Develop a procurement communications plan for the case study that you selected for your final project(GlaxoSmithKline: Sourcing Complex Professional Services ) in the style of Figure 6-4 in the textbook.
Develop a procurement communications plan for the case study that you selected for your final project(GlaxoSmithKline: Sourcing Complex Professional Services ) in the style of Figure 6-4 in the textbook. In your submission, identify the communications activities, state who is involved or responsible, and indicate the frequency of the communication activity. In two to three paragraphs, state the significance of a procurement communications plan for project success
Requirements: The communications plan should consist of one or more tables and two to three paragraphs in a one-page Microsoft Word document with double spacing, 12-point Times New Roman font, and one-inch margins.
9-414-003 REV: FEBRUARY 26, 2016 ________________________________________________________________________________________________________________ Professor Heidi K. Gardner and Dr. Silvia Hodges Silverstein, adjunct professor at Columbia Law School, prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School, and not by the company. Certain details have been disguised; the litigation example (facts and injury) and Keating, Whitmore, and named law firms are entirely fictional. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2013, 2016 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. HEIDI K. GARDNER SILVIA HODGES SILVERSTEIN GlaxoSmithKline: Sourcing Complex Professional Services On the evening of Tuesday, June 11, Sophia Keating—a recently hired attorney in the legal department of GlaxoSmithKline’s (GSK)—was putting in extra hours to stay ahead of several important projects when the shrill ring of the phone interrupted her train of thought. It was PD Villarreal, senior vice president, Global Litigation. “Hi, PD. What can I do for you?” asked Keating. “We’ve just been served with a new complaint,” Villarreal replied, “and we need to hire outside counsel ASAP to do an early case assessment and file a responsive pleading. You’ll be getting an email with the details in a moment.” “What’s it about?” Keating asked. “A patient, Catherine Whitmore, died of an aortic aneurysm while on our blood pressure medication,” said Villarreal. “Our responsive pleading is due in 20 days. It’s unlikely we can get an extension.” (See Exhibit 1 for the phases of a lawsuit.) “We need to get started immediately,” Keating responded, “but that’s not a problem. A good law school friend of mine did excellent work for us recently. If we engage his firm again, we should be more than ready to file our response on time.” Villareal replied, “I know this is your first case with us and time is pressing, but this needs to go through our reverse-auction process since the estimated spend exceeds the threshold of $250,000. “Contact Bob Harchut, VP of our Global External Legal Relations Team, to get the ball rolling.” “All right,” Keating said reluctantly. ”We need to be ready to request bids for the engagement in two or three days, though.” As Keating pushed aside her other work and picked up the details of the new case, she thought to herself, “Even if the reverse-auction system saves money, we are paying it back in increased risk as we sit on our hands and watch our response date inch closer.” She tried to focus on the details of the new case, but questions continued to disrupt her attention: This document is authorized for use only by Karina Broomstein in QSO-349-H1446 Proj Contracting/Procurement 23EW1 at Southern New Hampshire University, 2023.
