What’s the prevailing mindset in your firm? Do people talk about ‘my’ clients or ‘our’ clients? Are client relationships primarily owned by individual partners or directors or are they viewed as assets of the firm?
My research indicates that many firms are still struggling with this idea of institutionalising their key client relationships. While there are attempts to cross-sell and refer others, it is usually done from the perspective of calling in a specialist to address a specific (often narrow) client need. The client is still someone’s client with others helping out when they’re asked to. It’s not an ongoing firm-wide collaborative effort to create the most value for the client and for the firm.
The problem of individual client ownership becomes particularly acute when firms attempt some form of succession or buy-out plan. The acquirers/investors will simply pay less or walk away from the opportunity if they deem there is no relationship capital in the firm. If future cash flows are predominately linked to the reputation and relationships of a person about to exit the business, then what’s left that’s worth paying for?
Five reasons
There are five principal reasons that underpin client hoarding:
- Reward – the firm’s measurement and reward system incentivises the individual to hold on to the client and do as much work as they can for that client, regardless whether they are the most suitable provider or not. I recently heard of a case where a law firm’s commercial partner ran a major dispute for ‘his’ client, rather than refer the matter to the firm’s specialist litigators. A post-mortum of the file revealed the approach had not only exposed the firm to undue risk, the client landed up paying around 20% more for sub-standard outcomes and a very inefficient process. At the time, the partner’s bonus was principally linked to his personal billings and so there was a huge disincentive for him to involve others.
- Power – in professional services a senior practitioner’s power base is often linked to their ability to make rain and drive revenue growth. Having personal ownership of high-revenue clients feeds this perception and power is increased from the implied threat of leaving the firm and taking a sizeable chunk of revenue with them. Similarly, being Mr or Ms Big with big clients is one way that large egos can be stroked.
- Legacy – a vast majority of client relationships start out as one-to-one, person-to-person engagements. Very few commence as firm-to-firm collective pitches. The individual that wins the initial work tends to keep on going and over time develops strong personal relationships with key buyers and influencers. Whilst these personal bonds are great, they can become to define the overall relationship and limit others stepping into the frame and joining the club as equals.
- Distrust – in some instances partners simply do not trust the quality of advice and service delivered by their colleagues. They feel the client would do better by going elsewhere. Some firms are in indeed challenged by very high variability in technical ability and inconsistent service standards. Client hoarding is probably a good thing in these cases! However, from my experience the problem of inconsistency is often overstated and the real problem is professional arrogance and distrust based on ignorance.
- Control – recent Harvard Business School research by Heidi Gardner suggests that heightened performance pressures in professional services drive people to seek control and adopt a ‘go it alone’ mindset that ultimately undermines collaboration. Larry Richards‘ research work points to lawyers, in particular, having a strong autonomy and control streak.
Cultural versus process solutions
I often see firms trying to fix this problem of individual client ownership with process solutions. They put in new BD processes that require people to sit together and prepare and execute a client plan. They install new CRM systems and try get people to institutionalise client knowledge. They train staff in a new sales methodology that requires pre- and post- call planning. What happens is that people don’t pitch up to client planning meetings, they don’t bother to update the CRM and they fill in coloured sheets once or twice and then go back to good old days.
In professional services I believe one has to tackle this issue, first and foremost, as a cultural problem. In some instances it goes to the heart of the firm’s purpose or raison d’être. Is the firm there as a place for individual owners to practice their profession or is it a business that seeks to create and build shareholder and stakeholder value? If it’s more the former, it’s going to be a long hard battle trying to build the firm’s relationship capital.
Cultural solutions start with strong leadership and a commitment to live the firm’s values. If your firm’s values reflect something about respect, integrity, teamwork, service excellence, or similar ideas, then there’s enough ammunition there to start and win the battle. It’s really up to the firm’s leadership group as to whether they have the courage to fight!
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