Oct 13 '14
‘The Lawyer’ magazine has recently published an article about the 34 legal panel reviews that have so far been completed this year by some of the UK’s largest buyers of legal services. Entitled ‘The Chosen Ones’, it purports to ‘reveal all’ about ‘which firms are cutting it’ and the GCs who are ‘new brooms making clean sweeps’. You can read the report in full here.
I have to confess, I’m not particularly interested in ‘who is on’ and ‘who is off’ each panel, as almost every panel review involves some degree of change. Nor am I particularly interested in overall panel appointment rankings. I’m more interested in trends; in data that shows us what’s happening at the macro level; that suggests what clients are thinking and how they’re buying. Therefore, perhaps I should have stopped at the headlines and not got too excited about the full report.
I was however interested in reading about the following two trends mentioned in the article: (1) the ‘big play’ made by regional firms and (2) ‘the trend towards streamlined panels’ (i.e. reduction in panel size). Both of these trends are interesting as they provide information about the possible procurement strategies at play. Also, there is a lot of mention these days about panel streamlining, so it’s important to see evidence that it is in fact still occurring and to understand the drivers. As someone who has devised legal services sourcing strategies and established legal panels for large buyers, this is an area that is of particular interest to me. But it also has real importance for my law firm clients in developing competitive strategies.
Unfortunately, the article doesn’t provide information to support either of these trends.
The crux of the data is in the ‘Panel firm number trends’ table on page 11 of the article. However, the table doesn’t actually show trends – only the breakdown of each new panel by reference to firm type (i.e. from magic circle to regional/local).
With respect to the first trend (the ‘big play’ made by regional firms), aside from a few references to the regional firms that secured places on particular panels, there isn’t anything else to support the trend. The trend table, for example, could have shown the numbers from previous years. Indeed, for all we know regional firm numbers might be down on last year, or they might be up from last year but down from the previous year.
With respect to the second trend (the streamlining of panels), again there’s no information in the table to support this trend. The only statistical reference to it comes in the final paragraph of the article where it states that ‘an average of 1.7 firms were dropped by companies that cut their panels this year’ (those companies numbering 11 of the 23 buyers). But again, this doesn’t tell us very much. For example, is this an increase or decrease on the number of buyers who reduced their panels last year, and if so by how much? What about the other 23 buyers? Did they maintain the same size panel or increase it, and if so by how much? The fact that more than half the buyers didn’t reduce their panels doesn’t suggest a ‘clear trend’ of streamlining as the article states.
The article then concludes with the statement, “This may sound like minimal change but scale that change across the market and it is clear that the trend towards streamlined panels is set to continue”. Firstly, as above, there is nothing to suggest the trend is actually occurring within this sample. Secondly, which ‘market’ are we referring to? Thirdly, assuming we’re talking about the largest corporate buyers (although it would be sensible to define this), where is the statistical significance test to support the writer’s conclusion about the wider buyer population? No data is provided to support this statement.
Throughout the article, there are numerous references to supplier numbers increasing and reducing for particular panels, which suggests that The Lawyer possesses the kind of data mentioned above for some or all of these panels. If so, this information could have been included in the Trend Table, along with some text to highlight the trends and set out possible interpretations.
The article also seems to assume that streamlining is synonymous with budget cuts (indeed, the article starts with the words ‘With in-house budgets tightening’). Whilst streamlining is often a response to budget cuts, buyers can adopt this strategy for other reasons. For example, whilst the Property section of the article states that ‘the property market has hit the brakes big time when it comes to budgets for legal services’, it then refers to the fact that the HCA reduced its panel due to complaints from some firms that they weren’t getting enough work. Whilst its possible this situation arose due to budget cuts, its equally possible it was due to the HCA having too large a panel in the first place (which is a very common situation, as panels can grow organically). Indeed, it’s perfectly feasible that buyers are maintaining or even increasing their external legal budgets but seeking greater value for money by consolidating spend with fewer suppliers.
Therefore, with respect to the 11 buyers who reduced their panels, we would need to see spend data trends to assess the potential drivers behind their streamlining strategy. Even assuming their streamlining was in response to budget cuts, it would be useful to also understand what exactly it involved. For example, are they delivering more work in-house (so there’s less work to outsource) or are they outsourcing the same amount of work but driving down supplier rates, or both? Whilst I appreciate that obtaining this information might be difficult, The Lawyer could have perhaps put these kinds of questions to a number of the buyers referred to in the article to extract greater insights.
Finally, the article makes the observation that panel sizes vary ‘considerably’ and even ‘wildly’. Aside from a few outliers such as Santander (I don’t know what’s going on there) and the Crescent Consortium (which, being a purchasing consortium, might be expected to have a larger panel), in my view the panel numbers all seem quite unremarkable. However, more information is needed (e.g. relative legal spend) to put this into context. For example, you’d expect Barclays to have a larger panel than, say, the Homes and Communities Agency. Indeed, an alternative observation could be how similar the panel sizes all look bearing in mind relative legal spend.
The only trend referred to in the article that is supported by data is the fact that most of the panel reviews tended to follow new General Counsel appointments, which in my view isn’t particularly surprising.
I suspect that many of the ‘trends’ mentioned in this article might, in fact, have been better positioned as ‘off hand’ comments, with the real purpose being to inform us of the ‘winners’ and ‘losers’ and provide us with a detailed breakdown of who is on and who is off each panel. I’m sure that some readers will find some of this information to be interesting/useful. However, for me it’s disappointing, since a more robust approach to conducting this study and reporting the results might have provided The Lawyer readers with far greater insights into current procurement strategies, which could inform their own business strategies.
It’s possible that this is intended to be an interim report and we’ll have a more full and in-depth study at the end of the year. If not, perhaps The Lawyer will consider these suggestions and provide us with something more insightful either at the end of this year or for the 2015 panel reviews.
Elephant Creative associate, James McLeod, specialises in helping law firms to improve the quality of their tender bids and develop their service methodologies.