. The problem is time management and just getting it all done otherwise, but it is what it is.

I don’t think we’re where we want to be, because we’ve got to hire somebody. As much as I try to do it, I’m just too busy.

Clearly, this trend is growing and evolving quickly, especially in relation to pricing.

 

      


Research update: New staff positions in pricing value and LPM, Part 1 of 2

This two-part post previews results from my book Client Value and Law Firm Profitability, which will be published this summer.  All quotes are from managing partners, chairs, and other senior decision makers at AmLaw 200 firms.  Each participated in 30-minute in-depth interviews and spoke freely based on the understanding that they could review their quotes before publication, but they would not be quoted by name.

 

As law firms compete aggressively with their peers by offering more value to clients, many are establishing new staff positions to oversee pricing, legal project management, and other aspects of the “new normal.”  A few weeks ago, we reviewed the book Law Firm Pricing: Strategies, Roles, and Responsibilities about the rise in pricing directors.  In our research, we asked more generally about new staff positions in several related areas and found:

 

Do you have new internal staff positions in pricing, value, legal project management, and/or related areas?
Hired new people Used existing people No one devoted to these functions
49% 28% 23%

 

Hiring new staff members to meet new needs

Many firms reported it was a very successful move for them to hire people with the right business backgrounds and to empower them to use their skills to help the firm make crucial decisions on pricing and on efficiency. Consider this testimony from the managing partners of two AmLaw 100 firms:

I think what’s had the greatest positive effect is our business managers. They can much more impartially sit down and analyze profitability. They build up a database of what it costs us to do things, and they’re just invaluable. They work with enough lawyers, they’re able to focus on the numbers and their minds work differently. I think we’ve been very effective at actually developing tools to help people price things. It’s a pretty basic tool, but the lawyers say it is very sophisticated and very helpful. I see it as Finance 101, but I’m glad the lawyers like it. So I think what’s had the greatest effect is the non-lawyers who really are focusing on the business side of the equation and what it costs to do things; pushing back, and helping lawyers have a little bit of backbone. They can now show them a model and say, No, that’s too low, you’re going to lose your shirt.

I think that the role we’re asking our client value director to play, which is part consigliore, part expert, part preacher, is going to have a very positive impact, not just on the project management, but on the pricing side, including a better understanding among the partners about what agreeing to certain conditions means. I think we’ve made a lot of progress on this because we’ve had to, but we still have a long way to go.

Senior managers from three other AmLaw 200 firms added this:

On the pricing side, it’s been one of our great successes. We have three people working on pricing. Two of them are analysts who initially were hired just to be analysts, but we’ve now developed them to the point where they communicate directly with clients. They’ve become fairly sophisticated in understanding not just the pure data side, but also recognizing the differences among clients and how they view our relationship. And that triggers what price arrangements they are or are not willing to offer. As the firm’s CEO, I spend five or ten percent of my time on pricing issues, either working directly with clients or dealing with our lawyers in trying to think about how we should price something. It’s worked out well for us.

We now have a pricing director, and he and I really split the work. He’s incredibly effective with my partners and very good. It’s an interesting job that we both have, trying to facilitate partners’ entrepreneurial instincts and helping them to get business, while guiding them in the transition into this new world of pricing. But we’re also the police for bad deals. He’s fantastic. He has a staff, and we do this function of reviewing every non-standard pricing matter, checking the assumptions, checking the projected profitability. And that’s a critical part of having a strong value-based billing program, especially as clients are expecting, really demanding, alternative fee structures.

We’ve added three positions in the last two years related to pricing and value. The person who heads our group has experience doing program and project management in the software industry, but also has a finance background. So we’re starting to get into the project management side. I think it has been successful, because three years ago we had a lot of difficulty in winning fixed fee and other alternative fee cases, and now we’re getting more of them. We never really did that before.

Part 2 will appear next week and will include quotes from senior management at firms that are assigning new responsibilities in this area to existing staff rather than hiring new people.

 
      


Tip of the month: Become a better listener by asking probing questions

You can improve business development results by becoming a better listener.  The easiest way is to use simple probes to keep people talking such as “Tell me more about…,” “Could you elaborate on…” or “Give me an example of…”  Many lawyers may react the way I did when I first read about using questions like this:  Why should I say “tell me more” when I already got the point?  But probing questions will make you a more active listener and this will lead to more new business.

 

The first Wednesday of every month is devoted to a short and simple tip to help lawyers increase efficiency, provide greater value to their clients and/or develop new business. For more examples of probing questions, see page 160 of my Legal Business Development Quick Reference Guide, which is now available in both paperback and Kindle editions.

 
      


Preview of a Loeb & Loeb budget template from our May workshop

At Ark’s Legal Project Management Showcase & Workshop in Chicago on May 22, David Schaefer, Deputy Chair at Loeb & Loeb, will describe several tools his firm utilizes to make it easier for lawyers to provide clients with more accurate and reliable budgets, including the sample template below that the firm has customized for a sell-side M&A transaction. They have created similar customizable templates for other matters, including a variety of corporate, finance and real estate transactions, and commercial, IP and class action litigation. In addition to helping establish and manage the budget, the templates create a consistent approach to gathering data for historical comparison of matters. Mr. Schaefer will also discuss innovative procedures Loeb & Loeb has developed to improve the efficiency of lawyers’ budgeting time by providing staff support and combining the power of ENGAGE with the simplicity of Excel.

