Strategic Legal Technology

Last year GE Capital began an experiment to purchase legal services via auction (see my posting). Two years into the experiment, GE reports savings of up to 20%. 

GE Capital Wins Big with Legal-Services Auctions in the Corporate Legal Times September issue quotes Barbara Daniele, general counsel of the GE Capital commercial equipment finance division: “We’ve realized dramatic cost reductions from the auctions - up to 20 percent for most areas, compared to 2003 rates.” Daniele makes some other interesting points:

• The “very best” firms have participated in auctions.
• Work quality has been high.
• GE has not yet bid out high-end litigation.
• Information technology is important in achieving these successes.

GE is a trend setter in law practice (e.g., creating a law department as good as any large law firm). This development raises at least two very interesting questions: (1) will other clients follow and (2) have the winning bidders simply accepted a lower margin or have they found ways to be more efficient, for example, by using technology? Comments welcome from anyone who can answer these.

I have previously suggested (blog post and article) that law firms might be able to reduce occupancy cost and free-up time (billable or personal - to be negotiated) by allowing or encouraging lawyers to work at home or in satellite offices some number of days per week. The idea is that less office space is needed if lawyers work at home more. 

A range of obstacles could make this difficult (and my article discusses these). One is that lawyers are needed in the office. Part-Time Culture Grows at Firms in the National Law Journal (10/26/04) reports that an increasing number of firms are open to part-time lawyers, including those on the partnership track. It strikes me that if firms can arrange work for part-time lawyers, they can also arrange work and schedules for full-time lawyers who spend time working outside the office.

I have previously suggested that corporate cost pressures will cause inhouse counsel to seek “embedded law systems,” that is, software that automatically detects possible legal problems. A recent press release by Aungate and an article on law firm outsourcing practices cause me to re-visit this idea. 

Aungate is a unit of Autonomy, a company that provides sophisticated text retrieval and analysis software. The company announced yesterday that is has launched “a new sexual harassment and discrimination detection module that is designed to automatically alert the enterprise to acts of sexual harassment and discrimination, by analyzing the content of emails, voice and instant messages.” I cannot tell from the Aungate site how the company built the business or legal logic for this module. But consider if a law firm had partnered with the company on this product. That firm might either automatically receive reports that it is paid to analyze (and could lead to opening new matters) or at least have its logo and link displayed prominently to inhouse counsel who review the system outputs.

Separately, in “Law Firms Gauge the Outlook for Outsourcing ” the National Law Journal on October 8th reported (article available at biz.yahoo for the moment) that several large law firms have “recognized the profit of expanding an outsourcing practice to attract new clients and serve existing ones.” Outsourcing contracts are typically complicated agreements that require tremendous monitoring.

I am not certain that law firms even monitor the expiration date of contracts so that they can offer clients re-negotiation services. Imagine the potential to help clients monitor contract performance with online systems. That would certainly tie the client closely to its law firm. There is a whole software category dedicated to contract management (see my list of software) and it seems likely that corporations will adopt more active approaches to managing contracts.

Existing online systems require users to visit a web site and either search for content or run through an interactive session. The advantage of an embedded system is that corporate users need not take any action - results are automatically generated by actions of software. It may be that this will remain the exclusive realm of software companies, but creative law firms might find a way to participate in this emerging area.

Many newspapers and magazines have reported on the new Google Desktop Search. What I find interesting, and somewhat disturbing, is Google’s positioning of this tool as a “photographic memory." 

Google now has a beta version of software that allows searching the contents of the local disk drive. “Google Desktop Search is how our brains would work if we had photographic memories” is the opening sentence of the overview web page. “We really want to make this a photographic memory for computer users” says a Google product director according to a New York Times article on October 18th.

I chaff at the idea that a photographic memory is the goal of information management. Being able to find any item has value but I think the higher goal, and certainly the goal of KM, is to be able to find the “good stuff.” Most professionals see far too much information over the course of a day and a week. While full-text search of everything is useful, I fear that the hype around the new Google desktop search will overshadow the bigger KM challenge of finding what you really need.

