Strategic Legal Technology

I recently learned about another e-discovery tool called Engenium, “a next-generation conceptual search technology created using patented methods of automatic learning and semantic analysis." 

Organizations adopting it for search recently include CaseShare (a cross-enterprise collaboration tool, including litigation support and deal rooms) and Foley Lardner for its internally developed electronic discovery system. (Engenium press releases: Caseshare, Foley).

In a 35-page report titled Calling a Change in the Outsourcing Market (April 2005, PDF), Deloitte Consulting concludes that outsourcing is not all it’s cracked up to be. The report finds numerous problems and limitations. It’s hard to know how to apply the analysis to the legal market given the nascent state of outsourcing but given my many posts on the topic, I thought it only fair to post about this.

Attenex, an e-discovery vendor with an interesting visualization interface, has raised $5 million in VC money according to the Seattle Post Intelligencer. Another sign of the rapid growth in the e-discovery market.

Reed Smith recently announced a joint venture with DolphinSearch to create ComplianSeek, a product designed to help investment advisors meet regulatory requirements. This looks like what I have previously called an embedded law system. 

I previously suggested that law firms could and should create systems that “offer preventive law, detection of potential problems, and automation of routine legal tasks.” (More on embedded law systems here and here.)

ComplianSeek appears to do this:

“The ComplianSeek™ patented content search platform employs document selection criteria tailored to conform to the regulatory requirements of the Investment Advisers Act and provide investment advisers with a seamless retention and auditing environment that accommodates regulatory change as well as allows ready access to relevant email.”

This is not Reed Smith’s first foray into online legal services. In late 2003, the firm released its 5o-state guide to medical privacy law (see statehipaastudy.com or my blog post.)

It will be interesting to see if Reed Smith develops additional online services or if any other law firms follow suit.

I will add ComplianSeek to my online legal service list when I next update it.

The over-hyping of technology leads to a natural reaction to discount its impact. That is a mistake. Broken promises notwithstanding, new technology continues to change law practice and business. 

In the past, the challenge was just getting new technology to work. Today, the challenge is adopting new systems to improve business, practice management and client service. Adoption depends on culture, attitude, competition and management, not on the technology itself. Managers guiding their law firms’ futures should consider technology-enabled opportunities along three dimensions – communications, practice management and business management.

That is the thesis of an article I wrote for the College of Law Practice Mangaement Spring 2005 newsletter (PDF) and posted here.

Last month, fellow blogger Joy London of excited utterances and I released a list of outsourced legal services (prior blog post here, updated list here). Based on reader comments and our own research, we have found one-half dozen additional examples. 

Offshoring is news in the US and in India. Yesterday, a leading Indian newspaper had an article Legal outsourcing makes its case, which describes the current interest among Indian players to develop this business.

Some may think that with all the new entrants and “buzz,” legal outsourcing has the feel of the dot-com boom and eventual bust. My view is that outsourcing and offshoring will take hold but like many other past and present trends in the legal market - adopting PCs, creating brochures, using e-mail, analyzing practice group profitability, and hiring marketing directors - it will take time to grow and mature.

The jury verdict against Morgan Stanley of $604 in the Perelman-Sunbeam case - based to a large extent on doing e-discovery wrong - raises the question of just what is happening in e-discovery practices. Good data on actual practices are scarce, a problem my friends at EDDix are working to rectify. 

In Perelman Beats Morgan Stanley, the Wall Street Journal reports (5/17/05):

“The verdict shows how costly it can be for corporations who mishandle the document production in legal proceedings, a process known as discovery. Lawsuits often require companies to comb through electronic archives, and these cases are sometimes won or lost based on how the litigants perform these tasks… In the Perelman case, Morgan Stanley kept uncovering new backup tapes, couldn’t perform full searches because of technology glitches and gave material to the other side that was sometimes incomplete or late” (emphasis added)

So, just how do litigants perform these tasks? Litigation support has always been as much art as science and practices tend to vary widely, both within and across firms. So just how are law firms staffed to handle e-discovery? How much do they do internally and how much do they outsource? Who is responsible for making sure a client follows preservation policy? What drives vendor selection?

