Strategic Legal Technology

Will the legal market crash lead to a legal technology resurgence? I suggested so in my post January post Economist Magazine: Expect Profound Structural Shift in Legal Market. Two recent articles show how law firms add value with technology. Whether this is a new trend, however, remains to be seen. 

Intelligent Documents Controlling Legal Costs - Law Firms Capture: Expediting Outsourcing And Saving Legal Costs, an interview Alexander Hamilton, Partner in the London office of Latham & Watkins LLP (Metropolitan Corporate Counsel, ["MCC"] 1 Feb 2010) describes a sophtisticated intelligent document approach to managing complex outsourcing deals.

In big IT, HR, finance, procurement, and other outsourcing deals, it’s a lot of work to define services, performance standards, pricing models, and governance models. Rather than simply rely on a prior similar deal document, Latham’s “Capture” system is an interactive document that the client completes to specify key deal attributes. Based on what I call intelligent intake, Capture delivers “a first set of documents that is much closer to the final document and is much better structured because they are drafted with a good understanding of what the client wants, speeding up the process and saving costs for the client.” This halves the time of this phase of the deal and allows Latham to quote a fixed price for it. Further, it lets the deal team focus on the important elements that really need attention instead of distracting details.

Latham is not using a document assembly program such as Hot Docs or Deal Builder. Instead, the firm built Capture in recently available functionality in Acrobat PDFs, specifically, the ability to incorporate if-then reasoning to support an intelligent information collection process. “As the client answers a question, other relevant questions automatically follow.”

The firm has a suite of documents for outsourcing and is building others for M&A deals and other practice areas. A decade ago I worked for an expert system software company. My experience there made clear that the challenge in building interactive legal advisory systems is not the technology; rather it is capturing the legal know-how ("knowledge engineering"). Only a few large firms have built intelligent systems.

The key market question is whether Capture is another “occasional” example of an intelligent system or whether it reflects that even the largest and bluest chip firms now see the value of investing to create truly interactive know-how systems. The economics of law practice today may be more favorable than a decade ago for investing to build smart systems that reduce client costs.

E-Discovery Smarts. In the same issue of MCC magazine, Controlling Legal Costs - Law Firms King & Spalding’s Discovery Center Under Senior Litigation Oversight Produces E-Discovery Savings interviews three partners behind the firm’s large e-discovery operation. The firm has built a large e-discovery practice and processing capability over the last 15 years. Today, “the Discovery Center houses 150 discovery professionals, including 125 attorneys, focused exclusively on providing high-quality, cost-efficient document services both in litigation and in transactional matters.”

This center “follows protocols.. [uses] advanced screening methods to reduce the number of collected records that ultimately require attorney review for production… and [has] developed the most efficient procedures for drafting responses to written discovery requests for entire dockets of
cases with a computer tool that catalogues and indexes approved responses and objections by subject matter…”

E-discovery professionals have recently debated in articles, conferences, and blogs whether to insource or outsource e-discovery. K&S cleary has decided on the former and the prior quote suggests some document assembly capabilities as well. What I find interesting is that the firm is now using this long-standing capability to differentiate itself and position itself as offering higher value.

Can We Draw Conclusions. I wish that I could say two points form a line and that these examples reflect a new round of legal technology. And indeed they may though we will not know for some time. Clients say they want better value from firms. (Whether they spend their budgets wisely to achieve this is still, in my view, and open question.) Firms do not have that many options to provide higher value. Typically it requires some mix of improved process, sophisticated technology, project management, and smarter staffing. Assuming the new normal is flat, which is my expectation, then firms may find to maintain and gain share, they will need to compete with technology.

With all the legal process outsourcing (LPO) news last week, law firms should consider their LPO strategy, including if they need to have one. 

My post last week, LPO Update: Microsoft, Rio Tinto, New LPO Ethics Article, Deals, reviewed recent LPO developments: Microsoft announced legal outsourcing, Leah Cooper of Rio Tinto moved to CPA Global, a new ethics articles was published, and two LPOs announced big deals.

