Above and Beyond KM

Bruce MacEwen needs no introduction. He is known world wide for his incisive commentary on law firm economics, the business of law and law firm strategy. You can find his thought-provoking posts at Adam Smith, Esq.

[These are my notes from the International Legal Technology Association's 2012 Conference 2012. Since I'm publishing them as soon as possible after the end of a session, they may contain the occasional typographical or grammatical error. Please excuse those. To the extent I've made any editorial comments, I've shown those in brackets.]

NOTES:

• What Does ROI Mean?. It depends on what approach you use: present discounted value (PDV), net present value (NPV), internal rate of return (IRR).
• What’s the Problem With Them?. They are too easy to manipulate, we often forget what they are, they have a false precision to them and they don’t always tell us what we think they do.
• How to manipulate ROI?. Smooth out the numbers, display them on a pretty graph, then print it on thick glossy paper — in color.
• Why do we waste time on ROI?. Lawyers like evidence. Besides which, lawyers feel that asking about ROI is the responsible thing to do. Unfortunately, most of them do not have a grasp of basic economics and many are “allergic to numbers.” As a result, they aren’t always in the best position to understand the ROI implications. Nonetheless, if they ask for an ROI, they can’t later be faulted for failing to consider ROI.
• False Precision. Since ROI is expressed numerically, it seems more concrete and reliable. Yet we forget that ROI by itself is meaningless without context. While the numbers remain, we all too often tend to forget the context. As a result, the sense of precision is fleeting at best.
• There are Three Kinds of Investments. Investments that involve unknowns; investments that are one-of-a-kind events; investments that are structural and make other things possible. Few conventional projects involve complete unknowns. With one-of-a-kind events, no one can predict outcomes, so it’s very hard to talk sensibly about ROI. With structural investments (e.g., high speed rail), while the project itself may not always pay for itself, chances are that it will allow other positive returns to arise. (In his example, there has been a great deal of real estate development around rail lines or extra tall buildings near New York City express subway stops.)
• If not ROI, then what’s a better way to analyze IT projects? First ask if the proposed project is plausible. Then, ask if it would make a difference. This second question introduces common sense into your deliberations. It forces you to consider your business context and the impact of the proposed project on the top line or bottom line. At the end of the day, the greater the positive impact on the top or bottom line, the better the project and the easier it should be to win support.

At every ILTA conference the chief information officers of the 100 largest global law firms have a day-long meeting. This session provides a recap for those of us who were unable to attend the full day session.

Speakers: Gareth Ash (CIO, Allen & Overy), Ash Banerjee (CIO, WilmerHale), Don Jaycox (CIO, DLA Piper), Andy Jurczyk (CIO, Seyfarth Shaw). Marcia Stein helped organize the G100 event.

[These are my notes from the International Legal Technology Association's 2012 Conference 2012. Since I'm publishing them as soon as possible after the end of a session, they may contain the occasional typographical or grammatical error. Please excuse those. To the extent I've made any editorial comments, I've shown those in brackets.]

NOTES:

