E-Billing Survey: Reminder

Reminder:

If you haven't taken our quick (3-minute) survey on e-billing, please do so. You can sign up at the end to get a free copy of the complete, aggregated, anonymized results.

Take the survey!

Thanks.

Take a Brief Survey on E-Billing

"Adam Smith, Esq." is conducting research into the market penetration of e-billing of clients by law firms—as opposed to the old-fashioned paper billing (even if it's emailed, "pdf"'ed, etc.) and what analysis, if any, is actually performed against that data.

We are actually conducting two slightly different but largely congruent surveys, one targeting law firms and one targeting in-house counsel.

Please take the law firm survey:  It takes less than five minutes and you can opt in at the conclusion to receive a free copy of the aggregated, anonymized results from both the law firm and the in-house surveys.

Take the survey.

Thanks!

ILTA 2008

Apologies for a dearth of columns this week, but I was at ILTA/2008 at the Gaylord Texan outside Dallas.  Two comments about the Gaylord, Dallas, and August.  First, the Gaylord comes as close as any place I've ever been to meriting the word "indescribable."  If you start by envisioning what is essentially a circular hotel built around an enormous, enclosed atrium roughly the size of a domed football stadium, you begin to get the idea.  Now furnish that atrium with lifesize replicas of part of The Alamo, fountains, streams, and brooks, model trains running hither and yon, facsimiles of Conestoga wagons, an oil derrick, and other totemic Texas artifacts, put it adjacent to the largest conference center in Texas (which is actually saying something, unlike perhaps "the largest conference center in Rhode Island"), and you begin to have a prayer of envisioning this place.  Don't you love America?

Comment #2:  Dallas in August is an extremely hostile environment if you're a runner, or, indeed, if you like to spend any part of your day outside hermetically sealed environments.

Be that as it may, on Wednesday I presented on "Web 2.0 & Law Firms," and on Thursday, with my friend John Alber, Strategic Technology Partner at Bryan Cave, on "Law Firm Economics 103."  (If you don't know John, he is perhaps the single most insightful and creative thinker in our industry about how to measure performance internally at law firms. He comes up with stuff you've never dreamed of, and passes it off as all in a day's work.)

Here are the presentations (click each to view):

This particular presentation concludes with Information R/evolution by Michael Wesch:

And just to add some interactivity to your visit, I was also videotaped by Thomson West who posted it on YouTube.

See you at ILTA next year! (But please, dear organizers, not Dallas.)

 

London and New York, Meet Mumbai and Delhi

With the news today that both Clifford Chance and Eversheds are ramping up their outsourcing initiatives in India (covered in The Lawyer and in LegalWeek), it's timely to report on a panel on outsourcing that I attended last week at the ABA's annual convention here in New York.

But first, the Clifford Chance and Eversheds news: The firms are taking slightly different approaches, albeit with the same thrust, of cutting reliance on pricey London-based personnel for low-level legal work. CC is expanding its inhouse India capability (Delhi-based) by ramping up paralegal capacity to review documents in basic due diligence work, cloning documents, and "low-level drafting." Eversheds, by contrast, has contracted with a third-party provider "to outsource small commercial contracts that are too expensive to carry out in the UK or in-house." In future it may (read: will) expand to cover due diligence. It's apparently premature for Eversheds to announce projected cost savings, but CC says it's already saving £8-million annually.

So much for the background. Now to the outsourcing panel.

Fortunately, on the panel were Sally King, regional operations manager for the Americas at Clifford Chance, Jim Lantonio, who was executive director at Milbank when they outsourced their word-processing functions to Mumbai, and Ron Friedmann, a senior executive with Integreon, a major outsourcing firm.

Ron opened by presenting pictures of the Integreon facilities in India, emphasizing the very high level of security, including biometric scans for access to workrooms, bans on all potential digital or analog recording devices, encrypted data transfer protocols, and so forth.

Sally reported that CC has 100 employees in Delhi today at its facility, and anticipates having 300 by 2010, performing tasks such as accounting, accounts payable and receivable, low-level HR functions, and, in general, all "low touch" functions which don't need to be performed in the City of London or in midtown Manhattan.

Jim explained that a key consideration in Milbank's sending its wordprocessing to Mumbai was that "there's no career path in wordprocessing at a law firm." So going to a third-party firm that does wordprocessing as a core function provides the possibility of career growth. The Milbank wordprocessing staff--drawn from the New York job market--consisted, certainly on the overnight shift, of actors and actresses whose key career priority was not, to put it delicately, Milbank at midnight.

What was the key obstacle to the offshoring at Milbank? "Not technology, and not confidentiality or security--those we could readily take care of; it was the politics of sending jobs abroad." But, reported Jim, what changed the nature of the conversation about "sending jobs abroad" was the recognition that capable people in the New York metropolitan area did not want 24/7 wordprocessing jobs. The critical battle of convincing lawyers, used to looking over secretaries' shoulders as they typed, that the work could be done as well in Mumbai, remained.

So Milbank embarked on a year-long double-blind experiment. When a lawyer submitted a job to wordprocessing, it would go either to Mumbai or to New York, at random. Lawyers were then asked to grade the resulting work product, without knowing where it came from. At the end of a year, satisfaction rates were 97-99% for Mumbai-sourced work and 75-78% for New York-sourced work. Case closed.

The New York Times reports that Wall Street investment banks are taking the next step beyond the back office:

After outsourcing much of their back-office work to India, banks are now exporting data-intensive jobs from higher up the food chain to cities that cost less than New York, London and Hong Kong, either at their own offices or to third parties.

Bank executives call this shift “knowledge process outsourcing,” “off-shoring” or “high-value outsourcing.” It is affecting just about everyone, including Goldman Sachs, Morgan Stanley, JPMorgan, Credit Suisse and Citibank — to name a few.

Here are the numbers of employees in India for some of these firms:

• Morgan Stanley:  500 "doing research and statistical analysis"
• Goldman Sachs:  3,000 in Bangalore alone, of whom 100 are investment researchers
• JPMorgan:  325 analysts in Mumbai
• Citigroup:  22,000, of whom "several hundred" are in investment research
• Deutsche Bank:  6,000, in unspecified roles
• Credit Suisse:  6,500 in lower-cost jurisdictions including India, Poland, and Singapore

And inevitably the jobs now being performed outside New York, London, and Hong Kong are slowly moving up the food chain.  One can foresee a day when it makes little sense to talk of investment banks being headquartered anywhere in particular, a day when they will have become global in the most fundamental sense.  At that point, the very notion of "outsourcing" becomes something of a metaphysical concept.

Still doubt the potential power of outsourcing? Then ask yourself what functions your firm already "outsources," even if it's to people down the block. Copying? Catering? Mailing? Website hosting? Tax preparation? Think of it in these terms or not, you're already outsourcing; the only question is where your core competencies as a law firm end and the core competencies of other firms (wordprocessing?) begin.

I asked the panel whether the ability to offshore basic document review was changing the career paths of junior associates, who presumably did that work heretofore. "Oh, yes, it has already changed things greatly," reported Sally. Jim agreed that had been his experience at Milbank. "The days of seeing a bunch of associates in a war room with boxes of documents to review are long gone."

Marry that observation to the increasing ubiquity of this trend—Clifford Chance and Eversheds are not exactly arrivistes—and you have a chance to take a "zero-based budgeting" look at what your firm does and what it engages with others to do.  Your clients are already there.

The New Whipping Boy?

Earlier this month, I wrote a column "about wringing our hands" (its actual title was How High Quality Are Your Lawyers?  And How Can You Tell?) and I've just received a most thoughtful email from Alec Guettel, one of the co-founders of Axiom Legal, which is extensively discussed in the earlier piece. 

I want to share it with you, but first permit me a few observations. 

Essentially, Alec recaps Axiom's experience in measuring the quality of lawyers--at least as perceived by clients--and provides some refreshingly concrete suggestions, based on hard-earned experience, about how to secure meaningful client feedback.  These valuable observations speak for themselves.

But Alec also takes a roundhouse swing at the famous profits per partner "success metric," which he says "continues to amaze and entertain us.  Increasingly, it seems to be the only metric that matters to firms [even though it] is almost perfectly cross-aligned with the clients' interests." 

Is this actually correct? 

Hasn't PPP become, in some ways, everyone's favorite new whipping boy?  Alec argues that PPP can "basically" be increased by raising rates, raising hours billed per attorney, raising leverage, or cutting costs (which, he says, "we have yet to witness in a meaningful way from top firms").  Are those the only, or the "basic," ways to raise PPP? 

More to the point, what's so bad about PPP, anyway?  The poliltically correct gang is warring with the economic gang, and I wonder whose side you come out on.  Whichever side it is, thanks to Alec for lobbing in the question.

---

Dear Bruce –

Thanks for what you’re doing with "Adam Smith, Esq." – really interesting and really necessary. 

I was pleased to see your recent post on the failure among clients to measure the quality of legal work they are receiving and the failure among law firms to measure client satisfaction.  You could not be more right that this is a. lacking and b. critical to the improved function of the legal services market.

This is a topic we’ve invested a lot of time and energy thinking about at Axiom so, for what it’s worth, I thought I’d share some of our views.  We’d love to help you catalyze a broader discussion in this area.

After trying some less structured approaches with mixed results (read: abject failure), we began to insist at the outset of our relationships with new clients on a highly structured series of feedback sessions at specified points in each engagement.  These meetings are always in person (otherwise they get cancelled) and after some experimenting, we’ve begun to schedule them for only 10-15 minutes.  This has increased our clients’ enthusiasm for the meetings and forced all the parties into having very focused, prepared, surprisingly productive conversations.  In specified meetings during the process, we have a quantitative review where we walk the client through a survey about technical legal skills, business counsel, responsiveness etc.  We don’t send these quantitative questionnaires to the clients – again, because they’d never get around to filling them out – we walk them through the questions and record the answers.

This process yields superb feedback for our individual attorneys and for Axiom as a firm, and provides a relatively objective measure for performance evaluation and compensation of our people.  As a next step, we’re looking at ways to provide transparency to future clients about the performance of individual Axiom attorneys on prior engagements and about the firm as a whole. 

These lines of thinking have also generated a separate internal discussion about the whole notion of “profits per partner” as a success metric.  The level of importance and pride assigned to the P3 metric by traditional law firms continues to amaze and entertain us.  Increasingly, it seems to be the only metric that matters to firms - a very  public, highly scrutinized measure of success of firm management and overall status.  Even where individual partners care about more than the size of their paycheck, they have to manage toward that number because it’s become shorthand for the quality of the firm.

The problem, of course, is that P3 is almost perfectly cross-aligned with the clients’ interests.

There are four basic ways to increase profits per partner. Three of them put the firm in direct conflict with their clients’ goals and the fourth has been neglected:

• Firms can increase rates, which we have seen plenty of in recent years and is self-evidently a negative for clients.
• Firms can increase hours billed per person, which is bad for associates and bad for clients as they result in lawyers who are unhappy, overworked and moving between firms at an alarming rate.
• Firms can increase their leverage (number of associates per partner). This is destructive in countless ways, including deterioration of work quality and the quality of life of the partners themselves, which exacerbates rising attrition among associates (who wants to be a partner these days?).
• The fourth solution is to cut costs, which is a solution we have yet to witness in a meaningful way from top firms. In fact, costs have increased as lawyer salaries have escalated. Ironically, this is the only one of the four approaches that is, on balance, good for clients.

 

In contrast to profits per partner, we’ve been developing an alternative metric based on the percentage of the client’s overall legal spend that Axiom constitutes year-over-year.  This provides client-favorable motivation in both the numerator and the denominator.  In the numerator, we are motivated to win “market share” within existing clients.  In our view, this is the most reliable expression of a client’s level of satisfaction (though we also ask them to rate us, as outlined above).  In the denominator, we are motivated to reduce our clients’ overall legal spend, which has resulted in our doing free consulting on best practices and recommending a range of solutions that have nothing to do with Axiom.   (Note: one could argue that the numerator provides an incentive for us to raise rates, but we think that’s outweighed by the primary focus on winning “market share” within the client.)

Finally, I wanted to draw readers’ attention to the comments you quoted from Jeff Carr, GC of EMC.  The system he reports combining performance feedback and performance compensation is in our view close to ideal.  We’ve proposed a similar approach to a few clients but have never succeeded in getting a performance compensation system adopted.  Carr’s comments are inspiration to try again, and I encourage other legal service providers to do the same.

We all appreciate the work you’re doing to highlight this issue via your publication and look forward to continuing the discussion. Thanks for being a catalyst for these conversations!

Best regards,
Alec
_____________________________
axiom
law redefined

alec guettel
23 austin friars
london EC2N 2QP UK

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Thoughts on Innovation from the Firm That Brings You the FT's "Innovative Law Firms" Award

Here's an addendum to the coverage I gave to Eversheds' Report on The Law Firm of the 21st Century, as well as to the story I published last month on the conference held here in New York sponsored by Eversheds.  This email came in over the weekend from RSG Consulting. 

If you're not familiar with RSG, you're almost surely familiar with their work.  Perhaps their most high-profile work is as research partner (now for the third year) to the FT's annual "Innovative Lawyers Report." Next year they will be expanding the report to benchmark US firms. 

---

Dear Bruce,

As the research consultancy, which designed and conducted the 100 interviews for the 21st Century Eversheds report, we wanted to add our thoughts, if we may.

The most interesting revelation emerging from our research is the gap between client expectations and law firms’ performance. A general counsel at a FTSE250 company said, “Law firms at the moment get the benefit of clients not taking a standardized approach to tackling issues. There aren’t many other areas that have escaped so miraculously from significant re-engineering. GCs only have themselves to blame. There has not been a consistent call anywhere for the legal profession to rethink the provision of services to business. It’s a medieval guild. “

That’s a powerful client who knows the symptoms and has produced a diagnosis for what might be called ‘Big Law Malaise’. The general counsel of a Fortune 100 company felt that the lack of forward thinking amongst big law firms would soon end: “At what point in history was the horse and trap most successful? About the time Henry Ford released Model T.“

Is the stage set for radical change? Not even the impending recession will really affect the prosperity of the biggest firms or alter their behaviour. But we do see evidence from another research project we designed, the Financial Times Innovative Lawyers Report, that law firms are gradually re-engineering themselves.

Last year, the UK’s top ten firms earned combined revenues of 6.3billion. Some of this revenue was ploughed back, in the case of Allen & Overy, into an innovation panel with a two million pound budget. Innovations submitted from other firms ranged from non-lawyer project managers to partnerships with third parties to both enhance their client service offering and their roles as responsible businesses.

This year, the innovations are more client-focused and consciously add value. Some are even positively imaginative!

Big law firms are broad churches; they are homes to both great experts and commoditisers. Some high priests pursue the new in legal expertise as if their livelihoods depend on it (they often do) whilst triumphantly resisting any other form of change. Meanwhile, those in the next office devote considerable intellectual and financial capital to the next generation of IT-based systems that will deliver tomorrow’s legal advice quicker and more efficiently.

In other words, great change and great stasis can co-exist – as they have done in the history of many a service industry. But law firms who understand themselves and who are willing to adapt to changing business conditions will close that gap between them and their clients.

Congratulations on a fascinating e-resource,

RSG Consulting

---

My take on this?

His core observation that large law firms are "broad churches" with room for many approaches to client service is surely correct.   The truly high end, "bespoke" client matters will always go to the Magic Circle, the New York elite, and their equivalents (Latham, etc.), and that is a tried and true model that has worked for a century or more. 

The challenge will, as always, be on the more routine, "commodity" type work.   Specifically, it will be whether those firms—or others, perhaps, that specialize on doing little else—will be able to design and deliver compelling value through the innovative use of IT combined with creative fee arrangements.  People have a tendency to look down on this work and this segment of the market as second tier, ever so slightly "slumming," and not where the excitement and challenge are.

I beg to differ.

If anything, figuring out how to profitably deliver these more routinized—but essential—legal services to the FTSE 100 and the Fortune 500 is the territory that's uncharted.  Marty Lipton presenting a seven-figure bill "for professional services rendered" is at this point an old game that everyone understands.  Few if any people really understand the new market.  Which means mistakes will be made and experiments will fail.  That's what experiments are for, you know; just don't run the failed experiment a second time.  Here, and not in the "premium, price-insensitive, high-end work," is where innovation in new business models will occur.

The CIO Challenge: It's Not About Server Up-Time

Did you know that the venerable Booz Allen & Hamilton has truncated its name to "booz&co."?  Not only abandoning a name with tremendous recognition and brand equity but, in a "what were they thinking!?" blunder, shining a spotlight on the unfortunate bibulous associations of the name "Booz."  Did they engage a management consultant before pulling off this stunt?   They're not talking.

But that's not what today's column is about.

It's about their article, The Practical Visionary, which covers one of the great unsung heros of 21st Century business:  The CIO.   Although I've written some about IT and its separated-at-birth sibling, Knowledge Management, the importance of it cannot be overestimated and it's worth recurring to some of the key learnings we now have about IT and the CIO function in general. 

Doubt the importance of technology?  Earlier this week I had the opportunity to ask the Chairman of an AmLaw 30 firm what had surprised him most during his 20 years of practicing and his answer was:  Technology, and how it had transformed the practice to an unrecognizable and unimaginable degree.

Shall we jump to the conclusion?

"The strategic CIO has never been more important to the future of the organization. As operations and markets become more fragmented, there is an ever-greater need for IT to bind together a company and augment its collective intellect (to paraphrase computer interface pioneer Douglas Engelbart). IT can be used to address problems of mounting complexity and to help an organization move into new products, new processes, and new markets, at home and around the world."

What precisely does this mean?

In May 2003, Harvard Business Review editor at large Nicholas Carr "ignited a firestorm" with an article titled, "Why IT Doesn't Matter."  This prompted a rejoinder in August 2003 , and led Carr to turn his article into the 2004 book, Does IT Matter?, which, incidentally, was a core assignment to the class when I taught "Strategic Technology & Innovation" at SUNY/Stony Brook's executive MBA program for law school leaders last year.

Carr's argument is not precisely that IT doesn't matter; it's that IT has become a commodity, available to all, and therefore incapable of providing lasting, meaningful competitive advantage.  “What makes a resource truly strategic,” wrote Carr, “is not ubiquity but scarcity.” He employs the analogies of the railroads and electricity as earlier technologies that seemed revolutionary at the time but became utterly commonplace utilities. 

Many have been the critiques of Carr's argument, but two strike me as particular bulls-eye strikes:

• Previous technological revolutions were rooted in the physical world.  Trains may have speeded up from 20 mph to 80 mph over 40 years, and the continent-wide build-out of the track network may have been accomplished, but Moore's Law shows no sign of abating.  Over a comparable 40 year period, the computational power per $1.00 spent on IT has not quadrupled but has increased by a factor of 10 to the 7th power, or 10-million times.    Your BlackBerry has more processing power than the Apollo lunar landing craft (and your BlackBerry will be obsolete in 18 months or less).
• Far more important, but also stemming from the rootedness of prior revolutions in the physical world:  The only limits to the IT revolution are limits of the human imagination.  Which is to say, no limits at all.   Who, 15 years ago, would have envisioned the Internet?  And once the Internet arrived, who could envision eBay, YouTube, Google, Facebook, wikis—or for that matter and keeping it within the family, the global readership community of "Adam Smith, Esq."?

Swimming in the water of IT, as it were, we may become forgetful of how profoundly it has changed our lives and our careers, but every once in awhile you realize the power of its achievements so far.  I experienced one of those micro-epiphanies two weeks ago standing in the checkout line in a store on the Upper West Side where I downloaded on my BlackBerry near real-time pictures being returned by the Phoenix Mars Lander of the Arctic Plain of  Mars.  Think of the enormous chain of interlocking and coordinating IT assets, hardware and software, involved in bringing me those 2" square images—and until I took a moment to reflect on it, I took it utterly for granted, as unremarkable as expecting my watch to actually keep time.

But back to CIO's.

There's a baseline requirement you need to meet, and after that there's a strategic opportunity.  The baseline is the obvious:  To keep the proverbial trains running on time.  Depending on the infrastructure you have to work with, that may be a challenge requiring months or years to meet.  The story is recounted of Michael Gliedman arriving at the headquarters of the NBA in 1999 as the brand-new CIO, finding a silo'd IT environment with "isolated pockets everywhere."  It took him 18 months to bring everything together and ensuring the core technology requirements worked reliably and efficiently. 

Only then could he embark on his real job:  Making a strategic difference to the NBA.  “There’s no way anybody in the business is going to take you seriously if it’s taking your guys 20 minutes to answer the help-desk phone,” he says.   But now he:

"... is the model 21st-century CIO. These days he is training his focus on the demand side of the IT business equation, where the needs of the business are paramount, rather than spending most of his time on such typical supply-side concerns as cutting IT costs — although these responsibilities are still very important. He has become a serious contributor to the league’s business results by harnessing powerful new technologies that make real-time information attractive and accessible both internally and to the NBA’s constituents and fans around the world. That’s why he — like any other truly strategic CIO — needs to be among the inner circle of senior leadership."

Gliedman—and his fellow senior leaders of the NBA—now views his job as deploying technologies that will support the League's three key strategic goals:  Boosting international interest, building the female fan base, and increasing the audience overall.  As markets and operations become more global and fragmented, the role of IT in binding a firm together has never been more important.  And in a way this is "back to the future:"

"In [supporting the strategic direction of their firms, CIO's] will bring back one of the almost-forgotten aspects of the personal computer revolution of the 1980s: It made work more engaging by making people more powerful. That shift turned out to have enormous strategic value. Word processors allowed people to pull their thoughts together, revise, and bring in new ideas iteratively, without having to retype each time. Electronic spreadsheets spawned thousands of “what if” scenarios that made business options clearer and eliminated the need for painstaking calculations conducted on paper by roomfuls of clerical staff. Databases provided the means to store and analyze huge amounts of data, providing insight into the supply chain, customers, and more at an unprecedented level of detail. E-mail made it possible to connect with many more people quickly. And the presentation program, though much derided, has been a vital tool for helping people convene teams and organize ideas. The resulting boom in productivity in the developed world has yet to slacken. Another result was an increase in scope: Organizations could do much more, with much less, than they could in the past. Without IT, as it soon came to be called, globalization would not be possible.

"But by the mid-1990s, that sense of liberation had turned to a sense of being shackled by the tools themselves. E-mail became a source of spam and irrelevancies, and took more and more time to tend. Word-processing software led to unnecessary revisions and overwritten documents. PowerPoint was actually banned at some companies."

So today the goal is not to be guided by the vision of the desktop PC but to embrace the range of Web 2.0 technologies—social networking software in general, which enables people to collaborate at a distance.  Because, after all, what do lawyers do?  They collaborate.  And in today's economy, they are almost surely collaborating "at a distance"—in space or in time or both. 

Don't underestimate the challenge:

"Given the degree to which IT has infiltrated every aspect of large enterprises, strategic CIOs must be able to speak a wide variety of corporate languages — operations, finance, manufacturing, marketing, sales — and to work with top executives, including the CEO, COO, and CFO; the heads of procurement and HR; and the leaders of individual business units. That demands an unusually broad set of business and communi­cation skills, a combination not often associated with “techies.”"

Gratefully, there are some guidelines:

• Start fast.  Don't be an "order taker," but give people tools you know will help them without waiting for them to ask.
• Be a capable executive in your own right.  Easier said than done, perhaps, but realize that decisiveness and effectiveness in project management will go a long way towards earning your peers' respect.  Make sure your staff understands your vision of what IT is all about.
• Once you have management's respect, don't ask for permission.  Move forward freely on initiatives you've earned the right to handle.
• Keep looking ahead.  No one else in the firm is responsible for peering out five or ten years to envision what new technology coming down the pike might—when it "grows up"—fit into your firm's strategic direction.

What do I mean by "keep looking ahead," probably the most important part of your job? 

I mean this:  Brainstorm out loud with your lawyers about what they could use to do their work better.  They don't know what's possible and you don't know what they need, but together, all of you can, if you're candid and imaginative, come up with applications that are truly useful.

One of my favorite examples is what I call "caller ID on steroids."    Now, caller ID is an antique and timeworn technology, and one well-understood by the most Paleolithic among us.  But imagine putting it to new and inventive purposes.  One firm I know of is working on a project that would do this:

• Instantly examine the "caller ID" info when a lawyer's phone rings;
• Match it against the known phone numbers of the firm's clients;
• If there's a match, "grab" the lawyer's computer screen to display not just the name, title, and company of the person who's calling, but also pull up a list of most active matters for that client, responsible attorneys on each matter, and Reuters newsfeeds about the company (all with hot clickable links, of course).

Think there's nothing new under the IT sun?  Think again.  It is not, with apologies to Nicholas Carr, a commodity.  It is limited only by your imaginations.

And good luck, because the challenges of deploying IT to support and turbocharge your firm's strategic direction are only going to become more intense, and accelerate.  Just imagine what a BlackBerry from 2018 will be able to do.

A Conversation with Ray Bayley of NovusLaw

In the course of two hour-plus long interviews over the past couple of weeks with Ray Bayley, co-founder of NovusLaw, I learned that everything I thought I knew about outsourcing was wrong. Or rather, that I hadn't thought about outsourcing, really, at all. Read on.

NovusLaw cruises under the radar online (barebones overstates the depth of their website), but Ray has an impressive background. He was the managing partner of business process outsourcing at PriceWaterhouseCoopers when it was the #1 business process outsourcing ("BPO") organization in the world, and he was also a member of the firm's US management committee, consisting of 15 people overseeing $9-billion in revenue in the US (PwC at the time had 170,000 employees including 9,000 partners, almost half of whom were in the US).

If you're not familiar with BPO, in its simplest form it's hiring another company to perform business activities for you. More fully, BPO is something you should consider when a necessary, but not "core," activity could perhaps be performed externally by a more focused and efficient organization. We don't think of hiring temps through an agency or making travel reservations as outsourcing, but that's what they are. And it's unimaginable that we'd generate electricity for our offices or write word-processing software, but once upon a time those were candidates for BPO as well. For that matter, when any Fortune 500 hires your law firm, they're engaging in BPO right then and there--and your firm is the fortunate target.

In 1999, as Ray reports, Arthur Levitt began to break up the professional service firms--Accenture came out of Andersen, BearingPoint out of KPMG, and so forth. Meanwhile, the BPO business of PwC was sold to IBM and when Ray chose not to follow, he asked himself the question: "Where can we apply our knowledge of the global best practices learned at the largest professional services firm in the world to provide value in some other professional services industry?" (I report on Ray's background not to impress--which I suspect would estrange him from anyone automatically impressed--but to provide context for what follows. He's not a newbie at this stuff.)

He embarked on two years of market research, meeting over 200 people in the legal industry in the US and the UK, including General Counsel's, AmLaw 100 and UK 50 partners, and law school deans, trying to assess the market need. And the findings were that there were three market failures:

• On the demand side, "cost is the biggest issue on GCs' minds when considering outside counsel." Consider these survey results: When asked "are law firms doing their best to reduce costs?," 84% of AmLaw partners agree, but only 6% of GC's. The marketplace failure is in this disconnection: Law firms can be better off by being more innovative, and GCs can benefit by getting lower costs. Out of 45 GCs asked the question, 44 reported that they'd give a larger share of "wallet" to a law firm that could offer NovusLaw type services.
  
  
• On the supply side, new graduates from top law schools are being offered enormous amounts of money to do work that they hate. Many studies, including some by Professor William Henderson of Indiana University Law School/Bloomington, and other work by NALP, consistently show a statistically significant negative correlation between associate income and job satisfaction. (The correlation doesn't mean more money makes people unhappy. It means that the conditions that come with high associate income--high expectations for billable hours, a low level of communication from partners about career prospects, low communication about the state of the firm overall, no pretense of "work/life balance"--make associates unhappy.) Also on the supply side, the changing demographics in the US and the UK over the next ten to fifteen years will further decrease the pool of available top-notch law school grads.
  
  
• The third "market failure" is what Ray calls "legal work that's not lawyer work." Compare the healthcare industry, where about 4% of all workers are doctors: In the legal industry, more than half of all workers are lawyers. "How much of the work done in the US legal industry is legal work but not lawyer work?," Ray asks rhetorically. The best estimates, he reports, are on the order of 70-80% according to the two years of market research that he did, and he goes on to describe a study done at the Institute of International Economics in which two economists concluded that 77% of the US legal industry is susceptible to globalization.

So what does NovusLaw intend to do to address these failures?

First of all, let's clarify some terminology. What everyone calls "outsourcing" is nothing other than the familiar "make vs. buy" decision. All law firms are already intimately familiar with this decision point, because corporate clients are already "outsourcing" complex legal work to their firms rather than doing it inhouse in the law department.

Ray also provided a brief history lesson in reminding us that the word "offshoring" was invented by John Kerry when he was running for President; before that, the conversation was simply about globalization, or the familiar notions of importing and exporting.

Where NovusLaw fits in this constellation is as a truly global company, and Ray gave me the example of a current engagement knitting together a global supply chain of legal ideas and legal work, where they're providing services to a GC in London, touching upon legal issues in Eastern Europe, based on a contract written in Singapore, overseen by lawyers in Chicago, and where the actual routine legal work is performed by people in India.

It doesn't get much more global than that, and Ray offered this engagement up as an example of truly "boundary-less" work, where people on the project have no particular awareness of geopolitical, border, or time-zone issues. (As has been said, "it's always daytime somewhere.")

What marketplace resistance have they encountered?

"A few years ago, we would hear things about 'the unauthorized practice of law,' various unspecified 'unethical' concerns, and the objection that 'we can't benefit from BPO--law is more an art than a science.' Today we've stopped hearing those things."

So what do you hear instead?

"Who's done this before" is the big one. "In my mind," says Ray, " the key to resistance now is simply resistance to change. Nobody ever gets up in the morning deciding to change," as the Harvard Business School professor Rosabeth Moss Kantor has discussed.

But ultimately, what matters to NovusLaw is that there are leaders, laggards, and the vast group in the middle waiting to see what's going to happen. "Maybe fewer than 10% of all the institutions we work with are true early adopters, but that's all you need at this early point. Others are truly in denial about the immutable forces of economics--maybe 20-30% are in this category. They'll say 'It's unethical, the ABA will never let it happen, it's the unauthorized practice of law, no no no.' But the vast middle isn't hostile and isn't adopting it; they're waiting to see."

OK, I say, but what does NovusLaw actually do?

In two words: Document review.

They:

• collect
• filter
• process
• prepare for review
• review, and
• produce

documents. For example? "Well, litigation, obviously, but also M&A transactions, Hart-Scott-Rodino second requests, contracts, regulatory documents, and so forth, all in an effort to extract meaning to be able to tell lawyers what the documents really mean without them having to spend excessive time and money going through volumes of documents themselves."

And nothing else?

"Actually, no, nothing else. If you look at our offering memo, it says that we plan to offer IP work such as patent applications and patent prosecutions, but as we started exploring what that would require, we realized that they were far different processes than document review, requiring different technology, different processes, different personnel, and so forth, so we decided to keep it simple and focus only on document review.  If you read the management and business literature on strategy, it's a mainstay that if you try to do too many things well you'll confuse your clients and your own people; we're not going there.  Michael Porter said 'Being all things to all people is a recipe for strategic mediocrity,' and I believe he's right."

He continues:  "Too many people who say they're our competition claim to do lots and lots of things; I just have to believe that's an inadvisable way to go."  And who is your competition?  "While there are new companies coming into the industry every day with a lot of different business models, I don't want to sound corny, but I really believe our biggest competition is the status quo—the resistance to change.  But you know what?  That's fine.  We don't necessarily need 100 or 200 clients; what we really want is half a dozen, or 10 great clients."

How do you size the market?

"Well, if you assume that 70% of the typical Fortune 500 GC's budget goes to litigation, and that only 2% of cases go to trial, you know immediately that discovery is an enormous slice of the pie.  We also know that, slicing up 'discovery' into interrogatories, depositions, and document review, document review is by far the most labor-intensive and time-consuming.  We think it's a reasonable guess that around 40% of the Fortune 500's outside legal spend goes to document review."

Let's talk about quality:  How do you measure it, how do you ensure your clients it's top-notch?  Because I imagine one of the towering reservations people have about operations like NovusLaw is that things won't be done to the exacting standards of BigLaw.

