image [cc] tsukubajin

In Part 4 of this series we discussed why firms avoid next generation technology and why that needs to change.

Replacing Humans
To look deeper in to what the future might hold, we will now explore two next-generation knowledge management (KM) technologies. I refer to these as analysis KM tools, as they extend beyond technology that organizes things, and become technology that performs true analysis functions.
LexisNexis has developed an analysis KM product that analyzes knowledge from multiple systems and makes decisions about the content. The Matter Experiences Module of the Lexis Search Advantage product can analyze time entries, documents and other records to determine 1) what type of work a matter is, and 2) what type of tasks a time entry includes. In our profit margin world where we need to understand the costs of providing various services, such a technology will have tremendous value.
Although it sounds straight-forward, most lawyers do not know what type of work a random matter includes. The reason is they never cared about that data point. Instead of labeling a new matter as Patent Litigation, it was called “Company XYZ vs. ABC Corp.” So firms are unable to search and retrieve by matter type. If you don’t know what a service is, you will not know where to begin to understand its cost.
But even when you know the type of matter, you will only be able to see the overall fee. This knowledge has some value. But being able to break the work down into relevant phases and tasks, lawyers will understand their costs at a much more actionable level. Firms can now know how much time is spent on a given task-type for a specified type of work. An additional benefit of having technology perform this coding work is that the results will be consistent and therefore of higher quality and value.
Another, perhaps more interesting and immediately useful analysis KM technology comes in the form of document analysis. KIIAC (pronounced kayak) has a system that analyzes volumes of documents. To illustrate its ability, here is a step-by-step description of it in action:
  1. A user submits 300 different examples of an Agreement into the system. KIIAC analyzes and then returns its best guess at the structure of an Agreement based on the content of the 300 examples. This structure includes a listing of all clauses and their relationships.
  2. Then a lawyer reviews the suggested clause structure and makes adjustments to it.
  3. A second analysis is performed using the finalized document structure. KIIAC then returns an analysis of how variable the language of the 300 examples is. This includes an identification of the most standard language for each clause.
  4. KIIAC can then generate a new document draft using the most standard, non-negotiated language.
The result is actually an identification of the standard way Agreements are written. This is a task humans could not perform.
But wait … there’s more:
5. KIIAC can then compare yet another Agreement against the identified standard, see where the new document is different and if it includes all the relevant clauses.
KIIAC is displacing humans in this process. In traditional practice, lawyers pull a few recent examples of a document type, review them all in an attempt to cull out deal-specific language and then produce a ‘clean’ draft to start the next deal. KIIAC is able to perform the same tasks, but do it using hundreds or thousands of examples. And it does it in a matter of seconds instead of hours. I might add KIIAC does a better job. If the recent examples chosen by the lawyer do not include a specific clause, it may well not end up in the clean draft. KIIAC, in its more comprehensive approach, is far less likely to miss anything. And unlike a lawyer, it can analyze a new draft, say from the opposing party, and in seconds know if it anything is missing from it.
I refer to these new technologies as analysis tools primarily because they perform the tasks of humans. This is a qualitative leap in the type of technology used by lawyers. More importantly, it is technology with a direct impact on profitability. In comparison, an upgraded version of Word has very little, if any impact on the bottom line.
Lawyers need to seek out these types of next generation technologies and find ways to implement them profitably within their practices.
Part 6 in the series looks at segments of the legal market beyond private practice and the forces of change acting on them.
Velocity App by ContentPilot LLC

As a lawyer, have you ever been at dinner with a client who asked you, “look, we’ve been having a real problem with a certain part of our business. Now I know this isn’t your bailiwick, but do you know if someone at your firm does this kind of work?”

Rather than looking like a deer caught in the headlights and watching a potential deal go down the drain, now you can whip out your handy new iPad app, Velocity.

Released in the third quarter of 2011, ContentPilot LLC bills Velocity as the first mobile app to drive sales for lawyers and professional services firms.

Sitting atop ContentPilot’s Cases & Deals product–aka, the firm’s experience database–a lawyer has instant access to his firm’s experience database from his smart device.

And with a squeaky-clean layout, the navigation is über-user-friendly. With a touch of a finger-tip, you can navigate to your firm’s practice lists, teams and phone-friendly descriptions of salient matters. It also show-cases the your own clients and practices, as well as keeping up with your client’s lastest news.

Right now, the news is just pulling from the client’s company web site. ContentPilot is hoping to partner with Manzama, a social media news aggregator, to develop a more robust news layout.