• Jim Jones Presentation. Jim Jones (from the Hildebrandt Institute) often is asked to provide a strategic industry perspective to managing partners. He came to the G100 session to share the information he is providing to firm management. Key points: 2012 could be tougher than 2009; the outlook for the next 2 years is not great. Jones reminded the CIOs that this is not just about economic pressures. There are other factors coming into play such as commoditization, enabling technologies, new service providers, globalization. The key is to understand that our economic model is fundamentally unstable. Law firms will not be able to rely on year over year rate increases in order to meet revenue goals. Further, demand for legal services has basically been flat since the market downturn. In Jones’ view, we are firmly in a buyer’s market. Therefore, clients are in a position to make demands on law firms. This means that law firms will have to compete for business on the basis of costs, efficiency and results rather than just on reputation.
• Implications of Jim Jones’ Presentation. (1) Law firms need to be serious about operating as a business. This means they need to focus on efficiency and effectiveness, addressing productivity issues as soon as possible. (2) Will declines in law school enrollment make it more expensive to find and hire good associates?
• How Technology can Transform Law Firms FAcing Changing Pricing Models. (1) multiple pricing and billing systems; (2) systems for tracking profitability on a matter basis; (3) user-friendly interfaces allowing partners to perform sensitivity analysis on different pricing strategies; (4) technical support to assist partners in analyzing and setting pricing options; (5) systems enabling fims to respond quickly and efficiently to competitive proposal requests.
• Implications for the CIO. Technology will increasingly “commoditize” many areas of legal practice, including some complex and high value ones. This means that lawyers will change. Since information is increasingly becoming freely available, clients will pay a premium only for expertize and superior judgment.
• Gartner Discussion. Data protection and security are key. Law firms need to gather and dig deeper into the data with analytics. There is an increasing push to outsourcing in order to control costs. However, that may limit career opportunities within the IT department. It also can mean that the IT department cannot respond as nimbly if they have to manage lots of external providers. On the flip side, having resources in the cloud can provide some flexibility. Just be sure that you don’t outsource any function that comprises your agility and ability to respond.
• Data Security. A poll of the G100 CIOs revealed that relatively few had security specialists on their staff. All understood that in addition to technical controls, the key is to increase security awareness among attorneys. Several firms recommended data security training for lawyers based on resources from the SANS Institute entitled “Securing the Human.”
• What do CIOs want to learn more about?. At the G100 session, they crowdsourced the following topics: (1) How are CIOs measured? What KPIs are used? (2) What are the risks of benchmarking? One big issue is that the benchmarking reports may not allocate the data exactly like your firm does. For example, do network costs show up in operational costs or in IT costs? You have to understand the benchmarking reports before you rely on them for your analysis and planning. (3) How to handle PWC/Citi Reports? Handle with care! It’s very important to key educating the partnership so they understand what contributes to cost and how new projects add value.

We’d like to think that our advanced education protects us from the dangers of irrationality, but for too many of us that is a delusion. The reality is that unless you are keenly aware of how you make decisions, you may well find that your seemingly logical decisions are riddled with unconscious errors. As modern psychology is demonstrating, most individuals know surprisingly little about what happens in the space between our ears. Now, before you start protesting that you’re smarter than the average bear (and, therefore, fully capable of avoiding irrationality), consider how often you’ve observed irrational decision making on the part of others. It happens all the time.

It truly is easier to see the speck in another person’s eye than the log in your own eye.

If individual decision making is rife with irrationality, what happens when a group of people make decisions on behalf of an organization? Unless they are very careful, they are liable to achieve collectively an even greater degree of irrationality than an individual acting alone.

So what’s the cure? I’m so glad you asked.

Come to the ILTA conference on Thursday, August 30, at 3:30pm (in Maryland B) to hear an entertaining and thought-provoking discussion about common cognitive traps into which people tend to fall and learn how we can move our decision making process out of the realm of the unconscious and sometimes irrational to the more rigorous, deliberate and rational. Along the way, we’ll discuss how data (whether it be Big Data or little data) can help light the path to more rational decision making.

The name of this session is “Overcoming Irrationality: Improve Decision-Making and Client Service with Strategic Uses of Data” [Hashtag: #INFO6]. The panelists for this session are the name partners of that “preeminent” law firm: Abraham Friedmann Mills & Rovner LLP. Those of you who have attended recent ILTA conferences will know that this will be the third year in which this firm has held a partners meeting in conjunction with the ILTA conference. In prior years, these partners have discussed the implications of two radically different law firm business models (i.e., law factory vs. bet-the-farm practices) and how to future-proof your law firm. This year they will get to heart of why so many law firm organizational decisions are fundamentally irrational. They also plan to give examples of how other industries have used data to make more rational decisions.

As in prior years, we expect a lively discussion with the audience. So come prepared to jettison your preconceptions and jump into the conversation.

In the midst of a lively, thoughtful discussion, one of my friends and colleagues asked for a moment’s silence to take note of the fact that Mary Abraham had just endorsed automation over human action. This led to gales of laughter. Why? Because over the years I’ve become reasonably well-known in legal knowledge management circles for repeatedly reminding people that technology won’t solve every problem (note the banner of this blog) and that we might get further if we spent at least as much time and attention on people and processes as we do on the technology.

That remains my position, but with time and experience it has become slightly more nuanced. While I still don’t think that technology is the silver bullet, I also don’t believe that simply throwing more people at a problem is the best path to a solution either. Further, given the advances in technology today, it could arguably be abusive to humans NOT to adopt appropriate technology.

