Strategic Legal Technology

Instead of a New Year prediction, here is a fictional account about how the legal market revolution began. [References to articles and blog posts appear below.] 

The Setting: CEO’s office in an innovative, multi-billion dollar company. It’s late December 2008, so relatively quiet. The CFO walks in and starts a conversation.

CFO: We need to talk about how much we spend on legal. Since our fiscal year ends in November, I usually have time over the holidays to do some real thinking. This year, I read up on the legal market. It’s not pretty. And I’m not sure our general counsel is the solution.

CEO: Ok, you catch me at a good time. Yeah, I agree our GC is not controlling costs. What can we do?

CFO: Legal costs keep going up, both in absolute dollars and as a percent of revenue. Other cost centers – HR, Marketing, Facilities, and even my own Finance department – have driven costs down as a percent of revenue. Sure, we face more regulations and law suits. But give me a break. Lots of articles report on inhouse lawyers complaining about costs. The GC response? Precious little beyond begging for discounts.

CEO: You’re preaching to choir. I hear lots of complaining about legal costs. The whole legal thing is like that movie Ground Hog Day with an even worse twist. Every day is the same but nothing ever improves, lawyers don’t learn from re-plays. It’s hard to figure out how a whole economic sector got so stuck.

CFO: Actually, it’s easy to see why we’re stuck. Who buys legal services? Lawyers. Where do our lawyers come from? The law firms we retain. Do our lawyers think the same as our outside firms? Yes. Are lawyers trained to manage? No. What do our inhouse lawyers do? Lawyering, not managing. So we’re stuck with buyers who share the same bad traits as our suppliers and who travel in the same circles. The hard question is how to get the system unstuck.

CEO: Something tells me that you have some ideas about that. Hey, unlike lawyers, you come in not just with problems, but also solutions.

CFO: Yep, I have some ideas. Let me set it up for you. It really hit me what’s wrong when I read a Business Week article about health care. A Harvard prof wants to put consumers at the center of it. Interesting approach. Her critics say you can’t trust consumers but her response is, why not, they can choose from 200+ models of cars.

CEO: Ok, but what’s that got to do with lawyers?

CFO: I was getting there…. Law is like health care - the consumer / client is lost. Lawyers treat our business unit managers like they can’t deal with the law. Our managers are smart enough to deal with business; they are also smart enough to deal with lawyers. But lawyers don’t get it. That’s where another Business Week article hit me, about how Apple, with the iPhone, won control of consumers from the cell carriers.

CEO: I think I see where you are going. You’re saying that we need to find a way to put business people in charge and make the lawyers work for them the right way. But how do we get there?

CFO: Exactly, and right question. I found a blog by a law department management consultant. His idea is like sharing cake: one person cuts, the other chooses. He says have one law firm propose a budget for a matter and give another firm the option to do the work at the budget. I think we can extend that idea.

CEO: How so? How would that work and what happens to our law department?

CFO: OK, my idea still has some rough edges. Start with how much it costs us to manage matters. I asked the GC how much we spend managing our lawyers and outside counsel. He doesn’t know. For discussion, let’s say it’s 15%. So we take 15% of our legal spending and use that to retain one or two law firms whose only job is helping our inhouse clients retain and manage other outside counsel.

CEO: So you’re saying we figure out the management cost and then spend that money on a fixed fee deal with a law firm . That firm doesn’t get to rack up hours doing legal work. Well, I guess they’d need to do some initial assessment. But they’d mainly focus on finding the best firm for each matter and then actively managing it?

CFO: Exactly. One cuts. The other chooses. Only a little more complicated. We’ll need to structure the management fee so it motivates reductions over time. And the management firm must ride herd on other firms to make sure they find the lowest cost, most effective way to handle the work. One big firm ought to know what it really takes to do the work and manage it. Of course, I don’t have fantasies. I’m not convinced that any large firm really does know how to manage. But I can set up a set of financial incentives to motivate all this.

CEO: Hmmm. Sounds promising. What happens to our law department? And can you really find a law firm to do this?

CFO: I don’t think all our lawyers go away entirely. We keep the GC and a few lawyers who help on legal strategy and keep an eye on the new arrangement. But they’ll just have a high level advisory role and if they can’t get with this program, they’re outta here. As for finding a law firm, I’m willing to consider smaller, non-traditional firms for the management role.There’s a chance we’ll have start this in England. With legal reform over there, I’m sure we’ll have new options soon.

CEO: It sounds very promising. But what’s our upside? We save some bucks but a flop leaves the company and us personally pretty exposed.

CFO: I hear you and I’ve thought about that. Remember - we’re known for doing cool, new things. So if we innovate here, we get good PR as well as good results. If we fail, we go back to the old way and the market still gives us points for trying. Plus, I think I can get you some air cover.