With all the news about LPO, do US and UK law firms need a strategy or position on legal outsourcing? That’s the question I address in my 20 Feb 2010 article, Law Firms Now Outsourcers?, at LLRX.com. I examine a recent outsourcing announcement by Eversheds and a recent LPO article by Mayer Brown lawyers.

I conclude that “clients want lower legal costs and it’s clear that shifting work location and improving processes achieve that result…. Clients should be happy that they have a choice of providers.” In my view, that means firms should at least be receptive to working with legal outsourcers. I think US and UK firms are still working on their LPO strategies - or at least clients should hope so.

Legal process outsourcing is in the news again this week. For those whose eyes are not glued to Twitter, I thought it would be helpful to re-cap several unrelated events this week. 

First, on Monday, Leah Cooper, formerly inhouse counsel at Rio Tinto and avid LPO promoter, has changed hats. She now works for legal process outsourcer CPA Global. In 2009, I blogged about Rio Tinto outsourcing several times. Legal Week reported (on 15 Feb 2010) that Rio Tinto legal chief [Leah Cooper] quits for new role at outsourcing partner CPA.

Today, Legal Week reports that Microsoft outsources legal work to India with CPA Global deal. The article explains that “A team of between three and five qualified lawyers at CPA are handling multi-jurisdictional legal support work, including legal research, for Microsoft.” Not many US companies have gone public with using an LPO, so this is noteworthy.

Also of interest in this article: “In a separate move, CPA is set to launch an outsourcing centre in the UK. The centre, which will take on low-level legal tasks, will add to the company’s onshore outsourcing operations in the US.” I have frequently written that LPO is not the same as offshoring. As more LPOs develop US and UK domestic facilities, the legal market will, I hope, internalize this distinction.

Both these articles generated a lot of blog and Twitter buzz, as well as articles in main stream legal media. Here is a partial list of commentary I found interesting:

• Big Changes in Legal Outsourcing by practicing lawyer Simon Chester at slaw.ca
• Is Legal Offshoring Slowly Making Its Way Back “On Shore?” by blogger and EDD lawyer Gabe Acevedo
• Clients Focus on Process; Law Firms on Profits? by former inhouse lawyer, consultant, and blogger John Wallbillich

As outsourcing gain traction, some lawyers will undoubtedly raise questions about the ethics of outsourcing. To their rescue comes an in-depth article published on Feb 14, 2010. Ethics of Legal Outsourcing White Paper by my colleague Mark Ross at LLRX.com is the most comprehensive discussion of the ethics of legal outsourcing I recall seeing.

Deal making in LPO has also been in the news. My day-job company, Integreon, a knowledge process outsourcer (KPO) and legal process outsourcer, announced this week that it had raised $50 million in new capital (press release). And a couple of weeks ago, CPA Global announced that Intermediate Capital Group (“ICG”), a leading independent investor and fund manager, announces that it has acquired a significant minority stake in legal services firm CPA Global.

With all this news, LPO is beginning to feel like e-discovery in its heyday.

Update 19 Feb 2010: News begets editorials: Legal Week published today
Editor’s comment: Passage to India. Discussing the Microsoft outsourcing deal, the editors write “When a law firm does it, heads are turned - but when a company does it, people really sit up and take notice…. If firms aren’t coming up with [cost-cutting] solutions then clearly a client will.”

What’s hot in legal knowledge management? What would KM managers not do again? And what legal KM topics are of most interest now? US, UK, and Canadian large law firm KM professionals answered these
questions in a recent survey. 

In advance of of a private KM meeting of about 50 people, the organizers ask three questions:
1. What’s hot or tough?
2. What would you not do again?
3. What would you most like to hear from your peers?

Each respondent wrote a completely free-form text answer. To help guide a session in which we discussed answers, a meeting co-organizer and I subjectively categorized answers to provide a “directional sense” of the group’s views. Below are summary tables for each question. (Totals may not be identical because not all people answer all questions and because some people provided both a “hot” and “tough” answer.)