Not convinced? Think about the many processes within law firms that to this day still are not automated. They haven’t been studied, standardized or streamlined to improve efficiency and efficacy.  Rather they depend on a variety of people operating consistently at their personal best to ensure good results. In fairness, these folks have probably been doing a good job for many years.  But what if someone becomes ill or disengaged? What if they retire?  Where’s the safety in this system? There’s also the problem that you’re asking human beings to do work that a properly equipped machine could do. How demoralizing is that?

In the 1940s, Isaac Asimov introduced the Three Laws of Robotics (see video below). The first of these laws was:

A robot may not injure a human being or, through inaction, allow a human being to come to harm.

It’s helpful that he identified this way to reduce the likelihood that a robot might harm a human. However, that still leaves the human race very much at risk of harm from members of its own species.  With this in mind, consider what would change if law firm IT departments and KM departments adopted the following variant of the first law of robotics:

An IT department or KM department may not injure a human being, or through inaction, allow a human being to come to harm.

What would the practical implications of this be?

• We would have to spend much more time upfront considering user interface and user experience.
• We would have to pay closer attention to HelpDesk inquiries and customer complaints — what keeps going wrong?
• We would have to think harder about the “unintended consequences” (or, as Bruce MacEwen writing at Adam Smith Esq states more accurately, the “unanticipated consequences“) of the innovations we introduce.
• We would have to stop asking our colleagues and our own staff to do things that more properly should be done by machines.
• We would have to be willing to review and revise what we’re doing to ensure the humans we serve are not harmed.

As you think about your work and its consequences, can you honestly say that it does not harm humans? If not, what will you change?

[Hat tip to Michael Mills of Neota Logic for reminding me of Asimov's Three Laws.]

[Photo Credit: Chelsea Wa]

What dataset informs your mindset? That’s the question that Dr. Hans Rosling would ask you if he could. When he probed this issue with his university students in Sweden, he discovered that some of their views in the 21st century were based on a dataset that reflected the reality of … the 1950s.  In fact, their responses to his questions were so bad that he said that chimpanzees could do better. (Apparently chimps are able to get the answer right 50% of the time.)

Dr. Rosling is a Swedish professor of public health who has become famous for his ability to take dry statistics and convey them in a clear and compelling fashion.  Along the way, he has been dispelling many of the myths that inform our mindset.  He challenged a US State Department audience in 2009 with the following words:  ”Does your mindset correspond to my dataset? If not, one or the other needs upgrading….” The unspoken premise was that his dataset should trump the flawed mindset of anyone who does not have a fact-based view of the world.

Building a Fact-Based Worldview

If you go the website of Gapminder, the organization Dr. Rosling co-founded, you’ll find the following appeal:

Gapminder is a non-profit foundation based in Stockholm. Our goal is to replace devastating myths with a fact-based worldview. Our method is to make data easy to understand. We are dedicated to innovate and spread new methods to make global development understandable, free of charge, without advertising. We want to let teachers, journalists and everyone else continue to freely use our tools, videos and presentations.

Your contribution will help us in our efforts to explain how the world is changing. Your generosity will strengthen our independence.

Help us achieve a fact-based understanding of the world. Support our work by making a donation today.

As I read the appeal, I found myself wishing that the legal industry had a Gapminder-like organization to help us move from myth to a fact-based worldview. What data is your firm collecting? Do the data have integrity? Do you have capable people who can analyze that data and communicate what’s meaningful? Or are your firm leaders making decisions that reflect their favorite myths?

Ron Friedmann has a recommendation for law firms intent on developing a fact-based worldview:  ”Law firms should collect data to measure the multiple aspects of `service delivery’ and the `client experience’.” If you were to follow Ron’s recommendation, what would that mean for your firm?  What would you count? What would matter? I suspect you’re going to have look far past billable hours and realization rates to examine the profitability of matters and individual lawyers. What about measuring the rate at which lawyers of your firm innovate? Or the rate at which they convert business development opportunities into sustainable income streams? How do you measure client engagement and client satisfaction? How do you measure the contributions of law firm administrative departments? (In terms of dollars under budget? Or in terms of value delivered to clients?) And, how do you measure the contribution of each person in your firm towards the health and welfare of the firm?

