Collaboration and Innovation in the New Normal (Live Post from Georgetown Law Conference)
This is live post from the Georgetown Law conference, The Shrinking Pyramid: Implications for Law Practice and the Legal Profession. This session is Collaboration and Innovation in the New Normal. (As this is a live post, please forgive any typos or failures accurately to report speaker points.)
The academics presenting at this session and their works:
Collaboration: A Challenging but Strategic Imperative for Today’s Law Firm, Heidi Gardner, Harvard Business School
Changing Career Models and Capacity for Innovation in Professional Services, Michael Smets, Aston Business School and Timothy Morris, Said Business School, University of Oxford; Namrata Malhotra, Imperial College Business School
The Moderator: Reena Sengupta, RSG Consulting
The Panelists: Kim Koopersmith, Chair, Akin Gump Strauss Hauer & Feld LLP;
Stephen Denyer, Global Markets Partner, Allen & Overy LLP
Heidi Gardner, Harvard Business School, Collaboration: A Challenging but Strategic Imperative for Today’s Law Firm
Studies teamwork in professional services firms. Worked 5 years at McKinsey. Over last year, has looked more at law firms and has collected data over this time.
A core tension exists. On the one hand, in PSF there is increasing specialization. People are rewarded for developing narrower and deeper expertise On the other hand, the market grows more complex and requires multiple types of expertise to solve problems. This is “differentiation v integration”. Collaboration Practitioners often suffer from the fallacy of uniqueness.
There are multiple challenges to collaboration in professional service firms. People in different areas of expertise have different world views and different vocabularies. Working across boundaries requires re-negotiating status (who’s in charge). That may sound simple, but it’s not. The “star culture” reinforces individualism and makes collaboration harder.
The “Performance Pressure Paradox”. On high stakes projects, collaboration is essential. But key leaders become risk adverse. This leads to bad group dynamics and weak team performance. This leads to using the most important knowledge less than they should. Because the senior people can’t let go of control, they collaborate less.
Yet the data show that average revenue per client increases significantly with growing collaboration across practices. Heidi looked at collaboration at the matter and client level. She found that on a project basis, cross-discipline and cross-practice collaboration drives up revenue. She has hypothesis that this also improves client stickiness.
Some research suggests that people who collaborate identifies more with their firm. This improves satisfaction and retention. It also institutionalizes relationships and the market knows this. So this lowers the portability of and value of individual practitioners.
So there are many reasons to promote collaboration… but it is not easy to do. Need to figure out what’s in it for the individuals.
Heidi is studying law firms – likes the fact that time is recorded because this provides very granular data on who is doing what. She has data for 8 years, spanning economic cycles, so research can generalize across economic situation. Over 500 professionals, over 150,000 person-project combinations.
Here are some findings from her research.. Collaboration leads to higher productivity. The more individuals a fee earner work with year one, the more they will bill in subsequent years. Cross-practice collaboration is a better predictor of revenue growth than within-practice collaboration. Adjusted r-squared of regression is 0.58 (RF: pretty good, not great).
So, how does collaboration help? Reciprocity is one mechanism: give work to a colleague now, more likely to get work in the future. Reputation is another mechanism: the more people with whom a lawyer works with, the more her reputation spreads through the firm. This can support higher hourly rates.
Collaboration benefits rainmakers. Heidi compared two nearly identical lawyers based on practice, graduation date, and hours billed. One with bigger network has 4x the revenue. But cause and effect is unclear.
Michael Smets, Aston Business School: Changing Career Models and Capacity for Innovation in Professional Services
Says that legal is a perfect storm now. While clients demand novel solutions, the knowledge behind the novel solution becomes a commodity quickly. This requires constant innovation in law practice substance. Who does the innovation? It’s the lawyer talent. On the talent side, there is war of people, a challenge of work-life balance, and question if new generation is willing to work as hard.
Innovation in law firms has three dimension: legal solutions, operational changes (service delivery), and business model innovation. Lawyers, if they do any innovation, is in legal solutions (substantive law). Research focuses on legal solution innovation and the professional talent that drives it.
Discusses how to turn talent into service delivery…. One option is knowledge leverage (knowledge management systems). Another is via leverage: senior lawyers guide junior lawyers. Leverage drives the shape of the pyramid. To convert talent and leverage to service delivery requires billing hours. Talent faces pressure to bill many hours. The incentives for this: direct compensation, deferred comp, life-long career, and human development capital.
Most of the legal solution innovations comes from top of pyramid. But the pressure to bill hours at all levels dampens incentives to invent new solutions. The up or out pressure also hampers innovation. Political pressure to assimilate, social pressure against maniac hours.
The tensions in the model have led to creation of new permanent positions: counsel (Legal Director (UK?)) who are salaried, experienced lawyers with no rainmaking responsibility but firm-related bonus; permanent associate but smaller bonus; professional support lawyers who are experienced and support billing lawyers who get salary only.
Suggests that more junior lawyers are motivated to innovate legal solutions to develop their own business. With experienced lawyers in non-partner positions, the juniors can tap their know-how to do so. This frees up partners to sell more work since they no longer need to spend so much time on creating new legal solutions. [RF: not sure I got this right and if I did, not sure I agree it’s right. Missing link for me is how often does legal innovation win business versus providing good solutions with better service delivery.]
In summary: innovation capacity is linked to career model; consistent operating model enhances innovation capacity; innovation hinges on requirement, motivation, and ability; use new capacities strategically, not ad hoc; new career models can create a win-win situation for firm and staff.
Koopersmith agrees in part and disagrees with presentations. Akin Gump values cross-selling – that’s the best news for promotion to partner and higher compensation. Does not look for exponential benefit of cross-selling. With respect to shape of organization: we have associates, staff attorneys, off-track associates, senior counsel, and partners. Does not see the non-partners as the ones driving legal solution innovation. Also, junior lawyers often have innovative ideas.
Denyer agrees but says almost all of the legal solution innovations has come from non-partners. Often, doing that is key to associate becoming a partner. Also, UK firms have always had to operate on a cross-border basis, which has meant a lot of collaboration. We have been forced to look for ways to innovate because there are so few others way to differentiate. Contrasts UK to US; in former, he says fewer opportunities to become highly specialized (RF: not sure I followed this entirely).
Denyer is surprised not to hear more about comp structures, specifically lock-step v eat-what-you-kill as issue in innovation. Heidi says she sees a wide range of collaboration behaviors within the same firm and so it’s not clear comp structure drives this. Koopersmith thinks that lock-step would drive more collaboration and innovation because less worry about who “owns” the innovation.
Heidi often hears lawyers say “my clients won’t pay for collaboration”. Denyer thinks this must be lawyers at clients who are very focused and non-collaborators, not the GC. Koopersmith: says this is like hearing “it’s all about me”, which is not what managing partner wants to hear – or what client wants to hear.
Audience member points out some GCs say cross selling is their biggest bane. Koopersmith responds that the attitude is right reaction to _bad_ cross selling. Good cross selling means really understanding the client, working closely with them, identifying potential opportunities, and offering new service in context of deep and trusted relationships.
Discussion of role other professional can play in cross-selling, collaboration, and innovation. One Dutch firm was able to increases its China business through effort a non-lawyer professional. Akin Gump has Pricing and Analytics Director who helps identify client needs and focuses on putting together teams.
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