Marketing Asia

Simmons and Simmons exit Russia: The intricacies of law firm internationalization

Legalweek reported a few days ago that Simmons and Simmons law firm was closing its Russian office less than 2 years after opening. This will see eight people losing their jobs. Simmons managing partner Mark Dawkins told Legal Week: "Our firm strategy is to build on our strengths and we had built the Moscow office around structured finance. We do not see activity returning." Simmons were quoted as saying, when they opened the Russia office, that it was a key strategic market for their clients.

Over the last few years, we have seen a number of law firms move into emerging markets only to pull out a few years later claiming lack of work or adverse economic conditions. The problem for most law firms is the way they engage in their internationalization decisions. The key factor they look at is current client activity. In other words, if clients are increasingly doing business in a certain geographic location, law firms reason that they could take a bigger piece of their clients work by having a presence in that locale. They also reason that they should be able to generate additional work from new clients once they have set up. The quote by Simmons and Simmons that Russia was a key strategic market for their clients, sums up this type of thinking. There are inherent problems with this type of thinking and the internationalization approach undertaken by most law firms:

1. Existing client work can easily dry up
2. Research shows that following clients is a poor predictor of internationalization success
3. Law firms tend to expand on the basis of one or two strong practice areas, when the market for those disappears, so does the entire business
4. Just because you have opened an office, work does not magically come

I've written previously about the Russian market on this blog and published on the Lexis Nexis community page and detailed why I felt the market was not currently attractive for Hong Kong law firms. This was in response to a quote by the President of the HK Law Society in a local newspaper that Hong Kong law firms should start looking at international markets, with Russian one of the markets he mentioned. Whilst I can't specifically comment on the closing of the Simmons Russian office, I can speculate on the whole why law firms do such a poor job of strategic internationalization.

The key factor is following current clients. Clients expand into various markets for a number of reasons but that does not mean they are best served by their law firm having a local presence, especially if a local alliance partner can handle the client's needs. Additionally, that client may not be a client for the longer term and if you have based your revenue projections on a long term working relationship with a few key clients, those numbers can look ill conceived when a client jumps ship. Moreover, the overall market for legal services in the host country or region may not be particularly attractive based on your capabilities, growth prospects, and competitors, so expected revenue from new business never materializes. Law firms have to be much more discerning in deciding when and how to form an international presence, especially the smaller sized ones that have limited capital. A longer term orientation and strategic decision making approach will serve law firms much better in achieving internationalization success as opposed to just following existing clients or short term trends in work. One of the most important assets in internationalization success is human capital. Research shows that the firm's key capabilities in terms of knowledge and expertise are the most important factors for success when embarking on an international marketing strategy. This means the firm must have some basis for a competitive advantage in the market place so that clients perceive the firm in a positive light when compared to its competitors. Research out of the West and Asia suggests that expertise and reputation are key factors in choosing a law firm and hence if you are planning on entering international markets, it would be wise to have a viable strategy in place that tangibly demonstrates your expertise and the value you deliver to your clients.

Great new book by Suzanne Lowe: The Integration Imperative

Whenever new books come out on the topic of PSF management and marketing, I am always eager to pick them up and see what new insights can be gathered from the material presented. Often times, I am left disappointed. Not this time however. Lowe, who runs Expertise Marketing in the US, has produced a book that is both insightful and different. Full of rich anecdotes and in-depth case studies, The Integration Imperative makes a strong case for ditching functional silos and getting marketing and practice development working more closely together, as well as within the firm as a whole.

There is no doubt that PSF are facing challenging times and Lowe's book addresses one of the major issues facing such firms: how to integrate marketing and BD into the very fabric of the firm. Broken up into 3 sections, she discusses the cultural and structural problems that B2B firms face in truly maximizing the potential effectiveness of marketing and BD within this context. Part III has a number of case studies which allow the reader to see how forward thinking firms are moving towards this reality. Additionally, the author provides a number of templates and frameworks that practitioners can use to help work through their own integration issues. Having read Lowe's previous book, Marketplace Masters, I have come to enjoy her practical and case based discussion that goes beyond mere theory. This new book follows the same process and provides real practical value.

