Strategic Legal Technology

My prior post A Former GC Explains Why BigLaw Keeps Getting Business prompted a comment from Pam Woldow of Altman Weil, herself a former GC. She reports that law departments are, under pressure from the current crisis, shifting some work away from BigLaw. As I read her comments, this may be a trend not easily reversed even when good times return. 

A word of background: my blog is re-published on Legal Onramp (LOR), an online forum and resources (aka social network) for legal professionals. Ms. Woldow replied at LOR and I have, with her permission, reproduced her comment:

“As a former GC and now in the role of consultant to GCs of major corporations, I am seeing the move of certain types of work to regional firms and away from BigLaw. With the budgeting season in full swing for some companies and completed for others, we are being contacted to help GCs meet their newly reduced 2009 budgets by finding more cost effective ways to obtain legal services.

While Ms. Katz [quoted at length in my prior blog post] identifies the reticence that some GCs may have about moving work to regional firms to obtain better value, including the CYA aspect, I am finding that confident GCs who have a clear understanding of their legal spend are motivated to save their companies money and meet their budgets – rather than merely cover their backsides.

If a GC has undertaken a thoughtful analysis of the legal spend, s/he will find there are certain types of spend, e.g., routine employment, products matters, IP issues, that lend themselves to movement to regional firms.
Collectively, these matters (though each may be fairly low dollar risk) can add up to a meaningful amount of the overall spend. Our GC clients report that they can achieve a 20%+ savings by moving these types of matters to excellent regional firms and away from BigLaw firms. In a year where many corporate legal budgets have been cut by 11.5% on average (see www.altmanweil.com/LDCostControl), a major savings in one part of the legal spend can make the difference between meeting or blowing the budget.

Once the GC and the selected regional firms develop trust, we often see more important matters being moved to those firms. For boardroom-level matters or bet the company issues, those will likely stay firmly rooted in the BigLaw firms.

It may take some readjustment to GC’s thinking and habits to re-deploy the legal spend, but the economy is forcing even hallowed legal departments to get on board with being efficient and using resources wisely.”

A former general counsel of a $100mil company wrote to me privately recently commenting on my blog post The Remarkable Inaction of General Counsels in the Face of Crisis and Budget Crunches. She offers an interesting perspective that I share here, with permission. 

Sheryl Katz has experience as a BigLaw associate and partner (WilmerHale, Bryan Cave, Perkins Coie, and Graham & James), general counsel, and business person. Here are her comments:

I read your blog post about the possibility of large companies getting sick of big firms and going to small firms. Having been a General Counsel I think this is highly unlikely as more than a minor trend.

If small firms that would do the same quality work for less were truly available, I would have farmed out more work to them. In some cases former law school classmates, or former attorneys at Wilmer or other firms that I knew, were available in smaller firms to help on matters. Sometimes this resulted in good quality work and lower bills. However, small firms often don’t have the depth of staff, so some matters that are not even necessarily that big can really only be handled by a bigger firm. Also, on a lot of transactions you really need your tax lawyer, corporate lawyer and banking lawyer to be at the same firm.

Then there is the issue of outside parties on transactions. If you are working with a large bank or Venture Capitalists or Private Equity, you may find that they want to work with a “name brand.” Often they are indifferent to the legal fees because they are not the ones paying the bills.

There are very good lawyers everywhere; there are great solo practitioners. Unfortunately, there is also a lot of mediocrity. If, as General Counsel, I had to put too much work into the project training outside counsel or fixing their work, then I didn’t want to use them again. The firm I used the most was expensive but always did an excellent job, and its associates were efficient enough that the bill was often cheaper than less competent counsel from smaller firms.

On the other hand I regularly used a small IP firm that had split off from a large mega firm. The work was consistently great and it was a bargain. But I knew the lawyers really well and before I used them I tried several small IP firms and was very frustrated.

