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.