"Obviously it starts with who we hire: with recruitment.  The average lawyer at  NovusLaw has approximately eight years of experience, and we believe we've been able to attract talent on a par of those in AmLaw 100 firms with comparable experience.  Everyone interviews with me and each of my partners, as well as going through nearly a half dozen other interviews to ensure cultural compatibility.  NovusLaw is not for everyone.  If you can work independently, have a strong work ethic, and if you're smart about BPO—and if you have a sense of adventure—then you're a good candidate for us.  And I think our attrition statistics bear this out:  Only 3-4%/year.  It's a tough process to get in, but once you're in, you're in."

Skeptics would say that brings you to parity with the AmLaw.  What else are you doing?

"Quality is one of our 'cornerstone' initiatives, along with ethics, security, and business continuity planning—all of which report directly to me.   In fact, we started our quality program before we even started the company.  But now our 'lean six Sigma' processes and quality control programs are certified by Underwriters' Labs, with full-time six sigma black belts on board that do nothing else but focus on quality.  'Lean,' which is a term that comes from the Toyota Production System, stands for the methodology used to eliminate non-value-added time and activity, a/k/a waste.  'Waste,' in turn, has a very simple definition:  Anything the client wouldn't want pay for if they were given a choice.

"Six Sigma is what we use to eliminate defects as we measure and analyze our work processes.  Typically, undocumented processes will yield 20,000—60,000 defects per million opportunities.  Six Sigma is designed to get that down to fewer than 4/million.  On our most recent document review we performed at Five Sigma, or approximately 200 defects per million.  By the way, that's about 200 times better than the average in the legal industry today."

Ray is on a roll.

"Every other portion of corporate America has been re-engineered, 'Six Sigma'd,' and so forth—just look at finance, IT, HR, marketing, supply chains, R&D, you  name it.  The only function that's been immune is the legal function.  I think part of the reason is that lawyers don't think in terms of BPO and often don't understand it.  That leads them to believe that legal processes cannot be systematized or statistically measured, which isn't the case. 

"I'll give you an example.  One of the things we need to be able to do very very well is forecast what the costs of a document review engagement will be, because we price our services on a fixed-fee basis.  We want people to pay for our work, not for our time, so we detest the billable hour.  But this means that in calculating our price we can't afford to be wrong. 

"So we've built a model using multiple regression analyses and have determined there are 17 independent variables influencing the cost of a document review project.  You can imagine what some of them are—number of documents/pages, turnaround time, what shape the documents are in when they're delivered, etc.—and when we tell people this they're usually at some stage of disbelief.  An AmLaw 100 partner said, 'The document review process is an oral tradition; there are no checklists or ways to measure it,' but we're finding that there are actually several ways to measure quality and predict costs."

Tell me more about cost and pricing, then.   Where do you stack up against doing the same work in the US or the UK under the conventional model?

"We're typically 50—80% less, but the important point is that it's not just about having people on the other side of the world.  That's why words like 'outsourcing' or 'offshoring' don't describe what NovusLaw is:  A truly global, 'boundary-less' organization.  Of course people are cheaper in some jurisdictions than others, but only about half our overall cost savings come from personnel; the other half, and the interesting and important half, come from process optimization, quality management and technology, the things we put into place at PricewaterhouseCoopers. 

"We're not in the business of 'lifting & shifting:' Taking what's done here and moving it to a cheaper jurisdiction in order to do it the same way.  That's a brute force approach that adds nothing to the quality, reliability, and repeatability of the work.  It's fundamentally an unsustainable business model."

I ask Ray if this doesn't mean he foresees a future of disaggregation in the delivery of legal services.  And of course he absolutely does.  I have written about how Hollywood movie production relies on bringing together "just in time" teams to create a movie:  A director, producers, actors, scene, lighting and costume designers, scriptwriters, as well as everything from location scouts to cameramen, grips, and catering crews, and Ray mentions the same analogy:  Imagine assembling an on-the-spot team to staff a case or a transaction.  Of course, to a large extent this is already what happens inside law firms when a new matter comes in.  But imagine extending it outside the firm to include other individuals and firms with specific expertise that you couldn't get inside.

According to Michael Hammer (Harvard Business School professor and expert on operational efficiency), the adoption curve of BPO follows this trajectory:

• You get it;
• You adopt it internally across your firm; and finally
• You integrate it across suppliers and clients.

Another industry, Ray notes, that has "in its gene pool" a facility for assembling ad hoc just-in-time teams is the construction industry.  The combination of developers, architects, designers, general and sub-contractors that comes together to build any building of reasonable size or scope never existed before and will never exist again. 

This leads me to venture the following thought experiment:

"You said that you could go into virtually any AmLaw 100 firm today and reduce the cost of the document review process 25% to 40% using process optimization, quality management, and technology.  That gives me an idea.  The first reaction of any partner to that type of discontinuous disruption will be to resist, but I wonder if there isn't an opportunity here.  We know the cost—economic and human—of associate attrition seems never to have been higher, and one of the reasons all those departing will cite is the mind-numbing nature of much of what junior associates do, which is document review. 

"What if a firm could get  NovusLaw to do 95% of the document review, leaving just enough for the associates to have the exposure to it that they need so that they understand what's truly involved—but not such an overdose that these Ivy League thoroughbreds revolt at the repetitiveness of it all?  Wouldn't that address both clients' increasingly vocal concerns about fees and, at least to some measurable extent, the shocking level of associate attrition?"

Ray elaborates on the thought:

"We've thought of offering our clients the opportunity to 'second' associates to us for a period of months so that we could teach them  a new way to manage e-discovery from start to finish and learn how to manage a global team.  Wouldn't that be a terrifically exciting career opportunity?  But so far, no one has taken us up on it."

Why, I wonder, stop there?  If Michael Hammer is right that BPO can extend outside the walls of the firm to suppliers and vendors, it shouldn't be seen as an exercise in throwing something over the transom and hoping it comes back nicely wrapped up with a bow on top.  (This is the blunt instrument model where the law firm pushes document review out to NovusLaw, who performs their magic and returns the results on time and on budget but without much if any interaction.)

Why not envision a reciprocal, embedded relationship—a busy two-way street, if you will—where the law firm and NovusLaw collaborate on defining the strategic and client-oriented goals of the document review?  The goal would be to ensure not just the document review is done professionally, on time and on budget, and so forth, but to achieve a joint consensus on why these documents are being reviewed to begin with:  What are we attempting to demonstrate?  Is that the most valuable/compelling use of this set of documents for our client?  What are we missing?  What is the other side going to attempt to demonstrate from this same set of documents?  What should we be on the lookout for that we're not expecting (for better or worse)?  And so forth.

This brings us back to Ray's initial resistance to the term "outsourcing," and what he derides as the "lift & shift" model.  If that's all there is to it, intellectually you have accomplished little more than cutting your personnel costs, and you have taken the first step towards positioning your firm as one that competes on price alone.  Once you have one foot on that down escalator, it's hard to keep the other planted in the land of elite quality.  Ray reminds us that John Ruskin once said, "There's hardly anything in the world that someone cannot make a little worse and sell a little cheaper."

Again, why not envision something completely different:

• An intimate strategic alliance;
• Permitting you to do things better, with less waste, and with greater reliability by orders of magnitude; and
• With the potential to liberate your expensive, highly-tuned, high-performance associates from being sentenced to years of repetitive clerk-work?

Now that actually sounds like "business process optimization" with a vengeance.

Why KM Matters. With Soundtrack.

Here at "Adam Smith, Esq." I've written about Knowledge Management a fair amount, since it's my belief that knowledge is what law firms sell.

But despite the (I believe) inarguable centrality of KM to what we do, there are three enormous problems with it:

• Too many lawyers don't understand why it's of value to them, or, more precisely, why the return they could get out of it would exceed the investment they'd have to put into it.  (Never mind the threat of "giving away" your core professional asset—what you know.)
• Too many technologists and IT types don't understand how lawyers work, and end up creating shockingly powerful but essentially useless applications.
• And even the most powerful and user-friendly system requires constant care and feeding because legal learning is in a state of constant flux:  In a sense, pure white ignorance beats obsolete and mistaken knowledge.

Because some of these obstacles are a blend of the intellectual and the emotional, a brief foray, presented in video, yields two of the best visceral explanations of why Knowledge Management matters.  

With a big fat hat tip to Matthew Parsons and Neil Richards of Knowledge Thoughts, then, our first (2:21 running time, sponsor's logo at the very end):

 

And our second (5:29 run time, academic credit and "CC" license at the end):

 

Enjoy.

And reflect.

"Legal Transformation Study" Released by Altman Weil

Today Altman Weil announced its release of The Legal Transformation Study:   Your 2020 Vision of the Future, published by Decision Strategies International:

“The comprehensive industry assessment identified 11 key global trends and uncertainties shaping the future of the legal industry, then developed four possible planning scenarios that the legal industry may face in the next decade,” said Paul Schoemaker, Ph.D., research director of the Mack Center for Technological Innovation at Wharton Business School, and the founder and executive chairman of Decision Strategies International.  “These four scenarios can be used as a framework for challenging current service models within the industry, answering key strategic questions, and helping stakeholders, including corporate law departments, law firms and legal service suppliers, identify proactive strategies to ensure future success.”

"According to Dr. Schoemaker, four possible scenarios for the delivery of legal services between now and 2020 are summarized as follows:

- Blue-Chip Mega-Mania: A model that emphasizes the global consolidation of legal service providers and the dominance of giant law firms with vast global presence and offerings spanning all legal areas.

- Expertopia: A scenario that envisions the increasing complexity of the law and challenges of corporations operating in multiple environments worldwide, thereby placing a premium on specialization and expert-driven cultures at legal services organizations.

- E-Marketplace: A model built on the premise that technology will be a catalyst, but not the core, for an industry transformation in which an array of Web-based technologies will make information more available and expert judgment more valuable.

- Techno-Law: A scenario that contemplates rising corporate investment in automation capabilities throughout the legal services industry, leaving only the high-end services to be delivered by legal professionals and potentially requiring a complete reconstruction of the traditional business models in the legal services industry.

“In the past, law firms and corporate law departments have frequently been taken by surprise by unexpected forces that directly influenced the practice of law,” said Jim Seidl, president of Legal Research Center and co-developer of the Study.  “The findings of this Study will empower legal service providers to proactively compete more successfully in the global legal marketplace, reduce the risk of unexpected business surprises and threats, and identify new opportunities for business growth in the next decade.”

“As a provider of services within the dynamic electronic discovery services arena, we closely monitor current trends and anticipate the future of our profession to help our clients make well-informed decisions and achieve favorable results,” said Greg Mazares, president and CEO of Encore Legal Solutions.  “The Legal Transformation Study is an important tool we can all use to prepare for any number of potential business scenarios.  We are pleased to have been a primary developer of the Study and look forward to sharing the results with our clients and other legal professionals across the nation.”

“This Study is a tool to test the resiliency of law firm strategic plans across a range of possible futures, or to develop new plans more likely to assure their success,” said Ward Bower, strategy consultant at Altman Weil.  “This is critical stuff for law firms.  If they get their basic direction wrong, they’re toast.”
 
“There can be no doubt that we are poised for significant change between now and 2020, with a wide range of business, technological and regulatory forces sure to have a major impact on the way that legal services are delivered to corporations worldwide,” said Mark Chandler, general counsel of Cisco Systems, and a Study contributor.  “This groundbreaking Study identifies the likely components of these industry changes and prescribes important guidelines for how corporate law departments, law firms and other legal service providers can start planning now to seize these emerging opportunities while protecting against competitive threats.”

Sponsors include of course Altman Weil, and Jomati, but also Encore Legal Solutions, Bridgeway Software, Inc., Deloitte Financial Advisory Services LLP, DuPont Legal, Eversheds, Intellevate, Meritas and Solomon Page Group LLC. 

You can order a copy here. 

IT Governance & Mergers

Yesterday I was privileged to run a session at Hildebrandt's Sixth Annual Forum for Law Firm Management—"Getting a Seat at the Table"—Aligning Technology to Law Firm Business Strategy here in New York. 

My session was on "Sorting out IT Governance in Mergers," and I want to share the learning with you.  But preparatory to that, you need to know that we had the benefit of the experiences (and the senses of humor) of several high-profile veterans of Big Firm Mergers, including Don Jaycox, now CIO of DLA Piper US LLP, and formerly CIO of Gray Cary, who now has nearly three years of perspective on that celebrated three-way firm merger (DLA + Piper Rudnick + Gray Cary).  Also, with barely three weeks of perspective on events, in attendance was the CIO of Dewey & LeBoeuf.

By the way, wondering when IT is brought into the loop on the merger? Answers ranged from after the deal was all but sealed to months and months in advance of any actual negotiations.

With the enthusiastic and even impassioned help of those in the break-out session, here is what we distilled out as lessons for a CIO or IT leader going through a merger.  [Editor's note:  The discussion focused almost exclusively on mergers of equals or near-equals.  A merger of Very Big with Relatively Small was viewed as an acquisition requiring only a solid dose of project management skills to get through the period of deep-sixing Small Firm's systems and importing Big Firm's.]

Ruthlessly Prioritize

Under no circumstances will you have enough time to do everything you want or even think you need to achieve, so make sure that your rigorous focus is on the things that matter most.

Short, Intense Pain Beats Mild, Extended Pain

Need to integrate two document management systems each containing millions of records?  How about doing it across all your offices over a single weekend?  (Yes, this is a true story.)  Need to integrate half a dozen disparate phone systems, running everything from Cisco VOIP to Avaya, Northern Telecom, and even Rohm?   Make sure it's done by midnight of the effective date of the merger.

Conversely, if you want your marketing or IT department (again, true stories) to be dysfunctional for 18 to 24 months, just make sure the pre-existing incumbents from both firms remain in limbo for that period of time while management dithers.  One CIO present reported that his reaction to an indication that "co-CIO's" would be in place for an extended period was to go to his Managing Partner and say, "Fire me if you'd like; but do not under any circumstances have co-CIO's."  (He ended up top dog.)

Rise Above Politics

In almost any system you can name, from document management to time and billing to KM, you will find yourself saddled with two points of view each arguing the clear superiority of the system that just happens to be theirs.  Get past it.  Not only do you need to pick "best of breed" (keeping open the possibility that the winner will be "none of the above"), but you need to cement your credibility with senior management.  Yes, even though your credibility might have been unquestioned at your predecessor firm, you will be an unknown quantity to a significant number of decision-makers at the new firm.  And never forget that, as one veteran in our session put it, "one 'oops' trumps ten 'attaboy's'." 

It's 90% People, 10% Technology

The first important piece of fallout from a merger—or even talk of a merger—is that people become uncertain, anxious, and desperate for information, to the point of glomming on to every rumor that comes down the corridor, plausible or otherwise.  The second piece of fallout from this is that productivity drops through the floor.  And the third piece of fallout is that your best people—with the best prospects—begin taking calls from headhunters and, unless you act fast, departing.  You will then be left with the mediocre and sub-par performers.

So stop it from happening. This means getting on the road (in the air) to reassure people—truthfully, of course—that their own jobs are secure and that in fact the future under the combination will be brighter, more prosperous, and more challenging than before.  There's no substitute here for one-on-one face time.

Achieve High-Impact, Psychologically Powerful Changes on Day One

Have one unified website, one email address protocol, one phone-dialing protocol.  Yes, yes, you're allowed to put the whole thing together under the hood with baling wire and duct tape, but the appearance to end users  must be of a one-firm firm.

And another thing:  Strive for a succession of small, visible, wins.  Nothing will reinforce your credibility more convincingly than showing you and your team can achieve designated milestones on time and on budget.  (Conversely,  nothing will undermine you faster than promises unkept, so make sure you're realistic about what you can achieve.)

---

This discussion reminded me of an analytical model comparing alternative models of IT decision-making.  Here it is:

• Business Monarchy:  Highly efficient, but can lead to suboptimal IT architecture.
• IT Monarchy:  Leads to superb IT architecture and procedures, but may not align with business practices.
• Federal System:  IT, practice groups, office heads, etc., all have input:  Far and away the least efficient and also the most likely to generate the worst overall decisions.  But attractive to some participants since everyone has a seat at the table.
• Duopoly:  Business leaders suggest  what they need or want; IT responds with what they can provide, and a genuine dialogue ensues.  Typically a smart choice.
• Feudal:  Partners get what they want.
• Anarchy.

In general, the federal model is the least  effective, because it's the most time-consuming, bureaucratic, and prone to suboptimal politically-motivated decisions.  On the other hand, it's the most open in terms of  input (a/k/a "democratic") and therefore sometimes difficult to avoid in a law firm culture.

But if you can?  Strive for duopoly.  And:

• prioritize
• favor intense short-term pain
• eschew politics
• focus on people, and
• go for high-impact wins.

Knowledge Management Yesterday and Today

As I approach the 800th article I will have published here on "Adam Smith, Esq." (for those of you keeping score at home, this will be #797), I realize some topics are evergreen.  It may be because they're just intrinsically fascinating, as Woodward and Bernstein famously characterized the Nixon White House tapes:  "The gift that keeps on giving."   Or it may be that they're in something of a perpetual disequilibrium, oscillating on faster or slower cycles or being pushed and tugged as circumstances change from one antipode of the spectrum to the other (eat-what-you-kill vs. lockstep?).  Or it may simply be that we've yet as a profession to arrive at a settled way of addressing them.

In that last category I nominate marketing of our firms, and knowledge management.

Which is why it's instructive, and a bit of a closet relief, to look back at an article like Some Principles of Knowledge Management, published over ten years ago (fall 1996) in Booz-Allen's "strategy+business."    Assuming one can get one's mind past the archaicisms (the "World Wide Web" appears in the third paragraph), many of the ten principles enunciated remain true—for better and worse—today.

Let's take a quick tour back through the time machine.

1.  KM is expensive (but so is stupidity).

Did you know that McKinsey's objective is to spend 10% of its revenues on developing and managing intellectual capital?   It may sound a truism today to say that knowledge is what we sell, but how many years (decades?) did it take American industry to learn that quality was not an expense—it was a feature?  Ignorance and forgetting are costly in the same way that poor quality products and services are costly.

Last month I heard the keynote at ILTA 2007, delivered by Captain Jim Lovell, commander of the poxed Apollo 13 moon mission.  Aside from telling the enthralling tale of nearly a week's worth of nonstop improvisation by Houston Mission Control and the crew, using systems for purposes they were never designed for and relying on such high-tech tools as duct tape and an old sock to maintain their air supply, he dropped an aside that has stuck with me.   Noting the tremendous majesty of the three-stage Saturn V rocket launching them on their way to the moon, he remarked that, "It was a far far better launch vehicle than the shuttle:  More reliable, more powerful, more flexible, and even a smoother ride.   But you know what?  NASA couldn't build a Saturn V today.  We've forgotten how."

2.  KM requires both people and technology.

I can't resist, so permit me to start with this quote from the article:

"Computers that think are almost here," a Business Week article recently announced, adding that "the ultimate goal of artificial intelligence--human-like reasoning--is within reach."

And Brazil is, and always will be, the economy of the next decade. 

We all know that computers are superb at capturing, copying, and distributing information.  Just ask the RIAA.  But people are unmatched, and probably will be as far as the eye can see, at synthesizing unstructured knowledge.  As our KM tools within firms become more sophisticated, we've realized that one of the key functions has to be what the techies call "expertise locators," meaning the system has to be smart enough to point us towards our partners and colleagues who actually know something about what we're trying to research.  The system, in other words, has to have built in to it a function you want to use when the system fails.

3.  KM is highly political.

This flows directly from the observation that knowledge is power, to which I would only add that in a law firm, knowledge can be revenue.  It doesn't get more political than that (in the wrong sort of environment, I mean, which of course is not remotely the case at your firm.)

The other dimension to the "political" component of KM is the economic one of free-riding.  Why should I contribute to a knowledge base when, by hypothesis, the only material I can add is stuff I already know—which does me precisely no good.

4.  KM requires knowledge managers.

The Brits, of course, have known this for a long time, in the form of "professional support lawyers," and I'm not sure what has taken us so long to admit they have a point.  Interestingly, the author reports that even as of 1996 several companies had committed to establishing the post of Chief Knowledge Officer, and they're name brand companies:  Booz-Allen & Hamilton, McKinsey, Andersen Consulting, Ernst & Young, Price Waterhouse, Hewlett Packard, and A.T. Kearney. 

5.  KM benefits more from maps than models, markets than hierarchies.

This I take as the author's rather indirect way of saying (correctly) that one cannot anticipate in advance the rivers, streams, and byways through which knowledge will flow and it's best not to try to straitjacket it into fixed categories in advance.   Models and hierarchies tend to be brittle, whereas maps and markets are open-ended, flexible, and capable of evolution and even radical change.  One of my favorite examples of this is the trusty old Dewey Decimal System where the "200's" are devoted to religion. 

And of course, it is wildly Christianity-centric.  (A Scots Presbyterian, I can say this.)  201 through 289 are all related to Christianity (e.g., #232,"Jesus Christ and his family," and #254 "Parish government & administration").   Not until #290 do we reach "Other and comparative religions," and "Islam & religions originating in it" was deemed to have plenty of running room as it was assigned #297 all to itself.

6.  Sharing and using knowledge are often unnatural acts.

This may be my favorite—and the author wasn't even discussing lawyers.  (His case study was Hewlett Packard.)   I can't really improve on his summary of the problem here, so I'll let his words speak for themselves:

"If my knowledge is a valuable resource, why should I share it? If my job is to create knowledge, why should I put my job at risk by using your knowledge instead of mine?  We sometimes act surprised when knowledge is not shared or used, but we would be better off assuming that the natural tendency is to hoard our own knowledge and look suspiciously on knowledge that comes from others. To enter our knowledge into a system and to seek out knowledge from others is not only threatening, but also requires much effort."

7.  KM means improving knowledge work processes.

If this sounds a little too Delphic, recall that it's a business school professor talking, but let's try to unpack his meaning for a moment.   Essentially, he's saying that knowledge in firms is not created in a vacuum; it's created for a  purpose (drafting the brief, setting forth the terms of the acquisition, specifying covenants in a securitization indenture).  In corporations, it's things like market research, product design and development, and order configuration.

His point is that KM will be improved if the flow of "knowledge work processes" is improved.  Does the first-year associate take a stab at the first draft of the brief, or the third-year?  Who does edit #1?  Edit #2?  When does it go to the client?  These actually are business processes, and you're performing them today.  You might pause and give a moment's thought to whether they're optimal or whether they're "because we've always done it that way."

8.  Access to knowledge is only the beginning.

Libraries are ubiquitous, but they're not crowded.  (Have you looked at your firm's library lately? I predict it's almost empty.)

What's needed is what my friend John Alber calls "actionable knowledge;" knowledge you can use this very minute.  This isn't an academic exercise, after all; the goal is to get the work product out the door, having it reflect the impeccable quality your firm aspires to.

9.  KM never ends.

Despite the risk this principle runs of sounding slightly revolting, I'll just allude back to our Dewey Decimal System example and leave it at that.  Knowledge is—assuming  you're any good—a moving target, with ever increasing ambition in terms of scope, subtlety, and complexity.

Did you ever think back to something you did 10 or 20 years ago and ask yourself how you could possibly have ever been so young and dumb?   That's the point.

10.  KM requires a knowledge contract

I take issue with this.  It's irrelevant, and, as they say in the military, "OBE" (overtaken by events).  What the author was referring to, or fearing, was the issue of whether the organization, the individual, or the client "owns" knowledge, and he fears that a proliferation of policies will be required to specify what is whose.  He even offers this somewhat snarky remark:  "Perhaps the greatest problem with increased KM is the increased population of lawyers it will engender. Intellectual property law is already the fastest-growing legal field, and it will only grow faster."

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Where does this leave us, back from our tour in the time machine?

Many of the challenges of KM are, indeed, timeless, lying, as they do, at the intersection of human nature, competitive dynamics, and the pressures of client service.  Our technological tools have surely improved, by orders of magnitude, and our cultural predisposition to acknowledging the value of KM to our firms and our own individual careers has also surely improved, albeit not by orders of magnitude.

KM remains essential to us because knowledge is what we sell.  It remains problematic because computers can't do it alone (come on, admit it, you wish they could, don't you?), and because the qualities that distinguish the competent journeyman from the counselor extraordinaire are ineffable. 

Here's hoping they always will be.

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Update, 11 September:  A reader from the UK, who has spent his career in knowledge management at name-brand firms, writes:

As ever Bruce a good article and some of the issues in KM are timeless.

However I believe that in a few years time in-house legal PSL's may well become a dying breed. Over in the UK - I understand that a lot of the PSL recruiting is being done by the likes of Lexis-Nexis and Butterworths as they are steadily looking to do on line precedents for the law firms.

From my experience they aren't there yet but in 2-4 years they will be. I think PSL's will want to go and work there - maybe for a sense of a proper career structure - but also for work life balance which we hear so much about.I think that David Jabbari at A & O's comments on PSLs and them developing a career structure but also getting more involved in Business Development will be the way for most of the major London law firms to go rather than just as legal researchers.

I still also believe that law firms don't fully understand knowledge management and are looking for an IT solution as much as possible so that they don't have to deal with the people based issues.

They also I think want closure and have something solved and put to bed - they don't want it to be an on going process - so maybe that is why they dislike KM.

Sharing knowledge is an unnatural act - but as I have mentioned before people do share knowledge for a variety of reasons - but primarily in my view they do it based on reciprocal altruism - or as I call it the Godfather approach -i.e.they expect the person who has received the knowledge to return it at some time in the future when asked for it.

They also need to look at the way that they appraise their staff - although they may say that they appraise people on a range of issues - effectively and this is borne out by my own research the culture of the firm usually drives it to have its lawyers appraised on how many billable hours they achieved and that they didn't have too many black marks against their name.

A lot of partners are not very good at being coaches of growth and learning - but perhaps the short term view that a lot of partners have by being rated on their PEP figures in a league table doesn't help to look to developing the future.

I'd also like to add that I think that good knowledge sharing in a firm can also help a firm to innovate. I spoke about this at a conference in April about the barriers that firms put up that stop knowledge sharing are the ones that also are a barrier to innovation.

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I thank readers for writing most sincerely; do not think this remotely smacks of a throw-away line.  Indeed, reader feedback is one of the most professionally rewarding aspects of life here at "Adam Smith, Esq."  So if any of you have had a thought and hesitated or sat on it without writing me, "snap out of it."  (Yes, the immortal line delivered by Cher in Moonstruck.)

Update: 13 September.

Another regular reader from the UK writes:

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I have been mulling over your article on KM for the past few days, but was brought up short by the comment you added from a reader yesterday.

One of my current projects is to take a long hard look at our PSL group. Not because there is a perception that they are not useful, but because they, like everyone else in the firm, need to deliver better value year on year. The firm's expectations are not constant. The PSL role here will, I think, be different in 18 months time, just as the roles of associates and partners have already altered to fit the needs of more demanding clients in a tighter market. However, I think it is a leap to say, as your commenter does, that the PSL is dying out. Rather, the role is evolving away from providing generic know-how towards activities that add more value to the firm. This is healthy.

Some of his other comments about law firm KM suggest either that my firm is more enlightened than I thought, or that your reader has only been exposed to very traditional (and hide-bound) attitudes in other firms. I have always found it difficult to reconcile the widely-held view that "lawyers don't share" with my experience of people who are dedicated to client service. That dedication is not always reflected just in the work-for-fees relationship. Sometimes it is altruistic. I also regularly see altruism between colleagues -- sharing pieces of critical market or legal knowledge in order to allow someone else to improve their client relationship or work quality. That is one reason why we work in firms, rather than as sole practitioners. (If you haven't already read it, John Roberts's book on The Modern Firm makes this point much better that I could.)

On the IT point, I have noticed that in firms that are dominated by IT lawyers tend to identify KM with IT, rather than being a question of personal engagement. Again, I suspect that attitude is changing, as is the notion that KM should be a closed process. However, if firms do take that view, they are significantly out of step with KM thinking elsewhere. There is a long and dishonourable history of lawyers (in practice and academia) being too inward-looking and ignoring critical developments in other areas, but my impression is that we are getting better at seeing value in what other professions do.

Coming back to your reader, I think the behaviour he describes would find no favour with Adam Smith. Surely firms that turn against better KM behaviour (effective sharing of know-how and practice experience, sensible focusing of staff on value-bearing activities, humane management of elevator assets) will generate more value for themselves and for the wider economy in the medium and long term?

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And here we are with another update on 14 September:

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Great post Bruce, probably should be required reading for law firms everywhere.

I'd like to add that from my own experience, I think that most law firms have fallen into the same failure patterns as the rest of the corporate world. Closing the knowledge gaps then closes performance gaps and improves processes. Lack of knowledge strategies designed to close knowledge gaps results in lack of any real successes in KM. And that's why for example, with some of the most expensive search appliances in place, law firms still struggle with basic problems like finding the right document.


Dr. Dan Kirsch
COO & Board Member
Knowledge Management Professional Society (KMPro)

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A Talk With Steve Agnoli, CIO of K&L Gates

CIO Magazine recently announced its 20th Annual CIO100 Awards, recognizing 100 CIOs deemed most  effective at transforming their firms through IT innovation .    The winners included CIOs from Bryan Cave, Foley & Lardner, Goodwin Procter, King & Spalding, and K&L Gates.

Notably, K&L Gates also captured one of the five "Plus One" awards, for Business Innovation.  (The four other firms taking home Plus One Awards were: Hilton Hotels for customer satisfaction, Johnson & Johnson Pharmaceutical Research and Development for competitive advantage, Marriott International for security excellence and Merrill Lynch for improved productivity.)  Notably, K&L Gates had an earlier 3-years-in-a-row run of CIO 100 Awards, from 2002 through 2004.  All in all, I thought something noteworthy might be going on in the IT arena at K&L Gates..

Accordingly, a few days ago I had a chance to catch up with Steve Agnoli, CIO of K&L/Gates, to learn about the background to the awards and explore how K&L Gates approaches IT in general.

Here's what I learned.

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Steve arrived a little over nine years ago, at the then Kirkpatrick & Lockhart, and was the first CIO the firm had.  Why hire a CIO then?

"The firm had decided to move forward with a more aggressive growth strategy, and they realized that entailed building out their IT systems and the marketing infrastructure." 

Steve had never worked at a law firm before, but when friends asked him why he'd want to go to a law firm, his response was:  "Why wouldn't I?  It's a business like any other.  It has to get IT done right; it realizes IT is a key component of the business, with internal and external impacts."  And today does he still feel that way?  "Absolutely:  The whole firm feels that way, not just the IT department."

Not surprisingly, once Steve arrived his first order of business was getting the infrastructure right and making it scalable and reliable.  "That's always the key thing."  But once that's under control, you have the freedom to take a more outward-facing approach.  If Steve could describe the overall trajectory of his time at K&L Gates, it's been from "plumbing" and nuts and bolts initially, towards a more client-oriented focus in recent years.

And the "Business Innovation" CIO Plus One award?  "It was for our Legal Information System and our extranets.  LIS is a reusable infrastructure component, or application, which we can roll out across different industries and practice areas.  The goal of LIS is to provide a forum for K&L Gates lawyers' commentary and insights into cases, statutes, regulatory developments, and so forth, which we present alongside the primary sources.  The idea is to provide a 'one stop shop' for clients with legal issues in that area.  It's not just the raw material, it's our opinion, interpretation, and commentary."

I note that K&L Gates has been, shall we say, active in mergers, and ask Steve about their strategy for integrating systems across formerly separate firms post-merger.

The key, he says, is that they started preparing a long time ago for integrating combinations of firms.   Essential to the processs is to standardize:  Standard technology, standard procedures, standard processes, and a standard platform.  The pieces of that platform are:

• A Microsoft-based infrastructure
• Windows XP clients
• Lenovo brand PC's everywhere
• A consistent image on all PC's
• Servers that are all the same:  Same brand, same OS's, same patch levels
• Microsoft Exchange email
• A single provider of WAN hardware
• Similar equipment across all offices to provide WAN and LAN connectivity
• BlackBerry's as a default smartphone device (although they will support Windows Mobile units on request).

