Rio Tinto Outsourcing Legal Work - What Does It Mean?

Last week the traditional media and blogosphere were abuzz with the news of rigged elections in Iran, and the resultant uprising.  In the legal marketplace, we had a similar level of buzz over the announcement that global mining giant Rio Tinto has agreed to outsource a substantial portion of its legal work to an Indian legal services company, leading to an expected 20% savings on the outsourced legal costs. Why such a furor?  Simply because the work being outsourced isn't the widely proclaimed mundane work of staff accountants, secretaries, mail room clerks and marketers, this is real legal work, the work of highly trained lawyers, that is being taken from top global law firms and moved to a heretofore unknown company with salaried lawyers!  "What is the world coming to?!" is undoubtedly the cry in BigLaw law firm boardrooms everywhere.  What, indeed.

Let's consider the traditional legal work pyramid.  As traditionally described, the top of the pyramid consists of strategic legal work, work that literally decides the fate of the client's organization, the so-called "bet the company" work.  When clients have this level of need, price is not the highest consideration or, at times, not a consideration at all.

This is followed by work that is important to the client but not mission critical.  There is both more of this sort of work and more providers who can perform the work.

And then there is commodity work.  This is often described as repetitive, routine, mundane work that doesn't require a high level of skill, but competency and efficiency are important.  The classic depiction is that insurance defense falls into this category.

Not surprisingly, few lawyers are able to objectively assess where their work product falls on the pyramid.  If we were to ask lawyers to categorize their work and then present the results graphically, the result would not be an upside down pyramid -- it would be more like a bowling ball resting on the head of a pin!  The commodity work is always performed by "other lawyers in other firms."

Many law firms, particularly the largest and most prestigious, think of themselves as "best of breed" in all categories, which suggests that for all legal work their clients can expect to pay premium prices. The fallacy in that assumption is that there are many components of a deal or of a major litigation that are routine and mundane and that don't necessarily require the services of a top partner at a leading firm who attended the most prestigious schools. Since the law firms themselves have failed to make any substantial differentiation in the legal services they deliver, the clients are forced to make these choices. The Rio Tinto outsourcing deal reflects one client determining that routine contract review and drafting and basic legal research are tasks that are more commodity than premium, and therefore a lower-cost provider can and should perform these tasks. Undoubtedly Rio Tinto will continue to retain top law firms for the strategic aspects of its deals and litigation, but this division between premium and commodity work will soon be commonplace.

While many view the Rio Tinto announcement as fairly novel in the legal profession, it's an unexceptional and routine business approach in other businesses. We expect to see more clients take this approach and we also expect top law firms to move slowly in response, but those that do embrace this as an opportunity to make some fundamental changes in the delivery of legal services will have a significant and sustainable competitive advantage. The new measure of law firm differentiation is not limited to pedigree and brand, but efficiency and business sense will now become important factors.

Up to now, top law firms have reacted by offering price discounts, or by offering alternate fee arrangements, or by seeking new engagements to make up for "lost revenue" when clients move commodity work elsewhere. The savvier firms will need to learn how to embrace this sort of outsourcing model in their own businesses. The irony of the situation is that law firms are themselves merely outsource providers of legal services to corporations whose main objective is to make and sell products. Once law firm leaders fully realize this, they will look to their own operations and apply business process re-engineering principles to reduce inefficiencies in the delivery of legal services, which can increase quality while decreasing delivery time, eliminate redundant or unnecessary steps, and allow for the use of prior work product rather than viewing each project as unique. As most other industries have learned, improving efficiencies in this manner can actually boost profits even while prices are flat or declining.

There are many pundits who talk about the need for change but don't explain the hows and whys or provide specific and concrete examples. Since the underlying basis for the change afoot is financial, in a future post we'll present a very simplistic financial model of a law firm operating under today's billable hour model and contrast this with one that embraces operational efficiency and alternate fee arrangements. Without question a law firm can not just maintain but improve profitability in this climate. Whether you believe this or not remains to be seen. What is clear is that clients like Rio Tinto have grown impatient waiting for law firms to act first. So don't wait too long. Because in your client's lobby right this moment is a group of entrepreneurs who have thought through in great detail your client's needs, and right now they have his undivided attention.

