As we debated the pros and cons, it was apparent that the partners had very little understanding of the impact an increase to their billing rates might have on a client.   In fact, none of the partners had worked in a corporate setting previously so they had no real insights into the typical corporate budgeting process.  Perhaps a peak behind the curtain may help inform this discussion, as it’s a process full of surprises to law firms that often have rudimentary budgeting processes in place, if at all.

The first surprise is when budget discussions commence.  Assuming the fiscal year corresponds with the calendar year, most businesses start preparing budgets in August.  Yes, in August prior to the budget year.  It takes time to develop a budget from the ground up.  In days past budgeting may have been approached as an exercise in what’s different or, in other words, starting with last year’s budget and merely adding new items and deleting old items.  No more.  Now there’s an expectation that every budget must start at zero, and from this starting point we add in each and every cost until we identify the total budget needed.  And then we start paring it back.

Many lawyers operate under the delusion that the practice of law is inherently and infinitely variable, meaning that unlike other business functions one cannot predict legal costs with any certainty.  This opinion is often held by outside counsel and in-house counsel alike.  Imagine the plight of the General Counsel:  she doesn’t know how many deals the business executives may initiate in advance when even they don’t know.  She has no insight into what product liability suits the company may face, or what type of employment actions will be raised.  For litigation already underway, she can’t possibly predict the next move the adversary may make, so by definition she can’t budget for how she’ll react.  And even acquisition due diligence may reveal complications that are impossible to predict.  These are reasonable concerns, but they fly in the face of the number one rule in business: no surprises.

One can make mistakes when climbing the corporate ladder.  One can make some mistakes again and again.  One can even make colossal mistakes that cost the business money.  But the one mistake anyone aspiring to reach the board room can’t make again and again is surprise.  Corporations, both public and private, thrive on certainty.  Forward-looking statements to shareholders and analysts must be based on a reasonable estimate of future performance, or else the stock price will be suffer in the market.  Even private companies that don’t publish earnings must have predictability to properly allocate capital.  For business leaders to establish priorities they must have the facts, and the worst crime is to provide inaccurate information because this leads to making poor business decisions.

Another surprise may be that erring on the side of caution can be as egregious a mistake as overestimating performance.  Imagine the Senior Vice President of Marketing who submits a revenue forecast estimating $275 million in sales, knowing full well that the business is on track to deliver $280 million in sales.  On paper this looks clever, because bonuses increase with overachievement, and everyone looks good when we beat the targets, right?  However, it’s not uncommon for the CEO and CFO to punish the business leader who builds in too much revenue cushion, because we might have made different decisions about our allocation of capital if we knew that we had more to work with.  A critical project with great long-term potential may have been delayed or tabled because we didn’t have sufficient investment available.  (The worst offenders allocate a reserve that benefits only themselves.)  Obviously there’s also punishment for missing the targets, particularly when it results from poor planning rather than external market events.

But how do they do it?  How do corporate executives weigh numerous variables to establish an accurate forecast?  After all, don’t most business functions carry some level of uncertainty?  Think of the head of manufacturing who must predict costs despite the possibility of critical supplies being hijacked by Somalian pirates, or labor unrest in the fields of South America, or political unrest in the Middle East impacting oil prices which in turn have a material impact on the costs of transportation in our supply chain.  And what about the corporate treasurer who has to predict the impact of currency fluctuations or interest rates on the company’s cash flows, in order to hedge against this.  Our head of Marketing has to examine multiple products across the spectrum of the business cycle, use a little game theory to predict what the competition might do in response to our new product launches, potentially even identify which customers are at risk before the customer even begins to explore substitutes, and build a revenue forecast amidst ever-changing market demand.

There’s no magic formula.  These business leaders build their forecasts block by block, inch by inch, starting first with the known – in the case of sales, perhaps we first identify guaranteed revenue from committed customer contracts, or in the case of manufacturing maybe we look at commodity materials where we have multiple suppliers to ensure sufficient flow and predictable prices.  We then move on to the harder calculations, one by one looking at product revenue in each jurisdiction, perhaps customer by customer; or examining links in our supply chain where we have limited redundancy and therefore greater risk.  Piece by piece we establish a forecast that builds from certain to less certain, but even with the less certain we identify the likely ranges and provide confidence levels based on identified risks.

So you can imagine the amused chuckles in the board room when the Chief Legal Officer throws up his hands and tells his colleagues that the legal function contains too many variables to possibly establish a budget, so instead he’ll take last year’s budget and add 20% — to accommodate law firm rate increases and other variables – and he’ll only come back and ask for more if something changes.  Gone are the days when this was amusing.  Now a General Counsel may be shown the door if he can’t apply some rigor to the legal budgeting process.  This also explains the increased involvement of procurement officers in the selection, and management, of outside counsel.  This is a clear sign that CEOs and CFOs don’t fully trust their lawyers to extract more value at a lower cost from the in-house legal staff and suppliers, so they’re putting someone at the table whose sole objective is to reduce costs.  Or they wish to, as the saying goes, trust but verify.

These budget calculations and conversations start in August, are debated endlessly through September, and begin moving up the approval chain in October.  There are numerous revisions, typically, as you might expect, requiring all cost estimates to go lower and all revenue estimates to go higher.  But there’s a balance to be achieved between optimism and realism.  Newly anointed business leaders tend to believe that they can extract unnecessary costs that their predecessors overlooked, or that they can rally the troops to commit to higher revenue performance.  Entrenched civil servants throughout the corporation strenuously object to these stretch goals, and work diligently to maintain the status quo, with sufficient safety valves in place for when something goes wrong.  This can be invigorating, and it can be confounding, but in the end the corporation signs off on its revenue and expense budget for the coming year, typically by early November.

As my group of law firm partners discussed corporate budgeting, a few light bulbs appeared above their heads.  One corporate partner recalled receiving a letter in late October from a key pharmaceutical client indicating that they would not accept fee increases from any outside counsel in the coming year.  She recalls wondering why the letter was sent in October, months before most law firms issue rate increases, but it now occurred to her that the corporation’s budgets must have been locked by then.  Another partner realized that even when the economy is humming along nicely and law firms have the latitude to increase rates, the fee increase letters are potentially six months out of sync with the client’s budgeting process!  “No wonder clients claim we don’t understand their business,” he observed.  One of the partners added some levity by suggesting that the annual fee increase letters should go out earlier, say in July.  Another had us rolling in the aisles when she suggested that since law firms always raise rates, and clients know this, perhaps it’s the client’s obligation to build in these expected increases in their August and September forecasts.  When we realized she was serious, we ended up rolling our eyes.  In some segments in some industries, the suppliers can set the price and require the buyer to meet the price, or else not get the product.  (Have you ever tried to haggle significant savings on a Mercedes?)  There are a few law firms with such pricing power.  Let’s be clear: despite your desire to occup this space, the odds are your firm is not one of these.

