Practical Law Company Crosses the Pond

Last week I had a chance to catch up with Jeroen Plink, the CEO for the US operations of Practical Law Company. Jeroen has been with PLC for over 6 years and, in a previous life, worked as an attorney for Clifford Chance and Latham & Watkins.

Unfamiliar with Practical Law Company?

In the UK, PLC has been around for nearly 20 years, and they're just about to launch in the US (more about that anon). Perhaps the best way to think of them is as "knowledge management to the profession," or, a bit more precisely in economic terms, "content experts taking advantages of economies of scale to provide knowledge and efficiency to the profession." That's a mouthful, so I'll let them say it in their own words:

"PLC is the UK's pre-eminent provider of legal know-how, transactional analysis and market intelligence for business lawyers."

What do they cover? Practice areas in the UK include: Arbitration, Competition, Construction, Corporate, Cross-border, Dispute Resolution, Employment, Environment, Finance, Financial Services, IPIT & Communications, Pensions, Private Client, Property, Restructuring & Insolvency, Share Schemes & Incentives, and Tax.  

In the US, they'll be starting with Corporate & Securities (M&A, securities and capital markets, private equity, venture capital, JV's and cross-border transactions) and with Finance (general lending, acquisition and project finance, bankruptcy and restructuring).  

And in each area? They provide:

• Practice notes, which are explanatory how-to guides covering deal structure, process, and documentation;
• Standard documents and clauses: Model agreements and clauses each with drafting notes that provide detailed guidance on negotiating and other issues;
• Checklists;
• Flowcharts and timetables;
• "What's market", a database analyzing and summarizing current deals, securities filings, and market practice for various aspects of transactions;
• Legal updates (regular updates on developments in the law and the market, with practical implications);
• Cross-border analysis of particular areas of law; and
• “In Dispute”: Analysis of deals that are being disputed (currently focusing on deals affected by the financial crisis such as Clear Channel and United Rentals)

And how do they do this? With real live lawyers, formerly at name-brand law firms and in-house legal departments (for their US offering, including Davis Polk, Debevoise, Dewey LeBoeuf, Latham, Paul Weiss, Pfizer, Shearman & Sterling, and Skadden, among others) who develop and maintain the materials (meaning keeping constantly up to date with current law and market practice).

This invites some questions about the business model. First and foremost, there's a "chicken and egg" challenge, in that you can't expect serious law firms or in-house departments to subscribe to PLC services until they have substantial content prepared, and PLC has to commit to substantial investments in costly professional staff before they can claim to have that content. In the US, they've been investing in preparing US-specific content for about a year and a half, and currently have over 20 full-time lawyers drafting material.

But the second aspect of the business model follows on the heels of the first. While their fixed costs are high, their marginal costs (of signing up an additional law firm or in-house department as a subscriber) are virtually zero. This should enable them to scale up quickly once they gain critical mass here. And since 70% of AmLaw 100 firms that have UK offices and over 1, 700 law departments (many of which are in global companies with US parents or subsidiaries) are already subscribers to PLC in the UK, their marketing efforts here should find a relatively friendly reception.

PLC will launch its US services in December.

I asked Jeroen what PLC's competition was. "Well, in the UK, one could say it's law firms' own professional support lawyers and internal staff who build and maintain firm resources, but we actually find they're clients more than they're competitors. We're able to help them get their jobs done more efficiently, and they find us a valuable resource."

What about West or Lexis/Nexis, I ask? "They're very good at informing people about primary and secondary sources, but we think our niche is helping business lawyers actually get the deal done more efficiently.”

What do you view as barriers to entry to competitors?

"Obviously, setting up a service like PLC's requires significant initial and ongoing (to keep the materials up to date) investment.  In the UK, we have an advantage in that we have been around for a long time."

How is your market entry into the US going?

"Well, we've certainly been encouraged by US clients in the UK, who say it would be 'fantastic' if we had this in the US. Obviously we are concerned about the current economic climate but then again many of our resources are geared towards cost savings and with all of the new regulations expected to come into force I would say there is a place for a player who can make sense of it all from a practical perspective. When we launched our services in the UK, it was during an economic downturn as well and we think we helped our clients weather it then as we hope to do now.”

