Marketing Asia

How Organizations Purchase Professional Services (adapted from Chapter 5 of Marketing Professional Services in Asia)

1. Organizational Purchasing of Professional Services

 

One of key differences between product marketing and service marketing is the fact that services are intangible and hence evaluation of service quality is very difficult prior to consumption. This is exacerbated for professional services as due to their very nature (complexity) even after consumption it may be very hard for a client to evaluate the technical nature of the service provision as they do not have the training that professionals have and hence they may not understand fully what was offered and if problems arose, whether they were handled competently. In the traditional marketing text, service marketers are told to make tangible their service offerings so clients can use these 'tangible cues' in their decision making. So for example, one would not expect a lawyer to be located in a shopping mall and wearing jeans and t shirt (although this can be seen in the US). This is fine except that if we do not know what these tangible cues are, the PSF is shooting in the dark somewhat when trying to gauge what clients look for and what criteria they use to judge a firm pre and post purchase, when a project is completed.

Two major questions face PSF marketers:

1. Who participates in the buying process and what influence do they have?
2. What criteria are used pre and post purchase to evaluate a firm?

 

When considering who and how different people in the client firm influence the decision process, one needs to consider the nature of the purchase. A straight forward audit year after year is not going to elicit the same type of consideration from the client that the appointment of a provider for specialist tax advice in a foreign subsidiary. When selling legal services to a large multinational, the in house lawyers will play a major role, yet when dealing with a medium or small sized firm, the owner/MD will probably be the key person. One must also consider people outside the organization who influence the decision process of the client firm. For example, when assessing the competence of a firm, one may rely heavily on the tangible cue of recommendations (word of mouth marketing). These recommendations may come from business advisors, friends, or other industry/association professionals. The point is that you cannot simply limit your marketing efforts to the target firm if other factors have a major influence on their decision. Within the client firm, there will be a group of people (known as the buying centre) that potentially influence a buying decision. These people will probably be at different levels of the firm and in varying positions/departments. It is crucial for the PSF marketer to identify who these people are, what influence they have, and what kind of information/criteria is likely to sway their decision making. For example, one of the major trends affecting law firm services and purchasing is convergence. Large firms worldwide are culling the number of firms they deal with in an effort to improve their efficiency in dealing with outside firms. In order to get on that list of say 100 approved firms, the law marketer must have a deep understanding of what is driving the decision process and whom. If you are trying to become a legal provider for McDonalds, which has numerous in house lawyers, you may be wasting your time marketing specifically to the GC as he/she may not be involved in the decision making for matters that are not critical. If it is an intellectual property issue then that's the person you may need to direct your efforts at. For the user of law services within the client firm (i.e. in house counsel, specific department managers), they will want to ensure the firms they use are easy to work with, responsive, and provide access to a senior level partner who can answer their queries quickly and effectively. However, the user may not necessarily be the buyer or decider, in a smaller firm this would most likely be the MD and other senior staff such as the CFO. In larger firms it may also be the CEO (depending on the significance of the purchase) as well as division heads. One of the major considerations for the buyer will be the price structure and terms of contract. No one wants to sit through pages and pages of hourly billing documents that make little sense or have little application to the work that was done. This has led recently to the concept of value billing. Many client firms are insisting that law firms and other professional service providers do away with billable hours and move towards fixed fee contracts and other similar structures that simplify the pricing process and even provide lower fees based on the promise of more work. This may sound like discount pricing for a bulk purchase and in some ways is. But the PSF marketer must understand that the commercial practices and terms that their clients are accustomed to using are practices they may have to adopt due to client pressures. There is nothing wrong with moving to value based pricing if it simplifies matters for both client and firm. In complex buying situations, deciders (often senior officers) want to know the value that the firm brings in resolving problems. Being able to articulate a clear value proposition based on the competencies of the firm is crucial if the PSF expects to be chosen ahead of its competitors. For example, a law firm may have specialist knowledge and substantial experience in M&A's and hence it becomes important to be able to communicate that to the client in a way that identifies the value and benefits that the client seeks. Having an appropriate target market and clear value proposition based on organizational competencies makes it much easier to stand out in the crowd and improve tender success rates. It will also make it much easier to target your communications to those involved in the buying process and hence influence them in a way that matters.

In terms of criteria used to judge a professional service provider, existing marketing texts geared for the professional services have two problems. Most of them use anecdotal information such as understand client needs and be professional. Advice that I am sure today is well heeded by professionals but of limited value in standing out from the crowd. Other texts use materials that were developed in the US market and their relevance to Asia is questionable due to cultural differences. For example, although many professionals use extensive advertising and on line directories to highlight their services, research in Hong Kong suggests that consumers of professional services find such advertising inappropriate for professionals and not something they would use to judge the competence of a professional or use for selection. In fact, the same research suggests that these consumers would be put off by such marketing tactics.