CEO: Wow, you’ve really though about this. What kind of air cover?

CFO: We talk to some key suppliers and customers. Share with them our idea and see if we get some on board to try the same thing. No arm twisting but they’re just as tired of their legal spend. If we can really drive down costs along our whole supply chain, we gain share with ultimate consumers. So we’d all win – lower legal costs, lower product costs, less headache, and good PR.

CEO: Ok, I’m sold. Let’s do it.

* * * * *
REFERENCES:
- Law department consultant Rees Morrisson blogged in Dec 08 that outside counsel spend as a percentage of revenue has increased steadily over 25 years
- If Health Care Were Run Like Retail… is the article about the Harvard prof who wants to focus on consumers (22 Dec 2008 print edition, Business Weeks)
- Cell Phone Carrier Lose Their Grip, from the same issue, reports on “How Apple’s iPhone Reshaped the Industry”
- Rees Morrison also proposed in December the idea of One firm proposes, another disposes – a clever budget technique?

By now I assume most readers have at least heard of Twitter, a microblogging service. (If not, you definitely need to read this post).  

Twitter allows anyone to create an account or home page - mine is http://twitter.com/ronfriedmann. You can then post, from a PC or mobile phone, an unlimited number of “microposts", that is messages of up to 140 characters. You can follow an unlimited number of other “Tweeters” and likewise, be followed. As of now, I am following 51, 94 are following me, and I have posted 87 updates since Oct 29, 2008 (almost all purely professional rather than personal).

Before anyone rolls their eyes, think back to e-mail, the web, and blogging. Lawyers resisted each much longer than most; today, however, e-mail is indispensable, it’s hard to imagine a law firm without a website, and blawging is mainstream. Be prepared to add Tweeter to that list.

That said, I am not yet 100% persuaded its value. Yes, there are law firms, legal publications, and mainstream media (MSM) that Tweet. So Tweeter is a good way to keep up with developments. Here are the challenges I’ve found so far for use as a professional tool:
- Too many people to follow
- Too many people posting uninteresting personal information
- Hard to filter types of posts
- Competition for my share of attention

Enumerating the above, I risk the wrath of the Twitter cognoscenti, who will tell me that I can use third party services such as Tweetdeck or Tweetgrid to “enhance my Tweeter experience.” Precisely the problem. I’m busy enough that I’m reluctant to spend a lot of time learning a whole another ecosystem. I know many will argue that doing so is easy, not time-consuming, and worth the effort. But we all need to make trade-offs with how we spend our time.

I’ve also created a Facebook profile, I blog (here and at my employer’s blog), I maintain two websites (this one and my employer’s), I subscribe to ~100 RSS feeds, I participate in Legal Onramp, and I stayed connected on Linkedin. So, for the moment, I spend some time on Tweeter, viewing it as an “option” to stake my ground in the future.

One business note. It’s interesting to see a whole ecosystem develop around Tweeter, a free service that does not have a long-term obvious way to generate revenue.

My prior post A Former GC Explains Why BigLaw Keeps Getting Business prompted a comment from Pam Woldow of Altman Weil, herself a former GC. She reports that law departments are, under pressure from the current crisis, shifting some work away from BigLaw. As I read her comments, this may be a trend not easily reversed even when good times return. 

A word of background: my blog is re-published on Legal Onramp (LOR), an online forum and resources (aka social network) for legal professionals. Ms. Woldow replied at LOR and I have, with her permission, reproduced her comment:

“As a former GC and now in the role of consultant to GCs of major corporations, I am seeing the move of certain types of work to regional firms and away from BigLaw. With the budgeting season in full swing for some companies and completed for others, we are being contacted to help GCs meet their newly reduced 2009 budgets by finding more cost effective ways to obtain legal services.

While Ms. Katz [quoted at length in my prior blog post] identifies the reticence that some GCs may have about moving work to regional firms to obtain better value, including the CYA aspect, I am finding that confident GCs who have a clear understanding of their legal spend are motivated to save their companies money and meet their budgets – rather than merely cover their backsides.

If a GC has undertaken a thoughtful analysis of the legal spend, s/he will find there are certain types of spend, e.g., routine employment, products matters, IP issues, that lend themselves to movement to regional firms.
Collectively, these matters (though each may be fairly low dollar risk) can add up to a meaningful amount of the overall spend. Our GC clients report that they can achieve a 20%+ savings by moving these types of matters to excellent regional firms and away from BigLaw firms. In a year where many corporate legal budgets have been cut by 11.5% on average (see www.altmanweil.com/LDCostControl), a major savings in one part of the legal spend can make the difference between meeting or blowing the budget.

