Written for Jnana Technologies Corporation in 2000

Introduction

Many large law firms now use knowledge management tools such as work product databases. What do law firms gain from these systems? Mostly the ability to charge their clients less money. This is because lawyers save time when they do not have to “re-invent the wheel.” Firms gain little market advantage as a result, however, because clients rarely know their lawyers use these systems on their behalf. Furthermore, law firms that achieve savings for clients usually conclude that they cannot bill for their knowledge management efforts.

Can law firms pursue knowledge management strategies with greater benefits? The answer is yes if firms deliver know-how directly to clients. Such delivery should, of course, be digital.

How Do Firms Use Knowledge Management Today?

Knowledge management, as used here, means capturing and re-using a firm’s know-how and work product from one matter to save time in another matter. Even high-end, complex practices have routine aspects where re-using work saves money.Law firms manage knowledge in several ways:

• Store all documents in a firm-wide document management system
• Use software to find a subset of “good” documents and catalog them for inclusion in a work product database.
• Ask lawyers to designate selected high-value documents for re-use.
• Hire staff to identify and catalog useful work product.
• Build form banks of highly polished model documents.
• Create document assembly systems to generate documents automatically

All these approaches are internally focused. All provide inputs to final outputs; that is, they help produce client deliverables but are not a deliverable in their own right.

Clients surely appreciate these and other measures that can lower costs. But for the most part, clients do not know when firms use such systems. Even significant savings may not be apparent to clients because they cannot easily compare bills for cost-performance over time or across firms. And most law firms do not point out when they save time using a knowledge management system because they rightfully fear creating expectations of or demand for similar cost savings in future projects

An increasing number of law firms do use systems — e.g., Extranets — that clients see. For the most part though, Extranets are not knowledge management systems. Rather, they use the Web to deliver documents that would otherwise travel by e-mail, fax, overnight delivery, or US Mail.

What Does Delivering Know-How to Clients Mean?

Whereas knowledge management tools provide inputs to client output, know-how delivery systems deliver outputs directly to clients. Using software to provide clients with service (advice, documents, or training) is a new but growing trend. As the table below illustrates, several well-known firms are already doing so. The services delivered can take several forms:

Client-Searchable Memo Banks. A full-text searchable database of memos that address numerous legal topics.

Client Training Programs. Custom or semi-custom videotapes or computer-based systems to train client personnel on important legal issues.

Content-Rich Web Site. Clients follow a path of hyperlinks through a site with content-rich web pages to find a page that answers their question.

Document Assembly. By filling in the blanks, clients can generate their own documents.

Expert System. Working through a computer generated question and answer session, clients obtain answers to their questions or the system generates a streamlined in-take report for counsel to review.

Know-how delivery systems typically contain significant amounts of crystallized know-how. To build them, lawyers must identify appropriate topics and create content. The closer a system comes to answering questions — as opposed to just providing information — the more valuable it is. Of course, answering questions typically requires putting more expertise in a system than does merely collecting work product for re-use.

In addition to deciding on content, law firms must select appropriate technology. Many vendors offer software that can create know-how delivery systems. The appropriate choice must follow from the business strategy and decision concerning type and format of content.

Why Deliver Know-How to Clients?

Delivering know-how directly to clients serves them better and enhances the client relationship. Law firms can profit in several ways:

Competitive Differentiation. Firms that deliver services over the Web set themselves apart from their competitors. The legal market is wide open for forward-thinking firms to obtain “first mover advantages.” The first mover law firms may not repeat what Charles Schwab did to traditional brokerage firms or what Amazon did to traditional booksellers. But they will attract the attention of clients and prospects and are likely to gain market share at the expense of their competitors. At a minimum, a new and distinctive know-how delivery service is likely to incline many in-house lawyers to agree to a visit with a firm’s lawyers. The resulting dialogue may lead not only to selling the new service, but also to traditional representation.

Generate New Billable Matters. When a know-how system cannot answer a question, it can send e-mail messages to in-house counsel or the law firm indicating that further advice may be necessary. Thus, the system can generate new traditional matters from existing clients.

Enhance the Client Relationship. Lawyer-client relationships are not as stable or long lasting as they once were. While there is no substitute for deep personal relationships, a know-how delivery system can help sustain and build a client relationship.

