John Monks from The PACE Partnership details the procurement process and the role that procurement professionals can play.
Whilst procurement professionals were almost unheard of ten years ago, many legal firms are beginning to face them when they try to win and retain commercial clients. The Royal Bank of Scotland’s recent legal panel review, which used the Belgian procurement group Freemarkets, caused consternation among lawyers who complained about the tender process.
Quite often the procurement role in a pitch or panel review is perceived by law firms to be to ‘drive down the fees’. Procurement professionals are often seen as obstacles that get in the way of building a relationship with in-house counsel and other decision-makers. This perception may be valid in some cases but in others the role of procurement is to determine what value legal advisers can bring to the client.
Value versus cost
Value is not the same as cost and yet sometimes the two are confused as the same thing. Value reflects what someone may want to get from their relationship with a particular law firm - such as all the technical requirements that need satisfying and the sector knowledge sought. It may also include the process efficiencies someone hopes to gain and any benefits that an advisor’s knowledge will provide. Cost is simply how much someone is prepared to pay. From our experience, being successful in procurement-led pitches and bids does not necessarily depend on offering the lowest fee. It does, however, rely on firstly understanding the value being sought and then articulating how the firm will deliver it.
To bid or not to bid?
It has been widely reported that the cost of pitching for new business is significant. Over recent years, with the legal market becoming more competitive, many firms have seen the cost of involvement in individual new business pitches run into several thousands of pounds and sometimes for no return. Indeed, the University of Reading recently estimated that the cost of tendering is equivalent to three per cent of the fees which the professional advisor will charge if successful in the pitch. This investment should be worthwhile if the bid is successful. If unsuccessful, then the pitch has been a huge waste of resources and will be demotivating to all involved. It is still rare, however, for a firm to decline an invitation to tender.
Whether an invitation to tender involves procurement professionals or not, firms should ask themselves whether responding to the tender will be the best use of their resources. Responding to every tender invitation does not necessarily win the profitable business that secures long-term fee income and growth targets. From our experience, legal firms are less likely to win a bid if they have little or no prior knowledge of the client or their business. Successful firms usually fully understand the decision-making process and have developed a relationship with all the decision-makers and their influencers, including procurement professionals. Invariably, they also know the incumbent adviser and understand that firm’s particular strengths and weaknesses.
Understanding the client
When responding to a pitch we therefore need to know as much as possible about the client to prevent any offer we make being ill-informed and unsuccessful. The quality of our knowledge (which in turn will influence our competitiveness in the pitch) will depend on the information we manage to gather. Our information gathering will satisfy a wish-list of our ‘need to knows’. These will help us understand the client’s business and competition, make us aware of the current commercial issues that will affect it and remind us of the key industry development that will have an impact on its business. Quite often, the invitation to pitch provides us with some information. Successful firms, however, invariably draw on many other sources to build their knowledge - published literature, internal sources, suppliers and other client contacts.
Understanding decision makers and the decision-making process
It is imperative to identify the key people that we need to convince at the client organisation and what they will be looking for. This includes the procurement professionals. Again, firms that are very successful at winning business tend to ‘map out’ both the decision-making process and the individuals involved. In doing so, they identify who will become involved in the process and at what stage. This does not only include those who will make the final decision - it also covers ‘influencers’ in the decision-making process. These may be those affected by the firm’s work, those with specialist knowledge or those who screen out bidders at different stages of the process. An understanding of all these people affects the people included in our ‘pitch team’. We too need to consider who will be our key players, influencers and experts. Those firms that grasp the technical skills, commercial knowledge, industry expertise and personalities being sought, and then draw up a team which reflects them, are often very successful.
What value is being sought - needs versus wants
By establishing who is involved in the process, we can determine the basis of decision (i.e. what value each person is looking to gain). This will cover both explicit and implicit factors. The explicit factors or ‘needs’ are more than likely to be the technical requirements outlined in the invitation to tender. The implicit factors or ‘wants’ are all the unsaid requirements that individuals at the organisation are personally looking to satisfy - such as not only having technically excellent advisors, but also ones who are likely to be compatible with the client’s culture and its ways of working. These will not appear in the invitation to tender document and so will be up to us to find out. Addressing the client’s needs will give us a ‘tick’ in its procurement criteria. By understanding all the different wants at play, we will be able to decide how best to package our offer and how best to communicate what value we plan to bring. The wants help us to differentiate ourselves from the competition and win the business.
