Cross-selling and Client Succession Planning
by: Patrick Fuller
This is the second in a 3-part series on the impact of Artificial Intelligence (AI) on the business of law. In part 1, we discussed the economic and market conditions creating demand from both the buyers and sellers of legal services for AI-based applications. In part 2, we’re going to look specifically at two initiatives law firms have long struggled with, and the impact that AI-based applications can have on their success.
I’ve had the opportunity to speak at many law firm retreats throughout my career in legal, with firms of all sizes, and I cannot think of one that did not have a session on cross-selling, many of which I led. Succession planning was another area that was a frequent, although not constant, session topic. Every firm is little bit different with regard to their partnership agreements, as some have no mandatory retirement age, some are at 65, some at 67, and so on. But even beyond the firm’s leadership succession plan is the client succession plan, which, when done correctly, should be accomplished over a period of years. But that is not always possible, as lateral partner movement and mortality can sometimes accelerate even the best planned timelines.
AI-based applications have the ability to change the strategy and success of both cross-selling and client succession planning initiatives. And to do so does not require a shift in firm culture, but rather a commitment to executing the strategy, which is no different from any other initiative.
There are many reasons why both cross-selling and client succession plans often fail in law firms, but like most obstacles, compensation models are the chief culprit. Law firm consultant and compensation plan guru Timothy B. Corcoran sums it quite nicely:
“Our strategy establishes one set of goals; the compensation plan rewards other, often entirely opposing, activities. We’re a full-service law firm for our clients, but we don’t track or reward cross-selling. In fact, we create internal competition and ill-will by forcing partners to take a pay cut when they bring others into their relationships. We wish to expand into new practice areas and geographies, but we punish the partners brave enough to lead an expansion because their short-term economic contribution suffers. We want everyone to get out of the office and become a rainmaker, but we pay partners primarily to stay in the office and bill time. We promise clients seamless transitions when partners retire or depart, but we punish partners who introduce younger colleagues into key relationships by requiring them to split credit. We promote our client focus, but we pay for hours, not efficiency.”
Corcoran’s brilliant summation of the misalignment between strategy and compensation is only part of the issue. The other is personal, an unwillingness to introduce colleagues into key accounts, in part because of compensation concerns, but more so because of risk. “What if this partner ruins my relationship with this client? I cannot take the risk introducing John or Sally to my most critical client”.
This is where AI will have an immediate and positive impact on cross-selling. By introducing web-based applications that are powered by an attorney’s expertise, and not just introducing a firm partner from another practice area, firms are accomplishing a number of key strategic initiatives beyond relationship risk mitigation. First, it’s much more efficient to expose hundreds of firm clients to an application that can be accessed and utilized immediately, as opposed to scheduling individual meetings with each client to introduce an attorney from a different practice group into the relationship. Remember, it’s not the big that eat the small, it’s the fast that eat the slow. And with AI-based applications, fastest to market is an objective that should be front and center for firms, especially in their nationally-recognized practices. Second, it underscores the firm’s reputation as both thought leaders and innovators, which is important for both current and prospective clients. Third, and perhaps most important, is that revenue-generating AI-based applications can be very profitable. By capturing the expert interpretation of any given rules base once, and applying that logic and expertise at internet scale, firms are able to develop new revenue streams without leveraging associates or billing additional hours.
Whereas cross-selling is a direct beneficiary of AI-based apps, client succession planning is an indirect beneficiary. As previously mentioned, client succession planning ideally takes place gradually over a number of years, and often involves the client as well. But client succession planning is one of those difficult subjects that no one in the firm really wants to discuss. It’s uncomfortable for all the same reasons most of us don’t like talking about our own estate plans. When I was consulting, I worked client succession planning into practice and industry group strategy frameworks. It was easier to address from the side vs. head on. And, transitioning any client also involves selling the client on the transition. With some practices, this is where AI can become a key part of the process. For example, in areas such as compliance, or assessing risk of specific clauses in contracts, the interpretation of the expert can be captured and memorialized within an AI-based application. Whether this application is exposed to clients, or utilized internally by the firm’s attorneys and paralegals, it enables the consistency and interpretation of the rules base to be leveraged as long as it is applicable. Sharing with the client the steps the firm has taken to ensure a smooth transition, both in personnel and client knowledge, can be critical to client retention. If the firm is capturing expertise in a way that automates repetitive knowledge tasks in a variety of practices, this can become the gateway to more productive conversations with clients, benefiting cross-selling efforts.
Both cross-selling and client succession planning are key elements of a firm’s ability to retain and broaden their relationship with key clients. They are also defensive maneuvers, as all firms pursue these objectives and seek to increase their wallet share of a company’s outside counsel spend. To this end, firms have to find a way to differentiate themselves in a way that makes sense to the client, while creating demand around the differentiation. This can be accomplished, in part, by leveraging the nexus of technology and knowledge to scale the firm’s expertise in a differentiated, profitable way that offers cost predictability and certainty to the client.