Stories abound these days about general counsels wanting their outside law firms to help them with innovation and technology efforts. My own conversations indicate that the real wish goes a step further. General counsel want their outside firms to bring them measurable value with innovation and technology initiatives that align with their legal and, more importantly, business goals. Even a quick scan of a recent survey results from Thompson Hine will have you agreeing with their assessment that there is an “Innovation Gap.” Only 29% of participants said that their outside firms have brought them “significant” innovation.

Is it possible that an increasingly common practice in corporate law departments is a solution to achieving these innovation and technology goals?

Panel convergence (or, as I sometimes call it, panel consolidation) is now a popular approach in corporate law departments under pressure from CEOs and CFOs to gain control of legal spend. In some cases, making legal spend predictable and more certain can be more important than cost reduction, although fee discounting is commonly associated with panel convergence. The concept is a simple. A legal department puts out a request for proposals (“RFP”) for firms to pitch for a place on what will be a small and select list of approved outside law firms on the panel. Firms complete what tends to be a very long and complex questionnaire, firms are selected to present in person as part of a “beauty contest,” and finalists are selected.

Only the firms on the new panel list are eligible to receive work from the law department. Not making the panel will have drastic consequences for outside law firms. In most, if not all, cases, the convergence results in a dramatic reduction in the number of outside firms used by the law department.

I like to trace the notion of convergence back to quality pioneer W. Edwards Deming, who believed that by reducing the number of outside suppliers (he went so far as to suggest getting it down to one) and working with them to get aligned on business goals, you could achieve excellent business results. In the legal profession, the Dupont Legal Model and Jeff Carr’s ACES model are examples of this approach.

Some of the overarching goals of a panel convergence effort are:

You can probably think of other goals as well.

The results of these efforts are mixed. Reducing the number of outside firms and achieving some kind of price discounting or cost control are probably the most common “wins.” However, my friends in the legal pricing world often say that the discounts tend to be smallish and law firms increase hourly rates to adjust for the discounting. Convergence efforts are difficult, time-consuming, and can raise all kinds of difficult issues, especially when longstanding outside firm relationships are put in jeopardy. The work on the finalization of the panel can be so difficult that the ongoing follow-up work of pursuing all the benefits of convergence is neglected. I talked to an in-house counsel who said that her law department hadn’t updated the firms on the approved panel in fifteen years.

Other common benefits that seem to take effect are enforcement of entering into specific engagement letters, staffing directives, timing of invoicing, e-billing, and participating in outside counsel management systems.

However, the goals of business alignment, value generation, and innovation often get lost in the process, in spite of the fact that many outside panel RFPs specifically address these issues. Just like firms often answer that they do literally every type of legal work, law departments often let firms get away with saying that they are “great on innovation too.”

I want to look at how panel convergence can, perhaps paradoxically, act as an innovation destroyer if not properly tended, how panel convergence should, if you follow good, often commonsense practices, act as an innovation driver, and suggest some practical action steps for you to consider.

Innovation Destroyer?

First, an observation, perhaps controversial. Panel convergence efforts do not achieve as much as they could because corporate legal departments do not appreciate the power that they have in what is now a buyers’ market. In simplest terms, outside firms under competitive pressure to stay on a panel or gain access to a panel are more willing to negotiate than you might expect. It is a huge benefit for a firm to get on a panel. If a firm is not on a panel, it is often extraordinarily difficult to get the firm added at a later point. If #BigLaw firms will not move enough for corporate law departments, many perfectly capable mid-market regional firms will do so. This buyers’ market observation applies especially to innovation.

There are three points where panel convergence efforts can damage or destroy innovation goals:

RFPs.