I may be swimming upstream here. Bill Gates writes in the October 18th issue of Information Week’s Special Anniversary Report that “the growing capacity and tumbling cost of storage is enabling unimaginably large databases so that it soon will be possible for people to store every piece of information they encounter.”

On a separate note, I have downloaded and tried the Google Desktop product. So far I prefer 80-20, a product I have used for some time to search my hard drive. The main reason is that Google Desktop does not index as many file types as 80-20 (e.g., PDFs or Outlook items other than e-mail messages). I suspect that the introduction of this product will shake up the desktop search market and we will have more and better options, including Google Desktop enhancements, in the future.

Joy London posted in Excited Utterances that Paul Hastings is hosting a vendor-sponsored luncheon roundtable (sponsors are Practice Technologies and Recommind). This should be an interesting session and nice follow-on to an article that Peter Ozolin, CKO of Paul Hastings recently wrote. 

In the September 2004 issue of Law Technology News, Peter described in Case Study: Paul Hastings (free registration required) his firm’s quest to locate relevant work product. Peter outlines common KM challenges such as too many hits, poor profiling, and under-inclusive results. He acknowledges that a manual effort is a good way to address these problems, but takes significant cultural change.

The challenge of that change management and investment in human resources led Paul Hastings to explore automated approaches to identifying useful work product. After reviewing several products, the firm settled on a pilot test of Practice Technologies, which uses a classification engine to select and profile documents automatically.

Separately, for searching across multiple repositories, the firm selected Recommind. In the article, Peter suggests that the “targeted search” of Practice Technologies yields more useful results than the universal search of Recommind. But he makes clear the jury is still out.

So it will be interesting to hear from both vendors and perhaps an updated from Peter on the relative merits of each. Of course, both products represent “automated” solutions rather than manual ones. Some firms, especially in the UK, do opt for more manually intensive approaches. In the US, given the interest among large law firms in West km and Recommind in particular, it is clear that the market favors automated approaches.

See my article What’s Your Strategy for Collecting and Cataloging Documents? for a discussion of automated v. manual approaches.)

The Executive Director of Milbank Tweed Hadley & McCloy, James Lantonio, reports in an article in Legal IT that his firm’s experiment with offshoring word processing is successful so far. 

A key factor in the firm’s decision to outsource word processing to India was the partnering of an offshore provider with a domestic company. Lantonio writes that his firm “began a pilot programme about four and a half months ago and it has gone exceedingly well… The quality of the workforce in India has been excellent — they are quick to ask pertinent questions and make no assumptions, and the turn around time is well within the acceptable boundaries.”

He adds, however, that lawyers still need to be convinced that the work can be done remotely. But the evidence suggests that this concern is misplaced. “Amazingly, most of the complaints revolve around work that is done domestically” he reports.

It seems to me that several factors will continue to cause firms to consider offshoring as an option:

Most law firms are at work on their 2005 budgets. In considering technology budgets, it’s interesting to ponder when something “new” is no longer new. This is no mere philosophic question; I believe the answer affects how firms make decisions. 

I started thinking about “newness” last week when I saw articles about blogs in both the Wall Street Journal and the October issue of the Corporate Legal Times. Every periodical I read - general, business, legal, and technology - has covered blogs. So let’s stipulate that blogs are no longer “new.”

Then I started thinking about just what does “new” mean and does it matter. I can’t define “new” but it seems to me that faced with something “new,” decision-makers must (1) have knowledge about the subject and (2) “frame” the subject appropriately, that is, figure how it fits with what is already in place.

Proponents of the new in law firms should be aware that decision-makers may lack both knowledge and an appropriate framework. Moreover, they face skepticism and a high burden of proof. That seems ineffective and inefficient to me.

When every periodical has reported on a new thing, then the presumption and burden of proof should shift. Take blogs as an example: a lawyer proposing that his or firm create substantive blogs should not have to explain what a blog is. The discussion needs to be framed around communications, marketing, and client service, not around technology. (I happen to think firms should have blogs, but the point here is that it is not a tech decision.)

