Monthly Archives: June 2013

CO-CREATION OF UNIQUE VALUE WITH CLIENTS: A Strategy Tool for Winning the ACC Value Challenge (Part Two)

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Our last post introduced the principles underpinning a valuable strategy tool – co-creation.  We noted that co-creation is a tool particularly well suited to sophisticated legal practices for two reasons.  First, in many respects co-creation principles align well with attorneys’ instinctive approach to managing client relationships.  And second, co-creation is proverbially “just what the doctor ordered” relative to having an effective tool to respond to the Association of Corporate Counsel’s (ACC) Value Challenge.

As we noted in that last post, co-creation is built on four principles:  open dialog; access to information; shared risk assessment; and transparency (especially on costs and pricing practices).  We promised to share a few real world examples of how those principles were put into play by forward-thinking law firms and partners – working collaboratively with clients.  We share three real world cases below (disguised sufficiently to protect both the identity of the law firms and their respective clients).

Managing A Large, Growing Patent Portfolio

A global technology company, spending well into the seven figures to manage and expand their patent portfolio in the U.S. (exclusive of litigation costs), approached their leading intellectual property law firm looking for an approach that would save money, while effectively supporting a core business strategy that highly valued a strong and growing portfolio.  The existing relationship was long-standing and strong.  The law firm currently supported more than 60% of the company’s patent portfolio.  Further, the primary relationship manager was predisposed toward open dialog, access to information, and shared risk assessment.

Supported by solid financial analysis on the law firm side and progressive thinking in the general counsel’s office (including the associate GC for intellectual property), the following solution was crafted

  • An open dialog regarding the full scope and nature of the company’s patent portfolio – and the law firm’s technical capabilities – led to a realization that efficiencies could be gained by having one firm support the entire portfolio in the U.S. (as well as much of the rest of the world).  Essentially, consolidating the work with a single firm would free-up resources in the GC’s office and the law firm and would streamline docket management.
  • The law firm already provided real time visibility to the client’s patent docket.  By consolidating all the work in a single firm, it also became feasible to have secure access to the underlying documents (e.g., applications, USPTO responses, etc.) across the law firm’s and the client’s networks.
  • Real savings emerged from shared risk assessment.  The company had a highly sophisticated strategy for its patent portfolio.  They had a very clear sense for which patent families were most valuable and/or integral to that overall strategy – and the law firm became a valuable partner in helping to assess both value and risk.  That in turn enabled the firm and the company to deploy the right level of resources to each element of the patent portfolio – especially in areas driving the greatest costs (e.g., the application docket and management of the pipeline of new technologies and patents).
  • Entrusting the entire portfolio to a single firm enabled the company and the law firm to create a rational budget for managing the entire portfolio (i.e., via transparency on costs and pricing).  That budget included meaningful insights into what work should be done in the GC’s office and what should be done at the law firm – in the process optimizing total costs to the company.  And, because the right work was being done in the right place by the right people (including administrative support), the law firm was able to maintain profit margins even as the company’s total spending on outside counsel declined.

Controlling Costs on Recurring Litigation

A large petro-chemical company with recurring litigation in the toxic tort arena was looking for a way to gain greater control over the costs associated with that litigation.  Costs ranged from the mid-seven figures to the low eight-figures (excluding judgments and settlements) in any given year.

  • The company’s general counsel started a dialog with the lead partner of a range of litigation matters for the company (across multiple sub-specialties – including some toxic tort work).  He was open about his objectives: to save money overall; and to introduce some predictability in his budget for this recurring work.
  • The relationship benefited from an established set of tools that provided access to documents (via a secure document management system) and to regular status reports on all open cases.
  • The partner was well respected for his ability to understand the risks associated with complex litigation – and his ability to cut through complexity to put a value on cases.  That included an ability to assign solid ranges to the potential outcomes for any given case, as well as an ability to develop litigation strategies to manage cases toward controllable outcomes.  This provided a dual ability to better manage ongoing litigation costs and achieve agreed upon outcomes vis-à-vis judgments and settlements.  Settlement decisions could be made more strategically as a result – better managing risk and reducing the company’s total cost of litigation (not just the cost of outside legal counsel).
  • The relationship was characterized by a high level of trust (and transparency).  Thus, when the company approached the partner looking for savings and predictability, he suggested putting all of the recurring work on a single fixed annual budget.  Time would be tracked against the budget and the budget would be reset annually – some years up and some years down (a real reflection of mutual trust).  As a means of saving the company significant legal fees, the partner suggested staffing routine, but labor intensive aspects of the ligation with low cost contract attorneys (rather than his firm’s higher priced associates).  That took money out of the law firm’s hands, but created additional credibility and trust – as well as substantial cost savings.

