24SMART COLLABORATION
worked over time. The first of the two—a more-or-less “pure”
marketing specialist—tended to focus exclusively on brand-related
issues in his clients’ product portfolios. Not surprisingly, his influ-
ence never extended beyond the marketing department. The CEO
went on to describe one of his current consultants, who had drawn
heavily on her cross-specialty experience to recognize that the com-
pany’s product portfolio affected its offshoring operations, and—
in turn—its tax regime. This savvy consultant identified a complex
project involving not only marketing, but also operations, strategy,
and finance experts. The multidisciplinary project commanded
higher fees, and the consultant established a reputation for herself
as a go-to person for solving sophisticated challenges.
These kinds of gains tend to be enduring, as well. Especially
in an economic downturn, middle managers often find their con-
sulting budgets slashed, but senior executives retain the option of
hiring external advisers to help with the projects they deem the
most strategic.
For all these reasons and more, cross-practice work is less sub-
ject to price-based competition. Whereas clients tend to view an
engagement involving single-specialty expertise as a commodity
that can be awarded to the lowest bidder, they also generally know
that cross-specialty work is complex and harder to pull off. Legal
work is a prime example. As the general counsel of one Fortune
100 company explained to me, “Despite what they think, most
individual lawyers are actually quite replaceable. I mean, I could
find a decent tax lawyer in most firms. But when that lawyer teamed
up with colleagues from IP, regulatory, and ultimately litigation, I
couldn’t find a whole-team substitute in another firm.”
Figure 1-3, which is based on my in-depth research at one global
law firm, provides a slightly different perspective on the same phe-
nomenon. It shows rising revenue per client even as five, six, and
seven disciplines become involved. Note that, again, as more prac-
tice groups collaborate to serve a client, the average annual revenue
from the client (the bars) increases almost exponentially, over and
above what each practice would have earned from selling discrete
services (the flatter, hypothetical trend line at the bottom of the
graph).
Chapter_01.indd 24 05/10/16 11:36 pm
The Business Case for Collaboration25
I have observed this pattern time and time again, across a
wide array of different professional service firms, including law,
consulting, and accounting firms; they may be international or
entirely domestic, and range from very small (about a dozen part-
ners) to giant (thousands of professionals). Naturally, the shape
of the curve—that is, how much each additional practice adds to
the average annual revenue—depends a lot on how narrowly or
broadly the firm defines a practice. Nevertheless, providing clients
with cross-practice, multi-expert services consistently brings value
to the firm.
I also found that client projects involving offices in several coun-
tries are significantly more lucrative than single-office engagements.
That’s because cross-border work is often especially complex and
demanding. Think, for example, of issues that arise when multina-
tional companies merge, or when a global company suffers a major
cybersecurity breach. Figure 1-4 summarizes the relevant data I’ve
collected on this key point, again in the context of two global pro-
fessional firms.
Delivering seamless service across national boundaries can be
an important differentiator for a firm, which explains why there
have been so many international combinations recently—mergers,
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
1234567
Revenue per client
Integrated services
Discrete services
FIGURE 1-3
Collaboration versus cross-selling
Chapter_01.indd 25 05/10/16 11:36 pm
26SMART COLLABORATION
acquisitions, and joint ventures—in the law, accounting, and con-
sulting worlds.
4
I should state here, however, that the revenue patterns that emerge
from these cross-border analyses tend to be “noisier” than they are for
cross-practice work. Although cross-border work is more lucrative on
average, any given project may defy the trend. Imagine comparing two
projects with people involved from four versus six countries—and see-
ing lower revenue in the broader project. Why? There may be multiple
explanations, ranging from sophisticated strategies to imprudent gam-
bles. A consulting firm with an advanced pricing and work allocation
system may be taking advantage of labor cost arbitrage by sending
lower- value parts of projects to its offices in less expensive countries,
resulting in lower fees for projects that cross more borders. In this
instance, collaboration may not boost revenue in the short term, but
clients will certainly appreciate the cost advantages and become more
likely to send additional projects to firms that help them achieve savings.