But does this budget process really result in certainty?  After all, we’ve all seen – or we’ve owned stock in – companies that miss earnings forecasts.  In reality, one never eliminates surprise.  But we can get a lot closer by minimizing it.  There’s a formal process to deal with the inevitable changes that occur in most corporations.  It’s called a reforecast.  It may come as a surprise that most companies begin revisiting their revenue and expense budget numbers in early January.  After all, what can go wrong in the first few weeks of the year?  However, think back to when we began compiling our forecasts.  We weren’t even done with Q3, let alone Q4, so many of our assumptions for the coming year relied on assumptions for how we’d conclude the current year.  And guess what, things have changed since we incorporated those assumptions.

A reforecast is a formal process to revisit our assumptions, to look at costs that exceed expectations and revenues that fail to meet expectations.  And vice versa.  In many corporations this process repeats itself several times a year, often corresponding with the quarterly earnings report in public companies, and in recent years this process might happen 6 or 7 or even 12 times a year.  And it’s not simply indicating that revenues are falling short or that expenses are trending high and then receiving forgiveness on the goals.  That would be cool.  No, instead every functional leader has certain levers to pull to meet the agreed-upon expectations even when there are material changes in costs or revenues.  On the revenue side, perhaps we launch a sales contest, or lower prices to increase penetration.  On the cost side, perhaps we seek alternative suppliers, squeeze the suppliers we have, or reduce costs elsewhere by reducing staff.  Often the reforecast process surfaces significant trouble in one division that will be impossible to make up, so other divisions receive an involuntary revenue or cost surcharge to make up the difference.  This can be painful.  No business leader in the midst of stellar performance, overachieving on every goal, or even those barely meeting expectations, likes to terminate valued employees or table a valuable project because some other division failed to meet expectations.  But it happens.

To add more enjoyment to the budgeting process, most corporate executives have a portion of their annual compensation based on their ability to manage to their budget.  For example, the company may exceed its revenue and profit targets, the share price may exceed analyst expectations, the division may have enrolled a record number of new customers, but the divisional leader will lose 30% of his bonus because costs were over budget.  Those running the legal function are late arrivals to this party, but it’s becoming a material factor in their compensation now.

Recently I observed a panel of General Counsel discuss their likes and dislikes with outside counsel.  One GC remarked, much to the amusement of the roomful of outside counsel: “If my legal budget goes over plan, at least we’ll save money on my bonus.”  The GC didn’t laugh.  He was deadly serious.  The message he was trying to convey is that the late invoice, the one you generate only at the end of the billing period, the one that reflects billings 40% over the original estimate, the one that you’ll accompany with a brilliant, well-crafted memo explaining the 58 reasons why costs exceeded your original estimate, may literally cost him his family’s summer vacation rental, or a semester of his daughter’s college tuition, or the swimming pool he planned to install in the Spring.  Just as with the General Counsel who remarked, “If I don’t find a way to manage the legal function with a lower budget and without compromising quality and throughput, they’ll find someone who can,” your client needs you to be part of the team.

Perhaps these insights into the corporate budgeting process will shed some light on why your clients are so darned insistent on predicting legal costs.  In many cases, predictability trumps total spending, or, in other words, you can charge premium rates as long as you ensure that the fees are not surprises.  You may also question whether a fee increase is necessary this year, particularly since your client has fewer levers available to adjust for your increased cost.  Perhaps you can do a better job of estimating legal costs for your next project.  The project management techniques used in other business functions apply to predicting and managing legal costs, but that’s a topic for another day.

As another General Counsel said to me recently, “I know a lot of firms that are capable of handing my legal work.  I’m sure there are many more that I don’t yet know.  What wins me over isn’t always low rates or discounts, it’s finding a firm that really understands that challenges I face in my business – and this includes not just the legal issues I face in my marketplace, but how I have to manage my legal department as a business.  If I can find a firm that understands what life is like in my shoes, that firm will win my loyalty.”

What do you say, are you up for it?

Law firm leaders have an unusual reliance on precedent for decision support.  Invariably when assessing whether to launch or cease an activity, they will look to what other law firms are doing, particularly firms considered to be competitors or in their peer group.  There’s strength in numbers, so if other firms are doing X, or discontinuing Y, this provides context and cover for us to do the same.  The problem with such thinking is that benchmarking works best in comparisons between similar entities, and law firms are as different as other businesses, even those in the same space.  (Do you think Mercedes-Benz closely follows what Kia is up to?)  Also, and not to put too fine a point on it, just because a respected competitor is doing something, or stops doing something, doesn’t mean it’s a smart decision.  The object lesson is that mimicking dissimilar organizations in dissimilar markets and in perhaps dissimilar geographies that offer dissimilar services to dissimilar clients, is hardly an exercise in sound business management.

Whether it’s Martindale-Hubbell or any other directory, and there are many players in the space (here and here and here and here and here, to name just a few), the question for law firm leaders isn’t whether other firms are participating or not, the question is whether our participation is an effective use of our law firm’s capital.

A legal directory is but one component of a law firm’s marketing mix, in the same way that a bowl of sugar-coated chocolate lumps (or is it chocolate-covered sugar lumps?) is part of a balanced and nutritious breakfast.  Rely on one component alone and your results may be less than desirable.  In a bygone era a legal directory may have been the only marketing tactic a law firm employed outside its own native market.  But today, there are countless marketing tools available, and the Internet provides potential access to countless buyers.  But access to such tools doesn’t always mean they’re used effectively.

Recall the appearance in the late ’80s and early ’90s of word processing and desktop publishing software programs, which provided average computer users with sophisticated tools to rival those of professional publishers.  What resulted was primarily an increase in poorly-designed, barely-readable newsletters produced by anyone with typing skills.  Want an example closer to home?  How many law firm leaders believe that ready access to self-help legal tools has eliminated the need for estate, bankruptcy and real estate lawyers?  Merely having the tools doesn’t confer expertise.

This result also occurred when tools for web publishing became more accessible.  Recall the endlessly scrolling HTML pages of yesteryear, complete with blinking icons and spinning globes.  While both the tools and the professionals using them have improved over time, quite a few law firms continue to waste time and money because they deploy their marketing tools ineffectively.  Publishing a website but doing little to drive traffic from qualified buyers is much like printing a pretty, glossy brochure and advising potential clients to visit your office lobby if they want to read it.

Many law firm marketers and leaders focus on the design or even the usability of their firm’s website, yet ignore the confusing area of search engine optimization (SEO).  Even many who invest in SEO efforts do so with the underlying assumption that their targeted buyers rely on the popular search engines to inform their buying decisions… it sounds logical, but is it actually true?  But it’s not just about websites.  It’s not too hard to identify the many associations and events populated by target clients.  Still, knowing this and actually sending lawyers to participate are two very different things.

And this is where legal directories come in.  While law firms can do a lot of outbound promotion of their credentials, it’s challenging and expensive to attract a lot of quality, and qualified, inbound traffic on a website.  While law firms can send lawyers to mingle with potential clients, they can’t send lawyers everywhere.

