Developing Knowledge-Based Client Relationships

Ross Dawson

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781136410819
• Edition: 2
• Topic: Betriebswirtschaft
• Subtopic: Business allgemein

Developing Knowledge-Based Client Relationships, Second Edition, shows organizations how to lead their key clients into lasting, profitable, high-value relationships. Building on the powerful, tested principles of knowledge-based client relationships, Ross Dawson provides clear and extremely practical approaches for all professional and knowledge-based firms on how to create unique value for both clients and themselves.
Detailed case studies across a wide variety of professional services industries offer valuable insights into world leading practice in the field.
He examines key client programs, and how to create deeper knowledge-based relationships through these. He discusses in detail the collaborative technologies available today and how they can be used in client relationships, along with managing portfolios of communications channels. He also discusses firm-wide relationship management, leading relationship teams, and value-based pricing for knowledge-based client relationships. This is done by presenting underlying theoretical framework, a variety of tools for structuring relationships and presenting knowledge to clients, and numerous case studies and examples of firms which have implemented these concepts successfully.

Part I Client Leadership

DOI: 10.4324/9780080477220-1

1 Leading Your Clients

Developing Knowledge-Based Client Relationships

DOI: 10.4324/9780080477220-2

In 1980, the U.S. economy was worth $4.9 trillion, producing 1.3 billion tons of goods. Fast forward 20 years to 2000, and the U.S. economy had almost doubled in size to $9.3 trillion, yet the weight of goods produced had only edged up by a few percent to 1.37 billion tons.¹ The economic activity that accounted for this near doubling in size of the economy was associated with almost nothing of substance, nothing that you could see. This massive growth in the economy was driven by information, ideas, services, and knowledge — things that weighed nothing. The value is in knowledge.

At the same time, the most powerful trend in business today is commoditization. This is apparent across every industry in every country, as our connected world enables global search and availability. The one element that really makes a difference is the relationship. Without a relationship you become a commodity. With a relationship, everything is possible. You can create far greater value for your clients than your competitors can, and as a result lock your clients into longstanding, mutually profitable, collaboration.

The heart of being able to create this extremely high level of differentiation is what I call knowledge-based relationships. These are relationships founded on knowledge — knowledge of your clients, your clients' knowledge of you, and the ability to create knowledge together. In our increasingly virtualized world, knowledge is the primary source of value.

Professional services provide a sound foundational model for our knowledge-intensive economy. They are based purely on the application of highly specialized knowledge. In Chapter 2 I will explore in detail the nature of professional services, and how the professional services model is applicable across all aspects of the global economy. The key issue is that this deep specialist knowledge is applied to create value for a client. That client can be either inside or outside the organization. Either way, the knowledge is applied within a relationship.

Knowledge and relationships are inextricably linked in today's economy. Understanding that fully and acting on it is essential for success in every aspect of business. Some of the key issues of knowledge-based relationships I examine in this book are

• Why it is an imperative to engage in knowledge-based relationships
• How to add the greatest value with knowledge in client engagements
• How to structure your firm and professionals to develop deeper, more loyal, and more profitable client relationships
• How to shift clients to partners and create maximum shared value

Since the first edition of this book was published in January 2000, there has been substantial progress in the practice of knowledge-based relationships. Professionals have become more externally focused, firms have recognized that they need to transfer knowledge to clients, and most professional firms have invested in shifting their structures, processes, and skills to support more effective client relationships. I hope that these trends will accelerate.

Knowledge-Based Relationships

The guilds of yesteryear are the predecessors of today's professions. Their role was largely to protect the commercial privileges of those who held valuable skills or knowledge. Among the rules protecting elite professionals, who gained their mastery through a long process of apprenticeship, were regulations — sometimes commanding very harsh penalties — against disclosing knowledge to any non-guild members. Although regulations often prohibited anyone outside a guild from practicing a particular profession, the focus was on protecting the specialist knowledge at the core of privileged social positions. Some of the same attitudes have lasted over the centuries, where professionals want to protect their knowledge. However, in a world in which vast amounts of information flow freely this can no longer be the case. Approaches to delivering professional services can be divided into two categories: black box and knowledge based.

• Black box: Many professional service firms deliver services in such a way that the client receives an outcome, but does not see the process involved, and is literally none the wiser as a result of the engagement. These black-box services are opaque to the client. Since the only reference point the client has is the result, it is relatively easy for other firms to replicate that result and then compete primarily on price. In other words, they are commoditizing the service. In addition, the only opportunities for interaction with the client in a black-box engagement are during the briefing and the presentation of outcomes, leaving little scope for personal or organizational relationships to develop.
• Knowledge based: All professional services are based on specialized knowledge. When professionals engage with their clients to make them more knowledgeable, they are implementing knowledge-based services. The outcome is that clients are more knowledgeable, are able to make better decisions, and have enhanced capabilities. In short, the client is different as a result of the engagement. Professional firms and clients are pooling their capabilities to create results they could not achieve individually. This makes it impossible for competitors to replicate these outcomes. The entire engagement is based on rich interaction, meaning there are many opportunities to develop a valuable and lasting relationship.

An example of the distinction between these two types of relationships we are all familiar with is how your doctor relates to you. When I lived in Japan, I found doctors stuck firmly to the black-box style of interacting with their patients. The culture was one of great respect and deference to doctors, who told their patients what to do but gave no background or information on what was wrong. I was repeatedly dispensed unlabelled drugs without being told what they were or what was wrong with me. I found it a great relief to visit a doctor during a brief return home, who treated me to a long discussion on current medical knowledge on the background and cause of my ailment, and asked if I had any questions for clarification on what I should be doing to get better and how to avoid similar issues happening again. However, in Western medical centers as well (where doctors are rewarded for high throughput), patients end up with prescriptions but no greater knowledge of what is wrong or how to prevent the ailment from happening in the future. The black-box model often prevails, but the ready availability of medical information on the Internet is starting to shift doctors to a more knowledge-based style of interaction. A very similar dynamic is at play in most professions.

