Are Your Conference Speakers Teaching or Selling?

Raise your hand if you've attended a panel discussion at a conference and one of the speakers sounds suspiciously like he's selling a product or service rather than educating the audience about the panel topic.  Judging by all the raised hands, it's nearly unanimous that we've all been insulted (or is it assaulted?!) in this way.  This is a topic with which I have close  familiarity from a variety of perspectives and so I was interested to read the post at Sharon Nelson's "Ride the Lightning" electronic evidence blog (HT to @ronfriedmann for pointing it out) debating the pros and cons of allowing vendors to purchase conference speaking slots. The debate is a familiar one:  should legal conference panels be comprised solely of neutral parties such as academic types and buyers and users of legal services?  And if we allow vendors and sponsors and consultants to participate, parties who may have some commercial interest in promoting their products (or themselves), will this erode the quality of the content and turn the panel into a one-sided affair, or worse, a long infomercial?  Does the risk of commercialization increase when the vendors are also financial sponsors of the conference?

I've spent years managing sales teams or leading businesses that invested heavily in consumer education as part of the process of selling our products and services.  This meant that my team sponsored conferences or conference sessions and, yes, I've spoken on many panels which I had also sponsored.  I also led the business development function at a global law firm where I was considered a trusted insider and so I was asked to join conference panels to provide the buyer's or user's perspective on numerous topics.  I'm now a legal management consultant who's asked to speak regularly on conference panels as an independent observer debating issues of the day in our beloved legal profession.  Amusingly, on more than a few occasions, statements I've uttered as a consultant or as a law firm insider were deemed more credible and unbiased than the exact same statements I've made as a vendor.  Perhaps some audience members hear what they want to hear?

In fairness, I've had vendor colleagues who perceived any opportunity speak on a panel as an opportunity to pitch their product.  This type of behavior ruins it for the rest of us, and it usually stems from one of two sources:  the vendor representative is just that, a vendor rep, who knows little about the market dynamics beyond the features and functions of her particular product and therefore is in no position to offer consumer education on broader issues; or the vendor does such a poor job of consultative (a.k.a. "needs based") selling that he believes he gets one chance to pitch his wares, and as a result behaves in such a way as to make this a self-fulfilling belief.  I've written about the need for vendors to become part of the market they serve, to participate in the community alongside their clients, competitors and colleagues.  Sadly, many view their vendor role as a day job and when their sales call or booth shift is over, they want to do anything but spend time in their marketplace.

In Sharon's post she shares the inside scoop from a conference organizer who is incensed at the arrogance of vendors who try to buy selling time at the podium.  But conference organizers aren't without sin in this debate either.  One challenge with conference committees is that there is often little continuity from year to year.  On two separate occasions in my career my panel was rated the highest of all panels at the conference.  The following year, neither conference committee would take the time to even consider a follow-up session, a 201-level course, if you will.  In a more recent example, the new conference planners retained by a national legal organization specifically prohibited all but the most prominent consultants and vendors from participation in the educational panels, out of some apparent misguided sense that users and buyers are the only credible sources for peer education.  Does anyone really think that a neutral consultant, or an objective, education-oriented vendor, either of whom has spent time in dozens or even hundreds of firms, can't shed additional light on a topic as compared to a user who, almost by definition, has experience at just one firm?  Conference organizers, and in particular conference programming committees, tend to want to leave their mark, which often manifests itself in finding new speakers and not relying on prior speakers... regardless of how well they were received.  Eliminating all past speakers, and eliminating all but the buyers, are dumb ideas, but no more dumb than lazily inviting the same speakers year after year.

The moral of the story is that there are few hard and fast rules which apply when organizing conferences.  I should know, I've been the conference chair of a national legal industry conference, and I and my teams have organized (not sponsored, but ran) many dozens of conferences.  We often invited industry experts, some of them vendors, sometimes even competitors, to participate on panel discussions in order to present compelling educational programming.  However, we checked references of potential speakers -- starting with evaluations from prior speaking engagements and on multiple occasions polling past attendees to assess a speaker's propensity to sell from the podium.  The vendors who sell rather than educate are usually well-known.  Those who offer new, insightful, relevant contributions year after year should not be constrained because some poorly-trained hack in the same field conducted a product demo in lieu of a didactic approach.

I understand the emotion behind the pay to play debate.  But it's not the fact that a vendor sponsors a panel, or the fact that a panelist derives an income from selling products or services to audience members, that causes the problem.  After all, I've wasted as much time listening to biased users who, for example, resolutely believe their firm's technology implementation is perfect for everyone else on the planet, as I have listening to vendors pitch their wares.  The key is to discard prejudices and evaluate each speaker on his or her own merits.  And let's not be afraid to discard a panelist -- even after the program guide is published -- if during the rehearsals a panelist is incapable of educating rather than selling.  Do this a few times and the word will get around to the community:  send your best or don't send anyone at all.

As for me, my past teams often accused me of not once mentioning my company or my products. One colleague remarked dryly, "Tim, I don't think anyone would be offended if you thought to mention our company name, or mentioned that our company offers products that help users address the business issues you were discussing."  Of course, at one conference, immediately after the panel chair introduced me, an audience member stood up and  exclaimed, "I'll learn nothing from a vendor trying to sell me something!" and then he stormed out... before I had even said a word.  And I'm the one accused of having a bias?