Is your entry to the US different than your experience in the UK?

“It's a challenge because there are 50 jurisdictions. Indeed, the main reason for starting in corporate, securities and finance is because most transactions in those areas are governed by New York, Delaware and federal law which makes it a bit more manageable from the outset. We are planning to cover California from early 2009. We are fine-tuning our offering in areas where the law is different for each state and have a short list of other areas to cover from 2009 onwards."

And as for the future?, I ask. What about the EU, the Mideast, Asia?

"The 'grand plan' for PLC," he says, "is definitely to look at other markets as well. But at the moment the US is our key focus."

PLC's business model is deeply intriguing. Think of it as outsourcing KM for the profession to one provider who benefits enormously from economies of scale. This requires deep investment on their part, and, more importantly, impeccable quality and credibility.

Those last two characteristics are attributes which, as we know all too well of late, can be forfeited in a heartbeat. It's a daring model for that, and a potentially chancy one. But based on their track record in the UK, their launch in the US is their next inevitable move. I for one will be watching PLC with great interest.

Lessons From Toyota

Have you ever considered a completely different approach to strategic planning for your firm? An approach kind of like Toyota's?

Let me explain.

There are traditional and classic strategic plans, which typically focus on practice group and geographic reach, perhaps with an overlay of a third dimension of client or industry focus. These can be amplified and implemented by organizational and structural adaptations including practice group management, client relationship initiatives, and business intelligence and profitability analysis toolkits.

These are relatively familiar—even if honored most often in the breach—but consider a different approach entirely, namely Toyota's.

Now, understand that Toyota is light-years away from being a stranger to classic strategic planning. They came to the US marketplace with extremely modest offerings (early critics called their first cars "two motorcycles bolted side by side," and worse) but relentlessly and purposefully moved upscale, with the Camry now the best-selling car in the US. (The Toyota Corolla is number 5, the Honda Accord #2, the Nissan Altima #3, and the Honda Civic #4, shutting the US out of the top five altogether, but that is not only a topic for another day, it's not a topic for "Adam Smith, Esq." tomorrow or ever.)

Finally, Toyota has gone upscale in a large way with its introduction of the Lexus line. (And for my earlier thoughts on what that might mean for law firm land, see Lessons from Lexus.)

The real genius of Toyota's rise to becoming top automotive manufacturer in the world lies elsewhere altogether. It's simply the "Toyota Production System," as described summarily in this wonderful New Yorker "Financial Page" piece by James Surowiecki (who's always worth reading, by the way).

The "TPS" began after World War II when Japan was rebuilding and capital, equipment, and labor were all hard to come by. A Toyota engineer named Taiichi Ohno decided to make a virtue of necessity by instituting a system to get the absolute most out of every part, every machine on the assembly line, and every worker. The principles were, and are:

• Do away with waste;
• Have parts arrive the moment they're needed, not before and not after; and
• Fix problems as soon as they arise.

You may be saying to yourself that these principles are not new, and they're not. Ohno borrowed from both Andrew Carnegie and Henry Ford, among others, not to mention throwing in a healthy dose of common sense. But the secret of the TPS is that it's no secret at all. According to Surowiecki, more than 3,000 books and articles have analyzed Toyota, they regularly give exhaustive factory tours, and concepts such as the andon system (a simple pull-cord that any worker can yank at any time to signal a problem and shut down the entire assembly line) have been widely adopted.

Let me remind you of another company that did things differently, was wide open about it, and ran away from its peers in the industry (at least for awhile): Dell Computer, with its zero-inventory model, building no computer until a customer had ordered it, collecting the cash payment upfront and delivering the machine later, thus becoming one of the first companies of any substance to have negative working capital--the higher its order level, the more cash it had on hand.

The Dell model worked brilliantly until laptops slowly began to overtake desktops in market share. What's wrong with that? Simply that people like to physically see, handle, pick up, and hold onto laptops before they buy them, whereas they're comfortable buying desktops (physical) sight unseen. Dell has since regrouped, but the point is simply this: Dell's model was totally transparent; everyone knew what it was; Michael Dell himself was happy to explain it ad infinitum in the business press; and yet no one managed to copy or even seriously emulate it.

