Integrating KM into Practice Management #ArkKM

Session Title and Description: The Evolution of Practice Innovation:
Are We Successfully Integrating and Embedding KM within Practice Management Systems?
Law firms continue to re-examine traditional approaches to the practice of law, and along the way many have implemented a wide range of changes that enable firms to deliver client services more efficiently. These innovations touch virtually every aspect of our practice and the way our firms are run. Clearly, KM has not been left behind or subsumed into other support functions. However KM must continue to evolve in step with demands that are reshaping the business of law and redefining service delivery models. This discussion will seek to characterize the foundation of a true practice management platform, as well as the ever- changing issues and challenges that KM is trying to navigate. Is KM the cornerstone of a “post-silo” law firm strategy? Or is practice innovation squarely focused on “Business Intelligence” and financial data points, while missing the context in which KM solutions can be deployed?

Speakers:

Toby Brown, Chief Practice Officer, Akin Gump Strauss Hauer & Feld LLP
Keith Lipman, President, Prosperoware

[These are my notes from the 2015 Ark Group Conference: Knowledge Management in the Legal Profession.  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 is practice management? Managing matters to achieve client satisfaction and firm profitability.
  • What is the goal? Revenue and Profits!!!  How do we do this? By lowering the cost of delivering services to clients. The answer is not just buying cheaper pencils. It means you need to push work down to the lowest-cost resource within the firm. You need become more efficient in the way you work.
  • What’s the strategy?
    • Few law firm partners are empowered to understand their own contribution to revenue and profits.
    • Far too many law firm partners experience “pro forma surprise.” They do not really know what their matters have generated in terms of maximum billable suntil they see the pro forma. If their team has not billed as much as expected, then their maximum billables are down.
    • You need to know your firm’s profit margin. And you need a clear methodology for achieving that profit margin. Profit measure must be clear, simple and understandably
  • State of the Legal Market: Hyper-competition and flat demand. Corporate Counsel have bigger budgets, but not spending on law firms.
    • Now outside counsel are just a vendor to be handled by the client’s procurement office. In Toby Brown’s words, we are just another toilet paper vendor. This leads to more RFP processes to try to standardize the process for purchasing legal services.
    • Corporate legal departments are growing. They are both controlling the spend and spending differently. In fact, they are moving legal work in-house.
  • How can KM Participate?
    • To quote Kingsley Martin, think about every KM project and ask how far from the bottom line.
    • Consider yourself the provider of “Knowledge Services” rather than a “knowledge manager.”
    • Help lawyers see that increasing their own mastery of KM tools will help them become more efficient.
    • An obvious place for KM concerns “the numbers.” This means providing information and context for numbers such as the cost of a matter: what goes into that cost, what are the variables, etc?
    • Toby estimates that only 10% of law firms actually measure true profitability rather than some proxy for profitability. When the audience was polled, most did not know if their own firms actually measured true profitability rather than some proxy for profitability.
    • Become the best friend of the pricing person in your firm. They will know where the pain points are and which partner is really in pain.
    • There is a great opportunity for KM to help manage outside counsel guidelines and then track performance against those guidelines. At a minimum, read these guidelines to get an early look at emerging trends (e.g., clients are less willing to pay for online legal research).
  • 2016 is going to be really hard
    • The M&A cycle is coming to an end.
    • There is no major litigation wave on the horizon
    • The prospect of significant bankruptcy work is poor.
  • KM needs to be front and center in making 2016 more tolerable (and even successful) for law firms.
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Coping with Uncertainty

Freak Out It’s been over three years since the financial crisis of 2008.  Joblessness is high, optimism low.  Just in the last four months alone, the New York area has had epic weather (Hurricane Irene, floods, the Halloween blizzard) and an earthquake. Worst of all, no one knows when the turmoil (natural or economic) will end. Is it any wonder people are stressed?