Most importantly, research shows that a high functioning marketing process has a significant impact on PSF performance but most books don't articulate well how you can reach that goal. The Integration Imperative shows in detail the damage that functional silos can do and how one can create a marketing and BD process that is truly integrated into the fabric of the firm. The book is jargon free and easy to follow yet is jam packed with evidence to back up the authors assertions. There is lots of content on the process and skills that need to be developed within the firm and by the individuals involved. They are also listed in detail in the appendices which is most helpful. Lowe also shows how marketing and BD are different but how they need to work in unison. This has always been one of my major gripes in Asia that PSF don't recognize the difference between marketing and BD and hence roll the two together but without acknowledgement to the different processes often involved in both. Such people would do well to read this book and learn once and for all that proper integration (and not in name only) is crucial to firm success.

This book is unusual because it is one of the only books I have read that goes into significant detail about how PSF can eliminate functional silos and create better functioning firms. I have to tip my hat to Suzanne because the book is detailed, practical, and different, and that is a combination that should make any practitioner involved in B2B and PSF management want to consume it as soon as possible. I have no doubt that anyone who does read it will gain a great deal and be able to readily apply the ideas to their own situation. Great book Suzanne!

Ernst & Young: not as rare as you think – the impact of culture

We would all like to think that Enron was a one off and our auditing firms were above putting profit before the law. The Ernst & Young AKAI fiasco shows that below the surface, accounting firms put the same if not greater pressure on their people to produce revenues than more 'commercially' oriented firms do.

The recent review and findings by the Accounting & Corporate Regulatory Authority of Singapore (ACRA) that accounting firms in the region are struggling with audit quality should make firm leaders sit up and take notice. As the Business Times report cited, both large and small accounting firms, although fulfilling regulatory expectations, have a number of performance gaps to fill in their audit procedures. The case of E&Y and Akai shows that the days of Enron are not really that far behind us.

Why is this important? As a society, we rely heavily on the objective evaluation of commercial enterprises and as such we do not expect professional accounting firms to drop their standards in view of further revenue generation. The Arthur Anderson debacle highlights the very real problems when auditors fail to maintain their independence. However, it is often not a skill or technical problem that prevents auditors achieving higher standards, it is a firm cultural issue.

Firm Culture and Leadership

Firms that want to avoid the ignominy of such occurrences must ensure they have the right culture in place. Much evidence points to the influence of the firm's leaders and partners as it is their actions that influence every ones behavior and dictates the focus on revenue or quality. Changes in the regulatory environment will mean that accounting firms will have to take issues of culture very seriously and indeed a marketing culture (as opposed to a sales culture) fits very well with these ideas. One must be very careful in the accounting profession not to become too overtly commercial as the independency of audit work as opposed to other services puts a high onus on firms assuming a professional orientation. In the long run, a professional orientation and a market orientation are well aligned because a market orientation discounts short term revenue generating activities that could put the firm's long term reputation and image at risk. For example, research in the Western world has shown that auditors are more likely to accept risky client assignments if they believe it would lead to further work. This risk affects the independence of the audit function and can be subject to punishment by various regulatory bodies. ACRA has either suspended or cancelled the licenses of seven accountants since 2004.

Culture has been described in various ways. Essentially it is a collective programming of the mind that lies in the shared beliefs, values, and assumptions held by firm members. These shared values are reflected in all aspects of people's behavior in the firm such as in the way seniors and juniors interact, they way people dress, and in the norms of communication among firm members. Culture and firm performance are heavily intertwined. For instance, firm values and individual values that are closely aligned have an impact on job satisfaction and job satisfaction is strongly correlated to firm performance. Additionally, research by David Maister in the professional services industry (presented in his book, Practice What You Preach), showed that firms which communicate strong values and live by them performed better financially then their peers. Firms with strong cultural values should make significant efforts to acculturate new employees to ensure that ethical and professional standards of behavior are followed. Problems in acculturation can be exacerbated by the hiring of non professionals into firms, mergers, as well as geographic expansion that brings into play the additional variable of national culture and behavior. Non professionals such as 'professional managers' can exert considerable influence on firms in terms of a profit focus and care must be taken not to lose the professional orientation of the firm.

Further Evidence in the Accounting Industry

In a paper published in Behavioural Research in Accounting by Jenkins et al (2008), the authors set out a number of areas whereby culture can impact a firm's governance and the role that seniors within the firm play through their behavior such as mentoring, client interactions, communication, and social influence. They highlight a number of studies and situations whereby firms have engaged in unethical actions (lowered audit quality) due to the cultural conditions of the firm. Primarily, those cultures that value revenue generation over all other activities tend to be at most risk. Firm leaders may espouse values related to high ethical and moral standards but when those values in use are different to those espoused, staff within the firm will follow the values in use. Junior staff within a firm are likely to mirror the behavior of firm seniors, and when that behavior is overtly commercial, this is when real damage to the firm and professional can occur. Accounting firm senior partners and leaders must take extreme care to build and communicate the right values within the firm as behavior always speaks louder than words.