ContentPilot’s  Velocity app is the answer to the cross-selling dilemma that every lawyer in a large law firm faces: who does what in my firm?

Now, instead of having to try to remember the client’s question, go back to the office, remember to find the right guy, then trying to reconnect with your client, maybe even after he’s already found someone else, you can get it all done right there on the spot.

God, I love technology.

Don DeGabrielle, Lucy Dalglish, David Adler, Tom Forestier

Well, I don’t know about you, but  I had a GREAT week-end. Aside for a fun-filled movie marathon (Red Tails, The Artist and Hugo), I had the privilege of attending the 26th Law & the Media Program Examines WikiLeaks.

The first event of the year, the session featured Julian Assange’s lawyer, Geoffrey Robertson and New York Times Pulitzer-prize winning reporter Eric Schmitt.

Julian Assange’s English lawyer Geoffrey Robertson, kicked off the session via Skype.

For those of you who are unaware, he is one of the top legal minds of our time–it was a privilege to hear him speak. Australian born, he holds dual citizenship in Australia and England. He is a barrister and a Queen’s Counsel who has handled libel, human rights and media matters involving well-known publications, artists and writers, including Salman Rushdie, author of The Satanic Verses.

Robertson’s position on Wikileaks was that the public has a right to know and that Assange was only acting as a reporter in conveying unsolicited, unclassified documents. He proposed that governments need to create policy to ensure that documents are properly classified and then classify them.

Next up was Schmitt, who talked about meeting with and interviewing Assange when the first trove of diplomatic cables were leaked by WikiLeaks. Schmitt was on the journalistic team of four international newspapers that were given the documents for review.

A panel then discussed the issues surrounding whistleblowers, sources and reporters. The panel included Lucy Dalglish, the Executive Director of the Reporters Committee on Freedom; Don DeGabrielle, a Fulbright attorney and former U.S. Attorney; and David Adler, a federal criminal defense attorney and former CIA agent. Winstead’s managing shareholder and media attorney Tom Forestier moderated.

The session was targeted towards reporters and raised issues about the reliability of sources, maintaining a source’s confidentiality and what constitutes the status of a reporter. It was a fascinating discussion, particularly at the end. These folks who had been in the trenches, discussed how leaks, in this day of instant technology, are so much more likely to occur. Interestingly, all three panelists hearkened back to the days of Watergate when the reporters’ idea of protecting sources were parking lots meetings and notes in flower pots.

The event was held at the South Texas College of Law Saturday morning and co-sponsored by the Houston Bar Association, the Society of Professional Journalists and The Press Club of Houston.

Image [cc] Truthout.org

In Part 3 of this series we talked about new competitors to law firms and some basic economics of law firms to get deeper in to the intense pressures on firms. Here we peeled back the layers of change driven from new technologies.

The Technology Challenge
Ray Kurzweil predicts that given the current exponential rate of technology growth, by 2048 a single computer will have the computing power of all human brains. Kurzweil’s calculations are based on a thorough analysis of numerous technology trends. But even if you discount his ultimate prediction, you really can’t escape the powerful influence rapid technological innovations are having. Compare that level of change to the technology innovations currently prioritized by lawyers and firms. These can be summed up with one word: Upgrades. With some minor exceptions, most firms and lawyers are investing their technology dollars in projects like newer word processing, document management and email management systems. So while the world is automating forms and legal processes on the Web, lawyers are getting better at paragraph numbering and organizing documents.
Why?
Cost-plus thinking. In a cost-plus world, firms react by draining the company of capital every December 31st. This mind-set does not view technology as an investment, but instead as a necessary expense. Worse yet, technology negatively impacts the number of hours and respective revenue generated by them. So why would a firm invest in it?
This model has driven most legal technology vendors to focus on delivering incremental technological innovations to existing applications. So even when a firm actually wants to innovate, they do not have a lot of options.
Running against this grain is the emergence of Legal Project Management (LPM). This concept focuses on applying project management principles to legal matter management. Clients have been driving much of this dialog in their zeal to get efficiencies from their outside firms. Efficiency meaning – do the same work in fewer hours. Firms who have truly embraced this idea (i.e. Seyfarth Shaw) have seen very positive responses from clients. LPM has a ways to go to be fully embedded in the industry. But in the meantime it is driving new technology options.
There are other technology choices that highlight the possibilities and give direction to firms looking to embrace the future. First off, firms should look at the new breed of competitors to see what they are using. LPOs are investing in process automation tools to create standard methods for how tasks are done. This standardization ensures quality and efficiency. It bakes in best-practices for every piece of work. Technology for this is becoming available for lawyers, evidenced by Onit which provides a hosted (SaaS or cloud-based) process automation application for legal departments and law firms.
Vendors like LegalZoom demonstrate the value of providing smart content, online directly to clients. Some large firms have actually deployed similar technology. For example Orrick provides a Start-up Toolkit where clients can generate quality first drafts of the documents needed to form a new company. Both of these examples (process and document automation) are good examples for lawyers and firms to consider.
Part 5 will bring technology further in to focus, highlighting new technologies that perform human functions.
Image [cc] marcokalmann

