Strategic Legal Technology

Mary Abraham’s recent blog post Librarians vs Knowledge Managers? created a bit of controversy over the role of both. At the risk of adding fuel to the fire… 

In her post, Mary reports and comments on librarian Morgan Wilson’s post reflection on KM and libraries in law firms. He suggested that it’s not good when libraries report to KM. Mary assesses this suggestion and concludes “perhaps the battles (real or perceived) between librarians and knowledge managers are really the death throes of an obsolete system”.

Nina Platt commented at length in Musings on the Librarian’s Role in Knowledge Management in Law Firms. Mary in turn wrote Catalog Content Not People, in which she gracefully synthesizes and reconciles potentially opposing perspectives on the role of KM “versus” library.

My own observation is that KM began some time ago to morph into a broader practice consulting role in many firms, which I first suggested almost five years ago in KM Morphing? (I returned to this theme in many subsequent posts). That trend continues. Today, many KM professionals focus on alternative fee arrangements, e-discovery, project management, process mapping, and business analysis.

To the extent that there is any tension between KM and library - and I’m not persuaded there is - I think it will diminish over time. So I agree with Mary’s “death throes” comment, though I mean that in a positive not negative way. My guess is that in a decade, BigLaw will have more clearly defined business process experts and analysts and a range of practice support professionals. Some of the them will do KM and library work; some will be KM professionals or librarians. But I’m with Mary in her view that we need “assign the right people to the task based on their talent, experience, temperament and inclination.”

That said, one of the themes in the referenced posts is the caste system. It is alive and well, which is truly unfortunate. My hope is that one of the silver linings of the economic challenges law firms face today is that the pressure will help break down the caste mentality. Hope springs eternal.

This week I read an excellent analysis of BigLaw financial performance. I share it here and add a few comments.  

My friend Steve Nelson of The McCormick Group, an executive search firm with a big legal practice, is an astute observer of the legal market. He was previously a practicing lawyer and editor of the Legal Times. With his permission, I reproduce here an e-mail report that he sent on 22 April 2010 titled “TMG’s Take…on 2009’s Financial Results":

“Individual reports on law firm performance for 2009—which many observers regard as a watershed year for the legal industry—continue to trickle in. A perusal of those reports reveals some interesting trends:

1. It’s clear that law firms did a pretty good job of controlling costs during 2009. While total revenues declined for most firms (60 percent in our sample of 85 firms), the profit picture was decidedly different, as 58.5 percent of the firms reported an increase in profit per partner during 2009, and another 6.1 percent came out even. Those results contrast to 2008, where the sudden collapse of the economy caught many by surprise. That year, more than 70 percent of the firms reported increases in revenue, but just over 40 percent saw profits increase.

2. Law firms performed well in comparison to their largest clients in 2009. Overall, the law firms in our sample reported a 2.5 percent decrease in revenues, compared to a 7.3 percent decrease in revenues among the Fortune 100. The difference in profits was much more dramatic, with the law firms reporting a 2 percent increase, as opposed to a 56.2 decrease in profits among the Fortune 100 (This, of course, is a double-edged sword for law firms, as corporate clients may use these statistics to further hammer the firms on rates and value). [emphasis added]

3. Contrary to what was predicted by many observers a year ago, the elite Wall Street firms did pretty well in 2009. Cravath, Cahill Gordon, Sullivan & Cromwell and Simpson Thacher all reported increases in both revenue and profits in 2009, while Cleary Gottlieb came out even in both categories. Beyond that, there were few discernible trends based on size or geography, although firms with less than $300 million in revenues tended to do somewhat better than their larger counterparts.

4. Despite the two rough years, 14 firms were able to report increases in both 2008 and 2009. While some of those were among the larger firms in the country (such as Weil Gotshal, Bingham McCutchen and K&L Gates), there were many smaller firms included in the list, including two that are essentially one-city firms (Wiley Rein and Irell & Manella). So there was no pat formula for success over the past two years. On the other hand, only seven firms reported two consecutive down years in both revenues and profits.”

Steve has an Excel file with detailed results that he will share by request to snelson at tmg-dc dot com. Now my own comments….

I highlighted Steve’s point in #2 about the divergence between law firm and corporate profits. With purchasing professionals more and more involved in acquiring legal services, I agree with his observation that this could make future negotiations more difficult. In #4, Steve notes that there is no pat formula. I agree and venture a guess that these data show that law firms are differentiating. Using the detailed Excel file, I found the results intriguing:

Comparison of 2008 to 2009 Change in Revenue and Change in Profit (numbers of firms)

I’m not sure what to make of this quadrant analysis without looking specifically at each firm. I suspect the different outcomes, especially for those firms that suffered a revenue decline, reflect differing appetites for cost cutting. If so, it would be interesting to see if the firms that (more) willingly accepted a drop in profits prosper more in the long term because they retained talent, preserved their culture, or both.

