Les Cahiers de Recherche - HEC Paris
Rodolphe Durand and Lionel Paolella
Category Spanning, Evaluation, and Performance: Revised Theory and Test on the Corporate Law Market
Abstract: “Category spanning” – the provision of a range of distinct
services – has long been frowned upon by organizational experts, because
it’s seen to drain a producer firm’s appeal to audiences. Compared to
“purer” competitors, category spanners are traditionally less feted and
more poorly rewarded, and it’s become conventional wisdom that clients
prefer focused producers – those who “stick to their knitting” in the
colloquial British expression.
Yet when it comes to corporate legal
services, we found in a study of hundreds of law firms in New York, London
and Paris over a decade that this generalised theory just doesn’t hold up.
As clients expect more sophisticated services – particular in relation to
acquisitions – they tend to value category spanners more positively and are
willing to pay higher prices for them. That’s because clients assess a
producer as a broader entity, rather than looking at expertise in
isolation, when issues are complex.
So we concluded that – at least as
far as legal services are concerned – clients have no general preference
for a single category of expertise. Instead, what matters is the “theory of
value” – clients’ perception of issues and solutions, and how these can
best be provided from a goal-based perspective.
Our study – just
published in the Academy of Management Journal – looked at eight practice
areas that span most of corporate legal practice: competition; litigation;
intellectual property; property; tax; mergers & acquisition; bankruptcy and
employment over the period 2000 to 2010. We examined rankings given the law
firms by three top guides for the legal profession – The Chambers and
Partners, The Legal 500 and PLC Which lawyer – which rank according to
practice area and location, and we also collected complementary information
(on numbers of partners, gross revenue and other data) from a journal
focusing on each city: American Lawyer for New York, The Lawyer for London
and Juristes et Associés for Paris.
What we found is that what matters
more to clients is not whether firms straddle practice categories, but
rather the clients’ own ability to identify, understand and appreciate the
combinations of categories offered by law firms.
The ability to
convince clients that such a combination is beneficial also helps boost law
firms’ bottom lines. As the Paris-based partner of a U.S. law firm law firm
told us, the way to develop the more profitable areas of practice such as
litigation and M&A is to demonstrate skill in tax, property, employment and
other less glamorous areas of the law – because demonstrating diversity can
be the best way to close the high-profitability deal.
suggest that clients often stick with their diversified law firms not out
of appreciation of their many skills, but simply due to inertia: to
minimize the cost of searching for another provider and haggling over a new
contract. Yet we found no evidence for this, and in fact one study found
that 56% of big companies from 60 countries use up to 10 multi-practice law
firms. While we found insignificant evidence of a direct effect of category
spanning on law firm performance – i.e., higher revenue per lawyer, our
statistical results suggest that category spanning has an indirect positive
impact on performance through the positive evaluation of clients (i.e.,
higher ranking positions).
Plenty of “new economy” companies have shown
they can thrive by spanning categories: Amazon, after all, quickly
broadened its offerings from books to diapers and cloud computing storage.
We hope our look at “old economy” law firms will help shed some further
light on this evolving and fascinating area of organizational economics and
Keywords: Organization and management theory (General); Organization and Management Theory; Topic Areas; Reputation; Organization and Management Theory; Topic Areas; Panel/Pooled; Research Design; Research Methods; (follow links to similar papers)
51 pages, August 20, 2015
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