Transcript
Speaker: it's um It's quite remarkable. I've been a consultant for 30 years and I've never seen firms commit so much money and time to something where they have no idea where it's going or what the return on investment going to be, what the business case is. You're listening to Shortlisted, a podcast from Seldon Rosser, the leading executive search firm that connects professional services firms to the best leadership candidates in business development, sales, marketing, and communications.
Speaker: This podcast is dedicated to helping ambitious leaders in professional services build high-performing, market-leading firms. I'm Graeme Seldon. And I'm Katie Rosser. And in each episode, we bring you candid conversations with leaders who are driving growth and innovation in their fields. Be it leadership and strategy to talent management, client development, marketing communications, or cutting edge technologies, including AI.
Speaker: We explore the key areas that contribute success in today's competitive landscape. So if you're in a leadership role focused on growth, then Shortlisted is your go-to resource for actionable insights and inspiring stories.
Speaker: Joel Borolsky is one of Australia's leading consultants and commentators on the professional services landscape. He advises managing partners, boards and practice team leaders on issues of strategy, culture, governance, organisation design, partner remuneration, succession and capability development.
Speaker: In addition to heading up Borowski Advisors, he's also the principal of Edge International. He's a senior fellow of the University of Melbourne and he chairs the Managing Partner Forum here in Australia.
Speaker: He's also written over 40 opinion pieces for the Australian Financial Review. In this episode, we're exploring the state of the market for professional services firms, specifically in Australia.
Speaker: On the back of the recent Law Firm Managing Partners Forum, which Joel chaired, and from the work that he does every day with leaders of firms to navigate their strategy in what is a very tumultuous market.
Speaker: Welcome to the podcast, Joel. Welcome. Hi, great to be here. Now, we're really keen to get into so much so much stuff with you my My first question really is, it's a big one. So if you look across the firms you advise and you advise across professional services, not not just law, obviously, what are the two or three external forces that are most materially changing strategy right now? And what are the what are your smartest clients doing about it?
Speaker: Look, at if I had answered this question a month ago, i would have gone into AI and all the other major trends, which I'll talk about in a moment. But but but right here and now, just in the last week, the amount of managing partners concerned about the the war in the Middle East, um just the uncertainty around the economy, around interest rates, um around so many aspects of society and economy, it's, you know, that...
Speaker: you can't ignore that like it's just that's just just come into the the frame quite rapidly and there's uncertainty as to when when this might be be settled and so um you know maybe the time you uh publish this this podcast maybe that issue will have come and gone um but but it's just it's just worth um mentioning that um but But clearly, in terms of bigger long-term trends, ah the most by far the most significant one is artificial intelligence and its impact on the business of law and on the practice of law and on sort of every facet. So that's been a a huge one.
Speaker: And I'm sure we'll we'll go into that in a little bit more detail. But I thought before just getting sidetracked by AI, it might be worth... just picking up on a couple of other trends. And um it it is fascinating if you look at the AFR list of the top 50 firms listed by the number of partners, and you look at the top 10 list now, so the the the biggest firms in the country,
Speaker: This is law firms. um we We noticed that ah that there are now four firms in the top 10, which were would be traditionally regarded as sort of tier two type firms or you know not not of that sort of same elite and national firm. So you have firms, obviously, HWL Ebsworth being the biggest partnership, but you have Thompson Gear, you have Mills Oakley, you have Holland Wilcox.
Speaker: And i mean, a firm like um Mills Oakley and Hall & Wilcox, both those firms have have grown fourfold in 12 years. It's 400% growth in 12 years. and and and And again, Thompson Gear is huge. And there are a number of other of these ah business law insurance firms that have grown rapidly.
Speaker: And it's it's sort of changing the the the structure the dynamics of the market. And the the latest Thomson Reuters report actually shows that those firms, they call it in the the large category. So Thomson Reuters have those two categories, one's big eight, which has you know your Allens, your Herbotsmith Freehills, your um King and Wood Mallisons, those sort of the traditional tier ones. ah But the the next group, which they call the large group,
Speaker: Over the last year, profit per lawyer in the large group grew over 20%. the last six months, 27%.
Speaker: where profit per lawyer of the big eight, your traditional tier ones, grew by by around 6%. So it's not just in in size that these firms are growing, but actually in profit performance as measured by profit per lawyer. Now, maybe you can argue it's different profit by partner, but it's there's that's quite a significant difference. And and so that's...
Speaker: That's a fascinating trend and development and changing some aspects of the markets and and and requiring firms to think about sort of where and how they play.
Speaker: this this The third sort of key trend, and and it's partly related to that second one, is just this lateral partner movement. So the the pace of of change in partners moving from one firm to the next is um is at an all-time high. There used to be very good metrics on the exact numbers of those partner movements, but those numbers are slightly, and they're not and published as much, but just from um some of the trackers that the AFR have put in, so for example, in the M&A area, there's been over 12 sort of senior M&A partners moving over the last 12 months, you know, that and that's significant movement and and not just movement of
Speaker: you know, sort of baby partners, you know, people like Tony Damien, you know, who was, a you know, one of the the top, top M&A partners, you know, moving from Freehills to Asherst, you know, these some these are some significant plays.