414-003 GlaxoSmithKline: Sourcing Complex Professional Services 2 This system reminds me of buying office supplies or landscaping services. Can it really be applied to a complex legal case like this one? Why can’t we just engage the same firm that we worked with last time? I thought leaving my position as a senior associate at a Wall Street firm would finally give me the chance to call the shots, but now I have to yield to bean counters. Maybe I should have stayed on the partner track. Legal Industry Background The legal sector had undergone greater transformations during the last two decades than in the prior two centuries. Consolidation among law firms and their increasing globalization dramatically altered the size and culture of many traditional firms. In some jurisdictions, new governmental policies favoring deregulation and liberalization, such as the Legal Services Act 2007 in the UK, encouraged more competition in the legal market and provided a new route for consumer complaints about lawyers. New entrants from outside the traditional legal field and alternative legal service providers took market share away from large law firms. According to the corporate executive board, “Large law firms are no longer the dominant provider of legal services.”1 The 2008 economic downturn further intensified the competition among law firms, heightened pressure on corporate legal departments, and diminished client loyalty. Whereas the size of the legal services market in the U.S. had increased by 4%–5% annually in the years preceding the economic crisis, it contracted by 3% in 2009.2 Demand for legal services continued to decline even after the economic recovery began; for example, in 2012 billings by partners and associates of Am Law 100 firmsa decreased by 3% from the prior year.b As one report noted, the legal sector’s traditional mode of operations had been seriously challenged because “competition . . . replaced cushy long-term relationships.”3 The report also noted that a contract was no longer a “gentleman’s agreement” but rather an outcome of intense scrutiny and negotiation. Mandate from the Top: Manage and Cut Costs The economic crisis forced most companies to scrutinize legal spend in ways they had never done before. More than a quarter of companies in the U.S. and UK spent over $5 million annually on litigation costs in 2012, and among healthcare companies that proportion was estimated to be 30%–40%. Because legal fees had become a prominent line item in company overheads, top management in many companies pressured their general counsel (GC), the chief lawyer of a legal department, to rein in legal spending. From management’s point of view, legal departments were cost centers and needed to be managed as such. CEOs and CFOs expected their lawyers to create and stick to budgets, not just manage risk at whatever cost was incurred. Further, they expected legal departments to create value for the business units and companies they served, and thus instituted performance metrics such as service quality, time of response, total cost, and cost per matter. a Am Law 100 is shorthand for the 100 top-grossing firms in the U.S., as annually ranked by The American Lawyer, a monthly legal magazine published by ALM. In determining the Am Law 100, The American Lawyer measures revenues in four key categories: gross revenue, head count, revenue per lawyer (RPL), and profits per equity partner (PPP). b Measured in hours billed by law firms, derived from actual invoices in the TyMetrix LegalVIEW® database. This document is authorized for use only by Karina Broomstein in QSO-349-H1446 Proj Contracting/Procurement 23EW1 at Southern New Hampshire University, 2023.
GlaxoSmithKline: Sourcing Complex Professional Services 414-003 3 General Counsels’ Approach: Apply Structure and Rigor In an effort to rein in cost, GCs took a number of different steps. One involved consolidating the number of firms with which their company regularly worked—sometimes ending long-standing relationships.4 Rather than maintaining an ongoing relationship with law firms, companies increasingly took a rigorous approach to selecting outside counsel and ensuring that the relationship continued to deliver expected outcomes. Clients also demanded to benefit financially from their providers’ accumulated experience, methodologies, and efficiencies (and therefore cost advantages) that came from previously serving clients with similar problems. In another approach to cost saving, some GCs shifted work to less costly or more efficient firms and nontraditional legal-service providers such as overseas legal-process outsourcing companies.c Others sent routine processing work overseas to legal-process outsourcing companies. More GCs installed electronic billing systems, set up billing guidelines along with invoice review processes, and hired legal-operations professionals and data analysts to monitor legal spend. Other GCs began to train internal resources to make better buy-versus-make decisions and to shorten case life cycles in order to lower legal spend. They introduced new performance measure-ments and aligned them with remuneration to increase efficiency and productivity. Many GCs also negotiated discounts, froze rates, and demanded alternative fee arrangements (AFAs) rather than being billed for the number of hours worked by a law firm’s attorneys. AFAs included a variety of mechanisms including fixed fees, retainers, contingency fees, and so on. AFAs were intended to give companies a way to manage their legal spend and to buy value rather than hours by driving the firms to become more efficient. (See Exhibit 2 for data on the use of AFAs by a sample of large corporations.) In addition, some GCs introduced Lean Six Sigmad process improvement, knowledge management, and project management. They introduced technology to support pretrial discovery and automate some basic tasks, which eliminated the need to hire outside counsel for these tasks. Legal departments also disaggregated legal work, allowing them to better match the complexity of the work to the price point. In this way, they could save money for more routine tasks while still paying top dollar for more sophisticated work. A New Procurement Process at GSK? In 2005, after many failed attempts to transpose the procurement method used by other departments to legal, GSK’s vice president of procurement and its GC decided to give it one final shot. They assigned the task to Marty Harlow, who had 25 years of procurement experience but no experience in legal. “Historically, procurement had not gotten involved with legal matters,” Harlow said. ”As a result, I really wasn’t familiar with the ins and outs of how we worked with a law firm and what we looked for in outside counsel.” His assignment was to get to know the current selection and c Legal process outsourcing providers typically are set up as companies, not partnerships of lawyers. Their basic value proposition holds that outsourced legal work will be performed offshore by trained, qualified, and locally licensed lawyers and paralegals at a fraction of the cost demanded by traditional law firms. Their business model is focused on efficiency and the combination of people and technology. They typically work on a fixed-fee basis. d Lean Six Sigma is a managerial concept that combines the concepts of Lean Manufacturing and Six Sigma with the intention of eliminating the seven kinds of wastes (transportation, inventory, motion, waiting, overproduction, over-processing, and defects) in the provision of goods and services. This document is authorized for use only by Karina Broomstein in QSO-349-H1446 Proj Contracting/Procurement 23EW1 at Southern New Hampshire University, 2023.
