Outside Law Firm Panel Convergence: Innovation Driver or Innovation Destroyer?
Stories abound these days about general counsels wanting their outside law firms to help them with innovation and technology efforts. My own conversations indicate that the real wish goes a step further. General counsel want their outside firms to bring them measurable value with innovation and technology initiatives that align with their legal and, more importantly, business goals. Even a quick scan of recent survey results from Thompson Hine will have you agreeing with their assessment that there is an “Innovation Gap.” Only 29% of participants said that their outside firms have brought them “significant” innovation.
Is it possible that an increasingly common practice in corporate law departments is a solution to achieving these innovation and technology goals?
Panel convergence (or, as I sometimes call it, panel consolidation) is now a popular approach in corporate law departments under pressure from CEOs and CFOs to gain control of legal spend.
In some cases, making legal spend predictable and more certain can be more important than cost reduction, although fee discounting is commonly associated with panel convergence. The concept is a simple. A legal department puts out a request for proposals (“RFP”) for firms to pitch for a place on what will be a small and select list of approved outside law firms on the panel. Firms complete what tends to be a very long and complex questionnaire, firms are selected to present in person as part of a “beauty contest,” and finalists are selected.
Only the firms on the new panel list are eligible to receive work from the law department. Not making the panel will have drastic consequences for outside law firms. In most, if not all, cases, the convergence results in a dramatic reduction in the number of outside firms used by the law department.
I like to trace the notion of convergence back to quality pioneer W. Edwards Deming, who believed that by reducing the number of outside suppliers (he went so far as to suggest getting it down to one) and working with them to get aligned on business goals, you could achieve excellent business results. In the legal profession, the Dupont Legal Model and Jeff Carr’s ACES model are examples of this approach.
Some of the overarching goals of a panel convergence effort are:
“Rationalizing” and “right-sourcing” legal service providers (reducing number of firms and directing lawyers to the law firms (or, increasingly, alternative legal services
providers) best suited for types of work)
Reducing or controlling costs, including discounts, flat fees, staffing changes, and alternative billing arrangements.
Creating long-term relationships with outside firms so they can understand the business and its goals and strategies.
Aligning outside firms with legal and business goals, objectives, strategies, and risk tolerance.
Maintaining consistent legal approaches
Incentivizing outside firms to bring new ideas, innovation, and value to the client
Addressing diversity and inclusion objectives.
Generating measurable value.
You can probably think of other goals as well.
The results of these efforts are mixed. Reducing the number of outside firms and achieving some kind of price discounting or cost control are probably the most common “wins.” However, my friends in the legal pricing world often say that the discounts tend to be smallish and law firms increase hourly rates to adjust for the discounting. Convergence efforts are difficult, time-consuming, and can raise all kinds of difficult issues, especially when longstanding outside firm relationships are put in jeopardy. The work on the finalization of the panel can be so difficult that the ongoing follow-up work of pursuing all the benefits of convergence is neglected. I talked to an in-house counsel who said that her law department hadn’t updated the firms on the approved panel in fifteen years.
Other common benefits that seem to take effect are enforcement of entering into specific engagement letters, staffing directives, timing outside counsel management systems. However, the goals of business alignment, value generation, and innovation often get lost in the process, even though many outside panel RFPs specifically address these issues. Just like firms often answer that they do literally every type of legal work, law departments often let firms get away with saying that they are “great on innovation too.”
In this article, I want to look at how panel convergence can, perhaps paradoxically, act as an innovation destroyer if not properly tended, how panel convergence should, if you follow good, often common sense practices, act as an innovation driver, and suggest some practical action steps for you to consider.
An observation, perhaps controversial. Panel convergence efforts do not achieve as much as they could because corporate legal departments do not appreciate the power that they have in what is now a buyers’ market. In simplest terms, outside firms under competitive pressure to stay on a panel or gain access to a panel are more willing to negotiate than you might expect. It is a huge benefit for a firm to get on a panel. If a firm is not on a panel, it is often extraordinarily difficult to get the firm added at a later point. If #BigLaw firms will not move enough for corporate law departments, many perfectly capable mid-market regional firms will do so. This buyers’ market observation applies especially to innovation.
There are three points where panel convergence efforts can damage or destroy innovation goals:
RFP creation and solicitation of proposals;
RFP and innovation pitch evaluation; and
Maintenance and review of convergence effort.