Going to a large firm in a lot of cases is sort of like going to a chain restaurant. You pretty much know that the minimum you are going to get is going to be acceptable. And if the firm messes up, as General Counsel, you are covered. After all, you can always say “It may be a mess but Blank, Blank and Blank is reputed to be a great firm so don’t fault me for hiring them.”

Earlier this month I wrote a post Taking the LPO Temperature: Warm, Getting Hot, But Doubts. A new article in Corporate Counsel about legal process outsourcing deserves its own discussion. 

Will Tough Economy Push Companies to Outsource Legal Work? (Corporate Counsel, 22 Dec 2008) by David Hechler is a detailed, well-written article that provides a balanced view of legal outsourcing. Rather than summarizing it, I will call out and comment on a few points that I find most interesting.

The Pot Calling the Kettle Black? I was glad to see in print a point I often make. Quoting Susan Hackett, ACC’s general counsel, ” ‘For me,’ she says, ‘offshoring is just another kind of outsourcing.’ And after all, sending work to outside firms is outsourcing.” In my experience, many BigLaw lawyers fail to recognize that their firms are outsourcing service providers. The irony of protesting outsourcing appears lost on them.

The Chefs Have Not Visited Their Own Kitchens Lately BigLaw partners express concern about the quality and process of working offshore. So I was glad to read: “It would be interesting, Rowe [of Huron Consulting] responds, to take the processes the Indian companies use and apply them to U.S. firms. It isn’t outsourcing that’s costing legal jobs in the U.S., adds his fellow Huron exec, Shahzad Bashir. ‘Poor business models are losing jobs.’ ” In my experience, the processes, especially quality control (QC), of reputable LPOs are better than in US law firms. I wonder if US lawyers who question LPOs have ever spent time in the trenches of a big onshore document review.

Low Cost Ingredients are More Flavorful. Microsoft moved patent application work to India. It has saved money and improved quality. The savings can be as high as 90% compared to the US and are never less than 60%. The article also reports, however, that Intel tried offshoring patent work and stopped because it could not get the quality it wanted.

There’s More than One Way to Slice This This article addresses some important legal outsourcing points I’ve rarely seen covered in the legal press:

• Offshore services can be provided by “captives” or third-parties. A captive is an offshore operation owned and operated by an onshore company. The article notes that captives are more expensive than third party operations and that many are being sold by their corporate owners.
• Dual- or multi-shore services are important: “more ambitious vendors have looked to provide services onshore and off because that’s what their clients want”

Don’t Look behind the Refrigerator - You Might be Disgusted Some law firms may get themselves in trouble when it comes to outsourcing. The article relates a story about a BigLaw visit by an LPO executive. BigLaw firm

“thought offshoring was a terrible idea, until Reed [a United Lex executive] mentioned that his company also does accounting – and can reduce a company’s costs by 30 percent to 50 percent. Suddenly, Reed says, the lawyer was very interested in outsourcing.”

If I were a general counsel reading this, it would confirm my worst fears about outside counsel. This puts BigLaw in the light of wanting to reduce its own, non-billable expenses but dead-set against lowering client charges by using more cost-effective resources.

Update (21 Dec 2008) || Who’s Ordering these Meals and How Much Do They Really Cost? Just came across ANALYSIS: Legal Process Outsourcing: just hot air? (ALB, 18 Dec 2008). Author Joshua Scott questions whether law firms will purchase much LPO services. He suggests multi-nationals will be the buyers. He also questions the savings, citing the added cost of managing the provider. Personally, I believe that argument is weak: lawyers do have to manage LPO services. The real problem and “added” cost is that many do NOT manage their own internal processes.

In the Web 2.0 world, companies interact and learn from their customers via the web. What lesson can we draw for the legal market? 

The Secrets of Marketing in a Web 2.0 World in the Wall Street Journal Business Insight / Journal Report today explains how major companies use Web 2.0 approaches to connect with consumers. (It also offers a brief over of what Web 2.0 is.)

