Sector focus: Hocus Pocus?

Many law firms are placing more emphasis on the key sectors they serve in marketing initiatives. Jeremy Knott, head of commercial initiatives at the Institute of Chartered Accountants asks how the success of such a strategy can be measured.

“Here at Blenkinsop, Mitre and Charleston we have expertise in all aspects of legal, tax advisory and consultancy services, and our 139 professionals in our four offices focus on 19 industry sectors.”

Ok, so maybe the above firm description is imaginary, but how many firms claim to focus on a wide range of diverse industry sectors? Looking at the top 10 UK law firms the number varies from seven to 22 sectors, with an average of approximately 13.1. That may be fine if you are a top-10 international firm with the scale to specialise in different industry sectors, but how relevant is the approach for the rest of us?

First, let’s consider why so many firms have rushed into sectors.

Inside out or outside in?

Many large law firms established ‘sector focus’ years ago and with good intentions. After all, their clients operate in a specific sector (well, most do – conglomerates are tricky to classify), so it gives the firm the opportunity to get to understand a sector, which should mean that they understand the competitive issues, the structure and changing dynamics and most importantly, where they can best advise on them. But all too often this is based on an internal analysis of current work by a client that can be seen to justify some claim to ‘know’ that sector. How many firms actually determine which sectors they want to focus on by looking externally – to understand which sectors are growing, have many issues to resolve and where their particular expertise can help them?

Route to market or structural change?

The large accountancy and consultancy firms were the early adopters of the sector approach back in the 1980s, but they had the scale to organise themselves around sectors as well as the practice areas within each sector. Performance was measured for each of these ‘divisions’ rather than by technical specialism, but how many other professional-service firms have followed suit? Most law firms that have adopted a sector approach still measure performance by practice area/legal specialism. A few have gone as far as reorganising themselves structurally around sectors. The rest have seen sectors as a route to market – a ‘marketing thing’ – and many just pay lip service to the concept. For example, some firms have analysed the profile of their recent matters and decided that they therefore have experience in these sectors. Strictly this is true, but it’s limited to the transaction. A true sector approach runs across all disciplines, but it doesn’t necessarily require reorganising the firm along sector lines. This step is only relevant to very large firms, like the large accountancy firms, who have created divisions large enough to house advisors from every discipline.

There is no doubt that aligning the firm to the client’s business can help break down silos and bring commercialism to the advice given. It is also something clients are repeatedly calling for. Now the question is how many sectors to choose, and which ones.

Numbers

If the average for the large firms is 13, what is the right target for mid-size firms? Undoubtedly, if you analyse the profile of clients a typical firm takes instructions from, there will be many sectors represented, but that doesn’t automatically mean the firm should choose all of them. Management often confuses a proactive approach with a reactive one. A mid-size firm doesn’t typically have sufficient resource or strength in depth to focus on more than a limited number of sectors. That doesn’t mean it will turn away business from other areas. A sector approach means being proactive with a select number of sectors. It means getting under the skin of the issues the sector is facing and being able to anticipate problem areas and provide solutions to clients. For this reason, several firms have chosen just four or five sectors to specialise in. After all, it’s easier to build a reputation for working in a particular industry sector than in a full-service area rendering, which nearly every firm provides. This is easier for niche firms that operate in a restricted number of industries already. However, it can equally apply to firms with a broad range of clients. It just means that the chosen sectors may only account for around 70 per cent of the firm’s business – the remaining 30 per cent can be left alone.

Furthermore, the key players in a sector often share information among themselves, so ‘word of mouth’ marketing can be very effective. Of course, this can also be supplemented by PR in the relevant trade press, which goes beyond the legal department or the finance team and reaches many of the business managers and board members where a deeper corporate relationship can flourish.

Why is it so difficult?

There are many obstacles to overcome to make any sector orientation more effective, however. These include the resistance of fee-earners, who are naturally risk-averse and quite comfortable being organised in their own technical specialism, but there is also the problem of management. The existing management structure along service lines often resists such change as it threatens to undermine its own power base. This is the same as the way that different locations can upset the simplistic single service-line model. However, these can easily be overcome using a matrix approach (Figure 1).

Performance management and measurement is another potential problem area. To establish a monitoring system every client has to be tagged to a sector, so that fees and profitability by client, and by sector, can be measured and acted on. Then there is the problem of sector definition. For example, is a real-estate client involved in a hotel construction project with another construction company tagged to real estate or construction? How do you handle consortia bids that can involve several different players that might sit in different sectors? That is not to mention the issue of the involvement of banks. When a bank refers a schools project to the firm should it be tagged to education or banking? And how do you classify conglomerates involved in businesses across many different business areas? There are many similar examples, but a logical protocol can overcome most of these issues. A decision tree showing where and how to classify clients is a useful aide memoire in these instances. Whatever happens, however, don’t confuse work type with the sector the client is actually operating in. Examples of some typical performance measures that can be used are listed on page 51.

Yet another potential problem area is finding the right calibre of partner to take a leadership role for a sector. The first step is to define the role of the sector leader/head and that of the supporting business development manager.

A structured approach

One of the critical success factors is appointing a senior partner to champion the approach – one that will review progress against the plan, unblock internal barriers and drive new initiatives. This partner should also conduct regular sector reviews (see table below):

Another important step is then to galvanise general internal communications to support this development and trumpet successes. Some firms have even put in place a reward structure to celebrate successes and raise the profile of each sector internally.

Training staff to be able to access and interpret market information is also important. The web provides a great deal of market and client information, and the trade press is also a good starting point, often providing RSS leads on specific clients and targets, market surveys and relevant studies. Equally important are the relevant trade associations that hold networking and training events. Offering to speak at such events can help raise the firm’s profile and open doors to targets to avoid the need for cold calling.

Benefits and downsides

On balance, the pros well outnumber the cons. The major benefits of a sector approach include:

A greater emphasis on the clients’ businesses and their competitive environments enables professionals to understand the issues, be proactive and speak the client’s language;
These market insights enable a firm to spot opportunities to advise their client across a range of service areas;
When targeting new clients the sector approach can inform the firm who the key players in a sector are and priorities can be readily established;
Any potential commercial conflicts are more easily resolved following the sector approach, as the market knowledge enables the firm to take an informed view about which clients have the greatest potential for the firm overall and thus removes the silo practice area-based mentality;
PR and marketing efforts can be directed at the key business sectors using the relevant business press, rather than the general professional titles. This will avoid significant wastage and allow the firm to be associated with particular sectors quickly;
When pitching for new business the sector approach makes it far easier to assemble a pitch team, gather relevant credentials and tailor the bid to the sector/client-specific issues;
Developing new products and approaches is also easier when a sector approach is adopted, as the sector team lives and breathes the issues and has the in-depth experience to resolve them.

The key downsides might include the difficulties in measuring performance and the resistance of existing practice management to change.

In the end the key question is not so much whether a sectoral approach is beneficial but which sectors to adopt and how many the firm can really handle proactively.

– jeremy.knott@icaew.com.