Strategic Legal Technology

Some law firms use manually intensive approaches to knowledge management; others eschew creating specialized knowledge management positions and instead rely on automation. What are the pros and cons of the manual versus automated approach? 

My article, What’s Your Strategy for Collecting and Cataloging Documents?, which appears in the February issue of Capital Connection (a publication of the Capital Chapter of the Association of Legal Administrators, explores this question, comparing and contrasting the two approaches. Not to give away the punch line, but my article does not conclude that one is better than the other - it all depends on what a firm wants to accomplish, the resources it has available, and the culture.

The issue of manual versus automated approaches is not limited to KM. In Depressing Innovation in Pharmaceuticals, my friend Eric Mankin of Innovation & Business Architectures, analyzes automated versus manual approaches in the research and discovery of new drug compounds. Highly automated approaches are turning out to be less successful than the industry had initially hoped. I am not sure that one can draw too many conclusions about KM from this, but the lesson I take away is that human input and understanding context is pretty critical.

Separately, I am reminded of the importance of culture in any KM initiative by another article. Peter Krakaur of Orrick alerted me to Turn on the know how from an October issue of Federal Computer Week. It discusses the change management required to cause workers to use any KM system.

I have always been disappointed in reading management periodicals such as Business Week, the Wall Street Journal, or Harvard Business Review that I rarely see in-depth articles on professional services, particularly law. That may be changing with a new Harvard Law School research program. 

A March 17th press release, Harvard Law School Launches Program to Examine the ‘Industry’ of Law Practice, explains that the Law School will research “the transformation of legal practice from a profession traditionally made up of small independent firms to a multi-billion dollar global business.” The initial focus will be on how corporations purchase legal services.

Just the process of observation often changes the events or practices being observed. It will be interesting to see the findings of this project, particularly as they may relate to the impact of technology on practice and law business.

News reports in general interest publications such as the New York Times are often a good barometer for industry trends. Now that the the Times has reported on sending legal work to India, it’s official - the legal profession has the “signal” that offshoring is for real. 

In Corporate America Sending More Legal Work to Bombay (March 14, 2004), the New York Times reports that large companies now send legal work to India. It mentions GE’s use of lawyers in India (about which I have previously blogged) . This article reports that BorgWarner has also turned lawyers in India, using Mindcrest to research an employment law question. The reason cited is to save money. The article is a good summary of trends as reported in legal publications and this blog.

What stood out as new and very interesting is that the article addresses the ethics issues head on:

“When any American legal work is done overseas, American lawyers must review - and bear responsibility for - the final product.

‘There is no problem with offshoring,’ said Stephen Gillers, a professor at New York University School of Law and a legal ethics expert, ‘because even though the lawyer in India is not authorized by an American state to practice law, the review by American lawyers sanitizes the process.’ ”

Gillers (who taught the professional responsibility class I took at NYU law) is a good authority. In my view, his comment helps address the stated but unsupported concerns voiced in some articles by partners at large law firms.

The full-text of NYTimes articles is typically available for a couple of weeks, with free registration.

I have long advocated the use of budgets in larger legal matters. Many firms, it seems, are loathe to consider the idea. Not all. UK firm Wragge&Co has filed for a US patent on a case budgeting system. 

Over the years, I have spoken to many lawyers about the potential planning and communication advantages of using budgets to help manage cases. On the planning side, a budget helps a lawyer manage a case by forcing him or her to think systematically about the key upcoming tasks and the resources necessary to accomplish those tasks. The budget need not be fancy; it could be a simple spreadsheet with 5 to 25 rows and a couple of columns. On the communication side, the lawyer can share the budget with the client to explain how the case may unfold and at what cost. At periodic intervals (weekly, monthly, or quarterly, depending on the case intensity), the lawyer could do a “variance analysis” for the client, that is, explain why some items came in higher or lower than budgeted, which is an excellent tool to keep the client informed about case activity.