Business to consumer (B2C) is approximately a one to many relationship. Even with stiff competition among suppliers, consumers outnumber suppliers by several orders of magnitude. The legal market, in contrast, is a business to business market (B2B) characterized by many to many relationships. That is, there are a large number of both suppliers and consumers. Consequently, it is harder for any single law firm supplier to engage its consumers (clients) in Web 2.0 dialogue.

Law firm suppliers and law departments consumers - that does not let you off the hook. Your answer cannot be “I can ignore Web 2.0″. Instead, it must be the question “how can I take advantage of Web 2.0 to improve the service we offer / receive?”

The best answer to that question I’ve seen to date is Legal OnRamp. In its by-invitation model, which limits the community to serious suppliers and consumers, I believe the legal market can replicate many of the benefits the WSJ explains accrue to companies using Web 2.0 to connect to consumers.

The only question is will law firms and law departments 1.0 realize this before law departments and law firms 2.0 take over.

Keyword searching is the e-discovery buzz. It may surprise many legal market professionals that search and keywords is really an old issue. 

Ari Kaplan, in We’re All in the Keyword Business (law.com, 15 Dec 2008), reports on a recent EDD conference. He writes:

“the recurring issue throughout the two-day exposition was the growing importance of search… There were various suggestions for refocusing keyword protocols, which included: (1) using misspellings in your list of search terms; (2) conducting sampling; (3) developing an overall search process; … develop a more sophisticated means of searching, which may include Boolean practices”

All necessary but not new. Or only new to the newbies. Some litigation support professionals grappled with similar issues throughout the 1990s. By 1991, some firms were scanning paper, OCRing, and creating full-text searchable litigation support databases. They had to deal with many of the issues we face today: under- and over-inclusive searches, finding related words, selecting the right conceptual search engine, and techniques such as sampling to perform QC.

Anyone who thinks that learning from history can be useful can have a look at my 1997 PLI outline, Lessons Learned in Litigation Support. Search the page for “search” - you may be surprised how often it occurs. And by the way, this outline describes work that was started in 1990-91 and in production by 1992-93. The money quote - from the introduction - applies equally today:

“Perhaps the greatest lesson is that the human element and human processes are more important than technology in achieving cost-effective results. The best technology does not help unless the litigation team plans for its use and changes the way it works.”

We are facing the worst economic crisis since the Depression. Corporations are slashing budgets. General counsel are under pressure. What are they doing? More of the same. 

Law Department Budget Cuts Could Lead to Change in Outside Firms (The Legal Intelligencer, 12 Dec 2008) reports on a new Altman Weil Flash Survey on Law Department Cost Control.

Reading what GC plan to do, my eyes glaze over (MEGO). I have read about the “solutions” mentioned for two decades. GC seem unwilling to change in meaningful ways how they work or manage outside counsel. Ok, they will adjust the mix of law firms, bring some work back in, and pressure law firm on rates. Wow, how innovative, how dramatic. Not.

Then there are the 12.6% of respondents who “said they would look to cut costs by sending work overseas.” Well, at least a few are willing to try something relatively new. But that’s lower than the almost 50% I mentioned in Future Law Department Spending and Work Pattern Trends. That survey looked 5 years out. I suspect from the tone of the article (and hence survey) that the time frame was only one or two years.

“I can’t risk doing x, it might not work” is the usual refrain. Perhaps today the better question is “Can I risk not trying something new?” And that applies to a host of ways that could save money, for example, legal process outsourcing (LPO), decision trees, establishing best practices, or applying business intelligence to analyzing e-billing data.

What’s the current state of legal outsourcing? Depends on what factors you give the most weight to. Four items came together this week to provide excellent perspective on legal process outsourcing (LPO).  