Area Man Drowns in Deluge of Law Firm Pitches

Readers of the satirical newspaper The Onion enjoy how the mundane challenges of the everyman are elevated to newsworthy headline-grabbing stories.  "Is Area Man Going to Finish Those Fries" and "Area Man Sorry He's Late, Got Here As Fast As He Could" are typical examples.  While reading a recent Law.com article I had to double check that I wasn't actually reading Onion-style satire. In his career column, author/consultant Frank M. D'Amore addresses a longtime law firm partner's questions about how to pitch a client.  "I am fully versed in how to pitch my -- and my firm's -- specific experience and other typical efforts," the partner states, but he goes on to ask for advice on what more subtle factors are considered when selecting outside counsel.

When it comes to lawyers' sales abilities, the bar is at times quite low.  The first challenge is understanding that clients buy to meet their own needs, not because your pitch is so informative.  It would be safe to say that many a law firm partner who has won work primarily by pitching his experience has been lucky enough to talk to potential clients who have a clear need for what he offers. And if he's attended the right client events, spoken on the right panels, it's not all that far-fetched to believe that many of the potential clients he's met have had the same clear need.  But let's not confuse cause and effect.

Let's shift our attention to the cell phone representative sitting in a kiosk in a well-trafficked intersection at the local mall.  Consumers who need cell phones typically head to the mall to make their purchase.  Several competing cell phone providers have their own kiosks or storefronts a moment's walk away, and this proximity serves as a multiplier for potential consumer traffic in the same way that a strip of auto dealers attracts more visitors than the lonely dealer on the edge of town.  Everyone we know has a cell phone, so very few consumers must be convinced of the need.  There are occasional disparities in offerings, such as the iPhone available from exclusive carriers, but for the most part every cell phone provider offers similar features, range of coverage and pricing.  In this context, it's a bit of a stretch to laud the cell phone representative when at the end of the work day he's managed to sell quite a few cell phones.  Clearly the cell phone provider must secure a good location and offer compelling devices, but for the individual cell phone representative his greatest contribution to making the sale may be showing up for work.

We should be clear, of course, that cell phones and legal advice are not equivalent commodities, but still the anecdote serves to illustrate that many lawyers who have been successful in recent years have been the beneficiaries of a multi-year run of near unlimited demand for legal services.  Their skills are in demand and therefore there's little incentive to develop the consultative skills necessary to generate demand or to differentiate their services or to solve a client's problem.  If the prospective client didn't bite at the pitch, there's another one calling tomorrow.  But imagine a scenario where the phone doesn't ring, where prospective clients are few and far between, where price appears to matters more than experience.  How well does the pitch of yesteryear work in that context?  That context is our present reality, everywhere we turn.

Clients have always selected outside counsel because there is a business need to address, and the law firm's capabilities, approach, personnel and price meet the client's demand.  Clients haven't hired many firms because a roomful of well-dressed partners, including the representative minorities, toss their Ivy League degrees and glossy booklets of bios and deal lists on the table and convince the buyer that "I can't let this one get away."  This is not the NBA where a general manager might draft the best player available regardless of need, because he assumes he can jettison an incumbent if the new player is better, or make a profit by trading the new player to a team with a specific need.  Few General Counsel have ever been given a legal budget with instructions to hire the law firm with the best capabilities and experience, with no particular matter in mind but just so that if we need them in the future they'll be ready.

Which is to say, a "pitch" to a client that is primarily about you, and what you've done, and your credentials, is likely to be ineffective in today's climate.  We all know General Counsel who are inundated with lunch requests, golf outings, game tickets, and so on.  Most don't mind being asked, they understand law firms need to find new sources of revenue, but they are weary of the same inelegant approach.  In one anecdote, a GC lamented that a Biglaw partner took her to lunch and spent the entire time whining about his reduced book of business.  The partner didn't ask about the GC's business, he didn't boast about his accomplishments, he didn't even brashly ask for more work.  He just whined.