414-003 GlaxoSmithKline: Sourcing Complex Professional Services 4 relationship-management practices used by the legal department and generate a presentation with recommendations. Harlow began by conducting dozens of informal interviews with attorneys across the legal department. His list of recommendations included new and aggressive ideas about the hiring of outside legal-service providers. Harlow presented his ideas to the GC, vice presidents, and senior vice presidents from the legal department. The reaction was mixed. He explained, “The general counsel turned to the room and said, ‘Listen, Marty has gone through all of this work, and he probably knows more about what goes on in the legal department than anybody in procurement ever has. He is the guy we want.’” But not everyone was supportive. “There was a lot of tension in the room,” Harlow recalled. “Some of the lawyers were very defensive about what I was presenting and talking about.” With the GC’s support, Harlow was teamed with a procurement-savvy attorney in the law department, and together they were responsible for implementing the new procurement processes. However, Harlow described the department’s reaction to his new role: “My phone rarely rang. My law department colleague was able to facilitate meetings with many of the practice groups within the legal department, but the reception was lukewarm at best.” To fill the time during this slow period, Harlow continued to educate himself on the department and the kind of legal matters that pharmaceutical companies must address. Harlow explained how he saw others’ reluctance: The lawyers just didn’t believe in it. Everybody thought that their work is the most complex, most unpredictable work known to man. They didn’t believe that traditional procurement practices would work. Small Victories While struggling to get traction on the major sourcing work, such as hiring outside counsel for important litigation, Harlow targeted ancillary services that lay at the periphery of GSK’s legal work. He explained, “These companies are not law firms, but they provide other types of services like court reporting, jury consulting services, and trial support services.” Such services were less complex and more predictable than pure legal work. By 2006–2007, procurement had become heavily involved in the sourcing of many ancillary services. Harlow’s tough stance in negotiations saved GSK an estimated $23 million: $19 million from Legal Staffing/eDiscovery, $1 million from Court Reporting, and $3 million from Medical Records. Hitting a Wall By mid-2008 Harlow saw his successes in the ancillary services as a proof of concept and tried to use that success as a platform to make an even stronger push in the sourcing of outside counsel firms. He recounted his colleagues’ reactions: “They viewed the savings as just a slight turn of the dial in the big picture of the full GSK legal spend and were not very eager for more involvement from procurement.” Fortunately for Harlow, he was about to get more support. This document is authorized for use only by Karina Broomstein in QSO-349-H1446 Proj Contracting/Procurement 23EW1 at Southern New Hampshire University, 2023.
