Rupert Hawke and Charlotte Powell look at how law firms can use the value chain model to add value at each stage of their legal services provision
The value chain is a business model that describes the full range of activities to create a product or service. It was first introduced by economist Michael Porter.
Breaking down the model into stages, identifying key factors, and then measuring accordingly helps law firms recognise which activities are the most valuable and which could be improved to provide competitive advantage. Additionally, by doing each stage well and communicating effectively with stakeholders, reputation and good client experience are enhanced. Charlotte has coined (and copyrighted through Eighty20) a term for this: the “cycle of returns”*.
Few law firms that use value chain analysis, so there is an opportunity for competitive advantage for those that do.
The model breaks down into nine key stages. Examples of areas to recognise, measure, and act upon at the key stages are considered below. This article is a longer version of the article published in the October edition of Managing for Success, including all nine stages.
The key stakeholders in the value chain are the clients with whom the firm will have potential business, and then the third parties (such as barristers and experts) – ensuring good working synergies on matters with these stakeholders will help deliver value. Additionally, staff engagement is vital, and reviewing culture and measuring staff wellbeing can support this. Measures on this stage include staff feedback; ratios on staff turnover; awareness (marketing); and previous delivery of service (Net Promoter Score and other feedback methods).
Scope of work
Clearly understanding your client’s needs is essential to build the relationship and build credibility that an outstanding service will be delivered. Articulation of this forms part of the initial proposal and, once refined, becomes a core part of your contract. Having written clarity at the outset of items such as deliverables, communication rhythms, roles and responsibilities and limitations helps to manage stakeholder expectations and leads to a quality experience for your clients.
The contract underpins the scope of work, leading to commencement of activities. Part of the contracting process should include a ‘checklist’ to verify the due diligence has been employed, thus protecting the interests of the firm, and client.
- Have credit checks been undertaken?
- Have the relevant communications been made (such as the client care letter)?
- Does the client understand the scope, scale and duration of the work?
- Have all contract clauses been understood and agreed?
- Have costs and invoicing structure been clearly communicated and understood?
- Is a fee structure included for additional works to the current scope of work?
It is critical to understand fee-earners’ costs per hour (salary and overhead) to allow for commercial costing, and this will be applied when pricing. It is recommended that a proportion of money is paid on account with the upfront ‘proportion’ quantified against risk.
The contract should be as simple and short as is safely possible. The purpose of a contract is to protect both parties against misunderstandings and unknowns, and being able to conclude this stage efficiently will provide assurance to clients that they have chosen the best legal firm to support their activities – thereby adding value.
Analysis and planning
Having agreed the work that will be done, the goodwill of the client must be retained, by following that plan, with work being done efficiently, to a high quality, and within an agreed timescale. The firm should adopt a set of workflows (ideally through a case management system), which might include standardised documentation, ‘what if’ scenarios, and stage requirement reminders.
Co-ordination of inputs
Inputs are drawn from:
- the client’s objective and scope of work
- receipt of information from and negotiation with third parties, and
- team expertise.
The workflow should be utilised via the most efficient application of these inputs against use of staf0,f based on expertise and cost rates. Having a fee-earner database that considers expertise required for specific work compared to availability can aid efficiency.
Delivery of service
Efficient, high quality service delivery is the crux of value creation. The workflow should include ‘markers’ to ensure communications are maintained with the client, costs are controlled, cashflow is maintained, and potential bad debts are highlighted early on. Quality can also be managed through a workflow, to include supervisor checks and random file reviews.
Throughout the case or project process, it is essential to maintain regular contact with the clients, barristers and other third-party stakeholders, to ensure that work is proceeding how they envisaged. The reputation of a legal firm is critical to enable growth and corporate longevity.
Send a clear, summarised close-off communication; this can enhance ongoing client goodwill.
Review cases for client experience, performance, profitability and variance from expectation, quality standards, and individual fee-earner performance. This will allow lessons to be learned, to improve standards and utilise resources more efficiently on future cases.
‘After sales’ service
Maintaining communications with clients after contract completion – through customer relationship management software – helps them to feel supported, as well as reminding them of your services. Legal firms offer ‘distress services’, and it can be years between a particular clients’ requirements, so regular updates will mean they remember you – and recommend you to their friends – when legal services are needed again. This helps create a value chain cycle of returns.
*Cycle of returns is a copyright of Eighty20 Consultants Ltd, 2020, all rights reserved.