This is the second in a series of four posts that consider the future of professional services networks.
Most law firms join networks to gain substantial external benefits, such as referrals of clients and matters, the opportunity to collaborate with other firms on large projects, and better market visibility. For many law firms, that decision produces disappointing results.
In this post, we will consider the future of professional services networks from the perspective of the tangible external value that they deliver --- or not. What can law firms expect in terms of external value as part of the return on their investment?
In the first part of this series, we considered the nature of the investment that a law firm should expect to make in a successful relationship in a professional services network. Many law firms completely overlook the most valuable investment of all: partner time. We noted that there is a direct correlation between the investment of partner time and the return on the firm's investment in the network.
Considerations of the external return on that investment imply a need for a well-informed dialogue between law firms and networks. In our experience working with both law firms and law firm networks, my colleagues and I have observed that frequently neither the law firm nor the network has considered some very important practical issues, nor is the network prepared to offer well-informed answers.
While not excluding any relevant factor, this short discussion focuses on the three components of external value that my colleagues and I believe to be critically important: real synergy, referral potential, and competitive loyalty. Each of these can produce a compelling case for membership or, in some instances, can be a decisive factor against it.
1. real synergy
Some readers might be surprised to see synergy -- not money -- listed first.
Synergy is more than consulting jargon.
Instead, it is an observable, measurable function in the marketing and delivery of professional services. In the network environment, synergy is the product of specific, usually documented, practice management structures and processes that produce financially measurable benefits for network members and their clients.
In the legal profession, and in maturing markets for other professional services as well, synergy is emerging a force that often can level the playing field between the global giants and small and midsize firms. In fact, I believe that consistent, well-managed synergy might become a bedrock necessity for any professional services network that wants to remain relevant in the 2020s.
Real synergy must be embedded in the way that a network operates. Groups of members should be able credibly to propose and efficiently execute projects together that none of them could perform individually. We have seen how synergy among network members can produce substantial financial benefits for smaller law firms, and can enable them to compete successfully against their much larger, better-resourced rivals, especially on a regional basis. This is one area in which multi-disciplinary networks that cut across professional boundaries might have an advantage over general law firm networks or ones that specialize in a single practice area, such as labor and employment law or tax.
When considering whether to join or remain in a network, law firm partners should examine the extent to which, if at all, there are realistic opportunities for synergy with other network members, as well as whether the network is structured and operates in a way that facilitates synergy rather than inhibits it. If networks want to retain their best members, it will become increasingly important for them to provide energetic support for real synergy in the marketing and delivery of legal services.
Law firms also need to look inwardly. To what extent do the practice structures, operational habits, and organizational culture of a law firm promote or prevent synergy among practice areas and even among lawyers in the same practice group? A law firm that has not already learned, at least partially, to produce synergy within itself cannot reasonably expect to absorb it simply by joining a synergistic network.
What about a network's brand?
Most of the largest professional services networks work hard to develop a distinctive brand, often promoting that brand as a kind of "seal of approval" for their members. Although branding is not unimportant, our experience and research suggest that being a member of a well-known network does not, by itself, transfer competitive advantage to a law firm. Sophisticated purchasers of legal services, especially in-house counsel, base their decisions on factors that are more directly related to expertise and service quality. The most that the network affiliation does is to get a firm onto the list of candidates -- and often not even on the "short list."
For this reason we recommend to our law firm clients that any marketing reference to their network membership must describe specific, tangible benefits that are important to the client and that are a result of network membership. An area in which network branding clearly, in our view, can create competitive advantages for members is in the synergy that a network can generate, which in turn produces tangible client benefits, which a competitor might not be able to deliver as well, or at all.
This is why we also suggest to law firm networks that, instead of constantly trying to polish their brand, they should spend more time, attention, and resources on constructing the infrastructure that helps their members to deliver differentiating benefits to clients.
Synergy, not slogans, will shape the future of professional services networks.