US Legal Outsourcing $2 billion by 2013. Over at Integreon.com (my employer), I wrote a blog post yesterday, Survey Suggests US LPO Spending of $2 Billion by 2013. Based on a recent survey and “some conservative assumptions, we estimate that U.S. corporate law departments will spend about 3% of their budget on legal outsourcing. This translates to US legal process outsourcing (LPO) spending in 2013 of almost $2 billion.” You can read in gory detail exactly how I derive the market size estimate. I think that represents a very high growth rate.

LPO Doubt Continues. India Work Grows, With Glitches (The National Law Journal, 9 Dec 2008) is a “on the one hand, on the other hand” story. It suggests a growing market and that cost pressures bode well but reports concerns about outsourcing management challenges and ethics. And it focuses a bit heavily in my view on the recent Mumbai attack. Legal outsourcing is about how lawyers can delegate work to appropriate resources, not where. There are many LPO destinations; India happens to be the one getting the most press. In a future post, I will discuss in more detail how the reaction to LPO mirrors legal market adoption of many other new ways in the last two decades.

Cost Pressure is Up - Which Way Does That Cut? At the risk of stating the obvious, the need for cost savings is growing. According the just released (9 Dec 2008) Altman Weil Flash Survey on Law Department Cost Control, “75% of responding General Counsel indicated that their law departments are facing budget cuts averaging 11.5% for 2009. An additional 15.6% reported that their budgets would increase by a smaller percentage than in prior years.” How many ways beyond outsourcing can the typical GC name to do more with less?

Is the Usual Approach Really So Great? The NLJ article and many others report on concern about quality offshore. Yes, lawyers need to perform due diligence on any resource they use. So too should they on the typical contract lawyer approach. Read Down in the Data Mines in the December ABA Journal. This is a sobering first person account of a well-trained lawyer doing doc review. I’ve read other similar accounts. Assuming this is representative (my friends who manage BigLaw reviews suggest it is), how any lawyer can read this and still assume onshore=good and offshore=bad takes logical power and/or facts I lack. Or perhaps they have not visited the well-run, process-driven, spirited, and highly secure review center of a reputable LPO (like the one for which I now work).

Update (11 Dec 2008) Turning to India at break-neck speed by Richard Susskind in the TimesOnline reports on the rise of LPO in the UK, based on an RSG Consulting report. Factoid: 10 of the top 30 firms in England have “outsourced back office functions or legal work to India.”

Updated (13 Dec 2008) Blogger Adam Smith, Esq. writes a very thoughtful, in-depth analysis of the current crisis, “Structural Breaks” and Other Timely Phenomena. He provides a great historical perspective on past crises and the response of government and business. At the end, he draws the lessons law firms can learn; among them:

“Just because you’ve “always” done something, do you need to? … Have you outsourced your cafeteria? (I hope so!) Your mail room and your 401(k) administration? (Ditto.) Your word-processing? (On-deck circle.) Your document review? (Time to think about it.)”

Updated (13 Dec 2008) An older item but a good in depth article on legal outsourcing: Offshoring legal work: do lawyers risk outsourcing themselves? (Law Society Gazette, 27 Nov 2008). This is a nice analytic piece with good examples from UK, especially Eversheds. Hat tip to Mark Ross of LawScribe, who is also quoted in the article

Update (22 Dec 2008) Barrons has a short item, Exported Expertise, Lawyering Long-Distance (22 Dec 2008) quoting one vendor saying LPO growth prospects are hot.

[Hat tips to The Common Scold and complexd at http://twitter.com/wrrobinson for the Altman Weil study and to Legal Blog Watch, The Disturbing Side of Life as a Contract Attorney - a blog post on this article worth reading.]

One of the leading KM professionals in the legal market has changed firms. 

Effective December 1, 2008, Oz Benamram is the Chief Knowledge Officer (CKO) at White & Case, responsible for developing and implementing the systems and processes to capture and share the firm’s collective knowledge throughout the firm.

