Strategic Legal Technology

This is a live post from a private large law firm knowledge management meeting. This session, Change and the Growing Importance of KM, was also presented at the just completed CIO conference held in connection with Legal Tech. 

The Actors:
Oz Benamram, White & Case
Michael Mills, Kraft Kennedy, formerly of Davis Polk
Brent Miller, Cleary Gottlieb
Jeff Rovner, O’Melveny

Act 1: It’s a Mad, Mad World - Challenge to the Way We Used to Print Money

Abbreviated - we all know that the printing press is not working the way it used. Rates can’t keep going up. Profits likely to remain flat. Realization is down. Alternative Billing is expected to grow. Still a gap in surveys of GC v law firms. Former expect more than latter but e-billing folks say it is actually still only 5%. Hildebrandt says billable hour is not dead but is shrinking in importance.

Act 2: The Devil Wears Business Casual - The Impact of Millennials on Legal IT and KM

Baby boomers: Born 1946-64
Gen Xers - born 1965-79
Millennial or Gen Y - born post 1980

Millennial Attitutes:
- Prefer smaller ogganizations
- Look f or’good’ employers
- Skeptical and question rhetoric
- Not as focused on work

Millennial Learning Styles:
- Networks, teams, searms (leaderless)
- Multimedia / tech savvy. Intuitive. But can’t drive a stick shift.
- Engaging / stimulating methods
- Strategy guidesand visualization, not throughg experts and bosses
- Segmentation - stick ‘newbies’ together, let the ‘gamers’ advance at different rates
- Failure is ok
- Want to be included
- Want constant feedback

Audience Comments:
- Military is using games to teach but CLE certification would not allow games.
- Meritocracy replaces bureaucracy
- Those who go into law may self-select to be more like boomers
- As Millennials gain work eperience, they may become more like older generations
- Millennials want KM check lists and guides because they are used to getting instructions
- Information sharing is part of their culture (think Facebook and Twitter) so they support KM; but they won’t pick up the phone and talk

Millenial Associates
- Higher attrition (even before lay offs)
- Less committed to partner track
- Tend ot communicate online instead of in-person
- Expect greater work flexibility and options to work remotely
- Fewer boundaries between work and home

Law Firm Economic Implications
- Traditional motivators less important
- Training more important
- Rise of alternative career paths
- Demise of time-based billing likely a positive

Law Firm Technoloy Implications
- Comfort with social media mean firms need to adapt. For example, think social tagging and additional communication and collaboration channels
- Constant connectivity
- Reduced toleratnce for hierarchy
- Expect coll interfaces. Without a good user interface (UI), your app is dead
- Want more tools and toys (multiple monitors, gadgets, options)
- IT and KM may have to allow work outtside firewall and outside of firm-controlled content
- Rethink training / planning: this gen may be more tech savvy than the trainers

Knowledge Grid in Millennial Era
- Tacit to Tacit (Socialization): online networking and teaming
- Tacit to Explicit (Externalization): tagging, crowd sourcing, auto categorization
- Explicit to Tacit (Internalization): search based precedent, reliance on wikis, blogs and other unapproved resources
- Explicit to Explicit (Rationalization): smart search; page-oriented; personaolzied and small gorup data management, Web 3.0

Audience Comments:
- Millennials attuned to how advertisers are collecting behavioral data. Watch the advertiser to learn how to bring info needed when it’s needed.

Act 3: Fixed Fees Magic - Change to the Way Law Firms Deliver Legal Services

The Grim Reality
- Business model is in peril
- Imagine a law firm that does one litigation matter in a year, for which it gets $100
- Assume 40% margin on this. $60 is salary and other costs
- Realization has fallen so what used to be $100 is now $85
. Clients getting discounts
. Auditors chopping bills
. Clients refuse to pay for junior associates
- Now, assume revenue base is $85 >> that means profits go from $40 to $25 (absent changing cost base)
. That means margin drops by more than one-third
- So firms have tried to lower cost. But this is hard to do quickly
. Firms have cut lawyers and staff and outsourced but the model has not really changed
. How can firms lower cost base without further cuts
- Reduce admin costs
. Can firms cut these further after 2009? Seem unlikely
- So firms need to think how to reduce the cost of delivering legal services
. Perform tasks in less time
. Perform work with lower-cost personnel
. Reduce low-value effort that gets written off
. But firms need to profit from improved efficiency
- For law firms, fixed fees are better than discounts
. With fixed fee and efficiency, firms can maintain margin
. With discounts, impossible to maintain margins

How can law firms improve efficiency? Consider Orrick’s fixed fee deal with Levi-Strauss. Doesn’t Orrick have an incentive to be more efficient?

Challenges to efficiency
- Many lateral partners, each trained differently
- Lots of litigation teams, each with its own ‘way’ (vendors, processes, resource mix)
- Each associate plays for multiple teams, so can’t learn to be efficient

Efficiency Requires
- Firm-wide model to conduct litigation
- A common and efficient tech platform
- Ease of adopting new tech and process
- Substantial saving to pass along to clients

Ways to Improve Efficiency
- Adopt a production-lline mentality
- There is more to learn from manufacturing than service businesses think
- How would we litigate if we were starting from scratch
- Example: invention of mutual funds to simplify building diverse portfolios without high transaction ccosts

My firm gets a lot of pitches from outsourcers for administrative work. It’s not that they are smarter or better. But they’re willing to follow processes, and we’re often challenged to do that consistently.

Deconstruct the current Litigation Approach
- What does a firm produce? How can you produce the truly necessary components more effectively?
- Use tech to streamline processes
- Litigation consists of many sub-processes or modules
- Subject each sub-process to a best-practice analysis
- Replace sub-processes with cheaper or better ones as developed
- Outsource or insource sub-processes as competitive pressure dictates
- Each sub-process dictates personnel needs.

Fixed fees are a way to lock-in revenue as you improve the overall process.
- Firms may need tools to support fixed fee analysis
- Baker Robbins is developing a good tool

Act 4: The End of Lawyers? - The Efficiency Game

Where do we find places in our practices to improve efficiencies?
Consider replacing KM with “practice engineering”
Richard Susskind looks across practices to to find areas where lawyers can practice more efficiently
Lawyers in large firms believe all they do is bespoke but most is actually not
Even in a truly one-off deal, many elements can be systematized
. No matter what the deal, if big, there will be many routine filings and processes
Susskind model:
One-off > Standardized > Systematized > Packaged >|> Commoditized

Truly one-off work starts with a blank piece of paper. So, in theory, all a lawyer needs is a word processor.
But in fact, most practice relies on either standard forms or prior similar documents
Where there are enough similar deals, firms can develop check-lists, some automated
Lawyers can go still further with document assembly to automate commonly used forms
Davis Polk Netting system is example packaging expertise for delivery online

Efficiency Tools
- Enterprise search
- matter info and analytics across life cycle
- Project management tools
- Auto-categorization and entity extraction
- Communications and collaboration
- Cloud computing (possibly the client’s cloud)
- Social media, transparency,
- Doc automation

This is a live report from Legal Tech NYC on the session E-Discovery - Considerations for In-Sourcing and Outsourcing. 