Which brings us back to Toyota. The TPS is the world's worst-kept secret competitive advantage. Let's revisit some of its components:

• Employees contribute suggestions--by some counts, a million suggestions a year. They can be large but mostly they're small: Move this shelf of parts closer to me, change the angle of the lighting, let me pick up the part with my left hand before I install it with my right, etc.
• Embrace the notion of kaizen, or continuous improvement; you needn't go for the touchdown pass or the home run. Singles, bases on balls, and 4 yard runs will get you where you need to be.
• "Innovation" is not reserved to the executive suite or the elect; everyone is involved, every day.
• Not every suggestion works. Fine. Even Toyota has had its miscues, including a batch of quality problems in 2006. But cumulatively, the impact is game-changing.

Note what this is the antithesis of: The bolt-from-the-blue approach to change, where everyone invests their hopes in a grand scheme. As Surowiecki puts it, this is more like the regular sustained diet approach to weight loss (competitive advantage) as opposed to the miracle 90-day cure. (According to McKinsey, two-thirds of companies that put quality improvement programs in place abandoned them.) And that's precisely why the relentlessness of the Toyota approach is so hard to emulate.

Now, what has this to do with law firms?

Let's pretend you have a basically sound, classic Strategy in place: You know what geographic markets, practice areas, and clients/industries you want to focus on, and you are aware of your strengths, opportunities, weaknesses, and threats. You believe your capabilities are well aligned with your opportunities.

Congratulations; that's a start.

Now consider what adopting the TPS in your firm would need. Here are just some thoughts:

• Can associates suggest changes to the KM system or procedures for finding precedent, template, and sample documents and clauses?
• How are assignments made? Who has input? What are the criteria?
• Are "vacuums" in training part of the assignment process? How are they monitored and addressed?
• Has anyone thought about how time worked is lost between the actual work and the final bill? Where are the leakages?
• Do associates have the opportunity to be exposed to other practice areas than the one they first choose, even tangentially?
• When partners are assembling teams for deals and cases, who has input?

The point is not, really, to suggest anything specific for your firm. The point is to suggest that you might embark on the continuing pursuit of excellence in all you day. Even matters so small as moving a parts shelf closer. For surely, part of the genius of the TPS is not just its concrete suggestions, multitudinous as they are: It's the sense of engagement it engenders. By some measures, Toyota workers generate one hundred times as many suggestions per capita as workers at their competitors.

That, without doubt, is the single most significant component of the genius of the TPS. Why wouldn't you want to embrace that? And remember: It's extremely difficult to emulate, as wide open as it is for all to see. You don't need to fear others seizing upon it as a competitive advantage after they see your example. Or if they try, just remind them that they need to get more exercise, lose weight, and stop smoking.

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.

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."

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.

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.

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:

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?

And here we are with another update on 14 September:

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)

"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."

Learning vs. Performance

Could it be that "great teams are less productive?"

That's the headline that got my attention over at Harvard Business School's Working Knowledge.

As it turns out, there is understandable tension between "learning" and "performance," insofar as when you're learning something new you're probably not immediately very good at it. In other words, there's inherent tension between performance today (where you excel at doing what you've done before) and performance tomorrow (where, unless you're learning some new things now, you'll be behind the curve).

But back to the HBS research. 

Prof. Amy Edmondson started her research in the context of hospitals, where tracking and analyzing "errors" has been raised to a high science.  In hospitals, "errors" are an indispensable input to learning and organizational change.  So Prof. Edmondson assumed that she would find a positive correlation between high-performance teams and low error rates.

She found the opposite:  The more integrated, effective, and highly functional the team, the more error rates were reported.

And massaging the data in various ways only confirmed or amplified the result (for example, controlling for the severity of the patients' disease on the assumption that "better" teams might get harder cases just made the effect more pronounced).  Then the eureka moment:  In well-led teams, the climate of openness made it easier to report and discuss errors, as opposed to teams with weak or punitive leadership. 

Good teams, in other words, didn't commit more mistakes, they recognized and recorded more mistakes.  