Some professions are more compatible with a black-box style of engagement. For example, litigation is often an issue of getting the best courtroom representation. Yet even in this case there can be strategy implications of the process of litigation, and certainly the litigators will be most effective with deep knowledge of their client. More to the point, one of the most valuable services a law firm can deliver to its clients is enabling them to avoid expensive and risky litigation. This requires ongoing knowledge-based interaction with the client in order to shift processes and skills and add knowledge.

More often professional services can be delivered in a variety of ways along the spectrum from black-box to knowledge-based services. The strategy consulting industry exemplifies this. On the one hand you still find firms that quietly gather and digest information about the client's situation, and then deliver their recommendations with great ceremony, leaving the client with the options of either following or rejecting the loftily priced recommendation. Yet there are also firms that engage with their clients purely with the intention of assisting their clients to develop the most effective strategies for themselves, and that design and implement analytical work to provide input to the client's decision making rather than their own.

In every industry across the globe, clients have increasing access to information, are getting smarter, and are more demanding with their professional service providers. The old paradigm of deferring to the superiority of the professional now rarely holds. Clients seek real value to be added.²

The Virtuous Circle of Knowledge-Based Relationships

Developing effective knowledge-based relationships with clients is not a one-shot effort. There is no magic wand, no single action you can take, that will transform your relationship, enabling the deeper client knowledge, superior value creation, intimacy, loyalty, and profitability you seek. Rather, it is a process where efforts build on themselves over time to create ever-improving results.

One of the single most important aspects of developing relationships is understanding that it is a process. There is no such thing as a static relationship. In Chapter Two I will examine some of the industry forces that are continually tending to erode relationships. The result is that if a key client relationship is not moving forward it is going backward. You need to keep building, gradually creating a deeper, more mutually valuable, relationship. This is done through a “virtuous circle,” in which you cycle through continuously in deepening the client relationship, as illustrated in Figure 1-1.³

Figure 1-1 The virtuous circle of knowledge-based relationships. Copyright © 2004 Advanced Human Technologies. Reprinted with permission.

The four key components of this virtuous circle are:

• Adding value with knowledge: Increasingly, clients value knowledge-based outcomes. They seek to gain greater knowledge, be able to make better business decisions, and to have enhanced capabilities.
• Client openness: Demonstrating the ability to add value with knowledge means that clients are willing to give you more of their scarce attention, listen to what you have to say, take your calls, and spend time with you. They are also more open in telling you about themselves, their operations, and their issues and concerns, because you have proven to them the benefits of doing so.
• Greater client knowledge: It is critical to use greater client openness not just to sell more projects but to gain a deeper understanding of their internal processes, how key executives think, and how they use information regarding changes in the business environment to adjust their strategies. You want to understand how they engage with knowledge and the external world in making business decisions.
• Enhanced customization: One of the most challenging aspects of the virtuous circle of knowledge-based relationships is applying the deep client knowledge you have gained to customize how you communicate with key clients, how you provide information about projects and issues that are relevant to them, and how you tailor service delivery so that it integrates smoothly into their internal processes. This is at the heart of creating true knowledge-based relationships, closing the loop by demonstrating the ability to create vastly more value with knowledge than your competitors can.

To progress, you must be engaged in the virtuous circle of knowledge-based relationships, gaining deeper client knowledge, and applying it to creating greater value. If you fail to continuously enhance your relationships in this way, increasing competition and transparency will gradually erode them, leaving you struggling as a commoditized provider.

Locking In Your Clients

Wouldn't it be wonderful if you could lock in your clients, making them yours forever? It is a nice idea. However, the reality is that we live in an increasingly open world. Back in the early 1980s, when you purchased a computer application to run your business it was certainly based on a proprietary operating system, which in turn only ran on one company's computer system. If you wanted to keep the same application, you were locked in to that computer vendor. Changing vendors often meant having to reengineer your business around a new application. Today, it is almost impossible to get clients to buy closed systems that would mean substantial switching costs if they choose to move to another supplier. Given a choice, clients will always go for the option that gives them more flexibility. The trick is to create lock-in in a business environment in which systems and standards are more and more open.

In this world, the only way to lock in clients is by consistently being able to create more value for them than your competitors can. This is a positive form of lock-in, in contrast to the negative lock-in of trying to make it expensive for clients to leave you. There are three key foundations for how professional service firms can keep clients coming back through positive lock-in.

• You know your client better. It is nothing new for professionals to have to know their clients well. It is just that these days doing this better than your competitors is the primary field of competition. Today, it is important not just to know your client better but to apply this knowledge in customizing your communication and service delivery, as discussed above. If you do, this creates a very powerful form of lock-in through the unique value you can create.
• Your client knows you better. If your clients understand the way you work, your people, your processes, and your capabilities, they can get more value from you. They can align their processes with yours, and more easily apply your services internally. In order to switch suppliers, they would have to start from scratch in learning about how another company works to achieve these benefits.
• You are embedded in your clients' processes. The fact that business processes can now be readily allocated across organizational boundaries has uncovered a whole new domain for professional service firms t...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Table of Contents
• Preface to the Second Edition
• Preface to the First Edition
• Acknowledgments
• Introduction
• Part I Client Leadership
• Part II Adding Value with Knowledge
• Part III Implementation
• Appendix A The Nature of Mental Models: How People Acquire Knowledge
• Bibliography
• Index