In other words, as Steve puts it, a "very boring" philosophy of equipment and infrastructure.  "Why learn two things when you can learn one?" 

Understandably, there are times immediately post-merger when hardware will not be standardized, but integration is accelerated by insisting on a standard user interface "on top" regardless of hardware differences "underneath."   For example, Steve notes, take phones:  With the Preston Gates & Ellis combination, PG&E used Cisco VOIP hardware and K & L used Siemens.  Nevertheless, on the day the merger became effective, dialing the prefix "101" got you the Seattle office no matter what equipment you were on.

Similarly, the website, attorney and professional staff bios, email addresses, stationery, billing templates, etc., are all standardized and consistent on day one post-merger.

So that's Phase One of merger integration.

Phase Two is integrating the key infrastructure itself:  WAN and network connectivity, key business processes and applications, HR, finance, time & billing, document management, litigation support, backup/disaster recovery, etc.  Phase Two, interestingly enough, commences before the merger is formally consummated and continues well after. 

Since Phase Two is largely inward-looking, there's more flexibility in timing.  For  Phase One, by contrast, the firm's self-imposed and self-enforced deadline is that the standardized user interface be in place the morning after the merger takes effect.

Phase Three is integrating the application inventory.  Ultimately, the goal is complete standardization across the entire firm regardless of office and regardless of user.

What other initiatives are on his plate?

Consolidated data centers is #1, he replies.  The firm is consolidating key computing infrastructure in primary and secondary facilities in a few regions around the world including the US, Europe, and later, the Far East.  Consolidation is "not just good IT hygiene," Steve opines, "but it serves the goal of freeing staff to serve our lawyers and their clients and spend a lot less time on just 'keeping the trains running on time.'"

I ask Steve who he reports to, and he gives me the right answer:  He reports to Pete Kalis, Chairman of the firm.  Why, Steve asks, is that the right answer?  In my experience, I relate, CIO's, be they in law firms or corporations, who report to the CEO or Chairman, have the proverbial "seat at the table," whereas those who report to the CFO, COO, or Executive Director, are viewed as well-paid plumbers, responsible for a utility like electricity or a dial tone, but not strategic partners in the firm's success.

While we're on this topic, Steve elaborates that the management committee has been "very supportive" of IT initiatives.  The firm "recognizes and offers sponsorship of IT.  Two things have to come together to enable IT to have a lasting competitive impact.  First, the actual ability to implement important initiatives, but equally important, the willingness of the firm to let it be done." 

What's the hardest part of your job, and what's the most rewarding?

Hardest is recruiting talent—"especially to a law firm.  People know that there are extremely high customer-service level expectations, at all times and at all levels, even in the back room."  Recruiting talent is an ongoing struggle, one that seems to be more of a challenge all the time.  Steve belongs to a Pittsburgh area council of CIO's from companies ranging from about $100-million to $5-billion in revenue, and at the most recent meeting everyone reported recruitment and retention of talent was their single biggest challenge.

The second challenge is staying relevant from a business perspective:  "Being more than a utility or a service provider—being a true client partner."  And third is obvious:  Scale.  As the firm grows, there's "a simple issue of magnitude."

The most rewarding?

Taking IT out of the back room and into the front office, all while supporting growth.  It may be challenging to retain people, but it's immensely rewarding to be viewed as a key part of the business.

So?  Take one energetic and disciplined CIO, add deep and enduring management support, sprinkle with clients willing to appreciate technology initiatives by their law firm, and, with luck and perseverance over a course of several years, you win a CIO100 award.  "Plus One."

The History of Allen & Overy: 1998 - 2007

We conclude our three-part history of Allen & Overy with the years 1998—2007, the decade surrounding the turn of our current century.

These years are, for my money, primarily the story of A&O's investments in internationalization bearing fruit.  Indeed, Volume 2 of the history of the firm (A&O at 75, Allen & Overy: London (2005)) is arranged not chronologically but by city.  The frontispiece to the volume says simply, "An international practice at home everywhere - this is our story..."

And the list of contents is impressive:

• London
• New York
• Madrid
• Paris
• Brussels
• Antwerp
• Amsterdam
• Luxembourg
• Turin
• Milan
• Rome
• Frankfurt
• Hamburg
• Prague
• Bratislava
• Budapest
• Warsaw
• Moscow
• Dubai
• Bangkok
• Singapore
• Hong Kong
• Beijing
• Shanghai
• Tokyo

Looks impressive, to be sure, and sounds strategically indisputable.  But not so fast:  We say that from the vantage point of  hindsight.  All was not so obvious at the time the investments had to be made.  From the preface to the second volume (Richard Rowland, qualified in 1969, speaking):

"A fundamental point about the internationalization, you have to remember, is that there was a strong body in the firm who felt that we should not be anything other than English lawyers and that we shouldn't have offices overseas.  When it was first proposed in 1980 that we should have an office in Hong Kong, it was turned down."

In the event, the firm recognized that doing cross-border transactions required local law expertise.  Only when the US became a serious entrant in global capital markets in the late 1980s and early 1990s was the die cast.  With the disclosure requirements imposed by US and other local law (Rule 10b-5 is specifically mentioned), "we then needed overseas lawyers to be part of the team, and if they were part of the team it didn't work very well if they were not also part of the organization."

From the preface, other observations about how matters have changed and what are the contours of the current competitive landscape:

• "The culture of the American firm and the way the firms work is extremely strong, and colors their whole attitude, I feel. [...]  The US law firms are also adapting.  T here are more and more US law firms in London.  They are recruiting English lawyers and they are expanding aggressively.  They have huge resources behind them.   And so they represent a challenge."
• "If you ask what is going to happen now [in terms of international financial capitals], I think that New York may come into its own again.  [But the obstacle is] that people are more circumspect about the legal system which has populist elements.  It doesn't necessarily have the goodwill that London has and it is still too closed."
• [On the impact of technology]:  "When I started as a lawyer (which wasn't that long ago), people were still sending telexes.  You had days between turning around drafts.  Now you actually have to have everything at your fingertips if you are going to play at the highest level. We are living in the world of 24/7, of always being accessible.  One of the challenges is to know when you can turn to your client and slow things down to take stock.
  "Pretty much on every deal I got involved in during the 1970s, the first document I pulled out was the airline timetable, because inevitably it meant actually traveling to the place where the deal was being done."

Internationalization

While the challenges to international growth can be daunting, the lesson of the past decade at A&O can be summed up thus:  "It's worth it." 

But again, that was less clear when commitments were being made, and the road in some markets—especially New York—has not gotten easier.   Nevertheless, a robust New York capability was seen as essential: 

"Eighty per cent of economic activity in the United States, by far the world's biggest economy, is purely domestic, and, if you add in Canada and Mexico, more than 90 per cent.  ... Then consider that our top 30 clients are doing at least a third of their business in the US and you can see why it is so vital that we have the resources and the capability to be able to advise them.  Put the other way, it's a gigantic disadvantage if we can't play where more than a third of their business is."

It's still a slog.  According to Dan Cunningham, a marquee partner brought over from Cravath, "We have to develop our reputation case by case, deal by deal and client by client.  There is no other way.  We have to do the deals to win the hearts and minds of the legal decision-makers in the big institutions for whom we are likely to act."

Similar stories are told of opening in Moscow, in Hong Kong, in Frankfurt, and in Eastern and Central Europe.  Each and every office presented its own challenges, opportunities, and time-lines.  There's no such thing as a cookie-cutter approach to internationalizing a law firm.

For example, to cite the ups and downs of the Moscow office alone, they have included:

• Opening not in an office building proper, but in a flat, where the fax machine was in the bathroom and meetings were held in the kitchen.
• Surviving the October 1993 storming of Parliament ordered by Boris Yeltsin, when A&O's Russian staff ignored strict instructions to the contrary to remain indoors and mounted barricades on the streets to forestall the Russian Army from storming the building.
• Similarly surviving the August 1998 moratorium on all foreign currency debt repayments—the first time since the Ottoman Empire that a sovereign nation had defaulted on domestic debt—and the immediate collapse of the ruble.   Ultimately the firm had to retrench from three floors to one.
• Even today, the Russian economy is scarcely the smoothly running well-oiled machine Westerners might be familiar with.  Power is excessively concentrated; the rich/poor gap is dramatic, shocking, and growing; the entire country is far too depend on oil and gas wealth; and the fundamental notion of the rule of law enforced by independent courts remains alien.

The Warsaw office also opened in an apartment, but with an added sleight of hand.  The senior partner at the time, John Kennedy, remained convinced that A&O should limit itself to English lawyers practicing English law, so the solution was to open with a Polish lawyer—and the first from any civil law jurisdiction— "Andrzej Siemiatkowski in association with Allen & Overy."  Also onboard was A&O's association partner, the French firm Gide Loyrette  Nouel.  In the three-room apartment, Gide took the nicest room, A&O another, and the secretaries the third.  One early obstacle to efficient communication was that there was only one phone, typically prompting a rush to answer.

Nevertheless, progress was possible.  The firm moved out of the apartment in 1992, and by 1994 had trebled in size to 35 people and achieved profitability.  By the mid-1990s Warsaw was the firm's third largest office, after London and Hong Kong.

But to bring our perspective straightaway to today, let us conclude by reflecting a moment on A&O's latest (2006 fiscal year) numbers, and the just-released Legal Week UK 50.  (The full chart is here, and I strongly commend it to you; it's fascinating.)

As A&O puts it:

"Strategic investment across the globe has helped fuel record 2007 revenue and profits, clearly positioning Allen & Overy among the top six law firms in the world.

"Highlights:

• profit before tax up over 36 per cent to GBP 395 million
• turnover up 20.5 per cent to GBP 887 million 
• total number of lawyers worldwide increases by 10 per cent to 2,600
• presence in key global financial markets strengthened with new offices and capabilities in Middle East, Europe and Asia

"Following another outstanding performance across all practice groups and jurisdictions in the year ended 30 April 2007, Allen & Overy reported a 20.5 per cent increase in annual turnover to GBP 887 million resulting in an increase in pre tax profit of 36.3 per cent to GBP 395 million."

And need we add that PPP exceed £1-million for the first time?

The key, for A&O as for its Magic Circle brethren, has been the payoff from their investment in internationalization:  "Clifford Chance (CC) managing partner David Childs said the results vindicated a decade-long run of foreign investment by the big four firms. [Clifford Chance, Linklaters, A&O, and Freshfields.]  He told Legal Week : “Our foreign offices are now maturing. We are seeing significant revenue increases from these offices and they are becoming more profitable. The model is proving itself.” "

For some who were initially skeptical, this comes as a surprise.  Tony Angel describes it thus:

“The US firms are quite surprised,” argued Linklaters managing partner Tony Angel. “When we and other global firms began investing in building networks there was a real sense that scale was incompatible with top-notch work, but the fact that all the firms have done so well shows you can do well and stay focused.”

The moral of the story today is simple:  The large gambles, and gambles they were, that the top UK firms put down a decade ago on the concept of a global legal marketplace are now beginning to seriously pay off.  The top four firms racked up £4.18-billion in fees last year, accounting for 40% of the UK's top 50 firms' income.    US firms have not made similar investments in internationalization (with a very few exceptions).

Simultaneously, the top UK firms have accomplished all the financial and managerial engineering needed to boost their PPP numbers up into the stratosphere, stretching leverage, restructuring, conducting rigorous partnership reviews, and holding associates' feet to the fire.   My question would now be:  Is it time to dial back the pressure on "managing to PPP"?  As the editor of Legal Week notes, "such gyrations have pushed cultures and businesses near to breaking point."

I will close this extended history of the 75+ years of Allen & Overy with some insights from some of the more prominent heads of London-based firms.

• David Childs, managing partner, Clifford Chance

  On the magic circle pulling away

  "Our offices outside of London are now maturing. We are seeing significant revenue increases from these offices and they are becoming more profitable – the model is proving itself."

• Tony Angel, managing partner, Linklaters

  On the market

  "A number of facts have driven the profits of the magic circle firms. It may be that the UK domestic market has not been as buoyant as the global market and within the global market the UK, and international law firms, have been increasing their share. Investment in growing international networks and the growth of London as an international finance centre have provided real opportunities to firms like ours. The sort of deals being done benefits firms with strong financial markets and cross border transactional practices."

• Konstantin Mettenheimer, co-senior partner, Freshfields Bruckhaus Deringer

On the US

"As a capital market centre, London has been increasingly important, with a very large number of IPOs compared to New York’s very few. There has been a lot of capital flow and economic activity between Asia and the Middle East, not necessarily via London and New York. The jury is out on whether we will see the development of a third financial centre on top of London and New York, be it Dubai, Mumbai, Shanghai, Hong Kong or Tokyo."

• Nigel Boardman, corporate partner, Slaughter and May

On the US

"The City has gained significant market share in the world financial and legal scene. Part of this is Sarbanes-Oxley. Also Arab money doesn’t like to go to the US, where it cannot necessarily get money back out again. New York is not as good as London for Asian companies to be headquartered in."

On London

"Ten years ago we were talking about Paris and Frankfurt being significant threats to London, this is no longer the case. As long as there remains differential treatment of personal tax, this will continue to be the case."

On equity/leverage

"Partnership culls will have hit leverage significantly. I would imagine that the magic circle has shed 600-700 partners worldwide recently."

We have indeed come a long way from coal stoves.

The Data-Centric, Empirical "Law Firms Working Group"

My friend Professor William Henderson at Indiana University School of Law—Bloomington just sent word of a new initiative the law school is launching in conjunction with the American Bar Foundation. 

Called the "Law Firms Working Group," the project includes no fewer than 14 research teams comprising 38 scholars in all, who will have access under a special license to the archival data of American Lawyer Media, which "includes cross–sectional and longitudinal information on law firm structure, financial performance, lawyer demographics, branch office size and location, lawyer mobility, associate satisfaction, relative law firm prestige derived from lawyer surveys, practice group prominence, and other facets of modern law firm practice."

What precisely are they researching, and what makes this initiative different from yet another set of academic papers on our complicated profession?

First, what promises to make it different is that the "LFWG" researchers will actually be working with data.  In other words, their work will be far more empirical than the usual armchair-observing and abstract-pontificating (and no, I'm not naming any names, thank you).

Second, their proposed projects include several that promise to be of genuine interest to those of us who are long since out of the academy and into the actual nitty-gritty of management and leadership.  Here are a few that struck me as particularly "real world" in focus:

• Lawyer Mobility:  "The investigators will study the volume of lawyer lateral mobility, and the and factors influencing it. They will explore the importance of a strong firm culture in the quality of client service, firm profits, firm stability, employee satisfaction, and associate attrition. After this analysis has been completed, Marc Galanter and William Henderson will utilize this dataset to study the relation of mandatory retirement policies to lawyer mobility."
• Interaction Between Law Firm Structure, Hiring, and Partner Promotion:  "John Gordanier will study the empirical relationship between the structure of law firms and the characteristics of associates and partners. His focus will be on whether a multi-tiered partnership structure [with equity and non-equity partners] changes the composition of a firm's associates and whether it affects the quality of the partners."
• Globalization Strategies of U.S. Law Firms:  "Carole Silver and Nicole DeBruin will combine Law Firms Working Group data with their own prior research into non-U.S. offices of U.S. law firms to analyze the consequences of different approaches to global expansion. They will examine a variety of factors, including the ways that offshore offices reflect or differ from their domestic counterparts, and the relationship between offshore office growth and financial success."
• The Professionalization of Large Firm Management:  "Elizabeth Chambliss will track the emergence of full-time ("professional") managers in law firms, focusing on the managing partner and law firm general counsel positions. Her research will examine the relationship between professional management and the economic success of the firm, and the sources of managerial authority for full-time versus part-time/practicing managers."

Other projects will look at the relationship between firm performance and a commitment to pro bono, the changing geographic footprint of global law firms, career trajectories of young lawyers, and race and gender in large law firms.

For some time now, Bill Henderson has been one of the rare law professors with a dominant "quant" gene and I for one will be fascinated to see the fruits of these various research projects.

And of course, you know that "Adam Smith, Esq." will be one place where you can read about those results as they materialize.

The FT's Second Annual "Innovative Law Firms" Awards

The FT is out with its second annual "Innovative Lawyers" Survey and much has changed since I reported on the original survey a year ago.  Primarily, the survey is far more ambitious in scope this year:

"The 2006 report covered only UK lawyers working in private practice. This year the scope has been broadened to cover mainland European law firms, in-house lawyers working in European companies, lawyers in the UK’s public sector, the UK Bar, US law firms operating in Europe and individual legal innovators. In addition, we looked at the UK judiciary to see if there are any judges changing the mould or standing out for their innovative work."

Here's the entire list; the top 5 firms are:

• Allen & Overy
• Clifford Chance
• Linklaters
• Eversheds
• Wragge & Co.

Among US-rooted firms, the only ones represented are:

• DLA Piper (#6)
• Latham (#10)
• Baker & McKenzie (#20)
• White & Case (#24)
• Dechert (#42)
• Skadden (#43), and
• Greenberg Traurig (#48)s

The top-line findings are hard to argue with, but worth summarizing since it is, after all, the Authority of the FT now underscoring what many of us already believed:

"The UK legal profession is more advanced than its mainland European counterparts: law firms are moving from being professional organisations to legal businesses. This sometimes controversial shift has been going on for more than a decade in the UK, but it is still in its infancy in mainland Europe. [...]

"The research for the FT Innovative Lawyers report also showed the cultural differences between US and UK law firms. In general, US law firms tend to be more lightly managed than their UK counterparts. Typically they are more akin to traditional models of law firm partnership, and they are largely organised as a group of individual partners running their own practices. Along with UK firms such as Slaughter and May, these US firms tend to focus their energies more on legal innovation than on the way in which they do business. [...]

"Another facet of the legal world that still shows no sign of radical change [besides the ongoing struggle for diversity] is the way in which law firms bill their clients. As in last year’s report, Billing & Fees was the least subscribed category. The hegemony of the hourly rate remains – although there were some notable exceptions of firms willing to share risk with their clients, or – as in the case of Norton Rose – to introduce third party funding to foot litigation bills.

"Lawyers in every branch of the profession are beginning to look forward and outward. Even the UK Bar, often described as “Dickensian”, is showing signs of a willingness to change traditional ways of working. Commonplace now are transparent bills, marketing and an ethos of client service."

So. to the awards:  What did these firms actually do  to garner awards?

The sheer variety is what's most impressive to my eye.  Linklaters came up with a way of helping finance vaccination programs overseen by the World Health Organisation and Unicef, among others, under which $1-billion of bonds have been issued and another $3-billion are expected to be issued over the next few years.  (The World Bank acts as treasury manager for the issues.)   Clifford Chance took on climate change by attempting to do for carbon and emissions trading what Michael Milken and Drexel did for junk bonds:  Standardize the disclosure and documentation to make the market more liquid.  CC also claims to have invented the world's first convertible Islamic bond, consistent with Sharia law. 

As for individuals, we have some truly impressive souls.  Mahnaz Malik, age all of  28, graduated in law from Cambridge in 1998 and is now tri-qualified to practice in England & Wales, New York, and Pakistan.   While at Simmons & Simmons—which she left 18 months ago to serve as a full-time advisor to governments on their relations with NGO's—she set up a  program to provide legal representation to children "detained in appalling conditions" in Pakistani jails; it now represents 92% of the children in Lahore jails.  Oh, and did I mention that she's published two novels and made a film?

Then we have Jim Rice, a  securitization partner at Linklaters, who spear-headed the global vaccination initiative noted above, and has a track record of inspiring teams of young lawyers pursuing ambitious pro bono projects.

Or Chris Perrin, the general counsel of Clifford Chance, who is a thought leader in the ever-more-important area of conflicts, now chair of a working committee to draft new conflicts rules for England and Wales.

Lastly, one of my perennial favorites, Tony Angel, managing partner of Linklaters since 1998, who the FT calls "a visionary and strategist in a sector that is not known for sophisticated management. He was one of the first law firm managers to take the job seriously," and rebuffs criticism that he has turned the firm into a corporation:  Rather, he insists, the partnership ethos is alive and well within a smoothly functioning and profitable environment.

Speaking of management, there's a separate category of awards for that, as well as for IT, HR, and client service.

Management

Regular readers know that I think benchmarking is a merely the starting line at best and a tar-pit of assured mediocrity for the vision-impaired at worst.  So I thoroughly endorse the piece on management:

"“Are we normal?” Law firms are always asking me this question. When I assure them that their organisational and interpersonal challenges are fairly typical of firms in their sector, they seem relieved. But they are missing the point. Being “normal” is not enough. To achieve competitive advantage these firms must aspire to being abnormal – in a good way.

"Very few of the submissions in the management category this year could be described as genuinely innovative (click here for rankings). Most clients would be unimpressed if they ever read their law firms’ submissions in this category. What feels radical and innovative to a law firm may seem like standard management practice to their corporate clients."

Eversheds takes first place for introducing "a sea change" in how partner compensation is calculated: 

"Eversheds has abandoned lockstep altogether but has done so in a particularly creative way. It has used the new method of partner remuneration as an opportunity to define and embed the most valuable elements of the firm’s strategy and the partnership’s ethos. In other performance-­ related pay schemes, an individual partner’s profit share is based entirely on retrospective performance. Eversheds’ scheme also takes account of expected future performance, recognising and rewarding an individual’s commitment to modify or fundamentally change behaviours in support of five defined criteria (of which only one is profit)."

To my mind, nothing, absolutely nothing, is more important to enlisting "hearts and minds" support for different behaviors than to embed rewards for the desired behaviors, and penalties for the same-old-same-old behaviors, into the compensation system. 

IT

Many of the entries here were of the to-be-expected variety.  For example, DLA Piper  allows clients to post advertising material for clearance by their lawyers; Baker & McKenzie has an IP database repository with, they claim, more than a quarter of a million trademark records under management; Mills & Reeve offers a free online healthcare law resource; Linklaters created a leveraged term sheet generator to cut production time from eight hours to 30 minutes; Simmons & Simmons offers an online age discrimination training guide; and Clifford Chance has a reasonably mature suite of online services now being used by over 20,000 people in 270+ organizations in 50 countries and eight languages.

But then we had the truly innovative.  Number one here is the creation of Derek Southall, a partner and head of strategic development at Wragge & Co., who has come up with a partly automated and partly human (with four IT specialists) system to advise clients on their own internal IT infrastructure needs.    One reason it wins?  This client quote says it all:

"Ian Leedham, senior counsel for the National Grid and an enthusiastic supporter of the Wragge & Co initiative, agrees. He points out that Mr Southall’s strength is that he was a lawyer before he became an IT expert: “This means that he really understands what the business needs.”"

90% of lawyer/IT miscommunication could be eliminated, I've often felt, if you can find one key person who truly understands what both sides of the table are talking about.  There's no substitute, here, for having a former or current practicing lawyer who's at least reasonably, if not intimately, conversant with IT. 

Human Resources

The adage that "people are our most valuable asset" is, as we know, honored too often in the breach.  This observation sums up the disconnect:  "“In a lot of firms, there is a reticence on the part of partners to engage staff in discussions in early stages of their careers,” says [David Miles, a partner at BDO Stoy Hayward, an accounting firm]. “For firms that do start engaging associates at an earlier stage, it actually forces them to identify what they are looking for in terms of making partner. But firms are only just waking up to the fact that they need to do that.”

Ashurst and Allen & Overy, among others, have taken the remarkably common-sensical step of compensating associates   not based on years post-graduation, but on actual competence, skills, personal attributes, and behavior.   Cobbetts has established a "leadership development center" focused on a two-day off-site program in which partners explore different business-focused activities designed to identify their relative strengths and weaknesses.

Latham, characteristically, has come up with one of the more "differentiating" programs of all—and one, of course, which is blindingly obvious in hindsight.  Rather than relying on the ad hoc approach, often dependent on chance hallway encounters, of finding associates on their way out posts in-house, Latham has formalized it to  include partners, departing associates, and firm alumni, all run through the firm's intranet.   Why on earth wouldn't your firm do that?  We all know that happy alumni can become your best clients.

While you're at it, don't ignore staff.   If your firm is roughly typical, you have at least as many staff as you do fee-earning lawyers; to ignore them could be crippling and is certainly morale-sapping.  This doesn't have to be expensive; the most popular benefit is career development programs—which, need I remind you, actually make them more valuable employees?

Client Relations

I've saved one of my favorites for last.   Impeccable legal expertise is now taken for granted; but clients want more.  The trend, roughly, is from detached advisor to business partner.    Critically, this has to go beyond online tools such as client relationship management systems, or KM systems with expertise-finding capability embedded.  The goal is to fundamentally change the way lawyers think about clients before, during, and after engagements.

For example?  At Addleshaw Goddard, 40 or so client relationship partners and their client relationship team members are being trained in business analysis tools at Cranfield School of Management—with a view towards enlightening them as to how the client might actually be thinking about their businesses. 

Wragge & Co. did something more innovative:  It offers free counsel to companies struggling to consolidate and downsize their "panels."  Or, as they slyly put it, "we became poacher turned gamekeeper."  The advice  covers the waterfront, from whether a panel is advisable in the first place to what criteria should be applied, how to handle firms' tenders, and how to get panel members to obey the ground rules.

But Linklaters wins for "the shift in approach with potentially the farthest-reaching consequences for the legal industry."  They fielded a pitch team for a global corporation's work outside the US that was made up of two lawyers—and one client relationship manager and one IT specialist.    We can end with no more apt tale than this:

"The firm says: “The client relationship manager and the managing relationship partner in charge of the team were something of a double act, which was unconventional by industry standards, yet highly effective. There were some conversations which Linde needed to have with a lawyer and other conversations which were easier with a senior person outside the legal team.”

"Should this become standard practice, and be taken up by other firms, it would truly be an innovation that could revolutionise the way law firms deal with their clients. It might also be part of a wider trend towards senior non-lawyers having greater power, and more exposure to clients, within law firms. And that is uncharted water for the legal world."

Trusting non-lawyers, indeed!?  Now that is true innovation.

"IT Commoditizes Everything." Discuss.

Sometimes we take our IT infrastructure for granted—too much so. In the last few weeks I've encountered a succession of stories where client relationships were strongly reinforced by astute deployment of IT assets. Call it the intersection of marketing and IT.

A useful starting point is Legal Week's recap of its annual Strategic Technology Forum, held this year (hard duty no doubt) at Portugal's Penha Longa resort. The "keynote," if you will, was an hour-long video of the UK IT consultant Richard Susskind interviewing three high-profile managing partners: David Morley of Allen & Overy, Neville Eisenberg of Berwin Leighton Paisner, and Tony Angel of Linklaters. What did we learn?

Without IT, globalization would stop dead in its tracks. For example, at Linklaters (and this is becoming increasingly common), any lawyer anywhere in the world can access their own desktop, with all the systems they'd have at the office, securely.

A&O has developed a centralized information repository named, somewhat menacingly, "Omnia," that gives lawyers access to one virtual file wherever they are and whatever they're working on.

IT increasingly participates in new business pitches. According to Eisenberg, senior IT staff have helped BLP win some critical assignments, while Morley makes the same point in the obverse, noting that law firms are increasingly expected by clients and staff to be at the cutting edge of technology. “If you are not at the leading edge, clients will begin to melt away from you.”

For all the copious amounts of ink that have been spilled on the topic, it remains true that there's a generational shift underway as each new crop of lawyers arrives more and more familiar with technology. Eisenberg put it this way: “As you go down the generations, the dialogue between technologists and other professionals gets better.” The payoff is that having a greater proportion of lawyers who understand technology means teamwork between IT, knowledge management and lawyers improves.

Moreover, it's not just a better or deeper facility with current law firm technology—it's pushing the frontiers into technology that's novel (certainly for law firms). For example, I've been talking about the intrinsic fit between what lawyers do (collaborate on written materials) and wikis for a few years now, but at last it's actually being embraced:

"We are seeing a step change here, the full implications of which we will not know for a while,” predicted Angel. Morley agreed, adding that changes to the way people collaborate will be profound. A&O has been promoting wikis on the firm’s intranet for a some time — a move that has sparked informal communication with clients that has gone down well on both sides. “There is a very intuitive feel to this — the technology is less clunky and it is more obvious what to do,” said Morley. With clients increasingly demanding that their advisers share their knowledge with them, the use of wikis in this way seems set to explode in popularity.

The increasing embrace of IT, and its true embedding within the essence of what firms do, comes, I hasten to add, with one enormous challenge which no one to my knowledge has yet answered in a satisfactory way that might yield a long-term equilibrium solution: That challenge is commoditization.

Its sources are various, but primary among them:

• In the online world, we increasingly expect information to be free; why should clients expect otherwise from their law firm?
• Technology fuels arms races: If it is true that "among UK firms, however, there are a number of examples where firms have generated revenue through subscription-based, lawyer-light projects," then how long will it be before those services begin to invade practices higher up the value chain?

My view is more sanguine, primarily because I believe the phrase "commoditization" is flung around far too loosely and generates free-floating fear divorced from real-world implications. I'm closer to the position articulated by David Jabbari, Allen & Overy's head of knowledge management, who believes that “Clearly, any information that can be commoditised is going to be, and will be free,” but who also pointed out that we've known for a hundred years, since Henry Ford introduced the assembly line, how to efficiently build a car, and yet the auto industry is one of the most hotly competitive and least "commoditized" around.

Taking a more recent example, in concept few consumer electronics goods are more generic in nature than an MP3 player, but the iPod has turned the category on its head. Ultimately, the march of technology cannot—and should not—be resisted. Neil Attree, Beachcroft's head of IT, gets it right:

“If a piece of technology makes the kind of work you are going to do easier and better, then go for it. It is the packaging and the end product that matters, and that comes down to quality assurance.”

Meanwhile, over at The New York Times, the University of Chicago Graduate Business School economics professor Austin Goolsbee writes that "the US has kept the productivity playing field tilted to its advantage" through superior deployment of IT and its beneficent effect on productivity.   He's not writing in the abstract, but reporting the results of a new study coming out of the Center for Economic Performance at the London School of Economics. 

The context is, as usual, globalization and its discontents, and the question posed is whether the US will be able to succeed in an open world market or whether the feared competitive advantages of other nations would erode the US standard of living. 

Now, as a general matter, economists (and I subscribe to this as well) believe in the theory of "convergence," which is a rather grand name for the common-sensical notion that since it's easier to copy something someone else came up with than to innovate on your own, eventually the laggards will tend to catch up with the leaders.  The practical consequence of this is that the growth rate of the "laggards" may temporarily exceed that of the leaders, only to inevitably slow down once they catch up.

This brings us back to IT.

The London School of Economics study that Goolsbee discusses, “Americans Do I.T. Better: U.S. Multinationals and the Productivity Miracle,” asks an intriguing question.  Granted that there was a spike in US productivity in the late 1990's thanks to our rapid adoption of IT and the astonishing decline in costs of technology (30%/year by some accounts), why was—or was that?—unique to the US?

To try to answer this, the authors ask an ingenious question:  Was there any evidence that the American advantage with information technology transfers to locations outside the United States?  "If American companies turn computers into productivity better than anyone else, can businesses in Britain do the same when they are taken over by Americans?"  After all, the price of IT assets fell precisely as fast in Europe as it did in the US, and it was just as readily available for sale.  Yet there was no EU productivity miracle in the 1990's.

Here's the Abstract of the paper:

"The US has experienced a sustained increase in productivity growth since the mid-1990s, particularly in sectors that intensively use information technologies (IT). This has not occurred in Europe. If the US “productivity miracle” is due to a natural advantage of being located in the US then we would not expect to see any evidence of it for US establishments located abroad. This paper shows in fact that US multinationals operating in the UK do have higher productivity than non-US multinationals in the UK, and this is primarily due to the higher productivity of their IT. Furthermore, establishments that are taken over by US multinationals increase the productivity of their IT, whereas observationally identical establishments taken over by non-US multinationals do not. One explanation for these patterns is that US firms are organized in a way that allows them to use new technologies more efficiently."

As an example, Wal-Mart acquired the "middling fourth" supermarket chain in Britain, Asda, in 1999, after which it proceeded to grow smartly and is now #2. As tough as it can be to compete on a global stage, somehow the US seems more flexible and effective at adjusting as the landscape shifts. It's become a truism to observe that the rate of economic and technological change is accelerating. If you believe that (with exceptions, I do), then selection pressure will be exerted in favor of the more nimble and adaptable. Goolsbee concludes, tongue only half in cheek, with "something most Americans clearly understand: The world economy may be tough on your industry but look on the bright side: you could be French."