If you're wondering how to transfer this from the operating room to the conference room, I have some thoughts:

• Poor communication, or an environment dominated by bullies and narcissistic perfectionists, will ensure that everyone in sight devotes tremendous energy to ensuring that mistakes are not recognized, or are blamed on innocent bystanders if recognized, or are turned into exercises in obsequious self-abasement if recognized and tagged to their owner.  A recipe for better performance next time?  Not.
  
• By contrast, a high-performing team, with a culture of openness and an "idea-friendly" approach, will acknowledge and make the most of "mistakes"—which, assuming beneficent intentions all around, are most likely just attempts to go the extra mile.
  
• When I say "making the most" of mistakes, I should clarify what I mean.  And to clarify that I need to explain that I think there are two fundamentally different categories of mistakes, or categories of learning opportunities, if you prefer:
  
  • Situations where someone fails at accomplishing a well-known task with ample precedents and a well-worn track record of success by others at different times and places.  These are failures to understand precedent:  To understand how to ride a bike, how to dance to a waltz in four-time, how to prepare for a deposition.  The learning opportunity here is simply to put the unfortunate under the guidance of a more experienced senior and let mentoring do its magic
    
  • Then there are situations where the "mistake" is because we're in unknown territory and you tried something that plausible might have worked but didn't in reality.  Here the learning opportunity is to de-brief, reanalyze what went wrong and what could have been done differently, and figure out how to do better next time.

Now, the question and the challenge for you as a senior manager is how to distribute the individual, high-performing, teams' learning across the firm. 

Sometimes, of course, it can't be done:  A new approach to summary judgment motions probably won't gain much traction with your tax lawyers.  But you can still celebrate the innovations and signal that your firm rewards creative thinking.

But your most important job may be precisely to help others walks that fine line between high performance today and stasis tomorrow. "Learning" is opposed to "performance" only in the temporal sense.  Learning today is an investment in performance tomorrow, but/and learning today distracts from performance today.

There's still one thing we know works:  Open lines of communication.  To identify mistakes as promptly as humanly possible, to diagnose the cause and apply the right "learning opportunity" paradigm, and to ceaselessly push into the future.

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:

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

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:

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:

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?"

"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

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."

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:

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)

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. 

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.

"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.

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.

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 Dismal Science at Age 230

"The dismal science?"  You won't be surprised to hear that that's about the last way I'd describe the art and discipline of economics, and a new book, Knowledge and the Wealth of Nations, reviewed by Paul Krugman in yesterday's Sunday Times Book Review sounds like a wonderfully exciting intellectual exploration of why I believe economics retains its ability to fascinate as it attempts to explain how people, ideas, and things interact to try to produce value.

 The author, David Warsh, a former economics correspondent at the Boston Globe, Forbes, and The Wall Street Journal, writes the online weekly, "Economic Principals."  The book tells the story of how academic understanding of increasing returns to scale, and indeed of growth itself, was revolutionized in the past few decades by introducing the concept of knowledge itself as a factor of production, at long last joining the classical triumvirate of land (a/k/a tangible resources), capital, and labor.

When a book gets advance praise like this, the reason I continue to adore economics should be clear:

“Romer’s understated but earth shattering work deserves our attention and a Nobel prize in economics.”
— John Doerr, partner, Kleiner Perkins Caufield & Byers

"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.

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. 

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.

SUNY/Stony Brook's MBA for Law Firm Leaders Launches Next Month

Reminder & Update:  The SUNY/Stony Brook MBA Program exclusively for law firm managers is starting the last week of April.  I'm a faculty member, teaching the core (a/k/a required) course, "Strategic Technology & Innovation," and we have an utterly distinguished Advisory Board and a convenient midtown Manhattan location.  (OK, so it's convenient to me, and to your firm if and only if you have senior business-side people in New York.)

Here's what it's about in a nutshell, from the program description:

"Stony Brook�s MBA, with its focus on law firm managers, is the first program of its kind in the United States.  It takes a real-world approach including the use of adjunct faculty members who have top reputations for their work in or with law firms. The program features classroom sessions that are informative, stimulating, and embrace a number of learning techniques. Professors will explain basic principles and guest lecturers will provide �from the frontlines� perspectives and insights."

My take?  It promises to be an unprecedented, rigorous immersion into what senior "business side" law firm leaders—Executive Directors, COO's, CFO's, et al.—need to know to do their jobs on a par with their counterparts in peer-group organizations in corporate America. 

