In 2020 the legal sector pricing guru Richard Burcher wrote a series of eight articles on pricing transformation. Each article explained one step in the process. Here, Richard’s colleague Richard Allen, a senior consultant with Burcher Jennings, has summarised all eight points in a single article. (30 March 2021)
Many law firms have in recent years begun pricing improvement initiatives. However, many have failed to realise the full potential for profitability. And inevitably some firms have slipped back into old habits, losing all of the gains originally achieved.
The fact is that shifting to a new way of doing things is hard. It takes leadership and consistent focus, but the spectacular rewards completely justify the effort involved.
Below are the eight steps to follow, with eight links at the end to the original (more lengthy) guidance.
(These steps are focused on pricing, but the same proven concepts and techniques apply to any goal requiring change management.)
Step #1 – Create a sense of urgency
Successful sophisticated pricing in legal services is achieved by the firms that understand the urgency of the situation. Their firms must change, or face mediocrity or even failure.
Grab people’s attention, by ensuring that every single partner knows the state of the firm’s finances, its lost tenders, and failures elsewhere.
Highlight how this underperformance is affecting the partners’ own profit retention and note the perks no longer being enjoyed.
Demonstrate to them that the desirable KPIs simply cannot be reached with business-as-usual.
Clearly show where the profitability is leaking out of the business, using management information on write-offs, realisation rates and the profit margin itself.
Validate change by citing what other firms are doing with positive results, and showing what your pricing and profitability improvement roadmap looks like.
Step #2 – Create a guiding coalition
You need an effective mix of leadership and management.
Get the senior people from every practice group involved to drive the change.
The most effective leaders in this situation are usually those individuals with the inherent skills and appetite to think outside of the box. They are commercial, entrepreneurial and financially literate.
They also need to be personally and professionally respected and have sufficient gravitas.
Leadership must also come from the top of the firm. The partners must demonstrate that they are fully committed and “walk the talk”.
Step #3 - Develop a vision and strategy
Pricing seldom features in a firm’s vision and strategic planning, but to achieve the change you are looking for it must be front and centre of your thinking.
It is more than just tweaking hourly rates. And nor can it be implemented incrementally, or through authoritarian decree – both will fail.
Pricing change is cultural. So the vision of change must be compelling and aspirational, setting out obvious and tangible universal benefits.
Step #4 – Communicate the change vision
This step is often where firms fall down.
Those who are key to driving the pricing change must communicate the goals and direction to everyone directly involved – and ideally to everyone in the whole firm – or you risk resistance and scepticism.
Success is achieved by the simplicity and brevity of the message, avoiding management-speak. It can help to ‘paint a picture’ using metaphor, analogy and examples. For example: “Within 12 months we will have established ourselves as a ‘go-to’ firm for the dentistry sector, with coverage in both leading dentistry magazines and retainers with two of the ten UK dental groups with turnover of £5 - 50 million – with pricing commensurate with that reputation.”
Disseminate the information through multiple channels: large meetings, small meetings, memos, and so on.
Find ways to repeat the information, so it sinks in.
Let people gradually ask all the questions they have. For example, a new strategy of turning away low-margin work may conflict with meeting the targets for billable hours. Seeming inconsistencies like this, left to fester, can ruin the credibility of your vision.
As ever, leading by example is the surest way of getting everyone on board.
Step #5 – Empower your people for broad-based action
Empowerment means removing obstacles and keeping things simple.
Remove any barriers to progress. Strip away any layers of decision-making, consultation, approval or other impediments that slow everything down.
Provide pricing training, because pricing is a skill which must be learnt. Key principles include the difference between cost-plus pricing, 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 other insightful concepts that are unknown to most people in the legal profession.
Align your systems and reporting to the vision by ensuring your management information provides actionable insights.
Deal with troublesome managers and supervisors, by categorising your senior people into three groups.
- those that are highly enthusiastic about pursuing a pricing improvement initiative
- those who will be cautiously enthusiastic and optimistic but have yet to be fully convinced
- the reactionary deadweights who loathe to change
You can work with the first two groups, but the third group must be managed carefully, especially those in senior positions. If any of them actively work against positive change, they should be completely side-lined to avoid any negative influence.
Step #6 – Generate short term wins
Achieving and celebrating short-term wins is a vital element of building towards long-term success:
- these wins justify the short-term costs involved
- they reward hard work, building morale and motivation
- they turn neutrals into supporters, and reluctant supporters into active helpers
- they confirm that the transformation is on track
- their data helps the firm to fine tune the vision and strategies
Key metrics will be those familiar to partners, namely a reduction in write-offs, an improvement in the gross profit margin and an improvement in average realisation rates.
Trumpet these short-term wins, clearly relating them to the change effort.
Step #7 – Consolidate the gains
When it comes to change management of any kind, the cardinal rule is “never take your foot off the gas until the job is complete”.
Until the new pricing culture is fully embedded in your firm, years of hard work can be quickly undone if the forward momentum is lost.
Keep chipping away at the small, achievable changes that together add up to major change.
Provide clear leadership from the senior team, maintaining the feeling of urgency. Let others lead and manage specific projects, but the senior team must not then take their eye off the ball.
Step #8 – Anchor the new approaches in your culture
Shared values are important. Common goals shape group behaviour, which then persists over time even when group membership changes.
Cultural change must evolve and is often established only in the final stages. Behavioural changes follow a realisation that the new actions result in new gains. This may all sound like management-speak, but it is correct.
When thinking about your values, here are four important issues to consider:
- Switch the emphasis from turnover to profit. Measure the gross profit margin on an individual matter basis, by fee-earner, by team, and across all practice areas.
- Targets based on billable hours incentivise fee-earners simply to log more billable hours, even though this is against the best interests of your clients and much of this time may then be written off. Whereas profitability targets incentivise fee-earners to work efficiently and turn around work faster.
- When pricing, fee-earners must be allowed to make mistakes as they learn the ropes. In a blame culture this may be impossible to achieve, so ‘pricing confidence’ will not be developed and the desired change cannot happen.
- The communication between fee-earners, teams, practice areas and partners is fundamental to change. Learning from both successes and failures is part of the journey to long-term success.
Some lawyers see their job as a vocation and may feel overpaid for what they do. At the other end of the spectrum are lawyers whose primary focus may be on voraciously maximising their income. Creating a culture in which everyone feels engaged is a challenge, but by demonstrating that your firm’s strategy improves the outcomes for both the employees and the clients, it can be achieved.
Richard Allen is a pricing consultant with Burcher Jenning and Validatum, as well as with pricing software innovator Virtual Pricing Director.
The article above is a summary of these eight articles that explain the issues – and the solutions – in far more depth:
Step #2 – Creating a Guiding Coalition
Step #3 – Developing a Vision & Strategy
Step #4 – Communicating the Change Vision
Step #6 – Generating Short Term Wins
Step #7 – Consolidating Gains
Step #8 – Anchoring New Approaches in Culture