2004
Under the client microscope
By
Elliot Rose
Legal IT,
01 November 2004
The current climate dictates that law firms are under increasing pressure to provide more value to their clients, while remaining profitable. But, delivering more client value is only half the battle - it has emerged that being able to tangibly demonstrate this value is just as important. The latest PA Consulting Group and Legal Week survey has revealed that one third of law firms are still not meeting the expectations of their clients in the areas that matter to them, and client CFOs are starting to ask questions.
Clients are continually becoming more demanding, especially with regard to the way the information and commercial aspects of the relationship with their legal advisor are managed. PA and Legal Week’s annual survey series, 'Benchmarking technology in the global economy', has kept pace with these changes, and in 2003 we found that law firms were planning to spend more on IT, primarily focused around client relationship management. This raised the question as to whether law firms are successful in focusing on the needs of their clients, and this year’s survey concentrated on understanding what clients want and how well law firms deliver.
The 2004 survey, 'Increasing the value-to-cost ratio of legal advice', shifted from surveying law firms, to surveying their clients. The results show that law firms need to put much more effort into using their existing technology to demonstrate that they truly have their clients’ business success at the heart of all they do. This is after all what really matters to the client.
Clients need to be see tangible value
The growing burden of legal issues, such as compliance, has meant that the demand placed upon legal in-house counsel has increased dramatically, which has resulted in an increased need for external legal advice. This obviously has cost implications however, and client organisations are placing more and more focus on the value they receive from law firms.
Historically many law firm / client relationships have been built upon long established relationships between individuals. However, in-house counsel are finding that their CFOs are increasingly questioning the cost and value of legal services. CFOs are looking for ways in which the business value of legal services can be improved, or in some cases demonstrated at all. The existing 'cosy relationships' with law firms, so called by some survey respondents, are no longer an appropriate method of managing the provision of external legal advice.
What really matters to clients?
The survey asked legal in-house counsel what was most important to them in terms of the services provided by law firms. The top three factors for clients, in order of importance, were:
1. Provision of practical solutions rather than just pure legal advice
2. An understanding of client’s business so that legal advice can be proactive rather than reactive
3. Increased visibility of the status of legal advice (for example hours booked to the client).
The good news for the majority of law firms is that in-house counsel feel that for the top two factors, two thirds of law firms meet their needs.
However, in-house counsel rated the majority of law firms as not meeting their need for visibility of the status of their legal advice. Many felt that while there was good management of the law firm / client interface at a personal level, this did not extend to providing clear and proactive information about the status of legal matters. In-house counsel expressed frustration in not being notified early enough of changes relating to legal issues.
The level of investment in client relationship management by law firms, identified in our 2003 survey, is yet to be truly felt from by client organisations. Some in-house counsel thought that a more disciplined project management approach would also help in the client relationship. Law firms should consider treating matters as projects, where the scope is defined at the beginning and the ongoing work is managed closely within that scope.
Shifting priorities in billing
The survey also detected a change in client priorities in billing. Whereas our survey in 2003 identified that many law firms believed that fixed-fee billing would be increasingly important, this year’s survey has shown that it is now further down clients’ priority lists than consistency of service, and openness and clarity of reporting.
However the UK trend is different to that in the US, where there has been much demand for fixed-fee billing and standard billing codes to help manage legal costs. There is also an appreciation in the US that a more risk / reward based commercial arrangement can be more suitable for larger matters. Yet the survey identified that risk / reward commercial arrangements were bottom of the list in terms of importance for UK in-house counsel.
One third of firms are not meeting client expectations
The survey identified that one third of law firms are not meeting client expectations in the areas that they rate as being important (as outlined above), and that 25% of in-house counsel believe that there is room for a substantial improvement in the value provided by law firms. More concerning is that not one in-house counsel believed they received complete value from their legal advisor.
Knowledge management has been a hot topic for law firms in the bid for provide better value to their clients – in the past five years many firms have made large investments in knowledge management in terms of people, process and technology. However, there still seems to be inconsistency in advice provided by law firms. Almost half of the in-house counsel asked, believe that firms do not meet their expectations in the need for ‘joined-up' use of internal law firm knowledge across the practices. Consistency of legal advice is a key by-product of knowledge management, yet almost a third of clients believe that this is not being provided.
Reconsidering your offering
Law firms need to examine how they can add more value, and demonstrate that value clearly to clients. When considering how they can do this, law firms should reflect upon the four key areas that in-house counsel believe they need to focus on
in the next 12 months:
·Managing the changing legal landscape, especially compliance
· Improving the efficiency and visibility of commercial practices
· Delivering legal services at the right point to meet business need
· Providing staff with the tools to reduce the need for low value, high frequency legal advice, and better manage legal risk.
For example, many in-house counsel identified that in the face of increasing legal risk related to compliance, they need to invest in knowledge and document management technology within their own organisations. Providing legal knowledge across the client organisation to reduce legal risk is more effective than trying to remedy a legal issue after the event. Law firms could consider how they could partner with clients to help them implement such technology in a way that reduces legal risk and cost.
Given that not one law firm is believed by the in-house counsel surveyed to provide full value, and that legal costs are increasing, how should law firms respond?
PA Consulting Group believes that there are three key areas on which firms should focus:
a. Professionalising commercial management
As the survey demonstrated, clients are increasingly examining the value (and profit) that law firms generate, and law firms need to demonstrate that their services are provided on an equitable basis. This is not just about fixed-fee or standard billing codes, firms must be prepared to be more open and share information, especially relating to the status of legal matters. The reliance on personal relationships to manage the client portfolio is coming under increasing threat.
b. The ‘Wow factor’
Law firms must look to exceed clients’ expectations. They need to continue to anticipate clients’ business needs and respond more proactively. Firms need to ensure that they provide a joined-up service across practices through effective knowledge management, and help in-house counsel reduce legal risk within business processes.
c. Partnership
Given the drive to ‘do more with less’ among in-house counsel, law firms will need to look to forge strong partnerships with clients. They will need innovative and strict commercial management systems so that they do not sacrifice profitability.
The above three points have one thing in common – IT is a key enabler, and much of the technology needed to deliver better service in these areas has already been implemented.
Many in-house counsel still complain that law firms treat IT as a ‘back office’ function; and indeed this is a common view that many lawyers have. This is probably the biggest single reason why the technologies that would solve the problems highlighted by the survey, are not being exploited to the full.
Law firms need to recognise that IT is key to their long-term success - in an era where client CFOs are increasingly concerned with the value and transparency of legal spend, IT is one of their greatest assets, and IT exploitation one of their greatest challenges.
For further information about the survey 'Increasing the value-to-cost ratio of legal advice', please e-mail elliot.rose@paconsulting.com.
|
