Adventure of Strategy

Some while ago, I sat in on a presentation on another management consulting firm’s strategic plan. Perfectly legal – no Watergate tapes here. I was simply present in the room. Basically, the plan was as follows:

“We’ll create a series of presentations to show prospective clients how hopelessly they are managed and how pathetic their performance is relative to the top performers in their market, and then show these to them. Obviously, this will make them fall over themselves to hire us so that we can make them into Olympic athletes too!

Then, in a few years, we can persuade somebody to buy us for a truly stupendous figure, and we can all retire.”

The strange thing is just how common the strategy reflected by the second paragraph is. I bet you can think of several firms you know that, explicitly or not, follow it. (Hopefully, your own firm is not one of them!) The thinking even has a name: Chinese Math.

The trend down the S-Curve towards wholesale commoditization of the legal services that external lawyers provide to banks just accelerated dramatically. That is: if the tough new strategy that has been instituted by ANZ (Australia and New Zealand Banking Group Limited) to select its external lawyers takes hold in the market.

According to an article titled Banks Force Firms to Fight for Work and Fees in the Australian Lawyers Weekly, the new system has a few marked similarities to the user rating system used by the on-line actioneers eBay:

So you've had this important client (this VERY important client) for more than 30 years. You've been doing good work for them and your firm has grown steadily on the steady flow of fees. How secure is your position?

This is exactly what Bob Bernstein and Skip Rein, founders of Missouri-based ad agency Bernstein-Rein must be thinking right now. According to an article in Fast Company, Wal-Mart are putting their $578 million advertising account up for review for the first time in 30 years. Bernstein-Rein and Omnicom GSD&M have been sharing that revenue river for three decades, the former growing to 300 staff in the process.

If you were able to ask just one question of a client, with the assurance that the answer would give you a good indication of their level of satisfaction with your firm's services, what would that question be? Fred Reichheld's article The Microeconomics of Customer Relationships (subscription or purchase for $6.50 required,) in the Winter 2006 edition of the MIT Sloan Management Review, has the answer. It is:

"One a scale of 1 to 10 where 1 is 'not at all likely' and 10 is 'extremely likely,' how likely is it that you would recommend us to a friend or colleague?"

Depending on the answer, clients would be categorized as promoters (scores of 9 and 10,) passive (7 or 8) and detractors (6 or less.) Note that passives do not straddle the 50% or even the 60% mark. Anything less than 70% is viewed negatively.

General Electric, already the 9th largest company in the world by revenue, is using this model to try to drive its organic growth rate from 5% to 8% pa. According to Reichheld's data, a promoter has a net present value (NPV) to the firm of 1.5 and 2.5 times that of an "average" client (i.e. a passive.) On the other hand, a detractor frequently has a negative NPV. Sometimes, a surprisingly high negative NPV. The article explains how a firm can calculate these figures for themselves and also how to use them. A summary follows:

According to the latest BTI Consulting Survey, client satisfaction levels amongst Fortune 1000 clients, with the law firms that serve them, plummeted nearly 15% last year! An astounding 70% of clients are dissatisfied to a greater or lesser degree!

Client dissatisfaction is a very serious issue. The fact that the levels of dissatisfaction are increasing is especially so. Firms with even mildly dissatisfied clients face far greater pricing pressure than those whose clients fall into the 30% who are satisfied. Their clients also tend to defect to competitors with far greater ease. Of course, we all know this.

Marcie Borgal of BTI Consulting has posted an article on the survey results titled The Declining Client Satisfaction Antidote at Larry Bodine's The Law Marketing Portal. Want a lisence to print money? Take note of her main reasons for client dissatisfaction and then make sure that they do not apply to your firm. They are: