It is surprisingly common how often you will witness a panel of corporate clients at some legal conference discussing their views on law firms. Invariably someone in the audience will ask these panelists, “What is the most important criteria for you in selecting outside counsel?”
We fully suspect that the person asking this question is expecting to hear that the most important criteria is cost or perhaps responsiveness. While those things are important, of course, they are never the answer the panelists give, especially if that panelist is a general counsel. The answer invariably is, “I want someone who knows my business” or framed more pointedly, someone who can “demonstrate a thorough understanding of my industry.”
In fact, Understanding Your Client’s Industry is the single biggest differentiator among law firms — it is also the single largest driver behind clients being able to justify paying higher rates to any law firm. At least that is what we know based on more than 5,000 interviews with top legal decision-makers conducted by The BTI Consulting Group.
As one survey respondent said:
“In nearly every other profession from accounting to engineering, it is widely accepted that ‘Clients do not have legal, financial, technology or other technical problems, they have business problems.’ Those business problems just happen to have legal, financial, technology or technical elements to them.”
Because practices and offices are the traditional management units within law firms, industry is often the undervalued component of many law firms supposed “client focused model” and organizational structure. Organizing by practice is an internally focused structure that is firm-centric, while organizing by industry is externally focused and client-centric.
From our research we found that 36.9% of law firms indicated that they had dedicated industry groups in 2019, which was up from 27.3% in 2017. However, not all industry groups are created equal. Our research indicated that:
- less than half of industry groups have a dedicated budget — one proven component for success;
- only 13% have dedicated attorneys who work solely on these industries and have skills that are focused on the industry; and
- less than 10 firms (out of 350), rely on industry groups to define strategy and map out plans for practices serving their clients.
All this suggests that in only half of those law firms claiming to have industry groups are there actually dedicated industry groups. For far too many firms, any pretense of having a real industry focus is simply a list of industries displayed on their firm’s website — without any recognition that perhaps the clients can discern the difference.
Bad News Flash: Those firms are not fooling anyone!
Perhaps worse, some firms claim to serve far too many industries — and seriously undermine their credibility with clients in the process. Meanwhile, we continue to hear how industry group leaders are completely frustrated by their lack of any clear mandate, authority, and visible support from firm leadership. Few get any meaningful leadership training, a separate budget, or a dedicated marketing support professional attached to the group. Few in this group also meet on a regular monthly basis or collaborate across offices; nor have they developed a “real” formal strategic plan. Worse yet, few get the support from partners or firm management, which could, for example, make a firm requirement that partners work only in one core industry.
Typically, firm management is organized along practice lines and office lines, and while industries can be some (vague) part of the management matrix, most firms have not got that balance right… quite yet.
Are Your Industry Practices Just for Show or Are They Real?
Turning back to The BTI Consulting Group research — clients, on average, rate their primary law firm an 8.3 out of 10, with 10 being best — not exactly premium rate worthy. The good news is that clients will educate firms through feedback and meaningful dialogue outside the context of a case or matter.
Here are a dozen diagnostic questions (not intended to be comprehensive) that you might internally review and discuss, to evaluate where your firm stands with respect to having a genuine industry focus:
- Does your firm understand how much importance your clients place on industry knowledge?(Do you have client survey or interview results that you can easily share with attorneys throughout the firm that delineate your client’s views?)
- Does your firm leadership really believe that industry knowledge has a direct and meaningful impact on the firm’s overall financial performance? (For example, through the ability to retain clients, cross-sell other legal services, build a reputation to win new and better clients, achieve selective niche dominance, etc.)
- Has your firm made definitive decisions about which selective industries to strategically target and focus on? (Or are industry teams simply a marketing ploy? Or does your firm claim to serve many different industries?)
- Has your firm organized and actively recruited partners to join and commit to a specific number of non-billable hours to working in just one chosen industry team? (Or are partners left to join in as many different groups as they wish, leaving group leaders to wonder who specifically is committed to doing anything?)
- Does each industry group have a leader (or co-leaders) trained to manage, coach, support, and facilitate the group’s initiatives? (Or are group leaders left on their own to determine whether to have their group meet and what to do if and when a meeting occurs?)
- Does the firm have any formal programs and budgetary resources available to develop industry competence and expertise of the partners? (Or is the task of developing and continuing to build valuable industry knowledge and skills left up to each individual’s personal initiative?)
- Does your firm have industry-focused research programs that monitor and identify emerging industry trends? (Or is the aspect of developing thought leadership and identifying new service opportunities simply left to chance?)
- Has each industry group written a formal strategic plan identifying specific niche opportunities where they are working to develop a position of dominance? (Or are groups just expected to meet occasionally to discuss what each member has been working on with their clients?)
- Has your firm assigned specific marketing professionals to support each of the industry groups? (Or are you just expected to call upon the marketing department as needed?)
- Does your firm capture and leverage the industry-specific intellectual knowledge gained from client engagements? (Or is knowledge management just not a recognized priority in how the firm adds value to client work?)
- Are industry competence and expertise assessed and tied directly to lateral recruitment efforts in order to build upon the industry group’s market strength? (Or is lateral recruitment simply a matter of finding those with a strong book of business, irrespective of any recognized industry expertise?)
- Does your firm report and assess performance by industry (fees, profitability, growth, partner contribution, partner promotion, compensation decisions, etc.)? (Or is performance by industry secondary to practice group, office, or some other performance criteria?)
Law firms that have made a commitment to industry focus and industry teams need to do these things. And those that don’t are missing out on one of the primary benefits of an industry focus, which is to differentiate the firm and build relationships by showing clients and prospects that your firm knows something that the client (and your firm’s competitors) don’t know.
This post was co-authored by Michael Rynowecer, president of The BTI Consulting Group and author of the widely followed blog, “The MAD Clientist”.