As mentioned previously, different people in the buying centre may use different criteria when judging a provider, hence expecting a one size fits all list of evaluative criteria is unrealistic. Much will depend on the relationship between the client and firm as well as the situation and nature of the purchase. For example, research conducted in the US by Jackson et al (1985) showed that CEOs were concerned about areas such as results of the firms work and expertise in the needed area. Price was of little consideration although that doesn't mean it won't be for other constituents in the buying centre, as other research suggests price is important. One of the key things in the purchase process is knowing whether client perceptions match those of the firm. Many firms believe they are good at certain things and that their level of customer service is high, yet research constantly points out that client perceptions often differ. Just because one assumes people have a certain image of your firm does not necessarily make it so. It is vital that research is carried out to identify not only how a client chooses a provider but how current and prospective clients view your firm in terms of these key criteria.

Another consideration is the stage of the buying process. Selection criteria that is used at the short list stage maybe different than at the pre selection stage, hence it becomes important for the PSF marketer to have knowledge of when a project is due to be tendered out as well as what stages are being progressed through. Research in Asia and the US suggests that different criteria are used at different stages. These stages have been conceptualized as follows:

 

Figure 1 The Organizational Buying Process for Professional Services

(*Feedback may occur to any previous stages. Source: Day, E and Barksdale Jr, H C (1994) Organizational Purchasing of Professional Services: The process of selecting providers. Journal of Business and Industrial Marketing, Vol 9, No 3, pp. 44-51)

It becomes clear when looking at such a framework that both client and provider would be wise to identify the criteria used at key stages to ensure a more efficient selection process for all concerned. Additionally, being able to communicate and successfully deliver on those criteria are what a professional service firm lives for. In one way or another, all variables point to quality, whether its technical aspects or relational ones, the problem is that at least at stages 1, 2, and 3, the professional service provider needs to demonstrate this quality even to be in the ball game, and since such a service is intangible that is not always easy to do. Factors such as previous experience (a portfolio of work) and company reputation maybe crucial at the early stages when client uncertainty is at a high.

When looking at existing evidence in the evaluative criteria being used by purchasers of professional services, it tends to come back to 3 or 4 key areas, depending on where the research was done and which professional services were examined. Work done in the US (Day and Barksdale Jr, 1992) identifies 4 dimensions that are considerations in selection in the A&E industry. These are identified in table 6.1 along with research that has been conducted in Hong Kong and Singapore.

 

Table 1 Evaluative Criteria for the Selection of Professional Service Providers

Study A

Experience, Expertise, Competence (i.e. management, reputation, visible and active principals)

Understanding Client Needs and Interests (i.e. knowledge of project beyond RFP)

Interaction, Relationship, Communications (i.e. trust, team work, listens)

Contractual/Administrative Conformance (i.e. efficiency, on schedule)

 

Study B

Background of Firm (i.e. reputation, experience)

Past Performance (i.e. time and cost control)

Capacity to Accomplish Work (i.e. qualifications, personnel)

Project Approach (i.e. time schedule, work quality)

 

Study C

Technical Capabilities (i.e. experience, resources, creativity)

Management Capabilities (i.e. competence and service delivery systems)

Financial Capabilities (i.e. soundness)

Quality Attitude (i.e. quality control)

 

Study D

Task Performance (i.e. experience, creative)

Contextual Performance (i.e. social skills, conscientiousness)

Network Factor (i.e. reputation, relationships)

It is important to note in the above table that these studies were done in the B2B market and do not necessarily reflect the views of individual consumers. In fact, research done in the UK (Ellis and Watterson, 2001) shows that consumers were more concerned with firms having a traditional image and offering a range of services. This is in contrast to organizational customers who were more concerned with reputation of the firm and specialization. This is in line with findings of the aforementioned studies. When looking at the different criteria mentioned in table 1, there is a marked similarity in the results whether the research was done in the US or Hong Kong. It is probably safe to say that a number of the areas are already intuitively known by professionals but having concrete evidence will allow both the marketer within the PSF and the principals to make a legitimate push to put resources into the key areas that will have a tangible affect on firm performance. This has been termed as the knowing doing gap by Pfeffer and Sutton. The authors show just because people know what to do does not mean they will actually do it. This comes back to the very beginning chapters of this book. Developing a marketing culture is something that has to be done from the very fabric of the firm and what it stands for. For instance, lets say you wish to strengthen the firm image in a particular specialism and it is decided that partners will give talks at certain industry/client events for a total of 4 hours per month. This doesn't sound like a lot but when you take into account the preparation time and traveling it may add up to quite a bit, say in the region of 20 hours in total per month. Now if your firm lives and dies by the billable hour and compensates accordingly, what incentive are the partners going to have to allocate 5 hours or more a week to be ready to present at certain industry events that will, over the medium to long term raise the profile of the firm and enhance its reputation. The answer is none. Marketing, as has been stressed numerous times in this book, is not something that can be done in isolation or is purely the responsibility of the marketing staff. It takes a firm wide effort and commitment to truly become client focused and market oriented. It also times time and expecting instant results or a measurable ROI is not realistic when considering marketing as a whole.