Once the GC and the selected regional firms develop trust, we often see more important matters being moved to those firms. For boardroom-level matters or bet the company issues, those will likely stay firmly rooted in the BigLaw firms.

It may take some readjustment to GC’s thinking and habits to re-deploy the legal spend, but the economy is forcing even hallowed legal departments to get on board with being efficient and using resources wisely.”

A former general counsel of a $100mil company wrote to me privately recently commenting on my blog post The Remarkable Inaction of General Counsels in the Face of Crisis and Budget Crunches. She offers an interesting perspective that I share here, with permission. 

Sheryl Katz has experience as a BigLaw associate and partner (WilmerHale, Bryan Cave, Perkins Coie, and Graham & James), general counsel, and business person. Here are her comments:

I read your blog post about the possibility of large companies getting sick of big firms and going to small firms. Having been a General Counsel I think this is highly unlikely as more than a minor trend.

If small firms that would do the same quality work for less were truly available, I would have farmed out more work to them. In some cases former law school classmates, or former attorneys at Wilmer or other firms that I knew, were available in smaller firms to help on matters. Sometimes this resulted in good quality work and lower bills. However, small firms often don’t have the depth of staff, so some matters that are not even necessarily that big can really only be handled by a bigger firm. Also, on a lot of transactions you really need your tax lawyer, corporate lawyer and banking lawyer to be at the same firm.

Then there is the issue of outside parties on transactions. If you are working with a large bank or Venture Capitalists or Private Equity, you may find that they want to work with a “name brand.” Often they are indifferent to the legal fees because they are not the ones paying the bills.

There are very good lawyers everywhere; there are great solo practitioners. Unfortunately, there is also a lot of mediocrity. If, as General Counsel, I had to put too much work into the project training outside counsel or fixing their work, then I didn’t want to use them again. The firm I used the most was expensive but always did an excellent job, and its associates were efficient enough that the bill was often cheaper than less competent counsel from smaller firms.

On the other hand I regularly used a small IP firm that had split off from a large mega firm. The work was consistently great and it was a bargain. But I knew the lawyers really well and before I used them I tried several small IP firms and was very frustrated.

Going to a large firm in a lot of cases is sort of like going to a chain restaurant. You pretty much know that the minimum you are going to get is going to be acceptable. And if the firm messes up, as General Counsel, you are covered. After all, you can always say “It may be a mess but Blank, Blank and Blank is reputed to be a great firm so don’t fault me for hiring them.”

Earlier this month I wrote a post Taking the LPO Temperature: Warm, Getting Hot, But Doubts. A new article in Corporate Counsel about legal process outsourcing deserves its own discussion. 

Will Tough Economy Push Companies to Outsource Legal Work? (Corporate Counsel, 22 Dec 2008) by David Hechler is a detailed, well-written article that provides a balanced view of legal outsourcing. Rather than summarizing it, I will call out and comment on a few points that I find most interesting.

The Pot Calling the Kettle Black? I was glad to see in print a point I often make. Quoting Susan Hackett, ACC’s general counsel, ” ‘For me,’ she says, ‘offshoring is just another kind of outsourcing.’ And after all, sending work to outside firms is outsourcing.” In my experience, many BigLaw lawyers fail to recognize that their firms are outsourcing service providers. The irony of protesting outsourcing appears lost on them.

The Chefs Have Not Visited Their Own Kitchens Lately BigLaw partners express concern about the quality and process of working offshore. So I was glad to read: “It would be interesting, Rowe [of Huron Consulting] responds, to take the processes the Indian companies use and apply them to U.S. firms. It isn’t outsourcing that’s costing legal jobs in the U.S., adds his fellow Huron exec, Shahzad Bashir. ‘Poor business models are losing jobs.’ ” In my experience, the processes, especially quality control (QC), of reputable LPOs are better than in US law firms. I wonder if US lawyers who question LPOs have ever spent time in the trenches of a big onshore document review.

Low Cost Ingredients are More Flavorful. Microsoft moved patent application work to India. It has saved money and improved quality. The savings can be as high as 90% compared to the US and are never less than 60%. The article also reports, however, that Intel tried offshoring patent work and stopped because it could not get the quality it wanted.

There’s More than One Way to Slice This This article addresses some important legal outsourcing points I’ve rarely seen covered in the legal press:

• Offshore services can be provided by “captives” or third-parties. A captive is an offshore operation owned and operated by an onshore company. The article notes that captives are more expensive than third party operations and that many are being sold by their corporate owners.
• Dual- or multi-shore services are important: “more ambitious vendors have looked to provide services onshore and off because that’s what their clients want”

Don’t Look behind the Refrigerator - You Might be Disgusted Some law firms may get themselves in trouble when it comes to outsourcing. The article relates a story about a BigLaw visit by an LPO executive. BigLaw firm

“thought offshoring was a terrible idea, until Reed [a United Lex executive] mentioned that his company also does accounting – and can reduce a company’s costs by 30 percent to 50 percent. Suddenly, Reed says, the lawyer was very interested in outsourcing.”