A sophisticated law firm marketing strategy plan will identify the ideal targets for the firm’s offerings.  The subsequent tactical plan will outline specific actions to increase visibility with these targets, to demonstrate expertise and to convert targets to clients.  Reaching the target audience requires being visible in the places they visit, prominent in the publications they read and, of critical importance, being part of the consideration set when the buyer is ready to buy.  Some marketing tools are effective at generating awareness, e.g., advertising, sponsorships.  Others are effective at demonstrating expertise, e.g., speaking engagements, articles.  Some offer a little of both, e.g., websites.

Now let’s play this out.  We’ve identified a target market, consisting of potential clients in a specific industry located in multiple jurisdictions globally.  We’ve purchased some search engine keywords to drive traffic to our website, we’ve secured a speaking engagement for one partner on a panel at a leading industry conference, another partner has been invited to contribute a monthly column in a trade publication, we publish a blog of legislative and regulatory changes impacting this industry, we send several lawyers to various industry association meetings, we advertise in multiple trade publications and we sponsor quite a few industry events.  The aggregate cost of these tactics is $250,000, assuming our search engine key words aren’t in high demand, or the cost could easily reach ten times this amount.  And lest we quibble over the amount of this imaginary investment, trust me when I suggest this is a very conservative estimate.

Now imagine there’s a legal directory that also targets this industry.  It offers a monthly e-newsletter containing lawyer-authored articles to thousands of opt-in industry decision influencers and decision makers.  A section of the legal directory website is dedicated to showcasing the unique talents of the law firms serving this industry.  The legal directory search engine allows industry insiders to research law firms claiming industry expertise, and provides users with quantifiable evidence of expertise to help differentiate from those law firms merely aspiring to enter this market.  Imagine that visitors to the legal directory website can click through to the member law firm’s own website, and this traffic represents a meaningful portion of overall traffic to the firm’s website, with the added bonus that these inbound referrals clearly represent qualified and quality traffic, and not, say, law students trolling for employment opportunities.  And what about the legal directory’s ranking of law firms specializing in this industry, compiled by editors who conducted independent and objective research.  In addition, perhaps the legal directory allows clients to provide commentary about the capabilities of the law firm, so that other interested buyers can make more informed decisions.  And what if the legal directory forms an alliance with the leading industry association to embed a lawyer search engine on the association website.  Perhaps the legal directory offers online discussion forums where lawyers can contribute to substantive discussions in their practice area and engage potential clients in a running dialog.  And finally, what if the legal directory can provide statistical evidence that the sum total of its efforts influence buying decisions?

There may not be a legal directory that does all of these things, or at least all of these things for all practice areas and industries.  But some may provide a host of meaningful opportunities to increase visibility and demonstrate credibility to a targeted market.  And that’s the whole point.  All legal directories aren’t created equal, and just because one doesn’t suit your firm’s needs doesn’t mean another won’t.  To be clear, in some cases there may not be any legal directory that meets your needs.

None of the above are unique tactics that a law firm itself couldn’t adopt.  However, the scale of the investment to replicate the volume and quality of the traffic generated, to reach such a high number of qualified potential targets, and to sustain this visibility and demonstrate this expertise over an extended period of  time, would cost substantially more than the modest investment above.  Imagine if a law firm could obtain access to these benefits by participating in a legal directory for $10,000.  Or $50,000.  Or maybe it’s $150,000.  Perhaps it’s $250,000.  This price may seem high as a single point statistic on an invoice, but is it?

The point is, the value of such an investment can be effectively measured only by comparison to the alternatives.  If the firm can find a way to reach the target audience in a similarly effective manner at a lower cost, it should run, not walk, to do so.  There’s no rule that says a law firm should invest in any legal directory, any more than it should invest in a website or in publishing client alerts or printing glossy brochures.  It’s merely a function of how buying decisions are made with the target market, and what tactics influence buyers and buying decisions.  Some firms — though thankfully fewer than in previous years — still believe that marketing is about answering the phone in a timely manner.  And for some firms, this may be so.  For the rest, marketing is about investing thoughtfully in tactics that will provide a return.

So what does this mean for the “Martindale question?”  The analysis should contain a disciplined approach to weighing alternatives, comparing the costs of reaching targeted buyers through various means.  If a law firm leader is convinced that the firm’s particular target audience can be delivered without investing in Martindale-Hubbell’s legal directory, then this is an easy decision.  If the analysis suggests that Martindale-Hubbell can be a multiplier to the firm’s own marketing efforts, and through careful negotiations the cost to participate is tolerable, then this is also an easy decision.

Likewise, it’s okay to opt out simply because you want to save money and since others are doing so it’s seems like a safe decision.  But let’s not pretend it’s a rational marketing decision.  It’s also okay to invest time and energy in directories that provide little access to clients, but that allow the partners to boast of obtaining a top ranking in their practice category.  But again, let’s not pretend we’re making a rational marketing decision.

Many pundits will talk about the scourge of legal directories, or the demise of Martindale-Hubbell in particular.  My approach is more circumspect when advising my law firm clients.  Such investments are derived from analysis, not hysteria or conventional wisdom.  Even we supposed experts should be ignored if we enter the discussion with a pre-formed opinion.  I certainly don’t feel qualified to advise a law firm leader of the effectiveness of his or her marketing investments until I study what he or she is trying to accomplish and what alternatives are available to achieve these objectives.

Some years ago a law firm hired a chief marketing officer from outside the legal profession, and she had no prior knowledge or pre-conceived notion of the effectiveness, or lack thereof, of legal directories.  At first she was a client but over time we’ve become friends.  When we first met she relayed that many of her partners and staff encouraged her to drop all directories outright.  Instead, she commenced an exercise to analyze the reach and effectiveness of each of the firm’s existing legal directories, and invited representatives of other legal directories to provide quantifiable evidence of their product’s reach and effectiveness.  In the end she canceled many, added a couple, scaled back a few, and augmented some, without regard to internal politics or favorites.  She even declined a fully-paid trip to an industry conference, sponsored by one legal directory provider desperate to influence her decision.  Her announcement memo to the partners overseeing her analysis was detailed and disciplined and effectively eliminated any arguments, so everyone could go back to work.

I recently had coffee with my old friend and I asked her how it all worked out, with several years to analyze results.  She laughed and said that not every decision has worked out in the long run, but she feels confident that her analysis is as sounds as it can be, and certainly more effective than her firm’s competition.  She’s now earned the credibility to act quickly and without onerous committee oversight, so each time one of her major competitors makes a hasty decision to reduce its spending on sponsorships or advertising or directories in areas her firm targets, she tends to increase her investment in order to capture the traffic the competition has given away.  This works for her, and though it may not work for the rest of us, how many of us are prepared to submit our decision criteria against hers to justify our marketing decisions?  I didn’t think so.

One final note: the Martindale-Hubbell discussion isn’t complete without acknowledging that the organization and the product offering has changed dramatically in recent years.  Countless wannabe pundits have concluded that “no one looks for lawyers in books any longer!” as if they’re the first to offer this startling revelation.  If your analysis of legal directories, whether Martindale or any other, fails to consider the online and in-person components of the value they deliver (or claim to deliver) then your analysis is outdated.