There are many opportunities for us to learn more about our business through the careful gathering and analysis of data. However, I don’t mean to minimize the challenge.  Most folks in law firms are not trained statisticians. We don’t always know what to count or understand the problems implicit in how we collect and analyze what little data we have.This is an area in which our entire industry could benefit from some training and some standardized approaches.

What dataset informs the mindset of your law firm leaders? That’s the question Dr. Hans Rosling would ask them if he could.  But, since he can’t, shouldn’t you?

[Photo Credit: Tom Woodward]

Lawyers have many special gifts, but one of the most vexing is the ability to “issue spot.” They are trained to take a proposition in both hands and then turn it upside down and inside out until they have identified all the potential problems.  This is hugely helpful to a client who is trying to weigh the risks and benefits of a proposed business transaction.  However, this tendency can be hugely challenging for IT and knowledge management personnel who are trying to persuade a lawyer to adopt a new tool or a new way of working.

Now don’t get me wrong — some of my best friends are lawyers.  In fact, I’m a lawyer. Even so, I must admit that lawyers can be a little negative from time to time.

But lawyers are not the only ones.  Tony Schwartz has observed that the negativity bias is something that all humans share and it can lead us to wallow in the slough of despond:

Because human beings have a strong “negativity bias,” we pay more attention to our bad feelings than to our good ones. It once clearly served our survival to be vigilant about what might go wrong and that instinct persists. Today, it may serve to buffer us from disappointment, but it also promotes disproportionate and destructive discontent. The simple question “What’s going right?” provides ballast in tough times.

So What’s Going Right?

This can be the best question to ask when you are seeking feedback on new technology or a new law firm knowledge management initiative.  It can change the energy in the room and draw out the truly constructive comments.  Best of all, it encourages the lawyers involved to use their considerable brainpower to focus on opportunities for growth rather than obsessing about potential problems that may (or may not) stop a project dead in its tracks.

Focusing on the positive is not intended to sidestep reality or allow you to bury your head in the sand.  Its purpose is not denial.  Rather, its purpose is to elicit feedback at an early stage — before the tool or resource is so fully baked that it cannot be adjusted.  Asking about what’s going right can help the anxious stop obsessing about the impossible goal of perfection and start focusing on what’s necessary and possible.

If you want to be agile, if you want to innovate, start asking about what’s going right.  You might be pleasantly surprised by what you learn.

[Photo Credit: Manuel Bahamondez]

For the average worker, it might seem like a dream come true. However, I suspect that some information technology folks consider it a nightmare. What’s the issue? The advent of the consumerization of IT; something Scott Finnie calls “CoIT.” Dion Hinchcliffe describes the elements of  CoIT in the following way:

1) businesses taking more local control for IT, 2) workers using their own preferred computing devices and apps, and … 3) manageable processes for rapid uptake of enterprise apps, mashups, and devices matched with IT support processes that scale to match.

While this may not seem an ideal scenario for the traditional IT department, it most likely is within the limits of what can be tolerated.  However, what happens when the business gets “carried away” and starts driving IT initiatives? Here’s Dion Hinchcliffe’s explanation:

The overall trend towards ad hoc adoption of personal and cloud technology at work seems to be inexorable. More and more IT is moving out from under the CIOs budget, just over 30% by some estimates. Perhaps most disruptive of all, however, is the sudden appearance of extremely stiff competition for IT services. While the move to self-service IT in general has been a steady trend for a decade — and which is starting to be called CoIT — it’s the outright diversion of business budgets directly to external IT providers, whether they are the newer SaaS vendors and app developers or the more traditional IT consulting firms and VARs. In short, the business likes the selection and service it’s getting elsewhere, and routing around IT in many cases. [emphasis added]

Suddenly, we have a situation in which the IT department no longer is in complete control and may well have trouble imposing a locked down computing environment.  Now, if you’re working in the financial or legal services industries, consider what happens when you couple the move to CoIT and external IT providers with growing incursions by hackers. According to a recent report in Bloomberg News, there’s been disturbing hacker activity directed towards law firms lately:

Over a few months beginning in September 2010, the hackers rifled one secure computer network after the next, eventually hitting seven different law firms as well as Canada’s Finance Ministry and theTreasury Board, according to Daniel Tobok, president of Toronto-based Digital Wyzdom. His cyber security company was hired by the law firms to assist in the probe.