I wish I could believe that some firms decided to use the downturn to invest in legal tech - deciding to let profits drop - while their peers were down, hoping to gain a competitive advantage when the upturn comes. Hope springs eternal but that seems unlikely. I’d love to be corrected!

Here’s a thought experiment designed to think about knowledge management, open source law, and the process of law practice. The goal is to identify one way lawyers might save time and money and deliver more value to clients. 

In a thought experiment, we can throw away constraints. So assume that confidentiality, privilege, and competitive issues matter not, that law departments contributed a significant portion of work product - generated internally or by outside counsel - to a common pool ("The Corpus"), and that lawyers had software that allowed easy and effective searches of the Corpus.

The experiment’s goal is to to learn if lawyer efficiency would increase with access to the Corpus. The metric is the time lawyers would save (the “Savings") versus not having access to The Corpus. What are some possible findings?

If the Savings were quite low (say under 15%) we might conclude that most of what lawyers do is “one off”. So we might agitate to simplify the world, trying to figure out whether the complexity stems from clients who demand more than they really need, lawyers who do more than need to, or from laws that are too complex.

If the Savings were quite high (say more than 65%), we might conclude that corporate counsel should find a way to share more. Or would it? We would need to answer another question first: just how big a Corpus is necessary to achieve the Savings? Large law departments already have, at least in our thought experiment, easy access to a big corpus of their own documents. It may turn out that this subset of the Corpus provides most of the benefit (the 80-20 rule). If true, then we would want to invest more in KM. If not true, then we might have the impetus to find ways to share more, to create a bigger body of open source law. It might then pay to consider ways to relax some of the practical constraints such as privilege and confidentiality. As for mechanisms for sharing, several possibilities already come to mind: ACC, General Counsel Roundtable, or Legal OnRamp.

If the Savings were somewhere in the middle (say 20% to 60%), we might decide to re-run the experiment on less than all of law. For example, we could look at just asset purchases or just employment agreements? Looking at “smaller slices” might identify areas where more sharing would be hugely beneficial because few organizations individually achieve critical substantive mass or because everyone does it but there is too much variation not driven by business requirements. The outcome might be focused efforts to share particular types of documents.

Conducting this experiment, I’ll state one definite conclusion: we lack sufficient data to begin to estimate the Savings. And this is a problem. In the Value Challenge age, the legal market needs a better sense of how its processes work, what really drives work effort, and how to save time.

Some end notes:
- You can learn more about thought experiments at Wikipedia.
- I was prompted to think about open source law by spending more time with Kiiac, which has tools to analyze collections of transactional documents, and by reading about Series Seed a website by a Fenwick & West lawyer that offers open source law documents for start-ups.
- I have previously written about open source law; not to be confused with the law of open source code.
- I have focused, implicitly, on business to business law (Big Law). Open Source Law raises an equally interesting set of questions for consumer law.
- I welcome comments on the thought experiment. Better yet, I welcome someone to re-run the thought experiment and see if they reach different outcomes.

Update (April 20, 2010): Fellow blogger and contract drafting expert Ken Adams has an excellent commentary on the above at his post Open Source Law and Contract Drafting—A Dead Skunk in the Middle of the Road. Plus see the one comment as of this update. I’ll see if there is more reaction before weighing in again.

Update (April 21, 2010): Fellow blogger, KMer, and contract analysis expert Kingsley Martin of Kiiac has chimed in on this discussion at Open Source—A Dose of Tomato Juice. Ken’s thesis is that a lot of language in Corpus is bad, so don’t copy; Kingsley’s is that the Corpus can offer important insight into what business terms are important.

Update (April 21, 2010): Ken Adams has updated Open Source Law and Contract Drafting—A Dead Skunk in the Middle of the Road to comment on Kingsley’s post. [Hmmm… what’s the the best platform for this type of dialogue? I’m not persuaded comments to blog is best approach.]

Lawyers who still secretly think technology will go away now need to give up hope. 

Some might think that by now, all lawyers lovingly embrace tech. Not if we judge by the number of litigators who still don’t get e-discovery. But I digress.

Today the New York Times reported that H.P. Sees a Revolution in Memory Chip. Moore’s Law posits that computer processing power doubles every 18 months. What the article tells us, in brief, is that “memristors” are a new way to pack yet more processing power on a chip. So Moore’s Law is not being repealed anytime soon.

For any lawyer who thinks this is not relevant, all I can say is “look around”. Much of what we take for granted today about daily life - communication, media, cars, safe flights, ATMs, ubiquitous credit card retailing, and appliances - depends on the advent of cheap and powerful processors and memory.

It’s not clear yet, however, what that march of technology means for lawyers. Maybe I’m jaded, but it seems the major legal tech advances of late have been pretty much in e-discovery. Not that there’s anything wrong with that. But it is limited.