Trend Analysis
We have asked similar questions for a few years. In an even more subjective assessment, a co-organizer and I also put together a list that represents our thinking of how answers have changed over time. Changes in level of interest do not necessarily equate to to changes in level of activity. Answers simply reflect what participants want to discuss.

Dropping in Interest
Social Media
Enterprise search
Things 2.0
Experience location
Precedents

Rising in Interest
Alternative Fee Arrangements
Project and process management

Staying Level in Interest
Content and software challenges
KM organization, budget, alignment, and change management

Recently I learned via a Wilson Sonsini Goodrich & Rosati (WSGR) Tweet (@wilsonsonsini), that the firm had launched On-Demand Learning Resource to Help In-House Attorneys Keep Current and Earn MCLE Credit. I think the firm has done a very nice job with this initiative. 

The Technology

WSGR is using an on-demand learning (ODL) platform from Altus, Inc.. I have not kept up on ODL platforms but I like this interface. A main page presents the available classes. Clicking through to a class presents a page with the class (each about one hour) broken down by sub-topic. Each sub-topic ties to a slide in a presentation. Mouse-over the topic displays a pop-up of the presentation page.

Once you click a link, the system opens a new window with the Flash audio-visual player. It displays good quality video of the speaker, a topic list, the current presentation slide, and an option to view the written transcript. The transcript is keyed to the audio of the presentation and whatever the speaker is currently saying is highlighted (a nice plus for the hearing impaired). Transcripts are searchable. For those who want to listen or view on the go, MP3 and MP4 are available for viewing on players such as iPod.

For more information about the system, see Just-in-Time Training: On-Demand Learning Platform Drives Firm’s Success in Legal Management magazine by Larry Brown, WSGR Senior Manager, Training & Professional Development, published by the ALA (May 2009, PDF from the ALA website).

Content and Clients

To learn more about this, I spoke to Larry and his colleague Chris Boyd, WSGR Senior Director of Professional Services. They explained that while many firms offer live CLE or real-time webinars, they were not aware of many firms offering clients pre-recorded, on-demand CLE. Given the firm’s internal success with this approach, WSGR wanted to offer additional value to its clients and friends.

Chris and I know that one of the big challenges knowledge managers face is creating content and keeping it fresh (see our article Getting the Most “K” for the Least “M": Baking KM into the System, published in the June 2006 ILTA white paper). Because the firm regularly produces CLE for its own lawyers, content creation is not an issue. And, as it turns out, the firm was videoing its CLE programs anyway, though the Altus format requires some marginal cost to produce.

Chris and Larry report that client response has been positive. That does not surprise me. Inhouse counsel are clamoring for more value. And many for CLE credits. So it makes sense that they would want to take advantage of WSGR’s new service.

This is a live post from a private large law firm knowledge management meeting. This session, Change and the Growing Importance of KM, was also presented at the just completed CIO conference held in connection with Legal Tech. 

The Actors:
Oz Benamram, White & Case
Michael Mills, Kraft Kennedy, formerly of Davis Polk
Brent Miller, Cleary Gottlieb
Jeff Rovner, O’Melveny

Act 1: It’s a Mad, Mad World - Challenge to the Way We Used to Print Money

Abbreviated - we all know that the printing press is not working the way it used. Rates can’t keep going up. Profits likely to remain flat. Realization is down. Alternative Billing is expected to grow. Still a gap in surveys of GC v law firms. Former expect more than latter but e-billing folks say it is actually still only 5%. Hildebrandt says billable hour is not dead but is shrinking in importance.