If I were a general counsel reading this, it would confirm my worst fears about outside counsel. This puts BigLaw in the light of wanting to reduce its own, non-billable expenses but dead-set against lowering client charges by using more cost-effective resources.

Update (21 Dec 2008) || Who’s Ordering these Meals and How Much Do They Really Cost? Just came across ANALYSIS: Legal Process Outsourcing: just hot air? (ALB, 18 Dec 2008). Author Joshua Scott questions whether law firms will purchase much LPO services. He suggests multi-nationals will be the buyers. He also questions the savings, citing the added cost of managing the provider. Personally, I believe that argument is weak: lawyers do have to manage LPO services. The real problem and “added” cost is that many do NOT manage their own internal processes.

In the Web 2.0 world, companies interact and learn from their customers via the web. What lesson can we draw for the legal market? 

The Secrets of Marketing in a Web 2.0 World in the Wall Street Journal Business Insight / Journal Report today explains how major companies use Web 2.0 approaches to connect with consumers. (It also offers a brief over of what Web 2.0 is.)

Business to consumer (B2C) is approximately a one to many relationship. Even with stiff competition among suppliers, consumers outnumber suppliers by several orders of magnitude. The legal market, in contrast, is a business to business market (B2B) characterized by many to many relationships. That is, there are a large number of both suppliers and consumers. Consequently, it is harder for any single law firm supplier to engage its consumers (clients) in Web 2.0 dialogue.

Law firm suppliers and law departments consumers - that does not let you off the hook. Your answer cannot be “I can ignore Web 2.0″. Instead, it must be the question “how can I take advantage of Web 2.0 to improve the service we offer / receive?”

The best answer to that question I’ve seen to date is Legal OnRamp. In its by-invitation model, which limits the community to serious suppliers and consumers, I believe the legal market can replicate many of the benefits the WSJ explains accrue to companies using Web 2.0 to connect to consumers.

The only question is will law firms and law departments 1.0 realize this before law departments and law firms 2.0 take over.

Keyword searching is the e-discovery buzz. It may surprise many legal market professionals that search and keywords is really an old issue. 

Ari Kaplan, in We’re All in the Keyword Business (law.com, 15 Dec 2008), reports on a recent EDD conference. He writes:

“the recurring issue throughout the two-day exposition was the growing importance of search… There were various suggestions for refocusing keyword protocols, which included: (1) using misspellings in your list of search terms; (2) conducting sampling; (3) developing an overall search process; … develop a more sophisticated means of searching, which may include Boolean practices”

All necessary but not new. Or only new to the newbies. Some litigation support professionals grappled with similar issues throughout the 1990s. By 1991, some firms were scanning paper, OCRing, and creating full-text searchable litigation support databases. They had to deal with many of the issues we face today: under- and over-inclusive searches, finding related words, selecting the right conceptual search engine, and techniques such as sampling to perform QC.

Anyone who thinks that learning from history can be useful can have a look at my 1997 PLI outline, Lessons Learned in Litigation Support. Search the page for “search” - you may be surprised how often it occurs. And by the way, this outline describes work that was started in 1990-91 and in production by 1992-93. The money quote - from the introduction - applies equally today:

“Perhaps the greatest lesson is that the human element and human processes are more important than technology in achieving cost-effective results. The best technology does not help unless the litigation team plans for its use and changes the way it works.”

We are facing the worst economic crisis since the Depression. Corporations are slashing budgets. General counsel are under pressure. What are they doing? More of the same. 

Law Department Budget Cuts Could Lead to Change in Outside Firms (The Legal Intelligencer, 12 Dec 2008) reports on a new Altman Weil Flash Survey on Law Department Cost Control.

Reading what GC plan to do, my eyes glaze over (MEGO). I have read about the “solutions” mentioned for two decades. GC seem unwilling to change in meaningful ways how they work or manage outside counsel. Ok, they will adjust the mix of law firms, bring some work back in, and pressure law firm on rates. Wow, how innovative, how dramatic. Not.

Then there are the 12.6% of respondents who “said they would look to cut costs by sending work overseas.” Well, at least a few are willing to try something relatively new. But that’s lower than the almost 50% I mentioned in Future Law Department Spending and Work Pattern Trends. That survey looked 5 years out. I suspect from the tone of the article (and hence survey) that the time frame was only one or two years.

