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Innovation, Project Management, and KM in the Newly Competitive Legal Market

This article was first published by the GCResearchClub.com as GCRC Interview: Ron Friedmann from Fireman & Company – Whole Interview (18 Oct 2013)

Abstract: The 2008 economic crash causes a legal market sea change.  The previously insulated market of large law firms is now competitive.  Large firms struggle to win new business.  This is beginning to drive innovation, including project management and better use of knowledge management.

Our latest interview is with Ron Friedmann, a lawyer by training who has spent over two decades working in the legal market. He has extensive experience as a legal market consultant, senior manager in large law firms (CIO at Mintz Levin and practice support at Wilmer Cutler), and marketing professional at two legal market software companies. Ron currently works at Fireman & Company, a legal industry-focused management consulting firm, as well as blogging on his professional website, Prism Legal Consulting.

You work in particular for innovative law firms and corporations. We certainly talk a lot about law firms having to be more innovative in the modern market. How important do you think innovation is in the law today, and how much do you think this is driven by clients?

With demand flat and with clients now having many other purchasing alternatives – from bringing work in-house to using smaller regional law firms, new-model law firms, and alternatives such as LPOs or companies like Axiom – General Counsels can put a lot of pressure on law firms. Some specifically ask for innovation.

In this era of scarcity, firms that want to compete for business will have to innovate. It’s no longer enough just to be a good lawyer, or to have a range of practice areas. I think firms must offer innovative services to create more value, perhaps even to survive and prosper.

But it’s not clear how much that is happening yet. Some firms can perhaps avoid doing so: those at the high end in the US, and the Magic Circle firms in the UK, will be able to coast for some time on their brand names. At the opposite end, some firms operating in long-competitive practices have been very innovative. But there’s a vast middle ground of Am Law 100 and 200 firms that I look at and wonder, how are they are going to survive.

So we’re now in in a period when clients can be increasingly choosy. You see signs that some firms recognize this. They are building new practices, becoming more dedicated to project management and pricing and so on. But I think we’re just at the beginning.

 

Do you think the main innovations are solely to do with project management and pricing, or are there other innovations?

There are others. If you look at the traditional law firms that have innovated, the two that really come to mind are Littler Mendelson, which is a Labour law firm, and Seyfarth Shaw, which also has a big labour law practice. Seyfarth Lean received tremendous publicity for their process improvement. And Littler has won awards for using technology to manage high volume employment cases. Littler also recently released a Neota Logic-driven interactive adviser freely available to businesses to help them assess the impact of the new Affordable Care Act, also known pejoratively in the US as ‘Obama Care’.

 

It’s interesting that you mention Seyfarth, because we were looking at them the other day. This idea of process management, and process mapping as well, seems to be becoming a big area. How much do you think a lot of legal expertise is going to be going into these online Lean programme systems?

The Lean Programmes are not necessarily online. That said, Seyfarth does have a group of legal technology experts who do innovative work. I know Andrew Baker, who heads that group, and he’s shared a bit with me. So I know the firm is definitely backed by serious bespoke technology, but Lean is a lot more about how lawyers practise.

In general, however, you find resistance to change across the board in large law firms. Lawyers as a whole resist changing how they work. It’s always a question of person-to-person or “hand-to-hand combat” to encourage lawyers to change.

It’s not enough just to have new technology; lawyers have to change the way they work. They have to change the way they service clients, and Seyfarth and Littler are certainly way ahead of many other firms.

There are of course other innovations coming from outside the traditional firms. For example, a new-model law firm like Clearspire, which has a different structure than most law firms, is built from the bottom up to take advantage of technology. It shows what is possible.. The changes we have seen to date in the overall market, however, are still in the margins, which is surprising to me.

 

One of the big areas where change is already happening – and this is very much client-driven – is billing. Many argue that hourly billing is starting to wane as the main model. How much do you think General Counsels in particular are driving this demand from clients for alternative fee arrangements?

GCs are driving quite a bit of the change in pricing because they’re demanding better deals and more value. They struggle, however, with what ‘more value’ means, and too many GCs are still satisfied with a discount as opposed to changing the structure of the pricing. Some firms, seeing the writing on the wall, are taking the initiative and offering alternatives.

If you look back two years you might have found literally half a dozen large law professionals focused on pricing. Today there are two hundred, and they’ve formed their own group under the auspices of the Legal Marketing Association. Members range from mid-level finance managers to senior pricing ‘tsars’ who regularly interact with clients and partners.

The rise of the pricing professional is driven primarily by clients demanding alternative fee arrangements, but it’s also it’s driven in part by firms recognising that they have an opportunity to differentiate and to win new business.

Yet distinguishing cause and effect is difficult. Firms receive RFPs demanding AFAs, so they start offering it. But the data in the legal market – when you look at surveys – suggest that real AFAs, where there’s a different structure and different risk sharing arrangement rather than just discounts, are still a relatively small per cent of the total spend.