Act 2: The Devil Wears Business Casual - The Impact of Millennials on Legal IT and KM

Baby boomers: Born 1946-64
Gen Xers - born 1965-79
Millennial or Gen Y - born post 1980

Millennial Attitutes:
- Prefer smaller ogganizations
- Look f or’good’ employers
- Skeptical and question rhetoric
- Not as focused on work

Millennial Learning Styles:
- Networks, teams, searms (leaderless)
- Multimedia / tech savvy. Intuitive. But can’t drive a stick shift.
- Engaging / stimulating methods
- Strategy guidesand visualization, not throughg experts and bosses
- Segmentation - stick ‘newbies’ together, let the ‘gamers’ advance at different rates
- Failure is ok
- Want to be included
- Want constant feedback

Audience Comments:
- Military is using games to teach but CLE certification would not allow games.
- Meritocracy replaces bureaucracy
- Those who go into law may self-select to be more like boomers
- As Millennials gain work eperience, they may become more like older generations
- Millennials want KM check lists and guides because they are used to getting instructions
- Information sharing is part of their culture (think Facebook and Twitter) so they support KM; but they won’t pick up the phone and talk

Millenial Associates
- Higher attrition (even before lay offs)
- Less committed to partner track
- Tend ot communicate online instead of in-person
- Expect greater work flexibility and options to work remotely
- Fewer boundaries between work and home

Law Firm Economic Implications
- Traditional motivators less important
- Training more important
- Rise of alternative career paths
- Demise of time-based billing likely a positive

Law Firm Technoloy Implications
- Comfort with social media mean firms need to adapt. For example, think social tagging and additional communication and collaboration channels
- Constant connectivity
- Reduced toleratnce for hierarchy
- Expect coll interfaces. Without a good user interface (UI), your app is dead
- Want more tools and toys (multiple monitors, gadgets, options)
- IT and KM may have to allow work outtside firewall and outside of firm-controlled content
- Rethink training / planning: this gen may be more tech savvy than the trainers

Knowledge Grid in Millennial Era
- Tacit to Tacit (Socialization): online networking and teaming
- Tacit to Explicit (Externalization): tagging, crowd sourcing, auto categorization
- Explicit to Tacit (Internalization): search based precedent, reliance on wikis, blogs and other unapproved resources
- Explicit to Explicit (Rationalization): smart search; page-oriented; personaolzied and small gorup data management, Web 3.0

Audience Comments:
- Millennials attuned to how advertisers are collecting behavioral data. Watch the advertiser to learn how to bring info needed when it’s needed.

Act 3: Fixed Fees Magic - Change to the Way Law Firms Deliver Legal Services

The Grim Reality
- Business model is in peril
- Imagine a law firm that does one litigation matter in a year, for which it gets $100
- Assume 40% margin on this. $60 is salary and other costs
- Realization has fallen so what used to be $100 is now $85
. Clients getting discounts
. Auditors chopping bills
. Clients refuse to pay for junior associates
- Now, assume revenue base is $85 >> that means profits go from $40 to $25 (absent changing cost base)
. That means margin drops by more than one-third
- So firms have tried to lower cost. But this is hard to do quickly
. Firms have cut lawyers and staff and outsourced but the model has not really changed
. How can firms lower cost base without further cuts
- Reduce admin costs
. Can firms cut these further after 2009? Seem unlikely
- So firms need to think how to reduce the cost of delivering legal services
. Perform tasks in less time
. Perform work with lower-cost personnel
. Reduce low-value effort that gets written off
. But firms need to profit from improved efficiency
- For law firms, fixed fees are better than discounts
. With fixed fee and efficiency, firms can maintain margin
. With discounts, impossible to maintain margins

How can law firms improve efficiency? Consider Orrick’s fixed fee deal with Levi-Strauss. Doesn’t Orrick have an incentive to be more efficient?

Challenges to efficiency
- Many lateral partners, each trained differently
- Lots of litigation teams, each with its own ‘way’ (vendors, processes, resource mix)
- Each associate plays for multiple teams, so can’t learn to be efficient

Efficiency Requires
- Firm-wide model to conduct litigation
- A common and efficient tech platform
- Ease of adopting new tech and process
- Substantial saving to pass along to clients

Ways to Improve Efficiency
- Adopt a production-lline mentality
- There is more to learn from manufacturing than service businesses think
- How would we litigate if we were starting from scratch
- Example: invention of mutual funds to simplify building diverse portfolios without high transaction ccosts

My firm gets a lot of pitches from outsourcers for administrative work. It’s not that they are smarter or better. But they’re willing to follow processes, and we’re often challenged to do that consistently.