“Call me naive, but it had simply never occurred to me that other schools might have their own celebrity circles. At the age of twelve, I thought the group at E.C. Brooks was, if not nationally known, then at least its own private phenomenon. Why else would our lives revolve around it so completely? … But what if I was wrong? What if I’d wasted my entire life comparing myself to people who didn’t really matter? Try as I might, I still can’t wrap my mind around it.”

When You Are Engulfed in Flames; Little, Brown & Company; Copyright 2008

A law firm managing partner recently asked me to meet and calm down a senior partner after his latest outburst over what he considered poor marketing practices. Apparently the partner is a BIG DEAL. Everyone knows him. Presumably his presence is one of the factors laterals and incoming associates consider when choosing whether to come on board. He’s one of the top rainmakers. He’s well known to both political parties and has been considered for high office several times.

Or so I was told by the marketer as we prepared for the meeting. I had never heard of him. I’m fairly knowledgeable about the legal marketplace, and his name meant nothing to me. Nothing at all.

The senior partner was as articulate and bright as I had been led to believe. He had a sincere desire to grow his practice. He believed that if the firm overall and the marketing minions in particular would simply act as he directed, his practice would thrive. The practice was doing well by any measure, except that in his view inferior firms with inferior talent were winning engagements that should come to him. Not only was this senior partner more accomplished than the competition (and arguably he was as good as he claimed to be) but the various General Counsel who had been hiring the competition were often his personal friends.

We quickly learned that the senior partner did not regularly reach out to his personal network. Many of his friends didn’t explicitly know about his practice. Much of his practice consisted of referrals from past clients. And they appeared to be pleased with his work product. But he didn’t land many of the noteworthy clients in the news who needed exactly what he offered.

To me, the challenge was simple. We needed to raise his profile. I was strongly encouraged not to express this opinion, because it would set the senior partner off on a rant. Furthermore, it was wrong. Everyone knows who he is! It would be an insult to suggest otherwise.

In troubled times like these, we need to really question our own rhetoric. It’s perfectly fine for a senior partner at a large law firm to believe he’s well known and popular, so long as he understands the practical reality that his popularity often extends only to the boundaries of his own “school.” There are plenty of other schools and they have their own cool kids. So as the man once said, get over your bad self.

My advice to the senior partner: Work the phones. Reach out to your network. Author a blog. Write an article. Give a webinar. Deliver a speech to a trade association. Take specific, tactical action to inform your network about the work you do. Don’t assume your prominence and popularity will automatically lead to new business.  To his credit, he turned out to be gracious in the face of my startling revelation that he wasn’t universally recognized. He seemed to embrace my contention that the sheer weight of his impressive credentials won’t, on its own, result in a deluge of work, but that by working his extensive network he could easily produce results.

Winning business isn’t a high school popularity contest. And even if it were, it’s safe to assume no one’s ever heard of your high school. So go make some new friends.

A portion of this post previously appeared on my personal blog.

Wikipedia offers a sound albeit unsourced definition of procurement:

Procurement is the acquisition of goods and/or services at the best possible total cost of ownership, in the right quality and quantity, at the right time, in the right place and from the right source for the direct benefit or use of corporations, individuals, or even governments.

Taken in this light, who could argue that procurement doesn’t serve a vital role in the conduct of business?  Too often, alas, procurement draws fair criticism as the business function that values cost savings over long-term relationships; that reduces all goods and services, no matter how value-added, to commodities which can be differentiated on price alone; and that relies on negotiating tactics one can imagine being employed by Attila the Hun when dealing with vanquished foes.

But these are epithets we typically direct toward the procurement managers negotiating the value of the services we offer.  How dare our client’s procurement manager not recognize the clear distinction between what we offer and the sub-standard offering of our inferior competitors.  On the other hand, when we’re negotiating with our suppliers, those charlatans who try to drain away our hard-earned profits, then by all means our own procurement manager needs to take an aggressive negotiating stance to protect our business.

Can’t we all just get along?!

Procurement is a necessary and important function in the conduct of business.  But there is an inherent tension in carrying out this mission.  The Institute of Supply Management, an association of procurement professionals, asserts that its members must promote positive supplier and customer relationships while upholding one’s fiduciary responsibilities and deliver value to one’s employer, but do so without the appearance of unethical or compromising conduct.

Spend enough time in business and you’ll encounter an evil procurement manager.  I have fond memories of the procurement manager who was hired several months after my team negotiated a mutually successful long-term agreement with our client.  She called our accounts receivables clerk to demand assurances that the contract would be abandoned in lieu of one more favorable to her employer, then threatened a lawsuit when the frightened clerk squeaked that she needed to speak to someone higher up the food chain.  By the time I was engaged, the procurement manager was practically frothing at the mouth, spouting sobriquets like “But you have to do what I say, I’m the customer!”  We were sure to carefully document our conversations for future use when, as sure as night follows day, she proudly announced to her superiors that she had won concessions that we hadn’t even discussed let alone agreed to.  “I’m not singling you out, you understand” was her explanation, “My job is to reduce our vendor costs no matter what it takes.”

Therein lies the challenge.  This procurement manager did not have a full understanding of the total cost of ownership.  As we’ve written in this space previously, the cost to an organization for any product or service is more than merely the price tag.  Selecting Product A because it has a lower sticker price than Product B is hardly a wise choice if Product A is incompatible with our existing systems and therefore incurs significant customization to function effectively.  Likewise, a lawyer charging $425 per hour but who has a terrible track record of staying on budget may be a worse bargain than the lawyer charging $650 per hour but whose budgeting capabilities are precise.

And one must consider switching costs too.  If I hire a plumber to fix a major leak from my hot water heater, and in a fit of pique over high costs I fire the plumber while the parts are scattered across the floor, the leak will continue to generate costs in the form of water damage while I seek a replacement plumber at a fraction of the cost.  Changing lawyers mid-trial, relocating your office across town to save a few dollars per square foot and scrapping a software implementation after a significant investment in training in order to find a lower per seat license cost are examples of business decisions that run the risk of emphasizing price tag shopping over the total cost of ownership, if we don’t fully think through the implications and downstream impacts of our decisions.  In our above anecdote, the procurement manager demonstrated no understanding of the concept and therefore damaged valuable business relationships in her quest to save a few dollars.  If your supplier is fungible, damage away.  If you may need that supplier again, take a long-term view.

Those who sell services which aren’t commodities, or at least those who aren’t willing to admit they sell commodities, fear the procurement manager who reduces all potential suppliers to the lowest common denominator — namely price — without understanding the context.  But many service providers are lazy and unhelpful in demonstrating why their services are different and therefore more costly than the alternatives.

A well-trained procurement manager will seek to unpack the value in an offering.  For most products and services offered in a moderately efficient market, there will be a base cost to deliver services below which no supplier can reasonably sell its product and still make a sustainable profit.  And in most competitive markets, there isn’t wide disparity in profit margins between competitors.  So if we can assume that within reason everyone can make and sell the same product for roughly the same cost, then why are there differences in price?  This is the procurement manager’s quest — to understand and quantify these differences without the undue influence of past relationships or conventional wisdom.  Just the facts, ma’am.