Based on the criteria in table 1 and the stages identified in figure 1, the PSF will now have the basis for which it can form a coherent approach to improving areas that are deficient. It is crucial to ensure the identified areas are important to clients and that the chosen activities and tangible cues are appropriate to signify the ability to deliver on those criteria. One would not want to focus on creating an image of a modern firm when it is not something which is valued by clients. Yet there are still other factors to consider. The size and culture of the organization will affect the buying process as will the issue that is under consideration. Smaller projects or trivial matters may be handled by more junior staff in the target firm whereas more critical projects will be handled by senior officers and more people will be involved in the decision process. If you are a relatively young or new firm to a client (one that you have not worked with before), expecting them to give you a major project straight off maybe unrealistic, you may want to get your foot in the door first working on less important or smaller projects. Centralized highly bureaucratic organizations tend to limit decision making at the top whereas flatter organizations tend to decentralize decision making. Firms like GE has revolutionized the way they hire and deal with professional service providers. In his book, Inside/Outside: How Businesses Buy Legal Services, Larry Smith offers a number of anecdotes and insightful comments on law service purchasing in his many interviews with firms of different types and suggest some strategies how a law firm can access and develop business with these firms. Although it is US based, there is much practical insight.

II Putting It All Together

David Maister, a well known consultant to the professions, states that understanding the purchase process is the most important talent in selling professional services. The problem however is that little well grounded evidence is available for professionals that could be used as a framework for better understanding of this process and concomitantly improving the marketing and selling process. Most books, including those of David Maister, are based on subjective experience or anecdotal evidence. This creates the issue of whether such anecdotes are transferable from one situation to another, or one culture to another (i.e. from the US to Asia). The purpose of this chapter so far has been to present evidence that is empirical in nature and Asia based. Based on this, a conceptual model of the purchase process for organizational buying of professional services is identified in figure 2. The model attempts to integrate the evaluative criteria used by clients with the different stages of the purchase process as well as the possible activities that could be undertaken by the PSF to improve their success rates.

 

STAGE 1

Recognition of Need or Problem

Identification of the Initial Consideration Setè    Experience & Understandingè    Right Cues

Refinement of the Consideration Set            "Can you do it?"

 

STAGE 2

Evaluation of the Consideration Set        è    IQ & EQ          è    Right Cues

Selection of the Service Provider            "Do I want to work with you?"

 

STAGE 3

Evaluation of the Quality of Service Deliveryè

Evaluation of the Quality of the Outcome        Perception Matches Expectationè    Right Cues

Level of Satisfaction                "Did you do what you said?"

 

Figure 2 A Framework for Understanding Organizational Purchasing of Professional Services

 

From this framework, it becomes clear that different criteria will be used at different stages and if the process is longer term, it is possible that buying centre constituents will change and hence criteria may change. It is then imperative that the PSF marketer keeps their finger on the pulse when dealing with client firms at all times.

In what I have termed stage 1, the PSF firm is charged with getting into that consideration set, or even possibly making the client recognize a need or problem that perhaps they were unaware of. For example, in the UK, the Chartered Institute of Surveyors created a campaign targeted at small businesses that showed billions of dollars being wasted in poorly managed real estate assets. The idea was to drive business to local surveyors based on a problem that most target firms were unaware of. In any case, becoming part of that consideration set and being able to move onto stages 2 and 3 is the goal of focus. Experience and understanding seem to be the key evaluative criteria here and it's up to the PSF to identify the appropriate cues to signal that ability. This will include previous experience (a portfolio of work), a recognized reputation as well as high visibility. Word of mouth (WOM) marketing maybe particularly important here, hence having delivered quality projects in the past and ensuring previous clients were satisfied with your work is crucial.

In stage 2, the client has narrowed down the initial set into a more limited list for thorough evaluation. This will certainly involve face to face meetings and the provision of some sort of tender document in the majority of cases. Both IQ and EQ are important here. Not only will the client want to know that you have the technical ability, which to some extent was demonstrated in stage 1, the client will want to know whether you are good to work with (EQ). Can you work as part of a team, be flexible, use language that others can understand, and above all else, will you listen and respond to client concerns and consider their project an important one? Clients want to know whether you treat their needs seriously and that you will allocate the necessary resources. Nobody wants to be at the bottom of the pile. If you feel that the client's project is too insignificant/out of your scope and that there is little long term strategic advantage in developing a relationship with this client then don't do it. Exit gracefully and keep your reputation intact!

In the last stage, clients will now begin to evaluate the work you have done and whether the results or outcomes are acceptable. One of the problems here is that many types of professional services lack credence qualities and hence outcomes maybe difficult to evaluate. For instance, just because a law firm lost a litigation suit does not mean they did a poor job. Similarly, if you go the dentist and your tooth cannot be saved does not always suggest the dentist lacks the requisite skills. Hence it becomes necessary for both the service provider and client to work together to create a key performance indicator profile that details what the provider will do (and when) and what the client can expect in outcomes. Being realistic is very important here. Creating unrealistic expectations and then not being able to deliver on those only leads to high levels of client dissatisfaction. One factor that can affect both client and firm satisfaction will be the prior experience of the client in using the specific type of service being sought. Clients with minimal experience and hence limited knowledge of what to expect may need to be 'educated' by the provider as many times the client can have unrealistic expectations. It should be stressed that if both client and provider work together from the initial stages in developing the evaluative criteria and what each needs of the other the buying process would be considerably smoother than such is the situation in most cases. Whilst the idea of beauty contests seems to be very popular in certain professional industries (such as ad agencies) the benefit of almost blind pitching without some sort of prequalification discussion between client and firm is at best limited, and at worst a colossal waste of resources for both client and firm. Much of these issues are discussed in the domain of relationship marketing both here and elsewhere.