Careful readers of this blog know the basics but we'll repeat them until they are ingrained:  It's critical to know about our client's business challenges.  From business challenges come legal challenges.  The way to learn about these challenges is to ask.  When clients talk, we listen.  We don't leap at the first hint of a legal problem and offer to solve it.  We listen to understand the whole context.  We provide customized proposals to meet the client's needs, which clearly demonstrate how what we offer addresses their business challenges.  We help the client prioritize the challenges by quantifying the cost to the business of the various approaches, including doing nothing.  (The business cost, not the legal budget!)  We incorporate a deep understanding of the client's appetite for risk, understanding that in business there are often other factors more important than "winning" in the legal sense.  We respect the client's significant aversion to surprise, so we will conduct the engagement openly and negotiate a fee arrangement which optimizes cost and predictability.

All good things come to an end.  The time of the law firm partner who specializes in narrating his brochure to prospective clients as a mean of generating work at whatever billable rate he demands is over.  Partners who are consultative, who understand their clients' business, who can demonstrate flexibility in fee arrangements, who operate openly, will find no shortage of work even in this climate.

A lot of the AmLaw 100 firms are idle while AmLaw 200 and midsize firms elsewhere are busy.  Does this mean the smaller firms have this all figured out?  No!  But given the choice between a really expensive lawyer who doesn't understand my business and an expensive lawyer who doesn't understand my business, a GC will often quite naturally choose the latter.  But here's the secret:  a Biglaw partner can win work back from the smaller firms if he takes a consultative approach and adds real value to the client's business, because the long-run cost to the GC will be lower than the savings generated by endless price-shopping with new providers.

Before we conclude, let's caution that understanding the client's needs and meeting them are two different challenges.  In the article, Mr. D'Amore, a former GC himself, correctly scolds the partner who learns of an opportunity, albeit outside of the firm's expertise, but takes the approach,"We can do anything. Just get the matter in the door, we'll figure out how to do it."  I witnessed a near civil war in a global law firm when a European auto manufacturer asked if the firm had experience with a particular issue.  A handful of partners with the help of Marketing constructed an elaborate "Automotive Industry" brochure pretending to portray a depth of experience the firm simply did not have.  Not surprisingly the client didn't find the firm's claims credible and selected another firm.  There was a near riot as partners blamed each other for not properly contributing to the storyline.  One marketer was bold enough to suggest that perhaps honesty with the prospective client might have generated more credibility, but such a crazy notion was dismissed.

Winning work in today's climate is difficult.  The challenge has caused many partners to question themselves.  Obviously the rules have changed, and the mathematical certainties like high demand an inexorable rate increases that were ingredients to a Biglaw partner's success in the past have become less certain.  There is a way out, and it doesn't involve becoming a cell phone salesperson.  The skills and abilities that make a good lawyer are exactly the skills needed to understand and solve client problems.  This is no laughing matter.  So let's put down The Onion and get to it.

Navigating the Acorn Minefield

Amidst all the din in the legal market about the billable hour, alternative fee arrangements and increased discounting by law firms, there appear to be few pricing experts engaged in the debate.  There are numerous lessons to be learned by observing pricing tactics used in other industry segments, even though we all agree that Law is different and special and doesn't follow standard economic theory.  Or so we're led to believe. I recently met with a Biglaw partner who proudly described his role as the primary arbiter of fixed fee engagements at his 500+ lawyer firm.  Apparently any engagement that required, or that the firm believed would benefit from, a fixed fee rate structure had to pass through this partner.  His approach was to study the client's prior year billings for the same type of work, or find similar billings from another client, add a cushion equivalent to 15-25% of these billables, and quote the result as the fixed fee rate.  There was no evident involvement by the Finance team, no cost accounting data available to benchmark relative costs of legal service delivery or whether the prior work was profitable.  And there was no guidance to the timekeepers on how to operate more efficiently lest the new fixed fee engagement become non-economic.  The partner seemed proud of his role, until I made the mistake of questioning whether this sort of formula couldn't be automated, since it didn't appear to be a data-driven exercise.  Not knowing my place, I then questioned whether the clients wouldn't eventually notice that fixed fee engagements were merely prior year billings plus 20%.  I was shown the door.

