In-house legal teams are under financial pressure. We all know this. In some cases their budgets are relatively static but they want more for the same amount. In other cases the budget has been reduced so they want...
In-house legal teams are under financial pressure. We all know this. In some cases their budgets are relatively static but they want more for the same amount.
In other cases the budget has been reduced so they want the same as they were getting from their external lawyers but for less.
Or worse, they want more for less – a double whammy for law firms.
So what do we do? What we have always done?
Law firms reaction has been to try to accommodate this using what they believe to be the only weapon in their armory – discounting. And so the race to the bottom is in full flight as each increasingly desperate firm yanks on the discount lever.
Instinctive and obligatory though this reaction may appear to be at first blush, it is worth pausing and reflecting before offering yet another round of cuts.
The first mistake most firms make is to respond to these demands on the assumption that to the extent that the firm is one of a number of legal providers to that client, the spend reduction pain must fall equally across all providers. In other words, irrespective of your current share of wallet, you will all have to take one for the team on a more or less pro rata basis.
Of course this won't always occur for a number of reasons including the fact that the GC may determine that some external legal spend is more discretionary that others and those areas may feel the heat sooner and more intensively.
We have more influence than we think...
But more fundamentally, what can you do? What, if anything is within your control? The answer lies in part in a piece of authoritative research published late last year – the 2013 Altman Weil Global Chief Legal Officer Survey. From a pricing perspective the most important takeout was the question;
Excluding 'bet the company' matters, if you could select only one of the following outside counsel pricing scenarios, which would you want most? The question elicited the following responses:
- Transparent pricing – 36.4%
- Guaranteed pricing – 33.7%
- Value-based pricing – 20.3%
- Lowest price – 9.6%
I suspect that you are looking at 9.6% in disbelief. I suspect that there is from your perspective a stark dissonance between this figure and your personal experience that includes companies telling you on a regular basis that you are the most expensive firm they deal with and you regularly missing out on price. I will explore this disconnect in a later post but for now, I'll leave you with one word – 'cynical'.
Don't be too quick to buy the line...
But here is the problem. We too readily buy into that line and it isn't entirely the in-house teams fault. What sort of success rate do you think you are going to achieve if you put most of your effort and thought into an aspect of the relationship that is paramount for fewer than 10% of your clients. Put another way, we are trying to fix the problem by pulling the wrong lever.
Which brings us back to the internally mandated cut in external legal spend and the supposition that we must all feel the pain. Nonsense! The pain may fall evenly or it may fall completely disproportionately. Some of that decision we have little influence over but equally there is a lot we can do to influence that outcome.
Leave the begging bowl at home...
But going to the client like Oliver Twist and asking for more won't cut it, obviously. You have to give them reason to want to retain their current spend level with you. And they need to be compelling reasons. So, surely it makes sense to take full advantage of the kind of unbiased insights provided by the Altman Weil research to frame a response.
A thoughtfully structured conversation that seeks to address the real needs of the client; price transparency, price certainty and price/perceived value nexus will better position you to persuade them that the spend reduction pain is something that should be inflicted on their other, less pricing-intelligent firms.
See off competitors...
When done particularly well, we have seen firms turn an ostensible spend-reduction conversation into a bigger share of wallet conversation in both percentage and absolute value terms. The clients' spend with you goes up but the clients' overall spend drops in keeping with the internal edict. What's not to like, unless you are one of the others!