“I can’t risk doing x, it might not work” is the usual refrain. Perhaps today the better question is “Can I risk not trying something new?” And that applies to a host of ways that could save money, for example, legal process outsourcing (LPO), decision trees, establishing best practices, or applying business intelligence to analyzing e-billing data.

What’s the current state of legal outsourcing? Depends on what factors you give the most weight to. Four items came together this week to provide excellent perspective on legal process outsourcing (LPO).  

US Legal Outsourcing $2 billion by 2013. Over at Integreon.com (my employer), I wrote a blog post yesterday, Survey Suggests US LPO Spending of $2 Billion by 2013. Based on a recent survey and “some conservative assumptions, we estimate that U.S. corporate law departments will spend about 3% of their budget on legal outsourcing. This translates to US legal process outsourcing (LPO) spending in 2013 of almost $2 billion.” You can read in gory detail exactly how I derive the market size estimate. I think that represents a very high growth rate.

LPO Doubt Continues. India Work Grows, With Glitches (The National Law Journal, 9 Dec 2008) is a “on the one hand, on the other hand” story. It suggests a growing market and that cost pressures bode well but reports concerns about outsourcing management challenges and ethics. And it focuses a bit heavily in my view on the recent Mumbai attack. Legal outsourcing is about how lawyers can delegate work to appropriate resources, not where. There are many LPO destinations; India happens to be the one getting the most press. In a future post, I will discuss in more detail how the reaction to LPO mirrors legal market adoption of many other new ways in the last two decades.

Cost Pressure is Up - Which Way Does That Cut? At the risk of stating the obvious, the need for cost savings is growing. According the just released (9 Dec 2008) Altman Weil Flash Survey on Law Department Cost Control, “75% of responding General Counsel indicated that their law departments are facing budget cuts averaging 11.5% for 2009. An additional 15.6% reported that their budgets would increase by a smaller percentage than in prior years.” How many ways beyond outsourcing can the typical GC name to do more with less?

Is the Usual Approach Really So Great? The NLJ article and many others report on concern about quality offshore. Yes, lawyers need to perform due diligence on any resource they use. So too should they on the typical contract lawyer approach. Read Down in the Data Mines in the December ABA Journal. This is a sobering first person account of a well-trained lawyer doing doc review. I’ve read other similar accounts. Assuming this is representative (my friends who manage BigLaw reviews suggest it is), how any lawyer can read this and still assume onshore=good and offshore=bad takes logical power and/or facts I lack. Or perhaps they have not visited the well-run, process-driven, spirited, and highly secure review center of a reputable LPO (like the one for which I now work).

Update (11 Dec 2008) Turning to India at break-neck speed by Richard Susskind in the TimesOnline reports on the rise of LPO in the UK, based on an RSG Consulting report. Factoid: 10 of the top 30 firms in England have “outsourced back office functions or legal work to India.”

Updated (13 Dec 2008) Blogger Adam Smith, Esq. writes a very thoughtful, in-depth analysis of the current crisis, “Structural Breaks” and Other Timely Phenomena. He provides a great historical perspective on past crises and the response of government and business. At the end, he draws the lessons law firms can learn; among them:

“Just because you’ve “always” done something, do you need to? … Have you outsourced your cafeteria? (I hope so!) Your mail room and your 401(k) administration? (Ditto.) Your word-processing? (On-deck circle.) Your document review? (Time to think about it.)”

Updated (13 Dec 2008) An older item but a good in depth article on legal outsourcing: Offshoring legal work: do lawyers risk outsourcing themselves? (Law Society Gazette, 27 Nov 2008). This is a nice analytic piece with good examples from UK, especially Eversheds. Hat tip to Mark Ross of LawScribe, who is also quoted in the article

Update (22 Dec 2008) Barrons has a short item, Exported Expertise, Lawyering Long-Distance (22 Dec 2008) quoting one vendor saying LPO growth prospects are hot.

[Hat tips to The Common Scold and complexd at http://twitter.com/wrrobinson for the Altman Weil study and to Legal Blog Watch, The Disturbing Side of Life as a Contract Attorney - a blog post on this article worth reading.]

One of the leading KM professionals in the legal market has changed firms. 

Effective December 1, 2008, Oz Benamram is the Chief Knowledge Officer (CKO) at White & Case, responsible for developing and implementing the systems and processes to capture and share the firm’s collective knowledge throughout the firm.

Previously, Oz led knowledge management for many years at Morrison & Foerster. While at MoFo, Oz oversaw the development of AnswerBase, an advanced approach to KM based on Recommind. (For background on AnswerBase, see the article I helped Oz write, Lawyers As Shoppers – It’s All About Finding Information). He also was active in KM professional events and conferences. Tanisha Little, MoFo’s Knowledge Exchange Attorney, will lead the KM Department after Oz’s departure.

