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In the fifth part of Pricing Transformation, by Richard Burcher, he looks at the key barriers to empowering all of your people to adopt and execute a more sophisticated approach to pricing.
While many law firms have over the last few years begun pricing improvement initiatives, many have failed to realise their potential and in the most disappointing and frustrating examples, they have eventually reverted to type entirely, losing all of the gains originally achieved. There is good reason for that. It’s hard. The rewards are significant but if it was easy, everyone would have done it a long time ago. So, we have decided to provide firms with a roadmap which will greatly increase the prospect of durable and sustainable improvements.
In doing so, we have developed a law firm specific model which draws on the work of John P Kotter, Konosuke Matsushita Professor of Leadership, Emeritus, at Harvard Business School. Professor Kotter is widely regarded as the foremost international authority on the topics of leadership and change.
In this series which will span 8 weeks, we will set out the 8 steps to a successful law firm pricing improvement initiative. Previous posts have covered:
Which brings us to…
Okay, let’s agree we are all fed up with management claptrap clichés like empowerment but let’s not get hung up on the taxonomy, because amongst the drivel is a vitally important and irrefutable notion – major internal transformation rarely happens unless many people assist. Yet people generally won’t help or can’t help if they feel relatively powerless. Hence the relevance of empowerment.
Paradoxically, in most law firms, empowering people is not so much about doing things or adding things, it is about removing impediments and simplifying things. So, let’s look at the key barriers to empowering all of your people to adopt and execute a more sophisticated approach to pricing.
Although there are exceptions, generally speaking the larger an organisation, the greater the number of layers. We are all very conscious of the extent to which a hierarchical structure can render glacial, the pace of decision-making and implementation.
In the context of a pricing improvement initiative, there is a fine line between centralised command/control and complete devolution. In our experience, getting the implementation structures internally aligned is critical. Moreover, it is frequently the case that the pricing improvement initiative needs a structure that differs from what is generally found to work and be acceptable for other elements of the firm’s operations.
In previous posts, we spoke of the difference between pricing governance and pricing management. This means only two layers; one to set the general principles and direction of travel and the other to effect implementation.
We have long been of the view that implementation should occur at a practice area level. There are many reasons for this beyond the scope of this brief blog but to many, the reasons will be fairly obvious.
If this is not how things operate within the firm currently, you should look at stripping away any layer, decision-making, consultation, approval or other impediment that is not absolutely critical to the process. It should be as lean as possible and driven by the Nike mantra – ‘Just do it!’
Contrary to the mistaken view of many, pricing is a skill, science and discipline. No longer is legal pricing just an administrative function consisting of recording time and multiplying rates times hours. This was the case for a long time but if that remains your view, then the future is bleak.
We will often hear partners make comments like, ‘it is what it is’, ‘clients will only pay what they will pay’, ‘the market sets the price’, ‘we can’t be out of kilter with everyone else’, ‘at the end of the day there are too many lawyers and not enough work’, ‘most of us are price takers rather than price setters’, ‘clients see everything as commoditised now’…
While these rather defeatist sentiments are understandable, they are a function of the fact that when it comes to pricing most law firm partners are unfortunately victims of Donald Rumsfeld’s ‘unknown unknowns’. In other words, when it comes to pricing, they don’t know what they don’t know.
In the modern law firm, every partner and senior associate should have at least a working understanding of key pricing principles such as the difference between cost plus, market pricing and value pricing, yield management, price sensitivity analysis, versioning, price/value asymmetry, fixed fee risk profiling, loss aversion theory, confirmation bias, price anchoring, deal effect and a myriad of other concepts that are for 99.9% in the legal profession, a complete mystery.
If they don’t, then partners are being expected by their firms to go into pricing battles in the nuclear age armed with a slingshot.
System inconsistencies undermine the credibility of the project and are highly damaging.
We are all aware of the business cliché, ‘what gets measured gets done’ so we need to be very careful about any elements of the firm’s reporting and meritocracy structures that might constitute a roadblock.
Take for example a focus on gross profit margin versus billable hours targets. Ensuring that all work delivers a minimum gross profit margin will inevitably result in comparatively unprofitable work/clients being turned away. How do you expect people to reconcile that with an unequivocal message to meet billable hours targets? Removal of those inconsistencies and incongruities is critical.
Although it is overly simplistic, it is helpful to categorise your senior people into three groups; those that are highly enthusiastic, almost evangelical about pursuing a pricing improvement initiative, a large number who will be cautiously enthusiastic and optimistic but have yet to be fully convinced and a small number of reactionary deadweight’s.
You can work with the first two groups, but the third group needs to be considered and managed carefully. These are the colleagues from whom you will hear comments like ‘we tried that before’, ‘you need to do more analysis on the downside possibilities’, ‘we don’t have time for that…’, ‘yeah, yeah, that’s very interesting but…’.
To make matters more challenging, some of those views can be held by people who are quite senior and influential within the firm. You need to accept that there is no option but to tell these people that they are either part of the solution or part of the problem. It is a binary perspective. There is no halfway. If these people are allowed to do what they normally do, their effect will be toxic. They will poison the well. They may not even intend to consciously torpedo the project, but their disinterest, disengagement and passive resistance will be pervasive.
There is no option but to cauterise them. In agricultural terms, they need to be treated as the angry red-eyed bull, confined to a corner of the paddock by an electric fence where they can chew away quietly but can’t do any real harm to the rest of the herd.