2. referral potential
Most law firms join networks to gain referrals that they might not be able to obtain on their own. Referrals bring fee revenue, but those fees are only a part of the total external value. Nonetheless, it is what most law firm partners think about first.
Network membership should be linked to significant, articulated, and measurable strategic objectives. Law firm partners should be able to anticipate, with reasonable specificity -- even if not with clairvoyance -- the nature, quantity, quality, and value of the opportunities that a network will provide.
It is useful to conduct a little due diligence about the practices and client bases of other law firms in the network. Are they compatible? Realistically, how probable is it that they will actually send us work? These questions lead to: Is this the right network for us?
Some people believe that, if the strategic factors are aligned, membership in a network should be a "slam dunk" decision. That might be true, but in many more instances the decision to join a network is more like a hybrid between educated guessing and wishful thinking.
One of the most important things that professional services networks should do for their members is to demonstrate, by simple and unequivocal metrics, the specific value of the referral potential of membership -- practice area by practice area and jurisdiction by jurisdiction, if possible. This allows law firm partners to evaluate for themselves the probable return on investment.
3. competitive loyalty
Do members of a professional services feel that the network understands and supports their strategic and business goals? Does the network understand the member's competitive context and strategic objectives, and take every reasonable opportunity to support the member? We refer to these considerations as part of competitive loyalty. In other words, do the actions of the network demonstrate that it has the interests of each member at heart?
Competitive loyalty is not usually a factor in the selection of a network to join. There are some warning signs that we can sometimes point out to our law firm clients, such as a significant number of resignations from the network, or a lot of member turnover in major jurisdictions; but these can be equivocal indicators.
More frequently, the decision to leave a network involves, to some extent, issues of competitive loyalty.
Like the other two elements of external value, competitive loyalty is measurable. It can be measured in terms of lost opportunities or occasions in which the network leadership has acted to the competitive detriment of one of its members. Although some of these examples might appear to be rare discrepancies, even one incident can have a very damaging effect on the commitment of a member firm to remain in the network.
Some of the most instructive examples that we have observed include:
- In response to an inquiry from a potential client, a network headquarters office fails to recommend a member firm that is fully qualified to deliver the professional service.
- A fully-qualified member firm is excluded from participation in a network practice group.
- When asked by a client for a referral to a law firm in another jurisdiction, member firms frequently fail to include the network member in that jurisdiction as one of the firms on the list, even though the excluded network firm is fully competent to do the work.
- A network invites a known outside direct competitor of one of the firms in the network to deliver a keynote address at a network meeting or conference, without consulting first with that member firm.
Each one of these incidents represents, in our opinion, a significant issue -- and potential crisis -- in member relations. They are even worse when the affected member firm finds about them from third parties or clients.
Communications and clear expectations between network members and network executives are probably the most reliable way to manage the risks of competitive disloyalty. Techniques such as assigning a member relations liaison representative to communicate between the network and each member, and frequent solicitation of member input through telephone interviews and short, focused surveys, can dramatically reduce the risk of competitive disloyalty to members. These practices can also help address issues at the earliest stages, before they become crises that could irrevocably damage trust.
demonstrating external value
Each of these three elements of external value also suggest opportunities for networks to demonstrate their external value by initiatives such as:
- helping law firm partners to ask the right questions about their return on investment in a network
- providing information and reports to help law firms measure and monitor the external value of their membership in a network
- investing in the practice management structures to support real synergy in the delivery of services to the clients of members
- collecting and sharing comprehensive information about each member's strategic objectives, areas of specialized expertise, and service delivery capabilities
- facilitating easier referrals among members
- being more proactive in member relationships
- demonstrating unquestionable competitive loyalty to each member
looking ahead to Part 3
Most law firms have a basic understanding of the major features of external value -- at least to the extent of anticipating increased revenue and market visibility. In the next post in this series, we will look at a growing interest -- especially in small and midsize law firms -- about how network affiliations can reduce internal operating costs or improve internal productivity. This perspective of internal value could be the most intriguing and paradigm-shifting aspect of the future of professional services networks.