We need not endorse the notion of US IT triumphalism to conclude that IT, properly understood and deployed, can provide competitive advantage for individual firms.

This in turn brings us to a more strategic perspective on IT and its role in a firm. Here, the challenge is for the CIO to move the IT planning horizon from a single year to a multi-year perspective, and to move the focus of IT strategy from "supplier" to the firm to "alignment" with the firm to "competitive differentiator" of the firm. According to a Spring 2007 McKinsey survey of senior IT executives in North America, the basics are largely in place for IT to assume a truly strategic role. Whether they're actually taking advantage of that opportunity appears a closer question.

First, the good news:

• 83% say their company's IT strategy is developed collaboratively with business leaders.
• CIO's are visible: 44% report directly to the CEO and another 42% (making 86% in total) report to the COO or CFO.

And the not so good news:

• Only 43% say they are very or extremely effective at identifying areas where IT can add the most value.
• A mere 34% say they are more effective in introducing new technologies than their competitors, and an almost equal 29% admit they are "not at all" better than their competitors in innovation.

This, then, leaves us with something of a paradox:

• Leaders at the Legal Week technology summit underscored the critical role IT has to play in the 21st Century;
• The Americans Do IT Better study provided further ammunition, if any were needed, to the belief that IT can be a competitive differentiator; and
• McKinsey's survey tells us that CIO's by and large have the proverbial seat at the table—but that they're not exploiting it as effectively as they could.

I choose to view this not as a failing but as an opportunity.

The most forward-thinking proponents of Knowledge Management within firms are beginning to move the function from support of the firm's practice to support of the firm's strategy. The first—practice support—involves hygienic expertise in such things as sophisticated document management, "enterprise" (firm-wide) search, and cutting edge technological tools. But the latter—strategic business support—can bolster client-company and industry awareness, business development efforts, and client relations. It turns KM from inward and lawyer-facing to outward and client-facing.

One powerful way to open up your firm's KM function to clients is to introduce internally accessible and (carefully selected) client-accessible blogs and wikis, as is being done at Allen & Overy. These dynamic online fora can provide meeting places for practitioners with shared professional interests to virtually assemble and exchange viewpoints on the meaning of new developments in their area of expertise. If your firm has professional support lawyers, as the more sophisticated UK firms do, those PSL's can take a lead in such fora and move from a role of research and marshaller of precedent to analyst and provider of business and legal insight.

This moves the KM function from "on call" delivery of static repositories of information to interactive fora where opinions and perspectives can be cultivated and evolve. And this comes naturally to lawyers: How many times have you seen even the most senior people (especially the most senior people) drop whatever pressing matter they're pursuing to engage in a free-wheeling discussion of some new development whose immediate implications are difficult to discern?

If the leadership of your firm, from the chair or managing partner on down, endorses these social and professional experiments, imagine how far they could go. Ultimately, the goal is to unlock the expertise, both tacit and explicit, within your firm in transparent ways that clients will come to see as defining your true competitive distinction.

This is not your father's IT. And it's not a "commodity."

Law Firm "CIO 100's:" This Is Harder Than It Looks

I've been following the CIO 100 awards for several years—they're just out—and I've never seen so many law firms represented as this year.  To wit:

• Bryan Cave
• Foley & Lardner
• Goodwin Procter
• King & Spalding, and
• K&L Gates

What are the "CIO 100?"  They are the most innovative and effective CIO's, who have had the greatest  positive impact on their organizations.  According to the press release:

“The 2007 CIO 100 award recipients serve as industry role models for business and IT excellence,” said Abbie Lundberg, editor in chief of CIO magazine. “This year's winners demonstrate extraordinary results in a variety of important areas, including business transformation, collaboration, customer innovation and top line contributions.”

I cite this rather remarkable showing by law firm CIO's—snagging 5 of the 100 slots, while law firms represent nowhere near 5% of GDP—for two reasons:  First, it's a truism to say that ours is a knowledge business, but even truisms are occasionally correct. If we're a knowledge business, we are therefore, in the 21st Century, an IT business.

Second, we too little appreciate how extraordinarily hard it is for IT to have a meaningful—and creative, differentiating —impact on how we get our jobs done.    Inventing new technological tools—word processing, BlackBerry's—is actually the easy part.  Figuring out how to use them to transform the way we accomplish what we need to do is the hard part.

Lest you doubt the time-lag between technological invention and its having an actual impact on productivity, consider the following lesson from this week's "Undercover Economist" column from The Financial Times (a must-read, by the way).    The columnist is Tim Harford, author of the eponymous book, The Undercover Economist, who deserves the success that Freakonomics has scored, and then some. 

"Electric light bulbs were available by 1879, and there were generating stations in New York and London by 1881. Yet a thoughtful observer in 1900 would have found little evidence that the ”electricity revolution” was making business more efficient.

"Steam-powered manufacturing had linked an entire production line to a single huge steam engine. As a result, factories were stacked on many floors around the central engine, with drive belts all running at the same speed. The flow of work around the factory was governed by the need to put certain machines close to the steam engine, rather than the logic of moving the product from one machine to the next. When electric dynamos were first introduced, the steam engine would be ripped out and the dynamo would replace it. Productivity barely improved.

"Eventually, businesses figured out that factories could be completely redesigned on a single floor; production lines were arranged to enable the smooth flow of materials around the factory. Most importantly, each worker could have his or her own little electric motor, starting it or stopping it at will. The improvements weren't just architectural but social: once the technology allowed workers to make more decisions, they needed more training and different contracts to encourage them to take responsibility."

The lessons are two-fold, I think. 

First, getting IT right is a lot harder than it looks.  Have vision, but also have patience.

Second, understand that it's not only, or even primarily, about IT.  It's about culture, and transforming the way we work.  All IT can do is open the door.  But if we can't see our way past the massive steam engine model, we're wasting our time to replace it with an electric dynamo. 

"Think different?"  Indeed.  At least five of our CIO brethren seem to be doing just that.

Legal OnRamp: "Law Firm 2.0"?

Eagle-eyed readers of my article reporting on my conversation with Ralph Baxter may have spotted where Ralph's essay that I referred to was published:  On Legal OnRamp. 

For the rest of you, if you haven't heard of Legal OnRamp, I intend to remedy that here and now.  Consider what follows one small step in the unveiling of Legal OnRamp.

A collaborative service of leading law departments and law firms, it's intended to pool and build upon the knowledge and experience of these two key constituencies of the legal community and, by doing so, to provide a 21st Century tool to help get work done faster and with higher quality.

Ambitious? Yes, but taking a page from the finest and most venerable traditions of the legal profession, insofar as the goal is essentially to help lawyers and their clients collaborate more effectively. Ten years ago I embarked on an attempt to achieve a similar goal as CEO of the late Pro/Se Systems, Inc., which was designed to:

• Bring together the combined legal content of willing members of the AmLaw 100—the tons and tons of client alerts, advisories, updates, briefing papers, backgrounders, presentations, etc., which is now sitting on shelves in 3-ring binders in major metropolitan areas—and digitize it, making it plain-text searchable;
• With the Fortune 1000 as subscribers to this massive content repository, able in seconds to find the most germane articles addressing their legal question du jour.

In other words, bringing together supply (AmLaw 100) and demand (Fortune 1000) to provide a sophisticated online service for answering day to day legal questions all for the price of a subscription:  "I own restricted (Rule 144) stock; what can I do with it?"  "I have to fire a 60-year-old; what do I need to know?"  You get the idea.

Legal OnRamp is that idea—and far far more—a decade later. For one thing, it's a reflection of how companies are doing things fundamentally differently now, with far deeper learning available from sectors outside the law such as CAD, web, and enterprise systems.

Here's just some of what it has to offer:

• Content: FAQ's on the law, updates and publications from firms, "blogs from legal thought-leaders" (yours truly is a member), and standard forms and templates.
• Community:  Designed to facilitate communication and business deals between the members of "LOR," with forums and online discussions.
• Collaboration: A way to get work done between outside lawyers and in-house professionals.

Other features include real-time flagging of who among the members of your personally selected community are currently online on the site ("Facebook" for lawyers), private and secure collaborative workspaces and wikis, with more to come.

Who's behind it?

Cisco, first of all, as foreshadowed in this earlier article of mine.   But on the law firm side, some names you are familiar with:

• Allen & Overy
• Baker Botts
• Cooley
• Eversheds
• Fenwick & West
• Frost Brown Todd
• Littler Mendelson
• Morgan Lewis
• Orrick
• Pepper Hamilton
• Pillsbury Winthrop

Curious to learn more?  Contact LOR, or email me. 

Whether or not it will be as seminal and as ground-breaking as it aspirations, I think it's not too soon to say:

• It's an idea whose time will come.
• The odds of success today—for a host of reasons ranging from dirt-cheap servers and open-source software to more creative thinkers in our profession as a whole—beat those of a decade ago, with a stick.
• It has deep-pocketed backers, a conservative growth model, and with its modest spending rate and some early revenue streams, can survive for a long time without needing to achieve escape velocity.

Part of my fascination with Legal OnRamp stems from an observation many have made about our profession: That law firms won't fundamentally change until clients demand it. Legal OnRamp invites firms to change—at least in some respects—in anticipation of where clients are going: To go where the puck will be, if you will.

If, like me, you're intensely curious about ways in which our profession can evolve, while staying true to its roots of placing client service front and center, you'll want to know about Legal OnRamp. I can tell you that it's a ride I've signed up for. 

As they say in Times Square, "check it out."

"Web 2.0?" Letters? Phone Calls? Email?

Heard of "Web 2.0?"  Good; I thought so.

Care to define it?  Right; I also thought so.

It can be a slippery concept, unusually prone to the "eye of the beholder" syndrome, but the uber -article about Web 2.0 was written by Tim O'Reilly, founder of O'Reilly Publishing and one of the truly thoughtful writers about our evolving online world.   Here are some of his thoughts about it:

Web 1.0	-->	Web 2.0
DoubleClick	-->	Google AdSense
Ofoto	-->	Flickr
Akamai	-->	BitTorrent
mp3.com	-->	Napster
Britannica Online	-->	Wikipedia
personal websites	-->	blogging
evite	-->	upcoming.org and EVDB
domain name speculation	-->	search engine optimization
page views	-->	cost per click
screen scraping	-->	web services
publishing	-->	participation
content management systems	-->	wikis
directories (taxonomy)	-->	tagging ("folksonomy")
stickiness	-->	syndication

Some of the key concepts O'Reilly posits as characteristics of Web 2.0 are:

The Web as a Platform

In Web 2.0, you don't "surf" or look at things on the Web; you do things on the Web, and Web 2.0 participants such as Google provide services

Harnessing Collective Intelligence

For example, eBay is essentially an enormous platform for enabling, categorizing, and collecting the joint activity of all of its users, and like the web itself, it grows organically in response to user activity. 

Similarly, Amazon sells the same products as Barnesandnoble.com, with the same jacket photos, ISBN's, and Publisher's Weekly blurbs, but it has become extraordinarily adept at enabling visitors to contribute their own reviews, and to participate in a myriad of ways on virtually every page.  Through a virtuous feedback loop, Amazon uses the visitors' contributions to, in turn, improve its search and recommendation functionality.

Most spectacular in this area are the successes of sites like Wikipedia, entirely a creature of visitor contributions, or flickr or del.icio.us.  In a formulation at once cunning and appealing, this is known as the "architecture of participation."

Data is the Next Intel Inside

This signifies that every Web 2.0 initiative is tremendously data-dependent:  Google, Amazon, MapQuest, mashups (if you don't know what a mashup is, go here, which combines, or mashes up, Craigslist apartment listings with Google maps—right, you just got the idea).

The End of the Software Release Cycle

Google is famous, or notorious, for constantly releasing new functions, or applications, in "beta."  Sometimes they formally graduate from beta-adolescence, sometimes they disappear and sometimes they seem to remain in a sort of permanent beta purgatory.

I have often wondered when—but not whether—this will pose a bedrock challenge to Microsoft's business model.

O'Reilly has a few other candidates for characteristics of Web 2.0, which tend to be a bit more geeky ("lightweight programming models," "software above the level of a single device," and "rich user experience," for instance), but I think the point has been made.

Great.  What has this got to do with you and your firm?

---

The usual suspect, McKinsey, has fingered Web 2.0 for a survey on how global businesses are using it.  With nearly 3,000 respondents, 44% C-level executives, the survey essentially constitutes a widespread, but careful, endorsement of Web 2.0 in corporate land.  Some numbers:

• Asked how satisfied they are with the financial return on their investment in Web 2.0 technologies over the past five years:
  • More than half are pleased
  • Three-quarters plan to maintain or increase investments in the coming years
  • Only 13% say they are disappointed
• Interestingly, those who described themselves as "early adopters" were more satisfied than those deeming themselvse "fast followers."  This confirms my own personal prejudice that in technology investments, speed is a virtue.

Separately, McKinsey asked the classic "hindsight" question:  Knowing what you know today, what might you have done differently to make your investments in Web 2.0 technologies more effective?:

• Invested at the right time but didn't invest enough:  42%
• Should have invested sooner:  24%
• Would do nothing different:  18%
• Invested at the right time but over-estimated potential: 10%
• Should have waited for technology to mature further: 7%

Back to what exactly "Web 2.0" means in the business context:  The most popular application is "Web services," which McKinsey defines as follows:

"Web services are software systems that make it easier for different systems to communicate with one another automatically in order to pass information or conduct transactions. For example, a retailer and supplier might use Web services to communicate over the Internet and automatically update each other's inventory systems."

In law firm land, one of the truly useful applications of "Web services" I've seen is the knowledge management system of an AmLaw 25 firm that draws from essentially every database in the firm—not just the document management or matter management systems—so that if you find (say) a brief of particular interest, you have simultaneous on-screen links to every pertinent piece of data related to that brief, from the lawyers who authored it to the client for whom it was generated, the number of hours billed against it, the office and practice group it emanated from, etc.

"Web services" are in use at 80% of companies surveyed.

Second is "collective intelligence," at 48% of firms, meaning methods of enabling online collaboration, for example by allowing multiple authors to edit a document in one space.

"Peer to peer networking," which enables efficient sharing of a file over the Net or to a selected group, by distributing copies of the file across many machines, was in use by 47% of firms responding. 

After that, the remaining technologies were all used by between one-quarter and one-third of firms responding:  These included social networking, RSS feeds, podcasts, wikis, blogs, and mashups.

But let's not exaggerate the penetration of these techniques:  Very few report that their companies are using three or more of these techniques, and more than a third labeled the entire sector "experimental."

Still, among firms using them, the benefits seem clear:   The key objective is to communicate more effectively and efficiently with customers, business partners (e.g., suppliers), as well as internally (think KM). 

Is any of this a surprise? 

Yes: Because the key source of dissatisfaction with Web 2.0 applications seemed to be adopting them too late, not too soon. 

But no:  Because business (as law) is all about effective communication with the people who matter:  Your clients, suppliers, and your own colleagues within the firm. 

"Web 2.0" is not, conceived that way, novel in the least.  It's simply another way to communicate.  If communicating is key, Web 2.0 is here to stay.

The Law Library of the Future?

This morning I delivered the keynote at the Ark Group's two-day conference starting here in New York, "Best Practices & Management Strategies for Legal Library & Information Service Centers."

My keynote was titled "The Law Library of the Future," and I want to share some it with you. But before I do: Many thanks to the organizers of the conference, as well as to the many attendees I had the opportunity to speak with (some of whom I knew and some of whom were new). Here's how the conference materials summarized my presentation:

9:15AM KEYNOTE: The Library of the Future
 
As information resources are increasingly delivered in digital format and online, and as new generations of lawyers show increasing preference for, and adeptness at, employing powerful search technologies to engage in “self-service” research, the role of the law library in the 21st Century is seen by many as threatened.  Indeed, comparing the physical footprint of a library designed ten years ago to one planned for tomorrow will show drastic down-sizing and profound functional changes.  In light of these trends, many are questioning whether the library can maintain its central role in the life of a firm.

However, what law firms sell is knowledge; and libraries, above all, are purveyors of knowledge.  Therefore, the library of the future will move from a tactical to a strategic resource, from a static repository to dynamic, on-demand portal, from one-way delivery of assets to vibrant communities of practice, and from a “one size fits all” commodity to a focused, adaptive resource tailored to the precise needs of your firm today.

Libraries are environments for learning, and human beings learn through conversations within their social networks.  This means that the mission of the library of the future is to sustain and foster these social communities.   The implications of this are that libraries move to the forefront of a firm’s knowledge management initiatives, that to provide the on-demand, highly targeted answers lawyers are relentlessly seeking, effective libraries will adopt Web 2.0 techniques, and that libraries will become increasingly central to differentiating a firm from its competitive set, and providing strategic advantage in the marketplace.

Bruce MacEwen
AdamSmith, Esq.

Let me flesh out what I talked about.

I opened by telling the (true) story of walking through an AmLaw 25's library with a junior and a senior partner, examining the space given to the library

with an eye towards reconfiguring it for the firm's pending move to new offices:

Junior Partner (adamantly): "We need to get rid of all of this."   Senior Partner (wistfully): "Well, maybe not all of it...."

The fact remains that:

• The books are going away (nearly two-thirds of firms surveyed by The American Lawyer last year had cancelled West reporter subscriptions).  And
• The space is going away.  New offices designed today never feature the "monumental" library behind plate glass off the reception area.  In fact, one of the leading commercial real estate brokers in the country (in terms of law firm clientele) told me just last week that space planners' biggest worry about the library area is not that it will be too small but that it will be too big.  To hedge their bets,  new library areas are planned in advance to be flexible enough to be able to serve other functions, such as litigation "war rooms."

In general, the model for the new library is not the reading room at the Library of Congress or the British Museum, but:  Starbucks.  In other words, not the sacrosanct temple, but the drop-in, get away from the phone, casual environment ideal for reading in solitude or meeting informally to sling ideas around.

In pursuing this type of model, librarians need to understand that they are dealing with four generations of lawyers in terms of attitudes towards media, technology, and research.   This is roughly how I characterized it:

Traditionalists/ -Silent Generation	Boomers	Gen X	Millennial's
Born <1946	1946—64	1965—81	1982—2000
Patriotic, loyal, risk-averse	Idealistic, competitive, driven	Self-reliant, skeptical, risk- takers	Civic-minded, collaborative, realistic
Case reporters, treatises	law reviews, mainstream legal periodicals, Google	work product of trusted colleagues, focused legal online resources	blogs, RSS aggregators, Wikipedia
ABC, CBS, NBC	CNN, PBS	Fox, MTV, Comedy Central	YouTube
Letters	voice-mail	email	IM, SMS

Reflecting on this topic spurred me to look up one of my favorite quotes on attitudes toward technology, which comes from Douglas Adams' Hitchhikers' Guide to the Galaxy:

• "Anything that is in the world when you were born is normal and ordinary and is just a natural way the world works.
• "Anything that is invented between the time when you are 15 to 35 is new, revolutionary, and exciting, and you can possibly get a career in it.
• "Anything invented after you are 35 is against the natural order of things."

Still, it remains the case that while the books may have gone away, the demand for knowledge has not—if anything, the demand is more voracious than ever.    This is actually good news for librarians, if they can transform their role from passive custodians of information to active champions of knowledge resources.  I portray it as follows:

20th Century	21st Century
Information was scarce, hard to find, a treasured resource	Information is ubiquitous, overwhelming, impossible to sift through
Requiring professional trained searchers to locate it ("librarians")	Requiring sophisticated guidance to find the needle in the haystack ("librarians")
Status conferred by shelf-feet of books, grandeur of space	Status confirmed by "a seat at the table" in key law firm activities
Isolated from the firm	Integral to the firm

Ultimately, I believe the law library of the future is Knowledge Management.  If I'm right, this is terrific news for librarians who can adapt themselves to this role and ensure that the conversation with the executive committee about resource allocation is cast in terms of scholarship, professional development, client and business intelligence, and competitive advantage through astutely marshalling the firm's intellectual assets:  And not in terms of overhead, square footage, the price of subscriptions, headcount, and non-fee-earners. 

If so, the library of the future will evolve:

• from a tactical to a strategic resource
• from static repository to dynamic, on-demand portal
• from one-way delivery of assets to home for communities of practice, and
• from a "one size fits all" commodity to an adaptive resource tailored to the needs of your firm today.

Such was my message, in any event, for those willing to re-imagine the the library's fundamental purpose, its clientele, the services it offers, and the firm's level of satisfaction with those services.

---

Update: 22 Feb.: Stephen Rosenberg of The McCormack Firm, LLC (Boston) wrote me with the following thoughts which he has given me permission to publish:

"Adam [he knows my name is actually Bruce], have long enjoyed your posts (long being a relative term in light of when the age of blogging dawned), but today's post was the first to provoke me to comment. Yesterday I posted an essay on the death of the law review, arguing that new sources of information - and the preference of younger lawyers to use them over traditional library sources - were replacing them in terms of relevance and usefulness. The post is at: http://www.bostonerisalaw.com/archives/people-are-talking--law-reviews-are-dead-they-just-dont-know-it-yet.html.

"Your post today seems to make the same point, only on more of a macro level: that technology is and will completely transform the entire legal research model, eliminating the old fashioned library in its entirety, and not just, as per my post yesterday, law reviews (at least if they do not change their DNA in a manner that allows them to join the on-line interactive world)."

I agree with Stephen entirely. Indeed, I would submit that if your firm has not yet "re-engineered" your library, your peers who have are in a position to steal a march.

"New Delivery Mechanisms That Will Be Highly Disruptive"--Clayton Christensen Is Talking To You

Mark Chandler, a Senior Vice President and the Secretary and General Counsel of Cisco, gave a speech last week in San Diego at the Northwestern School of Law's 34th Annual Securities Regulation Institute, which has been getting a fair amount of play online, and deservedly so.

Called "The State of Technology in the Law," it's actually far far more than that; it's his vision of how our industry will be transformed by technology—and client demands—as the 21st Century unfolds:  Indeed, as some of us who hope to have decades left on our career will experience ourselves.

I'm quite confident I've never used the phrase "must-read" on "Adam Smith, Esq.," but this is my first nominee.  I'll attempt to highlight some of his key points and give you my take on them; but you should, to be sure, read it all.

Chandler frames his talk thus:

"I offer you three questions for our discussion today.
"First, how is technology driving change in knowledge-based industries?
"Second, what are the key areas of vulnerability in the legal services business to these technological changes?
"And third, what will it take to succeed in this changed environment?"

Chandler runs a "metrics-driven" law department, which is required to run that way "just as other corporate departments are run." 

And because he's driven by the imperative of productivity improvements, he expects the legal department's share of revenue to get smaller as Cisco grows. And he's brutally dismissive of law firms that have a different agenda:

"Letters from law firms telling me how much billing rates are going up next year are therefore totally irrelevant to me, or as we say in Silicon Valley, orthogonal to my concerns. Think about it: not one of the CIOs of your firms expects to get a letter from Cisco explaining how much more our products will cost next year. And not one of our suppliers comes to us to tell us how much their prices will go up next year. So from my perspective, I don't care what billing rates are. I care about productivity and outputs."

You may think this is spoken like a procurement manager in disguise, but he's barely getting started.   The transformation of our industry is a subset of the transformation of access to information, which is moving from centralized, command-and-control hierarchical dispensers of content, to zero-marginal-cost transmission and duplication.  (What did in Tower Records?i ITunes and Kazaa; and recording industry revenue is down 25% in the last 5 years.)

Michael Spence, co-winner of the 2001 Nobel Prize in Economics, has said that the worldwide networking  of computers is the most important development in economic history since the opening of the trade routes between Europe and Asia in the late Middle Ages.  Why?  Because it changes where and how people can work.  And Chandler reels off a litany of Old World entities built on the information-is-scarce paradigm, suddenly made obsolete by information-is-free upstarts:

• Encyclopedia Britannica vs. Wikipedia
• Frommers and Fodors vs. ePinions and TripAdvisor
• Corner bookstores vs. Amazon
• Newspapers vs. eBay and craigslist

And then he turns to law-firm-land, meaning to question #2, "key areas of vulnerability."

The heart of the matter is that devil with nine (or ninety) lives:  The Billable Hour.  "Put most bluntly, the most fundamental misalignment of interests is between clients who are driven to manage expenses, and law firms which are compensated by the hour."

And while the Baby Boomers may have bought into the model of toiling ceaselessly for a decade or so in an attempt to win the tournament for a chance at toiling ceaselessly for a few more decades, today's associates aren't buying it:  Associate attrition rates are 20%/year and higher, and Chandler adds that "The chairman of one firm told me that only people in their 50s and 60s are willing to put in long hours these days, that associates regularly turn down the chance to work on major deals if it interferes with social plans or a vacation."

This, may I hasten to add, is not the associates' problem:  It's your problem.

Would you rather bemoan it?  Fine:  Be my guest.  Denial is always a superb adaptive strategy.

But as Chandler puts it: 

"Upending one's life to support inefficient means of communication, driven by a billable hour system, to maintain a relatively slim chance of making partner, just doesn't cut it. And when the next generation heads for the exits, it's a sign of a business model under stress."

"Under stress" happens to be my own nominee for best single turn of phrase in the entire piece.

Here on "Adam Smith, Esq.," and in my life in the real world, I devote a fair amount of attention to knowledge management:  It is, I believe, at the very core of a high-performance firm, living at the intersection of professional development, marketing, and client service.  A firm with a frustrating or ineffective KM system is at a serious competitive disadvantage.

But KM can be a double-edged sword, as Chandler astutely observes.

His problem is that clients cannot benefit from firms' KM systems without going through the tollgate of the hourly billing model:  "The legal industry has spent millions on IT to up speed access to information. But the only way I can get that information is through an individual billing me by the hour."  Chandler is fed up, and he's not going to take it any more.

The issue is that the gatekeeper, the one-on-one relationship of client and lawyer, is profoundly obsolete:

"My contention is that the very source of success for firms today – the ability to manage client access to information and require clients to use bespoke 1:1 systems – will be the source of failure in the future.

"So my answer to question number two is that the greatest vulnerability of the legal industry today is a failure to make information more accessible to clients, to drive models based on value and efficiency. The present system is leading to unhappy lawyers and unhappy clients. The center will not hold."

Chandler foresees a world with law firms sorting themselves into a "dumb-bell" distribution:  At one end, a group who are able to commoditize and standardize services to manage costs and ensure predictability, "where very good is good enough."  And at the other end, providers of top-notch bespoke services.  Rare will be the firm that can pull off both.

Don't count Chandler an ingrate.  He understands the integral role of outside counsel, and proudly (and rightly) cites Cisco's record of "no records with its stock options, minimal comments on our 10-Ks, and only one piece of litigation listed in the last 10-Q, and that one has subsequently been resolved."  He's proud of our profession.

But:  New technology has resulted in new business realities.  Clients are demanding greater value.  Associates are demanding greater engagement. 

As tempting as denial may be, I for one do not believe it's an equilibrium solution.  Personally, I don't even believe it's remotely tempting—not in the least.

Let me propose a vision for a law firm that Chandler would hire, and hire enthusiastically:

• A powerful and supple knowledge management system is its key competitive weapon.
• The firm is not afraid—indeed, it trumpets—sharing this system with key clients (obviously, within the bounds of confidentiality, privilege, etc., etc.).
• Lawyers are freed to work on truly higher-value work.
• For which they bill based on a measure of value-received instead of by "cost of production," a/k/a the billable hour.

What does this accomplish?

• It aligns the firm's economic interests with its clients'.
• It separates the firm from the pack, which means
• The firm can (honestly, truly, deeply) tell its clients that it understands what they've been through in terms of
  • down-sizing
  • outsourcing
  • streamlining
• And that it's doing the same things its clients have been doing.

Let's face it:  Corporate America (corporate-world, for that matter) has gone through the looking-glass of rationalizing every process they execute into as streamlined, efficient, and cost-effective a posture as they can possibly imagine; and they're still challenging costs every day.  Law firms haven't even thought about it.

But the Mark Chandlers of the world are telling us that we'd better start reading from the same playbook they've been using for a decade or more.

Is this the opportunity of a generation, or what? 

Imagine if your firm was not pushed kicking and screaming into this absolutely positively inevitable future, but if it led the way?  What competitive distinction would that be for you?  How enduring would the advantage to your reputation be?

I was discussing Chandler's piece with a good friend a few nights ago, a fellow who works for an AmLaw 50 in a senior managerial slot, and his reaction was:  "I wish we had more clients like that; imagine what we could do for them."  He's ever so right.

You read it here first.

---

Update: Feb. 13:

Doug Caddell, CIO of Foley and Lardner, and a friend, writes as follows and asks me to include this as a comment. If you don't know Doug, yes, he's droll.

I generally agree with the above comments of Mark Chandler, GC of Cisco. However, I do take exception with one statement in particular.

Mark says, "Letters from law firms telling me how much billing rates are going up next year are therefore totally irrelevant to me, or as we say in Silicon Valley, orthogonal to my concerns. Think about it: not one of the CIOs of your firms expects to get a letter from Cisco explaining how much more our products will cost next year."

I thought about it: I don't know about my peers, but I receive a "letter" from Cisco every year informing me of my increased cost of doing business with Cisco. While these "letters" are not printed on stationary, the do arrive on Cicso invoice "letterhead". And each year the topic has been price increases. This is especially true with Cisco Smart Net, their maintenance "insurance" on routers, switches, etc. What used to be reasonable has gone the way of first year associate salaries. So much that we now only put critical gear on Smart Net, and "self-insure" the rest.

I'm waiting for this year's letter from Cisco. But, I don't need to open it to know what it says.

Doug Caddell, CIO Foley & Lardner LLP

---

Update, Feb. 13:

Marco Antonio P. Goncalves writes me from Rio de Janeiro with these thoughts:

"Bruce, congratulations on the post. The subject is really interesting and has lots in common with something I wrote in a book on legal marketing that I'm co-authoring with another Brazilian legal marketing consultant. The book is not yet finished, but I try to explain the increase need by companies to look up to law firms that operate like them, like a business, as "corporate mirroring" (I believe this is the best translation from the Portuguese term I have used). In other words, companies want to see them reflected in the law firms they do business with. If they don't get this "reflection", they will simply look for another law firm who does."

Marco raises an insightful point: As the pressure relentlessly increases on Fortune 1000 GC's to operate their departments more and more the way marketing, manufacturing, finance, etc., operate—like a business—GC's and their teams will naturally look more and more for law firms that follow the same philosophy. The question is not whether your firm will get there, but when: And I invoke the bromide (in this case, truthful): "Lead, follow, or get out of the way."

200,000 SqFt; Hi Flr; Park Vu

True story related to me this month by a friend who happened to be accompanying a senior and a junior partner through the library of their AmLaw 25 firm, with an eye towards figuring out if the space could be used better:

Junior Partner (adamantly):  "We've gotta get rid of all of this!"

Senior Partner (wistfully):  "Well, maybe not all of it...?"

This set me to thinking about the use of space in Class A buildings in prime downtown/midtown locations in general—particularly since occupancy is almost invariably a firm's second largest expense after salaries and benefits and well ahead of "everything else."   And some of the figures can be eye-popping, such as Akin Gump's recent lease of 200,000 square feet in New York's Bank of America Tower for over $100 per square foot (the building opens next year).

Why, I had to ask, were the much-vaunted collaboration-at-a-distance technologies not cutting into demand for extremely dear space catty-corner from Bryant Park?  As the must-read Tim Harford recounts in the Financial Times's weekly "Undercover Economist" column:

"Virtual worlds, BlackBerries, video-conferencing from the local Starbucks – it has all become so easy, and so commonplace, so quickly.

"Intuitively, that should mean that geography becomes less important. E-mail and video-conferencing mean fewer flights. No more business conferences or meetings at Davos. Telecommuters don’t need to clog up the roads, and property prices in London and New York should slide as people carry out their investment-banking responsibilities from Anglesey or Iowa.

"It doesn’t take a genius to figure out that there’s something wrong with this argument."

