It’s a Debate: Should Law Firms Hire a Pricing Professional?
This is a live blog post of the Legal Marketing Association (LMA) webinar, It’s a Debate: Should Law Firms Hire a Pricing Professional? [Please forgive any typos or inaccuracies. I hit publish as a session ends. Any editorial comments in square brackets preceded by my initials, RF]
[RF: this reminds me of my high school debate days… capturing the back and forth of a debate is hard!]
- Michael Byrd, Principal, Soar Legal Consulting – Taking the negative.
- Stuart Dodds, Directgor, Global Pricing and Legal Project Management, Baker & McKenze – Taking the affirmative.
- Moderating: Patrick Johansen
Introduction by Patrick Johansen
Patrick provides a law firm pricing overview starting in 2008. The economic crisis hit Big Law and its clients hard. Clients reduced their legal spend, which gave rise to the “pricing movement”. At the same time, the Association of Corporate Counsel issued its Value Challenge, which has driven additional change. With those pressures, the first Director of Pricing was hired – Stuart at Baker.
Today, there are more than 100 professionals in Big Law with pricing in their title. That we have so many titles with the word in the title suggests its new found importance. We also see 40 articles each year in mainstream media on law firms and price pressure. And today there are multiple legal pricing conferences, books, and surveys.
Stuart on the Affirmative
Quotes Miles Stockbridge chair from 2010: we should allow lawyers to do what they do best, delegating to staff many functions. Lawyers are not good at pricing. Then quotes Richard Burcher, who asks in how many companies many employees set the price on a de-centralized basis. Based on this, Stuart concludes firms need dedicated, professional pricing staff.
The evidence shows this is true – there has been rapid growth in the number of pricing professionals. Many firms now recognize pricing is a distinct discipline.
A skilled pricing professional can dramatically increase profitability. Skilled here means able to communicate effectively internally and externally (with partners and with clients).
What is the pricing role? There is an analytic level in finance. One step up is broader engagement internally. At top of pyramid is someone who can deal with clients. That role also requires breaking down silos in the firm.
It’s critical for the pricing professional to speak the same language as clients’ procurement professionals. You can’t put novices into that discussion; the negotiator knows how to deal with these professionals.
The pricing professional needs to understand how to get CI and apply it for the right price.
Michael on Negative Cross-X
1. Re lawyers being ill-equipped on pricing… why put the focus elsewhere, why not have lawyers engage with clients on pricing. Stuart says that lawyers just don’t know enough about pricing. They are too likely to give discounts that are too big.
2. As pricing director of big firm, how can you, Stuart, be available to all partners. Stuart: yes, we have many offices and partners. The pricing director has to focus on biggest clients and highest value matters. Also, set policy and procedure for where can’t be directly involved.
Michael on the Negative Introduction
Has the trend of hiring pricing professionals gone too far? Pose a different question: what should the objective of pricing be? Cites two recent discussions where firms epxressed interested in hiring a pricing director, neither firm had a clear idea of what it needed and why. It seems likely firms need to figure out what they really want.
Pricing has become a red herring; we are having the wrong conversation. The focus needs to be on client value. I assume that lawyers provide sound advice. The value goes beyond just providing the advice. Deliver service efficiently with predictable costs are the keys to value. Value encompasses far more than just the price. A pricing professional does not increase value.
What firms need is someone to help change how services are delivering. Just changing pricing is not enough. Firms must develop a culture that improves value and service delivery.
Firm needs a culture of service efficiency and predictability. Communicate, scope properly, and profitability assessment are key. Firms need to be transparent about profitability and use partner profitability internally to make the right decisions. Re scope and communication – ditch the term legal project management – and instead just make scope discussions and regular communications the norm.
Firms must break down staff silos. A unified shared services function must connect all underlying functions, considering both internal and external services. This is often missing in Big Law. Good service does not mean doing what partners want.
This is law firm of future; a culture of value. Reinforced message of value with internal shared services function.
Stuart on Affirmative Cross-X
1. Who will coordinate all this within an organization? If it’s not one person, then who? Michael: it’s the responsibility of firm management and leadership to find a way, by strategic planning or otherwise, to take care of this. Stuart’s follow-up: so this will be by committee, then? Michael: execution must come from cross-functional efforts. But there does need to be an owner. It might be COO; it does not have to be a pricing person.
2. Square pricing and value? Michael: a focus on pricing mean too much emphasis on budget and price and not enough on how service is delivered.
Michael on Negative Rebuttal
Think about next wave of firms moving into pricing. We need to understand the real question they are trying to answer. The firms know they need help but are not really sure what that help is. The real problem to solve is: how can we change the way we do business [RF: how we practice?]. Putting it all on one person is very limiting.
Stuart on the Affirmative Rebuttal
On 6 Feb 2012, in Bloomberg Law, Michael you were quoted: Reads a quote that argues for the pricing function in large law firms. So, Stuart asks, what’s changed that you no longer believe this?
Separately, a true pricing professional does not focus on cost. Engagement with client means understanding what client wants, what value means per client.
Michael on Negative Rebuttal
Kudos for calling out my earlier quote. The discussion of pricing is often unclear. Clients need a holistic solution and a real value proposition, not just pricing. What differentiates firms is their attitude about and handling of client service delivery. The real issue is how firms approach its business.
We need people to focus on pricing, the surveys show this. Internal expectations are changing – pricing professionals can help firm leadership understand the market and profitability levers. Pricing professionals can focus on value. Pricing people can come from different backgrounds. Lawyers don’t have the right background; it’s more likely finance professionals do.
Two caveats to hiring pricing professionals. First, don’t hire pricing professionals from other industries. While law is some ways less complex than in other markets, it’s key to understand law firm partnership dynamics. Partnerships have much less ability to impose structures on pricing. Second, one approach does not work for all firms. Smaller firms don’t need a pricing professional.
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