In this visual, we see the base cost.  A good procurement manager can even identify the increased cost of a comfort brand.  In many lines of business there’s that one reference point, a supplier at the high end of the food chain, one whose prices are higher but whose reputation is impeccable, so that if I purchase from them, I’m immune from criticism for making a poor choice of suppliers.  Let’s call that the “brand safety” factor.  There’s no shame in acknowledging that sometimes we make safe purchases and that we pay extra for that safety.

What remains is an “X” factor, or an unexplained difference between the costs of two apparent substitutes.  A good procurement manager will seek to explain and potentially reduce this difference, first by ensuring that the product offers what is needed and not more, nor less.  This is the true function of an RFP (a request for proposal), to ensure an apples to apples comparison of alternatives.  Absent clear guidance on what is needed, it’s a challenge to compare alternatives.  A favorite tactic of some former colleagues of mine who should be elected to the Sales Hall of Shame is to “throw in” as many unnecessary items as possible, allowing them to reflect a much higher starting cost and then apply discount after discount to achieve what appears to be a compelling and substantial “effective discount” off list price.  In the end the customer may get what he wants but at a higher price, and by the way he wins a lot of crap he doesn’t need.

A law firm that can demonstrate its prowess in managing to a budget through effective project management, that keeps the client fully informed of any changes to expectations, that staffs appropriately and doesn’t “overwork” matters or expect clients to subsidize young associate training, is in a better position to present clear, quantifiable evidence of its higher rates.  A software vendor that has documented compatibilitywith existing legacy systems, thereby keeping integration costs down, may have a strong case for higher license fees.  In each case, the approach reduces total cost of ownership.

Those sellers who have the most to fear are those whose price points cannot be reasonably be justified, or quantified by an independent outsider.  It’s not enough that my CEO and your managing partner are golf buddies.  It’s not enough that we’ve done business for a long time.  If I cannot unpack why your rates are significantly higher than some apparent substitutes, and you can’t articulate it either, then I’m compelled to explore alternatives.

But let’s not kid ourselves.  We sometimes forget these principles when looking at our own cost structures.  It’s a sad but not uncommon situation that large buyers will squeeze their defenseless suppliers.  Some years ago I hired a consultant to handle a project when the internal resource dedicated to the task resigned abruptly.  I had moved on by the time the project was complete, but I learned that my former law firm employer gave the consultant a 60 cents on the dollar take-it-or-leave-it offer to settle the final invoice.  The law firm’s procurement manager reportedly dimissed the injustice: ”We’re a global law firm.  What are you going to do, sue us?”  The sad irony is that the law firm took this action as part of a massive cost-reduction effort, initiated in part because its own corporate clients were spending less, at the recommendation of the corporate procurement managers.  Justice served?  Or just a sad cycle of frustration?

When your organization comes up against a procurement manager, this is a good opportunity for some self-examination.  Are we able to articulate why our costs are higher than our competitors?  If not, why not?  Rather than assume our competitors are using predatory or lowball pricing to steal work away, is it possible that we’ve failed to recognize the inexorable march to commoditization of our products and services?  Do we assume our brand carries with it more prestige and “safety” than the market?  Maybe our competitors have devised some innovative ways to deliver more for less.  Their lower pricing may reflect this innovation, suggesting they can remain profitable at a lower price point.  And yet we assume they’re losing money because we can’t offer similar savings.

When hiring a procurement manager, focus them on total cost of ownership.  Saving pennies on discrete costs is fine, so long as the impact of these choices doesn’t result in higher fees over the long run.  In organizations with many silos, a procurement manager may be in a unique position to recognize opportunities to consolidate services, to seek lower-cost alternatives, to adjust business practices to save money.  This means they put a spotlight on us as well, and not just on our pencil vendor.  If we’re serious about controlling costs, it has to start with us.

If you’re a procurement manager, please stop issuing RFPs asking 127 questions for which you have not a clue what you’ll do with the responses to 120 of them.  Be clear that your role is to maintain positive business relationships with valued suppliers, but help identify those whose costs are not aligned with the value delivered.  Times change, prices increase, needs fall out of synch with what’s sold, but except in a few cases the sellers aren’t charlatans and the buyers aren’t ignorant weasels trying to extort kickbacks.  Shine the light of day on the commerce of your business and start with those areas which are most easily recognizable as commodities.  As your colleagues begin to trust your process, you can then move on to the more sensitive areas, where we business managers tend to protect our turf.

Let’s all be prepared to take our medicine.  For some of us, the increased use of procurement managers may be a miracle cure leading to lower costs and new business opportunities.  For others, well, the cure may end up killing us.

Many years ago as I was beginning my sales career, I struggled with time management.  More specifically, I didn’t have enough time in my day to pay equal attention to all of my clients and prospects, and without a system to prioritize my time it seemed I was always in the wrong place at the wrong time.  This was compounded by the fact that I couldn’t easily recall which client had already purchased or rejected our many products, so I wasted a lot of time re-selling.

A helpful sales manager explained to me the concept of a “white space” analysis.  In short, she explained, list your clients on one axis and your products on the other axis to create a simple grid.  Where a client has already purchased (or rejected) a product, put an “X” in the intersecting box.  Do this for all clients and all products.  The open boxes, the “white space,” reflect your opportunity focus.

Preparing a white space analysis is a simple but effective tool to allocate your limited time and energy to those opportunities that matter.  When I conduct law firm business development workshops, if there isn’t a white space analysis in place already (and there typically isn’t) then we prepare one.  And many organizations stop there.  But savvy marketers know this isn’t enough, not nearly enough, to truly identify the appropriate targets.

The greatest challenge with the white space analysis is its lack of context.  Sure, Client 4 lacks Products A and D, but this says nothing about whether or not Client 4 needs them.  The car salesperson who exerts a lot of energy trying to sell the off-road package to the 75-year old grandmother purchasing an SUV may not generate a good return on his investment of time.  The law firm trying to cross-sell its IP practice to its mutual fund clients may find a less than receptive audience.  The legal vendor trying to sell complex litigation case management tools to a law firm engaged primarily in estate planning may end up buying a lot of free lunches for uninterested buyers.

Similarly, no organization should promote every product equally.  Some generate higher profits, some create long-term switching costs, some products are new and need traction whereas others are fading in prominence.  Many law firms, in part because of a lack of marketing sophistication and in part due to politics, will pay lip service to providing marketing and business development support equally across all practices and partners.  This is folly.  Why invest equal time and energy promoting the practice that has the greatest price pressure, the one in which clients are fleeing to the low-cost providers, while another more lucrative and in-demand practice struggles to stay on top of its RFP responses or to manage its networking functions?

The more advanced approach is to incorporate internal and external data points to generate a more robust footprint of the ideal target or client.  In most organizations, a great deal of attention is directed toward the highest-revenue producing clients.  But a large purchase could vault a client onto this list in a given year, while next year it fades back into oblivion.  A better metric is lifetime value.  In a law firm this may be the client that generates above-average fees for 5 or more years, ideally across multiple practices.  For targeting purposes, perhaps the company within a specific SIC code in which the firm has unique expertise, that has a geographic footprint similar to the law firm’s, and with needs spanning several practice areas, is a more appealing prospect than the Fortune 50 or FTSE 100 corporation which just happens to have a large facility nearby.