Addressing the Martindale-Hubbell Question

One of the most common questions I'm asked as a legal management consultant specializing in law firm marketing and business development is whether there's any remaining benefit to participating in the Martindale-Hubbell Law Directory.  It's also one of the most common queries on the various law firm marketing discussion groups (here and here) and a common topic for legal bloggers (here and here) and journalists (here and here).  My expertise in the category comes from having led the Martindale-Hubbell large law and corporate business some years ago.  However, I typically remain quiet on the topic.  I'm told that, as an alum, critical commentary may be discarded as some sort of sour grapes and any positive commentary may be mistaken for misplaced loyalty.  The reality is, I may bring the most objective perspective of any pundit.  And it's from this perpective that I suggest that we're all asking the wrong question. Law firm leaders have an unusual reliance on precedent for decision support.  Invariably when assessing whether to launch or cease an activity, they will look to what other law firms are doing, particularly firms considered to be competitors or in their peer group.  There's strength in numbers, so if other firms are doing X, or discontinuing Y, this provides context and cover for us to do the same.  The problem with such thinking is that benchmarking works best in comparisons between similar entities, and law firms are as different as other businesses, even those in the same space.  (Do you think Mercedes-Benz closely follows what Kia is up to?)  Also, and not to put too fine a point on it, just because a respected competitor is doing something, or stops doing something, doesn't mean it's a smart decision.  The object lesson is that mimicking dissimilar organizations in dissimilar markets and in perhaps dissimilar geographies that offer dissimilar services to dissimilar clients, is hardly an exercise in sound business management.

Whether it's Martindale-Hubbell or any other directory, and there are many players in the space (here and here and here and here and here, to name just a few), the question for law firm leaders isn't whether other firms are participating or not, the question is whether our participation is an effective use of our law firm's capital.

A legal directory is but one component of a law firm's marketing mix, in the same way that a bowl of sugar-coated chocolate lumps (or is it chocolate-covered sugar lumps?) is part of a balanced and nutritious breakfast.  Rely on one component alone and your results may be less than desirable.  In a bygone era a legal directory may have been the only marketing tactic a law firm employed outside its own native market.  But today, there are countless marketing tools available, and the Internet provides potential access to countless buyers.  But access to such tools doesn't always mean they're used effectively.

Recall the appearance in the late '80s and early '90s of word processing and desktop publishing software programs, which provided average computer users with sophisticated tools to rival those of professional publishers.  What resulted was primarily an increase in poorly-designed, barely-readable newsletters produced by anyone with typing skills.  Want an example closer to home?  How many law firm leaders believe that ready access to self-help legal tools has eliminated the need for estate, bankruptcy and real estate lawyers?  Merely having the tools doesn't confer expertise.

This result also occurred when tools for web publishing became more accessible.  Recall the endlessly scrolling HTML pages of yesteryear, complete with blinking icons and spinning globes.  While both the tools and the professionals using them have improved over time, quite a few law firms continue to waste time and money because they deploy their marketing tools ineffectively.  Publishing a website but doing little to drive traffic from qualified buyers is much like printing a pretty, glossy brochure and advising potential clients to visit your office lobby if they want to read it.

Many law firm marketers and leaders focus on the design or even the usability of their firm's website, yet ignore the confusing area of search engine optimization (SEO).  Even many who invest in SEO efforts do so with the underlying assumption that their targeted buyers rely on the popular search engines to inform their buying decisions... it sounds logical, but is it actually true?  But it's not just about websites.  It's not too hard to identify the many associations and events populated by target clients.  Still, knowing this and actually sending lawyers to these events to participate are two very different things.

And this is where legal directories come in.  While law firms can do a lot of outbound promotion of their credentials, it's challenging and expensive to attract a lot of quality, and qualified, inbound traffic on a website.  Similarly, while law firms can send lawyers to mingle with potential clients, they can't send lawyers everywhere.

A sophisticated law firm marketing strategy plan will identify the ideal targets for the firm's offerings.  The subsequent tactical plan will outline specific actions to increase visibility with these targets, to demonstrate expertise and to convert targets to clients.  Reaching the target audience requires being visible in the places they visit, prominent in the publications they read and, of critical importance, being part of the consideration set when the buyer is ready to buy.  Some marketing tools are effective at generating awareness, e.g., advertising, sponsorships.  Others are effective at demonstrating expertise, e.g., speaking engagements, articles.  Some offer a little of both, e.g., websites.

Now let's play this out.  We've identified a target market, consisting of potential clients in a specific industry located in multiple jurisdictions globally.  We've purchased some search engine keywords to drive traffic to our website, we've secured a speaking engagement for one partner on a panel at a leading industry conference, another partner has been invited to contribute a monthly column in a trade publication, we publish a blog of legislative and regulatory changes impacting this industry, we send several lawyers to various industry association meetings, we advertise in multiple trade publications and we sponsor quite a few industry events.  The aggregate cost of these tactics is $250,000 -- assuming our search engine key words aren't in high demand, or the cost could easily reach ten times this amount.  And lest we quibble over the amount of this imaginary investment, trust me when I suggest this is a very conservative estimate.