[...]

`As financial institutions in New York City and the world become stronger, a hacker can hit a law firm and it’s a much, much easier quarry,’ said Mary Galligan, head of the cyber division in the New York City office of the U.S. Federal Bureau of Investigation.

Galligan’s unit convened a meeting with the top 200 law firms in New York City last November to deal with the rising number of law firm intrusions. Over snacks in a large meeting room, the FBI issued a warning to the lawyers: Hackers see attorneys as a back door to the valuable data of their corporate clients.

To be honest, I don’t envy law firm IT directors.  They are faced with the difficult task of imposing stringent security measures even as they watch their internal clients scurry out the door, exercising their right to choose their own IT tools and chasing self-service IT as a means to get out from under the control of their organization’s IT department.  While security concerns have often trumped other considerations in the past, it will be interesting to see if the newly emboldened  IT consumers will insist on using their preferred devices and self-service IT despite heightened security concerns.

It’s a nightmare scenario, coming to an IT department near you — soon.

[Photo Credit: Terry Freedman]

For fourteen centuries she had information that everyone wanted. So they traveled from all over the ancient world to seek her guidance. And they paid lots of money for the privilege. Who was she? Pythia, the priestess of Apollo and the oracle of Delphi. Thomas Sakoulas describes how she worked:

Plutarch served as a priest at Delphi, and in his histories he has left many details about the inner workings of the sanctuary. Pythia entered the inner chamber of the temple (Adyton), sat on a tripod and inhaled the light hydrocarbon gasses that escaped from a chasm on the porous earth. After falling into a trance, she muttered words incomprehensible to mere mortals. The priests of the sanctuary then interpreted her oracles in a common language and delivered them to those who had requested them. Even so, the oracles were always open to interpretation and often signified dual and opposing meanings.

`You will go you will return not in the battle you will perish’ was an example of this duality of meaning. The above sentence can be interpreted two different ways depending where the comma can be placed. If a comma is placed after the word `not’ the message is discouraging for him who is about to depart for war. If on the other hand the comma is placed before the word `not’, then the warrior is to return alive.

In an age of uncertainty, access to information was valued, and the ability to interpret critical information was valued even more.  In fact, it led to the creation of a very nice business model:

A booming industry grew up around the Oracle. Temples were built and rebuilt, priests were trained, rituals evolved and sacrifices were performed. Priests interpreted the incoherent utterances of the Pythia. Presents were brought to both placate the deity and in the hope of influencing a positive prophesy. The Delphic temple itself became one of the largest “banks” in the world. Delphi became a center for banking and commerce.

The oracle and priests of Delphi are the spiritual ancestors of modern professionals who guard valuable information closely and share it selectively in exchange for considerable compensation. Lawyers and doctors have for years been the guardians of specialist bodies of knowledge to which lay people have needed access. But what happens when information is free? When your clients and patients have easy access via the Internet to the information for which you previously charged, what does that do to your role and your revenue?

As doctors having discovered, the result is patients who read Internet information and then show up in their doctor’s office with an extensive list of questions. Yes, this does make for more engaged healthcare consumers.  But contrary to physician worries, it need not render doctors obsolete. Why? Because the chief question of most of these patients is how to discern the reliable information from the downright wrong and misleading information. Dr. Kevin Pho reports that Drs Pamela Hartzband and Jerome Groopman wrote recently in the New England Journal of Medicine about the opportunity free information presents:

Information and knowledge do not equal wisdom. … Physicians are in the best position to weigh information and advise patients, drawing on their understanding of available evidence as well as their training and experience. If anything, the wealth of information on the Internet will make such expertise and experience more essential.

In Dr. Pho’s view, doctors can provide real value to their patients by acting as their guides through the freely available Internet information:

Doctors have to get used to the fact they are no longer the sole source of a patient’s health information. Instead, they need to serve more as interpreters of data, and be willing to separate the tangible information from the increasing amount of noise patients find online.