In Part 2 of this series we covered the beginnings of major change in the legal market along with the initial responses from firms and lawyers.

Non-Traditional Competitors
An emerging and compelling reason for lawyers to make different business decisions is coming from new breeds of competitors. One example is the Legal Process Outsourcer (LPO) market. These companies started as off-shore (typically India) based providers for first document review in litigation. They hire English speaking, American law trained candidates in other, lower wage countries. These much lower-costing, well-enough trained lawyers were appropriately suited for this level of work. So well-matched to the tasks, that in very short order, these document reviewers became viable competitors. Most lawyers glossed over this market encroachment, seeing it as commodity level work no longer worthy of their skills. In reality, this meant millions in fees were no longer going to US lawyers.
The LPOs originally targeted law firms as their customers. But law firms were slow to respond to these offerings, in part due to the ethical constraints of profiting from third-party services. But firms were also concerned about diluting the law firm brand with low-level services. The result was that LPOs shifted their sales and marketing efforts directly to clients. With the acquisition of the Pangea3 LPO by Thomson Reuters, the market saw strong validation of this model. LPOs are now offering a broader range of services including: Contract Drafting, Contract Review, Patent Application Drafting, IP and M&A Due Diligence and other services.
It should be noted that these legal-type services are being provided by non-law firms directly to clients. To date, it appears that no regulatory authorities are investigating these practices leaving these new competitors ample opportunity to go after the legal market, which they appear to be doing. As law firm revenues have gone stagnant or declined over the past few years, LPOs have been experiencing 50% growth per year.
In the solo / small firm segment of the market, other competitors are appearing. For example, LegalZoom is a provider of online legal forms which also provides customer service to assist clients in completing the forms. Some states have taken issue with LegalZoom for, what they believe to be, engaging in the Unauthorized Practice of Law (UPL). These states’ efforts do not seem to be having much impact on LegalZoom’s growth. The company reports raising $100 million in funding to-date and $100 million in revenue for 2011. This market for online legal content was further validated via Google’s $18.5m investment in Rocket Lawyer in mid-2011. These providers are taking full advantage of 1) the ability to raise capital, and 2) next generation technology. Lawyers are barred from the first activity and generally unwilling to engage in the second one.
Profit vs. Revenue
Lawyers and firms have been living in a cost-plus business model world for the past 50 years. ‘Cost-plus’ is having the cost of a service plus a profit built into the pricing. Hourly billing rates are a manifestation of this model. As long as there were enough billable hours to go around, profits were virtually guaranteed. This model created a mind-set bent on billable hours and revenue, for which the industry is well-known. The challenge for firms now is that these rules no longer hold true. The shift that began in 2006, accelerated by the recession in 2008, changed that dynamic.
AFAs presented a viable alternative to work through the shift. Instead of looking at just hours and rates, fees and cost of delivery became part of the equation. Now firms began looking at matter financials in a profit margin way.
Most businesses operate on the margin model. Although not a complicated formula (price minus cost equals profit), it is still an elusive one for lawyers. I contend that by the end of 2009, firms were unknowingly operating in a margin world. Unknowingly since their compensation models are founded on a cost-plus model that rewards revenue versus profitability. Therefore firms have a structural blind-eye to the profit squeeze problem. They are unable to even expose the problem, when they really should be focused on resolving it.
A Suggestion
At one point in 2010, a law firm partner asked me if I could do one thing to restructure a firm for the future, what would it be? I gave a simple answer: Change the financial conversation from revenue to profit. Most of the challenges facing firms would come in to focus and receive the attention they need and deserve if that one criterion were in place. Every effort in a firm would shift from supporting a cost-plus model to the margin one that actually exists.
Part 4 provides a forecast on the technology aspect of the perfect storm. This rapidly advancing force brings serious challenges, and hopefully some opportunities to lawyers.

Today, I spent a lot of time messing around with Blogger, Feedburner and Google+.