 

Do you think with billing, a lot of the focus goes on the actual cost that billing racks up, or do you think a lot of it’s also to do with the changing way in which lawyers work, in that they’re working more transparently so that clients know what they’re getting for their money, even if they’re still paying quite a lot for that service?

Transparency is absolutely part of the impetus behind legal project management, especially when, as you say, it’s still more traditional billing. It’s about clients agreeing to plans up-front. In effect, they’re saying, “We don’t know how much this should cost exactly, but let’s see a budget and let’s see evidence that you’re actually managing the matter and putting together a plan and then following the plan”. So legal project management is one way to improve the traditional billing model and create some more transparency and efficiency.

Project management and budgets though, are still new and still evolving. For example, twenty years ago, when I was in-house at a law firm, a partner and I put together a very simple – with the then-available technology – budgeting tool. When we talked to litigators about budgeting, they were just mortified at the idea that anyone would even consider a budget. Their reaction was “First, why would I bother with a budget, and second, even if I could think of a reason to do so, there’s just no way I could predict enough to put one together.”.

My view then and my view now is that a plan is a plan and we know the plan is surely going to be wrong, but it communicates what you think at a given moment in time – it’s a way to communicate about likely events. When you compare actuals to budget, you start learning where you guessed wrong, where unexpected events developed and now, here’s what those variances mean going forward. It’s a discipline that some lawyers have had all along, not always manifested in formal plans, but in their way of thinking and their way of managing cases. Some have been pretty good at it, with or without formal tools, but for many partners in charge of matters, their version of “running” a matter is chaos.

LPM is a way of trying to standardise running matters, irrespective of the billing arrangements, in a way that is more systematic and more transparent, and also more logical and specific in assigning resources.

Resource allocation can improve because as lawyers start budgeting, they may realise, “Well, do we really need a seventh year associate here? Can we have a third year associate? Does this even need a lawyer or can a legal assistant do the work? Is this work really necessary?”

The formal planning also helps lawyers see if perhaps they are over-investing in the work. For example, as a partner puts a budget together, she may see, for example, seven depositions planned. Seeing it on paper might cause both her and the client to say, “Well do we really need to do those seven depositions, maybe five are enough”

 

Tangible project management has obviously been around in most industries for a long time, but it’s only now becoming more explicit, certainly as a way of making a matter more obviously project managed. What kind of project management do you think the legal industry, as it is, is looking to take up now, because obviously you get different types?

I’ve helped one of my clients as a subject-matter expert, on a consulting basis, develop legal project management software. In thinking through functional requirements, I’ve been involved in many discussions with law firms about their requirements for day-to-day legal project management. Lawyers want straightforward tool that helps them track day-to-day how the matter is going.

So legal project management is going to be at the opposite end of the spectrum from the industry that invented project management, which is construction. Construction project managers can make good use of tools like Microsoft Project. That software is complex, designed to handle multiple dependencies. I don’t know a lot about construction, but, you don’t want the pipes arriving or the electrical systems arriving before you get to a certain point in having poured concrete. The sequencing of materials and specialist labor is highly dependent, one step to the other.

The dependencies in legal matters are not nearly so intricate. A lot of work happens in parallel. To be sure there are dependencies, but they’re not that complicated to track. For example, you’re not going to start preparing for trial until certain things happen and people in the team sort of know when that is through the ordinary course of communications. Legal project management will be lighter weight than in other industries and designed more around monitoring key tasks.

 

Within all of these projects, do you think the in-house lawyer can become the kind of project manager?

I don’t see that and I’m not sure that’s a model I would aspire to if I were a General Counsel. In-house counsel may need to become project managers for the work they do in-house, but if I’m a GC retaining a law firm, what I want to do is have confidence that my law firm has a project plan, see evidence that they’re tracking against that plan, understand when the actuals deviate and what that means and why. But I don’t want to have to be the project manager – that’s why I’m paying someone else. The expectation is and should be that law firms will take care of that and share some of the project management outputs, if you will, with the client.

 

Technology obviously ties into project management to an extent. How do you think, within every project, the client or their GC can employ technology to make sure that the project being done by the law firm and being managed by the law firm can be made more accessible and transparent to them?

The market is still struggling. From experience in the legal market and with legal technology, I see too often that lawyers risk the syndrome of the “be careful what you ask for, you might get it” syndrome.

For example, in the early days of electronic billing, in-house counsel asked for too much information and they got it and they weren’t able to do very much with it. There’s a cost to providing information for the provider and there’s a cost to consuming information for the person requesting it. I don’t think we’ve arrived at a state yet where we know the right amount of sharing.