Wragge&Co seems to see the value in budgeting for they have sought a US patent application for a system that “allows the firm to scientifically cost and manage any case or transaction using historical data. ” The firm’s March 1, 2004 press release continues, explaining that their “MIDAS” system has

“three distinct functions; quoting, scoping and management. The quoting function allows the fee earner to obtain critical information on all the key financial drivers based on historical matters. This has already proved useful in the firm’s litigation cases where multiple outcomes can be predicted. Using the scoping function, MIDAS will automatically structure the team. The management module allows the transaction to be scientifically managed against budget ensuring that clients have absolute certainty in fee quotes.”

I first spotted this item on Legal Technology Insider; for additional news coverage of this, see Wragge’s Midas touch in the LawGazette and Wragges seeks to patent software in Legal Week.

I spotted on Robert Ambrogi’s LawSites a reference to another example of the trend toward outsourcing legal work to India. Intellevate provides a range of intellectual property support services, including specialized support in India. 

Ambrogi’s blog posting alerted me to Law firm cuts rates by outsourcing to India in the Twin Cities Pioneer Press, March 3, 2004. The article opens rather provocatively: “How about this deal? Get legal work typically billed at $200 an hour for just $50.” According to the article, Intellevate was founded last summer, is majority owned by “shareholder attorneys at Schwegman Lundberg Woessner & Kluth, a 55-lawyer patent firm in Minneapolis,” and has a dozen law firm customers and two corporate customers. The Schwegman firms says it can lower client costs and maintain quality by carefully managing what work the firm’s specialist performs and what work Intellevate performs for them in India.

Interestingly, a competing IP law firm has said it is not considering offshoring work because its client haven’t asked for it. Granted, the success of offshoring is still unclear and it does raise political issues. Yet law firms need to be careful about how they respond to changing markets and changing client perceptions. I recently switched to shopping at Safeway from Giant because Safeway re-modeled nicely and is better stocked - I’m not in the habit of asking my supermarket to make the aisles wider, the lighting better, or decreasing the number of out-of-stock items. The moral is that clients don’t always ask for what they want - sometimes they vote with their feet and their dollars and just move work to where the value is better.

In Rethinking ROI: Managing Risk and Rewards in KM Initiatives (LLRX, Feb 23, 2004), Bryan Cave partner John Alber makes a compelling case that law firms must have appropriate business intelligence analytics in place before undertaking a knowledge management program. 

Alber writes that return on investment (ROI) analysis has become popular, if not essential, to justifying KM and IT projects. He points out, however, that ROI is easily manipulated, both arithmetically and substantively. To counter this problem, he suggests measuring leverage, the “effective” (that is, blended) hourly rate, and profit contribution. To do so he says, firms must invest in business intelligence ("BI") solutions first. BI refers to software and processes that allow quantifying the leverage, effective rates, and profits. Without proper BI discipline, the ROI is too easily manipulated.

I agree with Alber’s argument that firms should use BI to analyze their business and apply rigorous metrics to KM initiatives. I would, however, both temper and extend his argument. On the tempering side, BI has two limitations. First, even with careful analytics, it may not be possible to separate the impact of a KM or other new initiative from other changes occuring simultaneously (e.g., a business up- or down-turn or a change in the mix of matters). And second, firms facing decisions must still predict impacts; BI may help limit losses, but it does not guarantee that the predictions will be true. That is, any business decision carries inherent risk that cannot be managed away.

On the extending side, firms should apply the same analytic approach to any new initiative. Firms make all types of decisions - create a marketing department, hire a lateral partner, open an office, lay off associates, or invest in professional development. Why not apply the same strict analysis to all investment decisions? Were firms to do so, they might find that many cherished decisions are not easily supported by the data. Moreover, they might find that, when applying the same yardstick all around, justifying KM is no easier or harder than any other decision.

I applaud Alber for raising this important point and encouraging firms to quantify their thinking. I think that is the first step in rationalizing law firm decision making generally.