The panelists:
Marilyn Caldwell - Director of Practice Support, Lowenstein Sandler
Michelangelo Troisi - Senior Counsel and Director of Risk Managment, Samsung Electronics America
Scott Cohen - Proskauer
Craig Ball - Consultant and court-appointed Special Master for EDD

Introduction. Most everyone is already outsourcing at least some EDD work, so this panel is focused on considerations for bringing work back inhouse. A recent poll of inhouse counsel found that 3/4 said law firms are not doing enough to respond to cost pressures, especially on EDD. The volume of ESI keeps growing, so the problem is not going away. And ESI is becoming more complex with the advent of new media such as Facebook and Twitter.

The law is now clear - companies have a duty to preserve records. Doing this poorly, without expert advice, can lead to problems. So for organizations taking EDD inhouse, how do you make sure you meet your obligations?

“The reality of e-discovery is it starts off as the responsibility of those who don’t understand the technology and ends up the responsibility of those who don’t understand the law” - Craig Ball

Identification and Preservation. Craig discusses the EDRM reference model. Prime candidates for insourcing are RM, identification, preservation, collection, and processing. Questions latest Judge Scheindlin Pension Committee decision, suggesting that custodians must be involved in preserving records. Custodians need to be involved but that is not enough. Mike says that it is not practical, at outset of litigation, to immediately go out in the corporation and interview all the custodians. Samsung sends out notices to employees. He says that this ends up in over-preserving. Talking to custodian to determine relevance just takes a lot of time. Custodians preserving their own docs is really the only practical solution. But acknowledges that not all employees read all notices.

Craig suggests some institutional / enterprise steps to help ensure preservation. For example, before sending out preservation notice, create and save back-ups of key systems such as an Exchange. Samsung does this with Exchange and Enterprise Value (again, he says, this results in over-preservation).

Collection. As lawyers and legal staff acquire skill, they will be able competently collect data. But today, lawyers deal with intermediaries. Craig argues that lawyers need to be closer to the data earlier in the case than is currently the case. Marilyn points out that lawyers are nervous about collection because they are aware that they may change the data. So some debate over whether collection is merely ministerial. Craig: why didn’t these lawyers know the answer to the data change issue. Marilyn: IT staff knew meta data needs to be preserved but business people think only about document content. This leads to a discussion of what credentials or training is required to collect data appropriately. Craig points out that there are no readily available certifications / training for lawyers. He says he could teach most lawyers in 2 to 3 days. But he is not aware of any courses. And he’s not sure how many lawyers would sit for such a course. Craig: in all the time lawyers spend rationalizing why they can’t or shouldn’t learn this, they could actually learn it. [Editor note: reminds me of mainframe computer days, when I sat though meetings where glass box IT staff spent hours explaining why data I needed was impossible to get instead of spending that time writing code to get it.]

Scott: many tools purport to help with collections. But you first have to understand requirements. Once you understand the legal requirements, then you can match up with actual capabilities of tools. Emphasize actual, meaning having tested the tool and not relying only on vendor representation.

Craig: bring as much as you can inhouse so that corporation can competently and defensibly reduce data volumes. This will yield smaller data set that gets turned over to vendor for processing and that needs review. A show of hands: many companies have hired vendors to forensically collect data. Craig thinks that with one competent and properly trained inhouse person, this is not necessary. Marilyn counters that you need someone who can testify appropriately and this may not be the typical inhouse IT person. Craig responds that if the collection is competent, the likelihood of having to testify is very low.

For companies outsourcing some of their IT infrastructure, they need to consider the real total cost of ownership, which includes the cost of collection and preservation.

Audience question: Should law firms offert IT training to clients? Scott would be more comfortable pointing clients to appropriate third parties. Marilyn would also turn to 3rd party vendors.

Steps for Insourcing - Corporate Perspective. (presented by Mike)

Questions :
1. Do steps comply with law?
2. Do you have the right processes?
3. Do you have an action plan for when litigation arises?
4. Has the action plan been tested and used?
5. Is the process defensible? Has counsel signed off on the plan?
6. Is the process repeatable? Does it work for all or at least most cases?
7. Who owns and manages the process and plan?

Forming an internal EDD team:
1. Is it cross-functional?
2. Who leads the team?
3. Does the the team have the necessary resources?
4. Is IT fully involved and committed?
5. Is the team truly cross-functional?
6. Which department manages ESI? (At Samsung, law department manages ESI. Company pays IT for support it needs.)

Technology:
1. How can tech help the process and people work better?
2. Is the tech modular or upgradeable?
3. Will the vendor continue to suppor the tech?
4. Can the company survive without the solution?
5. Can the company live with the tech becoming obsolete?

Steps for Insourcing - Law Frim Perspective. (presented by Marilyn)

Evaluate and Plan
- Need personnel with right expertise, technical and consulting
. Keep in mind that training is a continuous process
- Need the right hardware and software
. Is your system scalable
. Does your tool have the right feature set
. When there are problems, what do you do?
- Determine admin requirements
. Keep track of what you have done and who did it
. Record action in case challenged in court
- Assess risk
. What happens when something goes wrong?
. Will the firm accept this risk?
- ROI
. There are a lot of moving parts - is the firm ready for all these costs?

SWOT analysis
Strengths
- Flexibility, efficiency, deeper understanding, transparency, control
Opportunities
- Cohesive work with case teams
- Integrate tech efficiencies into work flows
- Expand knowledge
Weaknesses
- Limited exposure to varying data types
- Staffing constraints
Threats
- Difficult to decline work once you’ve started
- Scaling up
- Data volumes growing
- Software bugs

Considerations for In Sourcing
Do you have the people?
Do they hae the time, expertise, and interest?
Do you have the budget?
Can you monetize?
Do you have the right tools and infrastructure?
Can you stay current with tools, with the right training, and keeping methods current
Are you lawyers willing to be looped in?
When in doubt, farm it out

Legal Tech begins tomorrow and I am in position at the NY Hilton. With the show’s emphasis on e-discovery and enterprise systems, we can easily forget that personal productivity is still an important legal technology goal . So, before the din of reports on enterprise systems from Legal Tech coming this week, I report here on three personal productivity tools I’ve been using since the December holiday season, to excellent benefit. 