If your firm has a qualified candidate, it's not too late to apply.   Feel free to contact the Dean of the Graduate School of Business, William (Bill) Turner, and tell him I sent you.

The London-Based "PM Forum" and Blogs as Professional Communities

Nadia Cristina, Managing Editor of London-based pm magazine, who was gracious enough to agree to an interview when I was over there last fall, just forwarded one of the fruits of that meeting to me, an article I co-authored with Bruce Marcus titled "Blogs—The new community of interests."   The thrust of the article is simple:

"The power of blogs derives from their online essence: available and update-able 24/7, with global reach, they are tailor-made for targeting narrow and usually passionate niche interests.  They rapidly reach an audience of participants that would be completely impractical to reach in the offline world, thereby constituting a collective intelligence of enormous professional value."

"The PM Forum is a 4,000 strong regionally-based members' association, formed in 1996, dedicated to raising the standards of professional services marketing and to enhancing the credibility of marketers working in professional service firms worldwide."

So enjoy the article, and explore PM Forum.  (Thanks again, Nadia!)

How Do You Know If The Troops Got "The Memo"?

My professional friend Rob Cross is a professor of management at the University of Virginia and, I think it's safe to say, the leader in applying "social network analysis" (SNA) to business and professional organizations.   SNA is nothing mysterious; in fact it reflects one of the bedrock truisms of human nature, that people who trust one another work better together and share more information, resources, and contacts.

Rob is now director of The Network Roundtable at U.Va., a consortium of firms dedicated to teaching managers how to conduct and apply SNA to their own organizations and how to use it to promote, among other things:

• innovation
• large scale change
• post-merger integration
• closer connectivity with clients
• alignment of execution with strategy, and
• leadership development.

The membership ranks are blue-chip, including:  Accenture, Bain, BCG, British Petroleum, Ernst & Young, Goldman Sachs, Hewlett Packard, Hill & Knowlton, IBM, Intel, Lehman, Mercer, McKinsey, Merck, Pfizer, Procter & Gamble, PWC, and the World Bank. 

At the moment, no law firms belong—but Rob assures me he would be most interested in being able to include a few who would be interested in exploring the benefits of applying SNA internally.   Legal Week just issued a piece on the uses of SNA within law firms, so it's rising above the radar horizon.  That piece focuses on how SNA can contribute to and undergird efforts at Knowledge Management, primarily through the inter-related mechanisms of trust and reciprocity:

"People know who the knowledge sources in their organisation are and will gravitate towards them, not based on the sources� formal organisational role but on the power and effectiveness of their knowledge.

"Sometimes people will provide information out of a sense of altruism, but there is a sophisticated market of barter for providing information within organisations which has the benefit of providing not only the theoretical but contextual tacit knowledge. There is an unwritten rule that the party receiving information will at some stage reciprocate."

Any readers who might want to learn more about what SNA might be able to do for their firm should start with this primer on what SNA can achieve within organizations, and if you and your firm would like to pursue it, please let me know and we can explore further from there. 

But just to whet your interest, here are two SNA maps of the same firm.   The context of this analysis was that, 18 months before these maps were drawn, the firm had inaugurated a sustained effort to get people to collaborate across practice areas and hierarchical levels on client projects.   Looking at the left map, you'd say they'd succeeded; but looking at the right, you'd say they failed.

In other words, if your reaction is "separated at birth," you're not far off; how could this possibly be the same firm? 

The answer:  The left map includes the top nine executives; the right map omits them.  In other words, the leaders had "gotten their own memo;" the troops had not.  Something worth knowing?  I'd say so.

Are Your Firm's Financial Reports Like the Federal Government's?

Here's a thought experiment:  If you believe the cover story in the current issue of Business Week, the torrent of numbers coming out of the federal government measuring, sizing, and describing nearly every facet of the US economy are in many ways obsolete.  What if the numbers coming out of your finance department to describe your firm's performance suffer from the same problem?