Deconstruct the current Litigation Approach
- What does a firm produce? How can you produce the truly necessary components more effectively?
- Use tech to streamline processes
- Litigation consists of many sub-processes or modules
- Subject each sub-process to a best-practice analysis
- Replace sub-processes with cheaper or better ones as developed
- Outsource or insource sub-processes as competitive pressure dictates
- Each sub-process dictates personnel needs.

Fixed fees are a way to lock-in revenue as you improve the overall process.
- Firms may need tools to support fixed fee analysis
- Baker Robbins is developing a good tool

Act 4: The End of Lawyers? - The Efficiency Game

Where do we find places in our practices to improve efficiencies?
Consider replacing KM with “practice engineering”
Richard Susskind looks across practices to to find areas where lawyers can practice more efficiently
Lawyers in large firms believe all they do is bespoke but most is actually not
Even in a truly one-off deal, many elements can be systematized
. No matter what the deal, if big, there will be many routine filings and processes
Susskind model:
One-off > Standardized > Systematized > Packaged >|> Commoditized

Truly one-off work starts with a blank piece of paper. So, in theory, all a lawyer needs is a word processor.
But in fact, most practice relies on either standard forms or prior similar documents
Where there are enough similar deals, firms can develop check-lists, some automated
Lawyers can go still further with document assembly to automate commonly used forms
Davis Polk Netting system is example packaging expertise for delivery online

Efficiency Tools
- Enterprise search
- matter info and analytics across life cycle
- Project management tools
- Auto-categorization and entity extraction
- Communications and collaboration
- Cloud computing (possibly the client’s cloud)
- Social media, transparency,
- Doc automation

This is a live report from Legal Tech NYC on the session E-Discovery - Considerations for In-Sourcing and Outsourcing. 

The panelists:
Marilyn Caldwell - Director of Practice Support, Lowenstein Sandler
Michelangelo Troisi - Senior Counsel and Director of Risk Managment, Samsung Electronics America
Scott Cohen - Proskauer
Craig Ball - Consultant and court-appointed Special Master for EDD

Introduction. Most everyone is already outsourcing at least some EDD work, so this panel is focused on considerations for bringing work back inhouse. A recent poll of inhouse counsel found that 3/4 said law firms are not doing enough to respond to cost pressures, especially on EDD. The volume of ESI keeps growing, so the problem is not going away. And ESI is becoming more complex with the advent of new media such as Facebook and Twitter.

The law is now clear - companies have a duty to preserve records. Doing this poorly, without expert advice, can lead to problems. So for organizations taking EDD inhouse, how do you make sure you meet your obligations?

“The reality of e-discovery is it starts off as the responsibility of those who don’t understand the technology and ends up the responsibility of those who don’t understand the law” - Craig Ball

Identification and Preservation. Craig discusses the EDRM reference model. Prime candidates for insourcing are RM, identification, preservation, collection, and processing. Questions latest Judge Scheindlin Pension Committee decision, suggesting that custodians must be involved in preserving records. Custodians need to be involved but that is not enough. Mike says that it is not practical, at outset of litigation, to immediately go out in the corporation and interview all the custodians. Samsung sends out notices to employees. He says that this ends up in over-preserving. Talking to custodian to determine relevance just takes a lot of time. Custodians preserving their own docs is really the only practical solution. But acknowledges that not all employees read all notices.

Craig suggests some institutional / enterprise steps to help ensure preservation. For example, before sending out preservation notice, create and save back-ups of key systems such as an Exchange. Samsung does this with Exchange and Enterprise Value (again, he says, this results in over-preservation).

