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How to Keep Clients When a Linchpin Leaves - Ideas for Leaders
Idea #330

How to Keep Clients When a Linchpin Leaves

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KEY CONCEPT

Losing clients can be a serious risk when a key member of staff leaves, particularly in the creative and professional-services industries. Including non-compete clauses in employee contracts has, so far at least, proved an ineffective mitigation strategy. Is ‘multiplexity’ — increasing the number of ‘human ties’ between client and company — the ‘optimal’ solution? Only, finds new research, in certain circumstances.


IDEA SUMMARY

Strong relationships and social ties between clients and individual executives can be something of a double-edged sword in business. There is always the danger of client defection when the ‘linchpin’ leaves. The risks tend to be greatest in ‘human capital intensive’ businesses such as advertising, law and consulting, where there is often a close connection between individuals and where clients might want to see certain people working on their ‘account’.

Current received wisdom is that building multiple connections, so-called ‘multiplexity’, is the best risk-management strategy. (Non-compete clauses, designed to prevent an employee from setting up or joining a rival business for, say, 12 months after leaving a company, can be hard to enforce.)

‘Multiplexity’ in client relationships can take several forms. It may, for example, mean multiple relationships with the same client at the same company, or at lots of companies in the same group.

In theory, it reduces the risks of the loss of business-critical accounts when a key employee leaves by ‘binding’ a client through multiple ties. Essentially, it’s a ‘more is more’ strategy: it avoids putting all your eggs in one basket.

Does it work in practice? Recent research by Michelle Rogan, an assistant professor at INSEAD, tested its effectiveness by looking at archival data on relationships between advertising agencies and their clients over several years.

Rogan examined both multiplex ties within a single agency and multiplex ties linking the same client to a number of different agencies within the same group. Her results confirm that multiplexity improves client retention and has ‘stabilizing effects’. However, they also suggest the maximum benefits are contingent on the particular structure of the multiplex arrangement and, perhaps, the culture of the organization.

Rogan found that when multiplex ties were concentrated in a single agency, a firm was not protected against the risks of client loss following the departure of an executive. (In these circumstances, it’s relatively easy for a team leader, or even the whole team, to take a client out of the agency.)

Conversely, she found that when the multiplex ties were held by several agencies in the company, the likelihood of client loss after an executive left was significantly reduced. (Executives find it harder to conspire to poach a client when they’re in different agencies and/or geographically dispersed.)

The effectiveness of multiplex arrangements in retaining accounts after key individuals leave would seem, then, to depend on the degree of control these individuals exercise over client relationships. There was, though, another important condition uncovered by the research. Rather than assuming that agencies in the same holding company were working towards the same goal, Rogan examined the extent to which they competed with each other. (Internal rivalry is not uncommon in the advertising industry.)

Analysis revealed that when the distribution of control of a client relationship was accompanied by diverging goals and interests — in other words, when agencies serving the same client viewed one another as competitors — the multiplex ties had no impact on whether a client stayed or followed the executive. If, on the other hand, the sister agencies co-operated with each other (or at a minimum did not view each other as rivals), the multiplex ties significantly reduced the risk of a client following a departing executive.

In summary, then, a distribution of control combined with a collaborative culture might be the best solution to the problem of retaining key clients when key employees leave.


BUSINESS APPLICATION

The results of the research have implications beyond the advertising business. They can be generalized to sectors that have similar structures — for example, professional services such as investment banking, law, accountancy and consultancy. 

As Rogan says in a recent article for INSEAD Knowledge, they highlight the need for all companies to consider the structure of multiplex relationships carefully, paying particular attention “to which units of the firm connect and how those units relate to each other”.

Multiplex relationships can create a false sense of security for companies — and are not a cast-iron guarantee that clients won’t ‘walk’ with executives. However, by connecting clients to units that work together rather than compete with each other, companies have a real chance of maintaining business-critical relationships — even when the most charismatic of executives leaves.

The over-arching imperative might be to try to instil some sense of unity among otherwise disparate parts of the business and a strong sense of collective purpose. In multinational and leviathan organizations this can very difficult — but it might be one of the most effective risk-mitigation strategies in the long run. The more people perceive themselves as working for the organization rather than the client, the less likely they might be to break away and take a key account with them. 


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Institutions

Idea conceived

April 25, 2013

Idea posted

Mar 2014
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