Newish to many lawyers, rarely to their delight, is a growing realization that when clients start talking about the price for legal services, they don’t (really) care whether that price is arrived at by summing a whole lot of billable hours, a negotiated “AFA,” a successful RFP submission, or drawing straws. What clients really want for their money is Value. And you should under no circumstances equate value with “cheapest;” value can be found at every level of the food chain from the top to the bottom, and the lowest overall price is one of clients’ very last priorities. (Survey results on this are consistent; you could, as they say, “look it up.”)
But this merely changes the subject of the problem in most lawyers’ eyes, from Cost to Value. “When clients talk about value,” I hear many lawyers say with a combination of exasperation and wounded pride, as if the privilege of receiving their services didn’t speak for itself, “I don’t know what on earth they’re talking about.”
I’m here to help. Up to a point.
Circulating out there in our collective noosphere is a recognition that part of the process of coming to understand this or that phenomenon at a profound level—which is to say, being able to explain how it arises, its lifecycle, and its end, and not merely being able to fix labels on it—can be a process of developing and testing a series of hypotheses about the mystery phenomenon. The hope, and the great promise of the scientific method, is that each refinement will bring one closer to the goal of genuine comprehension. The objection that some of these interim hypotheses will not be correct is inadmissible, or, as the pithy but wise quip has it, “all models are wrong, but some are useful.”
So our mission today is to take a simple, but I hope ultimately profound, step towards unpacking what clients mean when they speak of value.
To our aid comes Any value proposition hinges on the answer to one question, from the redoubtable Harvard Business Review. It seems to begin innocently enough (emphais original):
Any strategy lives or dies on the basis of its customer value proposition. There are many typologies relevant to crafting a value proposition, because there are many ways to win customers. But the key issue is always: what is the center-of-gravity in our approach? Do we ultimately compete on the basis of our cost structure (e.g., Ryanair and Wal-Mart) or another basis that increases our target customer’s willingness-to-pay (e.g., Singapore Airlines and Nordstrom)? In other words, will we sell it for more or make it for less — and allocate sales resources accordingly?
Nearly all competitive markets confront firms with this choice. In retailing, there is Wal-Mart, Dollar General, and category killers. But there is also Nordstrom, Louis Vuitton, and many high-end boutiques.
Let’s take a closer look at each option.
While you make some valid points, I think you’re still looking at the issue from the perspective of the provider (i.e., the law firm in this case), when you posit the choice as a choice “between selling it for more or making it for less.” This doesn’t address the question of whether to make “it” in the first place or, perhaps more saliently, what is “it”? With the appearance of LPOs, e-discovery vendors and other providers of law-related services, the “it” that law firms have provided for years (i.e., an “all in” service to provide to the client everything needed to pursue its law-related goals) has changed dramatically. Some law departments have internal capabilities that take over some of what law firms provided previously while others incorporate providers of law-related services (e.g., information management, e-discovery, court reporting) into the mix and require that the law firms work with those providers.
The definition of “value” must be approached from the client’s perspective. While that will vary from client to client, it can also vary from matter to matter for a single client. You suggest this with your reference to “dimensions that are important to them [the clients].” I prefer the term “value-related qualities” or VRQs to denote those criteria that matter more to the client for the specific engagement and I find that construct more useful, particularly when discussing and (I believe) designing fee structures not premised on how much time is devoted to the work (whether of value in achieving a goal or not). Because VRQs are client-determined, they orient the discussion more accurately, as I described in my article and book.
Steve:
Many thanks for your generous thoughts.
You’re absolutely correct that this article assumes “it” is something the client not only wants to begin with, but wants a law firm to provide in a bundled all-in fashion. I made that assumption–which I probably should have articulated–in the interest of a focused column. The topic of LPO’s, inhouse capabilities, law firms and/or clients near-shoring (see: A&O/Belfast) and off-shoring (see: Clifford Chance/India), simply “doing without,” and all other forms of disaggregation are obviously very large issues in their own right, which I have and will continue to spend time on.
Your second point about unpacking value into its component parts (“VRQ’s”) is a topic worthy of far more discussion, frankly, than I’ve yet given it in the pages of Adam Smith, Esq. Some clients want a sports car, some a limousine, and some a get-me-to-the-station-and-back beater. As do the same clients at different times in different contexts. This I suspect is a dimension of value law firms are institutionally and temperamentally inclined to ignore.
Bruce – Cogent and compelling analysis as always. I see two potential additions:
1. First, you can find a different “it” — In today’s law land, I see that as the NextLaw focus on prevention. Old Law, New Law and Emerging Law all address solving a customer’s legal probloems: the first, but selling hours at differnential costs and the last one but actually addressing legal problems effectively and effiiciently. NextLaw, on the other hand focuses on preventing legal problems from ever arising. Today, NextLaw coexists with the Old, New & Emerging Law provider variants — simply because no matter how good one is at prevention, fires and emergencies still occur — jsut less frequently. So, as NextLaw rises and becomes ascendant, the size of the pie for the other variants shrinks and the competition, particularly in the middle and the “sell for more” segements.
2. I believe it’s posisible to do both. Focus your internal operations in a “do it for less” fashion but utilize customer focus to “sell it for more” The concept here is the “more” is not objectively more, but rather focuses on obtaining and retaining customers at prices lower than what you did charge, but higher than what Hyatt, Axiom or others might. At a minimum, if the seller focuses on quality (fewer defects — not brilliance) and cost control (less rework and redundancy) through process, project, people and knoweldge management , then it can change the business model from the cost plus pursuit of revenue to the focus on increasing profit margins. If Next Law fails take hold, or if customer preference stays for “brands”, then market share can be seized from those in the Old, New & Emerging verticals that are focused solely on “selling it for more” or “doing if for less”. The important thing to remember in the customer focus world of “selling it for more” is to understand what the customer truly wants. In the first, place, the customer doesn’t want the legal problem you’re built to solve, when it arises the customer wants it resolved, and when it’s over, the customer doesn’t to see it — and therefore you, ever again. So, customer focus does not mean focus on the customer (obtaining and retaining) but rather on what the customer itself is focused on (generally speaking delivering stakeholder value).
Things will get really interesting when a legal service business platform emerges that does all three: changes the “it” to prevention; addresses today’s “it” more cost effectively through cost, knoweldge and process leverage; and sells it for more through intense customer focus.
Stay tuned!