I am sure I speak for the entire legal KM community in wishing Oz the best in his new job. We hope he continues to innovate and remain as active professionally.

Another day, another survey, this one of law departments. American Lawyer Magazine, Legal Onramp, and law department consultant Rees Morrison produced an interesting, forward-looking survey. 

The Change Agenda: Looking Ahead (American Lawyer Magazine, Dec 2008) reports on a survey written and analyzed by Rees Morrison and AmLaw editor Aric Press, conducted on the professional social network, Legal Onramp.

Below I present a few of its findings - in graphic format - that I found most interesting, along with my comments. My interpretation differs from Morrison’s and Press’. About 65 inhousers at companies with revenues of at least $1 billion responded to these questions. All questions focus on changes expected over the next five years.

Spending Changes: LPO and Value Billing
I found interesting juxtapostions in the answers to two questions:

• “Between 2008 and 2013, ___% of our law department’s spending on outside counsel will shift from hourly (whether flat sic or discounted) fees to some form of “value” billing”. [I thought flat fee is value billing]
• “Between 2008 and 2013, ___% of our law department’s spending will move to lower cost offshore service providers, whether directly or as a subcontractor to our in-country law firms.”

As the graphs below show, almost half the respondents expect spending on legal process outsourcing (LPO) to increase. In contrast, almost 85% expect a bigger move to value billing. Given that I’ve heard endless discussion about value billing since I entered the profession in 1989, the gap between 50 and 85 is less than I would have expected.

In the tech world, there have been multiple years that were “the year of [fill in the new technology]”. But eventually the new technology did become pervasive. In contrast, in the legal market, it seems every year has been “the year of value billing”.

Legal outsourcing has only be around and in the legal discourse for 3 to 4 years. So that almost half expect to increase spending on LPO suggests it’s a trend with traction.

Legal Technology and EDD
The questions here were

• Our department will increase spending on legal automation (software and process)
• With various changes we expect, e-discovery spending will

That one-third of respondents expect to increase legal automation spending by more than 50% is a very positive development. That only one-fifth expect EDD spending to increase by more than 50% represents, in my view, undue optimism about the profession’s effort to get control over this beast. [Note that Morrison and Press interpret the dollars as nominal rather than real; that’s not how I read the results cited nor the survey as it appeared at LOR.]

Working Virtually
The question here was “By 2013, telecommuting in our department will be at a greater/equal/lesser level relative to today.” It’s a bit hard to know how to interpret the data given the available responses, but I was amazed that 60% think it will increase. When I bring up working virtually (that is, telecommuting) with lawyers, I usually see pained looks and incredulity. Maybe the recent energy price spike had a positive impact?

American Lawyer magazine published in its December issue a survey of law firm leaders. Some interesting results on legal process outsourcing (LPO) and client interviews. 

For AmLaw’s take on their own survey, read Annual Survey Shows Law Firm Leaders Wary but Confident. I found two question in the underlying survey at Law Firm Leaders Survey 2008 of particular interest.

Legal Process Outsourcing (LPO). Asked “Over the next ten years, do you think your firm will outsource more of its legal work to lower-cost jurisdictions either offshore or within the U.S.?” 38% said yes and 62% no. Given some of the prior BigLaw partner comments about LPO, I am pleasantly surprised that the 1/3 of firms expect to outsource.

Client Relations Asked “In the last 12 months, how many of the firm’s 20 top billing clients have you met with to discuss the client’s satisfaction with your firm’s performance?” 54% met with fewer than five clients. Only 18% met with more than half. With the plethora of articles about the importance of client feedback over the last 15 years, I am shocked by these results.

Perhaps if firms engaged their clients more, they would decide to outsource as a way to deliver higher value. Of course, the fact that the clients don’t insist on meeting with their outside counsel to discuss the relationship supports my view that buyers are meek and unwilling to exercise their market power.

One reason legal costs are high is that the customers - general counsels - are cut of the same cloth as their BigLaw suppliers. I’ve predicted that CFOs would need to step in to wrestle control of legal costs (see, e.g., Who’s Failing – Clients or Law Firms?, Aug 2006) . Now, some evidence for that. 

Trials and Tabulations (CFO Magazine, 1 Dec 2008) is sub-titled “Want to advocate for lower legal fees? A number of new options deserve a hearing.” This article is a good first step for CFOs who want to understand how best to control legal costs. Options discussed include:

• Keeping more work inhouse
• Shifting work from BigLaw to smaller and regional law firms
• Re-using documents ("knowledge management” unsaid)
• Fixed fees and alternative billing (including performance bonuses)
• Volume discounts
• Competitive bidding
• Offshoring (legal process outsourcing)

I’m disappointed this list stops there. As I discussed last month in Law Department Operations Survey Shows GC Apply Limited Cost Saving Tools, there is way too much focus on pricing, purchasing, and payment terms and not nearly enough on process, that is, how lawyers actually do their work. Corporations have inserted themselves deeply into the practice of medicine to save money - how much longer before they do the same to lawyers. Of course, it will have to be the CFO and not GC who does this.