EDDix, an independent market research company focusing on e-discovery, is now running Law Firm Perspectives on EDD, which uses the Web to interview AmLaw 250 firms to determine current EDD practices. I am working with EDDix on an affiliated basis to help with this primary research, which we expect will produce deep insight into important e-discovery issues and practices. We are seeking online participants: litigators, CIOs, lit supp managers, and transactional lawyers doing due diligence. Participants will receive a free summary report of the research and access to EDDix’s already completed EDD Supplier Landscape study (my blog comments on this study and access to a couple of chapters are here).

To participate in the online interviews, click here: on the left are links that allow you to preview the interview; on the right are links to complete the interview.

The lead feature story of the Wall Street Journal today is Age of Discovery - How Morgan Stanley Botched A Big Case by Fumbling Emails (subscription req’d). If litigants have not already been put on notice about e-discovery, this article is the wake-up call. 

Both the underlying dispute between financier Ronald Perelman and investment banker Morgan Stanley and the e-discovery problems have been previously reported. This article is noteworthy because it elevates to front page status the issues of managing e-mail in the discovery process. (The court found that Morgan Stanley “deliberately” violated production orders and, as a sanction, instructed the jury to assume the company helped defraud Perelman.)

Corporate America now stands warned that they have to get discovery right or face serious court sanctions. And the article does not make quite as clear as does the court’s decision the dangers of doing “home grown” e-discovery management.

FLASH UPDATE: As of about 3pm today, newswires report the jury in this trial awarded Perelman damages of $604 million.

The volume of documents to review in discovery continues to explode. Can lawyers rely on full-text and concept-searching instead of lawyers to review documents? Craig Ball provides a good analysis of this question in Unclear on the Concept in Law Technology News. 

Ball’s answer is that “automated search systems must be periodically tested against an evolving sample of evidence scrutinized by human intelligence.” I like his empirical approach because that’s what I have argued in prior posts such as Evidence-Based Law and Thoughts on Full-Text Retrieval.

Potential limitations notwithstanding, Ball suggests concept searching has a role in overcoming OCR limits, uncovering hidden relationships, and prioritizing the order of review. He makes the useful suggestion that those who do want to rely on this approach should invite “the requesting party to contribute keywords and concepts for searching is an effective strategy to forestall finger pointing about non-production.”

As lawyers consider the reliability of different approaches, they should keep in mind that objective (bibliographic) coding is typically no more than 98% accurate. As for subjective coding, I heard one anecdote of a large law firm that used a concept search tool after a lawyer review and the tool found many documents the lawyers missed. An assumption that lawyer review yields the best result is not necessarily correct - it’s just what the profession happens to find comfortable.

I have previously suggested (here and here) that business intelligence (BI) would become more important in large law firms. The Wall Street Journal yesterday carried an O’Melveny & Myers employment ad for a position where BI is critical. 

I periodically skim the employment ads in the Wall Street Journal (Tuesday editions). Yesterday I noticed O’Melveny is looking for a “Director of Practice Development and Market Information” and a “Practice Analyst.” This is interesting in two respects. First, I don’t recall seeing many law firms advertising in the employment ads. And second, both positions appear to emphasize BI.

The Director position will focus on “competitive intelligence gathering for strategic planning, litigation spotting, competitive firm positioning” and “provide strategic practice development support to practices, offices and key client initiatives, as well as overseeing teams engaged in the collection, archiving and updating of CRM and other marketing-related data.” The Analyst will monitor economic performance and spot trends. I suspect the Director reports to marketing; the Analyst “reports to Practice Managing Director.”

I’m not 100% sure what these jobs entail, but they seem centered on doing more with business intelligence. If this represents a trend, CIOs will have another constituency to support.

With this post, I have created a Business Intelligence blog category and re-categorized some earlier posts

If you view offshoring legal work as limited to low-value, repetitive work, think again. I recently spoke with the co-founders of legal Indian offshore service Pangea3, which has already moved beyond the routine.  

Co-founders David Perla and Sanjay Kamlani say they help companies with patents, legal research, litigation support, and contracts. Contract work includes high-volume, routine items such as NDAs. It goes much further, however, to include negotiating and drafting one-off agreements. Workers in India sometimes even conduct live negotiations.

