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4 de Febrero de 2008

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Have You Hugged Your Clients Today?, by Terri Pepper Gavulic and Blane R. Prescott

Estratégicamente el hacer crecer las importantes relaciones con los clientes está lleno de beneficios

The General Counsel of a large company once said, “I feel like I should fire my primary outside firm every six months, because in those first six months they seem to prize our relationship and treat me like a King. After that I feel like yesterday’s news and the partners seem more interested in getting new clients than in my business. Maybe by firing them every six months I could always get that new client level of interest and attention.” Within law firms, while there are often Herculean efforts to acquire new clients, there is typically no equal focus on enforcing systems and behaviors that then manage these critical relationships. Often, existing clients are left up to individuals and the vagaries of ego, insecurity about relationships, and desire for control/security. It is rare for firms to systematically implement client maintenance and management programs institutionally. As a result, clients consistently say that their law firms:

  • Don’t seem to know them or understand their issues or industries very well;
  • Aren’t familiar with their full variety of legal needs;
  • Aren’t offering practical, commercial advice that fits their real world experiences; and
  • Seem to make little effort to get the full variety of available legal work.

Not surprisingly, we hear feedback from clients such as, “Don’t take us for granted. Just because we’ve always been a client doesn’t mean we always will be.” Clients are not selecting or retaining their lawyers because of any one factor, such as fees, but rather on numerous factors that impact value. For example, in interviews clients closely equate the cost of legal services with their perception of the value they are receiving with comments such as, “It’s not the cost, it’s whether you perceive you’re getting value for the cost.” Experience shows that if a client doesn’t perceive great value from their relationship with outside counsel they begin focusing more on the cost of the services and start treating their law firm as an undifferentiated commodity.

And yet, when law firms are faced with increasing challenges to remaining competitive – including a consolidating marketplace; larger, stronger competitors; increasingly more sophisticated clients; and encroachment from other entities providing services that were traditionally their exclusive domain – it makes sense to do whatever possible to secure and grow strategically important client relationships. Not only does this strengthen a firm competitively, it also addresses the wide array of threats to many lawyer/client relationships:

  • The increased efforts to consolidate outside law firms by law departments;
  • Increasing price pressures as clients segment their work into an ever broadening spectrum of high value and commodity work;
  • The increasingly skeptical perception of the value of legal work by clients;
  • The increasing level of technical and substantive sophistication required; and
  • The consolidation of client marketplaces.

By rigorously managing client relationships firms have an opportunity to stand out from a crowded field of competitors. It’s a chance to have greater control over the future security of the firm, and improves profitability, competitiveness, market position, and the cost of attracting new clients.

The effect on profitability – Studies show that there is a clear link between service and profitability. Clients who are highly satisfied are loyal and they are significantly more likely to repurchase than clients who are merely adequately satisfied. They are also more likely to refer you to other clients and to help spread your reputation through word of mouth. In addition, clients who are highly satisfied are less likely to consolidate their legal work and put it out to competitive bidding. It has also been shown that these highly satisfied, very loyal clients greatly impact the profitability of a firm – in fact, a 5% increase in client loyalty can boost profits 25% to 85% (Source: James L. Heskett, Harvard Business Review, “Focusing on Your Customer”).

The effect on competitiveness – In the hundreds of client interviews we conduct on behalf of law firms each year, clients frequently state that what gives one firm or lawyer a competitive advantage over another is the way in which they manage the relationship and excel at client service. These lawyers and firms who are constantly exceeding the expectations of their clients consistently get a spot on the short list of service providers being considered for additional matters, and will often be selected because of the way they differentiate themselves through client management – clients often perceive other factors as equal between their top choices, such as price and substantive expertise.

The effect on market position – By more formally managing client relationships firms have a chance to move up from doing routine or commodity work to doing higher level, more sophisticated work. At the commodity end of the spectrum, clients are buying services based on what is “better, faster and cheaper.” For high value work, clients buy based on expertise, results, how the services are delivered, and how the relationship is managed.

The effect on marketing – Various estimates place the cost to attract new clients at five or more times the cost of retaining existing ones. By managing existing client relationships, firms can spend less time pursuing multiple or new clients and thus can maximize the value and profitability of each existing client.

The client management struggle in many law firms is two-fold. First, management must make a strong case for an institutional approach. They must educate the lawyers about the imperative for formal client relationship management as a key way for the firm to remain profitable and competitive, and they must work towards changing the underlying behaviors that impede this approach. These changes come about gradually and require training, coaching, and the repetitious delivery of a consistent message from management. Often client interviews and feedback help speed up this process. It’s powerful when one hears a client say things such as, “I’m disappointed that they act like an affiliation of individual fee earners as opposed to an organization servicing a client.”

The second challenge is to understand and implement effective tools, systems, and processes to support institutionalized client management. There are many techniques available, some of which will be explored here:

  • Economic analysis– As opposed to many other industries, law firms do relatively little data mining and analysis.  (For those unfamiliar with data mining, it is the simple process of reviewing data about your client relationships, drawing conclusions about what makes the best/worst clients, and then looking for opportunities among your existing or potential client base.) Too often firms focus solely on short term profitability analyses, which end up being driven by compensation rather than broader strategic or marketing reasons. One benefit of taking a look across your client base – past and present – is that it can help a firm discover opportunities in the client base that have been overlooked before.  For example, an analysis may show whether clients are closely-held by a few lawyers or widely spread throughout the firm, which might then suggest a course of action for broadening these relationships with a cross-selling effort. Or you may find that the client for whom you devote an inordinate amount of development time and resources is actually your least profitable client, perhaps not appropriate for the extra efforts.  One law firm recently discovered that, despite the commonly held perception in the firm, their public company clients required more non-billable hand holding and marketing attention, received the most significant discounts, and provided the firm with the narrowest band of assignments, than their private company work.  Yet for years the Holy Grail of this firm’s marketing efforts was to pursue and land large public company work.
  • Market research – In this area, too, law firms are notoriously deficient when compared to other industries. But market research – formal or informal – is crucial to understanding the marketplace and your client base. One of the most desired characteristics that clients seek in their outside lawyers is for the lawyer to deeply understand their business and industry and be able to provide truly commercial advice, not merely the legal perspective. As one client said, “We want a common sense, laymen’s approach. We want them looking at our problem as a business issue and not just a legal problem.” Market research uncovers the information needed to be pragmatic and deliver highly valued counsel to clients. This is accomplished by reviewing websites, annual reports, media accounts, financial data, and competitors. Other types of market research are also useful for a formal approach to managing client relationships, such as competitor analyses to learn who is representing specific clients or industries.
  • Client feedback – Perhaps the most essential ingredient of client relationship management is a systematic, routine strategy for obtaining and using client feedback. Generally, face-to-face approaches work best, and a firm’s program should be a combination of:
    • Visits from senior management communicating the importance of the client to the firm;
    • Regular visits from the relationship manager(s) to assess the relationship, talk about satisfaction with the handling of current matters, and to learn of developments and trends in the client’s business and industry; and
    • Formal interviews conducted by a neutral, trained interviewer to take an objective look across the firm’s entire client base and to obtain strategic, and candid input from individual clients that can be then applied in a more practical firm wide approach.

Too often law firms think of doing client interviews solely as a marketing exercise. Client interviews should explore a broader host of topics such as the factors which principally affect legal services buying decisions; criteria perceived as critical in gaining value from legal advisers; perceptions about a firm’s performance against these criteria relative to the competition; and a deeper understanding of business trends that might change either the type of legal services bought or the way these services are rendered. With this feedback in hand, lawyers are better prepared to be pragmatic and match service delivery with client preferences.

  • Client audits – Client audits are necessary to learn and share information about clients, and are particularly essential to the success of client teams. An audit should be comprehensive and include a look at:
    • The client’s business issues and objectives;
    • The current level and types of service provided by the firm;
    • The future potential for client work;
    • Economic performance trends;
    • Client service quality standards and performance against these standards and expectations;
    • Information about the key people and relationships within the client organization;
    • Your competitors for the client’s work. For example, does your client seem to have a strong familiarity with your primary competitors? (If so, there is likely a reason for this familiarity that you should be aware of); and
    • The client’s competitive environment – who or what do they compete with and how does that affect their business and legal needs?
  • The audit information gathered is then useful for developing a client plan, a key tool for effective client relationship management. Plans vary from client to client, but may have certain elements in common such as:
    • Practical goals and objectives for 3 years (e.g., what can we realistically accomplish with this client in this time frame?);
    • A description of the economics, relationship and team;
    • A history of the relationship;
    • The current state of relationship (and don’t leave this determination up to the lawyer with the primary relationship – if a relationship is strong and healthy it won’t be undermined or threatened by having someone other than the primary relationship partner interview the client);
    • Needs and opportunities;
    • The competitive environment; and
    • Practical action steps, deadlines, responsibility assignments, and measurements of success (e.g., how will you know if you’ve succeeded?)

Once an audit and plan are completed, there are three other related activities that are important for ongoing success. First, the audit and plan must be managed and updated regularly. Second, the information must be warehoused in an easy to share format, such as in a CRM database and/or a document management system. Finally, it should be a requirement that any lawyer who handles matters for a particular client must review the audit and plan, and incorporate what they learn in their work for the client.

  • Client teams – More and more these days clients prefer to know that there is a strong, coordinated team behind their primary outside counsel relationships. Having an effective and high functioning client team in place addresses a number of issues of concern to clients, such as having enough depth and breadth to serve all of their needs without having to constantly re-train outside lawyers about their business; succession planning for their relationship with the firm; accessibility and availability of resources as soon as they’re needed; and cost effectiveness. However, rather than take a wholesale approach to the development and implementation of teams, firms should start small and slowly, testing and piloting approaches that will work within their culture and organizational structure. Client teams are most appropriate for strategically important clients who already have goodwill towards the firm and are willing to partner, and when there are partners and leadership within the firm who are fully committed to the effort. Teams should be driven by the needs of the client, not the firm. Only then will they be effective.
  • Quality control – The recent renewal of interest by many law firms in quality and client service programs is no coincidence. It is being driven by client demand. With so many relatively equal choices in the marketplace, clients want their lawyers to differentiate themselves with excellent service and high quality performance. This not only helps to ensure consistency, but also ensures that clients can develop sufficient confidence to use the firm for more than just one practice. It may very well turn out that the firms who are currently early adopters of formal approaches to quality control and client service will be the most profitable and secure in the future.
  • Compensation Alignment – This mean ensuring that your compensation system and incentives are not discouraging institutional client relationships and inappropriately encouraging mercenary behavior of “capture and ignore.” While compensation is a complex subject involving ego and issues of self worth, it is among the most critical elements in understanding how your firm relates to its existing clients and whether it will make the best use of those relationships over time.

With these tools in mind, firms are better equipped to deal with the ego, control and compensation considerations that have long determined how client relationships were handled and to begin to more formally manage their most valuable assets, their clients. Above all else – and underlying every technique described above – client relationship management is really about the client, not the firm or the individual lawyer. Lawyers need a truly client-centric mentality and must be willing to place the needs and viewpoints of their clients above all other concerns. By doing so, the benefits will be plentiful: happy and loyal clients; an increasing array of interesting work; a more profitable, competitive, and harmonious law firm; and more certainty of long-term viability.

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