11/9/10

“When the Economy Improves …”

I’ve heard variations of this phrase too many times lately. Most recently on the HBR blog, where Mark Medice states, “I would suggest that if the economy were to swing to a strong recovery in six months …, then major changes to pricing structures would be muted.” Every law firm has a cadre of partners waiting patiently for this scenario to play out. Now one might argue about the speed of the recovery, but I think the base assumptions of this thinking are misguided.
I see three legs to the current Change Stool. One is the Recession. The other two are: 1) The impact of technology and 2) The loss of seller power in the market. The Recession - IMHO - has merely been serving as an accelerator for the other two influences. And I believe the other two are the real driving force for change.
As my AFA colleague and I like to say, “The lawyers’ guild was broken in the GC’s office.” The last time the CEO went into the GC’s office and made their annual request for cost savings, they didn't respond well to the traditional GC claim about the inability to anticipate and therefore control costs. The CEO replied, “I know someone who can help you and they’re called Purchasing.” This outcome is evident in the current number of RFPs and deals driven in whole or part by the purchasing department.
First hand I have heard from GCs that their focus on "changing pricing structures" is at least a 3 to 5 year project. One even said “the legal department is the last bastion of untapped cost savings for the company.” Companies expect their suppliers to constantly be innovating, lowering costs and increasing value. Now legal services is falling under these same pressures. The bottom-line: An economic recovery will not be changing the underlying cost control goals of clients.
Although an economic recovery may bring an increase in the amount of work in the market, thinking that expansion means a return to open season for rate increases and billable hours is dangerous. If you disagree, I encourage you to ask your clients. Since they are the ultimate arbiter of this issue.

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1 comments:

Lisa Salazar said...

tick-tick-tick ...

kinda sounds ominous ...

 

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