Previously, Oz led knowledge management for many years at Morrison & Foerster. While at MoFo, Oz oversaw the development of AnswerBase, an advanced approach to KM based on Recommind. (For background on AnswerBase, see the article I helped Oz write, Lawyers As Shoppers – It’s All About Finding Information). He also was active in KM professional events and conferences. Tanisha Little, MoFo’s Knowledge Exchange Attorney, will lead the KM Department after Oz’s departure.

I am sure I speak for the entire legal KM community in wishing Oz the best in his new job. We hope he continues to innovate and remain as active professionally.

Another day, another survey, this one of law departments. American Lawyer Magazine, Legal Onramp, and law department consultant Rees Morrison produced an interesting, forward-looking survey. 

The Change Agenda: Looking Ahead (American Lawyer Magazine, Dec 2008) reports on a survey written and analyzed by Rees Morrison and AmLaw editor Aric Press, conducted on the professional social network, Legal Onramp.

Below I present a few of its findings - in graphic format - that I found most interesting, along with my comments. My interpretation differs from Morrison’s and Press’. About 65 inhousers at companies with revenues of at least $1 billion responded to these questions. All questions focus on changes expected over the next five years.

Spending Changes: LPO and Value Billing
I found interesting juxtapostions in the answers to two questions:

• “Between 2008 and 2013, ___% of our law department’s spending on outside counsel will shift from hourly (whether flat sic or discounted) fees to some form of “value” billing”. [I thought flat fee is value billing]
• “Between 2008 and 2013, ___% of our law department’s spending will move to lower cost offshore service providers, whether directly or as a subcontractor to our in-country law firms.”

As the graphs below show, almost half the respondents expect spending on legal process outsourcing (LPO) to increase. In contrast, almost 85% expect a bigger move to value billing. Given that I’ve heard endless discussion about value billing since I entered the profession in 1989, the gap between 50 and 85 is less than I would have expected.

In the tech world, there have been multiple years that were “the year of [fill in the new technology]”. But eventually the new technology did become pervasive. In contrast, in the legal market, it seems every year has been “the year of value billing”.

Legal outsourcing has only be around and in the legal discourse for 3 to 4 years. So that almost half expect to increase spending on LPO suggests it’s a trend with traction.

Legal Technology and EDD
The questions here were

• Our department will increase spending on legal automation (software and process)
• With various changes we expect, e-discovery spending will

That one-third of respondents expect to increase legal automation spending by more than 50% is a very positive development. That only one-fifth expect EDD spending to increase by more than 50% represents, in my view, undue optimism about the profession’s effort to get control over this beast. [Note that Morrison and Press interpret the dollars as nominal rather than real; that’s not how I read the results cited nor the survey as it appeared at LOR.]

Working Virtually
The question here was “By 2013, telecommuting in our department will be at a greater/equal/lesser level relative to today.” It’s a bit hard to know how to interpret the data given the available responses, but I was amazed that 60% think it will increase. When I bring up working virtually (that is, telecommuting) with lawyers, I usually see pained looks and incredulity. Maybe the recent energy price spike had a positive impact?

American Lawyer magazine published in its December issue a survey of law firm leaders. Some interesting results on legal process outsourcing (LPO) and client interviews. 

For AmLaw’s take on their own survey, read Annual Survey Shows Law Firm Leaders Wary but Confident. I found two question in the underlying survey at Law Firm Leaders Survey 2008 of particular interest.

Legal Process Outsourcing (LPO). Asked “Over the next ten years, do you think your firm will outsource more of its legal work to lower-cost jurisdictions either offshore or within the U.S.?” 38% said yes and 62% no. Given some of the prior BigLaw partner comments about LPO, I am pleasantly surprised that the 1/3 of firms expect to outsource.

Client Relations Asked “In the last 12 months, how many of the firm’s 20 top billing clients have you met with to discuss the client’s satisfaction with your firm’s performance?” 54% met with fewer than five clients. Only 18% met with more than half. With the plethora of articles about the importance of client feedback over the last 15 years, I am shocked by these results.

