“They are a smart, passionate and focused group. They are a part of a slow but steady change in how the business of law is conducted. They are the pricing officers—a growing cadre of professionals [sic].” This is how I began the article, The Rise of the Pricing Officer—The Business of Law Takes Center Stage, in the September/October 2014 issue of this magazine.
In this issue, my focus is on the concomitant rise of the legal procurement officers who, like their law firm counterparts, are a “smart, passionate and focused group.” And, who like their counterparts, are hired by their companies to establish a more analytic approach to pricing legal services. But the similarities don’t end here. Although true that for decades the corporate world has had procurement departments tasked with negotiating the purchase of products and services, including professional services, the advent of a legal procurement function is relatively new. In the established space of corporate procurement the legal pricing professional is the new kid on the block.
Experience and Scope of Role
The experience level, responsibility and reporting lines of legal procurement professionals differ. Some come from corporate procurement and still report into that division. Others have moved from corporate to legal. This group may report to the General Counsel, Chief Legal Counsel or the also relatively new position of Chief Operating Officer (or its equivalent). Those who report to the most senior executives (in general procurement or legal procurement) have titles that infer their influence—Global Strategic Sourcing Director; Senior Vice President, Professional Services Sourcing; Global Procurement Director.
The role of legal procurement professionals varies from company to company. That said, many of these professional lead or are part of the team that prepares the billing guidelines and RFP requests. They also conduct benchmarking analysis and negotiate fees. In the area of fee negotiations, all the legal procurement professionals I interviewed stated a strong preference to work with their law firm counterpart rather than the law firm relationship partner or other partner or law firm professional. In all cases this preference was based on a desire to speak the same or similar language. Similarly, these individuals all stated that their role is not about reducing hourly rates or getting a percentage discount but, rather, to reach agreement with their counterparts on the “manner and cost” of delivering a legal outcome that mirrors each of their companies definition of success and/or value. In speaking to these individuals I was repeatedly reminded of the quote by legendary Harvard Business School marketing professor Theodore Levitt, "People don't want to buy a quarter-inch drill. They want a quarter-inch hole!" To that I add, “at a cost that’s worth the value of the hole to my company.”
Tension between Legal Procurement and Law Firms
“There is a natural tension between legal and procurement,” notes Toby Brown, Chief Practice Officer at Akin Gump Strauss Hauer & Feld in, “An alternative to discounts” the chapter he authored in the Legal Procurement Handbook recently published by the Buying Legal Council group.
This tension is understandable. Negotiations always produce tension—remember the last time you negotiated a job raise, a deadline? The tension is furthered heighten in law because “negotiating” is a new behavior. I saw first-hand how even in a mock pricing exercise amongst experienced pricing professionals from both sides of the aisle was filled with tension. As an observer I thought the exercise was an eye-opener. It captured the real-life dramatic underpinning of a real negotiating. The participants knew it was an exercise but their faces could not deny it was tense nonetheless.
Legendary Harvard Business School marketing professor Theodore Levitt famously noted, "People don't want to buy a quarter-inch drill. They want a quarter-inch hole!"
To that I add, “at a cost that’s worth the value of the hole to my company.”
So how can each side navigate this new behavior or model of doing business? I believe it will be an iterative process and offer only a few suggestions anchored on building and fostering better communication and trust:
- Get into the other’s shoes
- Clearly define what the win is for each (remember the “orange story” in “Getting to Yes”)
- Share information
- Establish and keep a communication plan (no surprise axiom)
- Clarify assumptions
- Be vulnerable (share what you fear)
- Play fair
- Work side-by-side (literally)
- Establish a shared language
- Share your scoreboard * Be responsive
- Don’t assume
- Ask questions so together you can uncover unstated/unknown needs and concerns
- Explore options and experiment
There is no going back. Both law firms and in-house legal departments are hiring pricing professionals. In studies conducted by Dr. Silvia Hodges Silverstein, a pioneer in the study of legal purchasing trends and metrics, in 2011 legal procurement was employed in only a small group of “very large companies, almost exclusively from the financial services and [sic] pharmaceutical” industries. That number has grown exponentially across many industries. The number of studies, articles, conferences, and books on the subject of legal pricing is another indicia of the desire and need for conversation and support on this new chapter in the business of law. It’s also clear—and important to note—that both sides of the pricing/negotiating paradigm are figuring it out as they go. In my interviews with these professionals, at the conferences I attended and the conversations I had with colleagues, I saw a genuine desire by all participants to work together, to figure it out, and to succeed.