Strategic Legal Technology

The law factory handles high volume, relatively routine legal tasks (blog posts, presentation). Like any factory, it needs automation. Whether law firms or vendors own the automation is an interesting question. 

Law firms historically have not led automation efforts. Document assembly is three+ decades old but has seen limited uptake. Automated coding - hot now in e-discovery - is vendor-driven. As additional technologies emerge, will law firms grab a piece of the action?

Consider From Building Minebots to Digging for Dirty Money in Business Week (23 June 2011), which describes Verafin software. It spots money launderers (and other financial crooks). Prior to Verafin,

“most banks used rules-based software that flags transactions if they match a pattern defined beforehand as suspicious, such as several transfers of money overseas in a short period. Verafin compares activity to an account holder’s profile and past behavior and assigns each transaction a ‘probability score’ that represents the likelihood it’s legitimate. King says that evaluating probabilities lets Verafin discern suspicious patterns that slip through conventional systems.”

I recently wrote that “BigData” might affect BigLaw. The BW article illustrates how very large data set, financial records here, can help spot wrong-doing.

I can envision similar approaches for other legal issues. For example, a large retailer with stores across the US and thousands of workers might have a central policy that prohibits employment discrimination. Let’s says it wanted to make sure each store actually hewed to its corporate policy. Perhaps data mining software like Verafin’s applied to employment records company-wide could spot patterns that signal possible illegal discrimination. That would give corporate HQ the radar it needed to enforce its policies.

Can developers of BigData systems do more than just spot possible trouble? Could they also dispense legal advice to deal with it? Not in the US. The biggest barrier is regulatory. Law firms that don’t run afoul of the unauthorized practice of law restrictions but vendors can. Another barrier is that law firms don’t like to invest and creating automated systems can require significant capital.

The UK is a different story. With the Legal Services Act taking effect late this year, alternative business structures (ABS) will be allowed. I suspect an ABS could develop such software and bundle it with legal advice. Moreover, ABS is a good vehicle to raise the capital to fund development efforts.

I hope that the UK will see outfits that bundle data analytics and other automated approaches to spot legal problems and offer legal answers to them. If that does occur, could US corporations ethically tap such systems for their US operations? A hard question but low cost solutions seem to find ways around regulatory barriers.

UK developments will, at minimum, likely illustrate how best to build automated law factories. And with luck, if not some legerdemain, those systems will find ways into the US market. Forward-thinking BigLaw firms, especially ones with sizable London offices, might even start to think about this and other automation scenarios.

Lawyers were once technology laggards. Moi, type? They resisted e-mail. They ridiculed websites. Thankfully, that era ended. In spite of the 30-year history of what the PC has spawned, it’s not obvious lawyers get technology for more than personal productivity. Let’s look at some evidence.  

Document Management. I regularly hear BigLaw friends report that “half the lawyers in my firm do not use the firm’s central document management system”. Ring the alarm bells. Aside from back-up and security questions, what about collaboration? A half-and-half DMS approach yields the worst of all worlds. The lawyers who share via e-mail or shared directories wall themselves off from the rest of the firm.

Social media. If lawyers don’t know what it is, worry that they are living in a cave. And many may use it in their personal lives. But compared to corporations, the anecdotes and data I’ve seen suggest that lawyer use of enterprise social media - blogs, wikis, and micro-blogs in particular - is way lower than in many corporations. Oh, I forgot. Lawyers collaborate in person. That is why so few firm actively support lawyers working virtually, isn’t it?

Outside Counsel Management. Read Facing the Future in the 2011 In-House Tech Survey in Corporate Counsel (22 June 2011), which reports on the 2011 Survey of In-House Technology. Smartphone use is up. Sure, they are fun and a personal convenience. e-Billing was once hailed as the way to manage law firms. Only 35% of law departments responding require law firms to use it. And we know from other sources that law departments using it rarely perform serious data analysis (e.g., figure out which firms are most cost-effective).

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You can lead the horse to water…. modern technology enables professionals to collaborate more effectively. It is the glue that holds together global teams. Deploying it is easy. Adoption, however, depends on individuals who truly want to collaborate and do more than manage their own, personal workload. The challenge in technology for lawyers is not the technology, it’s the lawyers.

Since not everyone reads Twitter, I reproduce here a selection of my recent Tweets. 

Using Google doc for 1st time in a while (for a legal #KM group). Finding editing easier than in Word. Will report if KM profs share ! 01 May 11

@slaw_dot_ca post on Howrey demise, legal outsourcing, and innovation http://bit.ly/mbvGnE || Suggests firms partner with LPO. #LawFactory 02 May 11

Microsoft Deficit Watch - Excel 2010 - Pivot Tables ARE sensitive to trailing spaces in text but auto filter is NOT. Bug or feature? 02 May 11

law.com: Reed Smith Hires K&L Gates Partner to Create #eDiscovery Practice http://bit.ly/izCT7v || See my 2007 post http://bit.ly/lFWrRR 03 May 11

ABA Commission on Ethics 20/20 Recommends Amending Lawyer Ethics Rules to Address Legal Process Outsourcing http://bit.ly/mFuSSM 03 May 11

Too bad Twitter does not provide average Tweets/day - more useful in assessing whether to follow than total number 03 May 11

RT @jordan_law21: Seth Godin nails the legal profession in 200 words: long work vs. hard work: http://bit.ly/jZNB3X || AFA implications? 03 May 11

RT @legalit Recommind Forms Strategic Alliance w LexisNexis for Hosted #eDiscovery http://litn.eu/rec34 || Interesting wrt Applied Discovery 05 May 11

RT @jogdc: The Myth and the Madness of Cost Effective Lexis and Westlaw Research Training http://goo.gl/fb/lXgtW || Fabulous post 06 May 11

‘A less gilded future’ The Economist on the legal new, lesser normal http://econ.st/kuDjDu || Sums up trends. More GC to get the message. 06 May 11

Are cell phones the rabbit ear antennas of the 21st Century? You have to move them to get a better signal. #in 06 May 11

http://www.clearspire.com is new model DC-based law firm. Separates practice and biz services. Virtual. Like Axiom but a law firm? 9-May-11

How should we interpret Warhol’s “In the future everyone will be famous for 15 minutes” in the social media age? #in 9-May-11

Got PR e-mail on a book re ‘Break your Tech Addiction’ but I’m too busy Tweeting to read it 9-May-11

Given all the Microsoft software deficits I’ve logged here, hard for me to imagine Skype getting better under its ownership #in 10-May-11

via @Christianuncut Fenwick & West adopts Excalibur Sharepoint-based #DMS; replaces ‘usual’ large firm DMS 2 options http://bit.ly/mfE9Vn 11-May-11

Will Microsoft Skype cut off calls so it can update software, like it shuts down my Win 7 PC to update Windows w/o asking me? 11-May-11

As I read Legal IT survey by @LegalIT http://bit.ly/jbOEXn, only 50% of law firm BI usage goes to really understanding the business. Sad. 11-May-11

@legalfutures post: Profits soar at Australian law firm consolidator http://bit.ly/koQvN5 || Shared, central services a factor 16-May-11

When people write in a note “friendly reminder", does that mean they might write an unfriendly one? #in 17-May-11

Search on a top 20 global law firm’s website returns fewer hits than using Google for same search. Does BigLaw really get websites? 18-May-11

Legal Week: Eversheds Consulting plans growth after key client roles http://bit.ly/lulzdS || ‘deepen client relationships’ - good strategy 19-May-11

Bought new backup laptop. Perhaps the zillion choices + incoherent explanations drive some buyers to iPad. 23-May-11

Microsoft Deficit Watch - Excel 2010 - charts with ‘data range too complex to be displayed’. Two decades into a product - I don’t get it. 24-May-11

New @DannyErtel post: re legal outsourcing: How do you Build Your “Dream Team"? http://bit.ly/l5z50a || gd overview of options / issues 26-May-11

RT @KMHobbie #iltakm blog re recently released outstanding legal #km bibliography http://goo.gl/QT4QT || Good resource 27-May-11

Microsoft Deficit Watch - Win 7 - error: file name too long to copy. || How can exist on hard drive as legal name but be too long? 27-May-11

New Yorker Cartoon: We’re ready to begin the next phase of keeping things exactly the way they are http://bit.ly/iGedOe || Law firm motto? 31-May-11

Altman Weil has released the results of its 2011 survey of US law firms, Law Firms in Transition, by Thomas S. Clay and Eric A. Seeger . Anyone interested in the financial performance of US law firms, including BigLaw, should read this. My focus here, however is elsewhere: alternative fee arrangements (AFA) and practice efficiency / legal process outsourcing (LPO). 

AFA. Virtually all of the 805 firms surveyed, including 95 of the largest 250, report using AFA. Don’t jump to the conclusions that firms are embracing AFA. Only 12% report “that non-hourly projects are more profitable than hourly billing.” Two-thirds of firms offer AFA in response to clients; only one-third offer it as a competitive differentiator. The latter, however, reported higher profitability on non-hourly fees at a rate 2x the former. A reasonable inference (not logical necessity) is that firms can make more money embracing AFA rather than merely succumbing to client pressure to offer it.

Legal Process. The trend most cited, by 96% of firm, as a “permanent change in the profession” is the “focus on practice efficiency”. As the authors note, however, “Practice efficiency and process improvement are simple ideas – but are not easy to execute effectively.” One way to execute is with legal process outsourcing (LPO). On LPO, the survey finds that 8% of 250+ lawyer firms outsourced legal work in 2010 and 11% expect to do so this year. Perhaps more telling is that from 2010 to 2011, the number of firms who think LPO will become a “permanent trend” jumped from 28% to 41%.

Thinking about the practice efficiency imperative and LPO data, I have two questions. First, for the firms not planning to use LPO, what are they planning to do to achieve this goal? I am by no means suggesting LPO is the only option, just that other than LPO, I see more talk than action. Please, prove me wrong - with data or anecdotes (beyond one firm’s Six Sigma commitment and several’s legal project management efforts). Second, for the the 59% that don’t see LPO as a permanent trend, what do they mean by “permanent trend”. Let’s just say that in my view, Thomson Reuters’ purchase of LPO Pangea3 speaks clearly to “permanent trend”.

Here’s my overall take: the good news is that firms now at least talk about the need for changing how they work. So we have crossed one hurdle. The bad news is that specific plans to change (lay-offs don’t count) seem sparse. The secret sauce we need to make the twain meet is simple: aggressive clients who demand real change.

Legal process outsourcing (LPO) has long meant “lower cost labor in India” to many lawyers. But LPO is fundamentally more about working smarter, not cheaper. A recent New York Times article drives home this point. And an American Lawyer op-ed explains the “news behind the news” in the Times. 

Legal Outsourcing Firms Creating Jobs for American Lawyers, a June 3, 2011 front-of-the-business-section NY Times article, describes how LPOs such as Integreon and Pangea3 are creating jobs for American lawyers in low-cost US locations. It contrasts the growth of LPO, both onshore and offshore, with the challenges US law firms face, noting that “[t]op American firms have cut hiring or moved to a lower-tier pay system for many new associates.”

American Lawyer Editor-in-Chief Aric Press’ June 2011 commentary in the AmLaw Daily Blog explains both LPO growth and U.S. BigLaw challenges. In The Am Law 200: A Chasm with Consequences, he reports “a $1.1 million gap between the average profits per partner of the top 23 firms on The Am Law 200, as ranked by PPP, and the average of the next 27 firms.”

This gap, Press suggests, stems from how the market now segments legal work, with bet-the-farm matters on top and commodity work at bottom. The highly profitable 23 firms get the lion’s share of less price-sensitive premium work; the rest face increasing price pressure to win non-premium work. Addressing the question of whether this gap will continue, Press offers two “safe” observations:

• Price pressure likely will continue when the economy rebounds.
• “[W]hat’s striking about the behavior of many law firms over the past two years is that they managed their way to profitability by shedding colleagues who did not have enough work, not by examining how the work itself is done.” (Emphasis added.)

Aric Press’ complete comments in American Lawyer magazine expand on what he means by process. He observes that calling the number of hours lawyers bill “productivity” perverts the real meaning of the term. Real productivity mean more output per unit of input. To achieve that, he looks at two “disruptive forces":

• Knowledge management (KM), as instantiated by Kingsley Martin in his KIIAC system, which Press notes will “allow lawyers to reduce their costs of production”. (See my February 2009 post Measuring the Consistency of Legal Documents for more about how KIIAC helps standardize contracts.)
• More disruptive than LPO’s lower cost labor is the process improvement. Press cites the process improvement work by Ray Bayley (of Novus Law), who has systematically decomposed the document review process. (See my 2008 posts describing the InnovAction award Novus won for this work.)

I am glad that the legal press and lawyers now are examining how they practice. Once the examination begins, that the process must improve is an inescapable conclusion. Large swaths of legal work must be run through what I call “Law Factory", that is, industrialized with standard practices, appropriate technology, and cost-effective human resources. As more and more lawyers examine the process, I agree with Press’ implicit view that KM and LPO will grow.