Desktop Search with X1. In 2009, I had to uninstall Google Desktop Search because it seemed to crash Outlook. (Well, that’s what my IT advisors told me and after uninstalling, the crashes stopped.) For some time, I lived without desktop search, which was painful. I’ve now been using X1 ® Professional Client Version 6.2.4 for about 5 weeks. I find it very useful and better than Google for the most part. It’s intuitive interface allows _fast_ searching of e-mail or files (a tabbed interface allows selecting other categories such as Inbox or music). Fields allow searching by meta data such as sender, subject, or date for e-mail and document type or path for files. X1 provides a viewer for most file types, though I personally don’t use it that much. Working from the search result list, it’s very easy to open files or the file directory in which the file sits. Personally, I like it better than Google Desktop. The only thing I can think of that it does not do that Google does is index web pages visited. (One tech note for install: I had some clutter in my Outlook profiles, meaning some old ones. X1 found these and wanted to index files that no longer existed. This forced me to clean-up old profiles, which is probably a good idea anyway.)

E-mail Autofiling with Xiant. I have long been impressed by Decisiv by Recommind, a product for automatically filing e-mail. That has not been available to me but late last year I read about Xiant Filer for automatically filing e-mail messages. Xiant is a company started by Microsoft co-founder Paul G. Allen. Xiant integrated easily with Outlook and saves me a lot of time filing messages (individual messages and threads, including replies, which means I now rarely need to file sent messages - a huge savings in time). I know some people think filing is a waste of time, that with products like X1, you can find messages. But I personally still find it useful to be able to scan a folder of related messages so that I can see the history of a project. I’ve used Xiant a few weeks and its recommended folders are typically good picks and seem to improve over time as it “reads” more of my e-mail and “sees” my filing choices. Though not billed as a feature, Xiant has the benefit of allowing me to find where in my extensive list of nested folders a particular folder sits. Can you tell I am splitter and not a lumper? [Tech note: At least for my install, the buttons Xiant adds to each messages for auto-filing do not work; I can only file from my inbox. Also, though I have three views / windows of Outlook open, the Xiant buttons appear only on one of them. I have not sought tech support to resolve these issues.)

Ease Tweeting with HootSuite. HootSuite is a web site that simplifies writing and reading Tweets across multiple Twitter accounts (and other social media though I only use it for Twitter). I like it’s multi-column interface better than the native Twitter interface, though I continue to use the latter in some instances (e.g., searching Twitter).

[As usual, the above are my opinions and I have received no consideration from any of the vendors / products reviewed here.]

The Posse List, an increasingly important resource for e-discovery generally and contract lawyers specifically, is publishing a series of interviews with EDD professionals. My interview appears today, An interview with Ron Friedmann of Integreon; the legal paradigm shift, predictive coding, document categorization, and more . 

In it, I explain my views of why the new normal will require law firms to deliver more value to clients. This will require more technology. In e-discovery, this means substituting technology for humans where possible. That said, my view is that it is “man and machine", not “man versus machine”. I comment on early case assessment (ECA) and predictive coding, suggesting that they are more points on a continuum than different approaches. Both require significant human input and share the goal or automating document review.

Several other interviews appear this week at the Posse List and are worth reading.

Risk analysis with decision trees is a rigorous way to analyze disputes and decide how much to invest in the litigation. An important threshold question is when does it pay to do risk analysis, which is not that easy and can take a fair bit of time. More generally, when does any legal question warrant an investment to answer? And how much work is “good enough"? 

A government lawyer who read my material on risk analysis asked these good questions. It’s the same questions in-house counsel should ask. For both corporations and the government, the surest way to reduce legal cost is to do less legal work. Improving efficiency or reducing rates is beside the point if skipping or reducing the work altogether is an option. And part of reducing work is to accept a “good enough” answer rather than a 100% answer.

So, is there a structured way to decide how much to invest in legal questions? That is, when a legal question arises, how can a lawyer assess its magnitude and rationally decide how much to invest to address it? Some lawyers believe every question merits thorough analysis. From an economic perspective, however, the client should first know the order of magnitude of the problem. Problems come in different sizes - a pebble, rock, boulder, hill, mountain, or asteroid - and the effort should depend on the size?
Because formal risk analysis incurs a cost, one might reasonably apply it only to problems that are say, at least boulder-size.

A reasonable economic / business decision might be to ignore pebbles and rocks. Certainly treating every problem as if it were an asteroid or boulder is uneconomic. I am not aware of any systematic and documented in-take process designed to assess a legal question and how much to invest in it.

Of course this assessment, intake process, or “gate keeping” happens; I just don’t see evidence that it is systematic and documented. No matter how experienced the gate keeper lawyer, questions will arise outside the scope of experience. What then?

If business and government are to reduce legal expense, then we need a systematic gate keeping approach. A knowledge management professional might suggest that every incoming query be captured in a database, along with its disposition. Then, once there is enough data, the gate keeper can search for similar past questions. The problem with this approach is that the range of legal issues is enormous, as is the language describing them. So I’m not convinced this would get us very far (aside from the challenge involved to collect and maintain the database).

Some of my peers likely would suggest a “crowd sourcing” approach. If the gatekeeper cannot answer with confidence, he or she could use a variety of technologies (inside or outside the firewall) to seek the opinion of other lawyers and experts. Those opinions could help gauge the severity of the problem and how much to invest.

Perhaps my suggestions take us in the wrong direction. Does anyone have examples of a systematic gate keeping / intake approach, one specifically designed to assess the level of investment appropriate to answer a legal question? And does anyone have views how government lawyers should deal with this given that many legal issues they face may have as much to do with policy as with dollars? I welcome your comments here or on Twitter (flag @ronfriedmann).

Update (26 Jan 2010): Steven Levy of Lexician references the above post in his very helpful Simple Risk Analysis blog post. He presents a simple but systematic way to assess risk. I agree with his view that just the act of getting a group to write down, working collectively, what the risk are is very valuable.

Just when lawyers thought it was safe, the Economist comes along to pronounce it’s not. 

Laid-off lawyers, cast-off consultants (21 Jan 2010) reports on the impact of the economic crisis on lawyers and management consultants. The Economist writes that

“the legal profession seems likely to undergo the most profound structural changes. For the first time—long after IT and finance departments went through the same experience—the corporate legal departments that hire law firms are under great budgetary pressure, and are thus demanding much better value from them.”

One consequence of the shift according to the article is “a growing gap between the best firms and the rest.” Another is that “legal-process outsourcing is booming, as law firms parcel out some of their more basic work to reduce costs.”

On legal matters, lawyers argue a point until the Supreme Court rules on it. For economic matters, the market is the final arbiter. It does not debate whether to to grant a writ of certiorari; it simply does its job of selecting winners and losers. If I were a managing partner, I would listen to the Economist and assume the worst. If you wait until we know for sure, it likely will be too late.