If I’m doing Project Management, do I think it’s a good idea for a client to have complete transparency? I’m very much an advocate of transparency but that doesn’t necessarily mean the client should want to know everything, every day. Tools will emerge to share high-level indicators of how a matter is going, showing if certain key tasks are being accomplished, and, if it’s a traditional billable matter, being accomplished within the budget that was set. If there are any variances, reports will show why. And the ‘why’ may be unexpected developments. Or the ‘why’ might be, “well, we just didn’t do such a great job estimating, and we’ll try to do better next round”.

In project management there are a lot of questions about the right level of information to expose to a client and how much vetting to do internally before sharing. If you’re doing traditional billing, we know that law firms will review the amount of hours and may do write-downs or adjustments. Do you want to share information prior to that type of review and adjustment process?

Long-term we’ll see portals of various kinds, or extranets, deal rooms, call it what you will, where clients will be able to see how their matters are going. The vision I’ve had for a very long time would be that if I’m the large corporate law department, I would run my own portal and I would get data feeds from all my law firms and the data would be standardised, and I could suck that data in from across my law firms and present it as a single portal internally. I’m not sure how many people share that view, though. The idea being, again, even if I only have a panel of six firms, and if I’m dealing with each of those six firms, do I want to have to log into each of those six firms to see how they’re doing? Or can I have a single place where I go and see how matters are progressing, across my six-panel firms. So long term, I see project management reporting across firms consolidated in one place for the client.

 

Going back to when you said it’s important for the in-house lawyer and the client to, not necessarily track everything, but to say why things don’t go as they were planned to – essentially holding them to account. How important do you think it is that clients are able to say, “Why is this happening with this firm, and Innovit’s not happening with this firm?” and that it’s a matter of trying to bring the relationship power back to the client so that they can say, “Well, if you’re not doing this as we want it to be done, we can go elsewhere”?

I think you are asking are a couple of questions here: (1) can we compare performance across firms and (2) if we can, what should the client do with that information.

In my view, clients have done a poor job of cross-firm performance evaluation. Years back in my blog posts I wrote about e-billing, specifically my disappointment in it. At best, it applied some simple mechanical rules. For examples, you could have two associates at a deposition and the engagement letter only allows one, which is fine – there’s nothing wrong with that – but the data were not being used by in-house counsel to analyse the cost-effectiveness of firms. If you collect a lot of data, whether it is through an e-billing system – and they’ve been around for quite some time – or it’s through project management, there’s a question of, “Can you do an analysis across your firms to try to assess which are more efficient?”

It’s a worthy exercise. I don’t think it’s easy, but I think it will yield results with dedication. It’s a type of dedication that I don’t see very many law departments having. I’m not sure there has been enough of this analysis to even answer the second question concerning what clients do with the answers.

But e-billing is the rear view mirror. Looking out the windscreen is project management. I think it’s incumbent on in-house counsel to monitor the work that their law firms do, and more importantly, to be the voice of the ultimate business client as to the appropriate risk-adjusted decision-making and query whether clients are giving clear instructions about how much work to do.

It goes back to, “How much legal research do I do? How much discovery do I do in a contentious matter? How much due diligence do I do in a deal? How many documents or how many provisions are there in the contract?” GCs must make these decisions explicit to outside counsel; the GC, in turn, must get clarity from the internal client.

I will go a step further to say a word about a theme I’ve recently developed, namely, “Can We Do Less Law?” The cost of lawyering is quite high so clients must ask what is the risk against which I’m protecting and how do I make a decision so that it’s not just that I’m doing the work efficiently, which of course is important, but also that I’m doing the right amount of work.

Doing the right amount of work depends on your appetite for risk. It’s reasonable to say in some instances, “We don’t need a lawyer for this at all, so don’t do a project plan, just don’t even engage a lawyer for this, because we’re willing to take the risk.’” Project management helps with that, but you need a clear way of making risk-adjusted decisions consciously and not just keep spending with a false sense of comfort that says, “Because now I can see how the money’s being spent, it’s okay”. The GC must ask, “Should I be spending that money in the first place? And only then, ask if it’s being efficiently spent?

 

I guess this ties into how there is less business now because clients are looking to go to external counsel less and because there’s these changing models and so on. But as you also said at the start, there’s a resistance within law firms to change the model, because, as various people have said, including Richard Susskind said at a conference recently, “It’s quite hard to convince a room full of millionaires that they’ve got their business model wrong”.

There are fewer new millionaires being made in law firms right now, so I think that’s what will eventually lead to change. We had a period until 2008 in both the US and the UK, and Australia as well, and Canada, when it didn’t matter what lawyers did. If you were a decent lawyer, and you provided an okay service, you got a lot of business, and you could do quite well, thank you.