[Side note: the article cites the recent Fulbright litigation study, which found only 2% of companies offshore legal work overall but that 8% of large ones do so. It suggests that McDermott introduced staff attorneys last year “in part as a response to the increasing amount of work competitors were sending off shore."]

In this Roundup: new alternatives to BigLaw, inhouse perspectives, social media challenges, LPO articles, and BigLaw blogging. 

Managing Legal Costs: Focus on Process, Not Price
Jordan Furlong, in Decoupling price from cost in legal services, provides examples of the growing alternatives to BigLaw. He also expands on an idea I recently raised, the need to focus more on how lawyers do their work and less on the pricing structure.

The New Inhouse Perspective from Lawyer-Blogger Doug Cornelius
Lawyer-blogger Doug Cornelius recently left BigLaw for an inhouse compliance position. He now offers interesting posts from his new inhouse perspective. One reports on the benefits of Legal Onramp ; the other examines how law firms can better manage newsletters as a way to stay close to clients and prospects.

Challenges of Social Networking
Lawyer-blogger Mary Abraham writes in Sending Out an SOS about the challenges of keeping up with Linkedin, Twitter, Facebook, and other social media. I share this concern and wonder where we will be with social media in 3 years. Right now, SM is an add-on for me that consumes more time. Maybe others have been able to weave it into their daily lives so that it adds value without consuming more time. [The post title presumably refers to the Police song, but is it the sense of loneliness or the 100 billion messages??]

Legal Process Outsourcing
An Outpost In India Serving DuPont Legal (The Metropolitan Corporate Counsel, Nov 2008) reports on DuPont’s use of legal offshoring.
Separately, With Times Tight, Even Lawyers Get Outsourced (Wall Street Journal, 26 Nov 2008) reports on the growth of legal process outsourcing in India: “As the ailing U.S. economy prompts companies to cut costs, it also has spawned legal problems. As a result, clients are pressuring the law firms they hire to trim fees. That means more routine work like legal research, due diligence and document review is being done in India at roughly half the cost as in the U.S., outsourcers say.”

WilmerHale Launches Four Career / Recruiting Blogs
I’ve frequently extolled the virtues of large law firm blogs for marketing (i.e., establishing expertise). WilmerHale is now using blogs for recruiting, with four associates blogging at WilmerHaleCareers. (Hat tip to KM Space.)

I am taking a holiday weekend liberty to diverge a bit from my usual topics. As a non-practicing lawyer, reading Is the Versatility of a Law Degree Just a Myth? (The National Law Journal, 1 Dec 2008), I answer yes." 

The money quote:

“Law schools and placement professionals frequently tout the versatility of a law degree as a path to alternative careers. But even in good economic times, the advantage of a juris doctor degree in landing a job in another field may well be overblown.”

I think a JD is not a useful credential for non-law jobs. When I graduated NYU Law in 1986, I worked as a strategy consultant for Bain & Co. My pre-law school job experience got me the job, the JD got me the “consultant” title, the same as MBAs (in contrast to “associate consultant” for BAs and, in my class, one MD).

I started law school uncertain if I would practice. I heard many lawyers and law placement professionals say how flexible a JD and law practice experience is. I found that with my prior business experience, a few employers (e.g., investment banks) would consider my JD as the equivalent of an MBA. I’ve seen little evidence that the market has changed since then.

Back then, I found many former practicing lawyers with fantastic, interesting jobs. I asked how they ended up not practicing. All had practiced - many for years - and for most, moving to a different career was largely a matter of chance.

That many lawyers end up with interesting non-law jobs does not mean a JD is a path to those jobs or a “flexible” degree. It only means that some lawyers, after they practice some years, can change careers.

“You can’t save your way to growth” is a common refrain. In the current economic turmoil, however, growing revenue is hard so the focus must be on cost control. A recent report, article, and conference session drive home this point. 

Hildebrandt is a leading legal market consultancy. The Hildebrandt Special Client Advisory: Fall 2008 notes that

“the current downturn has not yet been significantly offset by increases in other traditionally “counter-cyclical” practices…. the current year will represent a significant downturn for the legal industry… we are unlikely to see any significant turnaround until late 2009, at the earliest… firms [will be] forced to lay off legal and non-legal staff, slow down the hiring of new attorneys, restructure operations, and weed out unprofitable practices.”