Dr. James S. Gordon, clinical professor of psychiatry at Georgetown Medical School, wrote the following sobering words in the Washington Post in 2009:

I have been practicing psychiatry for 40 years, but I’ve never seen this much stress and worry about economic well-being and the future. There is a sense that the ground is no longer solid, that a system we all thought would sustain us no longer works as we were told it would. … In this uncertain time, symptoms of chronic illnesses — hypertension, back pain, diabetes — that were controlled or dormant are erupting. Low-level depression, whose hallmarks are feelings of helplessness and hopelessness, is endemic.

Dr. Brené Brown, research professor at the University of Houston Graduate College of Social Work, has an equally direct summary of our current state of affairs:

We live in a vulnerable world. And one of the ways we deal with it is we numb vulnerability. And I think there’s evidence — and it’s not the only reason this evidence exists, but I think it’s a huge cause — we are the most in-debt, obese, addicted and medicated adult cohort in U.S. history.  …  One of the things that I think we need to think about is why and how we numb. And it doesn’t just have to be addiction. The other thing we do is we make everything that’s uncertain certain. Religion has gone from a belief in faith and mystery to certainty.

If that’s what’s happening in the general population, what’s happening in the law firm world?  Toby Brown, a wise observer of law firms and the economy recently had an epiphany about the widespread longing for a return to simpler, more certain times:  it isn’t likely to happen anytime soon. In fact, he believes that the current “level of uncertainty may be here to stay. And it may even expand in the future. …  The bottom line is that rapid change results in uncertainty. And rapid change has become the norm.”

It’s pretty grim stuff.  So what can we do if we can’t get under it, over it or around it?  How do we get through it?  How do we cope with uncertainty? Dr. Gordon has the following recommendations for individuals:

  • Begin a meditation practice.
  • Move your body.
  • Reach out to others.
  • Find someone who will listen and help you take a realistic look at your situation.
  • Let your imagination help you find healing — and new meaning and purpose.
  • Speak and act on your own behalf.

Rosabeth Moss Kanter, professor at Harvard Business School, suggests the following strategies to help organizations cope with uncertainty and find opportunity:

  • Provide certainty of process.
  • Tackle maintenance and repair.
  • Let ideas flow.
  • Mobilize appreciation for key constituencies.
  • Use purpose and values to “think beyond.”

For law firms that may be choking on the thought of spending money in these uncertain times, Toby Brown has the following recommendation:

In our conversation, we wondered with so much uncertainty where should a law firm invest its IT dollars? Our answer: invest in flexible infrastructure. Uncertainty drives the need to be able to adjust quickly to changing environments, driving the need to add and remove functionalities under very short turnarounds.

I’d take Toby’s advice one step further. In these uncertain times organizations should be investing to help make their people as flexible and resilient as possible.  This is what will help organizations respond quickly and appropriately to changes in the environment.  To be clear, in this context resilience does not mean simply reverting to the status quo ante.  The better definition of resilience for these purposes points to growth and progress rather than reversion:

Resilience is the ability to thrive, mature, and increase competence in the face of adverse circumstances.

While it is unlikely that 2012 will bring more certainty, let’s hope that we can bring more flexibility and resilience to 2012.  Onward and upward!

[Hat tip to Ron Donaldson for reminding me of Brené Brown’s TED Talk on vulnerability.]

[Photo Credit: Frau Shizzle]

 

 

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Law Firm Investment Portfolios