Now imagine there's a legal directory that also targets this industry.  It offers a monthly e-newsletter containing lawyer-authored articles to thousands of opt-in industry decision influencers and decision makers.  A section of the legal directory website is dedicated to showcasing the unique talents of the law firms serving this industry.  The legal directory search engine allows industry insiders to research law firms claiming industry expertise, and provides users with quantifiable evidence of expertise to help differentiate from those law firms merely aspiring to enter this market.  Imagine that visitors to the legal directory website can click through to the member law firm's own website, and this traffic represents a meaningful portion of overall traffic to the firm's website, with the added bonus that these inbound referrals clearly represent qualified and quality traffic, and not, say, law students trolling for employment opportunities.  And don't forget about the legal directory's ranking of law firms specializing in this industry, compiled by editors who conducted independent and objective research.  In addition, perhaps the legal directory allows clients to provide commentary about the capabilities and service posture of the law firm, so that other interested buyers can make more informed decisions.  And maybe the legal directory forms an alliance with the leading industry association to embed a lawyer search engine on the association website.  Perhaps the legal directory offers online discussion forums where lawyers can contribute to substantive discussions in their practice area and engage potential clients in a running dialog.  And finally, what if the legal directory can provide statistical evidence that the sum total of its efforts influence buying decisions?  Can you quantify the influence that your other marketing activities have on your target clients' buying decisions?

There may not be a legal directory that does all of these things, or at least all of these things for all practice areas and industries.  But some may provide a host of meaningful opportunities to increase visibility and demonstrate credibility to a targeted market.  And that's the whole point.  All legal directories aren't created equal, and just because one doesn't suit your firm's needs doesn't mean another won't.  To be clear, in some cases there may not be any legal directory that meets your needs.

None of the above are unique tactics that a law firm itself couldn't adopt.  However, the scale of the investment to replicate the volume and quality of the traffic generated, to reach such a high number of qualified potential targets, and to sustain this visibility and demonstrate this expertise over an extended period of  time, will generally cost substantially more than the modest investment above.  Imagine if a law firm could obtain access to these benefits by participating in a legal directory for $10,000.  Or $50,000.  Or maybe it's $150,000.  Perhaps it's $250,000.  This price may seem high as a single point statistic on an invoice, but is it?

The point is, the value of such an investment can be effectively measured only by comparison to the alternatives.  If the firm can find a way to reach the target audience in a similarly effective manner at a lower cost, it should run, not walk, to do so.  There's no rule that says a law firm should invest in any legal directory, any more than it should invest in a website or in publishing client alerts or printing glossy brochures.  It's merely a function of how buying decisions are made with the target market, and what tactics influence buyers and buying decisions.  Some firms -- though thankfully fewer than in previous years -- still believe that marketing is about answering the phone in a timely manner.  And for some firms, this may be so.  For the rest, marketing is about investing thoughtfully in tactics that will provide a return.

So what does this mean for the "Martindale question?"  The analysis should contain a disciplined approach to weighing alternatives, comparing the costs of reaching targeted buyers through various means.  If a law firm leader is convinced that the firm's particular target audience can be delivered without investing in Martindale-Hubbell's legal directory, then this is an easy decision.  If the analysis suggests that Martindale-Hubbell can be a multiplier to the firm's own marketing efforts, and through careful negotiations the cost to participate is tolerable, then this is also an easy decision.

Likewise, it's okay to opt out simply because you want to save money and since others are doing so it's seems like a safe decision.  But let's not pretend it's a rational marketing decision when it's merely cost cutting.  It's also okay to invest time and energy in directories that provide little access to clients, but that allow the partners to boast of obtaining a top ranking in their practice category.  But again, let's not pretend we're making a rational marketing decision.

Many pundits will talk about the scourge of legal directories, or the demise of Martindale-Hubbell in particular.  My approach is more circumspect when advising my law firm clients.  Such investments are derived from analysis, not hysteria or conventional wisdom.  Even we supposed experts should be ignored if we enter the discussion with a pre-formed opinion.  I certainly don't feel qualified to advise a law firm leader of the effectiveness of his or her marketing investments until I study what he or she is trying to accomplish and what alternatives are available to achieve these objectives.

Some years ago a law firm hired a chief marketing officer from outside the legal profession, and she had no prior knowledge or pre-conceived notion of the effectiveness, or lack thereof, of legal directories.  At first she was a client but over time we've become friends.  When we first met she relayed that many of her partners and staff encouraged her to drop all directories outright.  Instead, she commenced an exercise to analyze the reach and effectiveness of each of the firm's existing legal directories, and invited representatives of other legal directories to provide quantifiable evidence of their product's reach and effectiveness.  In the end she canceled many, added a couple, scaled back a few, and augmented some, without regard to internal politics or favorites.  She even declined a fully-paid trip to speak at an industry conference, sponsored by one legal directory provider desperate to influence her decision.  Her announcement memo to the partners overseeing her analysis was detailed and disciplined and effectively eliminated any arguments, so everyone could go back to work.

I recently had coffee with my old friend and I asked her how it all worked out, with several years of history to analyze results.  She laughed and said that not every decision has worked out in the long run, but she feels confident that her analysis is as sound as it can be, and certainly more effective than her firm's competition.  She's now earned the credibility to act quickly and without onerous committee oversight, so each time one of her major competitors makes a hasty decision to reduce its spending on sponsorships or advertising or directories in areas her firm targets, she tends to increase her investment in order to capture the traffic the competition has given away.  This works for her, and though it may not work for the rest of us, how many of us are prepared to submit our decision criteria against hers to justify our marketing decisions?  I didn't think so.

One final note: the Martindale-Hubbell discussion isn't complete without acknowledging that the organization and the product offering has changed dramatically in recent years.  Countless wannabe pundits have concluded that "no one looks for lawyers in books any longer!" as if they're the first to offer this startling revelation.  If your analysis of legal directories, whether Martindale or any other, fails to consider the online and in-person components of the value they deliver (or claim to deliver) then your analysis is outdated.