Perhaps if firms engaged their clients more, they would decide to outsource as a way to deliver higher value. Of course, the fact that the clients don’t insist on meeting with their outside counsel to discuss the relationship supports my view that buyers are meek and unwilling to exercise their market power.

One reason legal costs are high is that the customers - general counsels - are cut of the same cloth as their BigLaw suppliers. I’ve predicted that CFOs would need to step in to wrestle control of legal costs (see, e.g., Who’s Failing – Clients or Law Firms?, Aug 2006) . Now, some evidence for that. 

Trials and Tabulations (CFO Magazine, 1 Dec 2008) is sub-titled “Want to advocate for lower legal fees? A number of new options deserve a hearing.” This article is a good first step for CFOs who want to understand how best to control legal costs. Options discussed include:

• Keeping more work inhouse
• Shifting work from BigLaw to smaller and regional law firms
• Re-using documents ("knowledge management” unsaid)
• Fixed fees and alternative billing (including performance bonuses)
• Volume discounts
• Competitive bidding
• Offshoring (legal process outsourcing)

I’m disappointed this list stops there. As I discussed last month in Law Department Operations Survey Shows GC Apply Limited Cost Saving Tools, there is way too much focus on pricing, purchasing, and payment terms and not nearly enough on process, that is, how lawyers actually do their work. Corporations have inserted themselves deeply into the practice of medicine to save money - how much longer before they do the same to lawyers. Of course, it will have to be the CFO and not GC who does this.

[Side note: the article cites the recent Fulbright litigation study, which found only 2% of companies offshore legal work overall but that 8% of large ones do so. It suggests that McDermott introduced staff attorneys last year “in part as a response to the increasing amount of work competitors were sending off shore."]

In this Roundup: new alternatives to BigLaw, inhouse perspectives, social media challenges, LPO articles, and BigLaw blogging. 

Managing Legal Costs: Focus on Process, Not Price
Jordan Furlong, in Decoupling price from cost in legal services, provides examples of the growing alternatives to BigLaw. He also expands on an idea I recently raised, the need to focus more on how lawyers do their work and less on the pricing structure.

The New Inhouse Perspective from Lawyer-Blogger Doug Cornelius
Lawyer-blogger Doug Cornelius recently left BigLaw for an inhouse compliance position. He now offers interesting posts from his new inhouse perspective. One reports on the benefits of Legal Onramp ; the other examines how law firms can better manage newsletters as a way to stay close to clients and prospects.

Challenges of Social Networking
Lawyer-blogger Mary Abraham writes in Sending Out an SOS about the challenges of keeping up with Linkedin, Twitter, Facebook, and other social media. I share this concern and wonder where we will be with social media in 3 years. Right now, SM is an add-on for me that consumes more time. Maybe others have been able to weave it into their daily lives so that it adds value without consuming more time. [The post title presumably refers to the Police song, but is it the sense of loneliness or the 100 billion messages??]

Legal Process Outsourcing
An Outpost In India Serving DuPont Legal (The Metropolitan Corporate Counsel, Nov 2008) reports on DuPont’s use of legal offshoring.
Separately, With Times Tight, Even Lawyers Get Outsourced (Wall Street Journal, 26 Nov 2008) reports on the growth of legal process outsourcing in India: “As the ailing U.S. economy prompts companies to cut costs, it also has spawned legal problems. As a result, clients are pressuring the law firms they hire to trim fees. That means more routine work like legal research, due diligence and document review is being done in India at roughly half the cost as in the U.S., outsourcers say.”

WilmerHale Launches Four Career / Recruiting Blogs
I’ve frequently extolled the virtues of large law firm blogs for marketing (i.e., establishing expertise). WilmerHale is now using blogs for recruiting, with four associates blogging at WilmerHaleCareers. (Hat tip to KM Space.)