Since the Client Centric Index was launched, management teams from over 100 firms have completed the diagnostic in the US, Europe, Latin America and Asia. It has generated over 36,000 assessments by participants of 12 distinct areas of strategy covering strategy formulation and implementation, operational excellence, governance, client relationship management, service offerings, remuneration, culture and brand.
The combination of the quantitative and qualitative insights as well as in-depth interviews with leading law firms gives a clear picture of the priorities facing law firm management, the many ways in which firms are tackling these challenges – and the mixed results that often arise.
How does Law’s management agenda compare with other professional firms?
How do the legal sector’s results compare with data from other branches of the professions which answered the Index?
On the issues of Remuneration models, law firms compare negatively. Whether, how and when to change the partnership model, are questions occupying many management teams across professional service firms in accountancy, real estate, engineering and HR consultancies. But law firms in particular, have diagnosed themselves as weak in this area. We’ll see why in more detail below later.
On the positive side, internal organisational alignment appears to be significantly better in law firms compared to other professional firms. A better sense of the ‘what’ and ‘who’ in the sector helps. Delivery and business development activities are principally targeted on the General Counsel and in-house legal team. By contrast, the accountancy/consultancies (including the ‘Big 4’), aim to service a much broader set of client audiences (CEO, CFO, COO, CIO, HR Director, non-executives, etc) with a much broader set of service offerings (audit, business strategy, transaction services, IT consultancy etc). As a result, these firms struggle more to achieve organisational alignment to their clients’ needs.
Sharp regional differences in the strategic agenda for management teams
We are also building a clear sense of the regional differences in management priorities around the globe. Despite the inescapable internationalisation of business flows and the legal work that follows them, the surprising conclusion is how sharply different the management agenda is by region.
In India, for example, law firm leaders are focused on addressing issues of governance, talent retention, scalability and brand – against a macroeconomic background that grew more complex in the last 6 months. For the Indian firm, today’s agenda arises from the unique heritage of the many players in the subcontinent based at is it is on high profile practitioners and family-run units. The strategic questions for such firms relate to how they transition successfully from a phase of phenomenally fast, organic growth to become scaleable, sustainable businesses with ‘brands’ distinct from their distinguished founders.
In North America, the leaders of many US-international firms are asking themselves tough questions about how they drive tangible value from 15 years’ of investment in their international networks and non US-based offices. They recognise that UK-headquartered global firms are perceived to have executed the international ‘piece’ better. The result shows in the latter group’s revenues, now more globally diverse and better ‘hedged’ as a result.
Latin America law firm leaders are focused on sustaining their local difference in a market attracting attention from the global legal brands. In the competition between local firms and international ‘newcomers’, LatAm domestic teams are sharpening their plans to hold onto their corporate clients and retain their local talent. The evidence suggests that for the moment, they do the former better than the latter.
These and other regional insights from the Index are particularly interesting to any law firm with international aspirations, providing as they do a sense of the mindset and priorities of domestic law firm management. They also provide a ‘routemap’ to integrate successfully when a local player merges with an in-bound international firm.
The 3 areas of strategy where management teams are focusing
The three areas where law firm management teams diagnosed themselves as requiring most attention are in (i) reward and remuneration (ii) the implementation of strategy itself and (iii) clarity of the firm’s market proposition. In each of these areas, teams marked their own performance lowest of the 12 dimensions of strategy which the Client Centric Index invites them to assess.
Let’s take a look at the challenges in each area and the how firms are tackling them.
1. Remuneration: unmistakable dissonance between strategic direction and reward
The litmus test for a firm’s ‘client centricity’ is its remuneration model. In public, a firm can describes its strategy or its aim to provide excellence in standards of client service, but its ‘true’ strategic direction is determined by the partnership model it chooses.
The data from the Client Centric Index is shockingly clear. There is a dissonance between firms’ remuneration approach and their stated goal of improving performance and profitability through being more client focused. This gulf is where firms rate themselves weakest. And the commentary from partners suggests a reckoning is well overdue. Many wonder for how much longer they can postpone measures to tackle this most complex and controversial element in their business model.
“Our culture encourages cooperation, whereas our structure sometimes inhibits it.”
Practice Leader, US Law firm
Nowhere is this more marked than in those law firms servicing institutional and corporate clients, for the following reasons: in regions and industry sectors with low growth, fees can only come from a firm increasing the share of an institutional client’s existing legal spend. That requires a combination of deeper knowledge of the client organisation, business development at multiple entry points and sharing of contacts among law firm’s fee earners. Most remuneration models tend to encourage the opposite.