Collection. As lawyers and legal staff acquire skill, they will be able competently collect data. But today, lawyers deal with intermediaries. Craig argues that lawyers need to be closer to the data earlier in the case than is currently the case. Marilyn points out that lawyers are nervous about collection because they are aware that they may change the data. So some debate over whether collection is merely ministerial. Craig: why didn’t these lawyers know the answer to the data change issue. Marilyn: IT staff knew meta data needs to be preserved but business people think only about document content. This leads to a discussion of what credentials or training is required to collect data appropriately. Craig points out that there are no readily available certifications / training for lawyers. He says he could teach most lawyers in 2 to 3 days. But he is not aware of any courses. And he’s not sure how many lawyers would sit for such a course. Craig: in all the time lawyers spend rationalizing why they can’t or shouldn’t learn this, they could actually learn it. [Editor note: reminds me of mainframe computer days, when I sat though meetings where glass box IT staff spent hours explaining why data I needed was impossible to get instead of spending that time writing code to get it.]

Scott: many tools purport to help with collections. But you first have to understand requirements. Once you understand the legal requirements, then you can match up with actual capabilities of tools. Emphasize actual, meaning having tested the tool and not relying only on vendor representation.

Craig: bring as much as you can inhouse so that corporation can competently and defensibly reduce data volumes. This will yield smaller data set that gets turned over to vendor for processing and that needs review. A show of hands: many companies have hired vendors to forensically collect data. Craig thinks that with one competent and properly trained inhouse person, this is not necessary. Marilyn counters that you need someone who can testify appropriately and this may not be the typical inhouse IT person. Craig responds that if the collection is competent, the likelihood of having to testify is very low.

For companies outsourcing some of their IT infrastructure, they need to consider the real total cost of ownership, which includes the cost of collection and preservation.

Audience question: Should law firms offert IT training to clients? Scott would be more comfortable pointing clients to appropriate third parties. Marilyn would also turn to 3rd party vendors.

Steps for Insourcing - Corporate Perspective. (presented by Mike)

Questions :
1. Do steps comply with law?
2. Do you have the right processes?
3. Do you have an action plan for when litigation arises?
4. Has the action plan been tested and used?
5. Is the process defensible? Has counsel signed off on the plan?
6. Is the process repeatable? Does it work for all or at least most cases?
7. Who owns and manages the process and plan?

Forming an internal EDD team:
1. Is it cross-functional?
2. Who leads the team?
3. Does the the team have the necessary resources?
4. Is IT fully involved and committed?
5. Is the team truly cross-functional?
6. Which department manages ESI? (At Samsung, law department manages ESI. Company pays IT for support it needs.)

Technology:
1. How can tech help the process and people work better?
2. Is the tech modular or upgradeable?
3. Will the vendor continue to suppor the tech?
4. Can the company survive without the solution?
5. Can the company live with the tech becoming obsolete?

Steps for Insourcing - Law Frim Perspective. (presented by Marilyn)

Evaluate and Plan
- Need personnel with right expertise, technical and consulting
. Keep in mind that training is a continuous process
- Need the right hardware and software
. Is your system scalable
. Does your tool have the right feature set
. When there are problems, what do you do?
- Determine admin requirements
. Keep track of what you have done and who did it
. Record action in case challenged in court
- Assess risk
. What happens when something goes wrong?
. Will the firm accept this risk?
- ROI
. There are a lot of moving parts - is the firm ready for all these costs?

SWOT analysis
Strengths
- Flexibility, efficiency, deeper understanding, transparency, control
Opportunities
- Cohesive work with case teams
- Integrate tech efficiencies into work flows
- Expand knowledge
Weaknesses
- Limited exposure to varying data types
- Staffing constraints
Threats
- Difficult to decline work once you’ve started
- Scaling up
- Data volumes growing
- Software bugs

Considerations for In Sourcing
Do you have the people?
Do they hae the time, expertise, and interest?
Do you have the budget?
Can you monetize?
Do you have the right tools and infrastructure?
Can you stay current with tools, with the right training, and keeping methods current
Are you lawyers willing to be looped in?
When in doubt, farm it out