The authors also go onto discuss a number of actions that firms can take to limit this overtly risky behavior and ensure a higher level of firm governance.

Culture and Firm Performance

Some accountants may read this piece and feel that they are putting revenues at risk by adopting a culture that demands high values and ethical behavior, standards that go beyond regulatory requirements. In fact, research shows the opposite to be true. In particular for small sized accounting firms who have trouble attracting the best talent, creating a unique culture whereby a firm's leadership processes stand out from other firms can be a powerful employer branding strategy. Many talented staff have become disillusioned with the big firm culture and focus on billable hours, there is always an opportunity for smaller firms to attract this talent with alternative working environments. Developing a high performing culture takes time but it is definitely worth the effort.

Marketing: the most misunderstood word in the world!

Where to start? From advertising to PR to sales to BD, marketing has got to be the most misused, misapplied, and thoroughly misunderstood word in the business world. Having worked in 'marketing' for nearly 15 years, I have come to the conclusion that the vast majority of business people in Asia have such a limited understanding of marketing that they shouldn't be in the positions they are today. This goes double for those working in the professional services sector, here are some of my personal rants and raves:

In my marketing struggles with the publisher of my new book (Marketing Professional Services in Asia, 2009 published by Lexis Nexis) I have come across some corkers that had me crying and then laughing. One of my favourites is the conversation I had with the Lexis Nexis BD person in China. In the process of asking to have my book translated and distributed in the Mainland, I was told that most law firms, except for the few largest ones, did not really need to know about marketing their services in Asia since they were focusing on doing business in China! Is China not part of Asia? What this person thought was that the book was about how to sell professional services in other Asian markets and hence would be of no use to Chinese firms selling in China. Talk about knowing nothing about real marketing and what the book was about! And this from the firm who was supposed to be 'marketing' my book since they published it, talk about no idea!

The next one will make you laugh out loud. Having gone over everyone's head and decided to talk directly to the CEO of LN Asia about these problems, he told me that whilst the book was most insightful, he felt the timing was not good to market in China since most firms were trying to survive and hence not overly worried about marketing. Are you kidding me! If marketing is not about surviving, no thriving, then what is?

What we have here is the conundrum that faces many firms in Asia. Those in positions of marketing at firms in Asia are really in a BD or sales role and neither they nor their superiors can differentiate between a marketing role and a sales one. Additionally, many C level execs come from a finance background and hence this exacerbates the problems of accepting marketing on a cultural basis as opposed to a tactical one that requires ROI on every activity. I am often at a loss for words how firms continually shoot themselves in the foot by cross selling services to clients who don't need it, targeting the wrong clients with the wrong messages, or simply responding to every RFP they receive. The fact that marketing has never received its due recognition in these firms does not de value what marketing is and only highlights the very real opportunities that exist in these firms if marketing was properly applied.

So what is marketing? Marketing is a business process, a culture, and set of behaviours that systematically enhances client value. It is not BD or sales, marketing is the driving force for BD but in no way are the words (or actions) synonymous. Marketing tells you:

• What clients to serve
• What people to hire
• How to structure your firm
• What technology to use
• What people to promote
• What to communicate to target markets

I could go on but you get the point. I am not saying here that the marketing department or person is the most important, I am saying that the marketing process is! Without marketing no clients, and without clients no money! It's hardly rocket science but based on how most firms understand marketing you would think it is. Still not convinced? There are hundreds of empirical studies which show that a market orientation has the most significant impact on firm performance. A market orientation is a culture and set of behaviours that is concerned with a client orientation, a competitor orientation, and inter functional orientation. One look at this and you can see that most professional service firms are a long way off having a marketing culture. Client and commercially oriented professionals are few and far between and it is exactly this that the market is looking for. I am going to go one step further and say that the most important marketing person in the firm is the CEO or Managing Partner, the people at the very top who have ultimate responsibility for firm outcomes. Marketing is about creating and delivering client value and if you are not doing that, if processes, systems and procedures in the firm are not aligned to that, then what are they doing there? Marketing is mainly about effectiveness and doing the right things that deliver client value and firm profitability should be at the forefront of every firms mind.