Bad news for law firms could be good news for legal technology managers. The reality of the new market will require delivering more value. This could usher in a new chapter - maybe even a new volume - in legal technology. As firms get serious about process improvement, project management, and alternative fees, they will need to be creative in deploying new technology and using old technology more effectively.

Since not everyone reads Twitter, I reproduce here a selection of my recent Tweets. 

RT @stephenseckler 58% of corp counsel think law firms too profitable http://bit.ly/6JMHKx || Answer is easy: shop around

RT @IntegreonEDD The Big (Legal) Picture by Beaton Consulting http://bit.ly/66ztcQ | Integreon Blog || Great video re future legal market

Hammonds moves to 4:1 ratio with DDS, Orange Rag (@ChristianUncut) http://bit.ly/7d9W71 || How many firms won’t be at 4:1 soon?

Axiom wins British Legal Award for innovative firm http://bit.ly/7wfHCJ || leave it to legal market to wait 10 yrs to recognize innovation

LPO, re-engineering, tech to reduce need for lawyer time. Hildebrandt http://bit.ly/8OSnpQ || Efficiency at last. Next: demand control?

3rd party litigation funding broker Calunius to launch private fund LegalWeek http://bit.ly/8l3A66|| Drives efficiency http://bit.ly/5aeCKb

RT @ReesMorrison Trivial cost-reduction steps commonly reported by legal departments in survey http://bit.ly/8Ko5Yd || Nero fiddled…

I am striving to perfect my ‘nano op-eds’ - 2 to 6 word comment on a re-Tweet

Thanks @denniskennedy for the Blawggie award and selecting other top blogs http://bit.ly/4X3IvA (thnx also @lancegodard, @VMaryAbraham)

Just installed X1 search by @X1Technologies. So far, I like it a lot. Had to clean up old Outlook profiles but that needed doing anyway.

@michmahon re busy year for laterals: are partners moving to maximize income or to seek a better, more stable biz model? Former seems likely

Not Yet A Gartner E-Discovery Magic Quadrant, But Still A MarketScope’ EDD 2.0 post http://bit.ly/4mWTNl || convergence at hand?

Pfizer doing alternative fee arrangements. Corp Counsel Mag. http://bit.ly/8uxFJF || Big AFA news. Legal tech angle: www.codeflow.net

LegalWeek.com Global 100 law firm results out today http://bit.ly/4w69zo || Likely new ‘world order’ not yet apparent in listings

Will 2010 see lawyers working virtually more often… to reduce occupancy cost? Anyone know of firms planning this as they move? #in

Comcast’s top lawyer calls the workload shots Phil Inquirer http://bit.ly/8NSnro || GCs act at last? But why pay rate increases at all?

Aric Press of American Lawyer: ‘2010 survival for those who aren’t retiring’ http://bit.ly/8wjTTh || ‘disaggregating and re-engineering’

Contract lawyer paid $35 charged out at $250. ABA J http://bit.ly/8brYf4 || Bad enough ever. Why do clients tolerate now?

Michael Mills - formerly legal IT, KM, and EDD guru at Davis Polk - joins Kraft & Kennedy, Inc. - email press release || Wow

ValueNotes launches proprietary LPO ratings http://bit.ly/6Hyp3R || Like Gartner Magic Quadrant for legal outsourcing

Eversheds gears up to launch its own outsourcing business LegalWeek http://bit.ly/7SMxSg || LPO or low cost co-counsel / office?

Legal process outsourcing facing a ‘watershed’ year Law Gazette http://bit.ly/6Bpi3U || My imagination or is L/G an LPO skeptic?

Just noticed that Google Docs now allows uploading, and optionally converting, any file type. 10 gig limit.

I only occasionally hear law firms talk about legal technology and knowledge management investments to keep and attract lawyers. At least to some lawyers though, it makes a difference. 

Jones Day Practice Head Joins Winston; Other Lawyers Likely to Follow (ABA Journal, 13 Jan 2010) reports on a lawyer moving firms in part because his new firm has a “commitment to streamlining its legal work with the help of new technology” and “a knowledge management department that collects good pleadings and good research so you don’t have to reinvent the wheel when you take on a client issue.”

Given how much firms invest in recruiting and vetting laterals, I wonder how much they have thought about the “equipment” they offer to practice as a recruiting tool.

This year will likely see stable instead of shrinking legal demand. Firms have to adopt to a new reality of clients who want more value. With the crisis over, it will be interesting to see how legal IT and KM fare. And whether this article represents a blip or a trend.

Consumers routinely seek estimates for many services, for example, buying a new roof, replacing an HVAC system, repairing a car repair, and even obtaining some medical services. The logic behind this should also drive general counsels to seek estimates for the cost of legal work. 

Lawyers have long viewed law practice in mythical and mystical ways, which supports the belief that predicting cost is impossible. Myths die hard but desperate economics have a way of changing minds. Several trends - alternative fees arrangements (AFA), project management, and process standardization - work to de-mystify law practice.

So I disagree with Brad Smith, GC of Microsoft, who writes in his January 1, 2010 column in Inside Counsel, Alternative Arrangement, that “Some legal assignments are too unique to estimate in advance. Paying by the hour for such services can make good economic sense.” I agree with everything else he writes and was impressed to see he expects 45% of MS legal spend to be AFA.

Perhaps what he really means is that some matters are so complex that estimates are not reliable enough for either side to feel comfortable using AFA. If so, that does not warrant skipping estimates. Rather, it means variances between estimates and actual spend will be bigger than for more routine matters.

The right approach for one-off matters is to refresh estimates as the work progresses and to estimate by stage, taking into account the many discrete activities of each phase. Sophisticated clients and law firms should be able to combine personal experience with analysis of prior billing data to produce reasonable estimates at any given point in a matter.

We may need lawyers who specialize in estimating. And to avoid potential economic and other conflicts, it likely makes sense to have an estimate prepared by someone who will not work on the matter. This would be true even for work done purely internal to a law department. “Legal estimators” might add to cost short-term but over time, the discipline of making estimates and then comparing them to actual costs would add to lawyers’ understanding of complex matters and how best to manage them.

Lawyers like precision. As a result, they often let the perfect be the enemy of the good. The new economic reality may force them to live with approximation and ‘good enough.’ 

First, a story. After graduating NYU Law I worked for Bain & Company as a strategy consultant. Consultants, like lawyers, consume much information. Unlike lawyers, however, they accept ballpark estimates. So I was in for a surprise when I subsequently switched to practice support for a law firm.