Lesson one was, and remains, to be gentle when bursting the visions of Biglaw partners who consider themselves sophisticated businesspeople!  In fairness, however, few others in the legal marketplace offer much creativity on this topic.  Biglaw partners in many cases are left to their own devices when constructing pricing methodology.  Even those firms providing sophisticated cost accounting and matter profitability data often rely on the willingness of partners to properly incorporate these data.

While we won't solve all law firm pricing questions in this short essay, we can take a look at a common practice:  the use of discounted pricing to win initial work, in the hopes that future work can be billed more profitably.  I call this the acorn theory because it calls to mind the practice of planting acorns and awaiting the emergence of a mighty oak tree.  As another Biglaw partner put it, "We'll practically give away some early work, but we hope to make it up with more profitable work later on." When asked about the actual conversion rate of this low-priced work into high-profit future work, he had no idea.  To his knowledge, such data aren't tracked anywhere in his firm.  A Law.com article today describes another Biglaw firm's approach:  "During the past three years, the firm says it has given away more than $100 million worth of billable hours, but it hopes to make the revenue back through follow-up work from those clients."

Acorn pricing isn't necessarily a bad idea.  Many businesses employ strategic pricing to win new buyers or, in pricing theory parlance, to induce trials.  Nagle & Holden in their brilliant book "The Strategy and Tactics of Pricing" state that "Since only people who are familiar with a product can become loyal repeat purchasers, inducing potential buyers to make their first purchase is a critical first step in building sales." Intrinsic to the success of this approach are two important assumptions:  one, low pricing will lead to loyalty and repeat purchases; and two, future work can be done profitably.

Unfortunately, even strategic pricing with good intentions sometimes falls into tactical pricing.  So that well-intentioned low-fee engagement from a year ago never materializes into future work because the low fee fails to maintain the interest of the key timekeepers.  As a result, they don't spend sufficient time working to expand the relationship.  Or perhaps because of the low fee only junior timekeepers work the matter and the results aren't awe-inspiring.  (Come to think of it, these aren't uncommon outcomes even for high-fee engagements!)  Like the real acorn planted in the backyard, one must nurture and water the shoots until a mighty tree emerges.  Otherwise, you're betting that nature will select your particular acorn for survival from among the many millions that become squirrel buffet.

And let's take a pin to the balloon containing the idea that clients who enjoyed your excellent effort at $200/hour (or for a fixed fee of $50,000) will gladly increase their outlay for subsequent similar efforts to $600/hour (or $150,000).  If you haven't made it clear that your pricing is introductory and not sustainable, the client will not generally pay far more after having seen you do the work for less.  On paper, performing matter 1 at breakeven or even a small loss, but performing matters 2 through 5 at 40% margins, looks like a good tradeoff.  In reality, one doesn't typically follow the other.  So is the answer then not to offer introductory pricing?  Or to place a large red ink stamp declaring "promotional pricing" on the initial invoice?

Setting proper expectations can help.  If it's the firm's intention to demonstrate its capabilities by offering reduced pricing for an initial engagement, make that clear.  But more importantly, demonstrate to the client before, during and after the engagement that they're receiving value far in excess of the fees.  To be clear -- this is very hard to do.  In Biglaw, cyclical logic is common.  If Firm A charges $600 for its work product, then its work product must be worth $600.  If Firm B charges $400 for its work product, then its work product must be worth $400.  Lately, however, we've seen clients challenge whether Firm A's work product is really worth $600, or perhaps Firm B is just as good (or good enough -- remember, clients don't view the sanctity of legal work the same as law firms) at the lower price.  It's not enough to say "We've discounted our usual rate from $600/hour to $400/hour to show you how good we are, and now that we've demonstrated our capabilities, we'll go back to our usual rate of $600/hour."  The client has to perceive the substantial value delivered.

Herein lies the greatest challenge facing Biglaw today:  demonstrating value.  Commodities are generally indistinguishable except by price.  If Firm A and Firm B are not differentiated except by a difference in rates, then how will the client react?  Consider the Biglaw partner who offers a generous discount on all legal work, to new and repeat clients.  His standard proposal letter reads: "We are keenly aware of the legal budgets that our clients confront and seek to meet their needs as effectively as possible... The discounted hourly rates for Biglaw team members are set out below.  These represent a discount of approximately 10% from our standard rates."

