Being a Cost Center in Difficult Economic Times

It’s budget season in many law firms. If that weren’t bad enough, we’re preparing budgets against the backdrop of disturbing economic news. And worst of all, most law firm knowledge management departments are cost centers. What are you going to do?

Traditionally, there have been two approaches to dealing with difficult economic times: cut costs and grow revenue. As you plan your budget for 2009, chances are you have been asked to take a serious look at your costs. In a recent APQC KM poll, 44% of respondents expected to cut their KM budgets in 2009, 35% expected to hold the line on their budget and a fortunate 22% expected a slight increase (1%-9%) in their 2009 budget.** The reality is that even holding the line requires great discipline with respect to costs, so fully 79% of the respondents will be extremely cost sensitive in 2009.

Cutting costs in knowledge management programs requires close scrutiny of your KM operations. Do you have the right mix of staff? Are your KM projects aligned with your firm’s business strategy? Is each staff member engaged in the right mix of projects? And, is their work being done in the most cost effective way possible? Once you can answer yes to all of these questions, you’ve probably done all you can do with respect to sensible cost cutting.

If cutting costs is tough, growing the revenue of the KM department can be even tougher. It may be possible for KM staff to get involved in client billable work, but chances are that the billable work will at best account for only a small fraction of total time spent. So how about helping grow the revenue of the firm? Now we’re onto something interesting. As you think about implementing KM projects that enhance fee-earning capability, first see if you can identify activities for which there is a direct line between KM efforts and revenue. (We’ve talked before about the challenges of KM ROI, but that doesn’t absolve us from the responsibility of looking for ROI opportunities.) These opportunities can run the gamut from improving realization rates (by maximizing the value of the services rendered) to helping to develop new client services or new market share. Regardless of which revenue enhancing strategies you pursue, be sure that at the planning stage you identify appropriate metrics and methods for tracking KM’s contribution to the top line. Too many successful KM programs have gone unnoticed by law firm management because knowledge managers failed to institute a reliable approach to metrics early in the life of the program.

Over the course of the next 18 months, we will be hearing stories of firms that managed (seemingly against the odds) to turn in good results. Pay particular attention to those cases where smart knowledge management made a difference. Hopefully, your firm will be one of those success stories.

(** I’ve reproduced the numbers faithfully, even though they add up to 101%.)

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