But what about lawyers?  At the end of the day the best business model for doctors and lawyers rests on their ability to provide more than the rudimentary materials available freely on the Internet. It rests on their ability to provide the benefits of their valuable experience and judgment to lay people.  This suggests the need for a more strategic approach to sharing information.  Given how quickly information spreads online, how long can you guard your firm’s information as if you were guarding gold bricks? Granted, if you have the secret recipe for Coca-Cola, guarding it rigorously makes sense.  But as far as much legal and medical information is concerned, its half-life is rather short.  This leads to an interesting question for law firms: do you want to invest energy restricting access to a resource of diminishing value, or do you want to be known as the go to firm that has confidence to provide useful information free of charge online, secure in the knowledge that the firm is always developing specialized experience and judgment for which clients will gladly pay good money? For a profession that is used to charging a premium for all information, this is challenging economic and cultural terrain to navigate. For the firm that finds the right balance between clinging to information until it turns to dust and giving away the shop, this is a marvelous opportunity to attract clients who want to know they are working with lawyers who really are at the top of their game and who have the cutting-edge knowledge, experience and judgment to back it up.

The oracle of Delphi was displaced by radical changes in political and religious power. The oracles in law firms and doctors’ offices are in danger of being displaced by technology.  How will they respond?

[Photo Credit: Bricke Dotnet]

The Financial Times recently published an interesting report entitled, US Innovative Lawyers 2011.  I encourage you to read that report in its entirety soon.  In the meantime, here are some highlights and observations.

According to the report, FT’s researchers received 272 submissions (including from 53 AmLaw 200 firms) and interviewed more than 300 lawyers and clients to identify the most outstanding innovations.  Each submission was scored in terms of (1) originality , (2) the rationale behind the work, and (3) the impact of the work on the client, the industry or on business more broadly.

At the end of the day, which firms made the cut?  FT identified 26 firms in the US as truly innovative:

• Davis Polk & Wardwell
• Skadden, Arps, Slate, Meagher & Flom
• Cleary Gottlieb Steen & Hamilton
• Orrick, Herrington & Sutcliffe
• Latham & Watkins
• Cravath, Swaine & Moore
• Paul Hastings
• Sullivan & Cromwell
• Seyfarth Shaw
• Paul, Weiss, Rifkind, Wharton & Garrison
• Kirkland & Ellis
• Dewey & LeBoeuf // Mayer Brown
• Gibson, Dunn & Crutcher // White & Case
• Cadwalader, Wickersham & Taft
• Akin Gump Strauss Hauer & Feld
• Dechert
• Morrison & Foerster // Wachtell, Lipton, Rosen & Katz
• Simpson Thacher & Bartlett
• Jones Day // Weil, Gotshal & Manges
• Fulbright & Jaworski
• Freshfields Bruckhaus Deringer // Proskauer Rose

What made these firms stand-out?  These firms say they rely on their culture and human capital to innovate.  In particular, they hire smart people who like to find new and better ways of solving problems for clients. One firm pointed to its lockstep compensation model, but since plenty of non-lockstep firms made the grade, that most likely is not the decisive factor. According to the FT report, the factors that distinguished the firms on the list from the others were “their commitment, their ability to adapt and to work together in the best interests of business to unusual and important effect.”

How can law firm knowledge management help?

While I don’t know the extent to which each of these firms relied on their knowledge management resources to foster innovation, the innovations reported suggest that KM can help make a firm and its lawyers more innovative in the following ways:

• Much innovation arises from making small changes to what came before. In legal practice, this means we need to give our lawyers easy access to precedents and practice guides so that they have a solid foundation from which to innovate.
• Innovation can go beyond specific matters to providing online information and advice on a subscription basis.  KM and library services can play an important role here in gathering the data for the client-facing resource.
• Innovation with respect to the business of law can have a huge impact as well.  Seyfarth Shaw’s Lean Six Sigma efforts put the firm on FT’s list.
• KM personnel and practices can help support alternative fee arrangements and project management efforts.
• Jeffrey Carr, Senior Vice President and General Counsel, FMC Technologies, is a well-known advocate of changes in the legal industry.  Among other things, his in-house legal department has created a wiki to share legal advice internally and is developing M&A process maps.  Are you doing anything similar?

As I said at the beginning of this post, it’s worth your time to read the report in its entirety. While the specifics of each legal matter may not resonate for you, focus on how what you do (or should be doing) could help your firm get on that list and stay on that list.  The KM principles we espouse and the information we handle daily  can help bring about the innovation to which our firms should be aspiring.