November 2005

I have long been intrigued by the concept of Six Sigma.  Ever since reading “Jack Welch and the GE Way,” I’ve wondered how law firms could use the concept to improve their service. In this vein, I’ve also spent time with Lean Six Sigma For Service.  I’ve always thought myself somewhat the loner in my thinking on this, however.  For that reason, I was delighted to see this post in More Partner Income. Some of the wisdom of the post:

Can Six Sigma work in a law firm? The answer is, of course.  But a Six Sigma vision can only come from the firm’s recognized “leader”.  It can only thrive in an environment of constant change-recognition that excellence can only be achieved through change. It must place the client’s wants and desires first. It must believe to its very core that when the firm improves the success of their customer, it improves the law firm’s success as well. It must be willing to honestly determine what its clients want and be prepared to deliver it. Those wants may be at odds with the law firm’s traditions but if you break those traditions in favor of the client-you will have a superior competitive advantage.  If you do so while eliminating deviations from client expectations, your competitive position will be unassailable.

I clipped something to post about and when I went back I realized I had forgotten where I found the material.  If you recognize it, please let me know so I can edit this post to provide proper attribution.  I thought about not posting because of this problem, but the ideas are too valuable not to share and discuss.  As you can see, the author identifies four realities of value-based pricing.  I will reprint them with some commentary in four separate posts.

EDITED AS OF JANUARY 6, 2006.
I received a comment from Andrea Harris at Guerilla Consulting who kindly advised me that the material I had clipped but forgotten where I found it came from Mike McLaughlin, co-author of Guerrilla Marketing for Consultants.  Mike, my apologies.

 

Four Realities of Value-Based Pricing

The logic of value-based pricing for consulting work is sound. Why shouldn’t consultants be paid based on the results of projects, rather than the number of hours they log on them? And to take the logic another step, if a consultant’s work generates big savings for a client, shouldn’t the consultant share in that windfall?

I think value-based pricing will take hold in the consulting business, so facing the realities of this approach now will prepare you for the changes ahead.

Reality #1: Clients care about the performance of their businesses-not yours.

“Clients are interested in their results, not your profit margin or how much time you put into a proposal or a project.”

Most clients are looking for tangible results, at the best price, when they hire a consultant. Of course, clients will pay a premium if they believe they can achieve faster, better, or more permanent results with a higher-priced consulting firm.

But never lose sight of the fact that clients are interested in their results, not your profit margin or how much time you put into a proposal or a project.

Some clients will express enthusiasm for and negotiate a value-based fee with a consultant, only to get cold feet at the last minute and ask for a time and materials or fixed-fee proposal. Clients sometimes perceive less risk and lower cost with the hourly rate option, even when that does not reflect reality.

Keep your pricing options flexible even if a client shows a strong interest in value-based pricing. You’ll avoid scrambling at the last minute to create a price for services.

My take:  I agree with this to a point.  A savvy client will want you to
earn a profit too since happy vendors or service providers can really
help a business advance and grow.  The relationship should be one of
shared risk, but also shared benefits.  One way streets are headed in
the wrong direction.

I’ve written about listening before. But it is of fundamental importance that every good post on the topic needs to be highlighted.  Tom Kane over The Legal Marketing Blog has just such a post.  Some great thoughts on how to handle face to face client meetings:

– Tell your staff person to hold all calls (if there are exceptions, let client know up front),
– Let client know they have your full, uninterrupted attention (except as noted),
– Look at the client while they talk,
– Take notes, and frequently summarize your understanding of what client said, and
– At the conclusion of meeting, ask client if there is anything they want to say or ask – then pause for a period of time to give them a chance to respond.

I especially liked this advice, about something said by Jay Foonberg:  “As his father told him, with two ears and one mouth, you should listen twice as much as you speak. Good advice.”

My question for law firms is this:  When a skill is so demonstrably important to your business, why do you fail to provide training on how to do it better?

I love finding examples of jargon-ese.  You know what I mean.  Its where a firm decides that it needs to use all of the big words some consultant suggested would be an excellent way for the firm to distinguish itself.  Check out this post from Guerrilla Consulting.   I need to write this carefully, because it is not Guerrilla Consulting that missteps here, but rather it is the place that reports the example that I wanted to pass along.  Anyway, as reported in Guerrilla Consulting, here it is:

“Our expertise in On Demand Business can help you cope with an ultradynamic marketplace by developing an innovation-driven strategy which increases agility as it blunts commoditization. We can even help you better execute your strategy in play.”

This violates the first two rules of client communications.  (What are those rules?  1.  Simple.  2. Honest.)

From Rees Morrison in his Law Department Management blawg, a reference to and old favorite of mine, the USF&G study showing money saved by using more expensive lawyers.  The description:  

In 1992, the insurance company USF&G evaluated its 250 law firms and dropped 100 of them. It replaced those firms, not with more $80 average an hour firms but with national firms whose average billing rates were over $200 an hour (mercy me!).

At the time, the insurer was paying 10 percent of its litigation budget for claims to law firms and 90 percent to claimants. A little over a year later, the company estimated it had saved $15 million on law firms and $35 million on claims payments!

Query: if higher-billing rate, and thus presumably better-quality lawyers produce such eye-popping savings in total claims litigation costs, why has there been only one float in this parade?

