What most law firms don't know about their clients, Part 1
Amidst the tough times for law firms there's deep insight, opportunity and hope in a new research finding that reveals what most law firms don't know about clients.
If this sounds too good to be true, it's not. It's based on analysis of the responses on 7,061 individual buyers and users of the services of corporate and commercial law firms.
Each year since 2003 Beaton Research + Consulting has surveyed the opinions of thousands of clients of law firms in a study known as the beatonbenchmarks.
The beatonbenchmarks survey
Our most recently reported survey was done in November 2013. The 7,061 respondents represent the clients of the 35 largest corporate and commercial law firms in Australia. The respondents come from the ranks of the law departments (GC down), c-suite ( CEO down), boards (chairman down), and senior general and functional management of Australia's public and private companies and governments.
In our survey we measure and represent the respondents' reported experience with their law firm in a composite score. This score captures their perceptions of five outcomes, namely overall performance, value delivered, and organisational bond, and their intentions in respect of re-use and recommendation of the firm. The scale on which they provide their answers ranges from 0 (extremely poor) to 10 (excellent). In the course of the survey each respondent is also asked which practice groups of the firm they have experienced in the last 12 months.
By combining these two results we are able to analyse how clients' overall experience varies with the number of practice groups to which they have been exposed.
The findings show what most law firms don't know about their clients
Of the 7,061 respondents, 57.2% used only 1 practice group, 24.8% used 2, falling steadily as one might expect through 10.9%, 4.3%, 1.6%, 0.6%, 0.3%, and 0.2% for 3, 4, 5, 6, 7, and 8+ practice groups, respectively.
The first chart maps the clients' overall experience score on the vertical axis against the number of practice groups they used in the previous 12 months on the horizontal axis.
Even if the reader is not statistically inclined, this is a remarkable line in that it almost perfectly fits along the eight points. In statistical language the correlation coefficient is 0.99 – as close to a perfect 1.00 as you'll ever see.
Mathematically, the equation that represents this line is y = 0.1784x + 7.435. Translated, this means for each additional practice group used the respondents' level of satisfaction increases by approximately 0.2 points on scale from 0 to 10 or just over 2%.
Simply put, the more practices of a firm a client uses, the more satisfied they become.
Is this a stairway to heaven?
The second chart shows the same findings in a different format.
And if you think this looks like a stairway to heaven, you are right!
Looking more closely at the findings, it's apparent that the average client using one practice group rates their law firm highly at 7.55 out of a maximum of 10. And clients feel increasingly more positive towards their providers the more they use their range of services, so much so that at 8+ practice groups the clients' rating approaches close to 9 out of 10.
Client myths are dispelled
It's now folklore in most law firms that clients use 'horses for courses' and clients don't want 'one-stop shops'. The findings described in this post say 'wrong on both counts'.
Here are three reasons why the finding that clients report increasing satisfaction with wider exposure to a firm's range of services are readily explained:
First, a client's transaction costs are lower if they work with one provider; less time and fewer people with whom to deal.
Second, clients have greater purchasing power; able to extract bigger discounts and most MFN pricing status from their supplier.
Third – and perhaps most importantly – the deeper the relationship, the more the provider learns about the client's business and the industry in which the client operates. Beaton's research is emphatic on this point – a major attribute in why clients choose firms and what they value in the service they receive is how firms "understand my business/industry" (check out this post for more on this subject).
It's clear clients benefit from cross-buying, i.e. procuring multiple services from one firm, but what does this mean for the firms themselves?
Questions to be answered by firms
The findings raise many questions:
What metrics are firms using to track clients' use of practice areas?
Are these metrics reported and acted on regularly? Are policies regarding referral within the firm adequately inspected?
Is compliance recognised and rewarded? And is hugging and grabbing discouraged and sanctioned?
Should a firm keep adding more and more services to earn its clients increased satisfaction?
How well equipped are firms to grow the breadth of their offering?
Are firms able to maintain/improve quality while growing in this way?
Is there a 'right' number of practice areas for a given firm and its core client base?
Will simply adding practices turn a specialised firm into a generalist?
Do clients view firms with multiple practice areas as generalists?
If they do, how does this influence their buying behaviour?
How do these findings apply to highly focused or specialised firms?
Is a specialist, say, IP or tax firm seen by clients as a 'single product' firm?
Or do the specialities within IP (i.e. many forms of patent work, commercialisation, trade marks, disputes, etc) and tax (i.e. R&D, international, indirect, capital gains, etc) make these firms multi-line providers in their own right?
Are all individual firms offering only one or two practice areas lower performers than firms offering multiple services?
Or is the performance of these firms being 'lost' in the way the data is presented as averages? (BTW, we have too small a sample of highly focused firms to answer this question definitively).
Readers are invited to add to this list in your Comments on this post.
What most law firms don't know about their clients
This research reports what most law firms don't know about their clients: Clients really like to buy lots of services from one firm.
Part 2
Part 2 of 'What most law firms don't know about their clients' will bring readers our further analysis of this data-set drilling into segments within the data.
Further reading
If you enjoyed this post, then you may also want to read these:
We'd like to publish your comments on this and other posts on Research.Reveal. If you'd prefer to be anonymous, just let us know by emailing your comment to George Beaton at george.beaton@beatonglobal.com.
Coda
The finding that the more practices of a firm a client uses, the more satisfied they become also applies in the other professions we survey: accountancy, consulting engineering and management consulting. It's not isolated to law, which is comforting. Future posts by the Beaton team will be devoted to the same analysis in these other professions. Suffice to say now that we are certain these are universal conclusions.
Author and acknowledgement
This post was written by George Beaton, a director of Beaton Capital and Beaton Research + Consulting. I am very grateful to my colleagues, Daria Radchenko and Eric Chin, for their assistance in preparing this article.