The procurement paradox: The role for procurement professionals in law firms

Just when you thought general counsel were getting into bed with their procurement-director colleagues, some law firms have embraced the concept themselves, recruiting either full-time senior procurement managers or bringing them in on an interim basis. Simon Slater, managing director at First Counsel Consulting, reports on what is likely to prove a growing trend.

It may seem odd that law-firm partnerships remain so obsessed with their overheads and yet are still so ill-equipped to manage them. Having sat in dozens of law-firm board meetings over the past ten years you might imagine that I no longer find this pre-occupation strange, but you’d be wrong. I find it more surprising now than ever.

The reason is simple: law firms spend a disproportionate amount of time merely tinkering at the edges of their cost base, often with the wrong objective in mind. You know the one – it involves minor financial engineering to deliver modestly enhanced short-term profits. And it’s the one that avoids upsetting the apple cart at all costs. The only problem is that by relying too much on tinkering to improve partner profits, bad apples are left to rot in the cart.

Lawyers have not generally approached this issue with long-term, sustainable benefits in mind. Until now that is. All of a sudden, a handful of major UK firms have discovered that the rules of the game are changing and have responded constructively and professionally to the challenge.

Efficiency has now become a key driver in their clients’ decision-making processes. Sure, they want the best advice, a first-class service and a good relationship; they want to know that their legal-service providers have diversity, pro bono and other ethical policies in place; and, yes, they want added value (whatever form it may take). All of these things are now commonplace in many firms, but, taken together, they determine where a law firm lies on the overall value curve. As I’ve said many times before, when it comes to value, beauty is in the eye of the beholder.

Be in no doubt, efficiency is the next ‘big thing’. It is the next big opportunity for law firms to provide better value for money without diluting profits. Indeed, I predict that those firms who seize this imperative will enhance their profitability significantly in the long run. In order to remain competitive and relevant to their clients, a clutch of firms have already begun to take the matter seriously. These firms know that the pressure from major corporations for superior service

and value is only set to increase over the next five to ten years and that to continue providing excellence to clients while maintaining high levels of profitability, they can no longer increase their charge-out rates as a matter of routine. At the same time they also know that lawyers’ salaries are not likely to remain static.

This new imperative – efficiency – has two elements: process and procurement. Process involves looking at the components of repetitive or standardised legal services and identifying ways in which they can be packaged, delivered and priced more efficiently, imaginatively and competitively. Procurement involves ensuring the costs associated with the people, systems and space (facilities) that underpin legal-service delivery are managed as prudently as possible. It means buying, cost-effectively, the right people, systems and facilities to meet the expectations of clients.

While lawyers are best placed to deal with the former (process), expert procurement professionals can play an important part in helping with the latter. A small number of top 30 firms have recently pioneered the use of senior procurement managers, either by recruiting them (this is rare) or by bringing them into the business on an interim/project basis (see box opposite for more details on the value of interim management). So what is the paradox? It is this: just for a change, a few enlightened law firms are going with the flow and replicating developments within the teams of their in-house counterparts, at a time when there are still pockets of resistance among some general counsel to the inevitable rise in the influence and involvement of procurement directors in the way they buy legal services. This is good news for law firms and their clients. It means that just for once, instead of resisting change and going into denial, private practices are embracing change in order to keep abreast of the shifting legal landscape. Corporate counsel should take heart from this, because it signals that some law firms, at least, recognise that the pressure on value is here to stay and they can see the commercial rationale for adopting good procurement practices.

There are three ways in which procurement professionals can assist law firms:

They can help to streamline procurement processes and make then more efficient;
They can introduce best practice by transferring knowledge to line managers with regard to process planning, commercial awareness and negotiation skills;
They are able to secure significant and sustainable cost savings, often running to hundreds of thousands of pounds and, in the largest firms, millions.

However, the most enduring benefit lies in the second of these because it leaves a powerful legacy within the firm. This legacy is based on tried and tested methodologies, improved supply security, and sustainable economic efficiency. The lower the cost base and the better the legal process, the better the value delivered to the client and the more scope there is for improving law-firm profitability.

For the avoidance of doubt, let me be absolutely clear that I am not talking about cost reduction analysts here. There is a world of difference between that animal and the one I am focusing on in this article. No, procurement professionals do not take a percentage of your savings; they charge a fee (typically a day-rate) for their independent, expert advice and for the lasting legacy they leave in terms of knowledge transfer.

Not unnaturally, cost savings are too often associated with reducing the specification of a product or service, but this is a fallacy. It need not be painful. Some people in partnerships also worry about the introduction of counter-cultural practices, but these are unfounded too because procurement professionals have learnt to be sensitive to the importance of different cultural nuances within law firms.