There is a lot of change afoot with the upgrades in Google+.
Integration for the most part has been pretty smooth–I like that if you have a Google+ account and a Blogger account, it is fairly simple to integrate and feed your new blog posts to your Google+.
But what isn’t so easy is integrating co-authored blogs into Google+.
Thanks to a tip from HubSpot, I found a bit of a work-around by setting up a Google+ author tag. But I’m not completely confident it will work. Plus, I had to do something that I was completely loathe to do–submit my Gmail account to the public domain. Ugh.
Why does Google insist upon getting all up into my business?
Image [cc] Slippery Tiger

I have found that librarians at law firms walk a tightrope strung over the thorny issues of cost, risk and user demands. We have a reputation of being “gatekeepers” or impeding advances in legal research by holding on to old media at the expense of new media. Although it may be true that there are a few Luddites clinging to the idea of a traditional brick & mortar library, those Luddites are few and far between. Most librarians are actually ready and willing to adopt new ideas, media, technology, user experiences, and procedures, but they are also responsible for advising the risk involved in the adoption to the overall firm in which they work. There are times in which the risk outweighs the cool factor in moving forward.

One of the common themes I’m hearing from vendors these days is that “we need to get our products in front of the attorneys because the librarians are too challenging to work with.” It is a logical thought on their end because librarians are challenging. We look past the “whiz-bang” interface and start asking the questions of “how much does it cost?” or “who can access it?” or “does it work with our current infrastructure?” or “what happens if someone gets into something we didn’t put in our contract?” or “if we bill clients for the use of this product, can you work with us to make sure we follow ABA guidelines?” In other words, we ask challenging questions and won’t move forward until those questions are answered.

There is a reason that law firms hire librarians to manage their external legal research content. We mitigate risk – both ethical and fiscal for the firm. We report up to the powers-that-be in a firm and present the pros and cons of new products, give our recommendations, then implement the decisions that are made. Sometimes the potential rewards are worth the risk, sometimes they are not. Like it or not, librarians do not make the final decision, however we do relay that decision to the vendors (so to them, it seems that we are the problem.) There are librarians out there that never want to bring in new products or technology, but they are rare – and getting rarer.

When vendors successfully do an end-run around the library and get a Partner to sign off on a contract for their product, the librarian spends the next year attempting to undo the damage. Pull any law librarian to the side in at a conference and have them tell you the horror stories of what happened when a Practice Group bought a product (usually somewhere in the vicinity of $25K) only to find out that the firm already had a similar product (sometimes the same exact product), or that the product actually didn’t solve that problem the Practice Group thought it would. The story usually ends with how much time the librarian spent on getting the contract reworked into an existing deal (reducing the overall cost, but retaining the product) or finding some way to get out of the contract after tracking down the contract signed by the group.

Many librarians would love to adopt the newest version of a legal research product and be on the bleeding edge of technology. However, our biggest duty to the firm is to make sure that we first look at the risks associated with taking on the latest and greatest products. Skipping the library (either by a vendor, or someone on the inside of the firm) may get a product into the firm, however, it rarely comes without introducing some unforeseen risk to the firm. The librarian is then asked to fix the problem, and usually a note goes out reminding members of the firm that all contracts have to be negotiated through the proper channels, and that “X” vendor must from this point go through the proper channels. For the vendor,  the short-term victory turns into a long-term damage to their reputation within the firm. Even worse, now they have to go, hat in hand, to the very librarian they excluded, and work to make amends.

Image [cc] edkohler

Part 1 of this series set the stage for the perfect economic storm, covering the forces pushing change in the legal market. Part 2 covers the first pain felt in the legal market and how firms have reacted.