III Conclusion

The vast majority of this chapter deals with organizational purchasing of professional services with minimal attention to consumer buying. It also tends to focus on winning new business as opposed to continuing or expanding a relationship with existing clients. Having identified the key concepts in both the decision stages and purchase process it becomes clear that marketing and selling professional services to organizations is a unique and complex process. The PSF must ensure that they have a good understanding of the evaluative criteria that clients use to evaluate and select providers as well knowing the stage of the process the client is at. If both client and provider work out together the explicit details of what can be expected and delivered it would go along way to enhancing satisfaction for both parties. Additionally, since relational qualities and EQ are such important factors in the decision process, the PSF must make sure those people who present to the client as well as those who work on the project and are client facing have the necessary social skills to interact effectively. This may often mean using client service staff that are not actually professionals (i.e. qualified accountants or lawyers) themselves. Finally, Asia is distinct from other parts of the world, hence relying on promotional tactics that work well in the US to raise company visibility may not be appropriate in this part of the world.

Branding the Professional Service Firm: did PwC (or pwc) get it right?

PwC have recently launched their new branding which involves a new logo among many other things (I assume – see related article). The essence of the piece is encapsulated from the article below:

The centerpiece of the new branding initiative, which launched September 20, is a simplified logo consisting of the initials "pwc" in lowercase type.

"The world has changed significantly over the last two years and will continue to evolve as new and emerging markets develop. Our brand refresh signifies that we understand how the world is changing and are prepared to help companies respond with the diversity and skills a global network of 160,000 people can offer," Tom Craren, leader of U.S. brand and thought leadership for PwC, told AccountingWEB.

"The changes to our logo, colors and look symbolize the broader changes we are making in the U.S. firm and global network to help create value for our clients and our people in a very dynamic and challenging global economy," he continued. "We believe our brand refresh provides a way of distinguishing PwC from other professional service firms."

I am not privy to the inside scoop on the branding process for 'pwc' but I do know that branding in law, accountancy, and other professional service firms is one of the most poorly understood and applied concepts when it comes to the strategic management of the firm. Far more than a logo or claim to a new position, a re-branding should be a great opportunity to engage employees and enhance client value.

Here is an article I had published in the Singapore Law Gazette recently which addresses branding of a professional service firm, lets hope PwC got it right?

Branding the Professional Service Firm

Branding is one of the most poorly understood and misapplied processes in the context of professional service firms (PSF). Too many PSF embark on building a brand using the basis of a consumer goods branding campaign as their benchmark for what branding is all about. This entails significant time and resources spent on designs, new logos and nice glossy brochures. These same firms are then surprised when the 'branding' process achieves negligible results in terms of business for the firm or an enhanced reputation in the market place. Even the largest PSF in the world have engaged branding consultancies and spent millions of dollars on new tag lines and flashy advertising yet neglected the people in the firm, who are the ones who live, breathe, and deliver the brand every single day in their interaction with clients.

Branding in PSF is not about logos, advertising, or new stationary, it is about the skills, knowledge, and interactions that the human assets of the firm have in the market place. Branding in PSF is different because:

• Professional services are essentially intangible and hence differentiating the PSF is both different and difficult
• The professionals in the firm hold all the capital, if they don't 'buy into' the brand, there is no purpose in branding at all
• Clients will not choose a PSF provider due to a new promotional campaign based on a new logo or image
• Clients choose the individual as much as the firm, hence there should be a balance between firm brand and individual brand
• Consumers in Asia are much more critical of professionals advertising than those in the west, hence advertising is less effective

 

This list makes clear the challenges in professional services branding. Branding is not only an important topic because PSF branding is so different to that of traditional organizational branding but because many firms are now embarking on such processes with less than stellar results.

The Value of a Professional Services Brand

There has been much discussion in the legal and accountancy media recently regarding the concept of publicly held professional firms. The topics of branding and PSF ownership are interrelated because of the financial and management impact of outside ownership. If you look at brand giants such as Nike and BMW, much of their book value resides in the name of the brand, often referred to as 'goodwill' on a balance sheet. Stripped of all their assets, the shell of the firm would still be worth a considerable amount due to the brand equity perceived by consumers. Can the same be said of a law or accountancy firm? If, as has happened in some cases, a substantial portion of a law firm's top people leave, does the 'brand' still have the same value? As Bente Lowendahl in his book (Strategic Management of Professional Service Firms) points out, it is more than likely that such a firm will become an empty shell, devoid of value as all the assets of the firm reside in the human capital, its people. Professional firms such as McKinsey have managed to institutionalize a brand to the point whereby mass departures have not affected their perception of value to clients but they are one of the very few that have managed to do so. That is why PSF branding has as much to do with the professionals themselves as the firm.