What's wrong, of course, is that virtual propinquity and physical propinquity are not substitutes:  They're complements.  (This notion is argued more formally in Information Technology and the Future of Cities, by Jess Gaspar of the Graduate School of Business at Chicago, and Edward Glaeser of Harvard's Kennedy School of Government, available on SSRN.)

In economics-speak, a "substitute" is a good or service that can be used in lieu of another if one of the pair is unavailable, inconvenient, or expensive.  In general, the more one uses of one the less one uses of the other. Think coffee and tea, or flying and driving (short trips only, please!).  Conversely, "complements" are goods or services which tend to drive demand for each other in tandem.   Think peanut butter and jelly, or bread and butter.

The key insight is this:  When telecommunications technology improves, some things that used to be done face-to-face will now be done remotely, but/and the easier it is to keep in touch with more people remotely the more face-to-face meetings will ultimately eventuate. 

In a more readable treatment of their academic paper published in the Chicago GSB magazine, "Will There Be Cities in a Virtual World?", Gaspar and Glaeser note that one of the key functions of a city is to "drive down the costs of face-to-face meetings," and then hypothesizes someone deciding whether to do a project "privately" or "jointly."   Employing only one—eminently sensible and defensible—assumption, namely that face-to-face interaction is more intense and more productive than time on the phone or in email ping-pong, they quickly conclude that cities may possess a "productivity advantage" because face-to-face meeetings are cheaper than in "the hinterlands."  They then introduce this fabulous data (OK, I'll admit I have a recessive gene as a data junkie):

"If telecommunications and face-to-face interactions are substitutes, then people who are physically closer, and presumably see each other more often, would need to call each other less often. Conversely, if face-to-face contacts increase the demand for electronic contacts, then people who are physically closer should call each other more often.

"U.S. telephone data from the mid 1970s shows that more than 40 percent of phone calls were made to places within a two-mile radius, and more than 75 percent were made to places within a six-mile radius. The same effect has been observed in the 1990s in Japan."

The authors also track the raw number of business trips divided by real GDP since 1970, and found a "significant increase."  Because airline prices (cost per seat-mile) fell dramatically during the 1980's, they also correct for that and still find that since the mid-1980's when faxes and then email began to be ubiquitous, business travel relative to real GDP has risen more than 50%.

Admittedly, some of the increase in the total tonnage of business travel may reflect changes in the composition of economic activity and the increasing importance of services in general and high-end professional services in particular as contrasted with manufacturing, and wholesale

and retail trade, which are becoming more productive and, concomitantly, smaller components of GDP.

Wherever one comes out on that debate, the most intriguing aspect of all their findings takes us back to the difference in the quality of interaction in face-to-face vs. electronic communication:  Hands down, face-to-face is richer, more nuanced, capable of communicating more complex and subtle concepts more efficiently.  As we would say today, face-to-face is "higher bandwidth."

Now, ask yourself where higher bandwidth is valuable? 

Precisely.   Face-to-face communications are more valuable where the underlying transaction being discussed is more sophisticated, complex, and one-of-a-kind.  Face-to-face also beats electronic the higher the trust quotient required between you and your interlocutor.  We can specify the price per bushel and the delivery date "FOB" in an email, but can we really structure a collateralized debt obligation through our BlackBerrys?

This begins to explain why World Cities are disproportionately home to the creative and performing arts, investment banks and management consulting firms, great restaurants and cutting-edge design, advertising and multimedia firms, technology and life science incubators, and, yes, sophisticated legal practices.

So what would my advice be to the  junior and the senior partner surveying the library, and staring at the prospect of $100+/square foot leases in their future? 

Put your firm's assets that need to be catty-corner from Bryant Park precisely there; expect to pay up for the privilege; and enjoy it.  You've arrived.

Today, and Tomorrow

My Favorite Law Technology News Award Winner

I'm pleased to be able to be able to announce the winners of the 2007 Law Technology News Law Firm and Law Department Awards.  If you're going to be at LegalTech, I understand tables for the awards dinner are still available.   (As a member of Law Technology News' Advisory Board, I'll be there.)

While all the winners deserve congratulations for their efforts, I need to highlight one in particular, the award for " most innovative use of technology in a law firm," which goes to Morrison & Foerster's Chief Information Officer, Jo Haraf, and the firm's Knowledge Management Counsel, Oz Benamram, for their development of "AnswerBase," a one-stop intelligent search system designed to present users with information drawn from every significant system within the firm, starting of course wit the document management system, but also including personnel and human resource records, financial and accounting data (down to the individual time-sheet level), client and matter databases, and even records of alumni.  Perhaps because AnswerBase draws from so many different data sources, its nickname is the "Googlification" of Morrison & Foerster.

The reason I need to highlight it is that I was retained by Morrison & Foerster to lead an analysis and review of AnswerBase vis-a-vis its predecessor Knowledge Management system during last summer and fall, and reached the resounding conclusion that AnswerBase was strongly superior to the firm's legacy systems, by providing highly relevant documents and discovering genuine subject-matter experts within the firm with impressive accuracy.   By interviewing a broad cross-section of lawyers at the firm's New York offices, I was able to determine that the design and functionality of AnswerBase essentially replicate, as I put it in my report, "the way lawyers think" rather than reflecting technical considerations or limitations.  Also as I put it there, the key challenge to any knowledge management system is to understand this fundamental truth:

Associates look for documents; partners look for clients.

So, for example, one associate had this experience:  "I had been researching the requirements for establishing a broker-dealer for a few days with little to show for my work; when I turned to AnswerBase, I found a firm memo outlining all the actual steps within a matter of minutes."

And a partner (and practice group leader) told me simply:  “Clients are very interested in knowing what else you’ve worked on that’s similar.   Why?  They don’t want to pay for you to go learn it:  So it’s very very helpful to find that stuff through AnswerBase.”

Recommind, the firm that provided the fundamental "MindServer" technology underlying AnswerBase, has built an online ROI calculator which lets you enter actual numbers for your firm (such as number of associates, median number of hours they bill, blended hourly rate, etc.) and see what they might mean for your firm.

Recommind has also published my whitepaper on AnswerBase, together with the Appendix which explores bases for calculating ROI.  I invite you to take a look, and again congratulate Jo, Oz, and their team for a fascinating solution to an age-old problem. 

To learn more, including seeing an online demo of AnswerBase in action, click on the Morrison & Foerster logo:

It's 10 pm; Do You Know Where Your CIO Is?

Have you asked your CIO lately whether he thinks IT at your firm is "aligned" with your business?

Are you wondering what on earth I'm talking about?

If you haven't immersed yourself in IT management literature (I have), I need to explain that "alignment" between the IT department and the strategic objectives and actual functions of the firm is the Holy Grail:  Without "alignment," IT is off in outer space, dealing with whatever it's dealing with (and sending you the whopping bill for it), but leaving you and your partners without a clue as to what it's accomplishing.  All you know (again, absent "alignment") is that if email is down for two minutes or the network seems sluggish or the brilliant draft of the brief you finished last night seems to have utterly vanished, holy hell will break loose.  But expect the IT department to actually help you work smarter?  Please.

This is where alignment comes in.

What is this slippery creature?  According to CIO Magazine's 2007 State of the CIO report, it is "less technical than it is social," and

How well an organization has aligned IT processes with the business strategy depends on "how well the CIO is communicating with C-level colleagues," says Laurie Orlov, vice president and director of research for Forrester. "They need to be able to fully communicate what IT is doing and why that is important to the business strategy."

This is where alignment "brings the money," as CIO puts it, recapping their annual survey.  These (self-reported) scores represent "aligned" vs. admittedly un-aligned CIO's:

• 24% of aligned CIO's reported enabling new revenue, vs. 11% of un-aligned;
• 38% vs. 23% in creating competitive advantage;
• 45% vs. 30% in enhancing competitiveness next year;
• yet only one out of five identifies themselves as aligned, and a depressing 80% consider themselves not.

The coin of the realm, as in all matters involving cross-departmental trust, is simple human trust and communication.  CIO sums it up by recounting the experience of a CIO at a privately held publisher who has a simple policy:  At least once a week, he makes  a point of meeting a business department leader out of the office—lunch, drinks, a round of golf—and does a sanity check of how IT-related projects are going.  As he puts it, this turns potentially threatening exercises in dueling accusations into opportunities to "look for solutions rather than assign blame." 

CIO underlines the point:  "And when you get down to it, blame is what a lack of alignment is all about. It is resentment that a service paid for does not deliver more business."

In a companion piece, CIO elaborates on how IT leaders that work across the divide between "pinstripes and process" spend more time with their fellow CXO's, less time putting out IT crises, and are more likely to have been economics majors or have MBA's.  They don't talk about "IT projects," they talk about "business initiatives."

That's not to say that being a business partner means being a business "pushover"—and taking on more than their resources can tackle.  Being smart about what drives the business also entails establishing priorities.  The CIO at a firm with a few dozen lawyers can't match Skadden; pick your battles.

Is much of this obvious?  Perhaps—unless you'd never thought about it.

In the 21st Century, the competitive landscape will increasingly be shaped by IT.  You need to have the right CIO on-board, and I'm writing this to remind you of that imperative.  Indeed, someone recently asked me if I thought the CFO or the CIO had the better overall "grasp" of what a firm's about.  And in my heart I knew a sea change had occurred.  I responded:

"Ten or twenty years ago, the CFO without a doubt.  Today, and as far ahead as the eye can see, the CIO."

Do's and Don't's in IT: Never the Twain Shall Meet?

CIO Insight, in partnership with Baseline Magazine, is featuring a year-end review of nearly 230 case studies done over the past five years to distill out the "Top 10 Lessons for IT Project Success."  Reading that piece in conjunction with "Top 10 Project Pitfalls You Can Avoid" is a fascinating exercise in realizing how the obvious sometimes bears re-stating and—I am quite confident this perspective is entirely unintended by the writers—also gaining insight into why so many IT projects do, indeed, fail spectacularly:  Because many of the top 10 "do" recommendations are perilously similar to many of the top 10 "don't's."

But first, let's rehearse what we really do seem to know about IT projects:

• Technology cannot set the agenda; business processes must.  For example, while Toyota relies heavily on technology at its manufacturing facilities, one senior VP at the Boston Consulting Group who has studied Toyota observes "What strikes me about Toyota is, if you were to ask them if they have a technology strategy, they would probably say no, we have a business strategy."   The result of that insistence on the primacy of the business objective?  Merely that Toyota is the most efficient, highest-quality car manufacturer in the world.  To be sure, there are some valuable cultural overlays to this—including just-in-time supply chain management and, famously, kaizen, or continuous improvement; but my favorite of them all is genchi genbutsu, which literally translates to "Go and see for yourself."  In other words, at Toyota you're not permitted to just hear about a problem and try to act at a distance; workers, team leaders, and executives alike are required to go see the problem directly and work collectively  on a solution.  My recommendation?  Steal this practice.
• Track IT projects across the entire enterprise. Unless you're doing this, you have no hope of ensuring that your IT resources (human and financial) are devoted to the highest-priority, biggest-payoff projects.  Don't let IT descend into the chaotic pit of "emergency response central."
• Get everyone who matters in one room.  Or else the "solution" you design and start to build, at great cost, will irritate, offend, or simply not work for some critical constituency.
• Clean up your data—and keep it that way.  This seemingly obvious statement actually covers an entire landscape of IT project failure modes, including:
  • tolerating aging and incompatible systems which do not communicate with each other and cannot be integrated
  • the dog-chasing-its-tail syndrome of trying to retroactively fix erroneous information after it's been propagated across multiple systems
  • living with systems that routinely disclose bad information outside your firm
  • and recognize that one reason data gets dirty or noisy to begin with is poor design—of the screens, prompts, language, and choices available to users entering or updating data.  A confused user confronting an ambiguous or unclear choice cannot be counted on to read the developer's mind.

Now we get to the fun part:  How much family resemblance is there between the "do's" and the "don't's?"  Turns out, a lot.

#1:  "Get everyone in the same room" (do) but "Projects are impeded because they require approval across multiple divisions" (don't).

#2:  "Biting the bullet and migrating off an older technology can pay off" (do) but "A project's scope is too monolithic and gargantuan" (don't).

#3:  In one of my very favorites,  we have duelling "do's":  "The easiest solution isn't always the best" vs. "Don't use complicated, expensive software when a clipboard and pencil will do."  (I told you —how juicy is that?)

#4:  "Give users what they want" (do) but "Access rights are undocumented" (don't).  How are these at odds?  Simply in the intrinsic way that security and convenience are almost always at odds.

So that was fun, but what can we take away from all this sport?

Lesson One:  There's a reason the IT landscape is littered with the corpses of expensive projects.

And, far more important, Lesson Two:  If you're about to dive into the deep end of the IT pool, don't imagine for a second that you can rely on staff or vendor reassurances, untested assumptions, user omniscience, or management's heedless assent to pave the way.  You are in charge:  Navigate with crystal clear eyes.

Globalization, IT, and the Baby Bust

At the intersection of:

• technology
• globalization, and
• demographics

we have, according to Robert Reich (Secretary of Labor under President Clinton and now Prof. of Public Policy at Berkeley), the challenge of "the economics of people" for the next few decades.  

I would probably not be the first to observe that Reich, famously short at 4'10", has generated more controversy per inch than almost anyone since Napoleon (and even CIO Insight, the magazine interviewing him, calls him one part "polemicist"), but he's saying something important here, reasonably well divorced from his ideological premises, and it's worth pondering.

Reich's first observation is that "globalization" is less about trade than it is about direct investment.  The result is that it's not just IT, help desks, and such that are being "outsourced," but rather that "all management is becoming globalized: Wherever something can be done cheaply and at the right level of skill, it will be done there."

Now add in technology, which permits, enables, and ultimately compels the following:  "In the future, anything that can be done routinely or can be reduced to software code will not be done by a person. And software is becoming ever more sophisticated."

Last is demographics:

"The baby-bust generation, people born in the U.S. between 1965 and 1990, will be in relatively short supply. Companies will have to worry even more about recruitment and retention than they do now. Immigration will become an ever more contentious issue."

In law firm land, still after all these years measuring contribution by hours worked, the "baby bust" statistics combine with the anti-workaholic attitudes of Gen Y to wreak a double whammy:  Fewer people, who are each inclined to work less, given their druthers.  Reich cites both "recruitment and retention," and "immigration" as germane to this.  The first is self-evident, but I want to highlight the second.  Instead of (just, or only) moving document production to India, should your firm start looking at importing Indian lawyers to New York, San Francisco, and Chicago? And training them as you would Harvard, Stanford, and Yale grads?

If you haven't thought about this already, my prediction is you will—or at any rate, your competitive set will.

Over the next few decades, as technology and globalization make it increaingly irrelevant where work is performed, and as "direct investment" (vs. trade) grows in importance, the competitive differentiator for firms will, more and more, be the sheer level of their talent.   Being down the block, or in the same time zone, or in the same country—out the window.

Reich expresses it this way:

"The competitiveness of any place in the world, including a place called the United States, depends less and less on the profitability of companies headquartered in that location, and more and more on the capacity of the people that live there to add value to this increasingly integrated global economy."

If you believe that (I do, in spades), you will know intellectually and rationally what I hope you've long known emotinally and in your gut:  Your firm's only irreplaceable asset is its people.  It's not capital assets, which scarcely exist and certainly aren't material, and it's not even client relationships, although this could be sounding heretical.   High-quality professionals will attract clients; high-quality clients will not suffer mediocre professionals.  (And I recently learned of a study finding that some typical AmLaw 100 firms lost 1% of their client billings per month through personnel changes, attrition, and the general effects of entropy:  This may not sound like a lot, but I characterize it as one-fourth of your client base every two years, you might have a different view.)

Is there any good news in what sounds like an increasingly Darwinian, not to say jungle-esque, landscape?  I think so:  The good news is that if you have those highly talented professionals, they can build your firm's reputation off each other.  Reich puts it this way:

"Relational capital is one of the most important and yet most neglected areas of capital formation. Companies need to utilize IT so that everyone in an organization can take maximum advantage of everybody else. It used to be called knowledge management. It's more complicated than that, as we've all discovered. But because all other entry barriers are dropping so fast, we need IT systems that rapidly connect the right people to each other so that there are real synergies."

Today I was privileged to see a prototype of a new KM system at the New York headquarters of an AmLaw 10 firm, and Reich's comment about "rapidly connect[ing] the right people to each other" could be taken as the design thesis for this system. (I hope to be able to report more on this in the near future.)

So it comes down to:  Intelligently deploying technology to deal with the ineluctable onrush of globalization and thereby to surmount the challenge of demographics. 

"Knowledge Management 2.0"

Among the numerous obstacles to an effective and comprehensive Knowledge Management program are (a) lawyers' reluctance—actually, make that absolute refusal—to spend 10 seconds in the active "care and feeding" of the KM system; and (b) the daunting information technology challenges typically associated with ambitious, top-down-driven and firm-wide installations of complex, sophisticated systems.

Nevertheless, achieving excellence in KM can actually be a competitive differentiator, and as bad a name as KM has periodically had, firms continue to come back to the trough to see if they can, at long last, get it right.

The confluence of two stories, one the cover story of last week's New York Times Sunday Magazine, and the other from the current issue of CIO magazine, compel me to share with you a proposal I made to an AmLaw 30 firm eighteen months ago designed to overcome the two barriers to KM cited above.  (Nothing immediate came of the proposal, although the firm and I are still best of friends.)

The Times piece, titled "Open Source Spying," highlights some of the fundamental reasons our national intelligence agencies famously failed to "connect the dots" prior to 9/11—and, one has the stomach-wrenching suspicion, still can't or don't.   In a nutshell, the reason is they're using "1995 technology," and the solution is bringing them into Web 2.0 as of 2006:

"Indeed, throughout the intelligence community, spies are beginning to wonder why their technology has fallen so far behind � and talk among themselves about how to catch up. Some of the country�s most senior intelligence thinkers have joined the discussion, and surprisingly, many of them believe the answer may lie in the interactive tools the world�s teenagers are using to pass around YouTube videos and bicker online about their favorite bands. Billions of dollars� worth of ultrasecret data networks couldn�t help spies piece together the clues to the worst terrorist plot ever. So perhaps, they argue, it� s time to try something radically different. Could blogs and wikis prevent the next 9/11?"

So frustrated was the CIA with its inability to connect "subject matter experts" in real-time that it sponsored a competition called the Galileo Awards: Any employee at any agency could submit an essay describing a way to improve intelligence sharing, and the best would receive prizes. "The first essay selected was by Calvin Andrus, chief technology officer of the Center for Mission Innovation at the C.I.A. In his essay, “TheWiki and the Blog: Toward a Complex Adaptive Intelligence Community,” Andrus posed a deceptively simple question: How did the Internet become so useful in helping people find information?"

"The Wiki and the Blog" has now been published on SSRN, where you can read the whole thing, but this is the key predicate:  "US policy-makers, war-fighters, and law-enforcers now operate in a real-time worldwide decision and implementation environment. The rapidly changing circumstances in which they operate take on lives of their own, which are difficult or impossible to anticipate or predict. The only way to meet the continuously unpredictable challenges ahead of us is to match them with continuously unpredictable changes of our own."   And wikis and blogs, he proposes, are the answer.

But isn't this all a little airy-fairy?  When you're talking about national security—forget that RFP for the new client that you thought was a big deal—you're really going to trust a "blog" or a "wiki"?!  Well, we have a case study:

"[Andrus] was particularly intrigued by Wikipedia, the "reader-authored" encyclopedia, where anyone can edit an entry or create a new one without seeking permission from Wikipedia�s owners. This open-door policy, as Andrus noted, allows Wikipedia to cover new subjects quickly. The day of the London terrorist bombings, Andrus visited Wikipedia and noticed that barely minutes after the attacks, someone had posted a page describing them. Over the next hour, other contributors � some physically in London, with access to on-the-spot details � began adding more information and correcting inaccurate news reports. �You could just sit there and hit refresh, refresh, refresh, and get a sort of ticker-tape experience,� Andrus told me."

Need I add that some of the best coverage of challenging events, from Kosovo to Baghdad, has come from local bloggers-on-the-ground? 

Blogs and wikis have another stunning advantage, one nicely captured by a Sun Microsystems Senior VP who commented from a deep reservoir of chagrin and skepticism that they didn't depend on massive enterprise-wide system upgrades and extensive user training:  "They're like pencils and paper;  people just know what to do with them."

From the perspective of eliminating the daunting IT challenges of installing a Google-like search that hooks into the dozens and dozens of incompatible databases your firm doubtless has, or even rolling out "Lotus Notes" for 1,000 people, blogs and wikis are also unbeatable.  As a friend of mine counseling a severely technophobic head of a small firm said, when asked how someone as Luddite as he could possibly set one up, said, "If you've got half an hour and a credit card, you're there."

We all recall the FBI's massive effort to overhaul its case management software, finally culminating in 2005, after $170-million spent on the project, in its decisive abandonment because it had proven simply too complex and bug-ridden to salvage. 

Which brings us to the CIO article, called "Knowledge Management 2.0." 

It starts from the premise (which I resoundingly endorse) that conventional "big iron" approaches to KM have been remarkably unsatisfying:

"So why haven't enterprisewide knowledge management tools caught on like wildfire? There's one main problem, says Gartner VP of Research Jeffrey Mann: Users and IT administrators hate them. Sophisticated KM products like EMC Software's Documentum put the burden of management on the users, who must take additional steps to access documents and register them with the system. And some IT departments dread the arrival of Microsoft's more user-friendly SharePoint because of its hunger for in-house server and support resources."

Northwestern Mutual, not normally thought of as an "early adopter" in any sense of the term, decided that a blogging platform provided by iUpload (which archives content in a particularly friendly manner, necessary for regulatory purposes)

would be worth rolling out on a trial basis. Within a few months, it had already began "changing the corporate culture." As one executive put it:   "This is the first time we've had a grassroots application that allowed employees to share what they're working on directly."

Or consider this case study from P&G, which emulates the experience of Dresdner Kleinwort Benson (which uses wikis to coordinate its globally-spread bankers' work on pricing deals, with a 90% reduction in email traffic):

"One of the driving forces behind Web 2.0 is the virtual office�teams of far-flung experts collaborating online to create a whole greater than the sum of its contributors. When Denise Senter-Loyola, a principal with business consultancy Milestone Group, needed to get her virtual marketing and sales team members to collaborate on creating some key documents, she first used a Web-based intranet for document management. That failed as content grew and folder hierarchies became cumbersome. Soon, team members stopped contributing content. "People gave up because they had to log on and make all of the decisions about categorizing," Senter-Loyola says.

"Finding the most recent version of a document required extra work as well�resulting in productivity losses and missed deadlines when team members mistakenly worked from the wrong version of a document. She found a better take on Web-hosted document management in Koral, a newly released Web-based tool that lets users share and collaborate on documents from any location. Koral is notable because it does much of the heavy KM lifting for you, categorizing documents and notifying collaborators of new versions automatically.

"When you upload files to your team's private Koral workspace, the service searches them and suggests tags�categories you'll use later to find documents relating to a particular subject. And borrowing from another Web 2.0 buzz technology, Really Simple Syndication, Koral doesn't wait for you to come looking for documents it knows you're interested in. Subscribe to a particular document, and Koral notifies you when it is updated. Subscribe to a team member (or a person with expertise similar to yours), and it notifies you when that person publishes new documents to the workspace.

"Because of the nature of our work, it caught on virally."

And guess what?  Just as the days of top-heavy, intricate, heavy-maintenance IT "solutions" to KM may be in danger, so is the need to exhaustively present binder upon binder of ROI analyses to senior management to get buy-in. 

Rather than have to promise benefits two years (or more) down the road after exorbitant expenditures, just show people actually sharing their work through blogs and wikis. Trust me, they'll be excited, and their excitement will be infectious.

Web 2.0 in the Legal Blogosphere

As the legal blogosphere goes from childhood to adolescence to (eventually) full-throated adulthood, I've enjoyed not just contributing my own small efforts to that process, but also being able to be an armchair observer of other developments having nothing whatsoever to do with me. 

Partly this stems from my endless fascination with the proliferation of business models the online world has spawned, and with luck will continue to spawn.   Partly it stems from my wanting to vindicate—or invalidate—a theory of mine to the effect that any new media channel begins life by imitating the closest analogous old-media channel, and that it takes an explosion of experimentation before the new media understands "what it wants to be when it grows up."  Thus radio began by staging plays and running vaudeville acts years before discovering its real home in news, talk, and music.  Likewise, TV began by imitating radio before it found its strength in late-breaking news, sports, and series. 

And yes, thus the web began imitating print and has evolved roughly as follows:

• Web 1.0
  • revolution = hyperlinks
  • static content ("brochure-ware")
  • activity = surfing
• Web 1.5
  • revolution = self-contained portals
  • dynamic content (Salon, Nerve, Slashdot)
  • activity = search
• Web 2.0
  • revolution = collaboration
  • user-generated content
  • activity = share

Today I'm here to report on an emerging category of legal sites targeting micro-communities with micro-focused content. 

The best example I've seen, which I just learned of this week, is Drug and Device Law, which is—yep!—about pharmaceutical and medical device product liability.  Its founders and co-hosts are Jim Beck, with Dechert in Philadelphia, and Mark Herrmann, with Jones Day in Cleveland.  (Careful readers will recognize mark as the author of The Curmudgeon's Guide to Practicing Law.)  Their goal for the site?  As Mark put it to me, "Jim and I would be quite happy with a "fit audience, though few": inside counsel at drug and device companies and sophisticated lawyers who act as outside counsel for those companies."

Why is this different than, say, a three-ring binder treatise on the same subject?

Look back up at my bullets under "Web 2.0:"  The potential is for "Drug and Device Law" to become essentially home-base for a community of practice, exchanging ideas, analyses, and even briefs (well, OK, we could start with string cites).  Now imagine trying to replicate the robust functionality of that same potential community in the off-line world.

I rest my case. 

So Happy Zero Birthday to Drug and Device Law.

Does Your Firm Resemble a Hospital?

Periodically I'm asked whether the legal industry could steal a page from the playbook of other industries that it might resemble, either for inspiration and innovation, or for cautionary, clarifying lessons.

If the question relates to what economists call "industrial structure," my favorite candidate for an analogue is financial services.  Particularly in the UK, once the Clementi Commission reforms kick in (which, in 25 words or less, permit non-lawyers to own and invest in law firms, as well as permitting firms to go public and employ non-lawyers in senior roles [think investment bankers, management consultants,, accountants, realtors, etc.]), then I think the legal industry could evolve towards a model that looks like this:

• A few global powerhouses a la Citicorp, UBS, Morgan Stanley, Goldman Sachs;
• A host of mid-market firms: Wachovia, SunTrust, AG Edwards [Note:  I view this tranche of the industry as inherently unstable and subject to implicit failure in the form of takeovers];
• Some catering exclusively to the very high end:  Bessemer Trust, US Trust;
• The commodity players:  Charles Schwab, Vanguard; H&R Block; and
• The true boutiques:  Two guys in Greenwich with a hedge fund.

On the other hand, when I think about the more "business school" managerial, operational, and even cultural and anthropological realities of how lawyers practice in firms, I find some useful analogies in medicine.  Medicine, like law, has the high priesthood of expensively trained, long-apprenticeship uber-practitioners, the legions of assistants, the need to stay current with the latest developments, and the fundamentally autonomous, allergic-to-data, approach of the doctors.

Which brings us to today's lesson from Harvard Business School's Working Knowledge.  Titled "How Hospitals Adopt New Technology," see if this doesn't ring true to you if applied to lawyers:  The piece considered adoption of:

"competing treatment methods for coronary artery disease and discovered a tough battleground brewing for a new technology called PTCA, or percutaneous transluminal coronary angioplasty. Not only was PTCA going up against an established and effective procedure known as coronary-artery bypass grafting (CABG), but also against the surgeons and other interests in hospitals invested in the older procedure."

And the findings?  In a nutshell, the more powerful and influential were cardiac surgeons, the less frequently PTCA was used. 

Even in hospitals with politically-weaker surgeons, less able to act as gatekeepers, adoption rates of PTCA were slows because it "disrupted existing work routines and patterns of professional interactions."

Why did the HBS professors choose a hospital setting to examine the social and cultural aspects of technology adoption?  Because:

• They are full of highly trained professionals working in teams; and
• Physicians are typically not employed by the hospitals where they work.

Although the second characteristic does not map with one-to-one correspondence to law firms, in your heart you feel the same.  Partners are certainly not "employees" of their firms in a technical, legal sense, but neither do they see themselves as employees psychologically, or were they to draw a free-association organization chart of the firm, nor if they have a tasty book of business.

What, then, do we learn?

For me, one of the more fascinating aspects is how learning to adopt the new technique depends less on the 800-pound gorillas than on the entire team.  Our professors put it this way:  " Most people think that the skills of the individual surgeon are the most important driver of success, but we found that what really mattered was how the entire surgical team was managed and how it prepared for the adoption."

If you're not thinking "practice group management" at this point, you should be. 

Moreover, the more that teams approached adoption of a new technique in terms of the concrete repercussions it had for the role of each team member, and for overall "organizational learning," the more successful it was.  By contrast, if the new technique was viewed as merely a technical change, adoption lagged or failed.

Lastly, adoption accelerated if the team operated in a zone of "psychological safety," where underlings were encouraged to speak up and the leaders gave the team  permission to discuss matters openly and, as I've put it elsewhere, "think out loud."

And the bottom line?  The key challenge for managers is to deploy their understanding of the social context of the firm to "prevent turf battles from hindering adoption" and give the new technique a chance to improve productivity and achieve state of the art results..

In medicine, of course, this can be a matter of life or death.  Although we often act as if our matters and decisions were similarly fraught, of course they aren't. 

But sub-optimal techniques, indulged over a long enough time frame, can be the death of your firm.

Your Post-Merger Checklist

Mergers, globalization, consolidation: I've heard all about it. Time to tell me something new. Is that your feeling?

Then let's talk about post-merger leadership, and what you could actually do to make a difference if the seemingly-inevitable comes to pass.

For starters, the state of the art in corporate-land is fairly highly refined at this point. As McKinsey puts it, integrating two firms following a merger has become a "sophisticated exercise in recent years. Businesses are more disciplined and systematic about identifying and capturing the available synergies. Project tools and techniques are now more subtle and refined." Moreover, senior management is less concerned about wildly overpaying or about ignoring the fundamentals of integration.

The problem is that even mergers that look smart and savvy in the short term—providing real complementary reinforcing strengths, and cost savings—can end up leading to professional defections and eroding client loyalty in the longer run. McKinsey decided to study the problem, and, McKinsey-esque, undertook research:

"Our research, involving a detailed survey of 167 deals and in-depth conversations with nearly 30 CEOs who are veterans of the merger scene, has convinced us that what's often missing is a well-defined, imaginative, energetic, and outward-looking role for the CEO and senior managers."

Permit me to reiterate that point: "a well-defined, imaginative, energetic, and outward-looking role for the CEO and senior managers."

In other words, you matter.

And how, precisely, can you "matter"? What separates the winners from the losers, after the initial cheering has died down and the integration teams have gone back to their day jobs, are rising to these challenges:

• Building—fast—a new senior management team (not to be confused with the short half-life integration teams)
• Crafting and delivering a believable and inspiring "story," since we human beings respond to stories viscerally, and to facts and figures only intellectually
• Insisting on and reinforcing a performance-oriented culture (to avoid the temptation to engage in a period of internal navel-gazing that is death in these circumstances)
• As a complement to the external performance focus, stressing the importance and benefits of the merger to clients, prospective clients, and recruits
• And lastly, and perhaps most subtly, striking the magic balance between speed of execution in integration and lasting time to develop the wisdom to reflect on the value of the newly created entity.

Exhausted yet? Well, guess what: You have no choice but to step up to this particular plate.

Isn't that obvious, however? Perhaps surprisingly, even though it should be blisteringly obvious, in McKinsey's experience with post-merger integration "senior managers so often fail to define a high-impact role for themselves" that they actually had struggle to understand why.

The "most fundamental" reason is that too many senior managers simply don't understand what they can contribute to add real value. The complexity of the task seems overwhelming, and faced with what feels like managing through cotton batting in a fog, these un-visionary managers preoccupy themselves with attending steering committee meetings and dealing with the ad-hoc'cracies as they arise. This begs the question: Why did we think this was such a spiffy idea to begin with?

