Legal Tech 2005 (NYC) — KM at the Crossroad

Sharing the Value of KM between Clients and Firms

Session Overview and Issue Outline

Session Overview

The promise of greater efficiency, higher billings, and the ability to generate new clients has long driven law firm investment in knowledge management. Earning a return on the investment, however, continues to be a challenge for many law firms. Clients have the right to expect – even demand – greater efficiencies, but should they also share in the costs required to deliver them? Does KM add value in the eyes of the client and are they willing to pay for that value? If so, should clients pay for KM before, during, or after a matter? Join us for this moderated discussion between knowledgeable practitioners on both sides of the aisle as we highlight the conflicts and agreements and help define a path that makes sense for both sides.

Issue Outline

The actual panel discussion will depend on real-time interactions. The outline here details the range of potential to cover; time will not allow reaching all.

Introduction

• The level of KM investment by large law firms varies considerably
• Law departments seem to invest less than law firms
• Both struggle to define exactly what KM is and how to justify the effort
• Assuming KM creates efficiencies, should clients pay for some or all of KM?

What does KM mean in your firm | department?

• What is your approach to KM, for example
  1. Document re-use (by search, precedents, document assembly, or other means)
  2. Expertise location
  3. Connection to training or relationship management
  4. After action reviews and lessons learned
• What is the role of lawyers and staff and how do you motivate KM participation?
• How does KM differ by “life cycle:” before, during, and after a matter?
• Do you track KM systems usage or value created?
• What technology do you use to support KM?

What is your business case for KM?

• Law Department: Does the absence of (or at least less focus on) billable hours mean you do the optimal amount of KM? Or is KM an example of “tragedy of the commons?” If so, can the General Counsel make KM someone’s job or require each lawyer to contribute (and measure this in performance and compensation reviews)?
• Law Firm: What is the best justification for lawyers to divert scarce billable hours? Does KM result in better client retention or acquisition? Does KM increase profits, for example by improving realization?

Does KM have a visible impact?

• Law Department: Do clients notice if firms have effective KM?
  1. Do you have access to firm’s KM system?
  2. Are the fruits of a KM system visible in quality of work product, speed of delivery, cost, or how matters are staffed (mix of junior v. senior lawyers)?
  3. Do you consider use of KM in selecting outside counsel?
  4. Do your engagement guidelines explicitly reference KM?
• Law Firm: Do firms hear from clients or prospects about KM?
  1. Do prospects ask about KM and, if so, is it more than a pro forma question?
  2. Do you allow clients direct access to KM systems (as opposed to extranets for sharing work in progress)?
  3. Once a matter is underway, do clients ever inquire about KM systems? Do they ever complain that cost was too high or turnaround too long and tie that complaint to inadequate KM?

Should firms and departments agree to monetize KM?

• Premises
  • You can’t manage what you don’t measure.
  • Clients and firms accept hourly billing as the basis of value measurement.
  • KM has not yet become a cost of doing business
  • Know-how worth capturing and re-using can be “sanitized” of confidences
  • Technology is not the primary challenge; rather it is a combination of process, culture, and business issues
• Law Firm
  • Would lawyers “do more KM” if they could bill for the time?
  • For example, at varying life cycle stages, should clients accept billing time to create a KM document that explicitly captures the tacit knowledge gained?
  • If some of the benefit of doing so accrues to future clients, should the firm absorb some of the cost, even if the firm cannot re-capture the incremental cost from those future clients?
• Law Department
  • Is the law department willing to pay for firms to make their tacit knowledge explicit? How much of the value captured accrues to the client?
  • If some of the value accrues to the firm, is that ok. If not, how does a client justify
    1. Paying outside counsel to develop re-usable tacit know-how or
    2. Benefiting from KM activities the firm bills to other clients?
  • What are the IP ownership issues? Assuming proper sanitizing for confidences, is there a conflict between asserting ownership interest in knowledge developed on behalf of a client and lowering the systemic cost of representation for all clients?
• Both
  • Ignoring who bears the cost, would doing more KM reduce the total cost of legal services?
  • If clients were to pay for firms to do KM, how would the appropriate level be set and the arrangement monitored? If clients do not pay, what mechanism will ensure that firms do the right amount of KM?
  • In resolving potential difficulties about charging for KM, does it help to
    1. Adopt value billing instead of hourly billing
    2. Separate types of learning, e.g., substantive law, information about people such as experts or judges, and process know-how
    3. Separate issues of training new associates from re-using know-how
  • Is KM even the right area on which to focus? Doing so would take time and energy both to negotiate and then to do. Assuming a limited bandwidth for change, would efforts be better directed elsewhere, for example budgeting, developing empirically tested best practices, proactively informing clients of legal developments, or understanding client industries better?
  • Will market dynamics favor more or less KM effort in the future and why?