In too many cases, panel convergence RFPs for outside firms run into the hundreds of pages. Even the section on innovation or technology can be lengthy, not on point, and cobbled together from multiple sources. In the worst case, a law department might abdicate responsibility for the RFP language to the procurement or sourcing department. I’m not sure that in-house counsel needs to know much more at the RFP response stage than (1) what are examples of what a firm actually has done and are currently working on, (2) what would the firm plan to do specifically for the law department, (3) what people and infrastructure does the firm have for delivering innovation projects, and (4) what data demonstrates the firm’s level of commitment to innovation? If I have answers to those questions, I can probably make a decision about whether a firm passes the initial screen.
When you have lots of detailed RFP questions, you drastically reduce the chance that evaluators, especially lawyers, will read all of them. It’s a simple case of mathematics, especially when lawyers are “voluntold” that they are on the panel convergence project. You also increase the chance that the questions will be too vague, confusing, and even inapplicable. In other words, they might make things cloudier rather than clearer than a simple and direct approach. If you don’t feel comfortable with your RFP questions on innovation or whether they are working for you, you might want to get an outside second opinion. Similarly, a firm competing for a panel spot might consider the innovative approach of providing the answers to the four questions in the preceding paragraph as an executive summary or infographic.
A second factor in the RFP process is sending the RFP to the right firms and obtaining a large enough sample, especially when the lawyers involved in the process will be advocating for few proposals to evaluate. If innovation is a goal, you could do much worse than starting with the firms on Dan Linna’s Law Firm Innovation Index. Look to firms presenting at innovation conferences, firms who have Chief Innovation Officers, or other indicators of commitment to legal innovation.
RFP and Pitch Evaluations
I see RFP evaluation as a screening process to determine who gets to make a pitch, much like resume evaluation determines who gets an interview. The actual pitch is what gives you the information you need to make a decision.
The process can go very wrong in both places.
The biggest danger at both points is simply taking outside firms at their word. I have no doubt that every single law firm will tell you not only that they are great at innovation, but their future plans on innovation are amazing. Your task is to cut through the fog and obtain data and evidence that you can evaluate and use to make good decisions, or, at the very least, “good enough for now” decisions.
Another danger is trying to make a final decision on the basis of the response to the RFP. RFP responses should only be used to screen for firms you want to make a pitch, which means, firms you want to hear more details from. That is the job you are doing at the RFP evaluation stage.
In RFP evaluations, you might want to get an outside opinion to help you make the screen on innovation. The odds of any evaluator reading the innovation section in each of 50 several-hundred-page RFP responses are not good. That’s not a criticism – it’s a recognition of reality.
If innovation is a goal of your panel convergence effort, you will want not just examples, but you will want to meet the innovation team. It is reasonable and prudent to request that the firm’s Chief Innovation Officer or head of innovation take 10 – 15 minutes of a pitch presentation. Again, depending on your comfort level, this might be a place where you want to get an outside second opinion. You will ultimately make the final decision, but sometimes it’s good to have someone interpret and validate what you are hearing.
And, lest you forget, you will only get the innovation and technology proposals you ask for.
Follow-up and Maintenance.
The panel is announced with great fanfare. Committee members are congratulated and get awards and bonuses – maybe. Victory is declared and the convergence team disbands.
Wrong. This is when the real work to make the effort a success begins.
There are many best practices you can find: single points of contact, initial meeting of panel firms, annual summits, introduction of outside counsel management systems, standardizing, and streamlining processes, engagement letters, discounts or flat fee implementation, and the like.
What about in the area of innovation?
Not so much, at this point. And that’s why the panel convergence approach can damage or destroy innovation. It’s the follow-up and maintenance that matter.
Let me use a bit of a gardening analogy to describe my approach to implementing successful convergence efforts. First, we need the gardeners – people who are responsible on an ongoing basis for the work and the results. We need to prepare the soil to give the project the best start and continuing growth. We need to plant enough seeds – more than we think - to improve the chances of harvest. Watering and nourishing, of course. Eliminating weeds and pests. Pruning to focus and enhance our results. Knowing what to harvest and what to throw away. And preparing for the next season. You get the idea. I’m confident that you don’t need me to explain the metaphors.
It’s hard work that requires constant attention. It’s easy to see how these programs can actually destroy innovation.