Update:  Based on the many comments this post has generated over time, I'll make two additional points:

(1) Some directories are vanity publications, with no redeeming feature other than the ability for a lawyer to say he or she has achieved some professional distinction, albeit of dubious value.  The various state bar associations have started to look more closely at legal directories in an effort to help consumers distinguish between those that provide a valuable service and those that are mere puffery.  Not all legal directories can withstand such scrutiny.  Sooner or later, every legal marketer is asked to support a lawyer's "nomination" to the "Tall, Blond-Haired, Left-Handed Lawyers of the Upper Midwest" directory.  Nothing wrong with a little vanity press for a needy lawyer, but once again it's important to distinguish between such actions and actual strategic marketing.

(2) A common objection to participating in a directory is what I call the "mall rebuttal" which is usually some version of "We prefer not to advertise or promote our firm any place that our competitors are doing so."  The logic, presumably, is that if we promote ourselves in close proximity to competitors, we risk driving our potential clients to the competition.  If this were actually true, then there would be no malls, or shopping centers, or auto dealer supercomplexes.  In other words, if you can identify a venue where qualified potential buyers in a buying mode are routinely visiting, why would you reject this venue in favor of a isolated outpost on the edge of town than can only be visited by special arrangement?

As I stated above, I'm stridently neutral on whether a legal directory is an effective marketing tactic for a law firm.  I can't positively declare that a given directory is a terrible idea, or a wonderful idea, unless I know what your firm is trying to accomplish with its marketing strategy, and the cost of the alternatives available to do so.  If you conduct this analysis, you may be surprised to learn that some directories will survive the scrutiny, and others will fail the test.  You may also find that quite a few other common marketing tactics, when held to a standard of proving ROI, are not productive investments.  But measuring ROI is a topic for another day...

Procurement for controlling cost - the cure or the affliction?

There are few topics that generate universal outcry in mixed company, but among these are the number of poor drivers clogging our roadways and the vexing role of the procurement function in modern business.  Curiously, another trait these two share is that each of us, at one time or another, is the object of anothers' ire when we're the poor driver or the buyer, but we tend not to notice. Wikipedia offers a sound albeit unsourced definition of procurement:

Procurement is the acquisition of goods and/or services at the best possible total cost of ownership, in the right quality and quantity, at the right time, in the right place and from the right source for the direct benefit or use of corporations, individuals, or even governments.

Taken in this light, who could argue that procurement doesn't serve a vital role in the conduct of business?  Too often, alas, procurement draws fair criticism as the business function that values cost savings over long-term relationships; that reduces all goods and services, no matter how value-added, to commodities which can be differentiated on price alone; and that relies on negotiating tactics one can imagine being employed by Attila the Hun when dealing with vanquished foes.

But these are epithets we typically direct toward the procurement managers negotiating the value of the services we offer.  How dare our client's procurement manager not recognize the clear distinction between what we offer and the sub-standard offering of our inferior competitors.  On the other hand, when we're negotiating with our suppliers, those charlatans who try to drain away our hard-earned profits, then by all means our own procurement manager needs to take an aggressive negotiating stance to protect our business.

Can't we all just get along?!

Procurement is a necessary and important function in the conduct of business.  But there is an inherent tension in carrying out this mission.  The Institute of Supply Management, an association of procurement professionals, asserts that its members must promote positive supplier and customer relationships while upholding one's fiduciary responsibilities and deliver value to one's employer, but do so without the appearance of unethical or compromising conduct.

Spend enough time in business and you'll encounter an evil procurement manager.  I have fond memories of the procurement manager who was hired several months after my team negotiated a mutually successful long-term agreement with our client.  She called our accounts receivables clerk to demand assurances that the contract would be abandoned in lieu of one more favorable to her employer, then threatened a lawsuit when the frightened clerk squeaked that she needed to speak to someone higher up the food chain.  By the time I was engaged, the procurement manager was practically frothing at the mouth, spouting sobriquets like "But you have to do what I say, I'm the customer!"  We were sure to carefully document our conversations for future use when, as sure as night follows day, she proudly announced to her superiors that she had won concessions that we hadn't even discussed let alone agreed to.  "I'm not singling you out, you understand" was her explanation, "My job is to reduce our vendor costs no matter what it takes."

Therein lies the challenge.  This procurement manager did not have a full understanding of the total cost of ownership.  As we've written in this space previously, the cost to an organization for any product or service is more than merely the price tag.  Selecting Product A because it has a lower sticker price than Product B is hardly a wise choice if Product A is incompatible with our existing systems and therefore incurs significant customization to function effectively.  Likewise, a lawyer charging $425 per hour but who has a terrible track record of staying on budget may be a worse bargain than the lawyer charging $650 per hour but whose budgeting capabilities are precise.

And one must consider switching costs too.  If I hire a plumber to fix a major leak from my hot water heater, and in a fit of pique over high costs I fire the plumber while the parts are scattered across the floor, the leak will continue to generate costs in the form of water damage while I seek a replacement plumber at a fraction of the cost.  Changing lawyers mid-trial, relocating your office across town to save a few dollars per square foot and scrapping a software implementation after a significant investment in training in order to find a lower per seat license cost are examples of business decisions that run the risk of emphasizing price tag shopping over the total cost of ownership, if we don't fully think through the implications and downstream impacts of our decisions.  In our above anecdote, the procurement manager demonstrated no understanding of the concept and therefore damaged valuable business relationships in her quest to save a few dollars.  If your supplier is fungible, damage away.  If you may need that supplier again, take a long-term view.