GlaxoSmithKline: Sourcing Complex Professional Services 414-003 5 A New General Counsel and the Creation of “GELRT” In September 2008, GSK appointed a new GC, Dan Troy. Troy described the state of affairs when he first arrived: Before I came to GSK, legal spend had not been managed centrally, and individual lawyers responsible for the matters often didn’t have budgets. The firms often knew more about what GSK spent with them than GSK knew about what it spent at the firms, so GSK was not leveraging its spending power. Someone from R&D legal in the U.S. would call a law firm for advice, and someone else from the UK legal team called the same firm. The firm knew that, but GSK had no idea. When he joined GSK, the company had several multi-hundred-million-dollar litigation exposures generating huge outside counsel spend. One of the top priorities that GSK’s CEO gave to Troy was to significantly reduce outside legal spend while maintaining excellent legal representation. To do so, Troy centralized the management of GSK’s outside legal spend worldwide by creating a new Global External Legal Relations Team, dubbed “GELRT,” within the legal department. Troy selected longtime U.S. litigation head Bob Harchut to lead GELRT, and he gave Harchut a mission: Dramatically change the paradigm by which GSK pays for legal services by moving all of GSK Legal’s outside counsel assignments throughout the world to AFAs whenever feasible. The Alternative Fee Arrangement Initiative Troy mandated AFAs because he firmly believed that the traditional “hourly rate” system for billing outside counsel services could lead to inefficiencies and, hence, unnecessary costs. To carry out this mandate, Harchut assembled a cross-functional team including Finance, IT, and Marty Harlow and his colleague Justin Ergler, from procurement. Harchut was familiar with Harlow’s work with respect to ancillary services and knew that Harlow and Ergler also believed that traditional hourly rate billing resulted in unnecessary costs. Together, this cross-functional team developed the tools and processes to carry out the AFA initiative, allowing GELRT and the in-house managing attorneys to begin working with GSK’s law firms to develop ways to successfully implement this strategy. Troy insisted that AFAs be “win-win” for both the firms and GSK: If firms were willing to put some “skin in the game” and help us meet our cost-savings goals while achieving favorable outcomes (like a summary judgment win or an early favorable settlement), I would be happy to reward them for the value they provided. We’ve rewarded law firms with million-dollar bonuses where the success warranted it. GELRT Supporting Processes For Troy, it also made sense to be willing to “spend a little to save a lot.” Implementing the AFA initiative would require adequate support staff within GELRT, which Troy was willing to provide in order to achieve substantial savings. First, in late 2008, GSK appointed a managing attorney for GELRT who helped Harchut to carry out the new negotiation processes. Under the direction of Harchut, the attorney also reviewed pending AFA engagements to ensure that assumptions were clear and that GSK had enough information to proceed with an AFA. This document is authorized for use only by Karina Broomstein in QSO-349-H1446 Proj Contracting/Procurement 23EW1 at Southern New Hampshire University, 2023.
414-003 GlaxoSmithKline: Sourcing Complex Professional Services 6 In 2009 GELRT hired three additional new roles: (1) a project manager well versed in Lean Six Sigma; (2) a manager of outside counsel spend who not only assisted in drafting AFAs but also used business analytics tools to run custom reports and analyze e-billing data to locate AFA opportunities and provide a dashboard of litigation phase performance; and (3) a legal financial systems analyst responsible for global e-billing implementation, AFA technical support, data analysis/metrics reporting, and e-billing process improvement. GELRT leveraged technology to obtain the information it needed to optimize financial performance and strengthen strategic planning. Matter management, electronic billing, and reporting systems were already in place within the legal department. These technologies helped GELRT identify problems and opportunities, put processes in place to remedy or capitalize on them, and allowed monitoring of results for ongoing improvement. Harchut explained: “These technologies were not meant to replace the knowledge and skill of legal professionals. Instead, detailed, structured data and sophisticated analytics and reporting augmented the in-house lawyers’ personal judgment, experience, and intuition.” New AFA and detailed spend reports became standard at GSK. They enabled GELRT to quickly collect and analyze matter and spend information that previously might have taken several days to put together. Harchut and his team could now rapidly answer questions such as (a) How much had GSK paid to date for an ongoing AFA matter? (b) How much had a particular firm been paid for various matters by differing GSK legal practice groups? (c) Were certain law firms more successful in handling AFA matters? This information enabled GELRT to have detailed, educated discussions with outside counsel on staffing and the most appropriate billing arrangements. In addition, at the end of a matter (or annually for certain long-term litigations), GSK managing attorneys evaluated