Wednesday, February 10, 2016

I recently had the opportunity to interview Steven R. Petrie, Chief Strategy Officer at Faegre Baker Daniels LLP, about how law firm marketing and business development departments are responding to ongoing challenges in the legal industry. Mr. Petrie touched on a number of industry trends including new market entrants, the role of business development and marketing in law firms, the allocation of marketing and business development resources, and law firm differentiation. These trends were recently outlined in the 2016 Report on the State of the Legal Market. The results were examined by Mr. Petrie and Silvia Coulter, Principal Consultant at LawVision Group, at the Legal Executive Institute’s 23rd Annual Marketing Partner Forum. In a follow-up interview, Steven provided additional insights into the data presented at the conference.

Nicole: Of the five new players in the legal market (secondment firms, law and business advice companies, accordion companies, virtual law firms, and innovative law firms), which service do you believe is poised to or has created the biggest disruption in the legal market?

Steve: First, just to clarify, the 2016 Report on the State of the Legal Market credits this categorization scheme to a report issued by the Center for WorkLife Law at the University of California Hastings College of Law, titled, “Disruptive Innovation: New Models of Legal Practice.”

In the short-term, within the context of the predominant partnership configuration in the U.S., I believe that “innovative law firms” are poised to have the biggest impact on the relationships and revenue streams of traditional firms. Innovative outfits that are sufficiently nimble and that can find creative ways to redefine the client experience, deliver greater predictability, and/or streamline service-delivery may provide a compelling alternative for the purchasers of legal services, without forcing them to endure a dramatic shift in paradigm or process. This seems to be the most immediate and formidable threat.

However, some contend that it is only a matter of time before existing U.S. regulations regarding law firm structure and ownership are eventually tested and revised. If this were to occur at some future date, “law and business advice” companies would become a much larger threat, as is already the case in the U.K. The aggregation of professional services may be attractive to many clients who are increasingly seeking trusted advisors who understand every facet of their business enterprise. While this could be on the horizon, it is longer-term consideration for traditional law firms in the U.S.

Nicole: Do you have any suggestions for how law firms can begin to mitigate the disruption by the above discussed new entrants into the legal market?

Steve: The first step is to acknowledge that these new players exist and that the disruption is real. Only then can a viable response strategy be developed and deployed. In contemplating such a strategy, a new level of introspection will be required of traditional law firms. We must engage in an analytical exercise, involving the identification and segmentation of existing legal-service offerings, accompanied by a candid assessment of their distinctive attributes, such as sophistication (as perceived by clients), staffing dynamics, pricing structures/trends and the competitive landscape. This will allow traditional law firms to determine when, where and how to compete in a changing environment.

Nicole: The report shows that marketing and business development departments are still largely combined and centrally located. In the context of the presentation, business development is discussed as pure salespeople. Do you believe this is the best strategy for law firms going forward? If so, do you have any advice for how best to integrate business development people into marketing and vice versa?

Steve: While a limited number of large firms do employ “pure salespeople”, I would not lump all BD personnel into this category. There are many “non-sales” BD professionals who work alongside lawyers, either in a coaching or support capacity, to drive a firm’s business development efforts – the “one-to-one”, ground-game activities that are highly focused and measurable (in contrast to traditional marketing activities, which are “one-to-many”, such as events, sponsorships, web presence, public relations and advertising). The determination of who supports these activities and in what manner they do so should be dictated by firm culture. However, once such alignment is achieved, I do believe that the most effective and successful firms will be those who continue to shift their overall allocation of marketing resources (e.g., personnel, time, activities, funds, etc.), toward the one-to-one, ground-game activities that are characteristic of true business development.

Nicole: Lack of resources was cited as a top challenge for both marketing and business development professionals. During the presentation you discussed data from an alternate survey that shows that non-comp expenses for marketing departments have gone up by 40% from 2010-2014, and marketing compensation expenses have doubled each year during that same time. Numerically they are getting more resources, but this is incongruent with the perception of the marketing department. Why do you think that is? And how can marketing departments address the inevitable question: what are you folks doing with the money?

Steve: The alternate data came from the “2016 Client Advisory” produced by Citi Private Bank and Hildebrandt Consulting, and the exact reference can be found on page 9.

In evaluating this data, it is important to first acknowledge the starting point. Many large firms made drastic cuts to marketing spend and personnel in 2009. Therefore, it would be reasonable to conclude that this data reflects the steady rebuilding of marketing/BD departments and capabilities in subsequent years.

While this observation is more anecdotal in nature, I would assert that, within the law firm, demand for marketing/BD support often outpaces supply, regardless of how robust that service-offering may have grown. Given the predominant partnership structure of U.S. firms, marketing/BD professionals find themselves answering to multiple owners, many of whom present unique requests, pursuits and objectives. While this dynamic may contribute to the marketing/BD survey response that we observed (i.e., a perception of insufficient resources), the real, underlying challenge is likely one of prioritization. What is firm leadership doing to identify a limited number of key priorities and to allocate finite resources, including marketing/BD personnel and spend, accordingly?

Nicole: According to the report, sponsorships and advertising consumes a large portion of marketing budgets, but are perceived as being less effective. However firms continue to devote resources to these activities because as you said, they are “easy” and don’t require a lot of work or time commitment. Do you think the use of sponsorships and ads should change in the future, and how do you think it should change?

Steve: Yes, as I previously stated, I do believe that firms can and will benefit from a shift in the marketing mix – namely, an increased emphasis and allocation of resources for targeted business development pursuits. After all, this is a logical and effective response to the steady drumbeat that we are now hearing from clients: “know my business; know my industry; anticipate my needs.” In order to accommodate these requests, law firms need to be closer to their clients, and this is accomplished not through traditional, one-to-many marketing tactics, but through the one-to-one ground game of business development.

This is not to say that sponsorships and ads should be eliminated entirely from the marketing mix. However, greater coordination and scrutiny of these investments may be warranted. They can still serve a purpose when used selectively and strategically to maintain brand visibility in certain markets, events and venues.

Nicole: According to the survey data, the top ways firms are differentiating themselves include client relationships, industry expertise, client service strategy and practice area specialization. Which of these areas do you believe presents the greatest opportunity for firms to differentiate themselves?

Steve: This is the million-dollar question for traditional law firms, many of whom are perceived by clients to be virtually indistinguishable. It is a particularly challenging question for large, multi-practice firms to answer, as it requires striking a delicate, and sometimes improbable, balance between inclusiveness and distinctiveness. Ultimately, how can a firm that does all (or most) things for clients across a wide array of industries specialize and brand in a manner that is meaningful without marginalizing a significant portion of its practice and/or client base? This is the tight-rope that large firms must walk and remains the largest single threat to effective differentiation.

It is also the reason I would argue that an increasing number of firms will seek to set themselves apart through varying applications of “client service strategy”, such as a firm-wide mastery of process improvement, an unparalleled level of responsiveness, the consistent use of distinctive pricing structures, or a uniform approach to efficient matter management. In many firms, these concepts might face considerable skepticism or would be inaccurate reflections of general practice and, therefore, would not be viable options. Nonetheless, client service strategies, such as these, are generally inclusive and can accommodate the diversity of practice and clients that is often indicative of large firms.

Many thanks to Mr. Petrie for taking the time to share his thoughts. For more information regarding the Marketing Partner Forum, please visit their website.