Let's go back to the little quote by LN CEO about surviving and not marketing. Seems ludicrous now doesn't it? Marketing is not about spending money on promotion or selling your services in some far flung country, it is about making sure you survive by offering the market what it wants, when it wants it. Not only will you survive if you do this, you will thrive.

Social Media for Professional Service Firms – a strategic view

There has been a mass of publicity on social media and Web 2.0 in recent times and now much of that news is directed at professional service firms (PSF). A number of varying view points are put forward whereby social media sites such as Twitter, Facebook, LinkedIn, Martindale Hubbell, Legal On Ramp, Wikis, etc are either touted as indispensable communication tools or wasted efforts for client development. The articles however tend to miss the strategy of social media.

There are numerous detractors of sites such as Twitter for law firms and other PSFs but the main reason they claim the worthlessness of the media revolves around the limited number of professionals, clients, in house counsel etc that use it, and the inability of the medium to generate clients. Those who are proponents of such media like to highlight the limited numbers of instances whereby users have actually generated fees from tweeting or being on LinkedIn. Again, whilst this is great, the view is somewhat narrow. Whether twitter is around in 2 years or not is not really the issue, the issue is whether social media tools can influence a firm's stakeholders. In my opinion, the answer for PSF is absolutely yes. Firstly, who are stakeholders in a PSF:

• Partners and firm owners
• Support staff
• Investors and shareholders (something law firms in the UK will think about by 2011 and already well established in Aus)
• Associates
• Clients
• Suppliers
• Local community
• Community at large
• Pressure groups
• Alliance partners
• Intermediaries
• Regulators

These stakeholders all have a say and influence to varying degrees the actions that PSF can take and the degree of success they will have. One of the major benefits of social media is to communicate on various platforms on various topics with your stakeholders through mechanisms which reach the people you wish to talk with. So what if many of your clients do not use social media tools, the information that you provide to other stakeholders will reach them one way or another and it is much better to be aware of and in control of the communications about your firm. The fact that traditional communication tools are losing influence should be a sign to most firms that other platforms are becoming more appropriate. Take for example the recent research in the US which showed that law graduates from elite schools had lower levels of satisfaction than associates who graduated from lower ranked schools. The report suggested that elite school graduates were less happy with their jobs than their counterparts from lower ranked schools because they had more career options and were not necessarily willing to slog it out for years in the hope of partnership, whilst their counterparts felt this was the only thing they could do. If this is accurate, top ranking law firms who focus solely on hiring grads from elite schools face a situation whereby declining satisfaction levels will eventually affect firm performance. How could a firm use social media to counteract and understand this trend? Social media such as Facebook (for example, used as part of the firm's intranet) can provide real time communication on the facets of the firm that effect work satisfaction. Rather than wait for the yearly appraisal or firm survey which is already two steps behind, monitoring what your employees think and feel by allowing them to engage in frank discussion through social media can be an effective tool in dealing with issues as they arise. Now this is a truly strategic use because it ensures you keep your best people and they have the opportunity to vent their frustrations. This will have a significant impact on the value the firm delivers to clients, probably much more than the new clients you may generate through social media in the near term.

Let's take another example. As the business of PSF globalize and firms open offices in far flung countries or create alliances, the ability to manage knowledge and the firms value delivering processes becomes problematic. Knowing what resources are available in different offices and whether knowledge located in one persons head is applicable to a project 1000 miles away can be a real source of competitive advantage for PSF. However, many PSF KM systems are not well suited to this type of knowledge transfer, or if they are, one must wait for the individual professional to contribute that knowledge to the system. Of course, in many cases, professionals often collaborate via email which creates problems of editing content as well as following multiple inputs and timelines. Clifford Chance has begun using wikis to share information across the firm on a number of initiatives. For example, they use wikis to run sector focused groups of lawyers to help tacit knowledge flow across the firm. This has replaced the outlook bulletin board so people can ask questions about client work, projects, problems etc and continually update/edit the document without the problem of lost emails and disorganized folders. This is a great way to use Web 2.0 tools to add value to the work the firm does for its clients. Again, this is a strategic view that recognizes value creation for the client is what it's all about. Another example is the platform developed by Deloitte (called D street) which is based on the Facebook concept and allows people in the firm to connect about their work and social lives.