In effect, Pangea3 serves as the “contracts department” for some customers, including handling agreements for non-US jurisdictions. Perla says that “more than 50% of our revenue is high value work rather than routine, high volume work; this came as surprise to us but we handle it well.”

I asked if this makes them a US law firm with operations in India. They say no because they do not make legal decisions and because the company delivers its services only to in-house lawyers, who review the work prior to delivery to clients.

Pangea3 employs US and Indian lawyers with industry expertise. The company now has five Indian lawyers for each one in the US but expects to ratio to move to 10 to 1 by year-end, assuming it meets it targets of over 100 lawyers.

Perla and Kamlani are not sure that they have displaced any US lawyers – yet. But with associate starting salaries over six figures, they see a market ready for some dislocation. Kamlani says that the “market complains about costs - now that we are doing something about it, law departments are buying.”

I asked about the role of technology in the business. The company is initially focusing on tools to interact with customers, for example, VPNs, e-mail, and secure extranet. So far, they have not deployed document assembly software.

Reflecting on this conversation and the role of technology, I think it is likely that time saving technology such as document assembly will play an important role if offshoring grows. Sending legal work overseas is already a big change; adopting new ways of doing the work does not seem radical in comparison. Moreover, if cost reduction motivates the move offshore, then competition among offshore players to reduce costs further will likely drive the adoption of more sophisticated technology.

The May issue of Corporate Counsel magazine reports in Hello, Good Buy that “a dozen companies confirm that they’ve directed their procurement departments… to review legal spending decisions." 

The article reviews the pros and cons of purchasing experts helping to select outside counsel. If the trend continues, it likely will have a positive influence on law firm technology. My sense is that sourcing specialists will weigh many factors, including how service providers do their work. I can imagine a company sending a supply chain expert to a law firm to assess whether the lawyers are working efficiently and effectively. Some might protest this is too hard to measure. Perhaps. Contrast assessing this to evaluating results, relationships, and expertise and decide which is easier to evaluate. (For example, if two litigators are equally skilled in developing legal arguments, shouldn’t the rational GC - or purchasing agent - select the one who really knows how to use discovery databases effectively?)

I have previously suggested (here and here) that change in the legal market will require external forces such as the CFO stepping in. Procurement chiefs may be just as effective as stirring things up. From a large law firm CIO’s perspective, this shaking up would likely result in partners dropping some of their resistance to new technology and new ways of working.

A few days ago I asked if Microsoft gets KM. A recent article reports on DuPont’s adoption of the “the Edge,” an extranet designed to support teamwork and knowledge sharing among its outside counsel. I now have to ask the same question about DuPont. 

Pushing the Edge in Law Firm Inc. (Jan/Feb 2005) reports that unlike other Extranets, the Edge is driven by DuPont, not its law firms; will eventually encompass all matters and not just operate case-by-case; and incorporates incentives for using it.

I applaud DuPont for taking this initiative but think that project, as described in the article, has a big flaw. The article reports that a portion of a $1 million budget supporting the Edge will pay billable rates for “a ‘knowledge steward’ at each of DuPont’s law firms.” These stewards are usually a paralegal or someone with a tech background; their job is to make sure “everyone at the firm is actually using the system.”

In my experience, neither paralegals nor tech staff are well-positioned to persuade lawyers to change how they work. Incentives need to be embedded systems, for example, clients taking work away from lawyers who don’t follow rules or firms penalizing lawyers (less compensation for partners and bad evaluations for associates) for breaking rules. Incentives that are glommed-on top, which is what these stewards sound like, typically do not work.

The article also reports that DuPont hired Capgemini and Ernst & Young to provide business process consulting. I’d love to see their empirical data and/or reasoning in support of this idea. I may be wrong, but asking staff to bug lawyers seems likely to fail. Let’s hope we see some follow-up reports on whether this approach really works.

(I tried finding out more about the Edge at the DuPont Legal Model web site, but was not able to find additional information.)

In response to my post about business intelligence software, one of my large law firm readers provided interesting comments about large law firm business development. This helps illustrate that some CIOs have an opportunity to be change agents in their firm. 

