Canadian Lawyer

w w w . C a n a D I a n L a w y e r m a g . c o m J a n u a r y 2 0 1 5 21 engagement. It's those variations and calcu- lations that a pricing officer will use as well as all the risks the firm faces. "I don't see a firm with 10 partners bringing in a pricing officer, but I think firms of any size need to have a pricing mechanism," says Furlong. John Strange traces the origins of the role of pricing officer to the Great Recession of 2008 and 2009. Strange, the Houston, Texas-based director of pricing and project management at Baker Botts LLP, says it was a challenging time for law firms that had previously been able to simply increase prices by six to eight per cent every year. Not only did that come to an abrupt end as a result of the recession, but clients began to call the shots, making their own demands. The executive management of large cor- porations started looking at legal depart- ments closely and identified it as an area where they could squeeze savings. That led to rate freeze notices and an examination of how legal work was sourced, explor- ing alternatives such as bringing work in- house, using non-traditional providers, as well as outsourcing work. "Law firms felt the pinch in a new way," says Strange. And it was something of a logical course, given other professions such as engineering, architecture, and accounting were already having similar experiences. A focus on pricing rates and fee arrange- ments evolved through resources already within the firms, notably through finance, operational, and marketing roles. Strange estimates that within four years, the larg- est law firms in the United States had all installed pricing officers while mid-sized firms had adopted the approach using other synergies, including practice man- agement and project management. A survey last summer by ALM Legal Intelligence, "Pricing Professionals: Essential to Law Firms, An Ally to Clients," found 76 per cent of large U.S. law firms employ a pricing officer within the firm. Of those, 38 per cent had someone dedicated to the role, and they cited the need for help with establishing alternative fee arrange- ments, the cost pressure from clients, and the need for a better understanding of return on investment for client matters as reasons for implementing a pricing officer. Richard Stock, a Vancouver-based legal consultant, says the economics of a law firm are complex and not as well understood as they should be. All the partners are not necessarily exposed to all aspects of how the firm is run and what goes into the bottom line. And not all are particularly interested. Meanwhile larger clients such as banks, utilities, governments, and big corporations are looking for leaner approaches includ- ing delegating some tasks to non-lawyers and distributing work to lower-cost centres. Often, it is even more important for them to have a degree of predictability, which could be an aspect of the service for which they'd pay a premium. "It's really important to both be fair and cost effective," says Stock. "We're increasingly finding as clients are becoming more sophisticated in their demands . . . many firms have a body of knowledge on this but not all partners know it." A pricing expert within the law firm makes the job of negotiating for the client easier and works with or holds the dual role of project manager. Stock believes those who use pricing officers effectively will be more successful — particularly when moving off the clock to alternative billing arrangements. What makes a good pricing officer is a solid understanding of alternative fee arrangements, how a law firm works, hav- ing a comfort level with spreadsheets, and an understanding of law firm profitabil- ity. That includes knowing when to use a lawyer with just a few years of experience instead of a more senior one or a paralegal versus a first-year associate and substan- tively understanding what different levels of experts can do. "You've got to understand the range of expertise, because that range of expertise is price," says Stock. Stuart Dodds, the director of global pricing and legal project management at Baker & McKenzie LLP in Chicago, sug- gests considering approaching the use of a pricing officer in three consecutive steps. Smaller firms may want to apply just the primary approach while larger firms with additional resources could look at imple- menting all three steps, but he suggests it be done gradually. The basic approach is having something of an analyst on hand, a dedicated person who puts in controls to ensure consistency in pricing and who reviews and approves agreements, kicking the tires on the pro- posal. It's more of an internal approach to support the process but Dodds believes such a role offers a great deal of value. The second stage of a pricing officer is that of change agent — integral in the overall scheme of applying the principles of pricing to a firm. In this approach the pricing officer engages more with the firm's practice groups and is involved in coaching partners. The third level sees the pricing officer become involved in client meetings, which could include being involved in negotia- tions and RFPs. This is where the role of pricing agent and legal project management could intersect. Good communication and behavioural management is key in a good pricing officer because of the change man- agement aspects involve, says Dodds. Other important attributes include knowing what investments are necessary, strong analytical skills, intellectual curiosity, and being com- fortable with technology. A handful of legal pricing officers in North America have also achieved a certificate of professional pricing with the Professional Pricing Society. "Don't try to do too much too soon," suggests Dodds. "You could see it as being a very incremental process" because so much of it revolves around behavioural change. Strange sees the role of the pricing officer continuing to evolve, possibly even rising to a c-suite position in the firm. Definitely, he says, "it's here to stay" as long as clients want to control costs and add predictability. The importance of the role will be underscored by internal pressures to recruit the top tal- ent supported by decent financial incentives and external pressures on rates and fees. "You really have to be one of those firms that are in the position to compete for tal- ent and compete for clients," says Strange. "It's not about making tons more money, but how to provide better value to our cli- ents and still do reasonably well." stuart Dodds, author of smarter Pricing, smarter Profit, suggests the use of a pricing officer be approached in three stages. Some firms may want to adopt just the first tier while larger firms may decide to implement all three stages: 1. An internal analyst implementing pricing controls; 2. Introduce change management which includes coaching partners; and, 3. Become involved in client facing negotiations. THREE STAGES

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