A second cause of failing to articulate "the vision thing" can be arrogance—most corrosively, arrogance towards your very merger partner. (In which case, look for it to be promptly reciprocated.)

Finally, you can view the post-merger integration as "merely" a technical challenge, best delegated to people lower down the food chain in HR, IT, finance, facilities management, and so forth, who are familiar with all the messy details and protect you from having to get your hands dirty or finding yourself in a position where operational-level ignorance might be exposed.

I personally will never forget the near-scarring experience of asking the two CIO's (jointly, by the way) of two AmLaw 100 firms in the process of a merger what "strategic direction" they had received from the top in terms of what the combined IT infrastructure should look like, and being greeted with a near facsimile of the quizzical and bewildered look portrayed by your faithful dog when you've just said something incomprehensible, but which clearly calls for action on their part. And when the answer inevitably came, of course, it was "no guidance whatsoever."

Job 1, therefore, is to establish a crystal-clear definition of who will be calling the shots at the top, even before the task of implementing the integration begins. This can, let's face it, be the toughest part, but you can brook no indecision or lack of clarity: Ruffle feathers if you must, and get it over with, or else you'll find your firm(s) at sea several months down the road, and not only those who needed to be given bad news will be unhappy, the rest of your partners will be as well.

Real integration cannot be superficial, and differences cannot be glossed over. Again, address them unblinkingly now or face corrosion from the inside later. As one (un-named) manager who'd been through this put it later with chagrin: "For months we were really two teams and we knew it. But we just didn't want to deal with it, so no one raised the issue." And as hard as this can be at the top, the genuine integration needs to go all the way down. Experience seems to demonstrate that the best way to deal with this is to turn people's focus from the internal issues to the external: Clients.

Your indispensable ally in this campaign will be the compelling, unmistakable, logic of the merger itself. ("What?!," you say, "it might not be obvious"? Back to Square One.)

"As UBS president Peter Wuffli (whose global bank has grown on the back of a string of acquisitions) observes, "One of our criteria for a deal was that it had to be strategically obvious�not just explainable but obvious.""

Assuming—perhaps an heroic assumption—that the overriding logic of the combination speaks for itself, your next task is to build a new, and unified, "performance culture." This over-used phrase

is, however, something you cannot avoid. Since you already have a vision of why the new organization should exist (you do have that, don't you?), focus everyone's attention on that goal:

• Avoid us vs. them; it's not about who won and who lost, or who was the acquirer and who the acquiree.
• "Survival of the fittest," or defaulting to what you think is "best of breed," mixing and matching essentially unchanged Lego blocks from each firm, is rarely the answer either
• Your true focus, again, needs to be external, on clients and delivering unparalleled service.

And it starts with you and the senior team. As the CEO of Suncorp puts it:

"You can't just stand up there and tell people what the new culture is going to be. You have to define in your own mind what you want the new culture to stand for, do it for a little while, and then talk about what you have done."

Above all, it cannot be reiterated too often, focus on your clients. Navel-gazing just invites competitors to start poaching. Here's a wonderful phrase that encapsulates it:

As 3Com's Eric Benhamou cautioned, "'Acquiring customers' is a very arrogant phrase. The customer has to want to be acquired."

Which puts us back where we began. Focus on these things, and win merger integration war:

• Your top team
• The story
• A performance culture
• Clients, and
• Learning through the integration itself.

And bonne chance.

A Prosaic Topic? Guess Again

Today we visit the prosaic topic of conflicts-checking.  I've come to believe it's not so prosaic after all.

Consider:

• The highly-publicized referral to the UK's Law Society Regulation Board of two senior Freshfields partners, announced last week, culminating a two and a half year investigation into Freshfields' representation of the corporate raider Philip Green when he attempted (unsuccessfully, in the event) to take over the fabled UK retailer Marks & Spencer.  What was the problem?  Simply that Freshfields had previously advised Marks & Spencer on a retainer basis, which Marks & Spencer pointed out to the court within days.  This is how Legal Week summarized it 10 days ago:

  "Today - finally - after well over two years of deliberations, the Law Society has announced that Barry O�Brien, the partner who led on the deal, and UK head of corporate Tim Jones have been referred to the Solicitors Disciplinary Tribunal (SDT) �over the claim that Freshfields were conflicted�.
  
  "O�Brien and Jones are two of City law�s biggest names. O�Brien was a contender for the Freshfields senior partner job before he decided to step out of the race because of the ongoing threat of a tribunal referral. Jones is regarded by many Freshfields partners as a potential senior partner. The embroilment of two such high-profile and respected City figures in a SDT hearing is unprecedented."

  
  Freshfields' defense? Essentially, as recounted here, that its prior work for M&S was not material and that they'd erected an internal Chinese wall in any event.   All that can be said at this point on the ultimate question is, "We shall see," but the notoriety of even an alleged conflicts offense is something no one needs.
• In a conversation I had with an AmLaw 25 partner recently, he recounted with fervor his frustration at his own firm's conflicts-checking system, which took three days to respond to what he thought was a "drop dead simple" analysis of a potentially major litigation representation.  After three days, the potential client lost patience and went elsewhere.
• Three out of three CIO's of AmLaw 25 firms to whom I posed the question in the past few weeks have said they believe that conflicts-checking is one of the most complex tasks firms face because, as one put it, "it cuts across every facet of the firm—absolutely everything."
• When I'm asked if I can envision the legal industry evolving towards a structure really like the accounting firm structure (i.e., a handful of behemoths and no name recognition below that), my answer is always, "No," for a variety of cultural and economic reasons (including the intense localness of law, especially litigation, and associated national, regional, and provincial traditions), but the most non-negotiable fact of life distinguishing our profession from accounting is our conflicts rules.  Simply put, the bigger your firm, the more likely you're going to start tripping over conflicts.  Who among our clients—and who among us—would prefer a future of only half a dozen firms to choose from?

If (a) conflicts matter; (b) many firms manage them poorly; and (c) their importance is only going to increase, then what is anyone doing about it?

One answer is to enhance the power of "enterprise search," which means the ability to search across all the various databases inside a firm—finance and billing, document management, human resources, marketing, client contact systems, etc.—from one unified interface.  (To be sure, each of those databases is individually searchable today; enterprise search means being able to search once across all instead of searching once for each.) 

Firms providing the ability to do this include, for example, Recommind and Autonomy.  I happen to have had personal experience with the products of each and, by and large, they perform as advertised:  Once, and that's a big once, they've been tailored to appropriately "hook into" each of your disparate databases.  (And while we're on the topic of tailoring appropriate hooks, don't overlook the reality that those other databases will change, be upgraded, come out in new versions, etc.) 

Another option is to look to outside providers such as Legal Key, to provide services that attempt to look across internal and external data sources (such as Dun & Bradstreet).

But what is to my mind the single most important issue raised by the "conflicts-checking" exercise is a strategic one:  Is this client/matter one we want? 

• Does it fit with our long-term practice migration goals?
• Would it foreclose us from accepting business from a specific potential client we're ogling jealously?
• Is it in a low-rent district (commodity practice area) we want to escape from or minimize going forward?
• Even if this particular matter is small potatoes, can it provide us entree to a sexier world?

"Conflicts," in other words, while it may be all about database searching and green eye-shade yawn-inducers, can be one of the most critical issues for senior management to attend to.  It is, by its normal name in corporate-land, "new business intake."

Need I remind you that if you get it wrong, you may be making the close personal acquaintance of Messrs. O'Brien and Jones?

"$500,000 Is the New $5-Million"

Within 24 hours of each other, both The Wall Street Journal and The New York Times wrote pieces on "then and now" re the dot-com bubble.  Surely unintentional as it was, I think they provide nice counterpoints to each other, and also give us a small window into what "innovation" means.

Since the WSJ's piece was first (yesterday), let's recap its highlights:

• Recent economic research suggests that "rather than having too many entrants, the period of the Web bubble may have had too few; at least, too few of the right kind."
• The "right kind" were precisely those startups that eschewed the reigning wisdom of the day, summarized by the slogan, "Get Big Fast."  After all, there's only room for so many Amazon's, eBay's, and Yahoo's.
• The most successful startups—survivors today—were niche spots like wrestlinggear.com, which sells equipment to high-school and college wrestlers.  But by definition it's never going to "get big," and certainly not "fast."
• "It turns out there were lots of nooks and crannies for entrepreneurial action," says Prof. Kirsch. "But those nooks and crannies might have been $5 million or $10 million businesses -- well worth doing, though not necessarily for VCs."  ("Prof. Kirsch" is David Kirsch, professor of management at the University of Maryland's business school and one of the authors of the study.)

Today, the NYT weighed in with "For Start-Ups, Web Success on the Cheap," which recounts the now-familiar (to me, at least) contrast in startup costs today vs., say, in 1999.  Using the cross-platform IM company Meebo as an example, they recount that it was started by the three founders each contributing $2,000 from their credit cards.  A month after its debut in September 2005, it was getting 50,000 log-ins daily and needed more servers:  Angels then stepped forward with $100,000, and only after it was well on its way did a "real" VC firm, Sequoia Capital, get a seat at the table.

Likewise, Joe Kraus, founder of the hot/not Excite.com during the boom, said it took $3-million in servers and software to get Excite launched, but his latest, JotSpot (just acquired by Google, terms undisclosed) needed a mere $100,000.   The primary reason?  Dirt-cheap open source software running on commodity Intel (or AMD) hardware, as opposed to Sun Solaris server farms with proprietary everything. 

Of course, not everyone's happy with this plum state of affairs:  The VC 's, in particular, are suffering a disconnect between the scale of their business model and the scale of today's startups.  Here's the problem in a nutshell:

"The problem is that as a VC, these companies don't soak up enough capital," [Paul] Kedrosky [a venture capitalist and blogger] said.

To succeed, a firm with a $250 million fund needs a handful of investments from $10 million to $15 million that can return payouts of $150 million or more, Mr. Kedrosky said. But even a twentyfold return on a $1 million investment will not do much for the success of a large fund, Mr. Kedrosky said.

For smaller funds, the economics are far different. For starters, those who manage them do not earn huge management fees. Instead, they are almost always among the largest investors in the fund, so they will earn a return if the investments pay off. �I think large venture funds in this economic model have a challenge,� said Josh Kopelman, managing director of First Round Capital.

Or, as Michael Maples, himself head of a $15-million venture fund that targets small footprint investments, puts it, "I came to the conlcusion taht $500,000 was the new $5-million."

All well and fascinating, you are probably saying to yourself about now, but what has this to do with law firms and innovation?

This:

• Successful innovations are by and large not Big Expensive Bangs, but small, niche experiments—"nooks and crannies," as Prof. Kirsch puts it.
• "Fail early and small" beats "fail late and big."
• Likewise, "win early and small" tends to lead to "keep winning, incrementally bigger and bigger."

So when you're considering "innovation" at your firm, let a thousand flowers bloom.  But have the discipline of the steel-nerved trader (the only ones who survive):  Be merciless about cutting your losses, but be profligate about letting your winners run.

Successful innovation, in other words, is for agnostics. Admit that you don't know in advance what will work.  (If you did, would you be practicing law?)  In the long run, only the market (your partners, your clients) will tell you whether an innovation is a hit or a dud; so the more experiments you can seed, the better your odds of some significant victories.   And then, sure, you can say, "I knew it all along...."

Managing Your Practice Like a Real Business

Every once in awhile, you see an individual at a firm make a tremendous difference, and I've tried to make it a custom to celebrate the situations when I think I've identified such exemplars.

Today I offer John Alber of Bryan Cave's St. Louis office, who has been laboring in the vineyard for years to realize his vision of a suite of customized applications and managerial "dashboards" enabling essentially every (appropriately authorized) lawyer in the firm to see what they need to see to help manage their caseload, their practice group, and their clientele. 

Building on the Redwood Analytics "business intelligence" platform, but extending and customizing it for Bryan Cave's purposes, the tools now available tie not just into the firm's financial systems, but into its PeopleSoft HR system, and other firm data as needed.  I should note that Bryan Cave's internal "Client Technology Group" worked closely with Redwood to extend the basic Redwood functionality—which by default, and "out of the box," as it were, sits on top of a firm's financial and accounting systems—to enable it to hook into and present data from other systems internal to Bryan Cave aside from the accounting data. 

What I'll show you is, I believe, remarkable in my experience with law firms for its power, flexibility, and just plain usefulness, but I should also warn you—if you want some of this for your firm—that John has told me the suite of applications now available at Bryan Cave has taken years to develop, starting with the simple matter of instilling fundamental network "hygiene" (no latency, resiliency, failover capability, etc.) and then going on to cleaning and "normalizing" data, before one can even tackle the fun stuff.  But assuming your infrastructure is fundamentally sound to begin with, and if you want to start with Redwood's financial-analysis "dashboard" functionality, you should be all but ready to go.

The screenshots that follow are all courtesy of John, and he characterizes what they represent as "fake, but realistic" data—a characterization that in my observation applies to a wide array of  people and situations.  What follows are available only internally at Bryan Cave, but the firm has begun exploring offering similar analytic tools to its clients:  One of the first they've rolled out is a "diversity" dashboard, displaying how each client's matters rank on the diversity criterion of Bryan Cave lawyers assigned to and working on it. 

What can the Bryan Cave lawyers do?

While the screenshots that follow are necessarily small, and unnecessarily difficult to read, following are some of the highlights.  Note:  A "gallery" showing these shots in much higher resolution is available here:

• In planning a matter, they can choose different ways to staff it ("scenarios"), different billing and realization rates, different estimates of time actually worked, etc., and see how those assumptions in turn affect fees billed, fees collected, costs, gross margin, and net contribution to profitability.
• In analyzing a client (for example--the same obtains for a matter or other subject of analysis), one can look at WIP (work in progress) and A/R (accounts receivable), updated as of last night, compared to 3, 2, and 1 year ago, and YTD compared to firm-wide averages, and other measures.
• In managing  your practice group, you can look at all fees collected and billed by client, their "contribution" to collections and billings, and your effective rates realized, all by any number of dimensions (for example, by timekeeper or by client, by time period, by office or firm-wide).

Plan:

Analyze:

Manage your practice group:

And switch to a very user-friendly (read:  lawyer-friendly) "dashboard" of gauges:

In the hands of savvy, ambitious, analytic, and creative lawyers, these are competititve tools par excellence.  Need I mention they beat seat of the pants?

Supply & Demand in IT

It's a truism that one often learns by teaching, and I've experienced this very phenomenon in leading the MBA course, "Strategic Technology & Innovation," which I'm teaching this semester at SUNY/Stony Brook's Manhattan campus.

What have I learned?  It's actually something that I knew at a semi-conscious level, but which has been driven home as indisputably true, and it has to do with the relationship of IT to "the rest" of a law firm.  In business school, it goes by the name "business process optimization," but don't be daunted.  All that "BPO" means is that it's the core mission of IT to help the firm (Clifford Chance, Foley, Wal-Mart, General Foods—whatever) perform those indispensable activities at the heart of what the firm does more efficiently, productively, reliably, with higher quality.   In the case of Wal-Mart, then, it's all about the supply chain and inventory management; for General Foods, it's manufacturing cereal; and for Clifford Chance and Foley, it's things such as producing briefs, negotiating and documenting corporate transactions, and so forth.  (For all firms, "BPO" should also touch those sexless but mandatory functions such as bringing a new employee on-board or assessing the credit risk of a prospective client.)

As with many other domains in the world of Management, what you get often depends largely or in part on  how you've organized the function.    When it comes to IT, there are two familiar models, neither, frankly, ideal.

IT in Business Units	IT Centralized
Helps align development with business goals But fragments IT developers, and Makes coordination  and prioritizing much more difficult. Business units more likely to be satisfied with IT short-term, But the firm as a whole may over-pay for redundant development and Miss the opportunity to deploy cross-group applications.	Firm-wide prioritization and application development coordination are optimal from the perspective of IT But may be perceived as unresponsive/dismissive by business units, and Speed and agility are sacrificed, with IT gaining a reputation as a "black hole" for requests.

One is tempted to wonder if there couldn't be a better way.

Now, courtesy of McKinsey (who else?—pdf of the piece available here), let me introduce a different model, the "demand/supply" model for IT.  Here's what it looks like, for starters, then I'll discuss what it means:

What does this accomplish?  Essentially, it unites firm-wide IT demand and also firm-wide IT supply.

On the demand side, the firm benefits by introducing one centralized group of (tech-savvy) managers who can be fluent both in the language of IT and intimately familiar with what the firm does.  Their job is essentially that of drawing a strategic roadmap for technology development within the firm so that, for example, developers aren't overwhelmed implementing a host of low-value enhancements while losing sight of the larger path.  Introducing one and only one source of IT "demand" in the firm means whatever the firm decides it needs can be acquired at enterprise scale rather than departmental scale, that standards can be developed and rolled out firm-wide, that duplication can be avoided and reuse encouraged.

On the supply side, internal and external IT developers are able to work with a more tech-savvy customer, and one that speaks with a unified voice rather than in the Babel of jousting departments with different views of what constitutes a high vs. a low priority.   To the extent internal IT resources are able to serve a broader "marketplace," as it were, opportunities for developing career tracks and investing in training will also be enhanced.   When the question is the familiar "build or buy?," one unified IT supply organization will at the very least avoid inconsistent choices within the firm, and at the best will be in a stronger position to negotiate with external vendors—and will have the luxury of developing relatively deep expertise in the relative capabilities and performance of different offerings.

If you're convinced, what next?   McKinsey posits that while some firms making this switch concentrate on the supply side, the "demand one, however, is what distinguishes this model from the traditional IT setup, and getting demand right is more difficult."  To increase your odds of success, they recommend (the following are verbatim quotes):

• Align demand organizations with the business units:  Demand organizations align with the business to act as the true voice of customers in clarifying what they mean—which is not always the same as what they say.
• Let demand organizations own business processes.  Since business processes are increasingly shaped by IT solutions, businesses should assign the responsibility for work flow designs to a group that understands the underlying technology as well as the key business pain points.
• Give demand organizations a mandate to rationalize demand. Most companies have too many applications doing similar things, so they periodically have to prune their application portfolio—a costly and time-consuming process. Demand organizations can help prevent this situation from developing in the first place by minimizing the number of IT projects and applications at the time of funding.
• Empower demand organizations to manage suppliers. The demand organization should free the business units from the complex task of managing a broad range of IT suppliers, both internal and external.

To be sure, this is no panacea; to implement it effectively will require persistence.   And there are pitfalls to guard against:  For example, letting the demand organization be "captured" by a particularly assertive business unit (I know that could never happen at your firm).  Senior management must be entirely behind it, as well, as some user groups will invariably feel they are being slighted if they are deprived of their "captive" IT departments.

But the benefits seem compelling:  The organizational structure is simplified; IT investments are better coordinated and prioritized (and duplications and inconsistencies are eliminated); systems and processes are more tightly defined; and best of all, lawyers should begin getting greater value for their IT investment.

"Social Network Analysis" Release 2.0

I've written before about "social networks," and  how they can be far more important than any relationships specified on your firm's organizational charts, but "social network analysis" (SNA) is still an emerging field, with its concomitant skeptics.  (What is SNA in a nutshell, for those not in on the prior discussions?  It's the creation of network maps analyzing how people in your firm really communicate, through email traffic patterns, for example, and can be deeply revealing.)

First-generation SNA diagnosed who were hubs of information flow, who were peripheral, and who were cross-functional nodes—say, someone who's totally wired into both your M&A group and your project finance group.  All very interesting, you say; but what's in it for my firm?

A truism is that we live in a knowledge economy, and that managing (read:  encouraging) collaboration among professionals is one of the few enduring bases for competitive distinction.  In one 2005 survey, more than 80% of senior executives said effective coordination across service, functional, and geographic lines was crucial to growth. 

And SNA could actually provide insight into who were the "go-to" people in your firm, and could help you diagnose syndromes such as:

• The hyper-connected person who might at first glance appear to be an invaluable connector, but who in fact was a completely overloaded bottleneck.
• The peripheral person out of the flow who adtually provided unique insights drawn from his arcane area of expertise.
• The "bridge" between two otherwise unconnected areas of the firm whose deep ties into two worlds yielded indispensable assets of "know-who" unavailable otherwise, but whose time spent cultivating his two networks appeared superficially unproductive.

And so on; but what benefits to the bottom, or the top, line does all this provide?

The answer is that we now have second-generation SNA, which attempts to answer that very question.

And if you foresaw McKinsey's fingerprints on this, right again.  This new piece extends first-generation SNA, which focused on individual effectiveness, to second-generation SNA, which attempts to focus on relationships that can create the greatest economic value. 

Back to first principles.  How do you develop an SNA map to begin with?  Actually, it's pretty straightforward. 

"Options for obtaining the necessary information include tracking e-mail, observing employees, using existing data (such as time [records] and [client billing] codes), and administering short questionnaires. Organizations mapping their decision-making processes might ask their employees, "Whom do you ask for advice before making an important decision?" Others targeting innovation might ask, "With whom are you most likely to discuss a new idea?" Questions are posed bidirectionally: if Joe says he was helpful to Jane, but she says she doesn't know him, his claim is disregarded."

As the authors say, "So far, so familiar." But the payoff comes when you move from mapping the network to "quantifying the benefits and cots of collaboration."

Swell; but what does that mean? 

Past approaches to improving collaboration among dispersed professionals have usually employed blunt instruments to make communication easier and improve connectivity in general.  The problem has been taking a diffuse rather than a focused approach:

"It's also possible to promote specific interactions that help generate revenue and boost productivity. Targeted action is dramatically more effective than promoting connectivity indiscriminately, which typically burdens already-overloaded employees and yields network diseconomies. A more informed network perspective helps companies to identify the few critical points where improved connectivity creates economic value by cutting through business unit and functional silos, physical distance, organizational hierarchies, and a scarcity of expertise."

Consider this case from a global consulting firm that used SNA to investigate the sales efforts of some 80 of its partners. The classic approach had simply looked at individual revenue production (sound familiar?). But with SNA, they identified two other crucial categories of behavior:

• Partners supporting collaborative efforts (joint sales calls, sharing expertise) were 10 in number, but they generated 60% of the group's revenue; the top 5 generated 38%.
• An entirely separate subset were "expertise contributors," helping colleagues save time and generate higher-quality work; here again they were highly concentrated, with the top 10 responsible for 48% of the value generated through time savings and the top 5 adding 32%.

Result?  The end of "a long-simmering disagreement about dual career paths for partners." 

Or take this example, from a global financial services organization, a close cousin to the larger law firms:

"After recognizing that a set of key brokers occupied central positions in the network, for instance, the company realized that connecting all of these people with each other and with just one person on the network's fringe would yield $140,000 a year in savings within business units and $865,000 across them. Facilitating these interactions would be far less costly than buying the group another unused collaborative tool or holding an off-site meeting."

The need to maintain and reinforce your firm's competitive distinction has never been more pressing, and genuine, meaningful collaboration among your high-priced, high-talent professionals is essential to that end.

Thanks to SNA 2.0, we are learning how to be smarter about it.  Installing Lotus "Notes" on every desk and hoping for the best may have been last decade's answer to enhancing connectivity, but now we are beginning to have a handle on how to strengthen connections with a rifle and not a shotgun.

"IT" Is A Portfolio

Is IT capable of providing a sustainable competitive advantage, as it has for American Airlines, Dell Computer, FedEx, and Wal-Mart, or is it a necessary—but not distinguishing—function that should be managed to operate smoothly at minimal cost (like word-processing, or accounts payable)?

This is actually an enormously controversial question.  Famously, Nicholas Carr published "Does IT Matter?" three years ago, arguing that IT had become a commodity like electricity:  Necessary to get work done, but providing a competitive advantage for no one.  If you adopt Carr's view, other recommendations follow:

• IT becomes more of a threat than an opportunity, in the sense that "bad" IT or unavailable IT (your email servers crash, your backup site is compromised)  is more serious than incremental improvements to IT (WiFi in more conference rooms);
• You should be a "fast follower" rather than a leader in innovation—pioneers get arrows in their backs, and copycats reap the same benefits at a fraction of the cost; and
• Enhancements to IT are essentially steps up the arms'-race ladder:  Nobody comes out ahead, everybody spends more and has more throw-weight, only to stay even with the competition..

I would propose a more nuanced view.  IT is neither sinkhole nor savior, but, as we learn in law school, the answer to the question "Does IT Matter?" depends on why you're asking.

McKinsey chimes in, (also here), and the key insight I want to share is that "IT" is not an undifferentiated mass, a homogenous blob of spending. 

Consider it, instead, a portfolio of investments.

This is what we know about portfolios:

• Their composition derives entirely from your firm's investment objectives:  Are you trying to merely defend your niche, invest in rapid growth and aggressively gain market share, or enter new markets entirely? 
• Depending on your answer to that question, your portfolio of IT investments will typically build on a base of relatively conservative, risk-averse incremental improvement, or
• You'll place a few bets on buying, or developing, more cutting-edge ways of doing what you're already doing, or
• You'll experiment with things you don't do at all, today.

The other thing we know about portfolios is that over time, they change; and your IT spending profile should change as your firm's strategy evolves.  Ideally, you'll go from new initiative to consolidation, to capitalizing upon sudden market opportunity, to deepening bench strength, to...  You get the idea.

Evalute your IT investment portfolio in terms of its proportionate contribution to what McKinsey calls:

• Staying in the race
• Winning the race
• Changing the game

Think of staying in the race as Treasury bills:  Preservation of capital, and market share.  Winning the race are your growth and small-cap stocks:  Bets on some uncertainties, but most of which, history instructs, will pan out overall.

And changing the game?  Venture capital.

Venture capital investments, as we all know, strike out far far more often than they hit it out of the park.  But the overall return to a diversified portfolio of VC investments can be supra-normal.  The key is discipline, and when you ask your IT department to incubate some blue-sky projects as if they were VC-backed, you need to be prepared to abandon certainty, abandon perfection, and abandon predictability. 

One of two things will happen:

• They and you will try, fail, refine, prove the concept, refine, deliver an emphatic result, and deploy; or
• They and you will try, fail, refine, fail again, rethink, fail again, and move on.

I don't believe there's a third possibility. 

Are you ready to think of your IT investment as a portfolio and not an undifferentiated line item?

"Does IT Matter?" Yes, If You Define Your Terms

In kicking off the core/required course "Strategic Technology & Innovation" that I'm teaching as an adjunct professor at SUNY/Stony Brook's Graduate College of Business—a two-year program leading to an MBA for senior law firm managers (see the SUNY site about the program) —I assigned Nicholas Carr's 2004 book, "Does IT Matter?" and, while I think it clearly does, there's surprisingly little academic literature supporting that view convincingly.

So I was heartened to see this research paper at HBS' Working Knowledge, which examines the return on IT investments at "midsized" corporations, and attempts to come up with an answer to this state of affairs:

"There is considerable confusion among academics and practitioners over how (or if) information technology (IT) impacts corporate performance. Some have stated that IT has become a ubiquitous input, like electricity or railroads, which confers little competitive advantage to a company that employs it. Others have argued that IT is crucial, but failed to find systematic correlations between IT spending and business performance. Others still have claimed that IT is important, but based their arguments on a few, pre-selected examples of outstanding companies, like Dell and FedEx, that have long used information technology as a differentiator. The crucial question has still remained open�can a typical company truly benefit from a focus on information technology to differentiate itself from competitors and achieve business objectives?"

This is precisely the question my students and I have been attempting to address in the MBA program.  What differentiates this study—which, not to hide the ball, concludes that IT does enable profitable growth—is that it doesn't look at macro measures which by and large have proven ambiguous, conflicting, or inherently suspect, but rather it looks at micro measures focusing on exactly what IT can do to improve business processes:

"It is easy to spend a considerable amount of money on technology with very little improvement in the functional capability of the business. In our study, however, we wanted to focus on what IT actually does for a business. To accomplish this, we developed an approach that measures the business capabilities IT can enable. This approach details forty different business scenarios that accurately measure how IT impacts all major areas of the firm: Sales & Marketing; Finance; Operations; Employee Productivity, and IT Infrastructure. Put together, these scenarios provide a comprehensive view of the real impact of IT on firm performance."

They examined 608 "midsized" (100 to 500 employees) product and service firms in the US, Brazil, and Germany, and divided them into quartiles in terms of IT capability.   The bottom line (emphasis supplied) is:

"Our results show a high correlation between IT capability and profitable business growth. Firms that build high capability IT systems grow faster than firms that do not, and do so while increasing both revenue and profits."

Graphically, they separated the firms into quartiles in terms of IT capability, and compared those rankings to the Compound Annual Growth Rate ("CAGR") or revenue for the prior two years; the findings were significant at the 99.9% level.:

The interesting question, of course, is how did they achieve this?  The answer does not lie, as mentioned, in "macro" measures such as total IT spend as a percentage of revenue, or number of PC's per employee; these instruments are far too blunt.  Rather, the researchers focused on nearly 40 highly specific IT-enabled business processes actually put to use at the surveyed firms such as "mobile and remote access to information and processes" (sound like your BlackBerry?).   Conceptually, the ideal IT implementation moves from:

• business strategy (the over-arching goals), to
• business process (the things the firm actually needs to do to pursue those goals), to
• the technology implementation to support that, all culminating in:
• profitable growth.

Among other things, the researchers gave numeric evaluations (1—100 scale) for each of the firms on an "IT Scorecard," evaluating those 40 business processes.  While not all functions were performed in every firm, it's interesting to note that "5 key functional areas" were tested:  Sales and marketing, finance, operations, IT infrastructure, and most notably from our perspective, "empowered professionals."  Specifically scored under that last category were:

• easy to find information
• easy to use information
• easy to coordinate teamwork, and
• easy to communicate.

I doubt many would argue with those four key concepts as covering what sophisticated professionals need IT to deliver for them.

From the professors' perspective, they labeled superior performance on their IT Scorecard as revealing "a high capacity for business process scalability."  What does this mean?  Let me quote the elements that go into their description, and then put it into terms familiar to those of us in law-firm land:

• Improved process knowledge and process standardization, which enables the firm to more easily manage the complexity involved in growth. [Think about repeated "processes" your firm must perform, such as managing discovery in a large litigation:  The better you can understand ("process knowledge") and the more you can routinize ("process standardization") large volumes of discovery, the more large and complex litigations you can handle.]
• Streamlined operations that can grow without significant additions to headcount. [This one is easy:  If your financial systems, for example, can seamlessly accomodate a new office or a new practice group, you're there.]
• Flexibility to take advantage of new opportunities and respond quickly to exogenous changes. [This has to do with much more than IT, starting with the mindset of firm leadership, but an IT infrastructure that can accomodate new opportunities is surely essential to being able to exploit them rapidly and effectively.
• Better visibility into critical business parameters to guide important management decisions.  ["Business intelligence," which explores and exposes how your firm uses resources and creates profits, is what they're talking about here.]

Where are opportunities within your firm to streamline "business processes" through more intelligent and focused deployment of IT?

All IT Is Not Created Equal

Does this sound like your firm?  IT is managed as one massive homogeneous lump, where the executive committee's key concern seems to be managing (read: reducing) costs. 

Now, reducing costs (or increasing productivity, or mitigating risk) may be fine for "normal" IT operations—what can be characterized as keeping the lights on or having the trains run on time.  But if your IT department is a heads-up organization, and if your senior management appreciates the differentiation IT can, optimally, provide, there may be a better approach.

I call it the "portfolio" approach, and McKinsey analogizes it to venture capital.

Here's what we both mean:  Not all IT investments are equal, just as not all financial investments in a diversified portfolio are equal, and there should be room for different approaches and different evaluative metrics depending on whether the IT project is:

• Infrastructure support and maintenance (think wordprocessing)
• Competitive "must-have's" (think extranets)
• Potential rule-changing applications (say, creating an ability for clients to generate their own standard documents on the fly, online, from your firm's site).

And the evaluative criteria?

• For infrastructure support, simple cost savings or productivity enhancements.  This is rather elementary; it either saves more than it costs, or not.
• For competitive "must-have's," net present value, or NPV.  Slightly more sophisticated, but your HP-12C can calculate it in moments.  The fundamental principle is that you get your money back, taking into account the cost of capital, within a timeframe you consider reasonable.  And finally:
• For potential game-changers, the Venture Capital model:  Would we place a calculated bet on this, knowing that the outcome is highly uncertain? 

The first two are fairly easy, routine matters to manage.  But what about the third?

The key to making the "VC" approach work involves:

• Unreserved endorsement and buy-in from senior management; a willingness and even an enthusiasm for experimenting on high-risk/high-reward initiatives.
• A capable IT department within your firm (be brutally honest about this, and if you don't like the answer you come to, be brutally honest about fixing it).  And
• The willingness to understand that the "VC" model means you will experience both of the following:
  • Test, succeed modestly, refine, test, reinvest, test, succeed quite nicely, deploy; and
  • Test, fail, refine, test, fail, reinvest, test, fail, move on.

Not all IT initiatives are the same.  Buy yourself an IT "portfolio" instead of larding up all on Treasury bills or all on dot-com's.

A Lesson About Disappointing Clients (It Happens)

My apologies!

For the past 18 hours, "Adam Smith, Esq." has been offline due to a server failure at my hosting provider.   I have had several email and one phone conversation with them and they understand that, while I've been very pleased with their service over the past four years, today represented a genuine black mark on their reputation.

There's a lesson here.  This is a firm that I have loved for four years:  I have other websites (of friends, etc.) hosted with them, I recommend them to anyone who asks, they could have solicited a testimonial from me and I would have provided it enthusiastically.  But let a good client down once, and they tend to remember that more strongly than even four years of top-notch service. 

In their defense:

• I got an email from the supervisor of the server farm shortly after I noticed we were down and inquired, personally informing me of the problem, saying his team was working on it as hard as they could, and reassuring me he'd let me know as soon as it was back up; and
• When I phoned, the (random) tech support guy I got--who picked up on the first ring, which is characteristic of them--knew about the problem, evinced genuine concern, and said that everyone "had been running around working on that server problem."

Moral:  Am I thinking of switching providers?  Not on your life.  Client service can include not just coming through all the time every time, but acknowledging that one is pedalling as fast as one can when the inevitable glitch occurs. 

Still, on behalf of "Adam Smith, Esq.," I apologize for this uncharacteristic lapse.  (And, two strikes and you're out.)

Benchmark Your Firm on HR/Professional Support Staff Issues (Right Here, Right Now)

Eversheds has announced that it will be outsourcing almost 100 of its IT staff, "the bulk of its IT function," before the end of the year; those affected include the IT helpdesk, infrastructure teams, and IT training specialists. 

According to Legal Week:

"UK managing partner Bryan Hughes told Legal Week: "We want to do more than just keep the lights on. We are not a specialist IT firm and we have not got infinite resources [so] we could never be at the cutting edge of legal technology � but with an outside provider, we can."

"The shake-up follows a review of Eversheds� IT function by newly-installed director Malcolm Simms, who joined the national firm last year from Disney, and makes Eversheds the first major UK law firm to outsource one of its core support divisions."

Hughes is surely right; IT support is not something Eversheds has any comparative advantage in providing, and they're best off leaving it to the experts.

Of course, in the US one of the more famous outsourcing strategies has been that of Orrick with its Global Operations Center in Wheeling, West Virginia. 

As the firm puts it:  "It houses Orrick's core technology, finance and human resource operations, as well as document and transcript production services."

This has led me to wonder what other firms might be doing, or contemplating, on this score.

Coincidentally, I'm currently working on a study of "best practices" and benchmarking among major North American law firms on the topic of how they handle their HR, administrative, and professional support functions—as well as how they handle the always-delicate tension between being lean and efficient, and delivering top-notch client and internal service.

To gather some data around the issue of benchmarks and best practices, I've put up an online survey, which I invite all of you familiar with how your firm is organized on the professional support staff side to take. 

What's in it for you?  Simple:  If you complete the survey, you can request a copy of the report I'll be writing summarizing the results—in other words, your own handy "Adam Smith, Esq."-generated paper enabling you to see how your firm stacks up.   But only if you take the survey.

It will be up through Labor Day and a bit beyond, but jump while you're thinking about it.  Again, the survey is here.  Thanks.

AreYou Thinking Statically or Dynamically?

Law Technology News has a panel—although it actually seems to be a list of isolated commentators, not an interactive group discussion—talking about "how the emergence of business intelligence financial analysis software is going to affect the legal community over the next year?"

Responses range from:  It's great stuff and its use is "likely to increase at a rapid rate" (Robert Meadows, CIO, Heller Ehrman) to "It will make the ordinary practicing lawyer's life in big law firms that can afford the software even more hellish than it is now!" (Martha Fay Africa, Managing Director, Major Lindsey & Africa).  Not unreasonably, each commenter tends to see the impact of BI from his or her own persective.  Thus:

• David Clark, IT Director of the 70-lawyer Jones Waldo Holbrook& McDonough (Salt Lake City), says "it is probably not on the radar like it is for some of the larger firms, but ... [this] will change in the very near future."
• My friend Michael Kraft, founder and GC of Kraft Kennedy & Lesser, Inc. (New York), focuses on how corporate law departments use it to help evaluate outside counsel.
• Larry Bodine, the legal marketing consultant, says "BI software will change law firm marketing at a fundamental level."  And
• Another friend, Judy Flournoy, CIO of Loeb & Loeb (Los Angeles) and President of the International Legal Technology Association, says her firm is evaluating which BI suite to implement but says "they have become a must-have."

Actually, I have another take on BI analysis altogether, and for better or worse I don't see any of the LTN panelists addressing it.

My take is that both the evangelists for, and the denouncers of, BI tools tend to fall into the classic trap of thinking in terms of Static Analysis rather than Dynamic Analysis.  What do I mean by that? 

Suppose a legislature is about to pass a tax increase on a certain behavior: Say, driving across the (currently toll-free) East River bridges into Manhattan. The legislators will predict that the tax increase will raise revenue by $x. But they rarely ask, then what? "What" is that people will change their behavior in light of the new tolls; they'll car-pool, use mass-transit, choose another route into Manhattan, etc., and the revenue raised will be some number < $x.

To generalize, people (non-economists in general, and lawyers in particular) tend to look at the consequences of a change (say, introducing BI tools into an AmLaw firm) in terms of what I think of as one clock cycle; but you have to look at it in terms of repeated, continuing clock cycles.   So the "single clock cycle" school would predict that once BI is introduced, partners whose practices are suddenly cast in an unfavorable shadow will start kicking and screaming about the flaws in the BI analysis, the absence of qualitative factors making it all so one-dimensional and superficial, the value of omitted intangibles, etc.   Sally Gonzalez of Baker Robbins is probably pointing at this phenomenon when she observes that:

"In most cases, BI tools are of limited use because the underlying financial systems often do not contain information on the time and expenses associated with nonbillable activities, such as business development (e.g., meetings and entertainment), developing a proposal, delivering a pitch and closing a deal."

The single clock cycle school will predict that BI will meet a steep, perhaps insurmountable, wall of resistance from anyone whose ox is gored.

But the multiple clock cycle school (that would be me) will come up with a different view.  Yes indeed, BI will tend to identify winners and losers in its own terms when first introduced:  The more profitable and less profitable practice groups, offices, clients, matters, and even individual lawyers.  But the game has just begun.  The astute firm—starting with the Managing Partner, but essentially including the COO or Executive Director, the CFO, and practice group leaders—will use the BI results not as an end of semester report card but as a start of semester learning tool and coach's clipboard. 

Look, no one wants to end up on the short end of the BI stick:  Certainly not the aggressive, hyper-competitive, chronically over-achieving people in your firm!  And that's not what it should be used for.  Instead, it should be used to help teach the laggards what the leaders seem to know (or at least show them how the leaders seem to behave).  Use BI to demonstrate that there are smart and not-smart ways to staff matters; smart and not-smart ways to accomodate client pressures for lower fees or discounts; and smart and non-smart ways to determine what's working and what's not in terms of career and professional development, and marketing analyses.

Ultimately, those opposing the adoption of BI are adopting the position:  "Don't tell me what I might not want to hear."  Those urging BI's adoption must understand the bedrock reality of that fear, and move beyond it by reassuring people that BI is not to condemn the bottom X%, but to help everyone start migrating their practice towards the performance of the top A%.

That takes more than one clock cycle.

Can We Measure the ROI of IT? Should We?

The latest issue of CIO Insight features a lead article called, "Most Companies Struggle to Measure the Value of IT," and headlines:  "No right way has emerged to measure IT value, and the most common measures fare the worst."

To hear them tell it, we are truly in the wilderness on this one, folks.  For starters, one clear finding that emerges from their study is that there is no one "right way" to measure the value of IT—and the companies that use the most popular metrics are also the worst at measuring value.

There's enough blame to go around, starting with executives on the business side:  In "four out of five" companies, they report, different executives want to see different metrics, "forcing IT to provide this potpourri."  But the very existence—and continued tolerance of—a "potpourri" testifies to the deep intellectual confusion surrounding this topic.  Consider that the single most popular way of getting one's arms around the ROI of IT, "time to payback," is used at 49% of firms who believe they "accurately capture the value of our IT investments"—but also at 73% of firms who believe their metrics do not accurately capture value.  Or that another perennial favorite, [(savings + additional revenues) - cost], is used at 38% of firms who believe their numbers are good but at 69% of firms who distrust their numbers.

If there's an ironic silver lining to this, it may be that an amazing four out of ten companies don't try to measure the value of IT at all, including two out of ten with revenues north of $1-billion/year.

This may not last, however, as a strong majority of CIO's report that CEO's and/or CFO's are looking for "new and better" ways of demonstrating IT value, and that the pressure to quantify the dollar value of IT's intangible benefits has increased in  recent years.   

Something fundamental is amiss here, and maybe the only good news is that CIO's and CEO's alike are skeptical of business-value metrics.  Across the board, roughly two-thirds of companies say that "it's difficult to calculate the ROI on IT;" 52% of IT executives believe business executives are skeptical of efforts to measure the business value of it, and among business executives themselves an indistinguishable 50% deem themselves "skeptical." 

But doesn't IT demonstrably improve productivity?  Didn't Our Esteemed Former Fed Chairman Himself testify to that effect in the late 1990's, attributing the economy's unprecedented ability to grow with low inflation and historically low unemployment to the beneficent productivity improvements of the technology revolution?  Or consider this more recent data point:

"In the first quarter of 2006, productivity in the U.S. grew 3.9 percent, according to the Bureau of Labor Statistics, considerably higher than historic levels. According to Federal Reserve Chairman Ben Bernanke, among others, information technology is a major reason."

Doesn't, in fact, common sense just tell us that IT improves productivity?  How did we ever get anything done in the days before the Internet?  Doesn't the drastic shrinkage in the ranks of secretaries give us visible proof, as we walk down the halls of our firms, that lawyers can and are getting more done with less?  Assuming your senses aren't lying, who can rationally question IT's contribution?

I'd like to suggest an entirely different approach to this debate, which appears to be stalemated. 

The brilliant advances in IT during our lifetimes—and shockingly, blindingly brilliant they have been—have, from the perspective of firms and organizations, constituted something of a technology "arms race," where equipping one's workforce with the latest is merely the cost of doing battle with one's competitors, who are simultaneously doing exactly the same thing.  Productivity increases, to be sure, but no competitive advantage is gained, and any claim (outlandish or conservative, it hardly matters) about the magic pixie dust of IT is rejected because it doesn't feel that progress is being made.

Nicholas Carr, the writer and former Executive Editor of The Harvard Businesss Review, famously stated this case in his 2004 book, "Does IT Matter?"   Essentially, the argumetn of that book is this:

"IT, like earlier infrastructural technologies such as railroads and electric power, is steadily evolving from a profit-boosting proprietary resource to a simple cost of doing business. [...] Innovations in hardware, software, and networking are rapidly replicated by competitors, neutralzzing their strategic power to set one business apart from the pack."

So, yes, you are more productive.  But just as the BlackBerry raised client expectations surrounding responsiveness to hitherto unimaginable heights, you may not feel more productive:  You just may have learned to type your own letters when your secretarial support was downsized.

Can we, then, measure the ROI of IT?  Particularly in our world of intangible services, where client satisfaction is the metric of all metrics, I would simply say it's the wrong question.  Because there is no question IT helps us serve our clients.  And if that's true, I for one think the debate is over.

Is Your Firm an IT Pioneer, or a "Fast Follower?"

Rarely do the stars align to find David Maister, Richard Susskind, and Kieran Flatt (Legal IT) all writing about the same thing at the same time, but when it so happens the opportunity to try to synthesize their thinking is too rich to pass up.

The common topic du jour is essentially the payoff of IT investments in law firms:  Do, in a nutshell, investments in IT pan out positively in revenue and profitability growth?

Kieran is squarely in the skeptical camp:

"I for one have yet to see any sort of technology that really does deliver a substantial competitive advantage to medium-sized City practices. Turn the clock back a few years: some of the leading firms had bugs, glitches, performance problems or stability issues with their document management systems (DMSs). Most, if not all, of these gremlins have now been sorted out, but for a long while the affected firms had to carry on running older, less sophisticated software � and they continued to make money at pretty much exactly their usual rate.

"Rather than proving anything about the respective merits of the various DMS platforms on the market, I would argue that this case proves DMS is nowhere near as critical a resource as it is usually made out to be."

He is not only a skeptic, he's an IT Minimalist:  "Only three aspects of a firm’s IT function really are mission-critical. You guessed it — the telephone and e-mail services and the billing system."

To be sure, he readily admits that the Clifford Chance's of the world could not exist in their current form without sophisticated globe-spanning IT infrastructures, but how many firms are in Clifford Chance's league?   Here's the dilemma he sees; firms have essentially two choices.  You could call the first the Clifford Chance  Model and the second the Wachtell model:

"Either get big and global, rely on good management and innovative systems, commoditise much of your business and slash your margins to compete � which gives the leaders of the IT department a vital role in driving profitability and running the business � or just focus on providing good support IT, keep costs to a minimum and expectations low, and let the fee-earners and partners get on with making the money."

In the course of his piece, Kieran refers to David Maister as "the high priest of profitability," and tags David as a disciple of the second alternative—empower the fee earners to make money and get out of their way—and characterizes David's view as one that "focus[es] almost exclusively on excellence .... with much less emphasis on strategy, processes, technology and management structure than is the norm."  Strategy and IT be damned, in other words.

David's gentle rejoinder and "clarification" put the stress on actually changing the behavior of professionals rather than on grand strategic visions.  And he exposes (some firms') use of technology as a smokescreen for avoiding the hard work of actually improving the quality of human interactions, which are the only source of sustainable and distinctive success in a professional services firm.

"Too many places put in new tools so that the front-line senior people won't have to change what THEY do, - ie, they pass the task of achieving competitive advantage on to the techies. Firms have taken this approach for a long time - they would rather spend money on low ROI activities than change personally. They did this in marketing, always looking for something (branding, PR, brochures, websites) that could be done by somebody else, so they (the front-line senior professionals) wouldn't have to change the way they dealt with clients and customers."

Technology may be great in the hands of enthusiastic and energetic people, but if the availability of sophisticated IT tools leads people to the view that IT is primarily, or even substantially, responsible for the firm's success, you have taken your eye off the ball of your professional offerings and your clients.

 Richard Susskind squares the circle by asking, "SHOULD lawyers be technology pioneers?", and proposes three possible reactions of law firms when confronted with (say) an encomium to the fabulous promise of wikis and blogs:  They can of course resist; they can prepare to take action; or they can be pioneers and lead the way. 

Richard notes the rigors of true pioneering:  "Successful pioneering in IT is not temporary pacemaking. It is about striving to keep ahead of the pack and reaping substantial rewards as a result."  It's not a one-off sprint, in other words, but an ongoing and sustained distance race.

The question remains:  Is it a race worth running?

You can also count Richard in the Scottish verdict ("not proven") camp:

"It is not yet clear whether it pays for lawyers to innovate in IT. Did great benefits accrue to firms that led the way, for instance, in advanced financial systems, document management systems or in human resource systems? Was the investment in the early bespoke systems worth it or might it have been better to wait for off-the-shelf solutions?"

His true belief is that any system, no matter how well-crafted and effective, that faces inward to benefit the way the firm works, will never provide a competitive advantage.  Only systems that face outward to engage clients—and to make those clients' "switching costs" (to another firm) extremely high, will provide sustainable competitive advantage.

I know of one firm that's actually doing this today. 

So we have three luminaries converging on one tentative hypothesis:  If IT in law firms doesn't:

• face towards clients;
• give practitioners tools they can use enthusiastically; and
• enable migration towards higher-quality, more effective personal one-on-one interactions,

then it is not worth the candle.

"What Are Other Firms Doing?" Wrong!

Have you been struck by how frequently the first question lawyers will ask, when exposed to a new suggestion about how they might run things at the firm (from the smallest to the largest issues) is:  "Well, what other firms are doing that?"

On one level, this is to be expected; we are trained to be creatures of precedent.  Likewise trained to be risk-averse, the answer (assuming it's "lots of other firms") will be reassuring:  None of those other firms has, as far as we know, sailed onto the rocks.  But if the answer is, "well, none, really—but don't you think it's a marvelous idea?," we know the initiative is stillborn.  The analysis hits a full brick-wall stop at the words "none really" and tunes out "but don't you think..."

As someone temperamentally disposed—for reasons I can take no credit for, it's just the way I grew up—to think more like an entrepreneur or businessman, this reaction has always, at some gut level, baffled me, as thoroughly as I nonetheless understand it intellectually.

Then it occurred to me that business does the same thing:  Only they call it "benchmarking."

Hence to Harvard Business School's Working Knowledge to see what the managerial wisdom has to say on this topic, and here's the best piece, from earlier this year, "When Benchmarks Don't Work." 

Their definition of benchmarking: 

"The ongoing activity of comparing one's own process, product, or service against the best-known similar activity, so that challenging but attainable goals can be set and a realistic course of action implemented to efficiently become and remain best of the best."

Unlike too many definitions, this one actually embodies some insight into what the activity under consideration is designed to achieve:  And it reveals an internal contradiction.  It simultaneously asks one to "compare...against the best-known similar activity," and then, as an utter non sequitur, proclaims that the goal of that comparison is to "become and remain best of the best."

Are you sensing the same cognitive disconnect I am?  By hypothesis, comparing yourself to others is at odds with becoming the "best of the best."  (To be sure, it's mere managerial good hygiene to know what the competitive landscape looks like, but if you're counting on scrutinizing that familiar territory to spark the Eureka moment transforming your firm into a Wachtell, write me about it when you're done.)

But back to our friends at Harvard Business Review.   They clearly demarcate the value of benchmarking for internal commodity-like processes, services, and functions, from its utter inappositeness if applied to core functions.  More strongly, they posit—with inarguable correctness, in my mind—that even internal "support" services should provide more than commoditized levels of service (emphasis supplied in the following): 

"But benchmarking also has its limits. When you ignore the differentiated output that internal support or shared services groups provide, such straight-across cost or numeric comparisons become meaningless. Today's successful support unit earns its keep by being a trusted partner to the business units it serves. So, comparing its results to those in a benchmarking survey is counterproductive. Companies should save the benchmarking surveys for commoditized processes or services."

And the primary reason why internal "support" services must strive to provide "supra-commodity" levels of service is simple.  Commodity levels of service are available elsewhere, cheaper, faster, and better:

"Perhaps many HR, IT, and finance departments do indeed strive to be low-cost suppliers of standardized services. But if so, they are not likely to remain internal departments for very long. After all, an outsourcer of these services enjoys economies of scale that virtually no internal support unit can hope to match."

What does this mean on the ground?

For HR, it means that an "expensive" department that takes professional development seriously is earning its keep.

For IT, it means that supplying analytic applications and decision support methodologies individually tailored to your practice groups take it well above "commodity," transaction-processing mode.

For finance, it means that if it provides practice group leaders and billing partners highly granular information on the profitability of individual matters, clients, and sub-specialties, it is earning, conservatively, 10 times the extra amount it "costs" to offer that expertise.

This is the bottom line, and what your "support" departments should aspire to:

"[S]ervice units whose goal is to provide differentiated services and to upgrade the skills and capabilities of their professionals will necessarily spend more. They are not less efficient than their low-cost counterparts; rather, they expect to create even more value for their enterprise. Their strategy is fundamentally different."

What's the strategy for your service units?  If it's embodied in the answer to the question, "What other firms are doing it?," your strategy, like it or not, is one of guaranteed mediocrity.

The Financial Times on "Legal Innovators 2006"

The Financial Times has a special report on "Innovative Lawyers 2006," which I commend to you essentially in its entirety.  It's thoroughly researched, involving soliciting submissions about "innovation" from the largest 200 firms in the UK, establishing an expert panel of judges, and carrying out over 500 interviews between April and June 2006.  In the end, over 300 separate submissions were received from 66 law firms; the FT rounded out the research through canvassing general counsels at FTSE 250 companies for nominations of private practice lawyers they thought stood out on the innovation dimension.

Rigor was the order of the day:  For example, nothing submitted could be more than three years old; the law firm itself, rather than a client or consultant, had to have come up with the "innovation;" and merely excellent practices—which weren't innovative—were rejected.

The highlight/summary article is here.

The Top 10 (the judges' choice) ranged widely, but had in common that no other firm was or had been doing it; that they bent if they did not break the traditional notion of what "business" a law firm is in (for example, Allen & Overy won in the "corporate social responsibility" category for its program of targeted donations to legal aid centers), and they were often the children of single individuals inspired to create something new.  As the FT report drily puts it, "law firms have no tradition of R&D."

Some of the other key insights:

• Since, as noted, many of the innovations were the brain-children of individuals ("mavericks," anyone?), they tend to reflect idiosyncratic views of what's important:
  • Brain Capstick, founder of the London-based top-100 (UK) firm Capsticks (in 1979), started pursuing medical malpractice cases, but in an example of the "poacher becoming the gamewarden," realized he could do better by offering his expertise to help doctors and nurses avoid making mistakes in the first place. 
• Derek Southall of Wragge & Co., formerly a corporate finance lawyer, now leads the firm's strategic development team, and came up with the notion of offering "free" IT strategy reviews to the firm's clients, incorporating the best learning that has come out of the firm's own intranet and extranets.   The FT realized the primacy of technology in this fashion:

  "Technology was the second most subscribed category of innovation. It is ideally suited to the primary nature of the industry, which revolves around processing information to provide advice and build relationships with clients.
  
  "Submissions were ranked primarily on facilitating client needs. �Rather than looking at how they use the technology internally, law firms should focus on using it to enhance the client-service experience,� advises Richard Susskind, a consultant in legal technology."

• Also at Wragge & Co., in recognition of the fact that the employment law market is more cost-sensitive than some other areas with “large employers demanding more law per hour from their advisers," they have done all they can to commoditize case-handling in this area, allowing the use of more junior level lawyers.  According to Wragges, "it has increased success rates to about 99 per cent, and reduced costs by up to half."

Still, for my money, the major "innovations" the FT discusses are important, ground-breaking, and merit attention.

This cannot be, or cannot remain, the case:

"The head of legal at a FTSE 250 company went silent for a few minutes when we asked him to mention an innovative lawyer he had used. Then he said he did not think it was possible for lawyers to be innovative."

Indeed, Allen & Overy dedicated an entire day at its last partners' retreat to the issue of in novation, and David Jabbari, their global head of know-how, says that innovation "is critical because it is the only tangible way we can demonstrate our thought leadership to clients."

And the focus is on clients, not internal:

"Five out of the nine categories of the report are �client-facing�. Law firms which merited a �stand-out� ranking for client service, legal expertise, value for money, billing and IT claim they have shown that their innovations have had real and lasting impact on their clients."

For example?  Well, Brian Capstick has changed the way hospitals attend newborns, lowering birth defects, lowering miscarriages, improving infant health.

Norton Rose is working on "Takaful" insurance products, which are Sharia-law compliant and will potentially allow the 20% of the world's population which is Muslim to have access to insurance.

Mishcon, a mid-market London-based commercial firm, has pioneered the "Tulip" service, essentially a program to help trademark owners fight against counterfeiting; it aims to “turn losses into profits” by attempting to calculate the amount of the ill-gotten gains of counterfeiters so that the brand owners can (a) decide whether the infringement claim is worth pursuing; and (b) have a colorable basis for damages from the start.

 Why aren't more firms being innovative?   The well-known Richard Susskind, author of The Future of Law, puts it nicely:  “It’s hard to convince a room of millionaires that their business model is wrong.  They like the idea of innovation but want it on a plate.”

Finally, the most fascinating aspect discusses innovations in management of firms.

This is how the FT (kindly) introduces the topic:

"[L]awyers have never been at the forefront of management thinking, and that has made this category particularly difficult for deciding the rankings. Examples of innovative management projects were relatively thin on the ground, but some did stand out."

The difficulties, familiar all, are:

• The era of the gorilla rainmakers ascending to the helm, while rapidly waning, are not yet entirely gone.
• The intrinsic nature of a partnership involves a core component of democracy.  If not pure Athenian democracy, then at least "consensus" is a core value; but a $500-million or $1,500-million/year enterprise simply cannot be run along democratic lines.
• For now in the UK, and for the foreseeable future in the US, non-lawyers cannot be granted equity in a firm, so retention and recruitment of the highest-caliber "C[X]O" people becomes an issue.

The best news of all?  There is a series of firms that won Innovation Awards.  And, the more attention this gets in the world writ large, and the more clients attend to it, the more we'll be challenged to ask why, just because it was done that way yesterday, we should do it that way tomorrow.

Who knows?  Imagine the law firm that creates a Director of R&D.

Interwoven's "Legal IT Leadership Summit"/2006

I'm pleased to report that I'll be attending Interwoven's annual "Legal IT Leadership Summit" this coming Monday through Thursday, May 22—25, at the Ritz Carlton/Bachelor Gulch, as Interwoven's guest, which is extremely gracious on their part.

The panel topics include:

• Redefining the Relationship between the Business and IT;
• Pragmatic Approaches to Knowledge Management;
• Architecting IT Governance and processes for the new business climate; and
• Information Management Strategies in Today’s Environment.

This particular annual IT conference surely ranks among the most valuable of the many offered by various firms and organizations throughout the year.  Here's a summary of what it's all about: 

"It is probably the one time in each year when I get the opportunity to have a real in depth debate with colleagues from either side of the Atlantic. The program, speakers and even timetable are set by the advisory board.� � Janet Day, CIO, Berwin Leighton Paisner

"The Legal IT Leadership Summit is an exclusive event that brings together 40-50 of the IT leaders (CIO's /Technology Partners) at the largest and most influential law-firms across the globe with the goal of discussing the most pressing challenges they face. The summit focuses on 3-4 issues that impact large global law firms in great depth. The format for each session includes keynotes by an expert on the subject followed by a moderated forum or panel discussion that drives questions and deeper discussions, sharing of success and failures and case studies.

"This year�s theme � Navigating New Frontiers, reflects that the business climate for law-firms is changing, and this shift is bringing new expectations of IT to provide simple solutions to increasingly complex challenges."

Unusually, the agenda is set entirely by the completely independent Advisory Board, and not by Interwoven.  The members of this year's Advisory Board are:

Name	Firm
Daniel Pollick	DLA Piper Rudnick Gray Cary
Eugene Stein	White & Case
Janet Day	Berwin Leighton Paisner
Jeff Schwarz	McDermott, Will & Emery
Jim Pfau	Faegre & Benson
Michael Fick	Jones Day
Nigel Blackwood	Wragge & Co
Robert Marburger	Alston & Bird
Santiago Gomez Sancha	Uria Menendez
Simon Kosminsky	SJ Berwin

I look forward to seeing old friends, and to making new ones.

Anticipate a complete report right here on "Adam Smith, Esq." in a week or so.

From IBM to Microsoft to...Google?

In the world of technology, we've had the IBM mainframe era, the Microsoft PC era, and now we have...the Google web era?

I'm not being facetious; well, CIO magazine is not being facetious, anyway, when it features this as its cover story. Add in McKinsey's just-released "Two new tools that CIOs want," and we have a potential "technology architecture transformation beginning to take shape."

If past is prologue, astute and adaptable firms will foresee this wave coming and will gain, if not a permanent, a sure-fire cyclical, competitive advantage. 

McKinsey first, on what "two new tools" you want:

• "server virtualization (which helps companies improve the match between their computing capacity and their application workloads, so that they can do more with fewer machines) and
• "software as a service (which allows IT departments to offload the delivery and maintenance of software applications)."

For the non-techies in the audience, server virtualization solves a seemingly odd problem, which is that in almost any computer network, the servers don't actually work very hard at all.  A common estimate, in fact, is that in a mixed environment of servers running Windows, UNIX, and Linux (a ubiquitous scenario), each machine is typically uses only 5-15% of its capacity. 

"Virtualization," a software application,enables any given hardware server box to run (say) all through operating systems at once, and all the applications that run on top of each, boosting utilization to 40% or more, while retaining the ability to meet peak demand.  A corollary benefit is that applications themselves can be distributed across multiple machines, so a temporarily overtaxed box can "hand off" a processing job to a comrade.

The benefits are financial, and real:

"One CIO with a budget of $600 million told us that his company has virtualized 30 percent of its servers and plans to have 60 percent of them virtualized within two or three years. He expects to reduce capital expenditures during the next server-refresh cycle by 30 percent and to reallocate the savings to different projects."

The other initiative, software as a service delivered over the Internet, means that "rather than purchasing and deploying applications inside the enterprise, many companies are buying access to externally hosted applications."  You only pay for the software as you use it, and it's essentially a form of outsourcing. With the model of outsourcing to a dedicated vendor who does one and only one thing come the classic benefits:

• economies of scale as the vendor can amortize upgrades across a multitude of subscribers;
• highly specific expertise focused on the single application and nothing else;
• with the result that deploying an application as "software as a service" rather than the conventional install-locally, license-and- upgrade, can save 30% or more and cut deployment times from 6 to 24 months to, essentially, however long it takes to finalize the contract.

Those two developments may sound altogether IT-land and techie, but a salient component of my philosophy of law firm management is that the CIO deserves "a seat at the table" at any firm that thinks it operates in the 21st Century, so these are Executive Committee and Managing Partner, not just IT, issues

But the Google story, courtesy of CIO, is sexy enough for any dinner party conversation.

Here's how CIO sets the stage:

"In the Google-future, IT will be more scalable, agile and cost-effective. But it will also be less controllable by CIOs. This will require CIOs to adopt a new mind-set for how they manage the use of IT in their company. Those who succeed will be free to focus on driving innovation; those who fail will be fighting a battle they're destined to lose.

"CIOs need to understand that it is a whole new world."

Google's power, and the threat it poses to incumbents, has little to do with search or with advertising, although those are readily grasped innovations we all can appreciate—just as we say to ourselves, "Why didn't I think of that?"

Google's power is something unseen and largely unknown:  Its hardare infrastructure.  Would it surprise you to learn that Google is the third largest server manufacturer in the world?  And, although "Google treats its infrastructure as a closely guarded secret. It doesn't allow outsiders into its data centers," an educated guess by an independent consultant who focuses on Google estimates the firm now has 150,000 servers spread across 24 data centers.

To some observers, Google's business trajectory so far has seemed like somewhat random, opportunistic growth.  That could be a ruinous under-estimation of them if you're going up against them competitively:

"IBM executives in the early 1980s didn't understand what Microsoft was," says [an analyst].  "Now Microsoft is in the same spot, and they are trying to understand what Google is. And they're having a hard time."

In the traditional corporate/firm IT infrastructure model, the CIO and his advisors choose which applications users will and will not have, and people have no choice but to dine from the set menu. By contrast, at home people are free to choose what applications they'll have on their PC's.   As Google moves more and more applications to the Web, people who like them at home will exercise enormous pressure to have them available at work as well.

But what CIO in their right mind would give up control?  Aren't CIO's all about (among other things) security, audit trails, and locking down options?  It sounds as though no one at Google would disagree:

"At its core, however, Google's enterprise strategy will remain viral. It won't try to convince CIOs to replace the applications they already have with Google versions. Instead, Google will continue to produce products that people like using and will use�at home and at work.

"It will happen without people noticing," says [Dave] Girouard [head of Google's enterprise applications], prophetically. "People look for a eureka moment but things just seep in. That's what's happening here."