First, here is the comment from a lawyer in a large firm:

“I spent a number of years in-house with a large financial institution. The focus on market analysis there was huge, analyzing customer segments, determining customer profitability, setting profitability targets, defining strategies for dealing with customers who didn’t meet those targets, etc.
One thing that continues to amaze me about my large law firm (and I suspect that it is not a lot different elsewhere) is the seeming disregard for all sorts of basic business development approaches. It’s as if the lawyers say, “Well, BD means either (1) take the client to a sports event, (2) host an internal CLE event, or (3) speak at some conference, and there is nothing else that I could possibly do to develop business.”
They don’t start with the basic cross-selling of their own capabilities to their colleagues, they don’t focus on providing real value to their clients (because a lot of it would involve the investment of non-billable time that the firm doesn’t recognize, even if it pays off exponentially later), and they don’t analyze what they do right (and what the they do wrong!) to determine what things to emphasize (or ditch). And yet these are all intelligent people.
It continues to mystify me (although I believe that the emphasis on the billable hour works to discourage any such activities).”

I believe the situation is not quite so bleak in many large firms, but certainly there are many where this is still true. I also know many CIOs who see the need for their firms to adapt better business approaches, whether in law practice, marketing, or back-office processes. Often, technology is just a small part of the change, really just a “supporting role” in a bigger drama.

I think that because CIOs inherently must deal with change (think of just all the operating system upgrades in the last decade), they are more comfortable with new ways of working than are many of their lawyer colleagues. Of course, being a change agent is hard work and can be job-damaging or -ending. But forward thinking CIOs who have basic infrastructure under control do not lack for opportunities to help their firms adopt better ways of working. Evaluating and introducing BI tools is just one example.

In late 2004, I predicted that business intelligence software would play an increasingly important role in large law firm management. An article in the Toronto Globe and Mail illustrates the value of BI software. 

Lawyers work on taking care of business (May 2, 2005) discusses how several law firms have used BI software. Fasken Martineau used it to identify prospects for an office in a new city; Bryan Cave used it to set a bid to win business in a competitive situation.

Though the article does not identify the software used by Fasken, I suspect it is Thomson Elite’s new Firm360, described in pre-release blog post by Larry Bodine:

“Firm360 searches the West law database of reported cases that have already been decided, so that marketers get client intelligence, market intelligence, geographic information, competitive intelligence and legal trends. This would be used in strategic planning for new practice areas, industries, offices, rates, trends and financial goals and lateral hires.”

It will be interesting to see what Firm360 does once officially released (the web site does not reveal much).

Business intelligence software is likely to be driven by finance or marketing needs but law firm technology managers will need to understand its importance, how to integrate it into existing systems, and how to support it.

I recently asked a lawyer whether his firm was pursuing a relatively new idea and his response was, “how many other large law firms are doing that?” My reply was “why is that a relevant question?” He was taken aback and offered no answer. 

The setting was a social event, the lawyer involved in his firm’s communication efforts, and the question was “has your firm considered a blog?” I have previously posted about firm-branded blogs, so will not cover that territory again. The interesting issue here is how firms think about change and new ideas.

Large law firm technology managers who suggest new initiatives frequently face the question “how many other firms are doing that.” Most businesses evaluate a proposal based on benefits, costs, feasibility, and risk. The analysis includes what competitors are doing but that’s not the starting point. In three years of strategy consulting at Bain & Company, I do not recall a client or consultant ever starting with that question.

In well-functioning markets, that is the wrong question. When customers have ample choice and switch suppliers to achieve lower cost or higher benefits, producers constantly look for ways to gain share by doing a better job pleasing customers. So producers eagerly assess new ideas that might provide a competitive advantage. When suppliers fail to embrace the new, they suffer (consider, for example, Digital Equipment or Detroit car-makers).

In the legal market, however, it’s hard to identify instances where the market has penalized firms for being late adopters. Firms may lose a client or two if they lag, but this does not lead to folding. The only explanation I can offer for why firms can repeatedly start with the wrong question is that their customers are simply not demanding enough.

Maybe I’m completely wrong… I’d love to hear from anyone who has a better explanation, either why this question is the right place to begin thinking about change or why law firms can keep asking if it’s wrong.