Law firms: Developing Client Assets

“Back to clients!” should be the rallying cry of all professional service firms. Given the current situation – with financial assets melting away like snow on a hot day at major corporations, financial institutions, and insurance companies –, clients, along with human-resources assets (which we won’t be discussing here) are becoming more and more the assets businesses should be building their growth on, because they are the ones that are synonymous with the real, as opposed to the virtual, economy.

After so many years of booms – perhaps “bubbles” is the better word – and uninterrupted double-digit growth for certain service firms, it’s now become clear that the cruel law of economic cycles is again proving true today. But there’s one small problem: During periods of growth, service firms tend to focus on internal factors as the way to optimize their internal organization and delivery processes (high recruiting levels, strong development of internal functions like marketing, communication, knowledge management, and IT, increasing the number of partners, diversification – sometimes on all markets and for all types of tenders –, etc.) instead of keeping their eyes and ears on the market and on their clients. And today, to keep that small problem from becoming a major one, it’s going to be necessary to backtrack and return to essentials. And what’s essential is clients, their satisfaction, and their needs, which are also cyclical and changeable.

Winning new clients is a strong motivation and has a very positive image inside the firm, and so has often taken precedence over efforts to secure client loyalty. But it’s clear that currently, with the help of the current crisis, firms are getting back on the true path of managerial wisdom. The most effective firms have long realized that on the bottom line, with the increased competition among firms, the overdevelopment of public-relations campaigns, the price war, the sometimes cruel competition for contracts, and more recently the state of the economy, it makes more sense and is also more profitable to focus on the existing clientele base and secure the loyalty of “good clients” rather than winning new ones – simply because, as is generally agreed, winning a new client costs five times as much as gaining the loyalty of an existing one. With that fact in mind, the question becomes “How?”

In a study conducted by Day One in 2007 on ownership of equity in law firms by non-lawyers, we had observed that “client satisfaction” and “repeat business” emerged as the two main criteria for evaluating a firm. This can be easily explained – the happier clients are, the more they tend to continue working with a firm, and that means repeat business. The importance placed on the client in valuating a firm is symptomatic of an increasing awareness on the part of leading professional service firms that clients are assets. We’ve seen this over the past three or four years with the implementation by certain firms of customer satisfaction studies, analyses of customer portfolios, and organization around key accounts – all efforts aimed at increasing attentiveness to clients and improving the quality of services, which are becoming more and more customized.

Our own experience with professional service firms has led to the finding that developing client assets needs to be done in three critical stages – client analysis, a client strategy, and organization around key accounts.


CLIENT ANALYSIS

Before working out any customer development strategy, an in-depth but pragmatic analysis of the clientele must be conducted in order to see where the firm really stands in terms of profitability, cross-selling level, and rates of penetration of an account or industry; but also in terms of customer satisfaction, image, and the firm’s differentiating factors as perceived by its own clients and by the target market. To do this, two analyses need to be made simultaneously.


Analyzing clients’ portfolio
First of all, analyzing the clients’ portfolio identifies the 20% share of clients who, ideally (according to the Pareto law), account for 80% of the firm’s business. But it also determines the level of recurring business from each client, the firm’s capacity to generate higher and higher fees with a given client (through growth in business volume or through increased profitability per client, for example), the actual level of cross-selling within the firm, the percentage of new clients in the firm’s total business volume compared to “old” clients, the origin of new clients (new clients won, external referrals, cross-selling, etc.), the typology of existing clients, etc. This analysis, if done properly, can measure the firm’s level of performance as regards its management of client assets – provided, of course, that it is conducted in the light of the specific types of expertise provided and the competitive and economic context of the sector. Showing a growth rate of 10% on a market that’s growing by 30% prompts an entirely different analysis of that 10% growth rate than if it were on a market with an overall rate of 5%! In addition, certain contracts are “one-shot” in nature, with no real possibility for recurring business. An analysis of the client portfolio also helps identify the “key clients” a firm can’t afford to lose (an analysis that’s even more essential today in a time of crisis and strong turbulence) and counter the risk of being gradually marginalized by certain clients who are giving less and less work to the firm.

Finally, and above all, this analysis will identify the actual profitability of each account and enable the firm to take a position on whether or not to continue working with certain clients. This process can only be carried out jointly with management control of the actual figures for each account, and in light of the firm’s strategy, its activities, and its business areas. Such a review – both quantitative (business volume, profits, etc.) and qualitative (history, age of client contacts, status of relations, etc.) – proves to be extremely useful.

Client satisfaction
The second analysis will have to be made directly with the clients, in order to gauge their level of satisfaction or dissatisfaction with the services provided by the firm, from a general point of view or focused on specific criteria. At the risk of stating the obvious, a dissatisfied client won’t be inclined to entrust further work to the firm, or to recommend it! And yet, in France at least, very few firms have set up a real process for being attentive to client needs and analyzing customer satisfaction.

While the partners are often a good channel for collecting this information from the field, too often each of them keeps a small part of a client’s comments to himself or herself – and that information could be extremely useful to the firm as a whole. What’s more, despite his or her empirical knowledge of the customer’s perceptions, a periodic and objective assessment very often provides feedback that is often both surprising and enriching to the partner in charge of a given client.