Speaker: And so the the movement from from the one firm to to the next is is really a a significant trend. And, you know, And also, ah you know, people not just moving between the tier one firms, but to to tier two as well.
Speaker: And just that that at that partner level, those theres it's certainly not a sort of a friendly boys club, which it perhaps was 10 years ago. It's much more contested at that at their top end.
Speaker: um And there are lots of other trends that I can get into, lots of people asking me about private equity. um Yes, I think um there'll be some firms that will be ah going down that route. Personally, I'm anti-PE. I think it's um it benefits the incumbent partners um to the expense of future partners and future generations.
Speaker: And um yes, you can make an argument that perhaps The equity is helpful for investments in technology. ah But but you know by and large, law firms are low capital businesses. The tech is expensive, but it's not that expensive. Firms could quite easily go to the bank and get a loan if they needed some more capital or you know ask partners to tip in.
Speaker: Why would a partnership give away all their control just because they want to buy an AI app? i don't I don't quite get it um and and But look, and and there is a role and you can ask people like Dave Carney at Watten Carney would argue that the 30% investment by straight bat in their firm has been a significant benefit to the firm. It's allowed them to ah introduce both short-term and long-term incentives for their partners. So there's new forms of remuneration models for their partners. It's brought in new expertise. They've got straight back members on their board.
Speaker: um It's also ah given them a capital base to set up firms in in Singapore and and Thailand and and New Zealand and so sort of help their international expansion. so There's clearly a role for PE of some type and again, straight back is ah what they call a an income or a dividend PE firm. They're not a capital player. It's not a go-go in, turn it around and sell. It's it's a different and they only bought 30% so partners still to retain control.
Speaker: So there are cases for PE and certainly there's a case for external capital if you're a plaintiff firm trying to build a big brand and need deep pockets for that.
Speaker: ah But for your general commercial, full service, business-to-business law firm, I can see why partners are interested in in getting someone to buy they buy buy out their share and they can sail off into the sunset with a nice a nice fat paycheck.
Speaker: and But long-term, I don't think it's it's good and healthy for the for the firm. That's maybe another podcast. Definitely. Definitely. In fact, we're doing a podcast on um on that very topic. um I'm interested to pick up on a few things before before we get into but to the question we were going to talk about as well, which was obviously the AI question. i'mm I'm interested that um the issues that you've raised so far, the partner moves, the increase in market share of the tier two firms, et cetera, none of those really are are to do with technology. What do you think is driving it?
Speaker: What is driving these lateral moves? What's driving the growth of the tier two firms? I don't think there's one story. I don't think there's one narrative. and And so for some of the tier two firms, so I'll pick an example of a firm I'm quite familiar with, and I think it's okay speaking in this forum about them. there's a firm called Hall & Wilcox. And um I started working with them as a strategy consultant about 20 years ago, and they had 18 partners and one office.
Speaker: They've now got 155 partners and eight officers. So all due to me due to my good advice, of course. No, no. but it's um it's and And what's driven that growth? Well, for them, they had ah an insurance practice and there was clearly a strategic imperative to grow their practice because there was consolidation in the insurance market. The clients were getting ah more and more aggressive in terms of demanding you know lower partner rates, lower rates.
Speaker: ah but also national panels. So the firm said, look, if we're going to stay relevant to our clients, we need to get bigger, we need to get scale, we need to be able deliver a service still in a sustainable way and service our clients nationally. So, you know, a fair amount of their growth was came from trying to service the insurance market, but at the same time,
Speaker: they didn't want to become an insurance firm. They really wanted to make sure that they still retained a balance between their commercial practice and their insurance practice. So it was always kept at roughly 50-50.
Speaker: And so you know so their growth is, you know that's been their growth story um for you know some other firms, I think HWL Ebsworth, ah Juan Martinez was quite clear initially that you know they were aiming, heading towards a listing and doing an IPO. So they they wanted to grow very rapidly to to you know make the e valuation when they listed on the stock exchange as high as possible.
Speaker: um Again, and and and it's interesting, HW Ebsworth has somewhat stagnated since that that that ah IPO failed. So you know they've stayed up around the 280 mark.
Speaker: um Some of the other firms like Thomson Girl, HW Ebsworth, um I think that you know some of it is just driven by um the the ambition of of their of their key leaders to become a top 10 firm or become a top five firm and will you know really see sort of bigger is better.
Speaker: But also those firms, by the way they run those firms, adding in a partner or a team lowers the the shared overhead cost in a sense. So there's, you know, growing does bring some kind of economic benefit to to the to the firm.
Speaker: and And so it's um you know, for them sort of be bigger is is better. In some senses, it's growth for growth's sake, but it's, lowering the the unit cost and having you know a deeper bench in in key areas as well. So some of those firms have you know worked extremely hard at building out their corporate practice. And and you know so the growth has been in in selected areas where they feel they need not just one or two partners, but you know eight or nine or 10, and that's led the growth. so and and and And other times it's been opportunistic. you know so
Speaker: you know, Asherst vacated its brisbane Brisbane practice. And, you know, so, you know, those kinds of opportunities come along. And so that that's also led to some of the growth. So there's been opportunistic growth as well in all of that.