A brand signifies something to a customer about a firm that gives it some kind of advantage over competitors in terms of preference and trust. However, all the recognition and awareness in the world driven by advertising and other forms of promotion will not overcome negative experiences that a client has with the provider. The individual professionals within the firm are the heart of a firm and hence the brand, everyone inside the firm must live and breathe the values of the firm and this must come through in the firms dealing with clients. It is the values of the firm that form the core of a brand and this is reflected to the outside world in the things the firm does. This suggests that branding starts inside the firm and hence any law firm should focus on nurturing and developing their people to provide the best experience they can to clients in order to create a strong brand image.

A recent research study from RainToday.com and the Wellesley Hills Group titled Fees and Pricing Benchmark Report: Consulting Industry 2008, finds that while brand leaders (27% of responding consulting firms) and "not very well-known" firms (73% of responding consulting firms) have similar standard / book rates, the hourly rates brand leaders actually get were always higher than their counterparts. The increase by level of professional is as follows:

•   Highest-level professionals (CEO, Principal): 20% higher
•   Upper-level professionals (VP, New Partner): 11% higher
•   Advanced-level professionals (Directors): 29% higher
•   Mid-level professionals (Managers, Post-MBA): 20% higher
•   Entry-level professionals (Associates): 35% higher

This research should not surprise professionals who work for larger firms as they are keenly aware of the ability to charge higher fees based on their standing with clients and industries served. Having said that, branding is as applicable to small firms as it is to larger ones with the key difference being the limited resources of smaller firms and their limited geographic and practice scope which suggests they should focus their branding efforts on key market segments and practice areas.

The Branding Process for PSFs

The previous discussion has hinted at the idea that branding, and branding a PSF in particular, is a comprehensive effort that entails many aspects of the firms marketing and business strategy. Additionally, branding does not rely on advertising and the ability to invest millions of dollars in large scale promotional campaigns. This is particularly true in Asia whereby the limitations of advertising and consumer responses to it have been mentioned. Branding in knowledge based industries is as much internal as it is external. Building a brand requires a business audit in terms of:

• Vision, mission, and business strategy
• Marketing strategy
• Firm culture and values
• Firm history and background
• Staff perceptions and needs
• Clients and industries served
• Client perceptions of firm
• Services offered
• Competitive environment

 

A PSF must have a solid understanding of what the firm stands for and how they would like to be perceived now and in the future. By looking at this list it should be clear that a brand cannot be represented (except superficially) by a logo or slogan and that deciding on a brand strategy is a time consuming process, and albeit rewarding, that takes substantial effort and commitment among many areas of the firm. It then becomes obvious that changing a brand and the perceptions of a firm again cannot be represented by changes in firm colours or stationary and hence any firm embarking on a branding process should take it very seriously or not bother at all.

Additionally, given the nature of PSF who rely on the human and social capital embedded in many practice areas of the firm, there is a strong case that branding should occur at the individual, practice, and firm level, although there should be a unifying set of values and beliefs that bind the firm together. For PSF with offices in multiple geographic locations, this will be crucial to create what David Maister calls, the 'one firm' firm.

The figure demonstrates a number of important issues when it comes to branding law and other professional service firms. The most important being the involvement of the people within the firm and ensuring the brand identity is accepted and embraced on a firm wide basis. The brand identity is much wider than the image or position. Too many firms attempt to create a new brand by creating a new image, something that David Aaker (Professor Emeritus at UC Berkeley and renowned expert on branding) refers to as the brand position trap. One can see that a significant amount of the branding process is about the internal culture and workings of the firm and it is those desired attributes that create the basis of the overall brand identity. The brand identity is an all encompassing idea of the firm brand and a position, or image, is only a subset of that identity.

In the first stage, a firm should take an in depth look itself and the market through a strategic brand analysis. Internal examinations should be concerned with leveraging the strengths of the firm and building on those few key cultural variables that have real potential to create an advantage for the firm in terms of differentiating itself and being embraced by the people within the firm. This process is also a great way to involve and seek input from most everyone in the firm as without it, one cannot expect buy in and commitment. Such buy in is crucial to the success of any branding process for PSF as it is the interaction between client and provider that, when push comes to shove, determines the brand experience. This can be achieved through workshops and training to inform and seek collaboration from internal stakeholders. The external analysis is done in conjunction with the internal analysis as it is important to ensure what you desire to be fits the realities of the market place. For example, it would be impossible to take the brand mantle of Skadden for M&A deals, although you might be able to credibly produce superiority in some related aspect of M&A work. What you are doing through these analyses is developing the core of the brand, its DNA, making it part of the very fabric of the firm so that your people deliver on that brand promise in their dealing with all stakeholders. Once you have combined your analysis through the gaps and opportunities process, this should lead onto the realization of some concrete identity elements for the firm, practice groups, people, and services. These different elements should be consistent and mutually supportive. For example:

Brand as individual professional – trusted advisor, thought leadership

Brand as practice groups – cross disciplinary, flexible and knowledge sharing

Brand as service – ground breaking, innovative services. Value based pricing

Brand as firm – innovative, client centred, international exposure, cutting edge

This would fit a firm that wishes to be recognized as a leader in its field, one that works on the most demanding projects and consistently enhances the firms learning to add value to future client engagements. These are not just words, these are values to be adopted and lived by every day by all those in the firm. Once these values become rhetoric, the brand will lose all credibility in the market place and once that happens, it can be very difficult to re-invigorate the brand in both the clients mind as well as your peoples. This points to the crucial role of leadership in brand building, too many firm leaders do not lead by example and instead of inspiring and motivating their people, they inhibit them by instigating unnecessary procedures or making unrealistic demands (2000 hours a year in billable time springs to mind). Research shows clearly that firm leaders should facilitate and encourage their people, not command and control. Remember, professionals are highly achievement oriented themselves and do not take well to micro management. In his book Practice What You Preach, David Maister showed unequivocally that those firms that lived by their values achieved better financial performance than their peers. Branding is not just about getting new clients, it is about retaining and attracting the best talent.

Once you have developed your brand identity, you will need to consider the different segments the firm targets and develop a value proposition suitable to those client markets. You may need to make adjustments in the brand image (by focusing on different elements of the brand identity) and communicate those relevant to your target audience. Public relations based promotion will be critical here in terms of writing and thought leadership, seminars, firm publications and resources, speeches and key note presentations. It is also important to target brand communications at internal stakeholders such as new hires in order to ensure they understand the brand process and have the skills to deliver on it.

A Final Word

Working on prominent deals and those that challenge and motivate your people is an important part of the branding process for PSF. One cannot expect to land such deals if you are not an attractive employer for new hires (access to the best talent), hence internal and external branding work hand in hand. Additionally, building upon early successes means that firms must be willing to commit a portion of time (normally billable time) to investments in capability building in terms of service ability and firm reputation. If you live and die by the billable hour, you are never going to give branding the opportunity to work for your firm, and it does work!

Integrating marketing, BD, and the work of fee earners

There is a massive amount of confusion regarding the role of marketing in law, accountancy, and other professional service firms. This confusion grows when you add in BD and how these all relate to the work of fee earners. It's no accident that marketing and BD are known as 'fee burners' and relegated to back office (or mid office) functions since many professionals believe them to be exactly that. Even more so, they see little interaction between what they do and how marketing actually adds value to client work. I am going to rock the boat here a little and say that marketing is the foundation of the value that professionals deliver to clients and rather than being a fee burner, fee earning does not exist without it!

The above figure shows the explicit link between marketing (as strategy, in other words the orientation and culture of the firm), firm behaviours, and the link to the manifestations of marketing, BD, and the areas of fee earners work that it affects. What this figure details is that aside from technical advice, clients demand an increasing amount of business advice and industry knowledge that is linked to the technical advice professionals provide. For a professional (and firm) to effectively differentiate themselves in the eyes of the client, they must be able to deliver a level of value (whether through industry and technical know how, responsiveness, pro-activity etc) to clients that is different from what other providers can offer. Additionally, since a marketing culture is associated with job satisfaction and engagement, it acts as a motivator for professionals to engage in individual level market oriented behaviours which are aligned with the needs of clients. In this sense, marketing in its truest form becomes a key pillar in the work of fee earners and what they deliver to clients.

To get people within the firm to accept and fully understand this requires a change process that unfortunately is anathema to most professionals.

More than anything, it is crucial to fully articulate the meaning of marketing and how it differs to BD and the tactical level marketing most professionals recognize as the be all and end all of marketing. This process can be significantly enhanced by finding the pockets of excellence in the firm that this intuitively works well (and probably outside of the stated strategy of the firm) and using these (with senior partners involved in training) as part of innovative learning programmes that go well beyond the standard training of most firms which create little lasting change.

Building the right processes, skills and support is an ongoing process. I have detailed some of this in a presentation I delivered at KPMG (for APSMA in Hong Kong) recently of which some is based on the concepts detailed in Suzanne Lowe's book: The Integration Imperative.

Alternative Fees and Legal Services Value in Aus & NZ

In a comprehensive study by the Corporate Lawyers Association of New Zealand (CLANZ) and the Australian Lawyers Association (ACLA), the ACLA/CLANZ Legal Department Benchmarking Report 2010 delivers the results of the most extensive study of its kind ever conducted. My good friend and former CLANZ president Ron Pol, and his company Team Factors conducted the research with some of the largest corporate and government users of legal services in Australia and New Zealand, with an average legal spend of $5.5 million in New Zealand and $13.5 million in Australia.

Here are some of Ron's findings:

"Selecting good outside lawyers was not regarded as a pressing issue facing any legal department, but the need to reduce outside legal costs featured consistently as a top priority". 