I needed to know the average rate for documents reviewed per review. The firm had no data so I asked several lawyers. All said “I don’t know” and said they could not estimate the rate. OK, I thought, time for new tactics. I asked some other lawyers, this time saying “I’ll assume the review rate is 100 docs/hour” to which they replied “no, that’s way to high”. OK, I said, then I’ll assume it’s 5. No, that’s way to low. Back and forth we went - all the conversations converged to a rate between 10 and 15 docs/hour. (This was 1989, paper docs, with issue coding.)

This was a valuable early lesson for me, one not taught in law school: for lawyers, silence is better than a chance of being wrong. Silence is better than approximation. The thinking and fear that underlies this mindset - I’ll call it ‘perfection thinking’ - has consequences.

And I’m not sure we can still afford it. Clients often want to know if there are any major risks: “let me know if there are any boulders in this playing field.” Lawyers often hear that and think they need to find not just the boulders, but also the pebbles. The fear of being wrong - and of malpractice - runs deep. ‘Perfection thinking’ makes it hard to approximate, to apply to 80-20 rule, to guide in the right direction but with some imprecision.

And this, I think, is a big reason corporate legal costs are so. And why consumers can’t get affordable legal service. A Nation of Do-It-Yourself Lawyers, a New York Times op-ed piece by two state court chief justices, on 2 Jan 2009, argues that the profession should support “unbundled legal services and other innovative solutions — like self-help Web sites”. Unbundled here means limited-scope representation. “Perfection thinkers"want absolutely correct answers, always; most people, however, would settle for just a bit of guidance.

My hypothesis is that firms that overcome ubiquitous ‘perfection thinking’ will do better. They will be the ones to communicate clearly with clients to learn the client’s risk parameters (not their own). Of course we need general counsels who think this way too. They must understand the risk their companies are willing to take. How else can they limit the demand for lawyering? Of course, all this means living in the universe most of the rest of us inhabit - one full of approximations and imperfections. Welcome to the real world.

As law firms try to shift from reverse in 2009 to forward in 2010, they should remember that the easiest way forward is to win more business from existing clients, not get new clients. A new tool, Client Profiles by LexisNexis, is a promising way to help improve growth from existing clients. This product is going into beta testing this quarter. 

Last month I talked to Norman E. Mullock of LexisNexis to learn more about Client Profiling and subsequently read a LexisNexis client profiling white paper. (Note: Vendors regularly offer me demonstrations. I sometimes say yes for interesting ones, for which I receive no compensation. Separately, I have not checked if other products offer similar features or potential benefits.]

Client Profiling comes from Redwood Analytics, which LexisNexis acquired about two years ago (see my post LexisNexis Acquires Redwood Analytics). Redwood is perhaps best known for improving firm profitability through sophisticated business intelligence (BI). With the new tool, Redwood now offers a way to systematize business development.

Redwood conducted extensive background research on law firm business development (BD) efforts. The research identified BD functions that are distinct from marketing and marketing communications:

• Client / prospect research
• Relationship management
• Prospecting
• Pricing
• RFP/pitch management
• Competitive intelligence

I think these distinctions are critical. While marketing and marcom can play a critical role, the enumerated functions are more important to snaring new business, at least short term.

Key features of Client Profiles include:

• Aggregates data from the multiple internal and external sources
• Analyzes the lifetime value of existing clients with a systematic, data-driven approach that creates a quadrant chart segmented by billable hours total on one axis and consistency of hours over time on the other axis.
• Provides a nice software interface to analyze data and help draw conclusions
• Identifies the 100 clients with the most growth potential and focuses analysis and development of an action plan on this subset

Redwood spends six weeks in a consultative approach with the firm to produce the quadrant analysis, then provides software for the firm to use to continue and refine the analysis. The benefit is that firms can focus BD activity where the yield likely will be greatest.

Redwood’s white paper cites examples of how Client Profiling can help a firm:
(1) Identify clients whose billing vary a lot year to year and then focus on the ones the firm has a decent chance of making consistent big billers.
(2) Understand which practices really feed new business and which do not.
(3) Highlight older clients whose work may have dropped off but with potential to grow again

A data-driven, structured approach to BD is a far superior than one based on gut feel or a big rainmaker’s whim. Malcolm Gladwell’s Blink notwithstanding, an emerging body of business literature shows that companies do better basing decisions on detailed, reliable data and careful analysis. To illustrate the danger of the nonchalant approach, consider “share of wallet", that is, the percent of a client’s business the firm has. It provides insight into how a firm stands with a client, independent of the dollar volume of business. For example, a firm may be pleased that client billing has increased 10%. If, however, the client’s total legal budget grew 25%, the firm’s share of wallet has decreased - often a bad sign. Conversely, shrinking billings may not be so bad if wallet share is on the way up and the client will have a bigger budget in the future.

Overall, I am very impressed with what I saw. Some additional comments and thoughts:

• My sense is that, just as with Redwood’s BI tools, it will take firms time to adapt to Client Profiling. This is a comment about law firms, not Redwood. I suspect some firms simply do not have the analytic horsepower in place - yet - to use this tool. Those that do not will suffer long term.
• The market is moving to alternative fee arrangements, which might affect the analysis. I did not have a chance to ask about this but short-term, AFA is so new it seems unlikely to affect the historical analysis. In any event, Redwood can likely adjust the analysis for AFA.
• Last decade, knowledge management, IT, and library professionals in law firms struggled with how to access and integrate relevant legal work product and data spread across multiple systems within the firm. In my view, Recommind changed the playing field as the first widely adopted enterprise / federated search product in BigLaw. I have the sense that Client Profiling can do the moral equivalent for the many databases that BD professionals need to access and tie together.

I have long been a believer in business intelligence and in evidence-based decision-making (see my BI and best practices blog posts). Redwood software blazed the trail with BI software for law firms. I did not ask how Redwood prices this service and software. If I were managing law firm BD, I would want to be among the beta testers for Client Profiling. And if I were a managing partner, the one area in 2010 where I would unquestionably invest more is in systematic, data-driven BD.

[Update 7 Jan 2009:] For a great account of why you should rely on data to make decisions rather than intuition, read The Future of Decision Making: Less Intuition, More Evidence by Andrew McAfee in the Harvard Business Review, 7 Jan 2009. Hat-tip to Mark Gould (@markgould13).

Two recent published comments about BigLaw associates illustrate what I view as the risk of thinking about the legal market as it has been instead of what it likely will be. 

One comment comes from the GC perspective. A leading general counsel, commenting on lawyers learning concrete skills, was quoted: “I’m indifferent about whether they learn that at a law firm or in school, as long as I don’t have to pay for it.” It seems to me that GCs pay to train young lawyers one way or another. They can hire a law grad and directly incur the training cost. Or they can retain outside counsel and indirectly incur it.

