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In-Housing Trend: What PR Agencies and Marketing Firms can Learn from Law Firms

In-Housing Trend What PR Agencies and Marketing Firms can Learn from Law Firms

Nearly half of respondents (47%) in a recent survey of public relations pros found many are observing more PR work being taken in-house. In other words, corporate communications is adding headcount and work that used to go to outside PR firms is being kept inside.

The in-housing trend in PR isn’t entirely surprising. It mirrors a trend that’s already underway in PR’s sibling departments in marketing and advertising.

For example, there have been numerous surveys and a pile of anecdotal evidence that CMOs are bringing more marketing work in-house. The most significant was a study an in-house association commissioned the research firm, Forrester, to conduct. It found, as the Wall Street Journal reported, “Advertisers with in-house agencies increased to 64% of the survey’s respondents from 42% a decade ago, according to the study.”  By the way, the WSJ reporter on that byline used to write for PRWeek.

So, what does this in-housing trend mean for PR agencies? The legal community, and more specifically the in-house effect on law firms provides insight. This post offers the cliff note version of a 10-year trend and underscores the similarities for PR agencies and marketing firms, that I think points to a similar future.

The In-House Effects on Law Firms

Law firms had been on a growth streak for many decades – probably since sometime after World War II ended like the rest of American business. The law firm business model, not unlike many PR firms, is generally to sell experience and time for a set rate per hour.

Every year, law firms raised their hourly rate, and thereby drove growth. Businesses would pay the fees, because, well, legal work is complex. You can estimate the cost of a case, but legal work takes twists and turns that are unexpected and make a case more expensive. Of course, there’s little incentive to work efficiently when you’re paid by the hour.

Nonetheless, lawyers raised the red flag of risk, and business wrote the checks to reduce that risk. To use a double negative, you can’t not hire a lawyer when you need one, right?

You have to keep in mind, big corporations can have hundreds of law firms on what they call a “panel.” Similarly, and though we don’t use the terminology, big businesses hire panels of marketing agencies too – PR, creative, SEO, social, digital, advertising. Anyway, these law firm panels are basically, an approved vendor list for large organizations that have lots of legal work – litigation, patents, trademarks, contracts, employment, and on and on.

And for many years, things move along at steady clip in “law land” as the law firm economist Bruce MacEwen at Adam Smith, Esq., likes to say. His analysis is sharp and often points to the faults of law firms, and while I cannot pretend to rise to the caliber of brilliance Mr. MacEwen has about legal economics, I do believe corporations had a role in the market dynamics too. This is because every function of a business had a budget, and had to stick to it, except the legal department.

Then the economy changed.

The housing crisis of 2008 spurred largely by risky loans and securitized mortgages, that both diversified the financial risk and cause us to collectively lose sight of where it was precisely, set off the most severe recession we’ve seen in a long time. The “Great Recession” as it is called, caused businesses to reign in spending and that included legal.

Reigning in the Costs of Law Firms to Business

The GC is usually the top in-house lawyer in a business. He or she is responsible for managing corporate risk, including the panel of law firms, which is a means to help manage that risk. With the recession came cost-cutting and CFOs started squeezing the GC’s budget, who in turn squeezed, their law firms. It was a slow and steady rising tide that would lead to a flood of change and suddenly law firms found themselves in buyer’s market amid tepid demand for legal services.

What did GCs do? They cut large swaths of their law firm panels and negotiated more favorable arrangements to keep those that remain. They grew teams of “legal operations” who were responsible for legal project management with an emphasis on efficiency. When clients weren’t within earshot, law firms would grumble that legal ops was a euphemism for “discount.”

GCs also brought more work in-house, adding attorneys to their department headcounts and cutting the amount of work that went to law firms. Importantly, and this is something PR and marketing should sit up and observed, GCs kept those firms that had a specialty they couldn’t replicate in-house – and they also kept the fanciest of law firms for “bet the company” litigation.

Let’s face it, if your business is facing a class action lawsuit over accusations your product contains a cancer-causing ingredient – the CFO is willing to pay $1,000 per hour for the best lawyers with a track record of winning. I’d like to believe, PR agencies that specialized in crisis communications can identify here.

The implications of in-housing for a firm – law, PR, marketing or otherwise – are this: you not just competing against rival firms for business – you are competing against rival firms and your clients for business.

The Role of Technology on the Legal Market

Even as this in-housing trend took hold, law firms amazingly continued to raise their rates year after year. However, realization, that is the amount the firm collects against those billings dropped.

So, how does that happen? How does a law firm send an invoice for X amount but only get paid for Y?

Remember those legal operations people mentioned above? They developed these things called “outside counsel guidelines” (OCGs) that in part detailed what they will pay for and what they won’t. Big spenders have leverage and if a law firm wanted their legal business, it had to agree to the OCGs.

For example, some GCs won’t pay for first-year associates, which are new law graduates working their first law firm gig. The rationale is, while these lawyers have passed the bar exam, they don’t have the experience to provide legal counsel the business needs, and GCs don’t want to train them.