Saying social media is useless for client development is like saying exercise and diet are useless for losing weight. It's all a matter of perspective and how long you give it. Firm profitability is not wholly dependent upon new client development, performance is affected by numerous factors, including the ability to retain top quality people and valuable clients. In fact, Adam Neely and colleagues (authors of the Performance Prism) show there are over 20 market sentiment factors that affect organizational performance and only one third of those sentiments are controllable by the firm. The rest comes from information and communication from a multitude of sources. PSF should start to take a social media policy seriously and think about communicating frequently and with substance targeted at all their key stakeholders, and not just think about whether existing clients use such media or whether new clients can be generated from these new communication and collaboration platforms. The strategic view should always come first.

Norton Rose – A Law Firm Strategy in Asia Gone Awry?

The recent merger agreement between Norton Rose (NR) law firm and Deacons Australia signifies another attempt by NR to expand their international operations and catch up with their UK counterparts in terms of a significant Asia practice. This is not the first time NR has attempted to embed a strong Asia practice within the firm as the article in The Lawyer UK recently highlights. The piece details well the trials and tribulations that the firm has faced (and quoted yours truly which was very kind of them).

In Asia, the firm has offices in Hong Kong, Beijing, Shanghai, Bangkok, Jakarta, Singapore, and Tokyo. The office in Hong Kong is really the second time they have set up here after they had to leave for three years following a contractual clause in their original alliance agreement with JSM. This put them behind the curve slightly and being behind the curve in Asia is not the best idea when alliances are needed in most markets to practice local law. Whilst the firm has two offices on the mainland it is hard to say the role these offices play in cross border transactions given the fact that foreign firms cannot practice local law nor hire local lawyers. In terms of client acquisition and a foot print on the ground local offices in China are crucial but whether NR can acquire the work it wants to through those offices is questionable since marketing in China relies heavily on relationships, or 'guanxi'. Of course they can hire overseas trained Chinese lawyers who may have some level of familiarity with the mainland but that doesn't solve the problem of local law practice. Deacons Australia does not help in this regard since it is Deacons Hong Kong who own the Deacons offices in China and now that relationship is terminated there will be no further linkage between the sister firms. Most of the other Asian offices that Deacons Aus has are independently owned alliance offices. It also doesn't help when you lose key people such as NR in Singapore did recently when finance specialist Josh Clarke joined Watson, Farley and Williams in the same location.

Another reason NR is aggressively seeking Asian expansion is their interest in a US merger or alliance. According to Peter Martyr, CEO of NR, the link up with Deacons would make NR more attractive to US firms who are relatively thin in Asia. This line of thinking may be OK but who exactly are NR trying to make themselves more attractive to? It would make sense to have a clear strategy in place before engaging in a merger if the point of that merger is to make yourself more attractive. For example:

• Which US firms are interested in Asia and why?
• What are their key practice areas and strategy
• If they are not in Asia yet, why?
• Which firms have compatible cultures and goals
• What makes NR stand out compared to other potential partners, do they have a clear strategy in the market place?
• Which US firms are actually interested in NR and why?

There have been some major steps taken in climate change whereby NR claim they now have a leading practice in this area. Certainly, climate change is a growing market and can have a substantial impact on an organizations activities given the Kyoto protocol. Lawyers have varying roles including advising companies on risk management, assisting governments on developing programmes for monitoring and controlling emissions, and exploring the potential of litigation and other tools to promote or delay action. However, even the largest revenues in Europe last year for climate change practice (8m EUR by Greek firm KLC) are modest and whether climate change work will roll into other projects as NR expect is hard to say. Perhaps they are eyeing a US firm that wants to build an Asia presence of the back of a strong climate change practice. My feeling is that clients would be happy to use one firm for climate change and others for the spin off work if they already have strong pre-existing relationships. How many full service, truly global law firms, can the market bear? Only time will tell but as clients seek savings through LPO, and other processes to streamline costs, legal work is now being broken up into components in a manner that has never been accepted before.