In my view, the right curve for this experiment is probably a bell curve.  After rates get to a certain point, the quality of outcome doesn’t improve, at least not by much.  That is typically the point where a client enters into a “comfort” analysis–ie, you never get second guessed if you retain Skadden (unless of course cost is a factor). 

Rees Morrison has an interesting post reporting on law departments imposing staffing profiles on outside counsel (X% of work to be done by senior partners, this type of work to be done by junior lawyers, and so forth).  Rees’ conclusion:  “I have my doubts that someone can so precisely define the roles of law firm lawyers in these buckets of tasks and percentages of time.”  As busy as people are these days, this metric is just another problematic overlay.  The real problem identified is that inside lawyers don’t trust outside lawyers to handle matters efficiently.  Certainly a fixed fee arrangement (with a kicker for results, of course) shifts this concern away from inside counsel who really should not have to waste their precious time reviewing bills to see what percentage of total time lawyers spent on various tasks. 

The arguments against the billable hour system just keep piling up.

I just read an interesting post on Michelle Golden’s Golden Practices weblog about voicemail message content.  It made me wonder, however, about the best use of voicemail.   In an age where secretaries are become scarcer or are working for 73 professionals at the same time, it is pretty common that you bypass humans when you call someone and get that person’s voicemail.  Almost all voicemail messages tell you how to escape, but odds are when you try, you only end up with someone else’s voicemail.  Sometimes it drives me crazy.

One form of message is that “let me tell you where I am and what I am doing each and every day” kind of message.  Other’s don’t even bother with a message.  You get the annoying system message interrupted by the person saying their own name, sounding like they are stretched out on a torture rack just about to have their entrails ripped from their body.  Or there is the general “I am away from my desk” message that frequently adds options like “or I am out of the office doing really important stuff for somebody else so that I don’t have time to talk to you.”

My own thought on voicemail is this.  I make sure my secretary answer my phone.  A lot of times, its a client calling while I am discussing nothing of moment with a colleague.  I want the client’s call to trump, and only a person answering the phone can do that.  If I am busy, I want my secretary to find out when the best time for me to call back is.  Or if its an emergency, I want her to interrupt me or find someone else to handle the emergency right then.  MY THESIS:  GOOD CLIENT SERVICE MANDATES THAT THE CHOICE TO LEAVE A VOICEMAIL MESSAGE BE THE CLIENT’S CHOICE, NOT A DEFAULT RESULT BECAUSE NO ONE EVER PICKS UP THE PHONE!

With due regard to the author of a book by the same name, I believe that in today’s corporate environment, one person cannot service a client alone.  It takes a team.  For example, while I am away on trial, my colleagues are doing yeoman work for “my” (really, our) clients and I am lucky to be working with people who are so willing to jump into help out.  With this as framework, I read with great interest Gerry Riskin’s post Witmer thinks some lawyers just fertilize the queen.  Gerry read Larry Bodine’s post on comments by Neil Wittmer, Ph. D. and takes considerable umbrage with Dr. Wittmer’s thoughts.

The issue boils down to this:

“According to Witmer, the grinders and drones lack the essential personality elements to develop new business. You cannot change their personalities, and they may be unable to change themselves.”

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Witmer’s theory is that the “drones” (I agree with Gerry that it is a most unfortunate choice of terms) should be left in their offices to “do the work” that other lawyers bring in.  Gerry’s view is that

It is not personality that drives the client attraction process, but a combination of what the lawyer does and the skill to convey it – skill that almost every lawyer has or is quite capable of acquiring. If you look closely at a law firm’s top rainmakers, you will notice a wide diversity of personalities.

While there is a lot of team-oriented work in a law firm, in many cases the client is choosing the surgeon for the operation – the more specialized the work, the less relevant the personality. If heaven forbid, a dear one needed brain surgery, the doctor’s personality is probably the last factor for consideration. (I will yield that in an undifferentiated commodity market personality is far more important but most top firms keep that work to a minimum in favor of specialty work.)

My view is decidely closer to Gerry’s, but not as extreme.  As I said above, I believe it takes a village to serve a client.  That said, I don’t see room on the team for people who cannot develop a relationship with a client and instill confidence.  Talent and personality are minimum traits for everyone in law firm.

Beyond the client service issue, there is room for everyone to market.  Marketing is not just sales, and it is not necessarily face to face.  But someone needs to generate articles that the rainmaker can bring to a prospect’s attention.  Someone needs to put content on the web site.  And so forth.  We have not yet arrived at the place in life where law firms are nothing more than groups of individual silos.  It takes a village (but not a metropolis!).

I’ve been carrying around some information on Peter Drucker and intended to write an entry about his profound contributions to the business world.  But I was catching up on some blawg reading and ran across Bruce MacEwen’s thoughtful comments in his Adam Smith, Esq. blawg and I realized I could not improvde on what he had to say.  I found this description particularly apropos:

Drucker’s views stemmed from his focus not on corporations in the abstract, or buildings and machines, processes and systems, not in creating elaborate economic or managerial theories:  Drucker’s focus was on people. Management’s job was to chart a course and get out of the way. People were not an expense but a resource.

It seems like a lifetime of contribution deserves more, but we should all raise our glasses to Peter Drucker.