Sound familiar? Big PR agencies do the same thing. The irony is, like many GCs, in-house communications and marketing people often grow up in an agency. But that’s a talent supply issue for a different blog post.

These OCGs can run 10, 20, even 50 of pages long – with a long list of requirements. Then they program these rules into an electronic billing system that reads invoices and automatically rejects those invoices that are out of compliance with the OCG.

Every PR agency leader can understand what that means – you submit an invoice and it gets rejected by a machine. Cashflow, payroll, firefight, time suck…it gets rough fast. The worst part is, your client isn’t even looking at the bill at this point.

Yes, there is an appeals process (and firms can negotiate OCGs at the outset) but then law firms are pouring more time into trying to get paid for services rendered, rather than providing good service, or getting more business.

Electronic billing underscores a change that occurred over the decade. As law firms patiently waited (prayed?) for demand to come back, technology innovation accelerated. There are many aspects of legal services that are delivered or augmented with technology. Case in point? When I opened my own business, I didn’t hire a lawyer, I used LegalZoom. That sort of thing has happened all over legal at all levels and all tiers.

For example, law firms used to hire armies of associates to read over boxes of documents – think about the boxes of documents that go into a big case – with highlighters to call out the important parts. This was called the “discovery” phase of a case, it’s was expensive to have all those people pouring over reams of paper.

Today, they just dump gigabytes of data into a software program called eDiscovery, and boom, here are the parts relevant to the case. No need for the army of associates. Okay, it’s probably not quite that easy. If you’ve ever fought with WordPress, Cision, or Eloqua, then you get the idea, but technology had been seeded, watered and it was about to bloom in a big way.

In 2016, Bob Ambrogi, a lawyer, and a highly-respected legal journalist, began chronicling the rise of legal technology startups. The number had grown from 412 to 1,094 in just two years. Legal tech incubators blossomed and venture capitalists poured $1 billion into legal tech startups.

Continuing with the PR and marketing thread – the parallel is similar. There were just 150 startups on Scott Brinker’s marketing technology landscape when he started tracking it in 2011. In 2018, the most recent edition, there were nearly 7,000. VC investment grew to $7.2 billion in 2018, though some forecasts say that will drop this year.

The important point here is, it added to what Michael Porter called the “threat of new entrants” to the legal market. In 2014, I did a Porter’s Five Forces Analysis for the Legal Industry – that I think is still quite relevant.  Yet one of the things I left off was the entrance of the Big Four.

s_The Big Four move into marketing and advertising

Enter the Big Four into Legal and Marketing

At the time I did that Five Forces analysis, I didn’t mention the Big Four explicitly. Many in legal have dismissed the four biggest accounting firms – Deloitte, EY, KPMG and PwC – as noise and I thought so too.

They can’t get into legal, right? The barriers to entry for an accounting firm to get into legal are too high.

I don’t think so anymore. First, the data shows us why. As the Financial Times reported the Big Four, “legal activities have grown prodigiously: PwC employs 3,600 lawyers in 98 countries; EY has 2,200 lawyers in 81 countries; KPMG about 1,800 lawyers in 75 jurisdictions; and Deloitte has more than 2,400 lawyers on its books.”

To place this in context, the largest law firm in the U.S. had 1,800 lawyers on staff in 2018 according to Above the Law, a trade publication. It’s not exactly an apples-to-apples comparison but it’s enough to pay attention.

D. Casey Flaherty, who made a name an in-house attorney championing law firm adoption of technology, sealed it for me with this rationale (my recollection is short of a paraphrase, but this is the gist of it): Who in business do the Big Four accounting firms know best? It’s the CFO. They already have his or her trust, and if they can make the case that they can provide the same quality of legal services at lower cost, they’ve effectively done an end-around the GC.

Here comes the parallel – have you cracked open the CMO section of the Wall Street Journal, lately? Who do you see advertising on those pages? It’s Deloitte and they’ve been doing it for a while, and they own it in a big way. They are beating Madison Avenue at its own game – and in its hometown newspaper and it’s been doing it for years.

Just like the law firms on Wall Street arrogantly dismissed the threat of the Big Four, so too are the biggest advertising agencies. Those agencies are held by large holdings companies – like WPP and Omnicom – which also own the biggest PR firms in the industry.

More importantly, they are dismissing this threat while marketing and PR is observing an in-housing trend, and also while the industry is undergoing a very similar martech innovation.

While I don’t believe the chatter of a looming recession, I think it’s click-bait and politically motivated, but I do think it’s wise to be prepared. Because if we do have a recession, then we’ve got a perfect storm in marketing and PR that looks an awful lot like the ten-year hurricane that still isn’t quite done blowing over legal.

Frankly, I don’t think it’s ever going to end. It’s cliché to say “new normal” in legal circles. But things have changed forever in the legal market and I suspect that’s about to happen in marketing and PR too.

reasons why corporate communciations hires a PR firm_sWhat’s a PR Firm or Marketing Agency to Do?