Speaker: We talked about AI right at the very beginning. We said we'd get into it. might as well do that right now. i mean, a lot of firms who are talking about the AI disruption, but we know that strategy changes much more slowly than technology. So where are you actually seeing AI shape or reshape how firms are competing?
Speaker: I'm not seeing it at a structural level yet. I don't think it's it's had that kind of broad brush structural impact. um What I'm seeing is is pockets of change or pockets of of things moving or or developing. And it's it's hard to to discern whether that's those pockets become a massive wave or a major trend as such. So it's it's it's very foggy and messy at the moment.
Speaker: And where those pockets of change, firstly, say, in and the number of clerks that firms have used. so I saw some data which showed in the Sydney market, for example, last year, some firms cut their clerkship intake by 70%.
Speaker: um So that's a you know significant drop. And then other firms increased it by up to 25%. I've been all over the show, but ah but you know for a number of firms, they cut deck their Clark numbers significantly. Now, whether that's AI related, I'm not sure, but you know that's a little...
Speaker: a little pocket of change or a pocket of in a change. ah You hear stories every day of within within individual practices of of pockets of change. um I was just with a firm a few moments ago where they ah deal with an international private equity player who gives them a lot of work.
Speaker: And that PE firm was demanding that they use AI to do some part of their due diligence. And so, and in and fact insisting on a particular application that be used. So they were, the client was saying, you use, you know, this this tool um and and do it this way, else you're not going to get our work. And so the firm suddenly,
Speaker: got the tool and learned you know what it it's about, and and and that drove a lot of change. And then you um on the weekend, I was ah was presenting at ah at a partner's retreat in Sydney, and they showed a chart of, of they use a tool called Legora, and um they showed the what usage it was of Lagora across the firm, across the partnership. And they and and there were clearly like five heavy super users amongst the partnership.
Speaker: And the person at the top, they they said, you know what why do you you know, what do you use it for? How come you're a super user? And he said, you know, what happened is that in in chris at Christmas time, he suddenly got a major matter And all his staff were away on on on you know on Christmas break and he had to do the work. So he said, well, let me give this Lagora thing a go. And and by by virtue of not you know having his team around, he was in a way forced to learn.
Speaker: And he now is a super user because he said, I hardly need, well, not hardly need, but my my team is doing much less work and I just use use this AI app in a much more profound way to do vast range of things. And they can see the rest of the rest of the partners are sort looking at him in in in ah in amazement. But, you know, that's another little pocket of change. You know, these these sort of early adopters in a particular area driven by necessity, driven by client demand.
Speaker: you know, so it's a little bit, it's a little bit sort of bottom up sense. And so rather than these sort of major structural changes at at the moment. The only other perhaps broader structural change is that significant majority of firms are investing in AI, that they've adopted some of these platforms and some of them are very expensive, not just only the license fees, but the support costs.
Speaker: the you know the added training and and you know getting people you know familiar and using them. And so firms are spending you know significant dollars and significant time on AI with a hope and a prayer that it's going to somehow return on that investment or keep them relevant. I think it's mostly FOMO that's driving it at the moment because yeah the the the ah ROI is is really not there.
Speaker: and and no one can actually really properly measure or ROI at the moment. And it's it's sort of everyone's taken off on this plane. It's an expensive plane and flying off into the fog and gray clouds, mostly gray clouds. I think there are some blue ones, blue patches there, which I'm happy to talk about.
Speaker: and But without the sense of the destination, the sense of the journey, it's um It's quite remarkable. I've been a consultant for 30 years and I've never seen firms commit so much money and time to something where they have no idea where it's going or what the return on investment is going to be or what the business case is. but it's really it's It's interesting. I want to pick up on something that you've alluded to, which is um about clients um client sticking with law firms and this whole power of incumbency because it it seems to me that If the tier two firms are growing fast, they're obviously winning work from tier one.
Speaker: there' ah the the the that The legal market has not grown any bigger. The amount of work in the market hasn't got any bigger, or or you you might tell me it has got a lot bigger. got it a little bit bigger. I mean, if you measure, again, if you go the Thomson Reuters data, over the last six months, um overall revenue across the market was just under 10%.
Speaker: And half of that came from price increase and roughly half came from demand came from ours. So there there is some some underlying growth. or Growth, but not enough to justify the growth of the... so So they're obviously winning work. They're obviously winning clients from other the firms. And it used to be that the stickiness of clients was you could be quite confident about that. What's your view on incumbency now? And how is how is that sort of... Is is it still a relevant...
Speaker: currency to be used by law firms? And again, I think in in this AI world, one of again, one of the slight distinctions between this technological revolution and and other ones is that this technology is easily as easily accessed by clients as it is by the firms.
Speaker: So you know if you go back a little while to first-generation AI, some of those apps like the Relativities and and some of those others, you needed fairly sophisticated it t team and you needed data analysts and specialists to drive some of the the software and you needed big data sets that were clean. And really it was only the the bigger commercial firms that could afford to, to actually get into those e-discovery systems, those due diligence systems, those, and so on.