Delivering legal advice over over the long term creates an economic cost to train lawyers. That is, there is a real cost and someone has to pay for it. So in my view, refusing to pay for junior associates is just a way to seek a discount or reduce partner profits - it does not make the cost go away.

The comment seems to suggest a “minor repair” to the old regime rather than to seek to usher in a new one. If I were a GC, I would seek regime change. For example, I would demand almost all work be priced on alternative fees, especially fixed fees. Then, as the buyer, I would not care about my law firm suppliers’ factor inputs (the mix of timekeepers). Instead, I would focus on cost and results. In how many other markets do buyers worry about supplier factor inputs?

A second comment comes from the law firm / recruiting perspective. The article Will Law Firm Changes Affect Hiring and Retention of Associates? (The Recorder, 21 Dec 09) expresses concern that law firms put their long-term health at risk by moving away from associate lock-step pay. The author argues that differentiating associate compensation is too hard and concludes that “Law firms that adopt dramatic changes in how they value and treat their associates in a time of economic stress may find themselves at a dramatic disadvantage in retaining and recruiting people as the economy recovers.”

This thinking is anchored in the past and apparently ignores many a change a foot. The evidence is that firms are differentiating now, that clients want alternative fees, that a wider range of suppliers (e.g., virtual firms, boutiques, and outsourcers) will prosper. Moreover, in the new regime, we will need to think about both demand and supply differently.

On the demand side, I suggested in Does the Legal Market Suffer the Same Over-Consumption as Health Care? that smart clients will find ways to make better risk-adjusted decisions, which will limit the need for legal advice. So I don’t assume a return of high demand any time soon.

On the supply side, my prior post argues that smart firms must adopt project management and business analysis. This discipline will help deliver advice without necessarily increasing the need for lawyers commensurate with whatever increase in demand may occur.

Also on the supply side, I don’t assume that in a new regime the labor factor input, aka new associates, will be the same. Who’s to say new lawyers will flock to the standard bundle of old rather than consider a range of “bundles” (mix of compensation, training, collegiality, etc) with different characteristics.

Of course I may be wrong. But in considering the future of the legal market, it seems more helpful to contemplate a new and better regime than to adjust the old one or assume that the old one will return unchanged. In my experience, tinkering with or trying to preserve a broken system typically fails. We need more legal market players envisioning how a new model will better meet everyone’s needs.

Law firm staffing is more an artifact of history than design. Forward thinking law firms need to re-architect themselves. 

Most large law firms added staff over time without a master plan. Hiring lawyers meant employing more secretaries. Introducing PCs meant building an IT department. Doing marketing meant creating a new department. If firms’ decisions about how much staff were driven by data, it was benchmarks of other law firms. Benchmark data merely report other random decisions, not what’s optimal.

The massive BigLaw lay-offs over the last year reflect emergency cost cutting, not a conscious organizational re-design. Even after big cuts, firms have room to reduce still massive overhead (see my post Overhead Cost at Large Law Firms Matters After All.

Cuts alone, however, are not enough. Firms must also add to deal with the new normal. Now is the time for large law firms to consciously re-design their organization. It’s not easy; I don’t have answers but I do have questions.

I start with a comment I made a year ago in Law Firm Staffing Reference Model: “To determine what support lawyers need, firms must know what lawyers should do on their own and what they should delegate.”

It seems clear lawyers must delegate analysis and management to other professionals. So firms need more business analysts and project managers generally for effective service delivery and specifically to support and alternative fee arrangements. What is the right ratio of each to the number of lawyers? Does that ratio vary by practice? What other types of professional support personnel are needed? How should firms analyze and answer these questions? I don’t have answers but I think these are important - and the right - questions. Firms that answer them well can gain clients and prosper.

Since not everyone reads Twitter, I reproduce here a selection of my recent Tweets. 

RT @robertsawhney Above the Law blog on the ACC value index for law firms http://bit.ly/2UMp0H || Any rankings better than none?

‘Glut of Law Firm Office Space Hits 6 Mil Sq Ft’ NLJ http://bit.ly/4eLW9a || When firms finally encourage working virtually, glut will grow

Hildebrandt blog post on new law firm metrics http://bit.ly/4FDByK || imo, best wld be: client success relative to reasonable expectation

LPO market update by Valuenotes http://bit.ly/2O5au9 || Growth slowed; 12.5k employees in India; $440mil in 2010; scale matters

Just met with 5 large law firms: all talked project management for lawyers + AFA; some best practices. New normal looks different so far.

For firms serious abt project management for lawyers: have person in charge of office moves involved in training

Lawyers who dismiss office move planning as just ‘logistics” are not ready for project management - stick to substance only!

LexisNexis sells HotDocs to Capsoft http://bit.ly/220zBO || LN ‘retired’ CompareRite, now sells HD… what’s next to drop?

Eight more UK top 30 firms size up legal outsourcing moves LegalWeek http://bit.ly/wUgwR || LPO tipped?

Lyceum Capital injects £25m into LPO start-up. The Lawyer http://bit.ly/1mEF1v || LRA move but w/ 140 LPOs, innovative?

@DougCornelius Billable hour _is_ doc assembly barrier…. that’s why PE investment in UK could change market

Thinking about implications of seminal move from a ‘read only analog’ world to a ‘read-write digital’ world. #in

Found today http://www.reason-ed.com by Greg Buckles. Matrix of EDD software. Looks useful.

Anyone try Xiant filer yet featured in LTN Daily Alert on Wed? Looks good but would love to hear reviews before dealing with Outlook add-in

RT @IntegreonEDD An Overview of the Latest ValueNotes Legal Process #Outsourcing Report http://bit.ly/8R2eLx | Mark Ross’ Integreon Blog

With exact written record of e-mail supplanting imprecise recall of phone conversations, is truth any easier to ascertain at trial? #in

If clients don’t want to pay higher lawyer rates, don’t. Debate unnecessary, switch firms. Action will affect rates, not talk. #in

Do lawyers want the benefit of change without the pain? #in

Citi GC thinks he should not have to pay for lawyer training http://bit.ly/7r0cQr || GCs pay in the end, it’s just where the charge shows up

First legal conferences monetized speaking, now magazines. Just got offer to pay for editorial space in reputable legal mag

Orange Rag reports on Fronterion Top 10 outsourcing predictions for 2010 http://bit.ly/4TCKaN

True/False: In Florida, judges socializing in person with lawyers to face ethics charges? FL - “The Forward Looking State” ?

Thinking abt communication: bright line used to separate synchronous + a-sync modes; social media blurs that. Implications? #in

Legal professionals debate if the ‘new normal’ will differ from the ‘old normal’. Aric Press’ American Lawyer editorial, The Change Agenda: Can You Hear the Ice Melting? shifts the question from ‘if’ to ‘how’. The answer to ‘how?’ is ‘process’. 

