1/18/11

Profitability and the New KM

As a corollary to the profitability series, this post tackles the need for KM to be tied to profitability in a law firm. Otherwise it becomes KM for the sake of KM. Ron Friedmann’s recent post on KM Reincarnated combined with some recent evaluations of Legal Project Management (LPM) software got me thinking about this idea. It took me back to the introduction of CRM software to law firms. As firms embraced marketing, CRM software was pitched as an answer to the challenge of growing the business. Demos showed how lawyers could easily see “who knows whom” when pitching new work and making new relationships. This would tell them all of the connections they already have with a new contact, including schools attended and common acquaintances. The expected result would be more business in the door. Thus a supposed connection to profitability. The problem CRM systems faced in practice was the dependence on three critical things: 1) The right data was capture, 2) The data was of sufficient quality, and most importantly, 3) That lawyers would change their behavior to suit the system, both in sharing this data and then utilizing it for business development. CRM has generally failed in this promise. The data for most firms’ CRM systems is very incomplete and typically not current. As well, lawyers don’t look to the CRM system for business development opportunities. Instead, these systems are used as marketing databases. They have value, but not the value initially assumed by firms. I think LPM and related KM systems are in danger of falling into the same trap. Legal KM appears to be desperate to find meaning in a fast changing environment and as a consequence may be hooking its wagon up to LPM (and AFAs). So when LPM software is pitched as a way for firms to differentiate, get and retain clients and be more profitable, it’s time to put on your reality glasses and ask if the same or similar three CRM questions apply. To illustrate this point, many LPM systems are seen as a way to improve profit margins via efficiencies gained. In prior posts I have discussed how LPM will only be as successful as the plans it uses. But where will these plans come from? Past billings do not have the type and quality of data necessary to generate reasonable plans (i.e. good L codes), which fails CRM questions #1 and #2. So instead, LPM will be dependent on lawyers taking the time to develop detailed plans for each of their matters. These plans will take significant non-billable time to develop and will require partner level experience to build (CRM #3). And what is the reward for the partners that do this? The presumption is it will bring more business in the door by differentiating your firm. But I would suggest software doesn’t get business – partners do. Just as our expectations that an actual business development system would bring in business were misguided, so are expectations that project management software will somehow do the same. LPM systems may well have value, but it’s not getting more business and they won't impact profitability unless they solve the same three challenges CRM faced. So when you look at these and other next generation KM systems, make sure you are using them to solve the right problems. Otherwise you will be back to buying a marketing database, expecting it to be a CRM system.

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2 comments:

Steven B. Levy, author of Legal Project Management said...

Toby, I think it's a mistake to talk about LPM systems = software. LPM is viable, flexible, and minimally intrusive per se... until you start dragging software into the equation beyond Microsoft Word, Outlook, and perhaps Excel for budgeting.

One of the problems with CRM software, as you note, was that it forced users to adapt to the software. Almost all software fails when it tries to force users to adapt, unless it is so fundamentally game-changing as word processing or Email. Any specific-to-LPM software that tries to force the users to adapt will fail, I believe, in all but some specific areas where full-time PMs will live within that software (e.g., large-scale e-discovery).

However, to paraphrase Clemenceau (or maybe Groucho), LPM software is to LPM as military music is to music. Good and even great LPM can be accomplished without purpose-built software; adequate LPM, indeed, might be easier with Word, Outlook, and Excel than with the addition of another, purpose-built tool.

Toby Brown said...

Steven,

Excellent comment, especially the paraphrase. And I think we are generally in agreement, subject to semantic differences between "software' and "system."

A too common failing of law firms is the expectation that by introducing new tools (systems or software) - behavior will change. Your great examples of email and word-processing (which didn't happen overnight) may serve as some false examples that drive that expectation.

A point I made in a prior post in this series is that the real change in behavior will come from focusing on profitability versus billable hours. Then lawyers will demand LPM and next generation KM tools.

Thanks Steve.

 

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