It is often said that the key to delivering value is listening to your customers. The logic then flows that an experienced service provider should be able to understand what their customer needs, identify the right service and cost proposition, agree on scope and appropriate pricing, and then deliver this to their customer.
However, all this assumes that the service provider both understands what is of value to their customer and has the genuine power to adjust their product or service to satisfy their customers’ interests. Often, despite the best intentions and vast commercial and legal experience, many BigLaw partners cannot inherently control:
(1) the fees charged for the services that they deliver; and/or
(2) the nature and breadth of the services they provide.
BigLaw partners are under pressure to deliver according to the restrictions of their firm’s remuneration and cost structures, rather than deliver what is best for their customers.
Control over fees and services?
When it comes to fees, most BigLaw partners are compelled to achieve a return in line with the firm’s pre-determined billing on a per hour, per fee earner basis, with no room for any significant deviation or discount, on the misguided premise that every hour is worth the same value to every customer no matter what the lawyer is doing. Often, this pre-determined hourly rate is 4 or 5 times the salary of the fee earner. The focus on a fee earner’s utilisation becomes so pervasive that other critical key factors are completely disregarded in this chase for a maximum hourly rate return and billing targets. For example, the “almighty billable hour” so revered by BigLaw partners does not take into consideration:
(1) building long term trusted relationships with customers; or
(2) whether the law firm is a good fit for the customer/ whether the customer is a good fit for the law firm.
This often leads to partners of BigLaw firms being compelled to sell not only a fuller spectrum of their capabilities at the maximum price that might otherwise be unnecessary, but also to use under-utilised lawyers rather than involving the right people for the right job at the right price.
But why should our customers care about the internal cost structures and profit expectations of the firm? Customers only care about whether we deliver a result, outcome or benefit at a reasonable and fair cost – and rightly so.
Fundamentally, there is an inherent conflict for BigLaw partners. The “building value for the firm” approach flies in the face of seeking to deliver REAL value for the customer. How can a customer be sure that the professionals assigned to their matter are those best suited, or whether all of the services proposed are really needed? It is also a very internally focused view which often fails to balance the services offered with the current financial, business and risk positioning of the customer.
Our experience has been that, in such environments, the depth and scope of advice and analysis provided to customers rarely varies, irrespective of what the customer needs. As a result, some Biglaw firms are known for delivering advice that is not sufficiently commercially-minded, too academic or not on point. For example, a lengthy memorandum on the panorama of securities law may not be what a customer needs if the end conclusion of the advice is that the customer cannot conduct the activities that it wanted to carry out.
Another example of how partners are shackled by their firms is when overseas legal assistance is needed. BigLaw partners are often compelled by internal policies to use the services of their colleagues in their overseas offices. This sounds good in principle but presents a dilemma when these colleagues are not suitably experienced or not motivated to service internal referrals (or both).
Delivering Optimal Pricing Models
Considering the above constraints on BigLaw partners (i.e. their inability to control pricing and adjust services appropriately), it is not surprising that they often feel compelled to push billing by the hour on their customers (assuming they even have the option to do otherwise). Billing by the hour does work with some customers on some matters but, often, such an approach does not end well. Much has already been published by others on the inadequacies of a system that charges by 6 minute increments; suffice it to say that I have seen on many occasions customer relationships deteriorate to the extent of both parties tediously picking over perceived excessive or incorrect time narrations.
A much better pricing model for any customer is to be given an agreed fee proposal which will provide a fixed fee or retainer covering the expected scope of work based on standard parameters. Experienced lawyers will know how to set these parameters by considering all probable issues and steps and the most likely work required. This flat fee approach may be supplemented with identified adjustments (up or down) for commonly expected variations, and can exclude non-essential tasks (which can be quoted separately). This creates a clear foundation of expectations for the customer before the project gets too far along. Equally, the fee proposal can identify the level of qualitative assistance that is appropriate for that customer given their financial, commercial and risk status: not every customer needs a chauffeured Rolls Royce to get to the airport; for some, a sedan that gets the customer to the airport safely is all that is needed for that particular occasion.
Such a pricing model does involve a degree of risk for the law firm. For example, in a transaction, it is always difficult to predict how counterparties and their counsel will act and, equally, it can be difficult to be certain about the behaviour, sophistication and degree of personal attention that a customer will need. That said, the things that can go wrong usually fall within a clearly definable range of factors and experienced counsel should be able to foresee these and have a methodology in place to cater for their occurrence.
Why can GPS McQuhae LLP deliver better?
As mentioned in our last blog http://www.gpslegal.asia/473/, our GPS Flex model enables us to handle different needs more responsively and appropriately. We are not hamstrung by feeling compelled to use an overinflated and excessive permanent workforce. This enables us to pick the right team, who can work from locations they choose and who we are confident can deliver true value based on pricing and qualitative requirements. This team is always managed (and led from the front) by a dedicated and experienced relationship partner who knows the customer and the customer’s business. Our ability to deliver differently for different customers and circumstances mean that we do not need to sell customers services or work product that they do not want or need.
If we need to work with counsel from other jurisdictions, we can pick from a very broad pool of trusted and motivated independent legal services organisations and experts built from our decades of experience in the region. We are not compelled to use potentially unqualified and unmotivated overseas colleagues – just because they are part of the same firm or alliance.
Being free of the restraints of BigLaw management and financial monitoring obligations enables us to be genuinely responsive to the needs of customers in terms of fees. The “death of the billable hour” as foretold (20 years ago!) by our friend, John Chisholm and others has (finally) arrived!
Our lower overheads are also achieved through our new “flexible workspace” premises in Quarry Bay. Riding on the wave of BigLaw names coming to this area, we have found that the Central district brand for Hong Kongers is no longer needed for the provision of quality legal services. We also use the latest technology systems and infrastructure. Unlike some BigLaw firms, we are not burdened with the costs of developing and maintaining our own proprietary systems.
More than anything, the expertise of our partners in their chosen fields means we understand the challenges faced by our customers. We understand their challenges: we have seen them before. We know how to efficiently handle projects, transactions and disputes in our chosen fields. We are able to price our projects appropriately and carefully, providing price certainty and ensuring customer expectations are met.
We can deliver the right services that customers want at the right price. That is the key to delivering REAL value.