each law firm on a set of criteria including the quality of its team, work products, and advice. Each firm completed a self-assessment, and GSK could use gaps between the two ratings to highlight issues and provide targeted feedback to its providers. (See Exhibit 3 showing an example of GSK’s evaluation of an outside counsel firm.) GELRT also used shadow billing in combination with an AFA to understand the progression and success of a matter. For example, even if GSK and the law firm agreed on a fixed fee, the law firm continued to track and report the hourly cost of the matter. Shadow billing was meant to provide transparency to the client, allowing them to see the comparative costs and savings—and thus the law firm’s value. Shadow billing allowed GELRT to know if it was on the right track on a given matter. If an engagement had a fee cap of $500,000 and the firm had accumulated $400,000 in legal fees with no end in sight, GELRT would want to understand why they were that high. Was there more activity than anticipated, or was the firm just being inefficient? (See Exhibit 4 for a matter-end reconciliation analysis, showing shadow billing vs. AFA amounts.) GSK considered shadow billing to be a transitional process from an hourly billing world to a value-based fee world. Ergler explained: Rather than ripping the security blanket away entirely, the shadow bill gives some comfort to those who have used hourly billing their whole working life. But once we have fully transitioned to value-based AFAs, it is unlikely that we will continue to use shadow billing. End-of-matter (matter-end) reconciliation was standard at GSK. After running their analyses, GELRT team members had substantive discussions, first internally with their in-house lawyers, and then externally with their outside counsel, in order to ensure that the AFA ended up being fair to both sides. This document is authorized for use only by Karina Broomstein in QSO-349-H1446 Proj Contracting/Procurement 23EW1 at Southern New Hampshire University, 2023.
GlaxoSmithKline: Sourcing Complex Professional Services 414-003 7 Troy gave every in-house attorney an annual performance objective to help GELRT achieve its cost-savings goals, and the results influenced its year-end bonuses. The measures used to evaluate performance were the number of GELRT initiatives supported and the amount of savings on outside legal spending that an attorney managed, if any. By the end of 2010, more than 63% of spending on outside counsel was on AFAs, compared with less than 3% in 2008. The AFA initiative resulted in a nine-figure savings over its first two years. Enhanced Role of Procurement and the Development of OCSI In the spring of 2010, Harlow sat down for a brainstorming session with Ergler and an outside consultant. They developed the idea of a simple, holistic tendering process that could be used to objectively assess which firms should be hired for GSK’s legal work. The process involved an electronic reverse auction that had been used successfully in other departments within GSK for the procurement of complex services such as IT, management consulting, and HR. This new system would leverage technology to foster direct competition among bidding firms. In theory, these firms would be challenged to propose their best lawyers for the lowest acceptable fee. Harlow and Ergler took the idea to Harchut, who was intrigued and then obtained Troy’s approval to give it a try. Next, the group discussed what to call this new outside-counsel selection process so that all GSK lawyers worldwide could relate to it. Recognizing the widespread popularity of the “CSI” television shows around the world, Harchut suggested “OCSI for Outside Counsel Selection Initiative,” adding that “OoohhhCSI will be an easy acronym for everyone to remember.” With that, OCSI was born. (See Exhibit 5 for a description of the OCSI process.) The group then decided to pilot the process with the GSK legal practice group that most frequently engaged outside counsel—i.e., Dispute Resolution and Prevention, headed by Villarreal. After speaking with Harchut, Villarreal was willing to try it on a “launch and learn” basis. Thus, the pilot began in late 2010 and became so successful that, in early 2011, Troy mandated that OCSI must be used for all new GSK engagements (above a nominal threshold) on a worldwide basis. The Whitmore Case Two days after the Whitmore suit was filed, Keating finished the initial set of assumptions for the OCSI RFP (request for proposal) template and emailed them to Villarreal. Villarreal wrote back: “The assumed timeline is too long. In this case, our focus should be on resolving it much more quickly and earlier in the litigation process.” Confused, Keating called Villarreal: “When I think about winning, I think of a well-built case that takes time to research and argue. I don’t see how trying to get it over quickly will give firms time to finish the work necessary for the most favorable outcome possible.” Villarreal responded, “Our objective is to resolve disputes as quickly and efficiently as possible. That’s it, it’s really simple.” Keating made the changes and sent back the finalized RFP assumptions to Villarreal and Harchut for approval before including them in the RFP invitation to the firms. This document is authorized for use only by Karina Broomstein in QSO-349-H1446 Proj Contracting/Procurement 23EW1 at Southern New Hampshire University, 2023.