Speaker: And so, you know, not, you know most in-house teams didn't have the capital budgets to do that or the capacity to invest in that technology. They're,
Speaker: the most sophisticated in-house teams just used Word and and Outlook and and maybe had a like a an in-house practice management system just to manage the work inflow and and and the control the matters in-house. Whereas this new tech is is actually the uptake in in-house is is actually stronger than it is in amongst law firms. So it at some level presents a threat to to law firms because the in-house legal can do some of that basic grunt work or at least do maybe the first stage of matters and then get you know their private law firm to to validate their work and take on all the risk um associated with that advice.
Speaker: um and and and then you know pay a much lower fee. So there are some some interesting dynamics with with with clients. But my view is that there is a shorter term window of opportunity for firms, which is based on incumbency, sorry, coming back to your question, which is really co-creating the future with clients.
Speaker: Clients are also sort of trying to work out how do we use all this technology? with Where is it relevant? Where is it not? What else could we do? And actually actually sitting down with your with those key clients where you have a good relationship, where you are the incumbent, and and and try to co-create the future and say, okay, look, this is all the work we do at the moment. Actually, from here on, we will...
Speaker: we we don't think it's a smart move for you to do this work. We'll will give it out to a managed service provider or we'll do this piece. And we're going to want you to do more of that and less of that and to, in a way, co-create that that alternative, but also potentially open new doors. So for example,
Speaker: um Some clients may be sitting on small claims that they don't prosecute or don't pursue because it's too expensive, but actually the new technology allows them to to pursue people who owe their money with ah with ah with a smart AI system and and suddenly they can access $10 million dollars worth of additional revenue.
Speaker: because it's there's now a low cost claims handling process that they can handle and run for the for the client. So in a sense, it potentially opens a whole range of new doors, but it's but it's ah it's a threat to some and it'll be threat to some parts of the practice and some partners.
Speaker: and and open new doors for others. And that's that's going to be really challenging. You know, you sitting there in the BD department and you have to manage an interaction with the client where there's going to be winners and losers.
Speaker: it's it's It's a tricky conversation. But but thek putting your firm hat on, I'd rather be the first firm that has that conversation with that client than the third or the fourth.
Speaker: And so there's the huge benefit of of incumbency and co-creating the future, working out what is, as I said, you know new products or and you know new new areas, taking out costs in the relationship and and are reframing the relationship with ah with ah sort of in an AI world. And and again, that's not a one-off conversation. I think it's an emerging one, but you you want to start that sooner rather than later, I think.
Speaker: So what you're talking about is not taking clients for granted. it's it's It's looking at your major client list and asking yourself the question, are we talking to them continuously about what we can be doing better, more efficiently?
Speaker: yeah it's it's it's more strategic than that. that's it's It's beyond client listening. It's beyond that sort of traditional feedback, almost CX kind of kind of conversation, which is, to my mind, is great. And there's not nothing wrong with that. You want feedback on how we did on that last big matter.
Speaker: And you know do we are we responsive? Did we deliver value? Did we you know give the right technical advice? What's the quality of documentation? Were we accessible? you know All the the usual or good the good things. I'm not taking away from that. But this is a more strategic conversation.
Speaker: around you know where do we play and create value together and what work do you do what do i do what do we do how do we get the best out of the relationship and you know make the most of of our collective resources and strengths and play through each other's strengths and that's a strategic conversation beyond just typical client listening When when you when you go into a partnership and you look at their strategic plan, what are the most common assumptions that you think are now outdated? Do you look at plans now and like you've just sort of corrected me and said it's bigger than just client listening. Are there are there other areas where you think, come on, this is this is a bit five years ago, you should be thinking a bit more contemporary now?
Speaker: Yeah, look, it's it's quite hard because every firm is a little bit different. So it's it's quite hard to say, oh there's just one thing. But i i do think that the pace of change is just is different to what it was. And and the future is not what it used to be. i know that sounds a bit cliche, but it's it's just that we actually um with we don't have a really good insight into the future.
Speaker: um if i Let me go back one one moment, Graham, and just answer this slightly differently. But if you go back 30 years across the Australian legal market,
Speaker: There's probably been only two changes to date that have been really disruptive or significant in a strategic sense. Only need two, right? there was the There was the nationalization of the profession. So these these these state-based partnerships came together and form formed integrated partnerships at a national level.
Speaker: And then the entry of international firms about 12, 14 years ago. twelve fourteen years ago Really, those have been the only two most, you know, everything else has been, yeah there's been, not noise, but, you know, it's created a few winners and losers and there's firms that have succeeded and not, but structurally,
Speaker: So really those two have both been significant thing. AI is is and is potentially another one of those at the at the at the mega level, at the big picture level in my view.
Speaker: and But the problem is at the moment we're in this fog. We've all taken off on this plane and it's foggy and we don't know where we're going. And so how do you craft a strategic plan in fog, right? How do you think about your business and and and and in ah in a foggy world?