Press writes that even when demand picks up, the changes so far are ‘likely irreversible’. There are ‘plenty of disparate events that support the observation that this change business is more than just a sideshow’. He focuses on two: 1. alternative fee arrangements (AFA) and 2. legal process outsourcing (LPO).

According to the editorial, one-half of the 20 ‘A-List’ firms are on record as doing AFA for marquee clients. And a survey AmLaw conducted to quantify the change found that one-quarter of large firms have outsourced work to LPOs.

In my view, the ascension of AFA and LPO mark the beginning of a deeper shift: lawyer as artist or craftsman to lawyer as manager and engineer. As Press says, ‘this year it became clear that LPO is really about the “P.” It’s not whether the work is done in Bangalore or Bangor or on Broad Street; it’s how the work is done”.

I agree that that process is key. In my 2003 post When Clients Come Knocking, I wrote “paying attention to the process [of law practice] seems at least as important as evaluating the ‘outputs’ such as results and costs…. One could even imagine formally analyzing the processes to determine best practices across firms. It seems likely that the firms using better processes will produce better results at a lower cost.”

While LPO has the word process in it, AFA has the idea of process in it. In my recent post Alternative Fee Arrangements (AFA) are Not as Hard as You Think, I suggested that process is one of three AFA pillars (with tech and staffing the other two).

A related signal of process importance is a surge in legal project management. PM is just the beginning. In support of process, lawyers will need data, metrics, analysis, and structure. So expect to see far more business and financial analysts working side-by-side with lawyers to collect data, analyze them, and create rational, tested processes.

This blog, Strategic Legal Technology, “has been selected as one of the ABA Journal’s Blawg 100. [The ABA] annual list of the best of the blawgosphere appears in the December issue of the magazine, and was posted online. 

I am honored that my blog is included in the the ABA Journal’s editors’ choice of the top 100.

Now, the ABA Journal is inviting its readers to vote for their favorite blogs from among the top 100 in each of 10 categories. Voting ends December 31. Registration is required to vote. Winners will be featured in the February issue of the Journal. Anyone interested in voting for this or any other top 100 blog can click the image below to go to a ballot page.

The line between blogging and Tweeting just blurred a bit today. 

Today, document assembly company Exari wrote the blog post The insidious nature of the billable hour. It discusses why the billable hour is a barrier to building document assembly tools. Central to its point is a Twitter conversation among Mary Abraham, Jeff Brandt, Doug Cornelius, and me [links are to Twitter]. This spurs some observations.

1. A Tweet I wrote is first. I can’t remember why I wrote it nor do I remember the entire dialogue at Twitter. So much for knowledge management of Twitter content. Skeptics might think there is nothing worth preserving but this suggests otherwise. So I ask my knowledge management friends… any hope of ‘doing KM to Twitter’? Personally, I periodically copy my Tweets to a spreadsheet, which is a manual and clunky process. And it saves only mine, not exchanges like Exari captured.

2. Seeing what Exari has done here, I wonder whether there are other Twitter conversations I’ve had that are blog-worthy.

3. In August I posted Divining Meaning and Intent in the Modern Era, commenting on Dan Regard’s comment that “re-assembling fragments of what once was” will create meaning as well as EDD challenges. I would have been very hard-pressed to re-assemble the dialog that Exari presents. If asked about it, I probably would have had, at best, a dim recollection. So I view the Exari post as a great illustration of “re-assembling fragments”.

4. And finally, I can see the lawyers starting to swarm on the copyright issues. I’ve not spoken to Mary, Jeff, or Doug but I suspect they, like me, are perfectly happy to have their content re-purposed with attribution and links (as Exari does). Is such reproduction fair use? Will reproducing a Twitter thread that never really existed as thread lead to legal issues? I certainly hope not but Tweets have already given rise to libel actions.

Tom O’Connor and I recently wrote a joint blog post about concept search software for e-discovery. Subsequently, we received comments from Herb Roitblat of Orcatec, an expert in information management, data mining, statistics, and eDiscovery processes. I share his comments here. 

Tom posted at his docNative Paradigm Blog Herb’s comments on Xerox CategoriX and Musings on the Best Approach to EDD Search (29 Oct 2009) by Tom and Ron:

• Herb Roitblat on ED Searches (12 Nov 2009)
• Herb Roitblat On Search: Part 2 (23 Nov 2009)

I publish here, with permission, additional comments from Herb, who wrote these in response to a message I sent him with my “take aways” from his first comments.

Summary
My summary and interpretation of Herb’s comments below and in the posts at Tom’s blog is that while concept search is a useful tool for e-discovery, the selection of the specific “flavor” of concept search tool matters less than smart application of it. Tool selection needs to be case specific because a “bake-off” among concept search tools only tells you how well a tool does against a specific set of documents. Since it’s not economically feasible to use multiple tools per case, you need to make a reasonable tool selection at the outset of a the case. As important, you need a reasonable and defensible process (which means documenting tool selection and process). The reasonableness standard depends on the stakes of the case.

Herb and Ron Exchange by E-Mail

Ron: So it sounds like what you are saying is that the difference in e-discovery concept search tools is probably overwhelmed by differences in document sets and in process / control.

Herb: I agree with this, but it has to be said carefully. Clothing does not make the man and high-powered tools do not make the builder, but they do help a good builder do better work. No matter how good your tools are, if they are not used well, you get a questionable result.

Ron: Concept search is not a magic bullet but helps expand the universe of documents to consider because it finds docs with words you would not otherwise think of as search terms.

Herb: It helps you think, but it is not a substitute for thinking. It is, as you say, not a magic bullet, just an amplifier.

Ron: Concept search can also help speed review by clustering similar documents.

Herb: Concept search expands queries to return results that are the best match to the expanded query. Thus, the top results are those that best match the query term and its context. (See green search on Truevert.com for an example, search for meat and get organic meat, not Omaha Steaks). There the context is given by green documents.

Ron: I back away from my initial assertion of the need to use multiple tools. I argued that to spur thinking among EDD professionals. Upon further reflection, what I really meant to say is that lawyers should focus more on industrial processes and controls, statistics, and metrics than on software features.

Herb: That’s what I think.

Ron: So that means we have no magic bullets. The legal profession has hard work ahead to industrialize its processes.

Herb: It’s actually not that hard. You just have to be thoughtful about what you are doing. It is not even terribly burdensome if you are realistic about the levels of accuracy that you can really achieve (see below).

Ron: We still don’t seem to have an objective standard by which to judge if a process is ‘good enough’.