Despite all the talk in his firm about how clients are pushing back on rates, this is how he leads every discussion of his services, whether or not the client emphasizes price.  No wonder his clients, and many others, are fixated on discounts.  Referring back to Nagle and Holden:  "When companies replace price policies with price negotiation, they create economic incentives for 'good customers' to become 'bad customers' who never willingly acknowledge value and act as if all suppliers are interchangeable."

As I've written elsewhere, a law firm can differentiate itself on more than price and legal work.  Demonstrating an in-depth understanding of a client's business, undergoing rigorous needs analysis prior to commencing any engagement, being responsive rather than merely prompt when reacting to client demands, setting and then exceeding expectations, are all ways to use a service posture as a differentiator.  Educating timekeepers to speak in terms of value delivered rather than the cost of services rendered will help too.  After all, the client's objective is to advance his business, not to calculate the value of his legal suppliers.

If you're a Biglaw partner with some downtime, first go visit a client.  And ask questions about her business.  If you still have downtime (you shouldn't), run, don't walk, to buy and read the Nagle/Holden book.  Buy a second copy for your CFO.  Buy a copy for every member of your management team.  It's a hard book to read and understand, and even brilliant MBAs are challenged implementing the ideas.  But that's no reason not to try.  I would like to draw your attention in particular to Chapter 8 "Value-Based Sales and Negotiation."  It's summed up in these words: "The key to breaking the downward spiral of negotiated pricing is to anchor your pricing to value." It's that simple.  And that hard.

If your competitors or colleagues are planting a lot of acorns and hoping really hard that one or more or even most turn into mighty oaks, then let's show them some alternatives.  What are you waiting for?

UPDATE:  Many thanks to the thoughtful readers who reminded me of this excellent article authored by the Redwood Think Tank and published in the September 2007 edition of the Legal Marketing Association's Strategies magazine.  Redwood analyzed the source of leading clients to determine how many started as acorns and concluded:

"More than 50% of the clients that currently ranked in the top 5% of the firm's clients started out in the top 5% in the year when they initially retained the firm.  And more than 90% of these clients started their relationship with the firm in the top 20% of clients."

In other words, few acorns grew into mighty oaks.  This calls to mind the analysis a mid-size tech corridor law firm CFO conducted to determine the frequency that its emerging technology IP clients turned into corporate clients.  He learned that few did, turning rather to the usual Wall Street firms at IPO and thereafter.  So his corporate partners' laments about the lack of cross-selling from the IP group were well-founded.  Once they realized they were essentially on their own, it fundamentally changed their business development approach.

Whither Sales in Law Firms?

Lawyering is a noble profession, not to be confused with the untidy and significantly less elegant profession, if one can call it that, of sales.  I didn't go to law school to learn how to sell.  My clients trust me; they don't want some smarmy sales pitch.  I can see why firms of a lesser reputation resort to such tactics, but my firm is different and that won't work here. Hogwash or doctrine?  Should the modern law firm embrace sales, particularly in light of the changing economic climate where demand for legal services is no longer a given?  Or will sales blow over, like TQM, and branding, and knowledge management, and six sigma, and all the other corporate fads that have no place in the practice of law?  Can we even have a rational conversation about sales in law firms when we don't even call it sales but rather euphemistically refer to it as business development so as not to offend the delicate sensibilities of the timekeepers?

Last week I had the good fortune to share a daïs with several experts in the field of law firm sales.  Steve Bell is, to my knowledge, the first head of sales in a major US law firm, and now the CMO of Womble; Rob Randolph is the director of business development at Midwest power house Bryan Cave, a firm noted for innovation; Jim Cranston is a longtime professional sales trainer now with legal consultancy Hildebrandt; and our moderator was Patrick Fuller, Senior Business Development Executive with ThomsonReuters, the giant in information services for law firms.  The venue was the annual Raindance conference, produced by the Legal Sales & Service Organization and managed by ThomsonReuters.  Our host was the fine Hotel Sax, adjacent to the House of Blues in Chicago (although I would be remiss if I didn't give a shout out to the fine folks at the brand new Hotel Wit just across the bridge at State & Lake).