Subscription Fees. One subscription fee approach is selling a “generic” system for legal issues that cut across industries (e.g., labor or environmental law). These systems tend to deal with problems of low to moderate complexity. For the economics to work, firms may need to offer a suite of related products covering several topics within an area. For example, a hiring and firing advisor alone may not provide sufficient scale; it may be necessary to offer multiple labor law modules such as FMLA, ADA, and sexual harassment. Another subscription fee model is to sell a more detailed system that focuses on complicated issues particular to an industry (e.g., compliance systems for financial institutions). These systems tend to deal with moderate to high complexity problems. The economics here probably support single-topic systems.

Project and Maintenance Fees. Law firms may be able to sell projects in which they custom-build a know-how delivery system for a specific client and charge an on-going fee to maintain it. If the economics of building a single system are not favorable, firms may be able to adapt the system and re-sell a variant of it to a limited number of other clients.

Staffing Flexibility. Lawyers must put content into know-how delivery systems. But the lawyers who do so do not necessarily have to work full-time or at the same pace as lawyers in traditional practice. Law firms may be able to retain lawyers with valuable skills by letting them work on know-how systems on a reduced or flexible hours basis.

What are the Risks?

Delivering know-how directly to clients does entail risk. Fortunately, the risk is manageable and should not be a barrier to moving forward:

May Incur a Loss. One way to view the risk of loss is in comparison to other investments law firms make, particularly opening new offices or building new practices. Both are risky because predicting the amount of new business is hard and the fixed costs (i.e., leasehold or compensation commitments) are high. Predicting the business generated by know-how delivery is probably even harder, but the fixed costs are likely lower. Another way to view the risk is in comparison to client development (e.g., lawyers invest many hours writing outlines or speaking at seminars). Firms can apply whatever metric they use for such costly business development activities to know-how delivery to decide if an on-going commitment is worthwhile. If the goal of client development is gaining attention, then know-how delivery — because it is new and different — is a better bet than other activities.

Cannibalizes Traditional Work. Some law firms may be concerned that delivering know-how to clients will reduce the demand for traditional legal work. In some circumstances, this may be true. In the New Economy, however, it is said to be better to cannibalize your own business than to be eaten by your competitors. That is, if a firm’s business is really subject to being replaced by automated systems, it should try to capture that revenue for itself rather than letting someone else do so. Another answer is that a know-how delivery system is more likely to serve the “latent market” for legal services than substitute for the custom advice most firms now provide. The latent market refers to the unsatisfied demand for legal advice that exists at lower levels in many companies (because budget and time constraints preclude the delivery of traditional legal services).

Malpractice Concerns. Law firms will naturally worry that know-how delivery systems are less reliable than traditional advice and thus give rise to malpractice claims. Reliability is a factual inquiry. A considered, carefully developed, and well-maintained know-how delivery system may be as reliable as an experienced lawyer (and more reliable than an inexperienced one). These systems are built to contain and reflect a firm’s best thinking in each domain area, and then carefully audited and tested before deployment. The systems are built deliberately, without the pressure of having to deliver an immediate answer over the phone or within hours by e-mail. Moreover, when deployed, a know-how system will not be tempted to stretch beyond its limits in the face of incomplete information about the facts or law, or under pressure from external sources.

Ethical Problems. While ethical rules vary by jurisdiction, delivering advice over the Web may raise potential ethical concerns, especially where non-clients use the system over the public Internet. Possible problems include the unauthorized practice of law, conflicts of interest, and privilege concerns. If the advice is delivered only to pre-existing clients or if all users of the system are cleared through the firm’s standard client clearance process, then many or most of the ethical concerns become manageable in most or all jurisdictions. Note that systems that do not advise but merely help users find appropriate items to read may not be subject to these concerns.

Conclusion

Law firms that are committed to knowledge management should consider extending their efforts to delivering know-how to clients. As with any new business, there will be challenges to overcome, including defining appropriate topics, setting prices, and selecting technology. Fortunately, most law firms have the resources to modify their approach if their first one does not succeed. Developing new approaches to delivering advice will not necessarily be easy, but the rewards for the firms that succeed are potentially enormous.

Examples of Delivering Know-How to Business Clients

Note: Law firms are not the only organizations delivering legal know-how directly to clients in digital format. LRN (formerly the Legal Research Network) has a service called Legal Compliance and Education Center that provides “employees with the knowledge they need to do their jobs in compliance with the law” (See http://www.lrn.com). LRN is targeting large US Companies.