Strategic Legal Technology

New legal technology frequently raises ethics concerns. A new Legal Ethics blog covers ethics and, this week, in connection with the ABA TechShow has a focus on legal technology and legal ethics. 

Ben Cowgill is the lawyer-author of Legal Ethics; for this week’s focus on tech and ethics, Ben has assembled a panel of guest bloggers, including me. Reproduced here are my first comments on his blog:

As a proponent of using technology to serve clients and practice law more effectively, I have frequently confronted ethics questions. Examples include e-mail (confidentiality and privilege), interactive advisory web sites based on expert systems (malpractice and unauthorized practice of law), use of application service providers (confidentiality), and performing legal work offshore (confidentiality and privilege).

What is surprising are not the questions but what must bluntly be called two-part knee jerk reactions. First is the immediate claim, typically absent any factual inquiry or ethics research, that the new thing would violate ethics. And second is the failure to assess the ethical risks of the status quo relative to the new thing. For all the early concerns about e-mail, how many lawyers send faxes to hotel front desks for hand delivery to a guest? How many read the disclosure on overnight delivery labels and consider the possibility that the package contents might be viewed by someone else?

Perhaps both the profession and clients would be better served by shifting the burden of proof. The proponent of the new would need only make a plausible argument that the new thing is ethically sound. That would shift the burden of proof back to the nay-sayers, who would win only based on clear and convincing factual and legal arguments. Lawyers may be creatures of the past but robotically following old ways causes its own set of problems (see, for example, The T.J. Hooper).

I hope that others will chime in on Ben’s blog to answer these and other questions.

Can knowledge management move from “nice to have” to “must have?” Tying it to making money is one way. 

Supplying Labor To Meet Demand in the March 21st issue of Information Week is a must-read for knowledge managers. It begins by describing a system the US military uses to match the right people to open jobs:

“This [DOD] system reflects a new trend to manage the workforce much like a traditional supply chain, where assets are matched to specific orders in the most profitable way. Backing the trend: software and services that are much smarter than traditional labor-management and human-resources tools because they let businesses more effectively match employees’ expertise and knowledge to customers’ needs and deploy the right people in much the same way assets would be deployed in a supply chain.”

In the private sector, IBM is leading the charge with its “Workforce Management Initiative.” The company

”built a taxonomy, or structure, that outlines internal and external skills and provides a minute-to-minute view of IBM’s labor-supply-chain activities. The system runs on IBM’s DB2 database and WebSphere business-integration software. ‘It catalogs skills, creating common descriptors around what people do, what their competencies are, what experiences and references they have, which goes beyond a basic job description,’ says Patrice Knight, VP of business transformation at IBM’s Integrated Supply Chain division.” (emphasis added)

The taxonomy of skills, combined with numerous other systems, allowed IBM to achieve a 3% to 5% increase in time consultants spent with clients and reduce expenses.

Large, multi-office, multi-practice law firms surely could benefit from better matching the needs of clients with their lawyers worldwide. Beyond the potential to boost billable hours, better matching would improve client service and professional development. Building expertise locators today is often difficult because lawyers typically don’t provide updated expertise profiles and software makes imperfect guesses. If law firms could better deploy lawyers through the approach described in the article, there would be a much bigger institional motivation to capture expertise accurately than exists today. And this approach would also require classifying matters into a taxonomy, which would also help on the KM front.

The article does not mention any off-the-shelf products that provide the functionality developed by IBM and the military but IBM plans to commercialize its offering.

Last Monday, the Wall Street Journal reported that companies “have struggled for years to reduce their legal costs, with little success” and that “[n]ow technology is coming to the rescue.” I’ve struggled since then with how to think about this article. 

On the Case (paid subscription req’d) explains that businesses “are finding they can use software to automate routine legal matters, such as drafting standard employment contracts, as well as streamline complex chores like patent applications.”

One the one hand, I was disappointed that the Journal neither unearthed new examples of the application legal technology nor cited large companies beyond those usually mentioned in articles about legal technology. On the other hand, I take comfort in blogger Adam Smith, Esq. comments that the fact that the WSJ reports on something, certifies it is a trend.

This article reminds me that real change is likely to come from external forces. Only a few general counsels are pushing the envelope. My hope is that CEOs and CFOs read this article and send it to their GCs with a hand-written note asking “are we doing this yet?” Now that might have an impact on how law departments and firms operate.

I’ll close with an observation about considering change in the legal profession. The article says “some legal experts say it may be risky to automate or outsource legal tasks” because “[i]mportant information might fall through the cracks of automated systems.” Sure this is true, but in comparison to what? The idea that humans - with all their frailties and distractions - always catch all important information seems, how shall I say it, a tenuous position. Lawyers must learn that it’s not enough to object to the potential flaws of a new way; they have to be viewed in comparison to the flaws and risks of the existing approach.

Legal market regulation in the UK is on the way to significant liberalization. It will be interesting to see if that affects the development of online legal services. 

Government to implement key Clementi reforms in LegalIT (March 21) reports that the British government will move to adopt the Clementi Commission recommendation that “will allow outside investors to own law firms and other professionals to form partnerships with solicitors.” Public offerings are not out of the question.

Assuming this does move forward and corporations or shareholders can own law firms, then outside capital may lead to innovation in legal services. Investors who see opportunities to rationalize the provision of legal services could invest in law firms and fund development of technologies that would significantly alter current practices. For example, one reason for the relatively slow uptake of online legal services may be the lack of capital to pay for lawyer hours to develop fully-featured systems. If so, the outside capital allowed by relaxed regulations could lead to more online services, if not from the large firms then from mid-tier firms that receive outside funding.

The same logic could also lead to other changes in practice. Investors may see other inefficiencies - for example, the billable hour - and fund firms with the goal of changing current practices, eliminating inefficiencies, gaining market share, and earning sizable returns.

All this is speculative, but assuming the British government moves forward, we could see some previously unimagined changes in the legal market.

Notice to legal market innovators: replace the arrows in your back with an award that recognizes your hard work and risk taking. 

The College of Law Practice Management in concert with Edge International announces The Second Annual InnovAction Awards recognizing innovation in law practices around the world:

“The InnovAction Award is a worldwide search for lawyers, law firms, and other deliverers of legal services who are currently engaged in some extraordinarily innovative effort. The goal is to demonstrate to the legal community what can be created when passionate professionals, with big ideas and strong convictions, are determined to make a difference. Each year, we will present the coveted Nova to those unsung heroes and rising stars from within the legal profession who dare to think differently and succeed by doing so. ”

Click here for the 2004 award winners, here for more detail on the awards, here for how to enter, and here for a list of the sponsors, publication partners, media partners, and friends.

As a Trustee of the College, I am pleased to be a friend. I encourage you to learn more about the awards; apply if you are an innovator and, if you are not, tell your innovative friends about this.

No, this is not a post about mixing cleaning powder and food. The Wall Street Journal this week had two articles about interesting technology developments. This is a bit techier than my usual posts, but I was fascinated by both reports. 

I have recently become a big fan of Google’s maps. It lets you click on the map to drag it, which makes seeing how points connect much easier. On Monday, the Journal reported (subscription req’d) on how Google does this, which I had been wondering about. “Ajax is a recently coined name for a dense mouthful of software technologies that are built into Web browsers.” It “knows to fetch only the part of the screen that needs changing” which explains why Google maps perform so well. Ajax is a recently coined term for a combination of technologies including JavaScript and dynamic HTML. The article suggests that this open technology could work to the detriment of both Sun and Microsoft.

Separately, in a Tuesday front-page story (subscription req’d), the Journal reports that researchers have discovered problems with hashing algorithms. A hash converts any amount of text to a short string of numbers. Hashes are critical in authenticated transactions and digital signatures. They are also used to ensure the integrity of data in forensic evidence collection. The idea is that you can very easily and efficiently tell if text has been altered by hashing it and comparing the resulting short numbers. Different texts are always supposed to yield different hashes.

The researchers have, however, found a way to create two different source texts that produce the same hash string - something previously thought virtually impossible to do. The security implications of this could be far-reaching, though it is not clear that anyone needs to worry just yet.

These two reports are more techy than many of the articles I read in computer trade publications. That alone suggests, I believe, the ever-increasing importance of technology in day-to-day life. In years past, I do not recall such detailed tech accounts in a mainstream business publication.

Outsourcing Innovation is the cover story of the current issue of Business Week (March 21, 2005). It reports that major companies now outsource R&D, not just manufacturing. Does this have implications for the legal market? 

I think so. Not long ago, US companies viewed outsourcing as limited to manufacturing and low-end, commoditized work. Now, “the next step in outsourcing [is] innovation itself… the demarcation between mission-critical R&D and commodity work is sliding year by year.” If Dell, Motorola, and Philips buy complete designs of digital devices in Asia and if big pharma teams with Asian biotech companies and if P&G will generate 20% of its innovation ideas from outside, then why can’t large law firms outsource more of their activity to lower cost locations?

To some extent, large law firms already recognize that they can farm out work. I have previously written about the growing use of contract attorneys to review discovery documents and large UK firms delegating property and due diligence work to regional firms.

As corporate clients outsource ever higher links on the value chain, it seems reasonable to assume that they will eventually expect the same of their outside counsel. After all, if top-notch corporations can innovate, maintain quality, and lower costs by outsourcing non-commodity work, why can’t law firms do the same? At minimum, it seems to me that corporate CFOs and business people should be shocked to learn how much routine work their expensive outside firms really do.

Large firm CIOs may not be able to initiate outsourcing substantive legal work, but they will certainly be asked to support it. Whether it is collaborative extranets, workflow, databases, or document assembly, technology will be critical to supporting growth of outsourcing in the legal market.

At Legal Tech a few weeks ago, I moderated a session on clients paying for KM and subsequently posted session notes. That prompted interesting comments from panelist Jeff Rovner, Director of Knowledge Management for the Americas Region, Clifford Chance US LLP. 

In my follow-up notes, I wrote that one session highlight/conclusion was that

“Firms should be willing to invest in KM where they face a lot of competition or offer services on a fixed price basis. That’s ok as far as it goes, but large law firms tend to “move up the value chain,” meaning as practices commoditize, they tend to do less work in that area and move to new, higher value areas. So the impetus for KM is rarely that great. ”

In a follow-up e-mail message, Jeff wrote

” I’d amplify your point about the value chain as follows:
1. The strategy of moving higher and higher up the value chain to seek greater and greater premiums strikes me as exactly the approach that Clayton Christensen described as so often leading to disaster in the Innovator’s Dilemma. If the big firms leave enough work behind, then innovators will eventually figure out how to do that work in a very economical fashion, and then all clients – including those generating what we now call premium work – will want to use the new approach. If the big firms don’t prepare to play in that new world, they’ll find themselves at a big disadvantage when it arrives.
2. It’s true that law firms have a hard time figuring out how to apply KM to non-commodity work, but that’s because they’re viewing KM too narrowly. Sure, explicit knowledge tools, such as brief banks and document assembly systems, aren’t the right approach to one-off work. Instead, collaboration tools, expertise location systems and things like my “servicing manual” deal distillations may be a better fit. [Jeff explained at the session how one client paid for a manual explaining how to manage certain debt after the deal closed.] And if we look beyond the law, there are plenty of examples of companies using KM to generate new products, establish new work processes and achieve other non-commodity objectives.”

I agree entirely with Jeff’s comments. Given my experience trying to develop interactive online services for the legal market, however, I am not optimistic that law firms will in fact avoid the Christensen disaster. I’ve recently heard at least a couple of inhouse counsel speak highly of content provided by LRN for training and compliance. LRN and its ilk could be the harbinger of the type of “disruptive force” Christensen describes (see for example, my post re the WSJ article on compliance training, which features LRN).

I also agree with his second comment. But adoption of new tools and processes, however, has been glacial; in general, lawyers are very slow to adopt new ways of producing or delivering their work, sometimes even under direct client pressure. This creates a real opportunity for firms that can adapt new ways to deliver better service. My favorite example would be using web conferencing to deliver updates to clients. It’s technically trivial and would, I suspect, be of value to clients. Yet I see few firms doing this. Similarly, in spite of all the hoopla over blogging, only a few large firms have firm-branded blogs.

I have long been a Marxist about legal market Extranets. If they succeed, they sow their own destruction because in-house counsel will not be willing to log-on to multiple extranets. Now, a group of law firms and investment banks in the UK are piloting a common extranet to share legal updates. 

Interview: Seeing through the portal in LegalIT reports that “[n]ine investment banks currently use a web portal pilot to access fully searchable legal updates that are uploaded and indexed by Allen & Overy, Clifford Chance (CC), Freshfields, Linklaters and Simmons & Simmons.”

Planning for this pilot began in 2002 and I reported on it in June 2003, based on an article in The Times (of London). Though the outcome of the pilot is uncertain, it “is expected that the portal will be opened up to other banks and firms and that more content-types and functionality will be available.”

The 2003 Times article stressed online access to a single system. This article, however, places the emphasis elsewhere: “Updates have long been pilloried for failing to meet client needs — and through [this pilot] clients have found a way to tailor the updates, rather than waiting for law firms to improve them. ”

This pilot was conceived prior to the explosion in blogging. If in fact updates are the real concern, then it would be interesting also to pilot blogs and RSS. I have previously suggested that a combination of the two could provide law departments with highly customized feeds.

Whether the market moves toward standardized extranets or blogs+RSS, large law firms seem increasingly likely to face a future where clients call the shots on how they would like information delivered.

In a recent post, I said individual lawyers have little incentive to contribute to KM efforts. Now, experienced law department consultant Rees Morrison confirms that in-house lawyers resist KM for this reason.  

In Altruistic Information Sharing Doesn’t Happen: Intranets, Case Management Systems and Knowledge Management, Morrison writes that in-house lawyers “do not want to take the time to make what they know available to other lawyers.” He enumerates reasons why individual lawyers do not contribute and suggests that to do KM requires dedicated staff or an automated approach.

Motivating lawyers to do KM is what caused me to write several recent posts about clients paying for KM. If the economics and culture of doing KM fail in law departments as Morrison suggests, then it is not clear why they should succeed in a law firm. Food for thought.

Legal Tech NYC is a good time of year to take stock of the legal technology market. Some years nothing is new (e.g., around 1992, the only new thing at Legal Tech was a coffee maker!). This year, fortunately, there is much to report…  

This year, I was pleased to work with my friend and affiliate, Joshua Fireman of ii3, to write a report on what we saw at Legal Tech. It covers KM, E-Discovery, and Infrastructure. Separately, Joshua and Shy Alter, CEO of ii3, wrote about their time at Hummingbird Summit (the week after Legal Tech). Click here for the report, which is on the ii3 web site.

Consulting firm Hildebrandt and The Law Firm Group of the Citigroup Private Bank, which works with many of the leading law firms, have just released their 2005 Client Advisory. The combination of Hildebrandt’s strategic insight with Citigroup’s financial insight yields a very useful look at the state of the legal market. 

Anyone operating in the large law firm environment, including CIOs and senior technology managers, should stay current with the overall market environment, so this report is a must read. Some highlights I found interesting include:

• Among 143 firms analyzed, revenue grew about 9%, with 3% coming from hours and 6% from rate increases.
• US law firms continue to consolidate and to grow internationally.
• Clients may finally be resisting law firm rate increases.
• “From a technology standpoint, 2004 was a year in which many firms focused internally on their infrastructures and advanced use of systems, as well as externally on enhanced client communication and collaboration tools. We expect these to remain primary areas of focus in 2005 as well.”
• Many firms are fostering teamwork and taking CRM (actual client relationship, not just systems) more seriously.
• “Outsourcing of various “back office” functions that began developing as a serious trend in 2004 will expand during 2005 as law firms continue to look for ways to optimize their delivery of legal services.”

There is much much more in this report worth reading.