[I first published a similar version of this post at Integreon.com, Explaining Onshore Legal Outsourcing Growth.]

I recently spoke with Ian Nelson of the Practical Law Company (PLC) about the role of professional support lawyers (PSL) in large US law firms. 

Regular readers know that PSLs play a leading role in knowledge management (KM). They generate precedents, research new law, and, in effect, help standardize law practice. PSLs are relatively rare in the US compared to the UK. With clients demanding more value from outside counsel, Ian and I wonder why more US firms do not employ PSLs.

And for those that do employ PSLs, or plan to, we wonder if US firms will structure the roles appropriately to ensure maximum value, in part by using the services of PLC. Let me explain why I wonder about this and advocate that firms consider a role for PLC. One reason I decided a few years ago to take my day job with legal outsourcing provider Integreon is that I believe in the shared services model. After two decades in or serving large law firms and law departments, I saw tremendous duplication on non-core, non-competitive work. A shared services model such as PLC’s is a great way to solve the problem.

I recently suggested that law practice will likely diverge into “law factory” on one extreme and “bet the farm firms”. Evidence for this idea continues to grow. Aric Press, in The Am Law 200: A Chasm with Consequences (1 June 2011), observes that the “best billing work goes disproportionately to the most profitable firms.” The top two dozen firms have a growing lock on high-margin work; the rest face growing price pressure. Press concludes that

“what’s striking about the behavior of many law firms over the past two years is that they managed their way to profitability by shedding colleagues who did not have enough work, not by examining how the work itself is done.”

Amen. Eight years ago, in companion posts When Clients Come Knocking and Consistency in Service Delivery I suggested that lawyers need to analyze how they practice (the process of doing the work) and then develop best practices that standardize any repeated elements. So I am glad to see that idea broadcast by someone with a bigger megaphone and delivered by a company like PLC that actually offers a way to improve how work is done and to help standardize elements of practice.

If firms were to examine carefully and rationally how they work, most would conclude that PSLs help reduce cost by standardizing and streamlining routine elements of law practice. The history of PSLs in the UK legal market supports this: Over the last decade, the UK PSL teams have become much more efficient, in part because PLC provides the core service of PSLs as a shared, outsourced service, freeing up PSLs to focus on firm-specific projects. Aside from lowering total market cost, this also tends to standardize elements of law practice by providing a single source for practices and information common across firms.

I asked Ian if he thinks that PLC could, in some way, evolve into something of a standards organization. By way of analogy, I mentioned the private, for-profit Arcom, which calls itself the “The Leader in Specification” for architects. Arcom’s specification libraries allow architects to “avoid hours spent researching changing products, technology, and reference standards.” Hmm, shouldn’t lawyers have the same?

Ian agreed that PLC could, in fact, help the US legal market establish and maintain standards across firms. In essence, that is part of what they do. Their services such as ”What’s Market,” how-to practice notes, checklists and standard forms and clauses, are meant to level the playing field to ensure a consistent and high-level of knowledge across the ranks. Ian did acknowledge however, that many firms are reluctant to embrace the “standards” label but the market pressure likely will force the “artisanal mindset” to change.

Irrespective of labels, we did agree that both law factories and bet-the-farm firms would benefit by more consistent and lower-cost approaches to handling repeatable elements of law practice.

Now back to the US market. After Ian and I spoke, he penned a post at 3 Geeks, BigLaw’s Acceptance of Practice Support Lawyers: Ready for Primetime in which he suggests that some of the lawyers working at Orrick’s Wheeling, WV facility and at WilmerHale’s Dayton, OH facility are, in essence, serving as PSLs. My understanding is that lawyers at both are more akin to staff attorneys focused on document review. I do agree, however, that the combination of low-cost location and non-partner-track lawyers does provide a new and interesting basis to hire PSLs or their equivalents.

To tie this all up, let’s focus on legal economics. If general counsels and large law firms widely adopted alternative fee arrangements (AFA) that capped fees, this whole discussion might be moot. In that scenario, GCs could focus on price and outcomes and not have to worry about process. As more work moves to an AFA-basis, firms will have to examine how the work itself is done: they will need to minimize time spent on matters to protect and grow profits. Wasting time on repeatable, wheel reinventing matters simply makes no economic sense. Consequently, GCs who seek value ought at least consider checklists that indicate their outside counsel are working efficiently. High on this list would be appropriate use of PSLs and services like PLC.