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This article is available at Worldlaw
Business September 2000 http://www.worldlawbusiness.com
by William C. Cobb1 Despite all the discussions about adding value to clients, many law firms fail understand what that means. These firms create outstanding marketing information about the way they add value to clients but fail miserably when it comes time to perform. In order to talk about value added, you need to define what it means. Value added works when a law firm shapes its delivery of legal and related services based upon the following: understanding and responding to the needs of the client. The power of the buyer of legal services is increasing exponentially. This will force law firms through the most significant changes since the early 1970s. There are key trends that indicate the coming changes. Clients are finding alternatives to lawyers in solving their problems including the internet and alternative providers such as accounting firms, alternative dispute resolution firms and para-professional organizations. The increasing size of firms, particularly mega-firms, and the number of new lawyers entering the market are stealing market share from many traditional law firms. In many cases, these new competitors are better financed and more appropriately structured to provide seamless service to clients. Not only are all professional service firms being driven to assume more risk and be more responsive but clients' use of the internet has democratized the information gathering process. What the printing press and the Gutenberg Bible did to the monopoly the priest and rabbis had over the interpretation of the Bible, the internet will do to the monopoly lawyers have held over the interpretation of the law. Many firms have invested in expert systems that clients can use over the internet that have eliminated the need for lawyers: Linklaters' Blue Flag, for example. The monopoly over the interpretation of the law has created some very toxic assumptions over the last 30 years. Here are a few:
What is Value Added? Two models have worked well to explain this concept. The first is the Quality-Service Grid, adapted for lawyers from Richard C. Whiteley's book The Customer Driven Company. The Quality-Service Grid (below) shows a two dimensional view of quality of service and added value. Most lawyers think of value added in only one dimension, the vertical axis called Technical Quality. The analogy is buying a bike for your child in a box that says: "some assembly required." The bike is useless unless assembled. A recent law firm example comes from an event in California. The client's auditors found a memorandum on a brief from the lead lawyer saying the brief was useless and to start over. But the law firm billed $250,000 to the client. When asked why the lawyer had billed the client for useless brief, the lawyer replied: "Look, we work by the hour and we did the work." This is the type of arrogance that makes the new alternatives to law firms so appealing to clients.
What really adds value is providing excellent service and being extremely useful as the client defines usefulness. Many lawyers cannot understand why someone from a lowly law school who graduated in the bottom of their class has such great clients. The answer? Excellent marks from a prestigious law school do not guarantee a lawyer's success or potential. Use this model to ask the question: What makes the lawyer and the firm useful to a particular client? Later in the article, three questions will be provided to help obtain that information. The second model was created in 1986 as a concept to start the two books on alternative billing techniques. The Cobb Value Curve (below) allows the lawyer to segment legal services and products based upon the relative value added to the client. The vertical axis shows relative value added based upon the questions asked from the Quality-Service Grid. The horizontal axis shows the volume of work available in a market where a market may be a client, a division of a client, or a geographic area. A curve may be drawn for each practice area and the tasks and products placed on the curve.
An example will help. A law firm in Texas provided real estate services for a large commercial developer. The same team provided similar services to a solo developer. Each has a similar need to document a $100,000,000 interim loan financing. From the large developers perspective, the services fall on the line at the lower Brand Name location but for the solo the service falls on the line at the high Hired for Experience location. Why? The solo is buying a much larger bundle of services and is willing to pay higher fees. The large developer does hundreds of such deals every year and could do them blindfolded. All the large developer wants is fast and cheap documentation. This is the solo's only deal this year. He needs additional services including: the reputation of the lawyer, consulting advice, the credibility of the law firm with financial institutions and underwriters and, finally, the lawyer's cell phone number for when the solo wakes up in the middle of the night in a cold sweat. These models have been used to formulate pricing strategies and the structure of the delivery system. There is a process for building strategies using these and other models. Measuring Value Added If a firm wants lawyers to perform value added services, measure them. Measurement comes in the form of the review and evaluation system, annual client feedback, client-law firm team surveys, and constant assessment of the client contacts situation. Review and evaluation must start with a look forward by individual lawyers and by those lawyers accountable for the direction and leadership of service units such as practice groups. Personal and service unit action plans should be created before the year begins with specific discussion of how client service and usefulness will be improved in the coming year. Each statement must have events and products that will all leadership to evaluate their progress on a quarterly basis. Then, if lawyers meet their goals, reward them. Do not gravitate back to the billable hour and volume of dollar evaluations, that only ruins the credibility of client service. Not only are all professional service firms being driven to assume more risk and be more responsive but clients' use of the internet has democratized the information gathering process. What the printing press and the Gutenberg Bible did to the monopoly the priest and rabbis had over the interpretation of the Bible, the internet will do to the monopoly lawyers have held over the interpretation of the law. Many firms have invested in expert systems that clients can use over the internet that have eliminated the need for lawyers, Linklaters' Blue Flag for example. The monopoly over the interpretation of the law has created some very toxic assumptions over the last 30 years. Here are a few:
Next, every client team should have a complete, annual, and in-person debriefing with the client contacts using a well planned questionnaire. In addition, every major project performed should have a formal debriefing with the team first and then the client contacts to answer the following questions.
Unfortunately, the lawyer culture of being rewarded for how many hours are billed and other toxic assumptions discussed above will create a barrier for this effort. Finally, the client contacts should be interviewed at least once per quarter using the following questions. A warning: most lawyers and even some the best rainmakers cannot answer the first questions:
Moving to Value Added Services This requires true leadership. A foundation of trust, risk taking, innovation and collaboration cannot be established without leadership. In order for leaders to operate effectively, they must have an agreed-upon vision for the future of the firm and a list of about 10 core values to which every person in the firm is accountable. Here are a couple that build competency in delivering value added services. "We take responsibility, act professionally and will exceed the expectations of our clients." "We are here to serve our clients, our firm, each other, or profession, and our community." Leadership is key. Leaders must overcome the barriers that reward legal work over leadership and good management. Leaders using clear core values will guide others into the delivery of services that will respond to the increasing market demand for value added service.
1.William C. Cobb is the managing partner of WCCI, Inc. Cobb Consulting based in Houston, Texas. Since 1978, he has been a consultant in strategic issues affecting law firms and general counsel. His counseling includes the assessment of trends in the market and positioning the firm for change, pricing and alternative billing, firm governance, compensation, mergers, and reshaping the structure for a stronger competitive position. He also chaired the two Seize the Future Conferences on the future of the profession.
For further information, please contact William C. Cobb at the address below. WCCI, Inc. v Cobb Consulting Group Send E-mail to: CobbWC@msn.com
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