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Value-add – Free Stuff or Game Changing?

At the latest Validatum Pricing Forum® on value-add, we asked attendees whether they thought their value-add differentiated them from their competitors and helped them win work. 86% of respondents responded ‘Occasionally, but hard to know whether the client really values the services’. Worrying isn’t it, given the amount of investment and effort that law firms put into it?

I’m a bit of a cynic when it comes to value-add. I think for the most part it’s a list of additional requirements that form part of the commercial package for a client. I believe that it could be a key differentiator for law firms, a way to stand apart from the competition and add demonstrable business value, but the reality seems to be that clients now expect a shopping list of ‘free’ stuff that may or may not be used, and has questionable worth.

Controversial? Perhaps, but ask yourself these questions…

  • Are you able to articulate the difference that your value-add makes during your service reviews?
  • When was the last time a client thanked you for the business improvement associated with your value-added services?
  • Do you track what is delivered versus what’s been agreed, and does your client understand the true cost of those services to you, and them?
  • Is the value-add you deliver commensurate with fees earned?
  • Do you regularly review value-add and amend it to suit changing client business needs?

Fantastic if you can answer yes to all of the above, but you’re in the minority.

Our experience is that a shopping list approach to value-add is by and large the norm, with firms being evaluated on whether they’ll provide a specific number of secondees or a set number of training days. The quality or actual business value of the ‘value-added services’ isn’t openly considered, and in tender situations firms feel obliged to say ‘yes’ to ever increasing client requirements, for fear of being deselected, and with no guarantee of a return on what is often a sizeable investment.

Relationship teams are left wondering what the client actually needs, whether they’ll have to provide what’s offered and are often unable to have open dialogue to find out what would really deliver business benefit.

But what to do about it? It’s very difficult to say ‘no’ to a client list of value-add requirements when you fear losing their business, but I urge you to consider investment versus potential return, whether in actual fees or brand value. That trophy client may not be so attractive after all once you’ve calculated the impact of those value-added services on profitability.

To our delight, some innovative client organisations are moving towards a menu approach choosing their value-add from an ‘investment’ or ‘rebate’ pot that’s linked to the fees earned. Each service offered has a monetary value associated and the usage is tracked through regular reporting, ensuring visibility, and allowing clients to tailor their value-add to business need. As a procurement professional, I love this approach – easy to monitor, fair and flexible, improving business understanding and encouraging discussion and feedback.

The market also seems to be shifting in some sectors towards value-adds that enable better working practices, matter management and transparency, with items such as post-matter reviews, online matter updates and access to standard documents featuring heavily in GC wish lists. Bespoke training and legal hotlines are still firm favourites, but we are detecting a noticeable move towards enabling services that deliver efficiency and help manage spend better.

So, what about procurement in all of this? Often seen as the unreasonable devils responsible for ever growing value-add requirements, are they just after as big a freebie list as possible so that they can prove their worth?

The 2017 Buying Legal Council survey asked procurement professionals about their goals this year, and two of the top 3 reflect the same shift we’re seeing in legal professionals, towards efficiency and better transparency:

  1. Consolidated Preferred Provider List
  2. Better Management of Legal Work
  3. Capture and Analyse Spend Data

Interested in the alignment between client’s need for transparency and what law firms think about tracking value-add provision, we also asked attendees at the breakfast briefing how they track the value-add delivered to their clients. Only 22% said that they tracked value-add by assigning a £value that is shared with the client. 48% said that they tracked it internally but didn’t share the £value.

As an ex buyer who’s spent a lot of time manually assigning £value to value-added services, I can’t say the latter figure really surprised me, but it does leave me worrying that many firms are selling themselves short when it comes to demonstrating the overall commercial benefit associated with their legal advice. At the very least they’re perhaps not quite as easy to do business with as those firms that do calculate a figure, when it comes to management and capture/analysis of spend data.

And so, to the million-dollar question – is it possible to use value-added services as a differentiator?

I think it is, but only with regular open dialogue between law firms and clients about what really matters to the client at a given time, identifying those services that add the most business value this quarter.

Flexibility of provision alongside detailed tracking and reporting are key, and value-add should be fair and commensurate with fees earned. And for those firms that don’t share your value-add tracking with your clients, some food for thought… it’s a lot easier to have a conversation about balance and fairness based on hard facts…