Getting the right people
Some clients are very accommodating about making their people available to advisers in a pitch process, whilst others place more restrictions. If a client is being particularly restrictive, then we must question whether we will really be able to do the pitch justice. We should always strive to identify all individuals involved in the decision-making process, including the procurement professionals, and earn the right to meet with them. To do this, we should try to understand what they are looking for from their advisers and what we need to do to help them achieve their aims.
Influencing the right people
Using the information we have gathered, we can then develop attractive solutions. In doing so, we may need to influence several or dozens of people. Successful firms tend to formulate a campaign or plan at the start which they modify as their understanding of the client improves. This campaign typically includes an analysis of the decision-making process, based on all the facets above. It determines who has more or less influence and the order in which they need to see people.
As mentioned before, some firms allocate or ‘matchmake’ people in their own organisation to build direct relationships with specific decision-makers and influencers at the client firm. We have even seen firms use their own procurement or purchasing person to build a relationship with the client’s in order to ‘speak their language’. Matchmaking enables us to build allies within the client’s organisation. Allies in turn feed us vital information that we can use to meet all the client’s different needs (and in turn differentiate our bid from our competitors’). Allies also help us to identify the client’s past experiences and assumptions of legal advisers.
However, it is not enough just to allocate our people and tell them to build relationships. They need to be taught how to question and listen carefully. All information needs to be brought back to the firm, shared and analysed so the ‘map’ of all the different needs and motivations is accurate. Procurement professionals cannot be ignored in this process. They have motivations just as any others in the decision-making group have. It is therefore fundamental that we establish exactly what they are looking for, what degree of influence they have and what solutions we can offer.
The solution - stand out and be honest
Our research shows that the majority of companies are looking for a responsive, accessible and personal service. They are looking to see commitment to their interests, proactivity and pragmatism. They are also expecting to gain value for money. In reality, our major competitors can invariably offer the same as us and to an equally high standard. To differentiate ourselves, we need to present a solution that is completely tailored to the client’s organisation and its requirements (both explicit and implicit). We also have to practise what we preach. That means being honest about our capabilities and not over-promising and then under-delivering.
How to handle the price issue
We have said that procurement helps a company achieve the value it is seeking for a particular cost. Fees are still a key consideration in the decision-making process but, unless our service is a pure commodity where the only difference between competitors is prices, the client will be making a judgement based on both price and value. While price needs to be competitive, our real efforts need to go into communicating and building value in the eyes of the client.
The value the client puts on our solution will depend on a number of things: the importance of the ‘problem’ or need and its urgency, the benefits which it derives from the solution, the number and quality of potential alternative suppliers and the corporate and personal implications of getting the project right or wrong. The pricing of our work will take these factors into account. We should also factor in our knowledge of the existing adviser and the real needs and wants which we have identified.
Believe in the price
The price we get will also be determined by how much we believe we, or our solution, are worth. If we are uncomfortable about the price, this will become apparent to the client. In our experience, a major factor in deciding the rate which can be achieved is the professional’s own confidence in what the solution is ‘worth’.
Handling fee-resistance - don’t put yourself down
In cases where the client questions our fees and says we are too expensive, we should not immediately drop our rates. Instead, we need to find out more - such as what we are being compared to, the details of the competitive offers and their rates. This information may be hard to ascertain, but once we have some idea of the difference in price and the difference in solutions between ourselves and our competitors, then we can communicate the extra benefits for the extra price we are asking. We should not resell the benefits that are common to a number of the alternatives; instead we should focus on the difference. If the extra benefits we offer are not worth the extra price then the client should buy from the competition.
Price is always likely to be an important factor in the client’s decision. Being successful in procurement-led pitches and bids should not depend on offering the lowest fee. Our challenge is to build the value of our solution in the client’s mind so that the potential cost of not using us outweighs any premiums we can charge. The value derives from understanding the needs and wants of all concerned in the decision-making process and offering solutions which match these. Above all it still means building a relationship and differentiating our firm from our competitors.
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