The first order of business was to question the premise:  Should law firms have a sales force?  The panel was of one mind that no matter what we call it every law firm has an existing sales force whose role it is to bring in new business.  In most firms they're called lawyers.  By the way the lawyers are also the products and the owners.  Whether a firm should add extra folks whose responsibilities are limited to sales is a separate question, and turns out to be the red herring in most conversations of this sort.

I've long contended that the essence of good lawyering is the essence of consultative selling.  Both focus on identifying and understand problems, and finding solutions to overcoming the problems.  Any lawyer who considers himself a good problem solver can also be a good business developer.  And just like there are multiple approaches to solving a problem, there are multiple approaches to generating new business.  There is no one-size-fits-all.

There is a wrong way, of course.  When you watch classic sales movies like "Tommy Boy" and "Glengarry Glen Ross" and "Boiler Room," the sort of movies that inspires poor students with winning smiles and firm handshakes to make a living by coercing others, I certainly hope you realize that this kind of selling is as far from consultative selling as playing your Wii video tennis game is from facing Roger Federer's blistering serve on center court at Arthur Ashe stadium at the US Open.

We discussed the difference between Marketing and Sales.  Marketing generates awareness and leads.  Sales is a process of identifying needs and offering customized solutions.  In this context, "closing" is a natural outcome of good needs analysis and issue spotting, rather than coercion.  When you submit a proposal, if you don't have a good sense of the probability of winning the business, then you've skipped some steps along the way, guaranteed.

Marketing may be all that's needed when demand is high.  After all, the goal then is to direct potential clients your way rather than to an alternative supplier.  Absent high demand, e.g., the state we're in today, sales (okay, business development) becomes more important.  We must differentiate ourselves not by our credentials but by our ability to understand the client's business (not legal!) concerns and identify solutions to overcoming those concerns.  We can differentiate ourselves as much by the use of a consultative and customized process to identify concerns and solutions, not just by the solution itself.

I've recently been called upon by a few large firms to help them sort through their marketing priorities.  In light of the recent slowdown, they are busier than ever trying to win new clients.  My friends in marketing departments are short-staffed and working long hours fulfilling the requests for marketing support, and demanding partners don't like to be kept waiting.  But let's be clear about what are good efforts to develop new business and what is merely posturing.  Asking the marketing department to produce yet another practice or industry brochure or compile a pitch book of deal lists and bios to leave behind with a prospective client after a lunch meeting is not developing business.  Business development cannot be delegated.  Marketing can be, but to generate business you must sit with a client or prospective client and ask the questions that will uncover needs and lead to customized solutions.  Pitch books are busy work, efforts that make it seem like we're making progress toward winning work by showcasing all that we can do.  They have a role.  But this isn't sales.

The panel provided insights into the areas where sales experts can augment a law firm's own lawyers' efforts.  But first, let's understand the math.  No professional salesperson or sales consultant or in-house marketing & business development professional can have an impact on par with the combined strength of every member of a law firm partnership even marginally improving his or her skills at winning new business.  So where can sales professionals add value?

In-house and outside sales experts are catalysts.  Good lawyers, even those who buy into the consultative sales process, suffer from periodic call reluctance.  By contrast, professional salespeople are often eager to pick up the phone to schedule a visit or make an introduction.  Cold calling and setting up meetings with people we don't know is daunting to many people, which is why many corporate sales teams have dedicated appointment setters.  Look to your in-house experts to help arrange initial meetings.

All sales take place on a continuum, where the suspect becomes a prospect becomes a client becomes a repeat client.  Most call this the sales funnel because there are typically far more prospects than clients.  Selling legal services is no different.  If we take the prospective client from initial introduction to pitch within minutes, our probability of success is limited.  Anyone who has dressed up to visit a client with the express purpose of reading the firm brochure to the client (we often call this a "beauty contest")  is familiar with these odds.  However, when we take time to get to know the prospective client, walk him through an organized analysis of his needs, prepare customized proposals that demonstrate an in-depth understanding, help quantify the impact of doing nothing, then when we ask for the business our odds are much greater.  Professional salespeople are accustomed to working a process, and can help lawyers stay focused on the next step.  Left to their own devices, many lawyers will hold an informative initial meeting and then wait for the phone to ring.  It might help to have an expert nudge now and again.