Too often, the innovation piece of convergence is vague or afterthought. Innovation can get orphaned, with no person or group tasked with supervising the efforts. Once firms are locked into panels, an “incumbency inertia” can take hold, especially if there is an attitude of being “too busy” with “real legal work.” By the way, it’s vital to screen that attitude out in the selection process if you can. If there is a standard, it becomes what the other panel firms are doing, which can be a reverse incentive. It’s easy for all kinds of incentives to get reversed and misaligned. As time goes on, diversity of ideas and innovation are decreased, because there is a limited universe of firms.
No one would be surprised to find that innovation efforts drop off the cliff after the first year the panel is selected. Concrete and specific plans, follow-up, and roadmaps must be put into place or you will see “drift.” Far too often, no evaluations, measures, metrics, key performance indicators, goals, or objectives are put into place. There might even be confusion at the basic level of what the firm charges for innovation work or whether it should be charged for at all. Are there systems for tracking efforts and results or giving feedback? Should you be using a formal counsel evaluation tool like Qualmet? Is there even an intake or workflow tool for innovation projects? Annual meetings with demos and showcases should be required.
There are two final big problems I want to mention. And they are very big.
The first happens when a law department doesn’t ask for the innovation efforts or tech recommendations to be made, even if they were part of the winning pitch. The flip of that, of course, is that the firm doesn’t pursue these efforts or take the initiative. And we are back to the gardener analogy and a single point of contact approach.
Second, and most important, there are no consequences for failure to provide the innovation work. Think back, for a moment, to the earlier story about a firm that had not changed a panel in fifteen years. What possible incentive could there be for those panel firms to change or take initiatives?
In my legal career, the biggest surprise has been the unwillingness for corporate clients to fire outside firms that are not producing as promised. In this area, I’d be tempted to give the outside firms, as a first innovation project, designing a project workflow system with metrics, standards, and agreed-upon consequences built into it. And then I would challenge you to hold them to it.
Simply put, if you cannot weed out firms that aren’t delivering, you really don’t have much of a chance of overall success. Your panel convergence process will become a place where innovation goes to die. It’s a buyers’ market out there and there are alternatives, including alternative legal service providers.
Here’s my radical, but probably not surprising, proposition: properly done, panel convergence can drive your innovation efforts forward, align business goals, enhance collaboration, and achieve innovation wins and meaningful “return on innovation” with measurable value.
There’s a technique in design thinking referred to as “reversal” or “inversion.” What happens if we flip over our assumptions, change the end user, look through the opposite end of the telescope, and, well, you get the idea.
In simplest terms, if you reverse any of the points in the previous section, you start to move down the path to drive innovation efforts forward. Try it out as a thought experiment. I’ll still be here when you get back.
Oh, wait. I do have an even more radical idea. Outside firms should consider providing innovation services for free and part of their offering to be on the panel.
Here are twelve ways that you might consider using your panel convergence project to drive innovation from your panel firms.
Use the panel to make it easy for outside firms learning the company’s business, business goals, and how the law department fits into the business. Encourage them to get an understanding of key problems, constraints, budgets, and objectives. The best innovation will be customer-centered innovation. Everything starts here. How will you make that happen?
Make outside counsel put some skin in the game. Jeff Carr’s ACES approach of putting part of agreed-upon fees at risk if business results and value are not achieved is one example, but how might you incentivize the behaviors you want? It might be as simple as putting firms into red, yellow, or green status on innovation, with penalties for lack of effort or staying in the red or yellow category.
General counsel want to move to new technologies, but typically don’t have the resources to investigate and make those decisions. Sharing how outside firms made their own technology decisions, their experiences, and their recommendations. There are benefits to having firms and clients on the same platforms, especially on collaboration tools. This “want” is often expressed on the in-house side, but rarely acted on by outside counsel.
Start with staffing and workflow innovations, with an eye on cost savings, efficiencies, and “right sourcing” (getting the work into the hands of the right person at the right skill level and price). Legal departments are concerned about paying huge hourly rates for “commodity” work. Would using a litigation support project platform like ClariLegal [https://www.clarilegal.com] generate cost savings and free up lawyer time?
Tracking and monitoring projects should be another priority. Helping address those problem areas will achieve real-world benefits and open doors to future innovation projects. Build on small, measurable successes.