The incorporation of these other data points is what I call a “green space” analysis.  We start with the white space grid and then we continue to narrow our focus.  Of the clients and targets identified, which best fit the model of the ideal client?  Furthermore, which of these clients are in growth industries and are on a solid financial footing?  Internally, which practices generate — at the moment — a proportionally greater return than the others?  Which practices have a true competitive advantage (something more definable than “our lawyers are better”)?  Which practices have the bench strength to mobilize quickly if our efforts generate new leads?

The data points one selects will vary by firm.  And they’ll vary from year to year.  The “ideal” client is a moving target, of course, but it’s far more beneficial to pursue ideal clients and targets than to assume the highest revenue producing clients from last year, or the biggest companies in town with whom we don’t already have a working relationship, are the best opportunities for us.

Several vendors provide assistance in defining the ideal client.  I’ve been successful in incorporating Dun & Bradstreet information into a firm’s targeting efforts.  The D&B data points such as SIC codes, geography, size, as well as their comprehensive corporate tree information, can provide some interesting insights when coupled with a firm’s own client data, e.g., from its time & billing or customer relationship (CRM) databases.  Thomson Elite, the leading time & billing enterprise suite for large law firms, offers similar capabilities.  I’ve long been a fan of Redwood Analytics, now a LexisNexis company, which provides deep marketing and operational insights for financial and matter management.  I recently had the occasion to review a new “client profiler” tool which combines data from Redwood, LexisNexis, Martindale-Hubbell and AtVantage — all products in the LexisNexis client development suite — to offer up much of what I describe above in the green space analysis.

The tools one uses are immaterial if the underlying concepts are forgotten.  In fact, I submit that the first attempt at establishing a green space analysis should start with a flip chart or whiteboard, and the opening exercise is establishing which internal and external drivers we value most.  Long-term retention or short-term growth?  Enjoyment and intellectual challenge or less exciting but repeatable work?  Big clients with many needs or small clients with limited needs?  Complex businesses with ongoing needs and significant negotiating leverage or businesses with isolated, one-time but substantial and potentially price-insensitive needs?  And so on.  Once we establish the parameters, we now know the queries to enter into our existing systems, or at least we’ll have an understanding of the types of tools we need to acquire to conduct this analysis.

When farming your internal and external data to narrow your focus, there’s no perfect planting or harvesting season, though it makes sense to start early in the year when budgets are available to deploy against the greatest opportunities we identify.  But don’t wait too long, because every day you wait another X is added to the grid by your competition.

Our panel, led by our energetic organizer Christa Crane of Freshfields, chose to take a slightly different approach.  We highlighted specific examples where marketers used data to drive decisions, obtain approval for solid marketing ideas or even gently reject a lawyer’s pet project (like sponsoring that 5k run in the lawyer’s hometown!).  We felt the case studies would serve a dual purpose:  provide specific techniques that other marketers can employ –  events planners would learn some tips on event planning, for example — and also provide an approach that could be adapted in other functions – maybe a CRM technologist could translate some techniques that worked in the launch of a website.

My fellow panelists are accomplished legal marketers, and each has had plenty of experiences from which to draw in order to illustrate their points.  Sandi Sonnenfeld of Pillsbury discussed the interpretive skills needed when engaging a lawyer in a discussion of Public Relations.  “The client won’t want us to publicize this” often means “I’m not comfortable asking” for example.  Alison Gordon of Bryan Cave discussed the firm’s financial dashboard which provides helpful insights into a lawyer’s new business production, data that can be very helpful in identifying which marketing efforts may be most impactful for a specific lawyer.  Ginger Donnan of Ginger Donnan Events provided a detailed events planning blueprint with accompanying procedures and guidelines to ensure that marketing events generate a definable return on investment.  Linda Sparn of Schulte Roth provided a roadmap to securing technology investment by quantifying the impact of efficiency.  In one example, she presented how electronic media tracking tools from Concep can identify which publications and newsletters generate the greatest reader interest.

Many of the techniques boiled down to these simple headlines:

Rely on facts, not beliefs or aspirations. As marketers we tend to chafe when faced with what appears to be a poor idea.  “Let’s launch a new monthly newsletter to provide updates on recent trends in this industry.” We may have tried this 12 times previously, only to learn that only once out of twelve times did we actually publish more than 10 issues; in only 5 of the 12 attempts did we reach more than 500 readers; and the total of all click-throughs to our website from all published articles on this topic was 14.  But simply stating, “That’s a bad idea” isn’t enough.  Lawyers will more readily adjust their expectations when faced with data that supports, or fails to support, their ideas.

When selling an idea, assume no prior knowledge. If we’re proposing an idea to the firm’s lawyers, it’s helpful to assume they aren’t as well-versed in the details as we are.  Professional salespeople make this mistake all the time by assuming their audience has a similar knowledge base:  “You know product X from BigCo?  Well, our product is like that but it offers many more features.” Rather than assume the lawyer knows the details, gracefully and quickly refresh the details for him.

When buying an idea, assume no prior knowledge. As marketers, we fail to heed our own counsel at times.  When the lawyer suggests an idea we’ve tried before, we often leap to the conclusion that it won’t work the next time.  However, our decisions should be based on sound analysis of the current data.  Sometimes the circumstances that led an event failure last time may be different this time.  Or maybe the directory that was a lousy investment last year shouldn’t prevent us from investing in a more targeted one this year.

Offer alternative approaches, not just yes or no. We are all passionate about our ideas, but if we present only a single option because we can’t possibly reduce the scope, we may receive a flat-out rejection.  Much like the aggrieved author who endures the editor’s redlining, we should be prepared to offer alternatives rather than simply walk away defeated.  Maybe we can start with a pilot of the new software before investing in a firm-wide license.  Maybe we can test the new initiative with one practice group or office before rolling it out across the firm.

Success breeds success, and credibility. In a law firm setting, nothing generates attention more than success.  If we’ve been successful in investing the firm’s capital and achieving a notable return, let’s share that success story.  Tally up a few successes, and the next time we present an idea that may not be fully formed, we may get the benefit of the doubt that we know what we’re talking about, and that we’re good stewards of the partners’ capital.

Publicize successes and how you got there. But it’s not enough to merely broadcast the success.  Show how the sausage was made!  It can be very impactful to point out that the success of our beauty contest was due not to fairy dust and our fine pedigree, but to proper planning, the input of several practices, up-front research into client needs and several rehearsals before our presentation.  We want to reinforce the message that replicating the success requires replicating the process.

There were many other fine ideas presented.  We’ve been invited to add to these, incorporate a multitude of new suggestions, and deliver an encore presentation of the program for an upcoming webinar for the legal marketing community.  Stay tuned!

“…artists who are frustrated. I want the ones who have another way of doing things that nobody’s listening to… all the guys who are probably headed out the door.”

I’ve been a black sheep. I’ve recruited, trained and fostered black sheep. I’ve also recruited, trained and fostered, um, white sheep? You know — company men or women who toe the line, do what they’re told, and do it very, very well. No organization can survive without both.