Speaker: And there's ah this I think ah think just sitting on your hands is the wrong response, but there's a few things that you you might want to be doing. And and the the one is at a at a more granular level is actually working practice by practice, partner by partner in your firm to ask the question, if this AI thing does deliver on its promise, if we fast forward two, three years and it really is this powerful tool that can do this, this and this.
Speaker: What will your practice look like? What will be the role of your partners? What will be the role of your juniors? They're not going to be the same as they are now. What's that shape of the practice? How are you going to price? How are you going develop and train people?
Speaker: And so really start asking those questions, developing that scenario now and and get people starting to think about the stuff in a more profound way that that the as i said the future is not what it used to be. So I think to start that at a granular level, partner by partner, practice by practice, doing that kind of scenario planning,
Speaker: And it's it's time consuming. It's a little bit scary. There's also an exciting part in that too. And i'm again, the blue the blue sky in the journey that I'm happy to go back to again.
Speaker: um but But it's it's I think that is what you need to be doing. But at a more structural level in the strategic plan, you just if you accept the notion that this is going to be quite a big change, but you're not sure of the change to what,
Speaker: then the thing that your strategic plan must be about is creating a more adaptive and nimble and and and faster-paced firm.
Speaker: right So it's not it's not moving the firm into a particular market or growing in the sector or you know in your ways of thinking traditionally about strategy around where we play and and you know all those sort of focused parts and positioning and brand and all those things good things. I'm not taking anything away from that, but it's what you can work on is how do we become ah more agile, a more adaptive, a more nimble firm that's just quicker at picking up on trends, making decisions, making
Speaker: quickly implementing them better and not just being slow coaches, not just being, you know, this, you know, just a dragging, you know, you know, dragging, dragging your sort of feet on, on every decision.
Speaker: and And so it's it's that pace of change, it's the the the being future ready, being comfortable with, you know, looking at this technology, ah challenging assumptions.
Speaker: and And that's, it's a cultural piece and in a way. and so um he has a strategy guy talking about cult, but I think it's, at its foundation, because we can't be super clear on that future, the thing we need to work on is is getting ourselves ready for ah ah you know as a different kind of future and be able to you know be be ready for that change that's going to happen.
Speaker: and And clients of firms are obviously facing this same fog and all these changes as well. So in this moment with everything else happening, do you see firms getting better at understanding their clients, keeping up with the depth at which they need to understand their clients? And what role are you seeing BD play in staying close to clients in this moment?
Speaker: Yeah, I probably can't answer that first one. You probably ask the clients how they see whether the firms are listening or not, more than anything. And the beaten data would suggest they are. Like the the beaten data, particularly in the legal world, you know, the client feedback generally overall is is is pretty strong and pretty good and positive.
Speaker: And as I mentioned before, firms have continued to grow and, you know, they've there's 10% growth across the market in the last six months. And by all accounts, most of my clients are still ah doing very, very well. And it's across, and and what's interesting in the last, this last growth period is that it's sort of across the board. It's, it's not just one area or it's not just cyclical practices or counter cyclical practices you in one sector or not, or you know there's ah it's just like driven by a Royal royal Commission, you know there's there's quite a the growth has been quite widespread across firms.
Speaker: And well, that's one indicator that you've got clients that are happy, is that they're willing to to to continue to buy and rebuy. So i i think firms are doing well, and I imagine they've been well supported by their by the BD teams in in doing that.
Speaker: So it's it's a little bit hard for for me to to to say, but i you know I do think that the BD teams and the contemporary BD teams and BD managers I speak to, who do see AI as um as creating uncertainty,
Speaker: And therefore, leaning sort of leaning into that and starting to bring those conversations up when getting feedback from clients, starting to not just run away, but but to lean into the uncertainty and the opportunity and helping the partners, but also the clients work out this future. So I do see that they're very much coming into to the mix.
Speaker: When you're speaking with managing partners about growth, I wonder how much BD and their, what we would call their growth engines, their BD teams are part of that conversation. And I suppose part of me asking that question is reflecting back on something you said right at the beginning where you named a few firms that have had such amazing growth, including profit growth. And you included a couple, you know, Mills Oakley, and Thompson Gear, that actually don't have really large BD teams. So it almost feels like, you know From an organization that spends a lot of time talking about the value of BD teams, I wonder how much this is part of the conversation, if you have any reflections on that.
Speaker: those Those firms you know relative to say those tier one practices much have much lower BD teams and or smaller BD teams, and but ah you know those firms have set up a model where partners are incentivized and to do a lot of the BD themselves. And so it's it's um it's sort of structurally different and and and the both can work. So it's I don't think there's a once again a one size fits all.
Speaker: You do see in some situations where BD plays a very, very critical role in those client conversations and prospecting and adding enormous value from the insights, the client ah research, the market intelligence,
Speaker: to you know drive those conversations towards getting more work. um And then you see in other situations where BD is relegated to be a note taker and a convener and and and it's in ah and they're just not getting as much as they could and the partners, and sometimes it's you know it's really the partners who just tell the tell the bd people to shut up and and so it's you know you do see you know these different roles play out and it varies across firms and you know it's i imagine if you constantly in the type two firm where you're just told to take the back seat
Speaker: told to just to you know set up the meeting and and take notes, ah it can be quite dispiriting and be much more fun to work in a firm where you know you you do have a ah valuable role to co-create and co-develop those client relationships.