Similarly, e-discovery is not new. So lawyers should no longer need an explanation of what metadata is and why it is important. A litigator who has not seen and read article about this topic is verging, in my opinion, on committing malpractice. And the framework of discussion about it needs to shift away from pure technology to case strategy given the tech issues.

If I am correct here, and I admit my ideas are embryonic, then I can crystallize the problem: lawyers as decision-makers often have trouble coping with the new. I have had many experiences where I’ve read repeatedly about a topic and, when I mention it, a lawyer looks at me blankly. Lawyers who lack awareness of the world around them should not be firm managers.

And for those who do know about the new, especially if it is technology, tend to frame the new as a technology issue. That tendency is ill-advised as it allows the decision maker to avoid business, competitive, and strategic considerations. In effect, the subconscious script is “well, this is technology, I’ll let the CIO worry about it - I don’t have know anything or do anything.”

CIOs are not acquitted from their duty to educate partners and other decision makers. But that duty only goes so far. Lawyers as decision-makers must grapple with the new. First, they need to read and know what is happening. And second, they need to frame the issue correctly. A Cisco router upgrade or new Intel chip can safely be relegated to the realm of pure technology. But much of the new is only disguised as technology. Lawyers need to take more responsibility for understanding the implications and framing the right questions.

I recently posted about a new, single platform Extranet from Australia called nSynergy. Three reliable sources in Australia suggest this is probably not going to take the market by storm. 

The reports from my sources:

“Apparently, Telstra continues to use the predecessor system to nSynergy and none of the major Australian law firms use the product. Australian general counsels are testing the system but corporate IT and purchasing managers are not keen on supporting a sourcing system unique to legal.”

“It is focused primarily on law firms reporting fees in a standard format; it appears effectively to transfer the administrative burden from GC to firms.”

“nSynergy offers the software free to GC - seeking revenue by charging firms. But some GCs are a little concerned about the potential for hidden costs such as training and hardware, and for fees in the future. Beyond paying fees, firms are reluctant to use it because that would require re-keying data from existing systems”

In light of these comments, it seems to me (1) the report referenced in my prior post may be out in front of what is actually happening and (2) if the real goal is fee tracking, which was not clear to me from that report, it seems GC should use one of the several established e-billing services.

I’ll take this occasion to re-state two of my favorite themes: First, I think the concept behind nSynergy - a single platform or data standard for sharing data among lawyers and clients - does make sense. And second, while such sharing - whether it is documents, billing, or project status - is useful, it is not likely to generate huge savings. Bigger savings will flow from examining how lawyers work and changing processes so that costs are actually reduced.

Sending work offshore to India has been a staple of the general and the legal press. Now comes an example of a large company relying on lawyers in the African island-country of Mauritius. 

The Corporate Legal Times (September 2004) reports in The Mauritius Solution that consulting company Accenture has set up a legal operation in Mauritius. The company, driven by cost considerations, wanted to off-load from their legal department routine work such as NDAs and RFPs. The company set up its own legal offices in Mauritius, choosing the location because lawyers there typically speak several languages and have experience with both the English and French legal systems. Furthermore, the country has a good infrastructure.

As I read the article, Accenture hired local lawyers and set up a service center. The company is pleased with the arrangement, particularly the quality of work. Apparently the only outstanding issue is the 9 hour time difference. (Though, in my reading and discussions about outsourcing, this time difference is often viewed a positive because workers in the US can send work at the end of the US day and have finished product back the next morning.)

The trend to send legal work offshore is still small, but seems to be growing. Assuming that’s so, what will be the impact on law firms? It seems likely that only fairly routine work will be offshored for quite some time. If so, the impact on large firms, which primarily focus on higher value work, will be limited. It’s possible, however, that if corporate counsel become comfortable with offshoring, they may expect their outside counsel to take similar cost saving measures.