Those who sell services which aren't commodities, or at least those who aren't willing to admit they sell commodities, fear the procurement manager who reduces all potential suppliers to the lowest common denominator -- namely price -- without understanding the context.  But many service providers are lazy and unhelpful in demonstrating why their services are different and therefore more costly than the alternatives.

A well-trained procurement manager will seek to unpack the value in an offering.  For most products and services offered in a moderately efficient market, there will be a base cost to deliver services below which no supplier can reasonably sell its product and still make a sustainable profit.  And in most competitive markets, there isn't wide disparity in profit margins between competitors.  So if we can assume that within reason everyone can make and sell the same product for roughly the same cost, then why are there differences in price?  This is the procurement manager's quest -- to understand and quantify these differences without the undue influence of past relationships or conventional wisdom.  Just the facts, ma'am.

In this visual, we see the base cost.  A good procurement manager can even identify the increased cost of a comfort brand.  In many lines of business there's that one reference point, a supplier at the high end of the food chain, one whose prices are higher but whose reputation is impeccable, so that if I purchase from them, I'm immune from criticism for making a poor choice of suppliers.  Let's call that the "brand safety" factor.  There's no shame in acknowledging that sometimes we make safe purchases and that we pay extra for that safety.

What remains is an "X" factor, or an unexplained difference between the costs of two apparent substitutes.  A good procurement manager will seek to explain and potentially reduce this difference, first by ensuring that the product offers what is needed and not more, nor less.  This is the true function of an RFP (a request for proposal), to ensure an apples to apples comparison of alternatives.  Absent clear guidance on what is needed, it's a challenge to compare alternatives.  A favorite tactic of some former colleagues of mine who should be elected to the Sales Hall of Shame is to "throw in" as many unnecessary items as possible, allowing them to reflect a much higher starting cost and then apply discount after discount to achieve what appears to be a compelling and substantial "effective discount" off list price.  In the end the customer may get what he wants but at a higher price, and by the way he wins a lot of crap he doesn't need.

A law firm that can demonstrate its prowess in managing to a budget through effective project management, that keeps the client fully informed of any changes to expectations, that staffs appropriately and doesn't "overwork" matters or expect clients to subsidize young associate training, is in a better position to present clear, quantifiable evidence of its higher rates.  A software vendor that has documented compatibilitywith existing legacy systems, thereby keeping integration costs down, may have a strong case for higher license fees.  In each case, the approach reduces total cost of ownership.

Those sellers who have the most to fear are those whose price points cannot be reasonably be justified, or quantified by an independent outsider.  It's not enough that my CEO and your managing partner are golf buddies.  It's not enough that we've done business for a long time.  If I cannot unpack why your rates are significantly higher than some apparent substitutes, and you can't articulate it either, then I'm compelled to explore alternatives.

But let's not kid ourselves.  We sometimes forget these principles when looking at our own cost structures.  It's a sad but not uncommon situation that large buyers will squeeze their defenseless suppliers.  Some years ago I hired a consultant to handle a project when the internal resource dedicated to the task resigned abruptly.  I had moved on by the time the project was complete, but I learned that my former law firm employer gave the consultant a 60 cents on the dollar take-it-or-leave-it offer to settle the final invoice.  The law firm's procurement manager reportedly dimissed the injustice: "We're a global law firm.  What are you going to do, sue us?"  The sad irony is that the law firm took this action as part of a massive cost-reduction effort, initiated in part because its own corporate clients were spending less, at the recommendation of the corporate procurement managers.  Justice served?  Or just a sad cycle of frustration?

When your organization comes up against a procurement manager, this is a good opportunity for some self-examination.  Are we able to articulate why our costs are higher than our competitors?  If not, why not?  Rather than assume our competitors are using predatory or lowball pricing to steal work away, is it possible that we've failed to recognize the inexorable march to commoditization of our products and services?  Do we assume our brand carries with it more prestige and "safety" than the market?  Maybe our competitors have devised some innovative ways to deliver more for less.  Their lower pricing may reflect this innovation, suggesting they can remain profitable at a lower price point.  And yet we assume they're losing money because we can't offer similar savings.

When hiring a procurement manager, focus them on total cost of ownership.  Saving pennies on discrete costs is fine, so long as the impact of these choices doesn't result in higher fees over the long run.  In organizations with many silos, a procurement manager may be in a unique position to recognize opportunities to consolidate services, to seek lower-cost alternatives, to adjust business practices to save money.  This means they put a spotlight on us as well, and not just on our pencil vendor.  If we're serious about controlling costs, it has to start with us.

If you're a procurement manager, please stop issuing RFPs asking 127 questions for which you have not a clue what you'll do with the responses to 120 of them.  Be clear that your role is to maintain positive business relationships with valued suppliers, but help identify those whose costs are not aligned with the value delivered.  Times change, prices increase, needs fall out of synch with what's sold, but except in a few cases the sellers aren't charlatans and the buyers aren't ignorant weasels trying to extort kickbacks.  Shine the light of day on the commerce of your business and start with those areas which are most easily recognizable as commodities.  As your colleagues begin to trust your process, you can then move on to the more sensitive areas, where we business managers tend to protect our turf.

Let's all be prepared to take our medicine.  For some of us, the increased use of procurement managers may be a miracle cure leading to lower costs and new business opportunities.  For others, well, the cure may end up killing us.

Demystifying Outsourcing for Corporate Counsel

I was recently asked to contribute an article on the topic of outsourcing to the corporate counsel section of the Philadelphia Legal Intelligencer, the oldest law journal in the United States.  Below is the published article copy, followed by additional commentary developed while conducting background research for the article.