Times Square Stock TickerEvery good conversation invites participation, and I’ve found it impossible to resist jumping into the very interesting conversation Toby Brown and Ron Friedmann have begun online regarding possible business models for large law firms.  The genesis of the conversation was a session at the 2010 International Legal Technology Association Conference in which Ron Friedmann, Gerard Neiditsch, Jeffrey Rovner and I proposed two extreme law firm business models:  “bet the farm” practices and “law factory” practices.  (You can find our slides, as well as links to some discussion summaries, in  Ron’s blog post regarding the ILTA session.)  While we limited our discussion to the purest form, where a firm focuses on one business model or the other, real life isn’t quite so tidy.  In fact, law firms may reluctantly discover that they need to support examples of both business models simultaneously.  But what’s the best way to handle this? Toby draws inspiration from large banks, while Ron analyzes the example of large hotel chains.  In both cases, they show how it is possible for an organization to offer a variety of services at different price points without damaging that organization’s brand.  In so doing, Ron and Toby challenge a large law firm concern that moving away from marquee (bet the farm, high-touch) legal practices will cause such confusion in the public’s mind that the firm’s brand will suffer.

While both the banking and hotel examples have much to commend them, I have a smaller, more personal example in mind intended to help law firms understand that they may no longer have much choice regarding these business models.  What if law firm leaders were to consider their firm’s practices in the same way any prudent person considers the investments in their retirement savings account? For example, one golden rule of investing is to diversify your investments to achieve the correct balance of growth and protection.  Consequently, it won’t be appropriate for most investors to invest solely in high-risk high-return targets.  Typically, investors are advised to put some portion of their money in fixed income investments or money market accounts.  While these investments may provide lower rates of return, they also tend to preserve the monies invested.

Now what happens if law firms were to treat each practice area as a type of investment.  For example, a mergers & acquisitions practice might be likened to a higher risk investment that provides great returns at the top of the business cycle, but may not perform so well in an economic downturn.  By contrast, a bankruptcy practice theoretically should provide better returns during a downturn, as should any practice (such as project and infrastructure finance) that depends on governmental stimulus funding.  In each legal market, the mix of high-risk and high-security will differ depending on local conditions.  Of course, things become more interesting (and undoubtedly more complicated) when a firm spans many legal markets.  Achieving the correct balance between risk and security across geographic boundaries requires even more insightful investing.

Another way of thinking about various investment opportunities for law firms is to compare “bet the farm” (or “bet the company”) practices with “law factory” practices.  Ron Friedmann has written extensively about these contrasting business models for law practices.  In brief, a bet the farm matter tends to be relatively rare and high risk, where the client is more willing to pay what it takes to get the right result.  In these practices, there may be less fee pressure and fewer opportunities for routinized (and cost-controlled) work.  By contrast, the law factory practice is high volume, low margin.  These practices operate under tremendous fee pressure and, therefore, put a premium on producing work in a reliable, repeatable fashion at a competitive price.  To achieve this goal, they tend to rely heavily on efficient business process, standard form documents, automated document assembly, expertise systems, and lower cost professionals.

Taking the investment portfolio approach suggests that a law firm should seriously consider “hedging” each of its bet the farm practices by investing in some practices that thrive in economic downturns as well as some law factory practices that produce steady results despite fluctuations in the state of the economy.  Given the pricing pressures on these practices (e.g., court or governmental oversight of legal fees or a well-established market that prices legal services efficiently), these hedging practices need special attention from law firm leadership. This means focusing on making these hedging practices super-efficient and properly packaged and priced for the relevant market.  It may mean making additional investment in practice support lawyers, automated processes and the kinds of rigorous business performance standards that we are told apply to the best manufacturing facilities.

While the wisdom of a well-balanced, diversified investment portfolio is self-evident, this approach is not entirely without its challenges.  For example, since the bet the farm practices operate under some different constraints from that of law factory practices, law firm management will have to be careful to calibrate firm support services and infrastructure investments so that they are appropriate for each type of practice.  Further, how do you handle the potential for income disparity and differing levels of respect for the lawyers in each practice?  To be fair these challenges are not entirely new.  Even a firm that focuses entirely on bet the farm work may accord different levels of  compensation and respect to the rainmakers versus the service partners.