In too many cases, panel convergence RFPs for outside firms run into the hundreds of pages. Even the section on innovation or technology can be lengthy, not on point, and cobbled together from multiple sources. In the worst case, a law department might abdicate responsibility for the RFP language to the procurement or sourcing department. I’m not sure that inhouse counsel needs to know much more at the RFP response stage than (1) what are examples of what a firm actually has done and are currently working on, (2) what would the firm plan to do specifically for the law department, (3) what people and infrastructure does the firm have for delivering innovation projects, and (4) what data demonstrates the firm’s level of commitment to innovation? If I have answers to those questions, I can probably make a decision about whether a firm passes the initial screen.

When you have lots of detailed RFP questions, you drastically reduce the chance that evaluators, especially lawyers, will read all of them. It’s a simple case of mathematics, especially when lawyers are “voluntold” that they are on the panel convergence project. You also increase the chance that the questions will be too vague, confusing, and even inapplicable. In other words, they might make things cloudier rather than clearer than a simple and direct approach. If you don’t feel comfortable with your RFP questions on innovation or whether they are working for you, you might want to get an outside second opinion. Similarly, a firm competing for a panel spot might consider the innovative approach of providing the answers to the four questions in the preceding paragraph as an executive summary or infographic.

A second factor in the RFP process is sending the RFP to the right firms and obtaining a large enough sample, especially when the lawyers involved in the process will be advocating for few proposals to evaluate. If innovation is a goal, you should start with Dan Linna’s Law Firm Innovation Index. Look to firms presenting at innovation conferences, firms that have Chief Innovation Officers, or other indicators of commitment to legal innovation.

RFP and Pitch Evaluations

I see RFP evaluation as a screening process to determine who gets to make a pitch, much like resume evaluation determines who gets an interview. The actual pitch is what gives you the information you need to make a decision.

The process can go very wrong in both places.

The biggest danger at both points is simply taking outside firms at their word. I have no doubt that every single law firm will tell you not only that they are great at innovation, but their future plans on innovation are amazing. Your task is to cut through the fog and obtain data and evidence that you can evaluate and use to make good decisions, or, at the very least, “good enough for now” decisions.

Another danger is trying to make a final decision on the basis of the response to the RFP. RFP responses should only be used to screen for firms you want to make a pitch, which means, firms you want to hear more details from. That is the job you are doing at the RFP evaluation stage.

In RFP evaluations, you might want to get an outside opinion to help you make the screen on innovation. The odds of any evaluator reading the innovation section in each of 50 several-hundred-page RFP responses are not good. That’s not a criticism – it’s a recognition of reality.

If innovation is a goal of your panel convergence effort, you will want not just examples, but you will want to meet the innovation team. It is reasonable and prudent to request that the firm’s Chief Innovation Officer or head of innovation take 10 – 15 minutes of a pitch presentation. Again, depending on your comfort level, this might be a place where you want to get an outside second opinion. You will ultimately make the final decision, but sometimes it’s good to have someone interpret and validate what you are hearing.

And, lest you forget, you will only get the innovation and technology proposals you ask for.

Follow-up and Maintenance

The panel is announced with great fanfare. Committee members are congratulated and get awards and bonuses – maybe. Victory is declared and the convergence team disbands.

Wrong. This is when the real work to make the effort a success begins.

There are many best practices you can find: single points of contact, initial meeting of panel firms, annual summits, introduction of outside counsel management systems, standardizing, and streamlining processes, engagement letters, discounts or flat fee implementation, and the like.

What about in the area of innovation?

Not so much, at this point. And that’s why the panel convergence approach can damage or destroy innovation. It’s the follow-up and maintenance that matter.

Let me use a bit of a gardening analogy to describe my approach to implementing successful convergence efforts. First, we need the gardeners – people who are responsible on an ongoing basis for the work and the results. We need to prepare the soil to give the project the best start and continuing growth. We need to plant enough seeds – more than we think – to improve the chances of harvest. Watering and nourishing, of course. Eliminating weeds and pests. Pruning to focus and enhance our results. Knowing what to harvest and what to throw away. And preparing for the next season. You get the idea. I’m confident that you don’t need me to explain the metaphors.

It’s hard work that requires constant attention. It’s easy to see how these programs can actually destroy innovation.