The Legal Intelligencer

By Timothy B. Corcoran

September 23, 2009

Corporate law departments face an unprecedented level of pressure to reduce costs, to do more with less and to deliver a quality legal product to internal corporate clients. In days past, as the saying goes, the chief legal officer would offer executive management a choice: “We can do the work well, we can do it quickly or we can do it cheaply. Pick two.”

Today’s CEOs want it all, and who can blame them? Every business function faces a relentless drive to eliminate defects, improve production capacity and accelerate time to market. Law departments have been somewhat sheltered from these pressures, in part because of the unpredictable nature of legal issues, much to the chagrin of executive management. Adding to the tension is the trickle-down effect of an unprecedented growth rate in law firm revenues over the past 10 years, which, according to a recent study by the Corporate Executive Board, increased 75 percent while other supplier costs increased by an average of 25 percent.

But is it only about cost? Will executive management be satisfied if the CLO extracts substantial discounts from its primary law firm suppliers or migrates some work to lower-cost regional law firms? According to some business leaders, this will simply no longer suffice.

Imagine the boardroom presentation by the chief marketing officer in which he or she provides a two-year revenue outlook for multiple global product lines, reflecting varying levels of demand and market share. This is followed by the head of manufacturing, whose production forecast incorporates the probability of interruptions in raw material supplies, ranging from droughts in South America to pirates off the coast of Africa to labor unrest in Asia. The treasurer, in turn, presents a plan designed to hedge against the risk of currency fluctuations.

Then the chief financial officer presents an eight- to 10-year cash flow projection for a pending acquisition. Raise your hand if you would like to be the general counsel in this setting who admits that since few variables managed by the legal function can be predicted with any certainty, and because of increasing supplier costs, the legal department will be submitting a 20 percent budget increase over last year.

Small wonder, then, that the drive for improved metrics and efficiency has arrived in the law department with some fanfare, and not a moment too soon. One recent innovation available to the chief legal officer is outsourcing, or assigning work to specialist providers in the United States and abroad that offer non-traditional legal services.

But is this really so new? Hasn’t it been the case all along that the company, which manufacturers widgets or develops software or provides business services, has outsourced its legal needs to specialist providers, first within the legal department and then to outside law firms? The corporate legal function serves both an operational and strategic role, but there are few business owners who dream of a sizable and well-run legal department as a strategic asset in the same way that they dream of, say, a world-class sales force. So let’s acknowledge that we’ve already been engaged in outsourcing, and then let’s take a harder look at what new options are available.

First, it’s helpful to define terms. Outsourcing refers merely to the delegation of work to another organization, where it can presumably be carried out more efficiently. Offshoring typically takes place when the other organization is in another country. Insourcing involves delegating work to another specialized group within the same organization. The delegation of work to outside counsel is an example of outsourcing, as is the use of contract lawyers to handle overflow volume in document review. Hiring legal research experts in India is an example of offshoring, as is moving a customer service call center to Ireland or a graphics design team to the Philippines. And insourcing, of course, is exactly how most companies perceive the legal department — an internal organization with specialized skills.

Most companies, and indeed most law firms, have engaged in business process outsourcing, or BPO, for some time. Whether it’s operating the corporate cafeteria or the mailroom or hiring a third party to ship goods, organizations have learned that subject matter experts can generally take over these tasks with minimal fuss and at a lower cost.

Many law departments have found that hiring contract attorneys provides an excellent opportunity to test their appetites for outsourcing, before establishing any offshore relationships. Market research firm Gartner estimated the 2007 BPO market to be $173 billion. The potential for cost savings in the legal function is also enormous, in relative terms. In a recent move that raised eyebrows in the global legal market, Australian-English mining conglomerate Rio Tinto announced that it expects to save $25 million annually, or 20 percent of its legal budget, after hiring a legal process outsourcing, or LPO, firm to perform routine legal tasks.

Critics declare that legal matters are much more strategic in nature than administrative functions and can’t be easily delegated. After all, do you really want the company to rely on the lowest-cost provider when it comes to a “bet the company” transaction or litigation? But therein lies the issue at the heart of the matter. Chief legal officers have long known that even the most important legal issue facing the company is composed of multiple smaller components, many of which involve routine, commoditized tasks. Law firms are expensive suppliers in part because they tend to treat all aspects of an important transaction as high value and high cost. With some exceptions, most lawyers believe their particular area of expertise is a premium offering housed within a firm that provides other premium services. It’s other lawyers in other firms who provide commodity services.

The truth, as usual, lies somewhere in the middle. The legal profession is not typically viewed as progressive in its business practices. However, the overwhelming growth of LPO has raised a number of questions about the practicality and ethics of relying on outsiders to provide legal services. Isn’t it a disservice to the client, possibly even unethical, to rely on low-cost providers for important legal matters? Not so fast, according to the American Bar Association. In Formal Ethics Opinion 08-451, the ABA declared: “There is nothing unethical about a lawyer outsourcing legal and non-legal services, provided the outsourcing lawyer renders legal services to the client with the ‘legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.’”

So how does a chief legal officer ensure a quality work product from an outside provider? The following are a few suggestions:

• Test-drive the work product of an LPO provider on a single project before engaging them for the long term. Quality providers will invest in significant ongoing training for their workforce and should welcome the opportunity to demonstrate their quality.