While large law firms may be comfortable with the notion of building practices areas that thrive at different points in the business cycle, they may have a tougher time accepting the idea of off-setting their high risk bet the farm practices with some lower risk law factory practices.  Then, they may have an initial struggle as they realize that their traditional bet the farm approach to work will not yield the intended economic results when applied to law factory work.  The resulting self-examination and re-engineering will not be easy, but is critical for success.  Firms that accomplish this may well find that the efficiencies forced on them by the law factory business model have a salutary effect on the parts of their bet the farm practice that are relatively repeatable.

At the end of the day, the key is to focus on a well-balanced array of practices that are designed for optimal results under the business model that governs them.  Unfortunately, although we’ve all heard the advice to diversify and re-balance our portfolios, there will always be those investors who forego diversification and decide to stake their lives on a “sure thing.” Let’s hope your law firm isn’t that type of investor.

[Photo Credit: th.omas]

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Do Rational People Work at Your Firm?

We pride ourselves on our ability to make logical decisions. Lawyers take this one step further, we believe we are trained to make dispassionate, logical decisions. In other words, objectively good decisions. So why do we make so many bad decisions? I’d suggest it’s because our decision-making capacity is limited by our knowledge and self-awareness.

Consider some facts:

  • Most of us don’t know what actually makes us happy. Daniel Gilbert’s research indicates that most of us have a hard time predicting how something will affect our sense of well-being.  Because of this, we often make choices that do not make us as happy as we expected. In fact, our poor ability to predict can lead us to make bad choices time and time again.
  • There are folks in this country who routinely vote against their economic best interests in support of positions that have little impact on their lives. Just consider some of the more emotional political debates of recent times.
  • There are law firm leaders who don’t appear to know how to maximize the economic returns of their firm. (Or if they understand it, they seem to lack the will to make the necessary changes.) For more on this issue, see Toby Brown’s post on the role of leverage in law firm profitability.
  • Many lawyers have demonstrated what Jordan Furlong describes as  a “blind side” when it comes to the fundamentals of their business.  Just like they ignore the tectonic shifts around them, they don’t always see how changes in the business of law should be changing the way they operate.
  • Cognitive dissonance helps us screen out information that might challenge our thinking, our approach to life.
  • “We stand where we sit.”  Our place in the hierarchy can have a profound impact on how we approach decision making. Unfortunately, we may not be sitting in the right place to make the best decisions. (See Graham Allison’s analysis of decision making based on the “organizational process model” during the Cuban Missile Crisis.)

These tendencies can be highly problematic for anyone (especially a knowledge manager) who is trying to provide support through nonbillable activities.  How do you convince your colleagues that what you are doing is so valuable that they need to be doing it too? After all, they are convinced that they don’t have the time to do this work.  And, they don’t really see the value in it. In this situation, how do you break through the limits of their knowledge and self-awareness to help them understand what is truly in their best interest?

To be honest, as long as cognitive dissonance is operating, I don’t think you can overcome these decision-making limitations unless you act strategically.  For example, find the people who think differently and then turn them into Trojan Horses:

  • Find the people in your law firm who are wired to consider and value new ideas and information.
  • Introduce them to your knowledge management system and then provide sufficient support so that they get up the learning curve as quickly and painlessly as possible.
  • Follow-up on their feedback.  They are a valuable source of insight and may well be able to help you improve the system.
  • Once they are happy with the KM system, ask them to share it with members of their network.  In this way, people who might not entertain a helpful suggestion from their knowledge manager find themselves lowering their defenses long enough for a person they consider to be a trusted adviser to make a recommendation.  Then you need to follow up with support and a high level of responsiveness to their feedback.
  • Rinse and repeat.

While people may seem hidebound in their unwillingness to even try the tools you’ve designed specifically for their benefit, don’t give up.  Sometimes the key is to find an advocate of such great credibility that they are able to overcome the natural reluctance of their colleagues to devote the time and energy required to try something new. The power of a trusted adviser working her network should never be underestimated.  It is one way to help people rediscover their ability to make rational decisions.

What other ways have you found to help people overcome their natural barriers and make important changes?

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