I have been very remiss in not posting the last of our blog posts on 'Defining and Delivering Value in Pricing and Client Relationships'.
In this final post, I would like to share some thoughts on how law firm and law department can work more closely together to both define and deliver value.
Remaining 'vague about value'
I would like to take a slight step back and borrow heavily from an useful study done a few years ago by Nabarro, a UK-based law firm, aptly named 'General Counsel: vague about value? '.
The key reason for doing so is that I think this provides a helpful framework for us to consider when trying to determine the value that law firms can provide to their clients.
What stood out from this survey were a number of key points, and although not necessarily directly applicable in all client situations (or indeed, jurisdictions), certainly provide some key directional observations which I think are relevant to all.
As part of the study (and also the previous one conducted), Nabarro introduced the concept of the 'value pyramid' for the in-house legal function. This effectively divided tasks conducted by an in-house legal function into one of four levels.
Those tasks within the first level involved those which had the potential to deliver the greatest value to the business (such as strategic planning and introducing commercial opportunities), and those in level four being seen as the 'essential but 'bread and butter'' type activities (such as 'getting the job done', and working with stakeholders), with degrees of variation in between.
The survey unsurprisingly found that GCs (in particular) were keen to move the perception of their function towards those activities towards the pyramid's pinnacle (shifting from a 3% figure for those tasks at the top level, to 29% by 2015).
The key survey findings (for our purposes) were as follows:
(1) just over half of the GC's surveyed said that the in-house legal team was recognized as adding value to the business, with some going onto state that the team was ' . . not felt to add substantial value, or that recognition was partial or superficial.'
(2) Eighty percent of GCs agreed that improving cost effectiveness was either important or very important; and
(3) fewer than half saw external lawyers as partners in delivering financial value, with over three quarters not quantifying the value-added services received by law firms.
All in all, not a very rosy picture for either the GC or external law firm, with there being a sense of 'much activity' going on but little recognition of the relative contribution of each.
Rather than law firms waiting for their clients' to therefore determine how they can best deliver value to them, law firms should therefore become much more proactive and make it easier for their clients to both recognise what value we are delivering to them, and also make it easier for them to communicate this value within their own organizations. Those that grasp this early will be much more successful in both the conversion rate of their pitches but also in the strengthening of their client relationships.
Learning from the Romans
The Ancient Romans had a word for it. Pretium. Some readers will know that this is the Latin term for 'price'. However, less may know that it is also the term for 'value'.
Put simply, our Roman friends used the same word to reflect price and value. They understood the fundamental connection between price and value in any economic transaction.
Indeed, as any good pricing practioner will tell you, price only makes sense where seen in the context of the potential value delivered by the purchase (whether that ‘value’ is quantifiable or not).
When properly structured and implemented, 'Appropriate Fee Arrangements' can enhance the long-term partnership between a company and its outside counsel in the creation, and sustaining, of value for their organization.
Adopting approaches that are commercially pragmatic and simple, being flexible in which approach to adopt during each stage of a matter, and encouraging the ongoing sharing of information will all help contribute to delivering compelling results. Those law firms who realign or shift their goals to be consistent with their clients will be those that will succeed.
However, nothing can replace the dialogue between a law firm and their clients. For lawyers, this means we need to listen and respond appropriately. For law departments, and others within their organization, this means a need to be much more specific about what is important to them and how this will help drive value, both at matter-specific and business level (as ultimately the question of value is theirs to make.) And for both, it means ‘speaking a common language’ based on trust, openness and honesty.
Many centuries on, it still comes down to 'a question of value'.