In all fairness, NR has a fairly low profile in Asia when compared to other UK firms such as Herbert Smith and we rarely see them mentioned in media re major deals. In the Asian context, reputation, size, and international presence are key proxies of work quality and I don't think that NR has reached that level of strategy. A US firm merger may help in that regard but it's a bit like the chicken and egg, will a US firm want to merge with NR before its Asia presence has real legs and will NR be able to get the big deals until it has a strong US base? The Deacons Aus deal becomes even more confusing as the Asian offices it has in Taiwan, Thailand, and Malaysia are not part of the NR deal and as far as I can tell, remain independent affiliate offices. The Deacons office in Singapore is of little consequence since NR received one of the six licenses issued by the Singaporean government to foreign firms for the practice of local law. In essence, that just seems to leave Aus and Deacons Aus is not really one of the big players in the market. Having said that, Deacons Aus does get involved in some of the cross border deals between China and Aus, primarily because of the high profile work of Ian McCubbin although the big six (Allens, Blake Dawson, Clayton Utz, Freehills, Mallesons, Minter Ellison) still tend to dominate the biggest deals.

Another issue that comes to light in the emerging markets of Asia is a strong alliance strategy. Since the many emerging markets in Asia (China, Malaysia, Indonesia, Korea etc) are closed to foreign firms, at least in terms of local law practice, foreign firms need to engage key strategic alliances in order to provide clients local law advise. The problem is there are only a handful of top class law firms in each emerging market and most are engaged in well entrenched relationships already. Even in India, which has no clear schedule for market opening has seen some of the top firms there, like AZB, team up with foreign firms (they have an informal alliance with Clifford Chance). Slaughter and May have shown that it is not necessary to engage in exclusive alliances to be successful but I believe much of that has to do with their reputation, culture and brand image. It is hard to envision a firm like NR using a best friends network to create the same sort of presence that Slaughter and May have done. NR needs to be more aggressive in seeking out high quality alliance partners that have the connections to generate business in the bigger deals. This is not going to be easy now as the really top firms in emerging markets are already inundated with alliance offers. NR would have to have a clear selling point to be considered. I'm not sure they have one. Firms like NR suffer from an affliction that seems to affect many law firms, the need to be all things to all people. Unless you are one of magic circle or largest law firms in the world, I seriously doubt this as a viable strategy due to the resource constraints of implementation and the believability in the market place. Perception is everything.

How Strategy (should) Work in a Law Firm

Law firm branding works on three levels: individual, practice, and firm level – many of the big deals in Asia are driven by individual partners who have strong reputations and connections in the market. These people are recognized as thought leaders in what they do and highly competent. Brand reputation also functions at the practice level as some firms are well respected for their work in certain practice areas. Finally, branding works at the firm level where the entire firm is well thought of for both its technical quality of work and how it treats clients. I think NR may have achieved some degree of recognition in finance but in Asia it is lacking in firm and individual brand recognition. They need some aggressive moves in lateral hires but this cannot work independently of how the whole firm functions as a coherent and well integrated organism.

Strategic success is a function of four factors (according to research at the Centre for Professional Service Firm Management, Said Business School, Oxford University):

• Expertise – knowledge and experience
• Relationships – clients and other stakeholders
• Reputation – expertise, experience, and engagement
• Service – processes, services, and engagement

These four factors point to an underlying culture of knowledge management, firm learning, and innovation. Reports in the press and elsewhere have pointed to the often disparate way that NR offices work where resource decisions are less than optimal. For example, it wasn't until 2006 that NR embarked on a new KM strategy to upgrade their old IT system, which by their own admission, was barely being used by the lawyers in the firm. This is not something you want to hear from a firm that bases its whole competitive advantage on knowledge, as law firms do. In fact, marketing and knowledge management are so intertwined that consultancies such as Booz and Co have positions of marketing and knowledge officer. Knowledge is something that increases in value with use and application, it evolves and firms that can take the tacit knowledge help by individuals and imbed this into the structural capital of the firm have a significant advantage over competitors when it comes to effectiveness and innovation. These firms are able to utilize this knowledge across the firm so that it can be added on by other professionals and put to use in solving client problems. Although I cannot comment on the internal workings of NR, I can speculate that their grasp of strategic advantage is not what it should be.

Focus: to be differentiated and valued in the market place means that firms must decide what kind of work they want to be known for and direct resources at these areas. They may even have to reject work that does not fit in with their strategic objectives. This is even more crucial for mid sized firm like NR since finite resources require a strong will in terms of where they will be applied. For example, NR is considered a first tier firm in small and mid cap flotation's as well as asset finance and leasing, but is well down the list in emerging markets and other practices areas. Being recognized as a top firm for small and mid cap flotation's is not exactly a ticket towards the top end of the market. If NR wants to attract a US merger partner and that US firm wants to work on the big deals in Asia and other emerging markets, what value would it see in NR? NR must make a concerted effort and decision to direct resources to the areas where it really wants to create a footprint, whether for themselves or for a future US merger scenario. Strategy is all about choice and I'm afraid most law firms don't have the guts to make the tough strategic decisions when it comes to turning down work and being different.