Having developed a close working relationship with specialist procurement advisers LPS, we have seen first hand how a significant return on investment can be delivered to our law-firm clients. A return of between 5:1 and 15:1 is not uncommon at all, so that an outlay of, say, £75,000, could yield annualised savings of around £750,000, not to mention the repeat value of such savings in subsequent years. One such client has announced profits up by more than 25 per cent this year, due in large part to its recent assault on efficiency with the guidance of an LPS procurement expert. However, the scale of savings or improvement in profits depends on the size of the practice.

In this article I have, quite deliberately, not insulted the reader’s intelligence by listing the most likely areas in which efficiencies can be made through good

procurement; you know what areas concern you the most. But let me finish with another paradox: line managers in many law firms are still given the freedom to approve and sign poor or risky contracts on behalf of their firms. Yes, I’ll repeat that – lawyers are still allowing senior managers, competent though they may be in their own discipline, to sign legal documents on their behalf and, as amateurs without the proper commercial training, they will one day make a costly mistake.

I will leave you some pearls of wisdom from renowned management thinker, Peter Drucker, who said some 40 years ago that “buying is as important as selling”.

For many partners who don’t enjoy selling, this will of course be music to their ears. I suggest you keep it to yourselves.

Simon Slater is managing director of First Counsel Consulting. He, and his associates at LPS, can be contacted on 0207 332 6336

Can interim management work?

The interim-management market has grown considerably in recent years. As employers have looked for more flexibility in the workforce to help them manage escalating staff costs, they have recognised that interim managers offer flexibility and a cost-effective alternative to recruitment or consultancy.

Interim managers provide flexible access to senior management experience and an independent view informed by a detailed knowledge from working in an array of other organisations. Unlike consultants, however, interim managers don’t just do the analysis and write the report, they are also implementers. They work inside your business to your agenda, not their own, and are not looking for the next sales opportunity – hence they are more cost effective.

So why, until now, have law firms been reluctant to make use of interim managers?

Experience (or perception) of interim managers is that they have a wealth of experience – but typically from a corporate environment – hence they do not understand the partnership culture and the specific management style, or tact and diplomacy required – which leads to frustrations on both sides. Consequently, law firms have shied away from the interim market.

Those from a corporate background are used to making decisions that, once ratified by the executive, become policy – which management and staff can only ignore at their peril.

In a corporate business there is typically clear distinction between the owners, management, sales, production and development. However, because law-firm partners take on all of these roles, the majority will justifiably expect to have a say in all key decisions as they have a multi-stakeholder interest in the business. This means corporates and law firms are at opposite ends of the corporate-cultural spectrum.

What factors make interim management a success?

To be a successful interim manager you need to be able to hit the ground running – and that means you need to understand the business – but more importantly you need to fit culturally.

My own recent experience of running an LLP conversion programme for one of the top 10 UK law firms has only reinforced my view that cultural fit is paramount. It has been a successful assignment for both the firm and me. But what were the key success factors? Well, it was certainly helpful that I have led many similarly complex assignments, had experience of creating senior virtual teams spanning all support and client-facing areas of the business across different parts of the world etc. But all of that would have counted for nothing if I could not have demonstrated, from day one, a real appreciation of the way to make change and get buy-in in a partnership environment.

My experience as operations director at PricewaterhouseCoopers has given me a wealth of experience of managing in a partnership. This experience enabled me to build trust with the LLP conversion team – because I could talk knowledgably, and from experience, of the likely barriers to success and how to overcome them. The most significant barriers were entirely cultural and would not have even occurred to someone from a corporate background – which is not meant as a criticism, but simply as a reflection of the intangible nature but extreme importance of these cultural differences.

In particular, I recognised from the outset that a considerable amount of time would need to be spent with the partners:

Communicating with clarity what we doing and why – putting it into context;
Acting as a sounding board for their concerns and issues;
Hand-holding them through some necessary but mundane administrative chores.

The majority of partners that I dealt with have a healthy focus on their clients, had a consequential lack of focus on internal management and administration and felt unjustly guilty about that. There was therefore a need for a fair amount of reassurance, from me, that partner behaviour at the firm was no different to that at most other firms.

Also key to the success was recognising who actually manages the partners’ administration responsibilities day-to-day and then to use this resource to help make the project a success – and here the partner secretaries play a key role. Again, my previous experience meant I knew that this often under-utilised resource pool would be key to getting the partners to do what they needed to do on a timely basis. Spending time building up trust with this group and providing them with as much support as they needed meant that they managed the partners for me to a very significant extent. This proved to be an excellent investment of my time and again totally different to the way one would work in a corporate organisation.

Can interim management be a success in a law firm?

Emphatically yes. Of course, you have to have the raw ingredients of senior management experience and strategic capability, and a focus on delivery and performance. It certainly helps to underpin this with a healthy dose of common sense and pragmatism.

But, to be a success in a law firm, the interim manager needs to combine this experience with a deep understanding of, and extensive experience of operating in, a partnership environment. And the good news is that there are a few of us out there who combine this experience.

Derek Godfrey is a professional services interim manager. He can be contacted at derek.godfrey4@ntlworld.com