"The actual extent of alternative fee arrangements is less than some reports suggest. Notwithstanding continued antipathy towards hourly billing and reports of a surge in alternative fee arrangements, the report confirmed hourly billing's continued dominance. On average, standard and discounted hourly rates still represent 85% of fee arrangements by value, in both New Zealand and Australia. Across the board, fixed fee arrangements represent around 13% of the balance. This means that, overall, the impact of most of the alternatives beyond fixed fees seems virtually negligible.

"It's hardly surprising that costs are amongst clients' top concerns", says Ron, "but it's not just the size of legal fees; the way that lawyers communicate costs – and the timely reporting of unexpected overruns – seems to be a big part of the issue." 

"The general counsel of some of Australasia's biggest organizations, with some of the largest teams of in-house lawyers and most sophisticated legal procurement systems, reported that when they asked law firms for fee estimates, the final cost was consistently on or below budget just 4% of the time".

I must say I don't find many of these results surprising. Over the last several years, I have consistently found legal buyers to be extremely dissatisfied with the way their law firms bill, primarily in the way that budgets are never met and that even fee caps have been exceeded by 30-40% in some cases! The research by Asian Counsel Magazine depicted in the figure below seems to verify this as it identifies the key reasons a client leaves a law firm:

The ACLA/CLANZ Legal Department Benchmarking Report 2010 also identifies some other interesting points in terms of the value that clients seek from law firms, which is shown in the table marked 73.1. The point about the ability to provide legal advice in a commercial context is one I come across often and I have heard many a client complain about 20 pages of legal briefing and analysis but little concrete advice in terms of corporate decision making, and of course, these lengthy reports cost money! Additionally, the issue related to make sure marketing is related to the client's business and not the firm is something I have discussed at length here. Overall, if you look closely at the table it is evident that many of these factors are related to firm culture and the ability of the firm to build a market driven firm based on knowledge (what we refer to as market and knowledge orientation). For instance, a few examples from the table above:

• Be proactive – pro activity is part of responsiveness and covers a wide range of issues. One cannot be pro active without relevant knowledge of what's happening in the legal market place and how that may apply to clients
• Differentiate – differentiation requires the interplay of many firm processes and systems but all these rely on the ability of the firm to develop a relevant and implementable strategy based on client insight, innovation, and strong leadership
• Invest in non chargeable time understanding my business – the traditional paradigm of law firm management based on billable hours and limited KPIs that don't reward other factors, such as developing and sharing new knowledge, is a key reason why lawyers are not incentivized to spend this time. There is a huge difference between making time and having time, its got to be made based on firm expectations!

It really is about time that the demands of clients related to the value they seek from legal service providers is more widely articulated and accepted within law firms.

 

 

 

 

 

 

Law and professional service firm strategy: Partner profits dropping – hire some marketing people!

There was an article in Legal Futures yesterday which discussed the attempts by law firms to turnaround dropping billable fees. The key thrust of the piece is evident in the extract below:

"With partners in the top 10 firms seeing their average billable fees fall by £875,000 last year, recruitment consultancy Ambition says firms have responded by hiring business development managers, client relationship specialists and other marketing support staff in order to help boost billing levels – vacancies have risen 54% over the last 12 months in London"

As a strategy for boosting business, knee jerk hiring of marketing and BD staff has to be one of the most ill thought out approaches. To understand why, consider what the typical BD Manager's role and responsibilities will be as directed by the senior partners of the firm (based on their misguided understanding of marketing):

• Promotion – get more PR and do some seminars, conferences and other activities to boost the firms profile
• Collaterals – update the firms web site and marketing collaterals
• Training – get some more networking, sales, and negotiation training for the partners
• Cross selling – create opportunities for cross selling the firms services
• … and other activities similar to those described above

What do senior partners think will happen when they hire these marketing people to engage in some of the activities described above? Do they really believe it will magically create more business? The key factor is to understand why the firm has less business and why some clients are either using other firms or reducing their outside spend on legal and other professional services. For example, the key reasons a client no longer uses a particular law firm are depicted in the diagram below which comes from Asian Counsel Magazine (2009) and their study of in house counsel in Asia.

How many of these problems can be solved by the hiring of marketing staff who are being utilized in the roles described in the bullet points above? Next to none! The problem lies in the value creating mechanisms of the firm which are not aligned with the value that clients seek. For example, if responsiveness is one of the major reasons a client changes professional service firm provider (which it is and covered in a number of points in the figure), the firm will need to figure out how it can improve responsiveness and in particular, in which areas. This is not as simple as asking your staff to respond to emails within 24 hours, it goes far beyond this. Responsiveness to client questions and needs requires knowledge and indeed, to be proactive requires the firm to have a deep understanding of the clients industry, business, and the strategic issues it faces and needs solving. This degree of responsiveness can only be developed when the firm creates a market driven and knowledge based culture which leverages intellectual capital across the firm effectively that draws on knowledge which exists in different firm practices as well as the heads of different partners. If you think that you can cross sell your services without having an intimate understanding of client needs (expressed and latent) then you are in for a shock. Excessive fees are also a good example given the global financial crisis and changes in professional service firm business models that include outsourcing and a lower reliance on leverage as the path to profitability.

