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.

 

 

Comments

[Robin Dicks]

Robert, I agree with much of what you say and I think its a very thought provoking piece.

Our research (which you can access at www.thrivingcompany.co.uk or www.pmforum.co.uk under the title "CRM - The Truth in Professional Services") also shows some of the aspects of this problem. Relativly few firms effectively track what clients value and plug this into how they design wha tthey do or manage relationships. Few set metrics around client value or satifaction that are managed.
That said, some firms are beginning to manage themselves in this way and equally I see some marketing and BD staff who absolutely are engaged in enabling their firms to understand clients needs better, and are engaging with HR and senior management around changing behaviour, reward systems etc. But, no doubt, these are still (in the main) the exceptions.
The challenge is to build the financial and strategic case for partners to spend the time and effort resolving these issues. The ones that do so, as demonstrated above and in our research too, are those that will achieve better retention of clients and far better financial performance.

Robin

[Cole]

I totally agree. The high levels of profitability enjoyed by most businesses and professional service firms may not be sustainable without a fundamental alteration of their business and marketing model in line with Robert's position as clients will continue to put new pressures on providers with respect to fees, services and operating models.

[Robert Sawhney]

Many thanks Robin and Cole for your comments. As you say Cole many professional service firms need a fundamental alteration in their approaches to market and this will take a mind set change. I think part of the problem can be seen in the CRM research of Robin which was very interesting. The SERVQUAL model acts as a good guide to determine whether firms really do attempt to consider client perceptions and value and as Robin pointed out it seems too few actively manage this process.

[Ron Pol]

Absolutely, the trick is to better understand the client perspective, yet successful marketing initiatives (and what marketer is going to report in a way that doesn't demonstrate some success?) can obscure the real issues. "The marketing is working, so let's do more of it". The marketing may well bring more revenue in the door but for sustainable revenue growth nothing beats truly understanding the client perspective.

Take just one high level example from our recent research with corporates and government agencies across Australia and New Zealand that together spend more than NZ$2 Billion on lawyers annually. Law firm partners and marketers 'know' their firm's brand. They also 'know' that clients 'know' their brand. With groups of general counsel last week I tested this. A slide with ten descriptors of the biggest firms. And another for their client service delivery key differentiators. Not one general counsel could identify any firm. I told them not to feel too bad about that though. I had earlier conducted similar experiments with some of the law firms. Even with all the partners together at an offsite, they couldn't identify their own firm from their competitors. Clear market differentiation? Yeah, right.

Is this important? Well, the evidence also shows that in relation to their lead law firm (the one thatclients have themselves selected as the best firm for most of their legal needs), only 17% regard their lead law firm clearly better than it's nearest competitor. In what other industry would company leaders not be doing something about this? For the first firms (and their delighted clients) who truly bridge the disconnect between law firm perceptions and the client perspective the rewards seem more significant than other industries in which the perception gap is smaller, and not seemingly as institutionalized as in the legal services market.

[Mark]

Interesting article and discussion. I have to say that I'm surprised to read that City firms responded to the drop in demand (which at its most fundamental level was caused by the prevailing economic conditions) by recruiting. In my experience over the last two years, marketing and business development teams were among other "cost centres" that were in the restructuring pot and saw net headcount reductions. It is really the second half of 2010 that I've started to see more recruitment in this area.

That said, I do agree with the fundamental point that many of the decisions on hiring and firing BD staff are often made in a tactical way, and are not longer term decisions. I worte about another aspect of this disconnect here: http://intelligentchallenge.wordpress.com/2010/02/16/where-is-the-love/

[Ron Pol]

Absolutely, I've just read your earlier piece Mark and have added this. When I speak with law firms I often ask them how they identify their 20 top clients. Easy, they say. Last year's billings; ranked 1-20. Yet this misses the point, sometimes dramatically. We then discuss the relationship ladder, at the bottom of which firms are not used, then used occasionally, then on the panel, etc, up to trusted adviser at the top of the ladder. I then ask them to think about a big client on their 'top 20' list client for whom they are an occasional supplier. Let's say a big corporate with $20m+ legal spend of which they get say $2m, but for whom, frankly, the client would hardly notice if another firm was doing their work. (Easy pickings - there's always a client like this, often rather too many as it turns out). Then I ask if they can think of a client not quite on their top 20 list (and not getting a whole lot of loving as you say) but for whom they get the client's entire legal spend of say $1m (I have found that this example scales well for whatver size firm) and the client thinks they are the best thing since slicved bread. OK, which is your most valuable client of these two? Even now, most partners still say the $2m client. OK then, I say, even putting aside that that client wouldn't even notice if the firm disappeared tomorrow, how do you measure the referrals that flow from each of these clients? This is typically met Homer Simpson style. Duh? What's the most compelling marketing message? Love the marketers, they're smart and persistent, but it ain't them. It's 'someone like me, recommending someone that they think is brilliant'. So, is the $2m client recommending you? thney hardly notice you exist. Yet the $1m client, every opportunity that arises, at chamber of commerce meetings, businesss lunches, etc, whenever someone whinges about their lawyers, he/she says "well, the lawyers I use are just amazing, they..." Now, if that client has over the years darwn half a dozen other clients to the firm, with a total spend of say $500,000 each, how do firms measure that? Of course, not one of them make the grade of MVP client. Yet the reality is that the 'only $1m client' is actually drawing $4m to the firm, twice as much as the 'top 20 client' - yet is below the radar, alrgely ignored. Then let's say the CEO finds that the price of his non-loving by the firm is that he's paying rack-rates and getting none of the value adds that others receive? Hmm, does he/she feel quite so loved now? Is he/she recommending the firm quite so much any more? The sad thing is, firms don't even notice, until it's way too late, as these seiously most valuable clients quietly fade away. Nor do they notice, until it's too late, as the recommendations drop away. You gotta see the loving, and give it back, for it to stay true forever...