Prune the panel list. You cannot freeze the panel for fifteen years. There should be an easy process for adding and dropping panel firms to reflect goals (e.g. diversity), movement (e.g., key lawyer or group moves to new firm), change (law firm mergers), business strategy (move into new markets or product lines), and the like. It is not a great place for an in-house counsel to be when they have to use old-line panel firms to handle blockchain or other new technology issues. A regular in-depth review should also be scheduled with promises tracked and consequences exacted. There is a huge benefit to firms to stay on a panel list and many firms, especially mid-market firms, would be happy to make better offers.
Measurement and metrics. Innovation is not some airy, vague set of new ideas. Innovation should produce practical results. With a panel, you can collaborate with firms to agree on appropriate metrics and how to track them.
Shared goals and objectives. Aligning the law department’s goals and objectives to innovation efforts is a powerful to set direction and strategy. If the law department knows the business problems its business owners want to solve, and the outside law firms are aligned to solving those problems, the results can be very good for everyone. Innovation should be focused like a laser on the client’s problems. Innovation is fundamentally a client-centered exercise. If the word “value” is not at the top of your discussion list with outside firms, you should be asking yourself why it isn’t.
Connect the people. I like the idea of having “single points or contact” for innovation efforts, with each firm. Consider at least monthly calls, quarterly design thinking or brainstorming events, and annual “summits” where all of the innovation contacts meet and share ideas and goals.
Thoughtfully implement standard innovation practices that fit your culture. Proof of concept and other experiments. Design sprints and minimum viable product approaches. A portfolio of approaches. Collecting stories to share. Identifying the right talent. Building on successes. In certain cases, does a firm or law department want to start its own innovation lab or outsource the use of an innovation lab or design group? What outside help do you need and what work should stay as part of your core competence?
As part of the effort, put into place a system of communication, collaboration, and incentives. What happens if we turn a great idea into a product? How do we make this organic and self-sustaining? How do we measure early-stage benefits?
Focus on the “Why?” first. A common principle in innovation is answer the “Why?” first, then move to “What?” and, only then move to the “How?” I don’t mention technology much in this article, because it will be part of the “how.” Your focus should be on first things first.
Isn’t all of this way more exciting than getting a 15% discount on standard hourly rates?
Practical action steps
I want to end with a bunch of practical action steps. Here are some for you to consider:
Make a firm decision that you want to want to use panel convergence to drive innovation in legal services. Start with the “Why?” If you get that question answered, your path becomes so much easier to see.
Review your panel convergence RFP, especially on innovation and technology, and simplify, simplify, simplify. What do you want to know that matters? Ask only that.
Require an outside firm’s Chief Innovation Officer or innovation team to present as part of the pitch presentation. That is who you will be working with on actual projects.
Develop a framework and approach to evaluating RFP responses and pitches. Get data and evidence.
Request (or volunteer) to participate in design sprints, innovation labs, or productization efforts with panel firms. Offer your problems and issues as experiments for the firm to work on. There’s no harm in asking if participation comes with no charge. Firms need plenty of client feedback on their own efforts.
Find ways to get outside firms to put skin in the game. Be creative and see what else is happening in the industry, and in other professions.
Measure activity and create a simple set of metrics and key performance indicators to track. Then act upon them and track your results.
Be constantly on the lookout for internal resources who would be happy to participate in innovation efforts. Results will be mixed, at best, if you assign unwilling lawyers to participate.
See innovation as a process of experimentation – some things will work and some will not – and learning.
When in doubt, give people logoed T-shirts. We are all humans, after all.
For outside firms, or those who want to be on panels, use the reversal or inversion method on the practical action steps above and you’ll see your own list.
I’ve become intrigued how an often clunky existing process with mixed results – panel convergence – can, if properly handled, be turned into an engine to drive innovation. Having vision is important, as is being willing to make hard decisions and do experiments. Panel incumbency should not mean entitlement and tenure. There are many firms, with mid-market firms being especially interesting because of motivation and nimbleness, who are able and willing to step up on innovation efforts to provide measurable value for key clients. Lack of action has consequences. The legal market says that it is ready to innovate. Let’s see firms and law departments prove it.
and innovation matters. He recently retired as Senior Counsel for Mastercard’s Digital Payments and Labs group. He is an adjunct professor in Michigan State University’s LegalRnD program and co-hosts The Kennedy-Mighell Report podcast on the Legal Talk Network.