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Buying legal services and LegalTech
Bruno, you just returned from a conference in New York where the focus was on legal market intelligence when procuring legal services. What are your learnings?
The majority of participants were experts from procurement departments purchasing legal services from law firms on a daily basis. The topic of the conference was legal market intelligence. Hence, it did not really come as a surprise that the speakers presented all sorts of numbers. It became obvious that they are experts when it comes to dealing with numbers, in particular in assessing lawyers’ rates and mastering an RFP and panel process. However, I have to admit that this reminded me of the stereotype of procurement being interested in savings only and forgetting about the core of the legal service.
What is this ‘core’ about? Isn’t providing legal services about delivering correct legal advice only?
Legal expertise is of course core to providing accurate legal advice and to represent customers in the best possible way. But two things need to be kept in mind: a customer – often a non-lawyer – takes legal expertise as a given, and it is anyhow very difficult for her to make a fair assessment of a lawyer’s subject-matter expertise and technical quality. Therefore, a customer reverts to the other side of the coin, which is much more familiar to her: the service and relationship elements. And on top, with this a customer does not assess the service quality only, but also applies and transfers this judgement – be it fair or not – to the assessment of the lawyer’s subject-matter expertise. Consequently, the service elements become key to meeting customer’s expectations.
Can you give an example of an important non-legal related performance criteria?
There are many of them. For example, customer satisfaction depends fundamentally on qualitative elements such as accessibility, reaction and resolution time, timely delivery and flexibility. Further, communication and an overall empathic advisory quality are key. Also etiquette and manners such as friendliness and politeness are important, as well as the reputation and brand of the lawyer and her law firm. Finally, a lawyer needs to show industry knowledge and understand the customer’s needs, business, corporate strategy and business model. This intimate knowledge should then lead to a short familiarization time, a much more useful and pragmatic legal advice, and hopefully lower fees.
Based on your findings, what can a procurement department learn?
That not everything boils down to price and hourly rates only. There are some non-financial elements as well, which are relevant for great legal service, and that those criteria need to be considered and factored in. Further, it is also about applying the right perspective. If procurement considers the company (e.g., the CEO and CFO) as the sole and only customer, which they need to protect against the legal department, then it will become difficult for a fruitful cooperation between the two functions. However, if procurement understands legal as an internal customer, the above service elements would apply to them as well.
And what about the legal function?
They need to accept procurement as partner and make use of their strengths. Lawyers over a long time got away without applying any key financial indicators to their performance. However, with increasing efficiency challenges and annual cost-cutting exercises the legal service providers have to learn playing by the new rules, too. The fact, that procurement is playing an increasingly important role when purchasing legal services, may also be understood as an indication, that CFOs are no longer satisfied with General Counsel and how they handle the funds entrusted to them by the company. Therefore, CFOs have started to make use of the services, skills and knowledge of procurement to improve the overall company result.
I see a lot of positioning of the functions. Is there a way out for the benefit of all?
Yes, indeed there is. On the one hand, legal needs to understand that there are reasons why procurement has on-to be included when it comes to purchasing legal services. Legal has to respect procurement’s role in the process and provide them the support needed to achieve their business goals. On the other hand, procurement has the same homework. They have to understand that financials are important but that for legal, service and relationship elements are equally important. Procurement has to support the legal department in building sustainable and long-lasting relationships with their outside counsel.
And outside counsel?
Law firms have to stop complaining about procurement departments being part of a purchasing process. There is competition in the market and negotiating rates should not really come as a surprise to them. On the contrary, according to some speakers at the conference some law firms expect negotiations on discounts and have priced them in already! And since not all customers request discounts on so-called standard rates, the yearly increase of billing rates still leaves a net profit. Therefore, if complaining is part of the negotiation process, fine. But I would recommend not to overdo it if outside counsel are interested in being part of a panel.
And what about LegalTech? How does this play into this purchasing process?
This simply adds a further element on top of pricing and service. Currently, LegalTech is not yet highly visible on the radar of procurement’s and legal’s purchasing process. However, when purchasing legal services in the future, it will become more and more relevant to consider alternative providers as well. They either will be a stand-alone supplier to the customer or linked to a law firm as a subcontractor or partner. I also expect that law firms will start to offer a kind of package deal in order to increase the dependency of customers or at least to make switching law firms more difficult. LegalTech suppliers are no longer a nice-to-have element but will become a crucial element completing the entire value chain for legal services. It will be interesting to see how long it will take until RFPs will contain meaningful questions on this topic as well, what kind of pricing and service elements will be applied and benchmarked, and how outside counsel will react to these new demands. Customers will need to stay in the driver-seat and act as pacemakers for the penetration of LegalTech in the legal market.
What do you expect in the near future?
Looking into the LegalTech scene, the most dynamic market participants still are the start-ups themselves. They show an incredibly high level of energy and creativity. They are driven by the intention to produce and implement new products and services quickly in the legal market. One could qualify it as a kind of “land grab” to occupy the white spots in “nowhere land”. The fact, that this is addressing the supplier side only, seems currently not being key; however, LegalTech will not cause much change if the demand is not here to buy. The footprint and acceptance with customers is currently somewhat limited, which does not come as a surprise considering we are dealing with a conservative and traditional industry. Law firms and customers are certainly aware of the developments going on with regard to digitalization, but it is still too early for them to come fully onboard. They seem still insecure and skeptical about these new developments, since start-ups cannot offer a decent track record or success story. But this will disappear quickly and there will be a steep learning curve for all stakeholders. Consequently, procurement and legal must work together to find elements and criteria to purchase these new services in a future, where hourly rates and relationships may offer little guidance when assessing suppliers of legal services. And law firms will need to think about their own positioning towards the customer. There are definitively interesting times ahead.
12/2017Read more interviews