Now we’re seeing firms letting go of partners, de-equitising partners, and at some firms I think they will find it hard to keep up profits. They are constantly worried about losing their rainmakers, so the lateral partner moves have increased, so that does create some pressure among partners.

There’s also an intergenerational gap, given the nature of partnership structures where partners of a certain age, say 50, 55 or 60, thinks they can hold on for another five, ten, fifteen years before things really change. Those who can see retirement may not be motivated to make changes.

But if I’m a new partner and I’m in my mid or late-30s and I have twenty plus years left in my working career, I might look at the world and say, “This isn’t going to last – we’ve got to change”. But do the younger ones have the power in the firm? And how do you resolve the motivations of junior partners with the motivations of senior partners? Not easy.

In reference to the ‘room full of millionaires’ – I think David Maister said it originally – the only way partner profits have been kept steady is by de-equitising partners, and there’s only so far that can go. Even in firms where they’ve de-equitised partners, if demand remains flat, if costs continue to go up, if price pressure continues, then they may not be millionaires forever. But hope also springs eternal, so it’s still a challenge.

 

Finally, in terms of Knowledge Management, what do you do with Fireman & Company in this regard, and how important is Knowledge Management now? How much does that tie in with Project Management?

Of course I have some bias – because I do quite a bit of work in Knowledge Management – in thinking it’s important. With the push towards Alternative Fee Arrangements, especially with fixed fees, I think there’s more interest in Knowledge Management, because, as firms face pressures to reduce costs for more value, being able to capture know-how and re-use it effectively, becomes much more important. We’re seeing more firms asking for help with Knowledge Management strategies, asking for help with the process and the technology around it.

There is a bit of a difference in this between the US and the UK. The UK still has a larger population of professional support lawyers than the US. The US has favoured automation, so you’re seeing more and more firms adopting enterprise search as a primary technology for solving some Knowledge Management problems such as finding work product or locating experienced lawyers. Some firms will bring that forward even further to converting that know-how into more crystallised know-how that can be delivered on an interactive expert system directly to clients. I think that it bodes well for Knowledge Management, as one of the moving parts, that helps law firms deliver higher value.

As to the connection with Legal Project Management, it’s more through the people, at least in the US and in Canada. A lot of the people who are driving Legal Project Management in the US and Canada turn out to be the Knowledge Management professionals. I have my hypothesis for that but they’re not inherently related disciplines. If you’re putting together a project plan and you have Knowledge Management resources that may allow you to do many of the steps in the project plan at lower cost, there’s a connection, but that doesn’t really tie them together. It’s more that the people doing Knowledge Management have skills in multiple disciplines, they’re often lawyers or people who have worked enough with lawyers that they know how lawyers work, they know how lawyers use technology, they know quite a bit about how the law firm operates and institutionally they are best positioned to start project management initiatives.

Many of the KM conferences are still called KM conferences but they’re as much about project management, if not more about project management and more about pricing and process improvement, as they are about traditional KM.

 

These multi-skilled Knowledge Management people who may be lawyers or may just be people who’ve worked a lot with lawyers, do you think they’re going to be very important in this new era of law where – especially with in-house lawyers – things like Knowledge Management and Project Management and the use of technology in different ways are so important?

Yes absolutely. We’ve moved from an era where – and this goes back to the competition and the change in the market – arguably until five years ago, it was enough that you were a good lawyer and that you delivered good legal results and an okay client service. That was all that was required to be successful and stay a millionaire, to put it back into that context. Today, with all the pressures and the drop in demand and the need for firms to differentiate through innovation, it’s not just the legal skills that matter. Clients assume within a range of law firms that they will find skilled practitioners who will deliver good legal results, so now they’re looking for better management, better process, better value – and the value may be lower cost, it may be access to a KM resource, the value may be secondments. The value may be that the lawyers they deal with actually know about their companies and industries in greater depth than they did in the past.

And doing all those – and I hate to call them “extras”, because that’s how lawyers think about them, but doing things that other businesses, other organisations, have long taken for granted as part of their core service – making that part of the core of the delivery of legal advice is critical. And that’s often comes down to people who know about the law but are not necessarily lawyers. In fact, there was just a recent blog post by another consultancy that talked about recruiting talent in the new era saying law firms have to get much better at recruiting professionals who are not trained as lawyers to help with all the other parts.

The quality and skill of law firm staff has certainly improved in the last twenty years, which is the good news. If you go back to the 1980s, IT directors were often secretaries who knew the most about word processing, directors of finance were often bookkeepers who becames heads of finance. Today in those areas you often have CIOs with very heavy duty IT backgrounds, you have finance people who are typically CPAs, and you have marketers from outside. Those changes are not directly related to what we’re talking about – but they suggest an increasing number of new professional disciplines within law firms. Successful law firms will need a new cadre of professionals not just to operate the firm, but as core to the delivery of legal services in a way that satisfies clients.