Speaker: And you can, you know with the partner, because they they have you know they've got their legal knowledge and expertise, but you can, you know a BD person can bring huge value to those to those meetings and those conversations.
Speaker: I think you hit on something really important um at the start of that, which is how partners are incentivized. And I think you get the behavior and you get the results based on performance reward systems. So,
Speaker: You know, firms say that they want growth, but many of them are still partnerships. And I wonder if you think in these partnerships, which are often rewarding people on individual performance more than collective performance, is that a real barrier to growth? And what are your reflections on that?
Speaker: I think the easy answer is to say yes. But I i actually, i think it's, and I observe range of firms that are high growth that i have you know completely different partnership structures and remuneration models.
Speaker: So I observe high growth firms ranging from pure lockstep through to you know eat what you kill. And i I see low growth firm, but I see firms struggling across that spectrum as well. So you know is it just the REM model? Is it the way partners are remunerated and measured that's driving everything?
Speaker: I don't think it's drives everything. I think it's clearly an important factor, but much more important is really around leadership and and culture in firms.
Speaker: And obviously the REM system and measurement reward shapes that, so these things interrelate. But i you know i can I see firms, high growth firms across that spectrum.
Speaker: Yeah, it's sounding like there are many different levers here. And if we look at the examples of the fastest growing firms, every lever is on and everything is working, be it culture, be it report. And each of those firms has quite different models, not you know, they don't fit the same model. And so you just to say, well, you know, if you have one model, it's going to drive that behavior.
Speaker: not so sure. if we could bottle that magic one thing, but yes, there's lots of factors in play. um Look, I wonder if you do have any thoughts on firm's sales capability when it goes to growth. And this could be um partners who are enabled through coaching. This could be structures of BD professionals. So in whatever model, Do you think the industry as a whole is properly invested, under invested in their sales capability as compared to their own clients? And do you have any reflections there?
Speaker: Katie, you're going to hate hate me because I keep on answering in a similar way. like it It depends. i'm ah I'm a consultant at art. I can't help it. But imagine you've got a big practice focus on government clients. you know Government clients wouldn't have much sales capability. So clearly the law firm would have much more sales capability.
Speaker: than if you ah you know your practice was focused on the you know the IT digital tech sector, which has you know huge investments in in sales and technology and account management and all that stuff. So it yeah I don't think you can make the comparison relative to clients. It depends on which clients that you serve.
Speaker: um does firm Do firms over or under invest? I possibly would say if there was one area where I think firms have under invested is in pricing and in value capture.
Speaker: And so it's it and i think that the the big firms have had pricing managers and pricing teams for a little bit. I think it's been less common at tier two.
Speaker: But particularly in now as we go into the AI world, the how firms capture value in this new world and how they do that practice by practice, partner by partner, client by client is going to be a massive issue.
Speaker: And the BD teams and and so you know if b is about growth and revenue growth. You must remember that revenue growth Revenue is is price times volume.
Speaker: right So there's two levers to revenue. There's price and there's volume. And I think BD in the main in law firms has been volume oriented.
Speaker: right How do we get the next big matter, get get more more hours, get get the next mandate? they need to be just as good on the price lever going forward. And I think that's possibly where where there where there needs to be an uplift.
Speaker: And as I said, I think the big firms might might have a a slight advantage because they've they've been at that for some time. And um and and and the sort of world of pricing is,
Speaker: you know there's not There's not a huge talent pool in there, and and so it's it's going to be an interesting one. But for the the BD people to upskill in their pricing knowledge, their understanding of of practice economics, of you know working through the various tools and and and concepts and theories in and around pricing,
Speaker: If the firm can't hire in an expert or, and I can tell you that the good ones are very, very, very expensive, um you know, to how they're going to sort of make or build that own their own capabilities, strengthen that muscle as as a BDE team. and And I think that's,
Speaker: if I had to generalize across you know where where BD needs to to lift its its strength, that would be in in that one, particularly as with within the AI world.
Speaker: I suppose tapping into you as ah as a consultant, as you say at the end now. So if if you were going to go into a meeting with a managing partner today and you know you were writing that firm strategy for the next five years, what's the single one thing you'd go in thinking, I'm just going to make sure I'm going to insist you prioritize and focus on this one thing?
Speaker: I've said it before, but I just i just do think it's around the the impact of AI in by practice by practice. I think you have to take that more granular view. It's not a binary thing.
Speaker: It's not going to be all good and all bad. um but i But i I'll come back to my blue sky point that I that i do think that there's a lot about AI, which is quite threatening and quite you know a big risk, particularly to firms' profitability. Firms have made money through through leverage, through they the pyramid of of selling the time.
Speaker: of of junior and mid-level lawyers with a nice healthy markup. and and And now, potentially, the role of those junior mid-level lawyers is such that they'll do a lot less time on matters.
