The Decision Makers Behind the Decision Makers

• “As a banking lawyer I know that it is bankers and lawyers within my clients who appoint external advisers on each transaction.  I know the decision-makers well, and as long as I maintain my service standards and quality of service I will continue to receive my share of new instructions.”

• “Our commercial property market clients are entrepreneurs: they see an opportunity, and they take it.  Our ability to act quickly and effectively allows them to secure the deal ahead of the competition, and ensures that they come back to us time and time again.”

• “Our expertise, and our resources, have seen us appointed to eight FTSE 250 M&A panels.  When the Acme Plc project team choose lawyers for an acquisition they come to us because we have never let them down.”

Expertise, resources, accessibility, results, price, and contacts have always been, and will continue to be, critical factors in gaining and keeping loyal clients.  To these, you can now add an understanding of “Procurement”. 

This short article will give you an introduction to the process which is altering leading organisations purchasing of services in the UK and globally, and which now means that those individuals who might previously have decided whether to buy your services are no longer doing so, or are no longer doing so alone. 

The Rise of Procurement

In many large organisations Procurement is paying its own way as an increasingly influential department.  What was once very much a back office function is now performed by graduates who have studied Procurement at the UK’s leading universities. 

Where has the need for this added layer of decision-making come from?

• Economy: as an organisation’s margins are “squeezed” it will start looking internally for “cost-out” initiatives.
• Control: organisational drive to more formalised spending controls, which is often driven by regulation.
• Information: Better, and more effectively circulated information, largely through new technology, is enabling your clients to make informed decisions.

The Procurement process

Even if they do not realise it, every organisation goes through the same steps in buying goods and services.  Procurement professionals have formalised the process into six steps as follows. 

Historically, Procurement became involved in legal services decisions only at the latter stages, typically testing the market and negotiating.  Today you are still unlikely to be aware of their presence until a Request for Proposal ("RFP") is issued at stage 4, testing the market, but you can be sure that they are in the background running the process at all stages.  If a review of a company’s legal spend is triggered, Procurement will take responsibility for "owning" the process and ensuring the milestones are met. 

Procurement Drivers

A common criticism of Procurement involvement is that “they are only interested in price”. Not true.  Reducing the "Total Cost of Ownership" (TCO) is an objective of Procurement, but this in itself does entail a qualitative analysis because it is generally recognised that the internal cost of poor quality usually outweighs any reduction in purchase price.  Further, reduction in TCO is only one of three broad criteria by which Procurement are measured.  The other two are the number of suppliers, and Procurement's ability to adhere to its own processes.

Procurement group like suppliers into categories.  Typically, Legal Services spend is either in a category on its own or it is part of the Professional Services category, depending on the nature of an organisation.  Procurement’s strategy and approach towards you is driven by the shape of the category you are in. Generally Procurement has a large number of suppliers in each category (it can be 100s) and they only focus on the suppliers they deem "critical", which are those with whom the organisation spends the most money, or who provide a unique service.  These usually account for the top 5 to 10 suppliers per category.  The other suppliers receive very little management or development, and are considered "uncontrolled". 

Generally Procurement’s strategy is to move their business from ‘uncontrolled’ suppliers to ‘critical’ suppliers.

Because Procurement are themselves measured by their ability to adhere to a process they are sticklers for making the process as auditable and transparent as possible. If you understand the process it becomes easier to work to, and to influence. 

The use of Technology

Software organisations are pushing hard for the Procurement process to be automated, or to be "e-enabled".  As the easiest step, Negotiation was the first step to be automated, resulting in e-auctions and on-line negotiations.  E-auctions have been used extensively, and successfully, in other professional services purchases, and they are beginning to be used for legal services.  On 19 February Legal Week reported on GE's proposed use of an e-auction among UK Magic Circle firms. 

The next area of technology being introduced is the "e-RFX", or on-line RFP.  This software enables Procurement to define questions tightly, and to set the format and nature of possible answers.  The tool is designed to allow Procurement to score an RFP quickly and objectively.  The use of this software generates a need to define the purchaser's requirements earlier in the process, which, in turn, creates an incentive for you as suppliers to try to become involved in the Procurement process earlier.

What does this mean for you?

Other professional services areas should be looked at as a model for the direction in which legal services purchasing is heading.  Take management consulting and training as examples.  In each, the application of Procurement processes brought about the introduction of panels, and this has now progressed to even tighter "preferred supplier" relationships.  In both management consultancy and training, this has led to a "tiering" of the marketplace, where smaller, niche or unique suppliers are required to supply through the lead or "prime" supplier. 

In legal services, the reduction in the number of suppliers to major City organisations which Procurement processes brings about has also been fed by FSA regulation, which requires tighter controls and inevitably creates pressure to reduce the number of professional advisers.  

Sadly, lawyers have developed a poor reputation for the speed and quality of their responses to RFPs, relative to other professionals.  You might greet this news with relief at not being alone, or perhaps more shrewdly, your firm could perceive this as an opportunity to steal a march on the competition, by recognising Procurement as a means for you to secure and perpetuate relationships with your key clients. 

You can embark on two key processes if you wish to engage with Procurement:

• Educate your partners and business development teams so that they know when and how to react.  Remember, the process is consistent and predictable. 

• Engage your clients' Procurement teams: let them help you to sell your services to them!

Whether you regard your clients' Procurement department as a “gate-keeper” or a new opportunity, just remember the process is here to stay. 

Alan Day is the Managing Director of State of Flux Limited a supply chain change consultancy.  Alan has more than 15 years in Procurement and supply chain, from designing and running Global Supply Chains for City organisations, to consulting to the UN on E-Trade and supply chain. 

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