I continue to believe that now is a good time for legal tech managers. As firms get over the 2009 shell-shock, they are actually differentiating. Some will find new and interesting ways to use tech to deliver more value.

I’m not the only believer. At the recent Georgetown Law conference, I met a VC who plans to invest in a few legal tech start-ups. And let’s not forget two recent marriages of strategy and tech consultants. I don’t think it is a coincidence that Hildebrandt and Baker Robbins merged operations recently (both have been owned by Thomson Reuters for some time) and that Altman Weil this month inked an alliance with Project Leadership Associates (which is long on legal tech).

Dan Safran, Project Leadership Associates’ Executive Vice President, Legal Solutions sums up at InsideLegal my views nicely:

“Key trends like alternative fee arrangements, project management, strategy development along with the right blend of process, organization and technology execution and sophisticated performance benchmarking are creating a need for legal organizations to integrate technology into their strategic operations.”

Now we just have to wait to see how the legal market uses the ever increasing amounts of processing power.

As law firms adjust their strategy to the new normal, they also need to adjust their operations. We may see more staff lay-offs but the time has come to re-think operations, not just cut. Historically, I’ve seen relatively few articles on law firm operations; so I was eager to read Hildebrandt’s recently published The Drive Toward Performance Measurement In Law Firm Administrative Functions. 

Author Kristin Stark notes “law firms have been slow to adopt performance measurement and improvement processes, viewing the nature of services provided by lawyers and the operations groups supporting lawyers as ‘unmeasureable’.” She proposes ways to measure and assess support functions such as tracking work activity (outputs and FTEs), benchmarking, and customer satisfaction surveys.

This is important reading for law firm managers and I hope Hildebrandt publishes more on this topic. One of her comments - that measures must be “Relevant to the goals that the department and firm aim to achieve” - conceals a difficult and little-discussed issue: the tension between the wants of the institution (the firm) versus the individual (a lawyer).

I have struggled to come up with a framework for thinking about the amount of support a firm should provide lawyers. Or, turning Stark’s comment to a question, just what is the aim firms seek to achieve? Lawyers might say “do everything for me” whereas firms might say “support is expensive, do more on your own.”

In the old days of the billable hour, it might have been possible, in theory, to maximize (Revenue - Cost = Profit). In practice though, it is not so easy. An example illustrates this. Suppose a partner who bills $1,000 / hour does an all-nighter. Let’s say he needs support that, if he did on his own, would take him 6 minutes. Assume further that he would not bill for this ’support’ time. Paying a secretary to be available all night just for this partner costs far more than the $100 he bills in 6 minutes.

And in that example you begin to see the institutional v individual tension. Lawyers frequently demand support, even when the economics don’t support it. As a lawyer, if support is “free” to me, why wouldn’t I demand it - after all, I’m not the one paying for it. Economics 101 tells us that free goods generate too much demand. In the example, the firm should make the partner do the work on his own (gasp!).

Of course, I have over-simplified to illustrate the challenge of determining the right level of support. And today, the move to alternative fee arrangements complicates the analysis. In this time of continuing economic hardship, law firm managers need to think about how much support is appropriate. And once they do, they need to measure how effectively they provide it, as the Hildebrandt article suggests.

Last week I saw a great example of live knowledge management - an “after action review” at the Georgetown Law School conference, Law Firm Evolution: Brave New World or Business As Usual?. Jeffrey W. Carr - Vice President, General Counsel and Secretary led it. 

Jeff is a well-known GC who manages outside counsel efficiently and effectively and encourages other GCs to do the same. He was a conference panelist and participant. At the end of the conference, in an unscheduled session, he led an after action review.

“After action review” is a KM technique that captures key learning in real time so that participants can improve future similar actions. The US military excels at “AAR”. The technique has broad applicability though, as Jeff ably illustrated.

In a session lasting less than 10 minutes, Jeff led the audience in a review. He used an easel and flip chart, so a low-tech approach. He divided the flip chart vertically in two. On the left, he made a column for ‘what went well’ and on the right for ‘take a look at’. The idea is to get fast, brainstormed, uncensored audience comments on what worked well and what could be improved. He spent two minutes laying out simple ground rules (e.g., say what comes to mind, think of positives as well as negatives, as scribe he would write down whatever was said without judgment).

Then the audience got going with short comments. In just minutes Jeff filled several sheets with many helpful comments. The audience liked the exercise and the conference organizers were delighted with all the helpful feedback for use in planning the next one.

While anyone can perform an AAR, it’s clear that Jeff is good at it. And no surprise since he shared that he does such reviews every day in running the FMC law department. I wonder how many other GC regularly conduct AARs - and why so few do.

Participating in this review was a great illustration that KM need not be complicated, high tech, or ‘extra work’. We did spend a few minutes but no one viewed it as hard, boring, or besides the point. In fact, it revived the audience when we are all a bit flagging after two intense days.

I suspect Jeff made some converts. I am one of them.