• Develop objective measures of quality. This can be achieved by working with the LPO to develop a detailed model of operating procedures for the required work. Once these procedures are in place, it’s easy to establish a quality template that tracks deviations from the desired outcome.

• Institute standard project management techniques like those used every day in most organizations to manage technology initiatives and manufacturing operations.

• Manage LPO relationships with diligence. Don’t lose focus after the initial engagement discussions. Be aware that your LPO staffing team may change over time and insist on the same level of training for team members rotated in later to maintain consistent quality.

• Consider cultural implications. If you offshore, it’s important that your LPO liaison have solid English speaking skills as well as an understanding of the local culture. And conversely, you must communicate your own company’s culture and objectives.

In the end, outsourcing can generate far more than labor arbitrage. Ray Bayley, co-founder of Chicago-based NovusLaw, in an interview on the “Adam Smith, Esq.” blog, discarded that as the primary objective of LPO: “We’re not in the business of ‘lifting & shifting:’ Taking what’s done here and moving it to a cheaper jurisdiction in order to do it the same way. That’s a brute force approach that adds nothing to the quality, reliability, and repeatability of the work.” Instead, for example, a routine service like document review can be studied and modeled and the multiple variables influencing the cost can be identified and quantified, thus reducing the cost and adding efficiency and value.

What’s to prevent a legal department from embracing this sort of “Lean Six Sigma” approach to analyzing and improving its own legal services? Nothing at all. In fact, legal departments that adopt these techniques will be better positioned to identify, evaluate and select appropriate outsourcing providers. Among the hidden benefits to outsourcing is the familiarity the client generally gains regarding business process improvement techniques. Once ingrained into an organization’s operational mindset, it’s difficult to revert to a blissfully unaware state where efficiency and quality are abstract concepts.

It would be remiss to conclude without addressing the emotional response outsourcing and offshoring can sometimes generate. Whether from organized labor or politicians or trade groups, it’s not uncommon to hear opposition to outsourcing, particularly when it’s perceived as sending jobs overseas. The Economist recently declared offshoring to be a win-win phenomenon, at least on a macroeconomic scale. But the backlash has led to a reversal in some industries, such as the return of technology call centers that lowered costs but also lowered customer satisfaction rates. Many LPO providers offer services across the United States and in English-speaking countries to help mitigate these very concerns.

Human nature tends to question that with which we are unfamiliar. And to many, it’s an uncomfortable realization that some sophisticated legal processes can be analyzed, broken down into constituent parts, delegated to disparate providers and returned with higher quality, lower costs and greater predictability than we’ve been accustomed to. But with change comes opportunity. Imagine tomorrow’s boardroom presentation by the chief legal officer, who can now submit, with some certainty, the costs and implications of ongoing legal matters. Even better, imagine having the capacity to focus on matters of more critical long-range interest to the company, demonstrating that a well-run legal department is a significant strategic advantage. •

Copyright 2009. Incisive Media US Properties, LLC. All rights reserved.  The Legal Intelligencer

Click here to see the article on the Legal Intelligencer site.  (Subscription may be required.)

There are numerous sources to help understand the changing legal landscape, with more arriving each day.  I found a white paper “Future Law Office” distributed by Robert Half Legal, the legal professional placement division of Robert Half International, to be very informative.  While its position may be considered somewhat self-serving, the white paper describes the very real use of contract lawyers by in-house legal departments as a means of testing whether they can obtain quality legal work product through non-traditional means.  In fact, this has the same effect as the approach taken by many corporations who “test” potential new hires by first hiring them as a temporary employees.  And why not test the goods before purchase?  Rocky Dhir, President of Chicago-based Atlas Legal Research, invests a significant portion of his resources in training, so he encourages potential clients to take a test drive.  “Actually test the work product of any LPO provider before engaging them long-term.”  Selecting wisely is critical, because “picking the wrong firm can end up being more expensive.”

Suhasini Sakhare of Zeta Intelex recognizes the challenge in demonstrating quality in a profession that tends to not have objective measures of quality.  Her organization follows a rigorous process to ensure the highest-quality output, using as a foundation very detailed operating procedures based on the client’s needs.  These are often developed through repeated observation, as “most clients who should be intimately familiar with their own legal processes actually aren’t.”  Once these procedures are in place, it’s easy and intuitive to establish a quality template that tracks all deviations from the desired outcome.  It may come as a surprise to Biglaw partners, but not to many clients:  the quality of the legal work can actually be improved by outsourcing due to the intense focus and quality controls in place.  Of course Biglaw legal work product is routinely high quality, but absent objective measures of quality clients are no longer willing to pay high rates on reputation alone.

It’s not as challenging as one might think to implement quality control processes within a law firm.  This is project management 101, after all, and the techniques aren’t limited to managing technology initiatives and manufacturing operations.  Ron Friedmann, senior vice president of marketing for Integreon, ran practice support for a large law firm and was CIO of another.  In his view, “There are many parallels between managing projects and managing a company’s legal strategy.”  He elaborates, “Law departments can reduce costs by explicitly acting as general contractors to solve company legal problems. Like any GC (general contractor that is, not general counsel), a law department should consider what resources it employs full time and what it sub-contracts.”  I’d go even further and say that outside counsel can also act as project managers and even general contractors.  Why couldn’t a Biglaw relationship partner serve his clients needs by coordinating internal services with outsourced services on behalf of the client?  We do it already, quite regularly… local counsel, anyone?