In contrast, firms that are early in their learning curve with
regard to collaboration may simply be failing to negotiate properly
$200,000
$0
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
12345
Revenue per client
Number of countries
Firm A
Firm B
FIGURE 1-4
More countries, more revenue
UK- and US-headquartered, international professional service firms
Note: The two firms were of significantly different sizes, although each had a strongly international profile. For
the sake of comparison, the graph shows the data after controlling for the size of the firm’s overall revenues.
Chapter_01.indd 26 05/10/16 11:36 pm
The Business Case for Collaboration27
for international work, or they may be suffering from inconsis-
tent quality or reputation in some jurisdictions that prevents them
from charging suitable rates there. In such cases, both the firm and
its client may still have a lot to learn about providing and using
cross-border services.
For professional firms with a domestic focus, cross-geography
collaboration—that is, across multiple offices—is similarly ben-
eficial. My analyses show that clients served by multiple offices
of a professional service firm generate higher revenues. Obviously,
some of those effects are driven by the size of the client—bigger
companies with bigger budgets and bigger problems to solve are
more likely to need help across multiple locations. But for any given
client size cross-office collaboration produces higher returns. And
that finding holds whether the offices are a hundred miles apart, as
for Philadelphia and Harrisburg, Pennsylvania, or more than two
thousand, like Perth and Sydney, Australia.
So far, I’ve focused on revenues. What about profits? Some skeptical
professionals wonder aloud whether multipractice service increases
revenues without enhancing profits. One related fear, of course, is
that once your firm gets deeply embedded within a client—with huge
teams engaged from all across your firm—that client will start using
its buying power to demand discounted rates and freebies. Does col-
laboration translate into doing more work for lower margins?
Initially, this is a real possibility—at least in terms of profit margin
percentages. But on average, clients served with multipractice engage-
ments are more profitable in the long run. Here’s the typical pattern
I’ve seen across multiple firms: At first, as the account size grows,
clients often do exert fee pressure. When firms broaden the scope of
their services from one to a few practice groups, discounts rise by
several percentage points. Stay the course! Because after that, as the
account continues to grow, discounting levels off. At one firm, the
pattern of discounts looked like the (slightly disguised) figure 1-5,
where the bars represent revenues and the line represents the average
negotiated discount. You’ll see that the firm lowered its rates by about
1 percent for each additional practice that was added to the client ser-
vice mix. But once the clients were served very broadly—with seven
Chapter_01.indd 27 05/10/16 11:36 pm
28SMART COLLABORATION
or more practices, presumably deeply embedded in its clients’ meati-
est problems—the fee pressure dropped back.
Overall, data from both domestic and international law, con-
sulting, and accounting firms shows that the profit margins hold
nearly steady (within a few percentage points) as more practices
are included in a client’s service mix. Do the math: since revenues
increase and margins remain about constant, you should earn
more profits simply by offering multidisciplinary services to cli-
ents. Figure 1-6 shows how this effect works on profits for one US
professional service firm.
Naturally the numbers shift, especially depending on which
practice anchored the initial relationship. Some firms have what I
call a magnet practice—the flagship practice that typically engages
first with clients, and then draws in other services. For example,
in Wall Street law firms, the magnet practice is usually the high-
profit M&A group. Not surprisingly, when that practice draws in
environmental or employment lawyers who charge lower hourly
rates, the margins can be diluted. Don’t be fooled by percentages:
a slightly lower percentage margin applied to much bigger revenue
numbers is still good money.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
12345678
Number of practice groups
Revenue per client
Fee discounts relative to
single practice
Revenue per client
Fee discounts relative
to single practice
FIGURE 1-5
Rate discounts by breadth of service
US-headquartered, international professional service firm
Chapter_01.indd 28 05/10/16 11:36 pm
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