Too often, the innovation piece of convergence is vague or afterthought. Innovation can get orphaned, with no person or group tasked with supervising the efforts. Once firms are locked into panels, an “incumbency inertia” can take hold, especially if there is an attitude of being “too busy” with “real legal work.” By the way, it’s vital to screen that attitude out in the selection process if you can. If there is a standard, it becomes what the other panel firms are doing, which can be a reverse incentive. It’s easy for all kinds of incentives to get reversed and misaligned. As time goes on, diversity of ideas and innovation are decreased, because there is a limited universe of firms.

No one would be surprised to find that innovation efforts drop off the cliff after the first year the panel is selected. Concrete and specific plans, follow-up, and roadmaps must be put into place or you will see “drift.” Far too often, no evaluations, measures, metrics, key performance indicators, goals, or objectives are put into place. There might even be confusion at the basic level of what the firm charges for innovation work or whether it should be charged for at all. Are there systems for tracking efforts and results or giving feedback? Should you be using a formal counsel evaluation tool like Qualmet? Is there even an intake or workflow tool for innovation projects? Annual meetings with demos and showcases should be required.

There are two final big problems I want to mention. And they are very big.

The first happens when a law department doesn’t ask for the innovation efforts or tech recommendations to be made, even if they were part of the winning pitch. The flip of that, of course, is that the firm doesn’t pursue these efforts or take the initiative. And we are back to the gardener analogy and a single point of contact approach.

Second, and most important, there are no consequences for failure to provide the innovation work. Think back, for a moment, to the earlier story about a firm that had not changed a panel in fifteen years. What possible incentive could there be for those panel firms to change or take initiatives? In my legal career, the biggest surprise has been the unwillingness for corporate clients to fire outside firms that are not producing as promised. In this area, I’d be tempted to give the outside firms, as a first innovation project, designing a project workflow system with metrics, standards, and agreed-upon consequences built into it. And then I would challenge you to hold them to it.

Simply put, if you cannot weed out firms that aren’t delivering, you really don’t have much of a chance of overall success. Your panel convergence process will become a place where innovation goes to die. It’s a buyers’ market out there and there are alternatives, including alternative legal service providers.

INNOVATION DRIVER

I like to focus on what is possible and what can be done. Here’s my radical, but probably not surprising, proposition: properly done, panel convergence can drive your innovation efforts forward, align business goals, enhance collaboration, and achieve innovation wins and meaningful “return on innovation” with measurable value.

There’s a technique in design thinking referred to as “reversal” or “inversion.” What happens if we flip over our assumptions, change the end user, look through the opposite end of the telescope, and, well, you get the idea.

In simplest terms, if you reverse any of the points in the previous section, you start to move down the path to drive innovation efforts forward. Try it out as a thought experiment. I’ll still be here when you get back.

Oh, wait. I do have an even more radical idea. Outside firms should consider providing innovation services for free and part of their offering to be on the panel.

Here are twelve ways that you might consider using your panel convergence project to drive innovation from your panel firms.

Isn’t all of this way more exciting than getting a 15% discount on standard hourly rates?

PRACTICAL ACTION STEPS

I want to end with a bunch of practical action steps. Here are some for you to consider:

For outside firms, or those who want to be on panels, use the reversal or inversion method on the practical action steps above and you’ll see your own list.

TAKING IT FORWARD

I’ve become intrigued how an often clunky existing process with mixed results – panel convergence – can, if properly handled, be turned into an engine to drive innovation. Having vision is important, as is being willing to make hard decisions and do experiments. Panel incumbency should not mean entitlement and tenure. There are many firms, with mid-market firms being especially interesting because of motivation and nimbleness, who are able and willing to step up on innovation efforts to provide measurable value for key clients. Lack of action has consequences. The legal market says that it is ready to innovate. Let’s see firms and law departments prove it.

– Dennis Kennedy

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[Originally posted on DennisKennedy.Blog (https://www.denniskennedy.com/blog/)]

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