International Success and human capital: one might assume that social capital (client relations etc) would be a good way to create an international strategy as law firms follow clients wherever they go. Recent research however suggests this not to be the case. The research shows that human capital is a much better predictor of internationalization strategy success. The many problems that NR has had in Europe when creating alliances highlights the very real problem of entering markets without a clear strategy in place which includes the right people working in a culture that is conducive to knowledge sharing and meritocracy. One must also recognise that national culture has a huge impact on firm performance, for example, lock step remuneration is still preferred by some law firms over merit based systems in Asia due to the collectivist ideologies of Asian societies.

You have to give NR credit as they struggle to overcome some of their past problems but I am not sure that any major US law firm would find them an attractive target given their current status and perceived lack of strategic direction. Let's hope they prove me wrong!

 

What Professional Service Firms Can Learn from Drinking Beer

Malaysia is an interesting place. The Truly Asia campaign is a positioning strategy they have used for a long time. It signals the countries features of racial diversity and tolerance. Much of that image has been questioned recently given the high profile case of Kartika Sari Dewi Shukarno who was tried under Muslim sharia law for drinking beer in public. Found guilty, she was initially sentenced to caning as a punishment. The idea that Malaysia was 'truly Asia' has now been shown in the light of day to be a decent image but with little substance to back it up.

This approach to marketing and differentiation is one that is often undertaken by professional service firms (PSF). They develop nice web sites, glossy brochures, and produce high end reports for their clients but fail to back it up with the technical and relational quality that clients value. The truly Asia campaign is typical of a 'product' that is based around image but has little substance. Differentiation is a complex mix of firm attributes (such as culture, services, reputation) that is not achieved easily. PSF are pretty good at creating an image but with little substance. This is why:

• Don't call back clients for days
• Speak in their own language and forget client is not a technical person
• Individual professionals don't relate well on a personal level
• Firms are not responsive or reliable
• Firms concentrate on technical quality and fail to work on the relational aspects
• Fail to understand their clients industries and unmet needs
• A culture of mistrust that pervades the firm
• Fail to innovate and cast of archaic practices (such as hourly billing)
• Espoused values which are different to values in use

This is not an exhaustive list but gives a pretty good idea of the difference between an image that has no substance and a firm that truly values client needs and is willing to invest in a culture that works towards delivering the value clients seek. This type of culture is a great source of differentiation and competitive advantage because it is unique and very hard to copy. Superior business models that are made up of the processes, systems, and human capital of the firm are ones that are sustainable. Firms that can create this type of differentiation will always out perform their peers, and more importantly, meet the needs of multiple stakeholders. In today's environment, making partners happy with their take home pay is woefully inadequate in a market that demands excellence on many fronts. Dissatisfied associates, unhappy support staff, and neglected suppliers create a vicious cycle of negativity that will eventually impact a firm's clients. It may take years to notice in many cases but when it does hit you, the change can be hard to reverse. Employee engagement has a massive impact on firm performance and the delivery of client value. To achieve a high level of client value, firms must take into account all their stakeholders and ensure image matches the reality.

Differentiation does not come easily but building image above all else is like building a house of cards, it looks good for a while but the foundation is shaky, when it does come crashing down, it is quick and painful and very hard to rebuild.

Hourly Billing, Alternative Fees and Value Pricing

The heat is on! Well it would seem so if you have read all the recent stories about law firm clients demanding alternative billing structures. The Wall Street Journal was another notable media source commenting yesterday in a well written piece (story here).

There is much more to alternative billing than meets the eye. The ABA back in 2001 produced a commission on hourly billing and the negative impact on client-firm relations and the profession as a whole. They reported that hourly billing:

• affects firm culture and reduces collegiality

• discourages pro bono work

• does not encourage case or project planning

• may not reflect value to the client

• fails to discourage layering and duplication

• penalises the productive lawyer

• creates itemised bills that do not reflect value

• creates conflict of interest between client and lawyer

• fails to promote risk/benefit analysis

• major cause of associate dissatisfaction

What strikes me about this list is the major change in law firm culture and client-lawyer relations that will need to come about before alternative billing really picks up steam. For example, I was told recently by a lawyer that they need hourly billing and time sheets to manage their juniors or how else would they know what they were doing? Another one told me that only the top firms can hire the best people so they need to use this system to control their staff! The word that jumps straight into my head when I hear comments like this is TRUST!