Most partnerships have a reward structure that sits on a spectrum between ‘eat-what-you-kill’ and lock-step. The reality is that most firms have selected elements of both. But with mixed results.
“The truth of the matter is that whatever you said to people in this firm about anything, people were judged on the fee earning performance. This is what drives action. This is a real barrier to becoming more holistic and client-centric as a firm.”
Senior Partner, Law firm
The ‘eat-what-you-kill’ model served many professional firms well during the ‘years of plenty’ where the growth in demand for legal services left room for each partner to build their practices individually. But in the ‘new normal’ of low growth, the behavioural consequences of a model which sits more towards the ‘eat-what-you-kill’ side of the scale, may prevent client centricity.
The Index research suggests that there are two areas where firms are focusing to avoid this. First, improving transparency: to some partners, the calculation of their drawings remains opaque. Second, volatility: partnerships are unsettled if individuals are experiencing spikes and troughs in drawings. Smoothing these is a priority.
The bigger question is how to adopt the ‘good’ elements of each side of the scale, to encourage fundamentally more client centric behaviour and performance. This topic deserves more room that we can devote to it here – but in Part 2 of our review of the Client Centric Index we will look at how firms can select a model which simultaneously drives client centric behaviours at both individual organisational levels.
2. Client voice as the catalyst to achieve alignment and implementation
Without implementation, strategy is merely an idea. The Index points to poor implementation as another weakness in management’s own view of their quest to make their businesses more client focused. The question is how does a leadership team drive change into the business? How do you get partners to follow the plan?
Those firms experiencing most success in this aspect, often point to a common factor: high quality research of the needs and opportunities in the firm’s client base. Firms that leverage these insights appear better able to make the case for change. In the diffused and weak governance which exists in many firms, showing colleagues what clients are asking for weakens the natural internal resistance to implementation.
“While we are good setting strategy and actively review it, we don’t actively manage the business against it or track progress.”
Top 40 US law firm
Firms which capture insights more regularly and in greater detail from current clients, are not only using them to drive action but are also shaping a more profitable set of products and service offering. Growth opportunities are identified by building a 360° view of key accounts and other priority client segments. To increase the quality of the information from clients, successful firms are pioneering innovative techniques and research methodologies across a greater proportion of their client base. The result is a virtuous circle of better analysis leading to revenue opportunities and in turn, greater confidence in the ROI of client research.
A vital ingredient to the recipe for success in this area also stands out. Many management teams fail to implement change well because they delegate the task of internal communication to others with less authority or because they drastically underestimate how frequently and for how long they will need to communicate the change in order for it to stick. Senior management commitment to internal communication is vital.
“We need to identify top strategic issues and then follow through….with main board steering it. That would be more successful that the piecemeal way we implement strategy at present.”
Top 50 Global Law firm
3. Clarifying the proposition: understanding the limits of differentiation
Firms in all markets face competition for the provision of legal services. Not just from other law firms but also from the growth in capability of the in-house legal team and the increasingly significant Legal Process Outsourcing providers. The impact? Firms acknowledge they need to define their value proposition more clearly. That means articulating a credible message about what they do, how they do it and the value it provides to clients.
A rigorous process here involves higher quality ‘outside-in’ information to decide what the message should be rather than relying just on a firm’s internal views. Those successfully addressing this, spend time helping fee earners to articulate that message consistently and with the evidence to make it credible and appealing.
“Poor self-awareness within firm impedes development of a clear strategy. Very few firms really understand how clients perceive them. Some have got this image of themselves that is just not an image that is out there in the market”
Partner, Magic Circle firm
Other firms tacking this complex issue appear willing to acknowledge that they often get stuck on deciding what their point of differentiation is or what it means to describe themselves as ‘the trusted advisor’ in an era when trust with corporate advisers isn’t always the strongest card with which to lead. It’s questionable whether there are sustainable USPs in professional services. Our research shows that those firms who are defining their proposition with more success are moving beyond debates about ‘uniqueness’ and trust towards a more fruitful and client centric articulation of the value they bring to clients.
In the months ahead, we will be sharing more insights from the data. To learn more, contact James Edsberg on firstname.lastname@example.org To take the Client Centric Index diagnostic, visit www.clientcentricindex.com