There was a time when law firm life was comparatively easy. The hourly rate dictated every aspect of legal business. Lawyers made their careers off the back of it and clients toed the line. Firms set the rules of engagement, and secured phenomenal growth propelled by year-on-year record profits.
It’s little surprise then that clients started pushing back against this clear imbalance of power. But it would be the ever-stronger need to drive shareholder value in the face of fast-globalising competition, and intensified by the impact of global recession, that would accelerate the change. Now the buyer holds the reins. Nowhere is this clearer than in how clients are driving law firm pricing.
No surprises
“Clients are looking to ensure they are getting maximum value for their legal spend. They are seeking budget certainty wherever possible, and they want clear visibility of the status of their work by external providers with a no-surprises working relationship,’” says Darran Stevenson, head of commercial analysis at Berwin Leighton Paisner.
These demands are no greater than corporates have long had to deliver for their own clients. But it’s arguably more challenging for law firms, as they must quickly shift from what has long been an internal focus on the needs of the legal business to an external one, in which the client and their perception of commercial value comes first.
“Before pricing a piece of work, put yourself in your client’s shoes, and ask yourself − honestly − where you get the value. It’s likely to lie in a combination of factors, whether in saving the client time and money, ‘just’ managing overflow or, alternatively, getting a business-critical job done,” says Laurence Kaye, digital media partner at Shoosmiths. “The value may also be personal to the client, such as building an in-house lawyer’s reputation within his or her organisation. Then rank all these value points and build the pricing model from there.”
Pricing professionally
Not that it stops there, of course. Pricing models underpin the whole business. Making them work in a way that will secure profit while satisfying clients has strategic and operational implications that impact everything from highest-level decisions around maintaining and building market share to agreeing day-to-day staffing needs. For most, it’s also one that remains work in progress.
“Pricing needs to be flexible with differing techniques adopted for appropriate packages of work,” says Stevenson. “To remain competitive firms will have to adapt the way services are provided and challenge their thinking around resources and delivery models deployed. Pricing specialists working closely with process improvement, project management and business development specialists will play a key role in supporting this change within the sector.”
As recruiters, we’ve seen this shift in action. We noticed the trend developing in 2013, when more firms started seeking support to appoint dedicated pricing professionals. Each role was slightly different depending on the nature of the business, but common themes soon emerged, including a requirement for strength in financial modelling, excellent project management skills, commercial astuteness with excellent analytical skills (qualitative and quantitative), and a good understanding of pricing theory and its implementation. We don’t see the trend in any way abating as 2015 speeds on. If anything we see the pricing expert fast becoming a norm of legal business.
Looking out
But as firms compete to win talent, the search is getting broader for more specific skillsets. “Today’s management professionals are bringing some well honed skills and experience gained from outside the legal sector with them, particularly from the outsourcing industry, where margins tend to be thin,” says David Thomas, head of legal service delivery at BLP. “Today’s professionals are increasingly adept at financial modelling, performing trend analysis and taking advantage of opportunities to generate incremental fee income using established project management techniques as they go.”
For some years after publication of Richard Susskind’s The Future of Law in 1996, there was talk of how law firms would need to radically change to survive. But the years that followed were largely business as usual. Now (and in the wake of the collapse of several major law firms), we can truly say that the world has changed. At Totum we are privileged to be in a position to continue to help law firms source the expertise they need to manage processes in an ongoing age of transformation.