The Advisory suggests steps to deal with the downturn, including focus on collections, negotiate credit agreements, examine expenses closely, consider layoffs, deal with performance issues, and adjust practice areas. Longer term, Hildebrandt says we may see more fundamental changes such as new lawyer compensation systems, alternative billing, and more legal process outsourcing.

Driving home many of these points is the new article Partners at UK’s ten biggest law firms take home £1.1m in profits (TimesOnline, 19 Nov 2008). It reports on profits at top UK law firms, citing an annual law firm survey published by PriceWaterhouse Coopers:

“[T]he gap between the top ten and the rest of the market is set to widen as lawyers begin to feel the impact of the financial crisis… the biggest firms had tightened their hold on the market through an increased focus on efficient management. ‘Larger firms have been looking long and hard at their cost base and how much can be outsourced,’ Mr Rose said [head of the Professional Partnerships Advisory Group at PWC ]…. managing partners [are] switching focus from revenue growth to reducing staff costs.”

The topic of growing revenue versus controlling cost was central in an October panel discussion at the Law Firm Leaders Forum. In a session called “Running Your Firm as a Business - A Closer Look at the Middle Office", my co-panelists Ed Poll of LawBiz and Ron Yano, CFO, Loeb & Loeb and I debated that question. Mr. Yano and I shared the view that cost control could increase profits by 1.5 to 2.0 profit points, which is significant in tough times.

Ed focused more on growing revenue but in his follow-up blog post, Law firm overhead - Can we cut?, he writes ”focusing your energy on producing revenue will produce greater benefits than focusing your energy on reducing overhead”. He points out, however, that that increases in the right costs can increase revenues, citing the example of Mallesons creating a system to answer more incoming client phone calls. In my view, another example is smart investment in business research for selling more matters.

[This is based on my post at Integreon.com blog.]

Could BigLaw follow Wall Street in unraveling? 

Few saw that Wall Street Masters of the Universe were really Naked Emperors? Michael Lewis, of Liar’s Poker, writes in The End (Portfolio.com, 11 Nov 2008) about a few who did see the emperor had no clothing.

Could large law firms meet the same fate? Nonsense! That’s what most said about the now defunct or bailed out financial titans.

Here’s a scenario: Fortune 500 general counsels decide suddenly that AmLaw 100 brand names are not worth the premium so shift huge chunks of work to “lesser” firms. Impossible? Before dismissing this, read Rees Morrison’s Why Law Departments Should Beware Super-Sized Firms or Ben Heineman’s Big Isn’t Always Better (Corporate Counsel, Nov 2008) .

If you are friends with any associates laid off from large law firms, point them to Legal OnRamp for networking and resources. 

Legal OnRamp (LOR) is a social networking site exclusively for legal professionals. LOR is primarily for inhouse lawyers but is currently inviting laid-off associates to join. Once online, they will find a career center with a resources, job listings, and networking. Applicants should indicate the firm from which they were laid off.

Getting the word out about this offer is a good occasion to comment on social networks. I’ve been on Linkedin from very early (among the first 50k to join) and joined Facebook and Twitter this year. So far, I see a lot more value in LOR - which is vertically focused - than these other networks. That said, I continue to spend some time on all the networks to see how they evolve.

I feel a post about Twitter coming on in the near future. By the way, you can see my Tweets, which are mainly professional rather than personal, at http://twitter.com/ronfriedmann. Coming up with a 140-character personal profile is both fun and a challenge.

Will Uppington of Clearwell has a good post called Concept Search Versus Keyword Search in Electronic Discovery . 

It offers a helpful explanation and comparison of concept search versus categorization. He concludes that for concept searching “use to become widespread, it will need to become more transparent. But that’s a topic for another day.” I am eager to see him develop this theme.

Concept search software that I evaluated in the early 1990s relied on approaches such as statistical co-occurrence of words (e.g., the SIRE algorithm), vector analysis, state space analysis, tuples, n-grams, and thesaurus-based. I have more math training than most but generally did not understand the computational linguistics behind these.

Given the sophistication and the complexity of concept search software, I am not sure how transparent it can be. I think we need to rely on empirically testing and comparing various tools and approaches.

One measure of market size is the advertising for it. In a possible first, the Wall Street Journal today has a full-page ad for an e-discovery product. 

Turn to B5 to see (at least in the editions delivered to DC and NYC areas) a full-page ad by Autonomy for its eDiscovery product. Now we know EDD has really arrived!

The ad states “10 of 10 top law firms rely on Autonomy for eDiscovery” and that Autonomy is the “Fastest Growing EDD Provider”. I was surprised by both but suspect that as a FTSE 100 company, Autonomy carefully vets its claims. On the lighter side, I wonder how Crowell & Moring feels about the rubber ducks pictured, which feature prominently in some C&M ads.