Speaker: And if firms are still ten selling the time, it just means it means less revenue and and ultimately less profit. If you also then combine the cost of the technology and the support and so on,
Speaker: So there's a very much a defensive mindset that's going on at the moment. There's uncertainty and there's the firms are playing defense. And and i'd and i'd i what I'd like firms to do if I was advising as ah you a managing partner on strategy is yes, you've got to think defense, you've got to think of how this is going to, how do you where do you preserve your your profits and how do you move into a new world?
Speaker: But it's also about offense. I think that potentially if you can, going back to that earlier commentary around incumbency, there's an opportunity here to say, well,
Speaker: Where else could we add value? you know where What else could we do to be more relevant to clients? In what way does ai open new doors? and and and And again, another way to look at that is one one view of of of the practice of the future is that you do have partners who are super partners. AI is is actually is gonna add huge power and agency to partners. It's gonna make them, give them so much more capability to do so much more analysis, so much quicker.
Speaker: you know that Suddenly the partner your partners don't just be average partners, they'll be super partners. and And so that's that's incredible, like just you know just thinking about your partners as super partners.
Speaker: But then also at the same time, your juniors will be doing very different. The role of juniors and mid-level will be very different. They're going to be you know potentially agent coordinators and managers. you know They're they're going to be doing very different types of work and and so on. So it's reconfiguring and redesigning all those roles.
Speaker: but But even just on that first point around partners as superpartners who have access to these incredibly powerful tools, who can get access to incredible analysis and insight quickly.
Speaker: Well, how do you deploy that superpartner to really make a difference to clients, you know to really add an open new window revenue opportunities, new growth areas,
Speaker: and and imagining your firm with ah this cohort of super partners and the blue sky that that then suddenly creates. And and so if you're thinking back around strategic planning, it's it's playing offense and playing defense.
Speaker: and And that's a little bit hard and and the messaging might be a bit confusing. So maybe you... you you You have to be careful in what you communicate with the rest of the firm. But it's it's it's sort of in it's in that combination that that I think where opportunity lies.
Speaker: But we we we're playing were flying flying in the fog. And so it's it's it's tricky and it's it's complex and it's um it's fascinating and interesting and scary all at the same time.
Speaker: it It absolutely is. Joel, you've been an amazing guest. Thank you so much for all of your insights today. There are so many takeaways that we will be using um with our with our clients. And thank you for your time. My pleasure. Thank you.
Speaker: All right, Graham. Well, what did you think? um As always with Joel, there's so much content. and I mean, you know he's so bright and he's obviously got so much knowledge having spent 30 plus years working in the professions in Australia. um It's why he's one of one of the most revered voices and one of the most go-to people for opinions um on what's happening, particularly in the legal industry. And it was interesting that Despite the fact that we started off with good intention talking about broad professional services, it really was our it really was a law firm business development, strategic growth conversation, which was great because you know our law firm clients will like that.
Speaker: um And there was relevance across the board, across some the things he said to other businesses. But um that the thing that stood out for me, when he mentioned at the beginning that in his whole 30-year career, he's never seen so much money being spent by law firms on technology, AI specifically, without a clear strategy. um I find that you know quite interesting because I wonder what effects that will have down the track.
Speaker: you know If we've got firms spending loads of money without a clear strategy, if they back a loser, what is that going to mean for their profits? What is that going to mean for that business? um But really, I think the most interesting thing for our BD community listeners or firms who are looking at a growth strategy was around this conversation with clients, how it needs to change, you know, how it needs to move from traditional sort of client listening to a more creative conversation about value um And recognizing that the clients have choices, both themselves, as in what they can do themselves through technology, AI, etc. But also through the competition in the market.
Speaker: And therefore, when he said, you know, I'd want to be one of those firms that's having the first conversation rather than a firm that's having a conversation down the track, um recognizing that you may well lose work.
Speaker: with some of these clients but if you don't have the conversation about that you're not going to win the other work that might come oh graham you've covered such a lot there i agree that um joel's full of opinions which uh which i really enjoy and and we get a lot of value from and on the point of ai i mean he's absolutely right we when he says that we are trying to strategize in a fog every business is trying to do that in this moment of change so you know i have sympathy for firms who ah could be accused of you know investing without strategy. I'm sure they think that there is a strategy, but you know when you're making a strategy in fog, ah you know it has to it has to change and and and and it and it has to be agile and it may or may not, um with hindsight in a few years, have been the right direction to go. um You know, to your point of where does it leave firms who have invested very quickly and don't make a winner? You know, are speaking to a BD director the other day who would say that they had purposefully held their firm back from investing in products over the last 18 months. um through a strategic choice to sit and wait um and see what the sort of next gen and next gen and next gen of the products would be and wait until something is the true solution. And I think there's something to be said said for that.