Here's the issue in a nutshell:

"The statistical wizards at the Bureau of Economic Analysis in Washington can whip up a spreadsheet showing how much the railroads spend on furniture ($39 million in 2004, to be exact). But they have no way of tracking the billions of dollars companies spend each year on innovation and product design, brand-building, employee training, or any of the other intangible investments required to compete in today's global economy. That means that the resources put into creating such world-beating innovations as the anticancer drug Avastin, inhaled insulin, Starbuck's, exchange-traded funds, and yes, even the iPod, don't show up in the official numbers."

The "statistic set" the federal government tracks and publishes was essentially created in the 1930's and '40's when—surprise—the economy's composition bore little resemblance to today's.  Buildings, machines, and inventory were counted as investments in the future, but training, education, and R&D were all viewed as current expenses. 

Business Week performs the useful calculation of comparing the growth in R&D spending and capital spending since 2000 of the 10 biggest US companies:  +$1-billion (2%) in capital spending, +$11-billion (42%) in R&D.  But 11/12ths of that investment doesn't appear in BEA statistics.

Now to your firm:  Ask your CFO where on the balance sheet the expenditures for the following items appear (and while you're at it, ask if they're current cash expenses on the income statement, dollar-for-dollar subtractions from profit, or if they're capitalized as investments with an expected non-negative return):

• knowledge management systems, and the care and feeding thereof;
• associate development and training;
• executive coaching for partners in business development or other skills;
• client relationship management systems, and their support;
• the cost of developing new or enhanced practice specialties.

You get the point.  Those things are all critical, indispensable ingredients if you care about the future health of your firm, and yet the accounting department will list them as pure cost or, at best, as billable-hours-foregone. Yet what factors are more "real" than those to assessing the level of your firm's commitment to next year and beyond?

In December, Intel announced it would be building a new wafer-fab plant in Israel.  To cost accountants, the value of that foreign investment will be its book value—the cost of erecting and fitting out the building.  But imagine on opening day the plant could be turned over to trained and experienced Intel workers, or to an equal number of Israeli's picked randomly off the street (OK, go with an equal number of works from AMD or Texas Instruments).  Which team would actually make the plant productive?

Indeed, every time Intel launches a new fab facility, it relies on a program it calls Copy Exactly! which requires the new fab to be an absolute duplicate of an existing one that works well, down to what color the ventilation ducts are painted and what wattage the lightbulbs are.  Moreover, the workers-to-be at the new fab are put through a minimum of six months immersive training in Oregon, to pick up "tribal knowledge" about how Intel operates.  Not captured in the financial statements.

So next time you pick up your firm's financials, imagine that it's the 21st Century, not the Great Depression.  And if you believe that "you can't manage what you can't measure," how would you measure, and manage, differently?

The Last New Year's Article on "Top Trends;" Or, Why KM is So Hard

Have no fear that "Adam Smith, Esq." is going to morph into a boot-licking, reverential conduit for re-distributing the year-end natterings of those ink-stained scribes from the MSM and the high-profile consultancies hoping to goose their annual bonus by producing yet another "ten trends..." or such-like:  The predictions tend to the bullet-proof, in that they flunk the fundamental tenet of vector analysis, which is that to fully specify the characteristics of a vector one must define it in all four dimensions (the fourth being time, or with objects in motion, speed).  "X is going to increase/decrease/start/stop," but omitted is where, when, or how fast.

(And lest you think I harbor a secret intellectual temptation to indulge in potentially-entertaining year-end prognostication myself, take a look at David Maister's comment to an earlier post: 

"With no disrespect to any law or consulting firm named here, I am deeply skeptical about all this. In the past, when asked to talk about the "Trends in the Profession" I used to use a 10-year-old slide which referred to no specific profession or country. Everyone fell for it - they all agreed that, yes these are the trends we will have to face.")

Nevertheless, sometimes consensus surveys are used to extrapolate trends, and they have value if only for the snapshot they provide of the common wisdom at a point in time.

Consider, then, CIO Insight's year-end survey of nearly 6,000 CIO's and CTO's (64%) and other top executives (36%), which generated no fewer than thirty "trends." 