Assessing customer satisfaction has at least two advantages. First, it constitutes a source of information on the competition, on the firm itself, and on opportunities for additional work with the clients. Also, it builds up relations with clients because it makes them feel worthy of attention. And in addition, being able to express their satisfaction or dissatisfaction is an expectation for clients, and whether or not that expectation is satisfied influences their inclination to continue working with a firm. So they need to be given that opportunity! Thus strengthened relations and the intuitu personae relationship with a client create a real competitive advantage. And yet no customer satisfaction survey will really be of value unless it’s followed by corrective actions – without which there’s a risk of creating a negative rather than a positive effect on client relations. Yet that follow-up phase is often lacking at many firms. A further advantage of assessing customer satisfaction is that it’s a way of generating contact with clients and “educating” them about what the firm does. The client is often far from being aware of all the skills that are available in the firm he or she works with. And don’t forget that clients are the best source of recommendations a firm can have!


THE CLIENT STRATEGY

Aligning and focusing
It should be clear by now that a real, effective strategy cannot ignore the choice of positioning, segmentation, targeting and customer strategy. Firms too often define their strategic orientations solely by detailing the technical areas they want to maintain, develop, or acquire. They often forget to consider not only the type and size of markets (micro-companies, SMEs, multinationals, listed companies, unlisted ones, etc.) and the business sectors they want to make priority targets, but also – and even more importantly – the level of contacts they need to develop. And it quickly becomes apparent that for a given company, there can be several clients and contacts – which can also make cross-selling strategies difficult. Yet the real definition of a strategic positioning includes not only skills attributes, but also such market aspects as these – and also essential ones involving competitive differentiation, which we won’t be discussing here.
Also, even though firms may agree to handle certain assignments not directly related to their development strategy for their clients (what’s known as a “pull” strategy), it’s critical for their marketing, communication, and business development strategy to be tightly focused and aligned with the firm’s core business areas (a “push” strategy). Being tightly focused, repeating the same messages to the same targets, developing brand image and awareness, setting up an appropriate prescribers network, and aggressively holding to a consistent positioning are all key growth factors.

Managing client risks
In a complex, regulated environment, risk management has become a key factor for the success of any company. In professional services firms, managing risk means first and foremost managing problems involving client relations and conflicts of interest, but also managing the client’s own risks – including to his own existence (the current crisis, with the accompanying collapse and disappearance of major players, is providing any number of examples of lost clients for some firms and new opportunities for others) – and their impact on the firm’s revenues and image. Yet today, few professional service firms manage in a comprehensive way their client risks through a coordinated, centralized program of risk management. Rather, that role is taken on by the “client partner” or a partner assigned to the account who, by definition, doesn’t have the necessary distance for making this type of analysis.


ORGANIZING AROUND KEY ACCOUNTS

A client strategy also means setting priorities for development and allocating resources toward targets and goals that are thoroughly understood and identified by everyone in the firm. Once again, aligning the actions that are taken with the strategy that has been adopted not only provides structure but is critical to developing sustainable growth.

A specific list of priority targets and clients needs to be drawn up and a process for developing these key accounts needs to be put in place. From that point on, the entire firm, and in particular the partners, employees, and other production staff and the marketing and business development teams, need to be focused on listening actively to and serving those clients.
While a firm’s brand image is highly important, the intuitu personae it develops is essential. Developing effective relations with a client requires this kind of focus, and above all intensity and consistency in the efforts expended. An audit of the alignment of development actions with the desired strategy is indispensable for ensuring optimum return on investment, both in terms of profitability and brand image.

Client relations and transversality
An important point needs to be kept in mind: For a services firm, a company is a client. For the client, the firm is sometimes just one firm among many others it works with. This fact affects the distribution of power. The client, in addition to a high level of expertise and absolute technical quality – which are sine qua non, but not sufficient, conditions – also expects a high degree of availability and personalization. That means that the function of partner in a professional services firm needs to move from that of “technician” toward that of “client relations manager.” To rise to that challenge, the partner must 1) know and understand all the firm’s offerings, and not just his or her own specialty and 2) thoroughly know the client’s business, sector, key issues, and environment in order to understand and anticipate needs and propose personalized, concrete, fully functional solutions. Then and only then can we really talk about added value. Once set up this way, the firm will be able, within a structured and disciplined customer-based organization, to differentiate itself by offering its clients operational and tailored solutions that are often the product of a transverse mix of the firm’s skills rather than remaining within a type of firm wherein each partner offers his or her own single, specific competence to the client.

The partners may then draw up a personalized development plan (aligned with the overall strategy) while looking into how they can acquire skills that go beyond strictly technical areas (like personal relations, communication, negotiation, development, etc.) in order to become “the most sought-after professional” of the moment. That means being a professional who is highly specialized technically, but also a generalist when it comes to customer relations – thoroughly familiar with the client’s business and key issues and capable, as the client’s trusted professional connection, to bring in other professionals from his or her firm when the need arises. After all, isn’t that the fundamental principle of partnership?

by Olivier R. Chaduteau,
Managing Partner, Day One International LLC*

(*) Day One International is an independent consulting firm in strategy and development dedicated to professional service firms (auditors, lawyers, consultants, CPAs, private equity firms, executive search firms, etc...).
We have offices in New York, USA (www.dayoneinternational.com and Paris, France (www.dayone.fr