Marketing is not a tap that can be turned on or off according to prevailing business conditions and the article in Legal Futures highlights the fundamental problem with the concept of marketing within most professional service firms. There is little doubt that building a marketing culture is the answer to many of these problems but this is not achieved by hiring marketing staff and is certainly not the sole responsibility of the marketing function. Client value is the ultimate responsibility of firm partners and hence the development of a marketing culture which is client focused is by the same line of reasoning the responsibility of the firm's most senior partners. Marketing is not something which is an add on to the firm and can be measured by ROI, as Tim Ambler at the London Business School rightly points out, trying to measure the ROI on marketing in its entirety is like trying to measure the ROI on eating, if you don't do it you die! Marketing (in the form of a market orientation) is the single biggest factor that affects firm performance. To explain the difference between marketing that the firm does and marketing (value) that the client wants, I have put together this simple figure:

As professional service firms continue along this tactically oriented view of marketing and fail to embed marketing as a culture within the firm, there will always be this disparate view of the marketing the firm does and the marketing (value) the client wants, like two ships in the night, the sail by each other. It really is about time firms realize that marketing is about creating and delivering client value and that all the marketing staff in the world won't change their profitability levels unless marketing becomes the cornerstone for the leadership and knowledge sharing behaviours within the firm.

 

 

Alternative Fees in Asia: are law firms and clients catching on?

The revolution of alternative fee arrangements (AFAs) is here to stay – or so we are told. The never ending stream of media and blog articles that cite the legal profession as undergoing drastic change in terms of the hourly billing model is almost overwhelming and anyone reading these stories would likely believe that this revolution is in full swing. Whether this is the case is subject to question as identified in a recent blog post by my good friend and colleague Patrick McKenna, based in the US. He says:

"Client revolution indeed! Among all of this one sees a lot of smoke, but . . . where's the fire?"

"Regular readers of my blog may remember my rant (#396) back on June 30 of last year, entitled: CLO's Are Not Serious About Change.   In that post I reported on an interesting experience working on behalf of an AmLaw listed, "Go-To" regional firm of over 500 attorneys. I spent two weeks initiating contact with the General Counsel of more than 35 Fortune 500 Companies to explore their interest in investing one-hour to meet.  The invitation was to discuss how this particular law firm could provide exceptional client service and deliver a potential savings of between 25 to 40 percent, or more.   And that proposed savings was accompanied by specific details of guaranteed responsiveness, assured predictability, enhanced added-value, and references from some top New York based Fortune 50 existing clients. To my absolute chagrin, I confessed in my post that I completely struck out! No bunts, no hits, not even a sniff of interest. I subsequently heard back from a couple of GC's via Legal OnRamp that . . . "unfortunately, change comes slowly."

Larry Bodine (a US based legal marketing consultant) also provides links to a couple of studies that show relatively weak demand for AFA from clients:

• Study finds no groundswell for AFAs
• Study finds weak client demand for AFAs

In Asia I am not aware of any rigorous studies that have attempted to identify the degree of demand and usage for AFAs although research by the Institute of Knowledge Development based in Melbourne suggests that 40 percent of external legal spend is managed on an AFA basis (my good friend Ron Pol of Team Factors in NZ has just released a report on legal department spend and structure in Aus and NZ which I anxiously await). Whether Australia would be indicative of Asian markets such as Hong Kong, Singapore, Vietnam etc is hard to say. They are all in differing stages of development with varying competitive dynamics. I can only draw on some recent experience to shed light on the idea of whether AFAs are prevalent and indeed part of an overall revolution in law firm client relations. Having completed a number of client surveys for local and international firms in Asia my general view is that it is the client who is generally unaware of the alternatives and indeed somewhat comfortable with the hourly billing process. Often times they seem more concerned with flexibility in billing such as discounts to the hourly rate. Having brought up the concept of AFAs I am often surprised to hear from the client their overall lack of knowledge and awareness in this area. This is especially so for litigation related work where they tend to believe it is not possible to use arrangements such as fixed fees. This seems to support the views of Patrick McKenna who goes onto say:

'In summary, there is little incentive to change business practices unless it benefits you. For many GCs the positive / negative impacts are still too slight. They are in an accountability blind spot and few have someone going over their spending decisions with a critical eye. Most CEOs worry about their company winning the litigation, not whether the legal spend has risen by another "x" percent this year. It all makes one wonder: 'Who will put pressure on the GC to change?'

Apart from the client view, I have also spent a lot of time working with some of the more prominent law firms in Asia (many which are well known local firms). The better firms have bounced back very quickly from the GFC and indeed I know some which are having their best years in certain practice areas. The views of these firms is that they don't need to change given they are doing well and there is little pressure from the client side in terms of AFAs. In fact, I know firms which have turned away potentially large clients who have pricing expectations that don't match the workings of the law firm.

Perhaps Patrick McKenna sums it up best:

In the end things will change. Corporate behavior will slowly evolve; more CEOs and shareholders will take notice of legal spend as it grows and grows; GCs will adopt new practices simply because they don't want to stand out as someone who is not following what has become 'best' practice. Things will change, but on the client side, it may yet be a long, protracted process.