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November 3, 2008 5:45 AM

Welcome to the Future: Get Intimate or Go Home

Posted by Paul Lippe

In the 1980's, manufacturers like GM and Volkswagen adopted sophisticated purchasing techniques, known as supply chain management, that today have become the norm across industries. Driven by the need to improve quality and reduce costs, companies improved collaboration with their suppliers, sharing more information and creating more intimate business relationships. The Toyota Way is the best-known example of this, emphasizing continuous learning and quality improvement through collaboration.

Over the same period, law firms have generally chosen another way, as noted in a comment to my Heller Shock column: "...due to the boom, large law firms ... traded erosion in law firm relationships for a focus on 'high end' work." [Emphasis added.]

In our post-Boom world, this 'high end' strategy presents risks for law firms. Hildebrandt, a leading law firm consultancy, recently sent out a Special Client Advisory echoing many of the themes first raised in this space. According to Hildebrandt, "In the legal market, the current economic crisis has exacerbated a slowdown in business that has been evident for several months."

Every company I know outside of the the financial services industry has been through this process of improving supplier intimacy, both with its customers and its suppliers. And every GC I know is astonished at law firms' disengagement from this basic element of the modern enterprise. We recently cooperated with The American Lawyer on a survey of inhouse law departments. I haven't seen the data, but I suspect the answer to one key question for GCs--does your company do a better job in delivering value for your customers than your law firms do for you?--will come as quite a surprise to law firms.

Many firms clearly are hoping that the downturn will lead to new client demands for service in distressed areas such as bankruptcy, litigation, and re-regulation. Clients are looking at it very differently, battening down the hatches across the company and setting aggressive cost-cutting targets for all functions, including legal. Legal departments will value price, competitive bids, moving work to India, or new model firms like Axiom. They will deploy more technology, seek to collaborate across legal departments, and start pressuring firms to cut fat. What they won't instinctively do is expect their law firms to find ways to collaborate with them to reduce costs and improve value. And therein lies a huge opportunity for firms willing to embrace such collaboration.

The key nugget in the Hildebrandt report was the admission that "during the last six years of unprecedented law firm growth, the significant increases in profitability that most firms enjoyed were disproportionately driven by only one factor--the ability to increase billing rates by 6 to 8 percent every year." How many clients have raised prices comparably over the same period?

Law firms sometimes describe themselves as a "bet the company law firm," an odd slogan. But let me suggest that many firms now face a "bet the firm" decision: whether to assume that rate increases can continue, or to embrace a "back to the future" strategy predicated on client intimacy.

Over the next 45 days, 10 percent of firms will announce rate increases, and 10 percent will announce no change. The other 80 percent will wait and see. Clients will aggressively push back on the increases, and many might be rolled back, either explicitly or via discounting. Those 80 percent who'll be watching from the sidelines will take their cue from the no-changers, leaving those making increases adrift on a fast-melting ice floe. Even if they roll back, those increasing rates will have sent a clear message that they are out of touch with client reality in a way that will preclude any efforts to improve intimacy. There are perhaps 20 firms worldwide with the market power to pull off a price increase strategy, but for these few super-elite there frankly is no need. I suspect most will eschew rate increases, reflecting the judgment that made them super elite in the first place. For the rest of the pack, they will be far wiser to get ahead of the curve by engaging with clients and committing to no change early.

Seeking to improve client intimacy is both safer and easier than sticking to a diet of price increases. Until the last decade or two, any business school discussion of customer intimacy would have started with law firm business practices. Web 2.0 technologies make intimacy easier, but why not just start by inviting retired partners, especially the name partners who built the firm in the first place, to talk about how they did it 'back in the day'? Reflecting on best practices, requiring every partner to talk to their top ten clients, sending senior management on the road to meet with clients and to discuss how to work together better is all pretty basic stuff. And it's a lot more meaningful to clients than cross-selling initiatives which were internally focused anyway and will probably be cut along with a lot of other wasteful law firm overhead.

I admit, I am not a huge fan of Hildebrandt--I see the consultancy historically as the #1 promoter of the "higher prices, less intimacy" school of law firm strategy. But I will say I was delighted by their closing comment: "[T]he present economic crisis may lead many firms to re-think the fundamentals of how they do business and how they deliver value to their clients, and, at the end of the day, that may not be such a bad result."

Not a bad result at all.

Paul Lippe is a founder and chief executive officer of Legal OnRamp.

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Paul: This is an absolutely FABULOUS article.

I cannot tell you how long we have been ranting at our clients about how they can actually, strategically differentiate their practices (in a meaningful way) by investing in providing the type of client intimacy you are talking about here.

This summer we initiated a survey to which 93 law firms (representative of AmLaw 200) kindly responded in detail to 16 specific questions. We were looking to research how effective law firms were with their client teams and identify some of the internal hurdles they were experiencing. Perhaps not surprising, the top three internal hurdles to having effective client teams:

#1 the primary relationship partner isn’t interested in developing a formal client team
(55% of the respondents)
#2 the firm has experienced difficulty in sustaining momentum
(54% of the respondents)
#3 the partners are unwilling to invest sufficient time
(48% of the respondents)

In my blog last year I proposed to managing partners this radical gesture: Suspend for one year all money spent by your firm on stupid image or brand advertising – that means all of those airport billboards that nobody every pays attention to, those postage sized (big budget) ads in the Wall Street Journal that no one ever sees and so forth. (Hey dude, I got a big news flash for you. Intelligent adult consumers don’t buy professional services as a result of noticing your billboard in the airport!)

Put that money into a special projects fund and use it to actually hire your own attorneys to spend time nurturing their best clients in formal client team activities – where they do things like actually go out and visit with the client, off the current matter, just to learn about what’s going on inside the client’s business. Why? Because far too many of them don’t seem to want to spend time on non-billable activities with a potential return that doesn’t appear immediately.

Then at the end of the year, measure and compare your ROI from that activity versus what you received from your advertising efforts.

Of course few firms would ever take me up on this. Why? Because the radical aspect of it is that it calls for lawyers to actually make physical one-on-one nurturing contact with their clients. Far easier to just throw money at marketing and think that you are really accomplishing something.

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