Herb: There are lots of ways of deciding whether a process is good enough and lawyers are used to making reasonableness judgments and arguing about them. What are the consequences of different types of errors (e.g., retrieving too many documents, retrieving too few)?

Scientists, by tradition, usually use a standard of .95 confidence. For example, if two treatments are different with 95% confidence, then we accept them as different. That does not tell us how different they are or that the difference is practically important or useful, only that the difference is statistically significant. Scientists often report higher confidence levels than that, but the minimum is usually .95. That tradition has worked well in science where subsequent research can correct the relatively few times when the difference does not really exist, but resulted from sampling (luck of the draw).

As an analogy, if you play slot machines, the things return only about 95 - 98% of the money that gets pumped into them, but that does not mean that some people don’t actually win large amounts. It happens sometimes. The luck of the draw usually returns less than you put in, but sometimes it returns more.

Back to good enough. Engineers typically use confidence levels to tell them how well to build a bridge. They consider the consequences of different kinds of failure (think of the Tacoma Narrows Bridge). NASA uses confidence levels to determine the quality of their systems. Where the consequences are severe, they require higher confidence.

In eDiscovery, we are familiar with proportionality arguments and the like for determining things like cost shifting. The same thing applies here. A bet the company litigation may merit a higher level of confidence than a run of the mill litigation. Different types of errors may be weighted differently depending on the consequences of that kind of error.

None of this is hard nor does it require very much mathematical background. I published some tables a while back showing how many documents you should sample if you want to achieve a certain level of confidence and you are willing to accept the possibility of missing a certain proportion of responsive documents.

As I think I’ve said, I think that another part of reasonableness is transparency. Be able to describe what you did. A scientific publication is intended to describe enough of the methodology so that another scientist can replicate the observations. I don’t think that you necessarily have to publish to the other side what you did, but you should be able to provide that information if required (think Victor Stanley).

Just when law firms were beginning to master business intelligence (BI), the market goes and changes the rules. Growing volumes of alternative fee arrangements raise the question of what’s next with BI? 

In the old normal, law firms tracked a key few metrics: billable hours, capacity utilization, leverage, realization, and rates. It all seemed so easy. Of course, it was not as simple as it looked and smart firms figured out that BI is a way to dig deeper to understand what levers to pull to juice profits.

As more work moves to AFA, how will firms analyze their businesses and financials? I wish I knew; I’m just beginning to think through the options. Inputs welcome!

I started thinking about this after reading Execs Want Focus On Goals, Not Just Metrics (Information week, 13 Nov 09), which describes how business increasingly monitors real-time performance via either dashboards or scorecards (the former summarize metrics, the latter compare the metrics to pre-determined targets). I’m not sure law firms need real-time data but monthly seems way too long to wait.

Then I read the blog post Performance Measurement – the sequel by James Dunning. He emphasizes the importance of forward- rather than backward-looking metrics as well as providing good general advice about metrics.

In the past, I’ve been impressed by Redwood Analytics approach to BI (Redwood is now a LexisNexis company). Redwood’s Redwood Analytics® Planning Application “is one of the first products in the legal industry that can connect day-to-day matter management with increasing client demands for alternative billing arrangements.” It sounds great but it’s not clear how it works (even when I toggle to “features” at the top of the page). Thomson Reuters Elite also offers BI software; a Google search of the site - site:www.elite.com “alternative fee arrangements” - yielded no hits; in the singular, the only hit is to a conference program.

I don’t yet have a good answer about the right forward looking metrics for a firm driven by AFA but I do know that management should be thinking hard about the answer as firms increasingly use AFA.

Economic hardship has forced general counsels to cut costs. Most large law firms have, in turn, laid-off lawyers and staff and acquiesced to demands for alternative fee arrangements. Smart firms are also trying to differentiate themselves. For example, many now aim to become end-to-end e-discovery providers. 

UPS Cuts Costs With E-Discovery Counsel (Corporate Counsel, 11 Nov 2009), describes King & Spalding’s “cradle-to-grave solution” for e-discovery at UPS. Separately, off-the-record reports suggest that many law firms want to provide an integrated, one-stop e-discovery solution for clients. This is a big change; previously, most firms were content merely to counsel clients on the law, rely on vendors to do the work, and supervise the overall process.

Firms likely will find it a challenge to be, on their own, the “go to party for complete e-discovery”. They will need to partner with one or more vendors. In January 2007 I wrote Coming E-Discovery Battle between Vendors and Firms. I noted that “law firms and EDD vendors may compete for e-discovery consulting business.” Now I can say the same about all of EDD. My opinion then re consulting applies equally to the rest of the EDRM model:

“Clients should consider carefully who offers the better set of skills and experiences. BigLaw brands may offer comfort, but some vendors have hired experienced lawyers and may offer the better bundle of skills and experiences.”

Law firms have the advantage in counseling clients on legal strategy and e-discovery issues (as I observed in my May 2007 white paper 4 Ways an eDiscovery Attorney Can Make Your Firm More Successful). When it comes to providing integrated e-discovery service, however, law firms have several disadvantages relative to vendors:

• Art vs. Industry. BigLaw has long asserted that “everything we do is art” and cannot be standardized. That mentality works against the industrial strength processes (e.g., rigorous metrics and QC) and disciplined project management that high-quality and cost-effective e-discovery service requires.
• Sub-scale. Most law firms simply do not have the necessary scale to flex up and down to manage the peaks and troughs of e-discovery processing / hosting and document review. Large vendors can better manage the fluctuations because they aggregate demand across multiple firms and clients. Scale also limits most firms’ ability to stay on the leading edge of EDD technology by developing proprietary technology and/or evaluating and running multiple third-party platforms.
• Declining Unit Pricing. E-discovery and document review is moving to unit pricing that is declining over time. Vendors don’t like falling prices but have mechanisms to cope. BigLaw partners, in contrast, have enough trouble moving beyond the billable hour much less lowering fees. Law firm DNA makes it hard to deal with the current EDD trends.
• Scarce Investment Capital. Exploding data volumes require ever more servers and software licenses. That means capital. Law firm investment has typically meant “any outlay that cannot be billed to to a client in the same month.” Law firms have never been well-capitalized and, in the current economic environment, loans are difficult to obtain and costly. So it’s not clear how firms will fund growing their EDD infrastructure and keeping it state of the art. Well-managed and well-capitalized vendors are accustomed to on-going investment to keep and grow business.

Nonetheless, I think that law firms will continue to play a critical role in managing clients’ EDD requirements. Their best path is to focus on their core legal strength and their deep relationship with clients. For the heavy lifting of e-discovery and document review, most firms will find it easiest and best to partner with vendors.

[I adapted this post from a similar one I wrote at Integreon.com, posted earlier this week.]