Panelists from four additional firms that are national leaders in the movement to provide more value through legal project management will also describe the tools, templates, and approaches that are being used at their firms:

Sari M. Alamuddin, Partner, Morgan Lewis
Vincent Cordo, Global Director of Client Value, Reed Smith
Stuart J T Dodds, Director of Global Pricing and Legal Project Management, Baker & McKenzie
Donald R. Ware, Partner, Foley Hoag

For more details, see the Ark Group’s web page or contact Ark’s Peter Franken at pfranken@ark-group.com or call (312) 212-1301.  A 15% “early bird” discount is available if you register by April 4. 

 

Budget template for sell-side M&A transaction

 

F71   Pre-Acquisition

 

F71-01 

Pre-Acquisition

 

 

Assemble Team

 

 

Retain and negotiate engagement agreements for consultants and experts

 

 

Structure transaction and analyze tax issues

 

 

Prepare organizational chart

 

F72   Term Sheet/Letter of Intent

 

F72-01 

Term Sheet/Letter of Intent

 

 

Term Sheet/Letter of Intent

 

F73   Due Diligence

 

F73-01 

Due Diligence

 

 

Draft and negotiate confidentiality agreements

 

 

Review organizational documents

 

 

Review material agreements and correspondence

 

 

Review intellectual property documentation

 

 

Review consent requirements

 

 

Review industry specific statutes, regulations and applicable law

 

 

Review corporate statutes and applicable law

 

F75   Purchase Agreement

 

F75-01 

Purchase Agreement

 

 

Review and negotiate Purchase Agreement

 

F78   Ancillary Agreements (as applicable)

 

F78-01 

Ancillary Agreements (as applicable)

 

 

Review Employment Agreements

 

 

Review Noncompetition Agreements

 

 

Review Escrow Agreement

 

 

Review Bill of Sale and Assignment and Assumption Agreement

 

 

Review Assignments of Copyrights, Trademarks and Patents

 

 

Review Promissory Note(s)

 

 

Draft and review Opinion of Counsel to Seller

 

 

Review Opinion of Counsel to Buyer

 

 

Draft Indemnification Contribution Agreement

 

 

Other Agreements

 

F79   Disclosure Schedules

 

F79-01 

Disclosure Schedules

 

 

Disclosure Schedules

 

F80   Consents and Notices (as applicable)

 

F80-01 

Consents and Notices (as applicable)

 

 

Third party consents

 

 

Government regulatory consent

 

 

Board consent

 

 

Shareholder consent

 

 

Notice of Appraisal Rights

 

F81   Filings (as applicable)

 

F81-01 

Filings (as applicable)

 

 

SEC

 

 

State/Blue Sky Filings

 

 

Special Regulatory Filings

 

 

Antitrust filings and notifications

 

 

Press Release

 

 

Qualification to business

 

 

Articles/Certificate of Merger

 

F82   Closing

 

F82-01 

Closing of Transaction

 

 

Closing of Transaction

 

F83   Post Closing

 

F83-01 

Post Closing

 

 

Post Closing



 
      


Research update: Contract attorneys and outsourcing, Part 2 of 2

In Part 1 of this series we focused on successful uses of contract attorneys and outsourcing, but not all experiments in this area have ended happily.

Some failures

Some participants reported that their experiments in the area had been failures:

Although we haven’t given up on them, we’ve not been successful in using lower cost associates, contract associates, or alternative track associates that give us a lower cost. There was a time when we thought that existing associates might like it if we took the demands of being on the partnership track off them, gave them a lower salary, and charged a lower rate for their work. The reason it hasn’t succeeded probably has a lot to do with people thinking they’re in the realm of second-class citizenship. Now we have more of a focus on hiring people who have the expectation of not being on the partnership track. But I think we labored under the misimpression for a couple of years that it was something that may be attractive to our existing associates.

We had a two-year experiment with the use of contract lawyers in India to lower costs. It failed.

As a result of our client interviews, we heard a lot of clients complain about our competitors who use contract lawyers. Probably the most common complaint is that they are not well managed or well supervised and that the quality of the work is extremely poor. So while the price may be low, so is the value.

Some still on the fence          

We haven’t committed to it big-time yet. I think we’re open to contract attorneys. We know what the ethical standards are. For example, say we want to use somebody from India. We’ve studied what our ethical obligations are, and we know we’re going to meet those ethical obligations. Are we at the point yet where we’re ready to do a lot? No, not yet. But we are seriously considering coming up with a new category of attorney who is not on partnership track, who would be considered a contract attorney. We’re talking about hiring some younger kids and maybe bringing them in for three years as sort of an apprenticeship program, paying them less, billing them out at less, and letting the winners rise to the top.

We have some lower cost offices where it might make sense to do some of our commodity price work more efficiently and build a little warehouse of attorneys who can kind of churn through the high volume stuff, but we haven’t done anything like that yet.

Clearly, the idea of lowering costs through contract attorneys and outsourcing is here to stay. Although contract attorneys and outsourcing account for just a small percentage of annual law firm work, they can have important implications for a firm’s flexibility and bottom line. Like other tactics described in this chapter, this can lead to greater efficiency, client satisfaction, and profitability.

However, everything has costs and risks, and outsourcing work raises a number of new management challenges. On August 3, 2011, the Wall Street Journal published an article entitled “Objection! Lawsuit Slams Temp Lawyers.” It reported on a case in which:

J-M Manufacturing alleges that McDermott Will & Emery failed to adequately supervise contract attorneys who inadvertently produced privileged documents to the government… While this may be the first eDiscovery malpractice lawsuit specifically dealing with the lack of supervision of contract lawyers, it surely won’t be the last.

As of this writing, that case has not been resolved, but it has focused attention on the need to manage contract attorneys and outsourcers to assure high quality.  (For more on the topic, see our 2 blog posts on Managing Outsourcing and eDiscovery.)

      



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