414-003 GlaxoSmithKline: Sourcing Complex Professional Services 8 14 Days before the Responsive Pleading Due Date Five firms returned their proposals, and Keating used a standard scorecard to evaluate their qualifications. (See Exhibit 6 for the GSK scorecard.) She immediately spotted a trend: Many had revised the assumptions to expand the timeline for the suit. She saw her concerns validated and felt bolder in her skepticism. Keating sent a meeting invitation to Villarreal, Harchut, and Ergler for early the next day to decide on a shortlist of firms that would continue in the selection process and discuss potential modifications to the initial matter assumptions. 13 Days to Go When Villarreal, Harchut, Keating, and Ergler sat down to review Keating’s recommendations, the discussion moved swiftly. “Keating, good call on inviting Dickson & Boatwright to submit a proposal,” said Harchut. “We have never included them before, and their overall proposal is very competitive. Let’s get to it, starting with the assumptions. Do we need to revise our list of assumptions based on what was submitted?” “I thought that Stevenson Fox’s emphasis on a very robust early case assessment was valuable,” said Villarreal, “and extra focus here could increase the likelihood of resolving the case more quickly. Even if it only slightly raises the probability of an early resolution, it would pay for itself.” “Sounds good,” agreed Harchut. “Let’s strengthen up the language in the assumptions. Anything else?” Keating spoke up: “I saw that the recommendations from the firms were often expanding the assumptions to include more work over a longer timeline. From my perspective, this expanded timeline is justified by the average length of past cases. Perhaps we should expand these somewhat to ensure we are prepared to get the quality of work we need for this case.” The others reviewed their notes before Villarreal responded, “This isn’t a zero-sum game. With the billable-hour model, it’s easy for outside counsel to come into this with a fighting mentality. We have to keep the pressure on firms to tighten up the work that we’re paying for.” “Now, did any of the firms diverge from our other assumptions so much that we need to make further modifications to them?” asked Harchut. “There was quite a bit of ambiguity in the number and type of depositions, as well as the length of the trial,” said Ergler. “I’d recommend standardizing those assumptions to ensure that all of the firms are competing on a level playing field for the sourcing room.” After going through several other items point by point, the group began focusing on the diversity of the proposed teams. “I value team diversity,” started Keating, “but I don’t see how we can justifiably quantify it and use it as a serious factor to consider among other factors like experience and fee points.” Villarreal explained: If we value it, and we most certainly do, then we must include it as a consideration. OCSI is all about us hiring the right team. Other companies typically hire a partner from a firm who then picks a team without the oversight of the company, but as far as we are concerned, the composition of the team is important because they are the ones actually working on our case. Firms have the right to hire whomever they want, but we also have the right to hire whomever This document is authorized for use only by Karina Broomstein in QSO-349-H1446 Proj Contracting/Procurement 23EW1 at Southern New Hampshire University, 2023.
GlaxoSmithKline: Sourcing Complex Professional Services 414-003 9 we want. That includes the experience of the individuals and the dynamic of the group as a whole. The group quietly gathered their thoughts and moved to deciding on a shortlist of firms to continue to the sourcing room. “We have some very strong proposals from some very strong firms here, but I think there are four that truly distinguished themselves from
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