I've hired many former athletes as salespeople, and not because their imposing physical presence convinces buyers to cough up money!  Athletes have a lifelong understanding of how training, repetition and a focus on details lead to success.  Athletes practice fundamentals over and over and over.  Do you think the layup lines and shoot-arounds before the opening tap at professional basketball games are in place merely for show?  Practice leads to muscle memory.  A professional salesperson will never walk into a client meeting without having scripted and practiced what will take place.  Those who believe preparation consists of huddling in the client's lobby deciding who will take the lead and who will say what mere moments before walking in to deliver your pitch have as good a chance as a popcorn vendor who selects 4 teammates at random from the crowd moments before tip-off to compete against the Los Angeles Lakers.

We closed by touching on compensation for professional salespeople in law firms.  The mantra is that fee-splitting is not ethical and therefore not allowed by the various Bar associations.  Once again, the business of law firms is unique and corporate techniques won't work here.  Nonsense.  Every corporation has constraints of a similar magnitude.  How do you compensate the salesperson who made the original sale a year ago when the customer buys an upgrade this year from the service team?  How do you compensate the team serving the customer's west coast office when the decision maker resides in the east coast office?  When we bundle two more services, do we split or overpay compensation?  These specific challenges may not mirror what takes place in a law firm, but should illustrate that finding a way to compensate people who are instrumental in making a sale isn't any more difficult in a law firm than in a corporate setting.  Find some correlation between revenue growth and level of contribution, revisit it periodically for fairness.  And try not to fall into the trap of assuming that since we made the sale, we must have been predestined to make the sale, and therefore let's discount the contribution of those who helped make the sale.

Most lawyers didn't enter law school to become salespeople.  And nothing I've described above requires a change in profession.  Whether the objective is to improve the selling skills of the lawyers or to find the right fit for a professional salesperson on the staff, the real takeaway is that to survive and thrive in today's market requires more than waiting for the phone to ring.  Solving a client's problems shouldn't be all that daunting a task.  What are you waiting for?

Law Firm Leaders and Law Firm CMOs: Stop Whining and Get On With It

The legal marketing community has been abuzz in the last few days after Zach Lowe in the AmLaw Daily posed the question, "How Essential is a CMO?" following the announcement that long-tenured BigLaw CMO Ed Schechter left Duane Morris.  Experts have weighed in, from Heather Milligan's dead-on comparison between an essential CMO and a non-essential CMO, and Mark Beese's list of five critical contributions of a top CMO. Indeed, in this space I have often challenged law firm leaders to take stock of their current organizational structure, adjusting not just compensation and staffing ratios, but finding new and innovative ways to deliver legal services in more cost-effective ways.  Since a seasoned BigLaw Chief Marketing Officer is all-in a half million dollar investment, it certainly makes sense to question whether in today's economic climate this is a wise use of a law firm's capital.  Like most good debates, there are multiple valid perspectives.

A seasoned marketing executive can help a law firm differentiate itself from the pack.  In a world where every law firm claims to be big but offers a personal touch, represents big corporations to small businesses, values diversity, is client-focused and offers leading expertise in dozens of practices, one can readily see the value in standing apart from the crowd.  Don't believe me?  Visit Ross Fishman's Automatic Brochure Generator and tell me if it's indistinguishable from your firm's own copy.

A seasoned marketer can help define the optimal client footprint, i.e., which work do we enjoy, that is profitable, in growth industries, with clients who have needs that span our practice and office mix.  Instead, most of the many firmwide and practice group marketing plans I've reviewed tend to fall into the "We'll chase all new revenue" category.