Innovative Financial Services Products

One of the largest banking and financial services companies in the U.S. was searching for innovative product ideas to respond to the post-financial crisis banking environment (e.g., low interest rates, higher reserve requirements, more stringent regulatory oversight, etc.).

  • General Counsel at the bank began a dialog with partners at one of its most forward thinking law firms.  The bank and its competitors were responding to the low interest rate environment by adding a substantial quantity of government bonds (in particular municipal and other tax advantaged government bonds) to their balance sheets.  However, the process through which those assets were traditionally created (e.g., underwriting and disclosure by investment bankers, public offerings and market making, etc.) was both cumbersome and costly.  The bank was looking for a creative solution to simplify and streamline that process.
  • That initial dialog led both the bank and the law firm to open access to the key stakeholders at the bank (e.g., investment bankers, commercial bankers, law department, etc.) and to subject matter experts at the law firm (e.g., securities, public finance, banking/bank regulatory, etc.).  The combination of dialog and access led to the development of what amounted to a new product in both the banking and public finance world – direct purchase by the bank of newly created government bonds.
  • The success of the product was strongly influenced by the ability of the bank and the law firm to effectively manage risk.  That included strong risk assessment of the municipalities and other entities originating the bonds (i.e., no distressed municipal debt in this product mix).  It required effective documentation of underlying disclosures by the issuing entities, as well as other regulatory compliance (another form of risk mitigation).  And, to manage the longer run balance sheet risks, it required the creation of products with appropriate durations to protect both the borrower’s and the bank’s balance sheets.
  • Creating what amounted to an entirely new product (both for borrowers and lenders) raised critical transparency questions.  Should this product be considered highly proprietary (which in the world of financial services meant it would take a few quarters before other banks figured out their own way of offering the product) or should it be trumpeted as a new industry standard (enabling faster followers)?  In addition, having created a product that was essentially a winner for all stakeholders (borrowers, the bank and the law firm), how repeatable and predictable could the process become?  Direct purchase of municipal (and other public) debt has been moving rapidly toward industry standardization (answering the first question).  There are tremendous efficiencies in the product/process, however the unique qualities of each asset (i.e., municipality/project/etc.) limit how entirely repeatable the process can be (partially answering the second).

Hopefully these three examples – across markedly different legal specialties and markets – help to provide some insight into how you might adopt and apply a co-creation strategy in your own firm and/or practice.  At a minimum, co-creation ought to be in the “strategy toolbox” of every law firm of reasonable size and capability.

As always, we welcome your comments below and via telephone (312) 543-6616 and email (jsterling@sterlingstrat.com).

 

CO-CREATING UNIQUE VALUE WITH CLIENTS: A Strategy Tool for Winning the ACC Value Challenge (Part One)

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This is the first in a two-part discussion of a valuable innovation tool for law firm leaders – “co-creation.”  Co-creation has its greatest value at the individual client level, but can be applied at practice level as well.  Co-creation dovetails directly with the kind of call to action at the heart of the Association of Corporate Counsel’s (ACC) “value challenge.”  Namely, that increasing the value law firms deliver to clients requires “that solutions must come from dialog and willingness to change things on both sides.”

 Co-creation is quite distinct from disruptive innovation (see our article from April 2013) which provides a process and roadmap for creating low end solutions that fundamentally alter established markets.  On the contrary, co-creation is a process for creating solutions that have unique and enduring value for clients (often enhancing or at least preserving profitability).  It is essentially a process for taking practices to higher levels of value and for strengthening client relationships in the process.