In other words, one of these days you could wake up and find that most of the applications your company uses are provided by Google. That's a vision bound to keep most CIOs on edge."

Never happen?  Remember that few saw Microsoft coming either.

And if you believe today's New York Times' lead business story, now Microsoft and Google are "grappling for supremacy."  And in this war, the key determinants of who wins are (a) ability to adapt to change rather than remaining prisoners of their past success; and (b) recruiting and retaining the best and brightest people.

"One area where Microsoft and Google are really competing head-to-head now is in the war for talent," said Richard S. Tedlow, a historian and professor at the Harvard Business School. "Historically, the company that won the war for talent, won the war."

Whoever wins this latest commercial war, it seems clear that our fundamental technology platform is shifting beneath us, from the desktop to the Web.

Law firms that get there first—while still, to be sure, maintaining rigorous standards in non-negotiable areas like document retention—will be able to respond with more alacrity, will be able to invest less in home-grown infrastructure, and will benefit from "best of breed" applications developed at a cost spread over millions of users.

And another thing:  People might actually enjoy having a little choice.

"The Innovator's Dilemma" Strikes Again?

In the classic "The Innovator's Dilemma," Clayton Christensen analyzed how companies at the top of their game, with brilliant and successful products, and focused on their core clients, could be undercut and eventually dethroned by small, pesky start-ups with demonstrably inferior technology.  No less than Andy Grove had this to say:

"This book addresses a tough problem that most successful companies will face eventually. It's lucid, analytical-and scary."

If you haven't read it, first of all, shame on you, but second of all, here's Christensen's key insight: Market-leading, highly-functioning firms that are (rightly) focused on their best clients will ignore newly introduced "disruptive" technologies which typically begin life cheaper, smaller, and easier to use—but far less capable—than the market leader's offerings.  The leader's best clients know and appreciate the fully-featured products they buy, and have no use for what the inferior upstart sells. Meanwhile, senior and middle management of the market-leading firm has no incentive to adopt the new, inferior technology either, since (a) their best clients have rejected it; and (b) at least initially, the market niche is so small it would contribute negligibly to the firm's growth, and could even dilute profitability (cheaper generally being associated with lower-margin).

We all know what happens next:  The emerging technology matures quickly, becomes competitively capable, and the market-leading incumbent is caught flat-footed.  If Christensen's book has been consistently criticized for anything, it's that he doesn't have much to say about what the market leader could do differently to avoid being dethroned—which I interpret not as a failing of Christensen but as a reflection of how intrinsically difficult it is for the market leader in such a situation:  Revolutionizing themselves to meet the threat on its own terms means taking their focus off their best clients and investing in somewhat unproven, low-margin products with an uncertain future.

What has this to with "the economics of law firms?"  Legal Week reports:

"Some of the fastest-growing, most innovative firms in the UK are found not within the confines of the City [of London] but out in the regions. Here, unencumbered by the tradition, expectation and expense of running a London operation, they have succeeded in building up legal businesses whose capacity for growth may soon see them encroaching on their capital equivalents� territories."

And what have these firms in common?

"Change.  As businesses which have come a long way in a comparatively short time, they are used to embracing it as a constant."

One could argue that the impending Clementi Commission reforms give UK firms greater incentive to innovate (or greater fear if they don't) than their less immediately challenged US brethren, but the firms Legal Week discusses don't sound fearful and don't sound bashful.  A partner at Liverpool-based Silverbeck-Rymer (no, I hadn't heard of it either—but for a taste of something "completely different," check out their website) says:

"The companies outside the profession currently being touted as potential providers of legal services are in a position to provide a much slicker service at a much reduced cost. If law firms are to survive they must embrace change or face extinction"

while another says "[we] have no God-given right to make money and will have to adapt and innovate to survive."

Incidentally, Silverbeck-Rymer has all of four partners and revenue of £16.4-million (about $29-million), so don't be too hasty to scoff at their business model.

What are the "business models" of these firms in general?

• Heavy investments in IT to propel efficiency.
• A strong culture of client-service orientation, including call-tracking and case management systems:  "anything focused on keeping the client happy," as one managing partner puts it.
• A "virtuous circle" whereby the investment in efficient, standardized systems and a stable workforce lead to satisfied clients receptive to cross-selling, which increases profitability and enables more aggressive investments in IT and marketing.

Now for the most disruptive innovation of all:  Discarding the partner-manager model entirely.

Drastic?  Not to Tim Hastings, chief executive of Midlands-based firm Nelsons, who says bluntly (emphasis supplied):

"We found many years ago that the pace of change in today�s business world is too rapid to suit the partner-manager model. It simply took too long to make a decision.

"A corporate-style model, however, allows us to emulate successful non-legal businesses. Most big companies have been built up by delivering consistent, high-quality products to their customers. This can be applied to legal services too, which is why we need a [corporate-style] decision-making process."

Is this starting to sound familiar?  Innovation arises from small, regional upstarts who offer inferior services ("standardized," "commoditized," not bespoke) at a lower—and fixed!—price.

Granted, UK firms staring down the barrel of Clementi may have little choice; but those like Nelsons and Sylverbeck-Rymer who enthusiastically embrace change may be showing us all a model for the future.  Win, lose, or draw, they're doing what Christensen found so threatening to incumbents:  Breeding new ideas, experimenting with different processes, and using their rapid growth to invest in more of the same.

"Tacit" Workers of the World, Unite

I've written before about the economic implications of living in a "tacit" industry (as opposed to a "transactional" or a "transformational" one—McKinsey's coinage), but there's more to say. A brief review of the bidding:

• transformational jobs are things like manufacturing, mining, and agriculture—today one job in five, whereas a century ago only one job in five was anything else;
• transactional jobs are things like retail sales, accounting, and banking and brokerage;
• tacit jobs involve "searching, coordinating, and monitoring activities required to exchange goods, services, and information."   For instance?   "Running supply chains, managing the way customers experience products, reviving brands, and negotiating acquisitions." 

Now, in "Competitive Advantage through Better Interactions," McKinsey returns to the topic to address an issue that has vexed everyone from hospital administrators to economics professors, ad agency presidents, and managing partners.

The problem, of course, is that while we know how to juice the productivity of transformational jobs—by and large, throw more capital investment at them—and transactional jobs—by and large, refine business processes through continuous learning—these strategies don't apply to tacit jobs:  "[T]he productivity of marketing managers and lawyers can't be raised by standardizing their work or replacing them with machines."

Worse, there's wild fluctuation and variability in performance, "a sure sign that things could be better."  But systematizing, say, the sales force for a high-tech company, is going to backfire.  What makes a good salesperson is, among other things, a superb understanding of the product and the market, integrity, and a nuanced sensitivity to how people make decisions, learned over time:  None of it susceptible to "process-ization."

Before we get too far ahead of ourselves, one caveat:  The industry you work in does not automatically peg you as falling into any one of these three categories; virtually every industry requires tacit work in some measure.  So, e.g., McKinsey claims that tacit workers are 70% of those in healthcare, 60% in securities firms, and 30% even in utilities.  Here are the overall numbers (% of all jobs, 2004):

Back to variability:  If you define performance variability as the standard deviation of performance divided by the mean level of performance, you get:

• 0.9 for companies with low levels of tacit activities;
• 5.5 in the middle; and
• 9.4 in sectors with high tacit activities.

These numbers have consequences.  Measuring performance by EBITDA per employee in $-thousands, you get this result:  Among freight companies (low), the range was from 7 to 90; among retail banks (medium), from -23 to +332, and among investment banks (high), from -82 to +805.

Now that you're all ready to emulate that (unnamed) investment bank at +805, how do you get there from here?

Let go.

Your job is not to superimpose "connectivity" from the top down, but to set up and maintain an environment that encourages tacit interactions to emerge and flourish.  This means: Facilitating learning, breaking down barriers, providing tools to foster collaboration, and permitting decentralized, front-line innovation and decision making.  And it gets scarier still.

Not only do you need to tear out your micromanagement impulses root and branch, you need to revolutionize your strategic decision making:  Allow "a portfolio of initiatives to emerge from internal and external interactions."  This reprises my thoughts on the spontaneous emergence of robust initiatives if people are allowed to "think out loud" together.

In some ways (and McKinsey acknowledges this), professional service firms are already better than corporate America at assembling ad hoc teams to manage a project to completion, which then spontaneously disassemble and reconfigure in new forms responding to new challenges.  But the question is not whether your law firm is better at this than General Motors, it's whether you're better than your competitive set.

Here's the problem:  "The kind of network buildign that tacit workers must do to boost their effectiveness thrives in a culture built on trust,... that rewards collaboration, dispenses group-based incentives, and measures tacit work by its impact and the relationships that those who engage in it forge."  If you think that describes few law firms today, you took the words out of my mouth.

Moreover, the type of relational and institutional learning that occurs cannot be managed from the top-down.  Indeed, McKinsey even endorses blogs and wikis as having "created new, decentralized, and dynamic approaches to the capture and dissemination of the knowledge critical for tacit interations."

This approach may indeed "upend the greater part of what senior management has learned over the past half century."  But when the facts and the environment change, do you change your approach?  If you do, and you're lucky enough to have cautious and risk-averse competition that does not, you are on your way.

"The IT Value Matrix:" Play Offense, Not Defense

I haven't written about IT lately, but do not infer that I doubt or gainsay its bedrock role in our lives and work; it is as essential as air and sunlight.   But since "Adam Smith, Esq." is not a tech-centric site (there are many amply capable incumbents in that area, such as Jeff Beard, Ron Friedman, and Dennis Kennedy), I only focus on IT when there's management-side news.

And there is:  CIO Magazine has come up with the "IT Value Matrix," after 18 months of collaborative effort, as a tool to let IT stop being defensive about what it costs the firm and go on the offense by articulating the value it provides.    This is how it works:

"The matrix identifies approximately 130 components, grouped under three key practice areas�stakeholder alignment, communication and the CIO role. It�s organized for drilling down from general to specific. For example, to achieve stakeholder alignment, CIOs need both knowledge and action. To learn what type of knowledge, you drill down one level and find four types: stakeholder analysis, political and cultural issues, technology trends and business dynamics."

You can order a poster-sized copy of it here ($14.99 for shipping/handling).

In tandem with the Matrix, the CIO executive council developed "Seven Keys to IT Leadership," which are estimable:

The principles are as follows (emphasis supplied):

1] The primary goal of IT is to align with major enterprise objectives. Every initiative must be clearly tied in a provable way to business value.

2] Because all major business initiatives are dependent upon technology, the CIO must have a voice at the table at which key business decisions are made.

3] The CIO is responsible for understanding a business’s complexities, influencing peers and presenting technology strategy in terms the business can understand.

4] Technology leaders are agents of change. Transition is our stable state.

5] Communication and relationship building are as important to IT leadership as technology skills are.

6] Successful technology leadership must strike a balance between competing forces: short-term versus long-term, technology versus business focus, leading versus enabling.

7] The CIO is responsible for cultivating technology leadership at all levels.

My favorite of these is #3:  In fact, I would re-rank it as #1.   Prerequisite to the CIO doing anything else whatsoever is understanding the business of a law firm, and describing technology in business, not tech, terminology.

In short, one of the clearer manifesto's of how IT can fit within an organization and be appreciated for what it does.

Try some yourself.

Dare to Nominate Your Firm For This

"Lawyers and innovation are not words that people automatically put together," is how the FT starts its announcement of the launch of a ranking of the most innovative law firms, and individual lawyers, co-sponsored by the accountancy BDO Stoy Hayward and managed by RSG Consulting, a new firm to me identified as "a legal research company."

Why this?  Why now?  As the FT explains it, the world is changing:

• "Before 2000, no law firm could claim to be genuinely global."   Did you notice that's no longer so?
• Clients are becoming savvier and more demanding about fees and firm selection.
• The Clementi Commission has set the stage for what I believe will be law-firm-land's equivalent of the "Cambrian Explosion."
• "Deliver[ing] the law and deliver[ing] it competently" are merely, as they should be, table stakes; clients are demanding more.
• Top law firms are rethinking aspects of the traditional partnership model and looking at management techniques of large corporations.

And, most simply, the existing array of awards for innovation in business have heretofore simply ignored law firms; the FT plans to fill this gap.

Here are the submission guidelines.  The categories are:

• value for money
• billing
• client service
• management
• use of technology
• legal expertise/strategy
• HR/employee relations
• pro bono/corporate social responsibility (CSR)
• general/open, and
• individual lawyers.

Submissions should be no longer than 1,000 words and are due 5:30 pm Friday, May 5.  Let the games begin.

Commodization: Threat or Menace?

Legal Week sounds the alarm about the coming of the "procurement professionals" to the selection and hiring of outside counsel, and predicts, based upon their impact in other sectors:

• at least a 15% reduction in fees;
• greater objectivity in the selection process (less value put on "networking");
• more rigorous performance measures;
• formalized contracts and agreements throughout the relationship, starting with RFP's; and
• performance-based remuneration.

Appalling?  Surely so, from the traditionalists' perspective, but I'd like to suggest another way of approaching what to many will seem a skunk at the garden party.

Let me lay the groundwork for what I'm about to recommend by flatly predicting that the involvement of "procurement professionals"—if not formally, then the toolkits and mind sets they advance—is not only here to stay, it will only grow.

Why?   Econ. 101:  There's simply too much money at stake.

And the Econ. 101 "Competition Made Me Do It" Corollary:  As soon as a Fortune 500 company adopts procurement professionals for its legal spending decisions, any serious competitor of that company is going to have to look at doing the same.

Legal Week offers three tactics for dealing with this:

1. "Prevention is better than a cure."  In other words, forestall having the selection process captured by the procurement professional, by appealing to senior executives' visions and ambitions, and the (invaluable) contribution your firm makes to the realization of those ambitions.
2. Embrace commoditization:  If you can build the IT systems, and install new assumptions about hiring and training associates and para-professional staff, you could conceivably become the procurement professional's "go-to" firm.  More on this below.
3. Hope it will all go away, and in the meantime meet them on their own terms.

(3) is obviously not advisable; it's surrender without a fight.

(1) is ideal if you can pull it off, and certainly entails the least disruption to existing relationships, practices, and assumptions.  In this sense it's also the most familiar and comfortable.

I might add that there's truly something to be said for the sense of reassurance, confidence, and trust that comes with a long-standing relationship with a close advisor.  And that it is precisely under these conditions that you can and should be "reassuringly expensive."    No one would engage a procurement professional to select a cardiac surgeon, and the depth of expertise, wisdom, and instinctive good judgment that one achieves only after years of practice have no price.

Consider a story I heard earlier this week from the managing partner at an AmLaw 25 firm:  A client had inquired to a department chair at the firm about a sensitive, complex, and nuanced matter, at the intersection of law, ethics, and the client's reputational capital, and in the course of a meeting lasting less than an hour came to a complete understanding of the ramifications of their situation, and the options going forward, and had put in place a concrete plan of action.

The firm delivered a bill for $10,000, which the client's law department promptly and happily approved; but when it arrived at accounting to be paid, it was rejected for want of itemized specificity.   Ultimately, things were resolved in the law firm's favor, but does anyone doubt for a moment that a bill for the exact same amount, generated by three low-level associates arduously itemizing time, would have sailed through accounting?  Despite the utter disconnect in "value received" by the client?

[This also reminds me of my favorite, true, headhunter's story:   A firm retained a headhunter to find, vet, recommend, and place a lateral partner in a hotly competitive and arcane practice area.  Forty-eight hours later the headhunter introduced a candidate who breezed through the interview process and was hired within weeks.  "For services rendered:  $100,000."  The managing partner—a different one!—sputtered that the recruiter had taken so little time that the charge should be reduced.  Replied the recruiter, who did collect the full amount, "You hired me to save time."]

---

Now let's get to the interesting choice:  (2), "embracing commoditization."

Here one can do no better than to study at the feet of Tony Williams, who wrote late last year about precisely this:

"There is often a degree of unreality in a law firm�s approach to the commoditisation of legal services. The first approach is denial: �No, of course we do not do that sort of work, but firm X does.� The second answer is: �Yes � but we do very little, although it is useful for training our junior lawyers or trainees.� The third answer is: �We do not do much now but we anticipate more of our work becoming commoditised and do not know how to cope with it.�"

I—with Tony—am here to tell you:  (1)  denial is becoming an increasingly untenable attitude to adopt towards commoditization; and (2) it's actually nothing to be afraid of, but rather a phenomenon to be embraced by forward-looking firms with new tools and techniques that can both delight their clients and continue the happy ever-upward march of profitability.

Why is denial untenable?  Consider the moves by "thought leader" corporations such as DuPont, GE, and Motorola to streamline, outsource, and rationalize their legal spending. 

Consider Cisco's building a web application to enable its managers to walk through garden-variety employment law questions online, with the content and "intellectual property" behind the scenes provided by Eversheds.  Consider Forrester Research's report that 12,000 US legal jobs had already moved to low-cost areas such as India and Eastern Europe, and predicting the number would triple to 39,000 in 2010 and then double again to 79,000 in 2015.

This toothpaste is not going back in the tube.

Perhaps most dramatic of all will be—I predict—the surprisingly rapid development of brand-new business models delivering baseline legal services in the UK following implementation of the Clementi Commission's report and the subsequent enabling White Paper.

In a nutshell, as I've noted previously, the Clementi reforms will permit wholesale ownership of legal practices by non-lawyers.  If you reflect on this for five seconds or more, the implications become clear:

• "Non-lawyers" is a large enough category to embrace public and private companies, the public at large (can you say, "IPO"?), private equity funds, etc.
• These types of owners bring with them intrinsic access to great amounts of capital.
• "Capital is [almost] irrelevant to law firms—and is certainly not a meaningful restraint," you say.  True enough, for the AmLaw 200 and the UK 50 as they exist today, but access to tremendous amounts of capital permits creation of hitherto unprecedented types of legal practice.  Imagine an "H&R Block Law," or a "Wal-Mart Law," or a "Citigroup Law," and you begin to be able to envision the possibilities
• New, strongly branded legal service providers, using state-of-the-art technology, sophisticated advertising and marketing campaigns, will presumably begin to serving Mr. & Mrs. Consumer, with real estate closings, routine tax advice and business formation, divorces, estates, and trusts.
• But how long will it be before they begin creeping into small business services?
• And then larger business services, working their way inevitably up the learning curve, using proven systems and processes that guarantee the client:
  • A known result
  • At a fixed price.

This is actually both more and less than a "prediction:"  It is simply a description of how competitive marketplaces work.

What's the bottom line?

Change is afoot. 

Firms that seize the once-in-a-generation opportunity to truly understand ("grok," as they say), the change that clients are going to impose on our industry will emerge more client-focused, stronger, and more profitable, than those that lag behind or engage in comfortable denial for too long. Tony Williams nicely states the alternative to change: "You can do nothing — but only if you intend to retire within the next five years."

I know it's hard.  So I will offer my favorite quote on how difficult change is, from the always-masterful Machiavelli:

�There is nothing more difficult to carry out, or more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all those who profit by an old order, and only lukewarm defenders in all those who would profit by a new order. This arises partly from the incredulity of mankind, who do not believe in anything new until they have had actual experience of it.�

What alternative do you propose for your firm?

Morrison & Foerster's "AnswerBase" KM Initiative: Learning from Wal-Mart

When I wrote about the Baker-Robbins/LegalWorks KM conference, I purposely left out the most impressive application/presentation of them all:  Morrison & Foerster's Oz Benamram discussing "AnswerBase," the firm's new KM system which will be rolling out next month.

AnswerBase is the fruit of over two years of labor, and is, in my humble opinion, a revolutionary approach to KM.  Oz was kind enough to give me a one-on-one guided tour in his office two weeks ago, and what I have to say will draw from both his presentation to the KM conference and to our private meeting.   Suffice to say that neither Oz nor I am aware of any other firm taking the Morrison & Foerster approach at the moment, but when I asked Oz who else might adopt it once they see it, his response was "Everyone will, within two years."

 Read on.

At the outset of their redesign of the Morrison & Foerster KM system starting two years ago, Oz and the team went back to first principles.  These were their guiding stars:

• We need "federated search" to search across the many disparate databases which all contain information potentially germane to a lawyer confronting a new task, including:
  • the matter tracking/management system;
  • the client/CRM databases;
  • the financial/accounting/time-keeping and billing databases;
  • personnel information on individuals within the firm;
  • the document management system;
  • the email database; and last but not least
  • the firm's own internal "Knowledge Exchange" system, a continuously-upgraded and dynamic compilation of (manually managed) model documents and templates.
• To use precedents effectively, attorneys need context: who worked on the transaction, what industry was it for, the timing, etc.
• Often the most expeditious way to gain expertise is...by talking to an expert:  This implies that the system must excel at identifying people who have worked on similar matters in the past, and preferably a lot of them.
• Finally, lawyers won't use anything that's not drop-dead simple.  Extremely comprehensive and nuanced search tools may be fine for grad students, but lawyers want something resembling Google or Yahoo.

Perhaps not surprisingly, when they went out into the marketplace of "federated search" vendors to evaluate products, they ran into the realization that while everyone could do 80% (sometimes a different 80%) of what they were seeking, no one could do it all.  Products that excelled at extracting meta-data to identify entities to a transaction, for example, fell down on their relevance-ranking engines, so that the "best" documents did not always appear at or near the top.  Similarly, products that were strong on identifying individuals with relevant experience mis-categorized documents.

At this point, the team was in a bit of a quandary—until Oz happened to attend an "enterprise search" technology conference where some e-commerce vendors were making presentations.

When you or I think of e-commerce, we tend to think of Wal-Mart, Home Depot, Barnes & Noble, not the AmLaw 50.

But Oz's insight was that e-commerce platforms have several built-in capabilities that more conventional engines used to power legal KM systems may lack:

• they are "scalable" beyond belief;
• they make allowance for misspellings, imprecise phraseology, etc.;
• at least with the best-of-breed, they avoid the classic search failure mode I refer to as "all or nothing"—where the answer to your search is either "Search returned no results" or "Showing 1-10 of 2,409"
• they "hate" to come up empty-handed, so are configured to provide near misses and close neighbors rather than "Try Again."  (For example, if you were searching for a 2005 black Honda Accord coupe with a 6-speed manual, and there were none in stock, it might return a 2004 fitting those specs, or a four-door sedan, or a red one, and ask you which criteria were most important to you so it could re-order and refine the results.)
• perhaps most compellingly, they come ready-made with the ability to conduct "faceted search," a term perhaps more readily understood by example than strict definition.  "Faceted search" simply means the ability to categorize the answer set of a search by relevant characteristics.  Endeca, a leading vendor in this area, with clients including Barnes & Noble, Boston Scientific, Circuit City, CompUSA, Home Depot, IBM, the Library of Congress, NASA, Patagonia, Putnam Investments, and Wal-Mart, provides this example after one has searched for "Lego's" at eToys:

Although difficult to make out, you can see that of the "172 results" returned, it invites you to recategorize them (left-hand column) by Age, Gender, Price, Category, Character, etc.  In law-firm-land, the equivalent is offering to recategorize the results of a KM search by client, industry, type of transaction, jurisdiction, office where it was managed, responsible attorneys, date, or even the identity of the law firm on the other side.

Even given the inspiration of Endeca and the e-commerce model, Oz and his team ultimately settled on the proven platform provided by Recommind, which has worked with such name-brand firms as Cleary-Gottlieb, Cooley Godward, DLA Piper, Paul-Hastings, and Shearman & Sterling.

Finally, the Morrison & Foerster system obviously "knows who you are" when you're conducting a search, and adjusts its relevancy rankings accordingly, giving greater prominence to matters arising in your office or your department, or for clients you've worked for. Moreover, it knows how much you've worked on similar matters (say, an antitrust deal) and if you're new, or rusty, it will put training videos higher up in the search-return results.

If Oz is even one-quarter right that "everyone will be doing this in two years," KM professionals have a busy 2006-2007 in front of them.

The Baker-Robbins/LegalWorks KM Forum

Knowledge Counsel Forum, Westin Times Square, March 23--24, 2006

Sponsored by Baker Robbins and West Legalworks

I attended this conference and want to report on it. I don't plan to cover this as a court reporter or even as a conventional journalist on a story, but rather intend to highlight notable observations, insights, and trends.

Panel I: The Future of KM in Law Firms

Sally Gonzalez, Baker-Robbins; Kingsley Martin, Thomson-Elite, Risa Schwartz, Wilson-Sonsini

Moderator: Eugene Stein, White & Case

At WSG&R, the KM system "pushes" information out to partners and associates when a new matter is opened, a la McKinsey. Currently done manually; aspire to doing it automatically. For partners, they might get names of colleagues who'd recently worked on similar deals, as well as "comparable's" in terms of fees, hours, etc. Meanwhile, associates get related documents.

Going forward:

• Bring the right people to the table (don't forget secretaries)
• Identify pain points and business needs
• Design systems in conformity with existing processes
• Embed KM staffers in practice groups.

At White & Case, they decided to look outside the legal industry for ideas, and immediately realized the model of the publishing industry was analogous to a law firm: Paralegal's are researchers, fact-checkers; junior lawyers are the writers and researchers; senior lawyers and junior partners are the editors; senior partners are editors-in-chief and relationship officers. This helped them with the "how."

As to the "what," W&C looked at medicine; in particular, when doctors write a prescription in an electronic-record-enabled environment, the system can automatically check for best practices, contra-indications, etc. One consequence was to reorganize so that everyone who touches a document—including KM, the library, paralegal's, secretaries, and IT—work together.

Sally Gonzalez points out that one reason the medical profession can share knowledge is because there is a universal, well-recognized, taxonomy running into the tens of thousands of entries (all the checkboxes on the invoice when you leave). No such analogue in the legal community.

Sally would like to see an "insightful convergence" between the UK and the US approaches; not that the US should ape the UK, but the UK could learn some things from the US. US firms have "PSL envy," which stems from a fundamental misunderstanding of how the UK system works. First, UK does not remotely have the same commercial legal publishing industry the US has--so to the extent the UK PSL's are just generating internal equivalents of what you can buy off the shelf in the US, it would be crazy to emulate them. Second, until very very recently, UK law students were not trained to do any research at all; they were presented with briefing books compiled by others. And finally, changes in UK regulations are typically shrouded in secrecy until they're announced as a fait accompli.

Sally predicts the conference will spend 80% of its time talking about technology, but it should only be about 30% (despite technology's sexiness and allure!). The non-technology issues are harder to talk about, but far more critical.

Another of Sally's hobby horses is "Information Architecture:" What are the core business processes your firm as a whole needs to excel at to thrive in the market? Then: What information do the lawyers need to drive through those processes?

Kingsley Martin opens with KM mantras:

• KM is not about technology
• It is about people
• KM focuses on process
• KM works best by stealth
• KM works best by passive, invisible technology behind the scenes
• KM must organize external as well as internal information

Prediction: The challenges of KM will in large part be solved through technology.

Holy Grail: Connect the dots of (a) documents; (b) people and organizations; and (c) clients and industries.

Distinguish between matter-centric info: System data and bibliographic data come from the system, and are extremely reliable

Vs: Practice-centric info, using information extraction to capture procedural, subject matter, and jurisdictional information. Believe it or not, automated info extraction is far more precise than hiring domain experts to do it. Of course, while they can capture all the related doc's, they can't tell you which is best--that's where PSL's and other humans come in.

Panel II: The Evolving KM Organization in Law Firms and Corporate Law Departments

Robert Dinerstein, UBS Investment Bank; Christian Liipfert, BP America; Risa Schwartz, WSGR

Biggest challenge for UBS' KM efforts is not technological but cultural: Old habits die hard, and people will change how they behave only if the new system is decisively perceived as easier and better, and not just the effort of a small group of people to advance an idea that is untested, untried, and unproved.

Other anecdotal observations about KM in the corporate law department environment:

• Dinerstein was struck by the extent of resources devoted to KM by Magic Circle UK firms.
• He believes a new form of partnering between clients and law firms lies in using this resource, as it's simply infeasible to expect a corporate law department to investment similar resources.
• The business case for KM in the corporate legal department is simple: Cost savings. Dinerstein believes the investment in KM will be repaid multiple times in outside counsel savings.

March 24

KM as A Profit-Maximizing Tool

Rodney Satterwhite, McGuire-Woods; Browning Marean, DLA Piper

The critical flaw in using KM as a profit-maximizing tool is the billable hour; simply put, the more efficient a law firm is, the less revenue per matter.

Can more responsive client service (through KM) make a difference in marketing and business retention? Yes, but it's not measurable; there is no ROI calculation possible. So are there other justifications available? Do you ask for ROI from the library?

One benefit mentioned was associate morale-boosting, which was almost hooted down. "You mean your firm has associate morale?" "I wasn't saying it was good."

What about cutting write offs? According to both Rod and Browning, this was the single most demonstrable benefit of KM. Kingsley Martin raised the point that to the extent firms change the partner compensation system to reward profitability rather than simple hours billed, this would provide an indirect support for KM. The objection was raised that lawyers aren't familiar with accounting and financial analysis and would find the metric of profitability opaque.

Rod posits that:

• KM will always make lawyers more efficient
• You cannot change that reality
• So the answer is...?
  • change the pricing model
  • which will happen only given incessant client pressure
• "Alternative Fee Arrangements" will continue to erode the billable hour slowly based on corporate America's preference for certitude
  • taking on a significant enough basket of cases (e.g., all of Wal-Mart's employment discrimination cases in the Southeast for 3 years) should enable astute firms to make reasonable actuarial predictions and offer (more or less, subject to amendment for the out-of-control, runaway cases) a fixed fee to handle that work.

Browning posits that while you cannot handle an entire litigation matter under a fixed fee, you may be able to offer a fixed fee for certain components of litigation--e.g., drafting a motion, taking a deposition. Rod also offers the example of an unnamed McGuire-Woods client that has nationwide arbitrations with disgruntled employees, and says they can predict what 95% of those cases will cost; but admits it took over a year to develop enough statistics to determine the right price point.

Rod also recommends the simplicity of "blended rates," using the example of: Associate @ $200/hour, Partner @ $450/hour, and blended rate of $300--obviously, the more hours of associate time that can be sold @ $300 instead of @ $200, the better. On the other hand, GC's and corporate counsel know this game, and some in the room said they'd fired firms who abused it. Rod points out further that the more robust your KM system, the more you can get actual high-quality work out of associates and avoid client blow-back.

Several in the audience noted that strong KM systems could help associate retention and morale and even help attack the under-representation of women in senior ranks—to the extent they reduce pressure to generate maximum billable hours above all else.

Pure fixed fees are still inordinately hard to do, was the consensus.

Rod next suggests a "performance holdback" scenario, whereby the client receives a discounted rate and also holds back a portion of payments due, but then is invited in its discretion to offer a performance bonus at the end of the engagement.

Conclusion: To the extent alternative fee arrangements are going to grow their "market share" (on which there seemed to be consensus, albeit no real consensus over the speed of their adoption), firms need to be prepared and to have strong KM processes in place—or else they won't be able to respond to RFP's, etc., requiring alternative fees.

Finally, one audience member said he saw a "potential train wreck" between the inexorable pressure to keep PPP increasing and nearly exclusive reliance on the billable hour methodology. He posited that you can only increase (a) annual billable hours; (b) rates; and (c) associate leverage for so long, and when those revenue-drivers run out of running room, alternative fee arrangements would look attractive to law firms themselves—not just clients—and that would at last accelerate the erosion of the billable hour model.

Leadership for IT Managers

Tomorrow I'm giving a presentation to the New Jersey Area regional meeting of the International Legal Technology Association (ILTA) on "Leadership Principles for Technology Managers."

Topics I'll address include:

• What Leadership is Not (hint: it's not about being a slave to your Blackberry, pager, IM, and SMS)
• What Leadership Is:
  • Vision:  Having one that is credible, tangible, and  distinct
  • And the creating the environment that lets people actually get there (hint:  it's not about command and control)
  • Keeping your eye ceaselessly on the future
• Communication, which means:
  • Being fluent in the language of finance, which is what the business world speaks
  • Managing expectations, and tamping down unrealistic hopes
  • Avoiding the trap of being caught up in conversations about "governance"—deliver results, not reports, and avoid the inward focus governance assumes
  • Talk about problems solved, not technology.  And