True Collaboration Drives Profitability and Client Loyalty

Collaboration in the workplace is widely recognized as an important success factor in the most effective organizations. It is necessary in order to build and share knowledge, accelerate innovation, break down silos and facilitate connectivity.  A recent Harvard study found that managers and employees now spend 50% or more time in collaborative activities than they had previously. Law firms are late to adapt their cultures and operations to effective collaboration, but many are working hard at it.  They recognize that collaborative organizations lead to better service and innovation, are more rewarding places in which to work and ultimately produce higher financial returns.

In our prior post, “Collaboration: The New Law Firm Frontier. Are Law Firms Up to It?” we addressed collaboration primarily as a cultural aspect of the way the firm and the lawyers operate. In this current post, we focus on the relationship of collaboration to profitability and client loyalty.

“One-Firm” Firms

Nearly twenty-five years ago, leading consultant and thought-leader David Maister described the traits of “one-firm” firms in his seminal book “Managing the Professional Service Firm.”   In analyzing the most well-managed and profitable firms, he discovered that they shared the following cultural and operational traits:

• Institutional loyalty and group effort
• Downplaying stardom or individual reward
• Teamwork and conformity
• Long-hours and hard work
• Sense of mission: service, success and satisfaction
• Client service and long-term relationships
• Extremely high standards for recruiting and advancement (up or out system)
• Investment in training and development as well as research and development
• Organic and controlled growth (little if any lateral growth, no mergers)
• Selective business pursuits/new client acquisition
• Judgmental compensation systems that incorporate collaboration measurements

The majority of law firms today do not (and most never did) follow this business model or embody this high performance culture and exclusivity.  Compensation systems often reward most for individual performance and profit centers, lawyers guard their autonomy and resist conformity, specialization and globalization result in more silo-ing, firms continue to use mergers and lateral acquisition as their primary strategy and few firms invest in the technology and other knowledge resources required to enable shared knowledge. In order to build stronger client loyalty and more profitable revenue, however, law firms will have to develop more collaborative cultures and devise operational and talent structures that facilitate, recognize and reward partners and employees who embrace cooperation.

Collaboration Leads to Higher Profits and Better Served, More Loyal Clients

Over the last several years, Heidi Gardner, a distinguished Harvard scholar, has conducted extensive research in the area of collaboration in professional service firms.  In her recently book, Smart Collaboration: How Professionals and Their Firms Succeed by Breaking Down Silos, she posits that at the higher end of legal advice and transactions, clients benefit from and appreciate a more collaborative approach to the legal advice and representation they receive.

Gardner’s research proves what we have been saying for years: clients that are served by multiple partners are more loyal and apt to stay with that firm even if the partner leaves the firm:

• 72% of single-partner clients would seek another provide if relationship partner left firm
• 90% multiple partner clients would remain loyal to existing firm even if relationship partner left

But in stark contrast to what would then seem a very smart business approach, Gardner found that 90.9% of firms still have a single relationship partner engaged with a client.  While many firms have become more coordinated across practices and offices about client matters, bills and most importantly client’s needs and priorities, firms also need to expand the number of key relationships they have with their important clients.

There also is evidence that firms that serve clients in multiple practice areas also generate much more revenue from those clients. BTI Consulting found that “the typical primary law firm delivers 1.8 practices to each of their major clients but the best performers, those who collaborate and set the standard for superior client service, deliver 3.2 practices to their clients.”

Heidi Gardner’s research corroborates this finding: “the more disciplines that are involved in client engagement, the greater the annual revenue generated from that client.” She acknowledges that this type of holistic approach is not practical or affordable for routine legal work, but is very valuable for more complex clients and legal problems. It also allows firms to “move up the food chain” in terms of their role as strategic and trusted advisor, and in gaining greater share of the client’s legal spend.

Beware! Cross-selling is Not the Same as Collaboration

Firms are always interested in cross-selling additional services to clients but too often, cross-selling focuses on benefiting the firm first by growing its revenue, not necessarily serving the client better.  As we have written about in “Cross-sell Effectively by Putting Client Needs Before Your Own,” there are many ways to be sure you are focusing first on clients’ needs and the best ways to go about this.

Collaboration and cross-selling both require a high level of trust as relationship partners often feel they are putting relationships at risk by referring clients to other partners for different service needs.  Partners must trust the abilities and service attitudes of their other partners and clients must trust that the partner referring them to a new partner believes that is the best option for the client.

The type of collaboration discussed by Heidi Gardner, however, anticipates that clients are served by multi-disciplinary teams because often, their problems require a range of skill sets and knowledge.  Cross-selling on the other hand, more often means a partner working on one issue is asked or proposes an introduction to a partner in a different practice area. While this is an easy way to grow a firm’s representation of a client, it does not produce the same level of revenue per client as integrated services do, according to Gardner.

Finally, Gardner also found that collaboration among large numbers of partners on client matters and relationships also results in much greater revenue origination generated by those partners. Revenue was at least four times greater for partners who brought in more partners from outside his or her practice into a client matter than those who brought in fewer partners in total, and half of whom were from within their own practice.

We have always known in concept that collaboration leads to better financial performance. With Gardner’s hard data added to prior studies and observations, firms now have a compelling reason to work much harder at building collaborative cultures.  An upcoming blog will share some actual ways in which firms are practicing and reinforcing collaboration.