Impact of KM on Old and New Business Models #LexMundi

LexMundi_logo_CMYKSpeakers: Michael Roster (former managing partner of Lex Mundi member firm Morrison & Foerster’s Los Angeles office, former general counsel of Stanford University, Stanford Medical Center, and Golden West Financial Corporation) and Bill Turner (CKO at Womble Carlyle).

[These are my notes from the 2013 Lex Mundi Knowledge Management Roundtable. 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.]


  • Law firms present enormous challenges to clients:
    • In a recent 10-year period, costs to US companies went up  20%, but legal costs went up 75%. Most of this increase is due to rate increases and the increasing seniority of the lawyers who provide services. 
    • Most law firm lawyers do not have in-house experience. This means that not enough of them truly understand the pressures their clients and their internal legal departments face.
  • Law firm lawyers are not converting their clients into advocates: Only 31.4% of clients would recommend their primary law firm. (This is down from 35.9% in 2012; 42.3% in 2011.)
  • Applying KM to firm’s and client’s targets: KM helps reduce client legal costs by 25%. It provides high predictability and helps improve outcomes for the matters undertaken. In fact, KM needs to be used for these purposes. (Many firms don’t understand WHY they should use KM. Those firms need to focus on reducing legal costs increasing predictability and improving outcomes.)
  • KM Challenges the Prevailing Law Firm Business Model:  When profitability is driven by inputs (billable hours), then any efficiencies introduced by KM will undercut profitability. [Is it any wonder that KM has had a hard time making its case to lawyers who are wedded to that old model?]
  • Proposed Changes to the law firm budget process: Instead of starting from the perspective that we need to provide a certain level of compensation to top partners (and then keep everyone else happy), start by asking: “What’s a competitive price for a given type of legal work?”
  • The the old, reactive/responsive approach to pricing:
    • How much do we need to make to deliver the expected level of profitability?
    • How much can we raise rates and billable hour targets to deliver required revenue?
    • Can we eliminate any groups (e.g., Trust and Estates is often the first to go) or employees?
    • How do we sell it to the partners, and then clients?
  • The better new client-driven pricing approach:
    • What’s the competitive price for this type of legal work?
    • How much profit is desired?
    • How can we create a highly competitive legal product for this amount?
    • How can we still exceed client expectations?
    • How can we get rewarded for the results?
  • Ford Motor Company provides a great example for law firms: They used to adjust pricing by tinkering around the edges of auto manufacturing process (e.g., replace leather with vinyl, remove some of the chrome, etc.). Then Ford got smart. They asked (1) what is a middle class willing to pay for a car? (2) How much profit do we need to make on each car? (3) What’s the resulting price per car? (4) What’s the best possible car we can make for that price? This is how the Ford Taurus was born.
  • Even General Counsel need to adopt a new approach to legal costs.  How to think in the new proactive/predictive way?
    • Where are our company’s major legal exposures?
    • How can we reduce or even eliminate those exposures?
    • How can we maximize expertise, efficiency, elasticity?
    • How to incentivize reduced cost, high predictability, improved outcomes?
  • Why Harness Knowledge Management? Bill Turner quotes Dave Snowden who asserts that the main purpose of KM is to (1) create conditions for innovation and (2) enable better decisions.
  • Use KM to enhance cross-border legal services:
    • Improve coordination among offices and practice groups
    • Reduce duplicative activities
    • Remove barriers to using fixed prices, managing portfolios, working across juridictional lines
    • Improve quality control

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