Profitability, commercial awareness, risk management and compliance

1. Profitability, commercial awareness, risk management and compliance Peter Scott PETER SCOTT CONSULTING www.peterscottconsult.co.uk

2. Challenges now facing law firms • The economy • Government cuts • New competitors in the market • The P I insurance market • Increasing regulation and compliance • Technology • The changing needs of clients • A fragmented profession Given these challenges, never has the need to be more competitive been so great

3. Today’s session • How to compete in tomorrow’s markets • Building financial awareness and performance • How to manage your risks and compliance under the new regulatory regime • Achieving your goals

4. How to compete in tomorrow’s markets

5. The need to be more competitive “Competition is a process by which … • services that people are not prepared to pay for • high cost methods of production and inefficient organisations • are weeded out and • opportunity is given for new…services methods and organisations to be tried”* Could this apply to the legal profession today? *Everyman’s Dictionary of Economics – A. Seldon and F. G. Pennance 1964

6. Your future market competitors? • ABS - owned wholly / partly by non-lawyers with deep pockets? • MDP - owned by lawyers and other professionals? • Highly developed ‘traditional’ law firms? - national / regional - branded - strong sector focus - franchised / federal models - heavy investment in IT, management and infrastructure • Combinations / variants of any of the above • Others? Which kind of law firm do you want to be?

7. The greatest danger? - complacency! “Our strategy is to keep a lid on expenditure and weather the storm. We cannot reinvent ourselves as something we are not” Managing Partner of a major London law firm – Autumn 2008

8. An alternative view… “there seems to be a disturbing strategy of hunkering down, cutting some fat and hoping that business will return to normal. That is not good. The terrain will look very different when this is over. This is not a minor blip, but a discontinuity” “the problem is that most senior lawyers think only two months ahead. They have no coherent picture of the future. The planning is not being done. And it is senior lawyers who need to be driving change” Professor Richard Susskind – May 2009

9. Forward planning - focus on the fundamentals of your business • Your clients • Your people • How you can achieve your goals

10. The fundamentals of your business – are you making the most of them?

11. Do you know what your clients want?Will your people deliver what your clients want?

12. Your clients

13. Preventing client leakage Clients usually do not tell their law firm they are leaving – they just never again instruct the firm. Are you unknowingly at risk of losing part of your client base?

14. Key issues for clients? Client – based research consistently demonstrates that unless law firms listen to their clients and act accordingly, then those clients are likely to migrate to other firms.

16. Your client base It is not only the at risk clients you should be concerned about. The graph shows that typically three out of ten clients have hidden potential to grow that has not been identified.

18. The cost of sales The cost and effort to ensure client satisfaction and thus the retention and development of clients is many times less than the cost of trying to win new business Do you know your clients’ potential which could be unlocked for your firm?

19. Protect your backyard This should be an obvious and profitable way to ensure • not only survival but also • one of the best ways to build long term competitive advantage But are law firms doing so?

20. Strategic forward planning What services are your clients going to need in the future?

21. What are clients looking for? Core issue is to add value • Morethan the competitors • In a way which is regarded as valuable by clients and which differentiates you – to create a ‘brand’

22. What is ‘added value’?

23. Value Clients Care About • Our clients’perspective • Not our own perspective • Is there a gap?

24. The value gap • It is the client’s perception of value that matters • Professionals often put too much emphasis on service attributes • Not enough on helping clients achieveresults

25. You will add value if… • You provide clients with what theywant – and more • At prices they perceive to be value for money; and • You do this better than the competition

26. Understanding the client’s needs and requirements So what do clients want?

27. Price on its own is rarely a determining factor However, value for money is key

28. The client’s perspective “They always try to sell to us on price – but what we really want is to have a good job done at a reasonable price” Client feedback from a perception survey commissioned by a law firm

29. Positioning your practice to be competitive by adding value more than your competitors (Brown and Faulkner 1994, Long Range Planning) High Client Perceived Added Value X Ave Suicide Zone Low Low Ave High Client Perceived Cost PETER SCOTT CONSULTING

30. So what do clients want? Here are some of our most important research findings from interviewing clients of law firms and in particular from those clients which were in the at risk category

32. Perceived lack of skills and technical expertise Clients absolutely expect that law firms have the necessary technical expertise to get the results clients require This should be a given – but unfortunately it is often not the case

33. What some clients said • “They are OK for most work but when it comes to something really important to us, we go [elsewhere]” • “If [named partner] is not there we go elsewhere because they lack depth of expertise.” • “They need to improve the quality of staff in the 2nd tier”.

34. However, it is not enough just to be a good lawyer The following factors can all influence a client’s choice of law firm

35. Brand and Positioning Law firms win and lose work based on how clients and key decision makers perceive them, and particularly in relation to transactions, factors around • complexity • risk; or • size

36. Some relevant client comments • “For high value / high risk work I would use a big name firm – very unlikely to get bad advice” • “Our accountants tell us to use a ‘corporate’ firm” • “The firm is under pressure if it does not do some bigger corporate work” • “Sometimes we don’t use them for complex work” • “(They) may not be able to do complex transactions”

37. Lack of client awareness of specialisms offered Sometimes the problem is not so much actual lack of technical expertise but more a failure on the part of the law firm to make clients aware of what the firm can do

38. The following client quotes show this • “They must not assume that people know what they do” • “If I had a £5m project, would I think of (Firm)…probably not…I would think of one or two others first… it may be that I don’t know enough re: the full extent of their expertise”. • “Not sure if they have certain capabilities” • “They are not proactive with their own clients” • “I don’t think they have anyone in litigation...but if (the client partner) told me they did, I would trust him...I’d be interested in talking to them” • “Maybe not so good at telling people what they do”

39. Speed and other service factors including • Meeting deadlines • Keeping commitments • Ability to offer advice quickly and efficiently • Keeping clients informed of progress • Care and attention to work • Billing as expected • Personable and likeable people / rapport with the team • Interest in / knowledge of client’s business

40. These client comments help to illustrate this • “Their response times leave much to be desired” • “We had to chase all the time … we said it was urgent but it still ended up drifting” • “They didn’t communicate enough, or didn’t seem to be on top of things” • “I don’t believe they have the resources”

41. Relationship and understanding of needs If a law firm is unaware of a client’s strategic needs then it is at risk An example of this was a firm which was unaware that it was likely to lose a large client relationship in an imminent review of panel firms

42. “For service, I would rate them 8.5 out of 10 (they are upper quartile on this)...for strategic value I would rate them 2/10” Being aware of this client feedback, and effectively responding to it, enabled the firm to retain what was its largest single client

43. Referrers of work Different factors are likely to be identified from listening to referrers of work such as accountants, banks, overseas lawyers, IFAs, surveyors and estate agents

44. Research indicates that referrers consider these factors important • Knowing the individual / the personal relationship / having confidence in the individual • Expertise / technical ability / good quality advice • Track record in an area of work • Turnaround time / speed / ability to meet deadlines • A fit with client • Location • Reciprocation • Working as a team

45. Your firm For any individual firm it is key to identify what is important to your clients and referrers of work and how you perform in key areas Understanding and then responding to the issues can create immediate financial benefit and clarify the future direction of your firm

46. To be unaware of or to ignore client and referrer perceptions is to put at risk a firm’s very existence

47. Your people

48. Your people? Are you presently unable to add value to your clients because of: • Gaps in your skills base? • Under performance? • internal attitudes and behaviour?

49. What should your people be doing: • better? • more of? • less of? • differently? How are you going to manage this?

50. In particular… • how should your people be using technology more effectively? • How financially aware are your people?