A seasoned marketer will be able to distinguish between building awareness and generating business, and therefore offer tactical support to move prospects from a wish list to an active client list.  Nearly every marketing plan I've observed includes at least one "unicorn" statement (referring to my daughter's wish for a unicorn on her 3rd birthday):  "We hope to increase revenue from key clients and prospects in our target markets."  This is essentially useless.  What it really means is "We hope the phone will continue to ring as a result of worldwide demand for legal services, despite our inept approach to business generation."  Good marketers don't traffic in unicorns; they take actions and build processes that are designed to generate revenue.

A seasoned marketer will build an operation that performs the above tasks, and many more, in such a way as to optimize the competing constraints of speed, quality, subject matter expertise, available resources, time zones and, shall we say, partner importance.  It's a poor operation that merely reacts to whoever is shouting the loudest at any given moment.

So why don't law firms rush to hire experienced professional marketers?  And why are many eliminating, or considering eliminating, those they have in place, or delaying replacement hires?  It's as simple as BigLaw leaders not understanding the revenue-generating impact of a good CMO.  But the legal marketing community isn't blameless either.

Many of our most senior marketers are hesitant to embrace the financial aspect of the role.  Measuring return on marketing investment is difficult even in the corporate sector, and BigLaw poses additional challenges because annual budgets are a relatively new phenomenon, partners often have great latitude in spending "marketing" funds and expenditures are typically viewed as one-time debits to cash flow and profits rather than investments with multi-year horizons.  As a result, many senior marketers are thankful they aren't given budget responsibility and don't contribute to revenue forecasting when in fact this is a glaring omission.

BigLaw partners operate under the amusing notion that a flat governance model in which every partner is an equal owner with equal authority is somehow a rational business choice, when in fact it's an inefficient, extraordinarily dilutive and disruptive structure that persists due to inertia.  To be clear, the partners can organize their sandbox however they want, but this scenario rewards senior marketers who have learned to please partners above advancing the financial interests of the firm.  Indeed, there are countless examples of experienced marketers from other disciplines stymied by the bizarre world of BigLaw.

As one CMO put it to me without irony, "Success in a large law firm is all about credibility, which means accepting that we don't often do things the right way, we do them our partners' way, but after about a year of serving their needs you should have built up enough credibility to gently make suggestions, most of which they'll discard, but to survive you can't try to do too much too quickly."

And let's not overlook the recruiters in the field who specialize in moving around the same players, or at least the same skillset, because it's the safe approach to placement. I've been approached more than two dozen times for law firm CMO roles and each recruiter plays some variation of the same tune: "This firm is not like all the rest. They have good practices, with loyal clients, and very few toxic partners. They don't need a change agent, what they need is someone to keep the trains running on time. They hired someone in the past who spent a lot of the partners' money (on restructuring, branding, CRM, advertising, or whatever) so now they really just want someone to maintain what's in place."  Or as one BigLaw leader euphemistically declared, "We're picky and we're looking for the perfect candidate."

There is no perfect formula for a law firm CMO, though some have offered useful advice here and  here and here.  Others have offered criticism, here and here.  I am a long-time passionate supporter of the legal marketing profession and its professional association, and I'm a paid adviser to law firm and practice group leaders on how to grow and manage their business.  This experience has led me to these simple conclusions:

• All businesses need a continual focus on identifying targets and pursuing opportunities.  While a law firm shouldn't mimic a traditional corporation in all respects, recent events aptly demonstrate that BigLaw leaders who confused high demand with business acumen should now seek expert assistance to help them create demand.
• BigLaw leaders need to discard the outdated notion of the role of a CMO, hire experts who know their craft, and give them air cover to inform the debate and drive positive change.
• Legal marketing has come a long way but still has opportunities for growth.  The old formulas valuing longevity and loyalty and keeping the peace should make more room for financial acumen, forecasting and planning, business development  and executive presence.  To be sure, people skills are always important, but let's find a way to solve for financial success rather than merely keeping partners happy.

We don't all have to get along. But we do have to recognize that long-needed change is afoot, and with change comes discomfort -- and this applies equally to BigLaw leaders and legal marketers.  Indeed, in my prior corporate life some of our greatest successes came only after forceful debates and significant disruption. The economic downturn has already provided the disruption, so let's not let it go to waste.