Recent data about the law firms suggests demand for legal services is picking back up. The years ending 2017 and 2018 were the best law firms had experienced in a long time. There was a caveat, however, because demand is not picking up equally for all firms.

According to my reading of the 2019 Report on the State of the Legal Market, by the Center on Ethics and the Legal Profession at Georgetown Law and the Thomson Reuters Legal Executive Institute – an industry benchmark – some firms are doing better than others.

The firms that are doing very well are a) the elite law firms, which are often also the biggest firms, that business want on their side when they are in big legal trouble and b) specialist firms that fill a niche need.

This is sage advice for PR firms as well. And having worked in firms large and small and having spent 10 years on the in-house side before starting my own agency, it tops my list of recommendations which follow below.

1) Specialize in a unique aspect of PR or marketing.

I think in-house professionals need to be generalists in their trade and deep in their vertical, but the agencies, you must focus.

Focus is good advice for business, for law firms, and for marketing and PR agencies. If you listen to the Build A Better Agency podcast, and you should because it’s a goldmine of information, host Drew McLellan will say on at least every third show that agencies need to have a niche.

For me, I only do B2B, primarily technology, and I look at marketing, particularly content marketing through PR lenses. I believe all signs suggest the future of marketing looks more like public relations.

2) Be proactive in delivering value.

Too many agencies sit on their laurels with clients. Maybe they’ve gotten too comfortable, but the agencies stop bringing ideas or stop leaning forward.

As my friend Lou Hoffman, who by the way leads a 100-person independent firm with a fascinating niche at the intersection of technology and Asia, wrote, “While it relates to poor client service, the #1 reason clients end agency relationships, in my opinion, is they’re not proactive (which sends the message, ‘we don’t care.’).”

Indeed, I agree. If you look at the top reasons clients fire a PR firm (cost, poor client service, inability to measure ROI, too much hand-holding) these are all interrelated around being proactive.

3) Build client relationships in depth.

One statistic from my study of the legal market has been etched in my mind is how to reduce client attrition. The study is years old now, but it was done by business intelligence people and software, and so the analysis was based on real data, not a survey or opinion.

This is the stat:

“When five or more law firm partners are involved with a client, fewer than 10 percent leave the firm.”

It seems like a blinding stroke of the obvious, but PR agencies blow this opportunity all the time.

Maybe that means helping the client CEO think through talking points for an announcement at the end of the month when you are already over budget. Or it’s helping the marketing team put together their metrics for a board meeting at the last minute. Or it’s taking some extra time to teach a junior member of the team the rationale behind a campaign you’ve already explained to the CMO. If they understand what you are doing, and why, they are more likely to support your work.

This is relationship building at its finest. It’s growing your contacts and touchpoints within a client – to in essence truly be an extension of their team. In the course of being part of a team, you naturally build relationships. It’s not a task listed in a spreadsheet – it’s a philosophy as an agent of your client that makes your client needs your own.

4) Focus on efficiency.

The mistake the legal community has made over 10 years, is too much focus on the billable hour. The problem in legal isn’t the units of measure for allocating cost, per se, but the value gained.  Value includes the efficiency at which legal outcomes are produced. Every business function has grabbed latched on to information technology to do things better, faster and cheaper, and lawyers can too.

If you’re padding hours, yes, your client is going to complain. If you’re walking paper around the office for review, you are adding touches. A client of mine says something often, which I love and know is true, and that is every touch cost money.

Lawyers get tagged with a “laggard” label and plainly speaking, so too do PR pros. Is it a deserving label? You can be the judge, the point is, value is a combination of results, quality, volume and speed. Technology is a way to enhance, augment and drive efficiency.

Maybe it helps you make better decisions about messaging, content, or conduct analysis or simply get things done – think workflow, revieiws and approvals. The PR firms that are going to thrive, are those that embrace technology and are willing to change their behavior, process and workflows to do more with less.

Final Thoughts

If more work being taken in-house “scares the @#$% out of you” as Liz Mair wrote of the survey, then this should be a wake-up call.  I predict we are entering a period of time that is going to shake up the marketing landscape with permanent change – the technology, the new entrants and the in-housing – it’s all coming.

If your agency is delivering value, in several years, you may well find yourself in the same two camps as law firms do today. You either be part of the biggest and the best, of which there can only be a few, or you are a specialist that clients know, like, trust…and need.

* * *

The survey cited in the opening of this post is the 2019 JOTW Communications Survey, which is freely available for download on SlideShare. This second annual survey was conducted by yours truly in collaboration with Ned Lundquist. Ned launched “Job of the Week” (JOTW) email newsletter in 2001 as a free resource for PR and communications professionals looking for work.

This year’s survey polled 223 communications and public relations (PR) professionals. Some 68% of respondents report holding in-house communication roles and 90% have 10 years or more experience in the industry. This is the third in a series of posts I’ve written about the survey – all of which are linked to below.

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Image credit: Unsplash

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