A prefatory note:  The results of some of the non-trend-generating questions are intrinsicially interesting.   Two of the more hopeful:  #1:  "Our research also indicates that companies are giving more employees access to business intelligence tools, in hopes they apply the insights those systems generate."  Knowledge is power; distribute power lest it corrupt.   And #2:  78% of companies plan to increase profits through growth, not cost reduction. Gordon Bethune, the legendary former turn-around CEO of Continental Airlines, like to make the latter point with his pizza analogy: "The biggest cost component of a pizza is the cheese; if you're serious about cutting costs, eliminate the cheese."  

Off, then, to the trends.  And don't worry; I've narrowed their thirty down to four of note to us:

• Trend 7: The Hunger for Analysis and Intelligence Will Keep Growing:  By this, they mean "Business Intelligence," and specifically what I've called the second generation of "BI:"  "Already, mid-level managers and planning staff use BI tools at 61 percent of companies. [...] This widening use of ever more powerful analytical tools has enormous potential for the future. But the extent to which that potential is met will depend on how well the BI system connects to strategy and user needs."
• Trend 22: IT Architecture Becomes Critical to Business Strategy:  "What once appeared arcane will become more and more central. As high-growth companies have figured out, IT architecture and infrastructure have never been so closely tied to corporate strategy as they are today. It doesn't matter whether CIOs are trying to achieve faster growth, better business processes, lower costs or global expansion."  In other words, the basic "hygiene" of your information systems has to be rock-solid.  (1) Secure, reliable data (2) shared across all your offices and employees (3) on a common platform.
• Trend 24: Data Integration Is the Technology Pressure Point:  "Data quality will go from nice-to-have to need-to-have. Flexibility and openness remain nothing but talk, while standardization and virtualization remain useless, unless companies can reliably integrate their systems and ensure the quality of their data."  It's not just your corporate clients struggling with Sarbanes-Oxley that have to get their "data" squeaky-clean; it's your own firm as well.  Don't your clients have every right to expect you can and do handle your own data with the utmost scrupulousness?
• Trend 27: Knowledge Management Regains Respect:  Isn't this the perennial whipping boy, the classic example of the "evergreen" prediction?  (My favorite is, "Brazil will lead the way the next decade," which we've been hearing since before Sputnik.)  But listen to what CIO Insight has to say at some length about KM (emphasis supplied):

  "CIOs haven't given up on its promise. Knowledge management has long suffered a bad rap as a sexy technology that falls short on delivering business value. But for two years in a row, KM has ranked a respectable 7th on our list of critical technologies. (Twenty-one technologies were ranked on this list in 2005.) This is happening in part because many of the technologies that fall under the aegis of KM have come into their own: collaboration tools, corporate portals, content management and business intelligence.
  
  "These technologies aren't mere repositories for knowledge, as earlier KM systems tended to be. They route knowledge to the people who need it, or embed what the company has learned into a process. As companies find these knowledge-managing technologies helpful, they'll look for new, effective ways to manage corporate know-how and put it to work."

I would be the last person to tell you that KM is easy, and I'm both unsurprised and essentially unperturbed that it's taking us so long to get it right.  We are, after all, dealing in some cases with "knowledge" that is so contextual and nuanced as to be almost ineffable.  And it's not just those at the peak of the empyrean professions:   Consider the story in today's WSJ of the technology columnist trying to make polite conversation with a FedEx guy in a high-rise office elevator.  WSJ Guy:  "So, is it quicker to work top to bottom or bottom to top?"  FedEx Guy (dead serious):  "It depends on the time of day."

Put that in a database!

Where Will Your Firm Be in 2015?

January 15, 2006

January 8, 2006

"Giotto, Giotto, Giotto-Giotto:  Renaissance
He paints in the morning and he paints at night;
If it's a Giotto it'll turn out right.
Giotto, Giotto, Giotto- Giotto:  Renaissance."   

November 22, 2005

October 31, 2005

October 4, 2005

September 15, 2005

August 29, 2005

August 22, 2005

August 2, 2005

July 7, 2005

June 26, 2005

June 25, 2005

June 24, 2005

June 23, 2005

June 22, 2005

June 14, 2005

June 12, 2005

June 2, 2005

May 26, 2005

May 23, 2005

May 22, 2005

May 21, 2005

May 12, 2005

May 7, 2005

May 5, 2005

April 8, 2005

April 6, 2005

March 10, 2005

March 1, 2005

February 18, 2005

January 10, 2005

December 28, 2004