Too many drones who do what they’re told without disruption or complaint and you have a profitable six sigma-certified business that runs smoothly until it’s obliterated by the competition. Too many black sheep with unbridled innovation and you have anarchy, like 1998 in Silicon Valley where any Stanford dropout could receive $100 million in seed money, a ping pong table and zero expectations for providing a sustainable, profitable business model! But in the real world, there needs to be a tension between keeping the trains running on time, and, if I may belabor the metaphor, developing new transportation systems.

This is not easy to do. Black sheep excel as individual contributors, and they thrive on breaking rules and flouting convention. Not only are they repelled by the typical staid corporate environment, most corporate environments reject them like mismatched organ transplants. Managers and leaders, even those with a little bit of black sheep in their own DNA, often lose these disruptor instincts as they become more adept at navigating the boardroom where, as often as not, you’ll find even senior executives who value collaboration and fostering a sense of unity over achieving the optimal business outcome.

One classic American dream is the innovator who’s rejected time and again by the establishment but in the end makes it big doing it his way. But there are more Tuckers than Michael Dells — Tucker’s automobile innovations were ahead of their time; Dell founded the eponymous computer firm in his college dorm room.  Not every black sheep generates innovation on the scale of Steve Jobs.  Also, innovation happens more often on a small scale than on a large scale.  Of course dramatic breakthroughs happen, but sometimes successful innovation occurs incrementally (so sayeth Seth Godin).  Every business on the planet needs to find ways to improve its widgets, which isn’t the sexy stuff of movies.

For black sheep who wish to lead, the challenge lies in adapting, but without losing the desire and instinct to confront the status quo. It’s hard to know when you’ve arrived. There are many good resources discussing the challenge of adapting one’s style, including Myers-Briggs Type Indicator, or Goleman’s work on Emotional Intelligence, or DuBrin’s Your Own Worst Enemy, or HBR’s The Young and the Clueless. They all speak to the need to evolve, to play the game, to develop a more collaborative style, because you can’t drive change from within if you can’t get in.

Some of us have a style which allows, even encourages, confrontation because it’s often an effective path to getting multiple views on the table, from which the optimal business outcome can be determined, regardless of who originated the ideas.  It’s not the confrontation per se that’s desirable, but the good ideas that flow when colleagues have the freedom to speak openly.  You may not like my idea, and you’ll illustrate all the reasons why your idea is better, but I understand this doesn’t mean you don’t like me.  And once the debate concludes, we head to the bar to celebrate with our colleagues after a hard day’s work.  But some don’t.

In many corporate boardrooms, and in many law firm boardrooms, there is a strong aversion to disruption, to confrontation, so after a tough session some will feel bruised, upset and confounded by the team’s inability to get along — forgetting that the team may have actually achieved the desired optimal business outcome.  Could the same outcome have been achieved by less confrontational means?  Undoubtedly. Would it have taken longer?  Who knows.  But there are different styles and without intensive regression testing in parallel universes, I’m not sure we’ll ever determine if there is a best style.

Black sheep should be cherished, when they have the ability to constructively disrupt and innovate. Never-deviate-from-the-norm types should be cherished for their ability to execute today. The best organizations, and the best leaders, embrace multiple styles and encourage different approaches to achieve optimal business outcomes.

Portions of this post appeared previously on my personal blog.

Jim advised the class that many leaders don’t share the same quotas as their sales team. Instead, many leaders set the sales goal higher than their own personal goal or the organization’s goal. So, for example, the sales team may carry a $100M target while the organization’s goal is $95M. What happens is that leaders place a bit of a cushion between the actual goal and the goal assigned to the sales team, ensuring that even if sales are slightly off the organization will still meet plan, and the leader earns his bonus. As each successive layer of management adds a little cushion, the goal carried by the sales team becomes even more disconnected from the reality of the organization’s goals. You can imagine what happens. Sales reaches $97M, or falls short of plan, yet leaders up the chain enjoy increasing rewards for over-achieving plan. Unsurprisingly, salesperson compensation and advancement are adversely impacted.

When I heard of this practice I didn’t believe it was that widespread. I was supremely naïve. I’ve since learned that nearly every organization where I’ve worked does this regularly. The practice is driven by a few factors, in my observation: Many leaders don’t trust their teams to submit accurate forecasts, which is of course a reflection on their own ability to attract and retain the right people; many leaders are too disconnected from the customer to truly understand the market forces, and thus they pad their forecasts to cover their own uncertainty; and too many leaders believe the rules are different in the corner office. There may be nothing illegal about such a practice, but my own moral compass finds it reprehensible.

However tempting it has been, however much we leaders can justify being rewarded for our hard work and tough decisions despite the organization’s performance, I believe ethical leaders should steadfastly refuse to take on a goal that’s more achievable than the goal assigned to the troops. During my many years leading sales teams and during my two stints leading organizations, I always carried the exact same revenue goals as my team. I don’t know that anyone knew or cared, and I don’t believe I should be rewarded for such a “selfless” act.  George Bernard Shaw is credited with saying “Ethics is what you do when no one is looking.”  Imagine the hubris of taking these actions even while everyone is looking.

This lesson can apply in other ways as well.  Stefan Stern, the Financial Times management columnist, whose writing I enjoy and with whom I had the pleasure to share a podium recently, shares an observation that even stalwart pro-market fans in London are concerned with the optics of paying excessive bonuses to investment bankers while many others visibly suffer.  The same challenge exists in the legal marketplace.  Should optics or ethics enter into a bonus discussion?

As the year winds to a close, some law firm leaders will boast of making tough decisions, then issue a healthy bonus and declare victory over the tough economy, hoping that these actions will send a message of strength and stability to clients and prospective clients.  But what message does this send to the many out-of-work lawyers and staff?  And will clients really be blind to the reality that profitability for many firms this year is primarily a function of cost-cutting, not brilliant business strategy?

Similarly, corporate executives will tally up the sales figures.  Few, if any, will meet the original revenue plan.  Most will not even meet the revised plan established in Q1 or Q2.  But many will meet the revised Q3 revenue plan.  And quite a few will still meet the original profit target because of deep cost-cutting.  In some of these cases, the executive bonuses were adjusted in tandem with the revised plans, allowing the executives to receive a full bonus payout by achieving the lower targets.  After all, if we don’t reward the executives for making the tough decisions, they might take their potted plants and high-backed leather chairs and go elsewhere, leaving no one capable of making the tough decisions!  (Retention is the primary justification for the bonuses paid to executives at the TARP-enriched businesses.)

Those who have been sidelined by the economic downturn plea for equity and fairness, almost to the point of expecting businesses to embrace socialism.  We don’t have to discard our business school training and capitalist mindset, however, to understand that sometimes our actions send messages that do not serve the long-term interests of the firm.  A clients who observes its supplier throwing employees under the bus may assume that his needs will be treated similarly if they somehow conflict with the executives’ (or partners!) needs.  Employees, and future employees (yes, hiring will return), will take note of how firms value their employees through their actions, not via their recruiting brochures, and direct their efforts accordingly.