Speaker: But the reality is each firm has to make its own calls this fog. To your second point that you made, and you were talking about your reflections on the the discussion that that we had with Joel around clients, you I was really thinking about that piece on, he was saying, a client listening, client experience, you know that's great, but it's not enough. And actually sat back and thought he almost spoke about them as if they would be separate, this sort of strategic client co-creation of value almost as a separate thing to, yeah, get we still have to do the client listening client X piece. And that actually sat back and thought, well,
Speaker: I don't know that that I would see them as separate. Shouldn't any client listening, shouldn't any client conversation operate in that strategic place? Shouldn't actually, instead of we go, we need a different layer on something different, it will be the same thing. yeah But regardless, I think definitely... um Firms could all be better um at staying close to and understanding their clients and being on the journey with them, not strategizing almost, you know. But what I think getting your point now, which is really interesting, because we know these firms so well, is that they love to hang a strategy on a trend. The client listing was a trend. And and and by its nature, it is yeah like questionnaires on post-matter briefs, post-matter debriefs, et cetera, cetera, cetera. They would almost need to be told that it's not called client listening anymore. It's called client conversation or it's called client something or other. for them to have permission to adapt the conversation to something else because because you know that's like. Oh, absolutely. It's all like you know brand strategists should just be working on branding a particular type of BD initiative to the partners internally. I mean, we're all talking about sales enablement at scale. you know This is not something new, but the term that everybody is using has become the ongoing term. So you're absolutely like... I've got a question for you, Graham, about something else. You'll you'll note one of the questions I asked Joel just you know called what I felt almost was this little elephant in the room at the beginning of the podcast, which was you know naming a couple of the fastest growing medium-sized firms, Mills, Oakley, Thompson, Gear, and going, oh, that's really interesting because these are not firms that have really invested in you know large and senior BD specialists. you know, as as ah as a recruitment agency talking to people about the value of these BD engines, let's actually call that. And and I thought his point on it coming back to the strategy of partner incentivization around doing their own winning of work was interesting.
Speaker: But I think there has to be more to it. And and I wonder if you've got any reflections. Well, I think he mentioned, didn't he, that partners are in in those businesses are incentivized. It goes to that whole, you know, if you're a lawyer in this business, you are expected to do business development. But it also goes to, and I think this is interesting, if a firm grows very, very quickly like those firms have, their business services infrastructure hasn't kept up in the same way that it but it went when firms have been you know grown um quite large over a long period of time, they've built those business services and they've you know they've added on more and more and more resources into teams. When you start with nothing, it's very easy to leapfrog into a place where you just choose the business development function or the HR function or the tech function that works for your business at that time. And I think these big teams have to be very cognizant of the fact that with the changes coming from technology, with the changes coming from bio behavior, etc., that the nature of their jobs will need to change. And there will be there will be fallout. I have absolutely no doubt that there will be fallout. And we're already seeing...
Speaker: in the new mandates that we're getting, that what people want to hire are specialist coaches, people who have but who have sat in front of clients. mean, you and I had a meeting with ah um a managing director of a business who said, I don't want to hire a business development and client person who's never sat in front of a client on one work.
Speaker: How can I possibly be coached by someone that's never done it? Yes. When he said that, both you and I were like, oh, thank goodness. Thank goodness. But the reason he can hire a very senior client person is because they haven't got 10 other people in the business. They don't have to make headcount loss to hire. They're starting from nothing. And I think that's going to be really, really interesting for the sector. Yeah.
Speaker: It can be really hard to sort of turn the Titanic. And if you've got a team of 70 that, you know, have a legacy of having done this and having done that. Yes. There's so much complexity, as many of our listeners will know, to the transformation of that. I think in a way, if you're starting from from nothing and you're sort of a growing firm, um there's nothing more exciting than going, let's craft a business. And in fact, why given firms have such drastically different strategies, Given the conversation about depending on which client groups they're looking at, which sectors they're going at after, you know how they' how they're built, how they're incentivized, there are so many different levers to go into this and and firms are not equal in in these and they're all different. Why, therefore, do people come to us going, can you tell us what a typical structure is? Can you tell us what a typical salary band is? Because you shouldn't start.
Speaker: why start what other firms are doing why not start with what's the business problem to solve here what's the business opportunity to leverage here actually more positive way of that in the same way you know if you are creating a bd team of the future why think that you know there has to be parity between the bd person looking after x group of clients or sector and the bd person looking after y group when in title and salary and job description it makes no sense to try and have any parity each one should be created for what it needs to achieve I mean I know that is throwing the whole industry on and and a little bit there but I think that could be the future
Speaker: Well, i think I think you're absolutely right. And I think there will come a time when we'll look back and um we'll say it went on, in in a way it went on for so long, too long, that firms just replicate the same business service structure that all their competitors have. You know, there is definitely in the legal industry, particularly there is FOMO. chuck Joel even mentioned that. There is a case of what does our major competitor do? Well, let's build our business like them instead of saying, what do our clients want? Let's build our business for what the clients want and and what our partners want.
Speaker: um And so, you know, interesting times. It was, you know, the fact that you mentioned the Titanic and he mentioned the fog, you know, they both go together, don't they? they let but let let Let's hope there's a that's like there's a enough let's hope there's a lifeboats for all of us. or Only your mind would get us to that conclusion. you I love it. It's a great place to wrap. What another fantastic and and really interesting conversation. Yeah, I can't wait for the next one.