This first article provides an overview of the tool and how it applies in a law firm setting.  Our follow-up article next week will provide a few examples to provide some practical, real world insights into the process.

Origins of the Tool and Principles

Co-creation emerged and was defined by C.K. Prahalad and Venkat Ramaswamy – both professors of business at the University of Michigan.  They identified a number of foundational shifts in the nature of relationships between businesses and their customers – shifts that alter how and where value is created.  Those shifts include:

  • Growing access to information on the part of clients; globalization regarding viewpoints and perspectives (i.e., not only do clients have increased access to information, that information is global in scope);
  • Networking among clients (for example, via the Association for Corporate Counsel, LinkedIn interest groups, and other formal and informal networks); and
  • A willingness to experiment – particularly with digital and/or information driven products and services.

Given that backdrop, Prahalad and Ramaswamy found that increasingly value was created at the point of interaction between businesses and their clients.  Value was becoming less a function of creating a product or service to be purchased (i.e., take it or leave it).  Rather, value was being created as businesses and their customers created unique solutions together.

For many in the legal industry, this insight is not particularly novel.  Because legal services often require dynamic interaction and unique tailoring of solutions via direct interaction with clients, the idea of co-creating value is a standard operating practice for many lawyers.  Prahalad and Ramaswamy approached this dynamic from a mass market, product oriented perspective, and as a result they were able to develop some basic principles that are potentially valuable to law firms.  In short, they have codified the foundational approach that makes co-creation based innovation a repeatable process with clients.

Using the Tool in a Law Firm Setting

Co-creation tools provide a roadmap for taking client interaction to a higher level – recognizing that the world has become more interconnected and information is more readily available to clients than it had been in the past.  By recognizing and embracing that change, more value can be created for clients and in the process, relationships can be strengthened.

Applying co-creation in a law firm setting involves embracing four fundamental, ongoing principles in client interactions.

  • Dialogue – “Dialogue means interactivity, engagement and a propensity to act – on both sides (client and law firm).”  Beyond simply listening to clients, dialogue suggests shared learning on the part of two problem solvers.
  •  Access – Access focuses primarily on providing access to information and tools.  For instance, many firms have implemented extranets and/or cloud-based solutions for managing shared information with clients.  Embracing the access principle takes that one step further, ensuring access to the insights, knowledge and other foundational tools the law firm uses on behalf of clients (e.g., knowledge management tools, project management tools and processes, etc.).
  • Risk Assessment – To fully engage in co-creation, clients need to have a deeper understanding of the risks (and trade-offs) they face when selecting and creating a particular solution.  Some attorneys are extremely good at helping clients assess risk and make wise choices – others are not.  Helping clients assess risk is fundamental to co-creating value.
  • Transparency – Historically, there has been a natural imbalance regarding some elements of the relationship (e.g., pricing, underlying costs, profit margins, etc.).  Some of that imbalance has already broken down.  For instance, starting salaries for associates are published openly at NALP and profit levels are openly reported in the AmLaw 100 and 200 rankings.  The transparency principle calls on firms to continue and expand that openness.

While many will object to (or fear) the level of openness called for by the principles above, that fear is generally unsubstantiated in actual practice.  Clients do not object to their law firms earning a healthy profit – they understand that profitability is the cost of doing business into the future.  Furthermore, because they are actively part of key decisions regarding the creation of solutions and the management of risks, the value received relative to the fees charged is generally perceived to be very high.  In addition, having co-created approaches that deliver high levels of value, incentives to switch firms falls dramatically – increasingly client loyalty in the process.

Co-creation works most effectively when complexity is high and resulting solutions are genuinely unique and of high value.  In those high end settings, law firms are well served adopting principles of co-creation.  However, the principals work in many other settings as well (e.g., improving value on high volume work, integrating legal process outsourcing vendors into ongoing relationships, etc.).  In summary, co-creation is a natural extension of long standing traditions and leads to deeper, stronger and more loyal client relationships.

Next week we will follow-up with a few examples of how these principals work in practice.