Like any relationship, the connection between an outsource provider and an in-house legal department takes time and effort to maintain, even with good metrics and processes in place.  Stephen Seckler, a lawyer and consultant, advises IPEngine, an IP outsourcing firm with operations in India.  “It’s important that your liaison have solid English-speaking skills as well as an understanding of the local culture.”  John Roney, President of Applied Dynamic Solutions of New Jersey, has long experience with managing outsourced IT projects, and suggests the lessons are universal.  “Many projects get off to great starts but when the spotlight is off, there is often a break in the continuity of the team, and sometimes new team members don’t receive the same rigorous training.”  He also urges companies to treat the outsource vendor as a part of the team.  “This means attending staff meetings to understand the company’s culture and grasp the company’s objectives.”

We’ve focused primarily on the challenges facing corporate legal departments and Biglaw.  “Much of the LPO industry is geared to serve the needs of large corporate legal departments and large law firms, but there’s a lot more to it,”  declares Ed Scanlon, president of Total Attorneys, which provides contract lawyers and paraprofessionals to handle general legal work overflow and specialized services, such as bankruptcy case management, to small law firms.

The results so far suggest that non-traditional means of delivering legal services, via contract lawyers or outsourcing or offshoring, should be an essential aspect of a law department’s tool kit in the future.

Fungibility - An Organizational Malaise

I'm a longtime fan of Stanley Bing's irreverent take on business in his Fortune magazine column.  As with many columnists, he takes a slightly edgier tone on his accompanying Bing's Blog.  In a recent post Bing discussed the critical employee, the one with specialized knowledge, the one who is irreplaceable.  It called to mind the old joke:

A factory machine shop mechanic retires.  Some weeks later, the machines at the factory stopped working. No one can get the equipment running again, and the factory is losing hundreds of thousands of dollars every day. The factory manager call the retired mechanic back in as a last resort. The mechanic walks through the whole place then tells the factory manager, "It'll cost $50,050 to fix the problem." "Anything!" he cries. So the old mechanic walks onto the factory floor, approaches a complicated series of pipes and valves, and taps a stuck valve with a small hammer. All of the equipment instantly comes online and starts humming. The factory manager exclaims in surprise, "You're charging us $50,050 to tap a pipe?"  The old mechanic responds calmly, "No, I'm only charging you $50 to tap the pipe; the $50,000 is for knowing which pipe to tap."

Too often, we fall into the trap of believing that we alone know the right pipe to tap.  This malady applies to assembly line workers, secretaries, salespeople, corner office managers, executives and even to the CEO.  In my career I've encountered this multiple times.  There was the sales manager who bragged that he "closed every one of his sales team's deals personally" and the finance manager who proclaimed that "the revenue recognition model is so complex, no one else can run the reports."  I'm sure that they believed they were establishing job security.  After all, if no one else can do the job, then they should have jobs for life.

There was once an unwritten rule in sports: you never lose your starting position due to injury.  Then in the early 1990s, Joe Montana, the 4-time Super Bowl winner, was injured and his replacement, Steve Young, had successful starts and ultimately won the starting job even when Montana was healthy again.  Montana left in a fury and was never as dominant again; Young brought another Super Bowl win to the franchise over several successful seasons.  In sports as in business, the organization or the team is what's important.  If you are so critical to the team that we can't live without you, then the team's highest priority is to find a way to live without you.  Or, in other words, your irreplaceability makes you highly risky, and, therefore, replaceable.

This sounds counter-intuitive.  After all, why would we risk offending a star performer and potentially hasten his or her departure, just to ensure that we have someone ready to take his place?  It's all about reducing the organization's risk.  If I can't live without you, then I can't live with you.  If your knowledge is unique and specialized and mission critical, then my obligation as a business owner is to add redundancy.  In many cases we find that these star performers aren't as unique and specialized as they claim.  But in other cases, we find that they are as important as they say they are.  It doesn't matter.  The organization must reduce its risk by spreading that knowledge.

Like all aspects of organizational behavior, it's a balancing act.  Do some managers mistakenly assume that everyone is fungible, that no one has specialized knowledge?  Yes, it happens all the time.  An old employer of mine routinely re-assigns salespeople to new territories and product lines, without any apparent regard for the importance of the relationships the salespeople have established.  And many companies lose good people and solid performers during layoffs, because they try to spread the cuts evenly rather than measuring the relative contributions of those impacted.  But just as risky is allowing the organization's success to be funneled through one person.

In Bing's anecdote, one of these irreplaceable employees recognizes his importance and makes some outrageous demands.  His plan backfired, and his manager began planning for a different future:

“Otto has succeeded in doing one thing,” he said darkly. “He’s made it necessary for me to think about life without him. Once I started thinking that way, I realized it was possible. Now I’m thinking, what do I need this aggravation for… to pay this much for the job that cost me so much less last year? Sure, it’ll be hard to replace him. But nobody is irreplaceable. Sometimes I have to remember that.”

Good business owners don't allow themselves to be painted into a corner.  It's important to grow your people, to provide them training so that they become subject matter experts.  But at the point where this specialized knowledge becomes mission critical and no one else can perform the role, then it's time to share the knowledge.  Done right, the expert then moves up to bigger and better things.  Whether or not we actually have a plan in place to keep star performers moving up is a topic for another day.

Update: According to Bing, Otto ultimately received the raise he demanded.  I faced this same situation some years ago when I met a valued employee's aggressive demands.  I then spent the next year making him dispensable, and eventually he moved on.  While some thought it was retaliation, it actually resulted from his raising my awareness to the shocking fact that we couldn't operate without him.  Had he never made the outrageous demands, he might still be there today.