Here’s hoping that some combination of ethics, compassion and long-term business interest will inform the decisions that law firm and business leaders will make in the coming months.

Portions of this post appeared previously on my personal blog.

We could go on for days discussing the need for yet another law firm rating system, and the pros and cons of closed vs. open systems, the merit of subjective vs. objective rating criteria, which criteria really matter, and so on.  In fact, that debate is already underway (here and here) and will likely continue — in part because debating lawyer ratings is as prolific and inevitable as the ratings systems themselves!  ACC would probably be even more effective were it to, shall we say, align more with others singing the same tune in order to amplify the efforts. But this isn’t a critique of ACC; they should be commended for helping to put a voice and a framework around issues many have been discussing for years.

What exactly is the value index?  Essentially, it’s a scoring system that measures a law firm’s efforts in six specific categories, plus an opportunity for unfiltered commentary, and ultimately the question at the heart of a client’s level of satisfaction:  Would you use this firm again?  For the six primary questions, the rating scales from 1 to 5, with 5 representing excellent.  Others may raise the oft-repeated criticisms that 5-point scales tend to regress to the mean, and that ratings systems often reflect selection bias because dissatisfied customers make their view known in greater numbers than satisfied customers.  I’ll merely say that simple is better if one seeks rapid adoption, and ACC’s approach appears to meet that challenge.

What are the six rated categories?

• Understands Objectives/Expectations
• Legal Expertise
• Efficiency/Process Management
• Responsiveness/Communication
• Predictable Cost/Budgeting Skills
• Results Delivered/Execution

I have yet to see clear and consistent definitions of these categories, so it’s likely there will be some ambiguity and disparity in how law firms and in-house counsel define and therefore rate law firm efforts.  But the entire rating process is subjective, so there will always be variability.  Nevertheless, I’ll give my two cents for what each category entails, with references to my earlier blog postings reflecting the same themes. (As I said, there are multiple voices discussing these issues!)

Understands Objectives/Expectations – I don’t know whether ACC has listed these categories in order of priority, but if so then this is an apt place to start.  So many engagements falter, and costs exceed expectations, because the outside counsel and in-house counsel don’t have the same understanding of the desired outcome and the path to get there.  In business, surprise can be a fatal mistake, so setting proper expectations is critical.  In-house counsel share responsibility in not just explaining the issue, but if they have ideas on the optimal process to achieve the desired outcome they had best reveal it.  This doesn’t mean the law firm must adhere to the approach — after all the in-house counsel is often paying for the outcome — but this should generate a dialogue regarding what’s expected, and what level of risk the client is willing to take.

Legal Expertise – Many lawyers believe this is the primary asset the client is buying.  But in many cases, it’s really just the table stakes to get in the game.  The firm wouldn’t even be considered for the work if there wasn’t already a belief that their legal chops are superior.  So it’s not enough to do the work, but demonstrating innovation and an in-depth understanding of the relevant guiding authorities, based on prior experience, is critical.  This isn’t done by producing a deal list, substituting quantity for quality, but by regularly discussing strategy with the client, identifying alternatives, and calculating the costs of different approaches, including doing nothing.

Efficiency/Process Management – This may be the single greatest growth area in law firm management discipline in the coming years.  General contractors build tall buildings incorporating tens of thousands of raw materials and pre-fabricated parts and relying on hundreds of sub-contractors and vendors over multi-year construction horizons.  Yet lawyers often insist that managing a deal or complex litigation is a unique experience requiring a new approach each and every time.  “No more!” demand the clients and, more to the point, the clients’ clients.  The challenge is that billable hours drive hourly-based compensation but do not encourage efficiency, to say the least.  As more clients insist on alternative fee arrangements, lawyers must become better project managers, wringing efficiency from processes they’ve performed or led hundreds of times in the past.  Only now the price of inefficiency is borne by the firm.  And if the client is dissatisfied, then there are growing alternatives, and these organizations are all about efficiency.  (Interestingly, this post places some of the blame on law school training, which teaches lawyers how to pull an all-nighter but not how to manage a long-term project!)

Responsiveness/Communication – Many lawyers read this as speedy response times and 24/7 accessibility.  Of course there are clients who define responsiveness in this manner, but as often, probably more often, the better definition would be keeping me apprised of progress so there are no surprises, and so I can develop contingency plans when the unexpected occurs. This also means providing clear updates rather than confusing obfuscation.  Relying on the all-too-often inscrutable notes entered by each lawyer at time entry to inform the client of the project’s status is insufficient.  Reduce the noise to a simple dashboard report, reflecting progress on key deliverables and highlighting questions and potential challenges.

Predictable Cost/Budgeting Skills – Hand in hand with project management skills are budgeting skills.  Imagine in our construction scenario above that two general contractors are competing to win the project.  One relies on long experience to provide forecasts and budgets within certain ranges and expectations, while the other claims similar experience but suggests that complex construction projects are too variable to pin down a forecast or adhere to a budget.  Who wins the work?  It’s that simple.  Law firms that develop some rigor in providing forecasts and budgets will have a competitive advantage over the firms clinging to the “it’s too uncertain to know” school, and they will have a greater opportunity to employ profitable alternative fee arrangements.  Sound financial management isn’t the same as trying to win new work by lowering rates.  As many law firms have learned, at times the client is as concerned about predictability as total cost, so those firms that reduce rates when what’s really needed is more predictability are leaving revenue on the table.

Results Delivered/Execution – Many lawyers read this as achieving a certain outcome, such as winning in litigation or closing the deal.  Business people often define the outcomes differently, based on their tolerance for risk and their business objectives.  Is the goal to launch the new product in a timely manner and generate new revenue streams, or is it better to delay the launch until every potential avenue for loss of IP protection can be identified and addressed?  Is the goal to win the suit, or to balance litigation and public relations costs with winning?  It’s critical that law firms know explicitly what outcome is desired, and orient their actions to that outcome.  Sometimes the best choice is to do nothing.  Sometimes business people knowingly choose paths that expose them to legal risk, but they accept risk in every decision.  The role of the lawyer is to inform these decisions, to help quantify the costs to the business of the various viable approaches.

There are some understandable concerns with the ACC Value Index.  For example, at present, law firms do not have the opportunity to view any client feedback, though that ability will come in due course — else the exercise would be somewhat ineffective in changing the behavior of those law firms rated poorly.  The anonymity of the program may lead some law firms to dismiss negative feedback.  And there will be some uncertainty as to what constitutes excellent rather than mediocre performance.  The age old questions ”What are we doing well?” and “What can we improve?” have found a new locale but the fundamentals remain the same.  It’s now more important than ever before to implement a structured and permanent client feedback program that starts by asking the questions relevant to the ACC Value Index, but delves more deeply into areas of particular strategic importance to the firm.  Only by knowing how clients feel can we improve.  And the best way to learn is to ask, something too few firms do according to numerous studies.  If simply asking can be a differentiator, just imagine the loyalty a law firm can engender by actually acting upon client feedback!  So why wait?

For additional insights into the Value Index, see this post by Fred Krebs, ACC President.