Trust is the fundamental element that binds a high performing firm together and writers such as David Maister and Patrick McKenna have talked often about the need for trust based relationships in professional service firms. For law firms to truly embrace alternative billing they will have to fundamentally re-define their relationship with people inside the firm before they can effectively deliver alternatives to clients. Ronald Baker of the Verasage Institute is in Australia at the moment spreading the word of value pricing. He makes some very good points about the need for firms to determine what value they offer to clients and use a pricing council within the firm to set fees. He also makes a distinction between billing and value pricing. Billing is something that is done in retrospect whereas value pricing is worked out in advance.

In some parts of Asia, regulatory conditions prevent firms from using alternative billing in certain areas of practice (for example, litigation). Other issues holding back alternative billing is the lack of fundamental know how of law firms and clients of what alternatives are available and how they could be used. The main thing however is the mind set. Practice management and strategy know how in the region is still some way behind the US and lawyers mind set is a key factor in adopting a more client focused view. Many in house counsel have just not been exposed to these ideas and hence the dialogue that must occur between client and professional when working out value pricing simply cannot function as it should.

I don't believe value pricing and alternative billing is something that can adopted on a piece meal basis. In other words, trying to adopt some of the tenets of value pricing without a change in firm culture will only cause more problems than it solves. Firms must first embrace a culture that recognises themselves as a client value producing organism before they can articulate the value they deliver to clients and what they should charge for it. Value pricing is not only about premium pricing, it is about the firm structuring according to client needs so that the firm can become more effective at what it does, only then will it be able to offer fixed fee contracts whereby the focus is on effectiveness as opposed to just efficiency.

Marketing Professional Services in Asia-Seminar at Chartered Institute of Marketing Hong Kong

I conducted a seminar on Wed 19th Aug 2009 at the Chartered Institute of Marketing in Hong Kong to discuss the application of marketing in professional service firms in Asia. Sad to say there were no lawyers but there were a number of accountants, marketing professionals and a few from construction, engineering etc. You can find the ppt slides here.

It was quite a lively seminar with much discussion and debate. What struck me, as always when I conduct these seminars (I did one a week ago for senior lawyers on value pricing), is the continual lack of understanding of marketing among professional service firms (PSF). They continue to consider BD and marketing as synonymous, and worst still, they view marketing and promotion as bascially the same thing. The more senior the professional, the worse it seems to get. Additionally, despite the widespread calls for PSF to change, as the economy slowly turns up, the dismal effects of the GFC seem all but forgotten.

I will reiterate that just because law, accountancy and other professional service firms do well does not mean they deliver high levels of client value. Operating in a protected market and competing against each other is hardly a sign of running as fast as Usain Bolt. It is more like a competition between David Letterman and Jay Leno in the 100m final with the only other competitors allowed being other comedians. Just because one of them wins does not mean they are fast.

Marketing is the bed rock of firm performance but not as it is viewed by professionals. As a culture and process it has the most significant impact on firm performance and hence it must be accepted as a strategy tool. Hundreds of research studies show that adopting the marketing concept has a significant impact on profit but why is it that marketing in PSF is marginalised to BD and tactical promotion? It is because PSF have not been forced to accept a marketing culture compared to say consumer goods organisations because they continue to make money regardless. The GFC was a wake up call to some PSF and they have become more market oriented. However, particulalry in Asia where the slowdown in work has not been as pronounced when compared to the west, firms continue to do things as they always have. If transactional work has dried up, they have moved to litigation with no thought or examination to their longer term strategy.

I am going to say this loud and clear, marketing should be part of the very fabric of the firm. Any facet of your firm (i.e. hiring, training, geographic reach, services, motivation) that affects client value must take into account a market perspective. I still believe the professions will thrive in Asia but competitiveness will increase. Firms that really want to stand out in the market place must achieve a high degree of market orientation. To achieve this, they will have to look deep down at what they stand for and who they are.

Marketing Professional Services in Asia - book review

My new book 'Marketing Professional Services in Asia' published by Lexis Nexis in June of this year was reviewed in the August edition of the Hong Kong Lawyer. This is the official journal of the Hong Kong Law Society.

The review was written by Phil McDonald, the Marketing and BD director for Deacons law firm in Hong Kong. You can read the review here.