Along Comes 2008
Even before the Lehman collapse, clients had already started sending signals to law firms about rate concerns. But after the collapse those signals became directives. Some clients went as far as sending letters dictating rates for 2009. A good friend summed the scenario up well when he noted, “The Guild was broken in the General Counsel’s (GCs) office.” What he meant by this statement was that legal departments and legal budgets were no longer getting a pass when it came to cost reductions. The CEO had come to the GC for his annual “you need to cut costs” visit, but this time wouldn’t take “I can’t” for an answer. In some situations, the CEO brought in Procurement and instructed the GC to use this group as a resource to get control over legal costs. Prior to this, GCs were cautious about pressuring outside firms on rates, fearing they might not represent them in the next large case if they were offended by discount requests. The CEO gave them something bigger to fear.
Alternative Fee Arrangements (AFAs) began to rise in popularity at this time. At least they were in conversations. But many times the GC would ask for AFAs, not really knowing what they wanted out of them. The fallback was another 5% discount off of rates; which the clients pretty much got whenever they asked for it.
Firms Respond
As their clients were attempting to do, law firms gave major focus to their own cost cutting in 2009 and in to 2010. One report documented more than 12,000 lay-offs from large firms in 2009 alone. Law firms sought and found many ways to cut costs. It was an exercise not conducted in quite some time, so cost reductions were easy to identify. Of course these cost reductions had an impact on the legal market vendors, further extending the financial pain into the market.
One cost factor left relatively untouched in these efforts was partner headcount. Partners, as owners, are not as easy to terminate. As well, there is a loyalty to partners, making this type of cut a last-ditch approach. And in the short-run, it was easy to avoid. The cost savings turned out to be more than enough. Many firms posted record profits (on lower revenues) in 2009 and 2010.
But these cost cutting measures can only go so far. Firms faced continuing challenges in 2011 with: 1) no more easy cost cuts available, 2) clients continuing to push on rates and prices driving down realization, and 3) less-than ideal leverage (a.k.a. too many partners). Simple economics indicates that under this scenario, firms began facing a real squeeze on the bottom line. Additionally, the market for legal services is not growing. There are some practices showing modest growth (e.g. Patent Litigation), however the overall size of the legal market is not changing and firms wanting to grow their revenue to sustain profits must do so at the expense of other firms.
You may have noticed I did not refer to the economic shift as going to a buyers’ market. My sense is that the legal market is now in a traditional, competitive market; one where firms have to employ a broad range of business strategies and tactics. In the old sellers’ market, the only differentiator was that of perceived legal skill. Lawyers only needed to market their skills, resulting in clients sending them work. In a competitive market lawyers need to show clients an arsenal of differentiators. I shy away from labeling this all as a buyers’ market, since I feel that label obscures the need to utilize all types of tools. Until very recently, there were many lawyers who held to a belief they could just wait this whole storm out and once it passed, bask in the warm glow of another sellers’ market. Given the deeper shift in market economics, this belief is unwarranted. Approaching the market as being competitive in a new and enduring way will lead to better decisions.
Part 3 brings new players in to the equation and offers a suggestion for how lawyers might refocus to meet this challenge.

… and I thought I was alone… unique… special in some way. I thought I was the only blogger at my firm, but it turns out I was not alone. Yesterday, I found another person at my firm that was blogging. Not just any person either, but  (“gasp”) a Partner!! Luckily, it turned out that he didn’t know about my blog either. We found out about each other, not through an internal communication, but through a Tweet that was sent out that I happened to see in my Tweetdeck Search column. When I reached out and talked about our shared blogging interest, we both had the same reaction… “Cool!” I know I was a little embarrassed that I hadn’t known about another blogger in the firm, but now that I know, I’m letting everyone else know about it too!!

Richard C. Hsu is a Partner in the King & Spalding Silicon Valley office and came over with a group of IP lawyers from what was then Townsend, Townsend & Crew (now known as Kilpatrick Townsend & Stockton.) But, enough about his day job… more importantly, he’s a blogger at The One Page Blog. Hsu’s blog (at the cleverly named hsutube.com … go ahead, say it out loud) focuses in on IP issues, as you might expect of an IP Lawyer, but the interesting angle of this blog is that it presents the information in a visual way using video and other images rather than just text.

Richard discusses his thoughts behind why he is blogging in the section of his blog titled “Lawyer’s Confessions” where he admits that, although he is a super techie (CalTech grad and experienced programmer), he has found himself somehow “out of touch” with the new generation’s mode of communications. He reminds us that, despite our experiences, there seems to always come a day when someone younger comes in and makes us understand that in order to “get with it” we’ll need to climb outside our own comfort zones. For Hsu, that meant playing to the strengths that comes with age/experience, and that is understanding strategy.  He says it best in his explanation of technology and technology strategy:

On the other hand, technology strategy is not technology.  It is strategy.  And strategy’s half-life is more like plutonium:  what worked a thousand years ago works today, and will work in a thousand years….  Invest in understanding strategy now, and you will understand it just as well — probably even better [in the future.]

It is great having someone on the inside that is testing the waters of blogging. I’m sure that we’ll be bouncing ideas off of one another from time to time. Hopefully we’ll inspire others to pick up the urge to blog about what inspires them.

I know that Richard has inspired me to try to get my daughters to contribute their skills to help me blog, as he has done with his daughter Maya:

Now that’s cool! Go check out (and subscribe to) The One Page Blog.

Image [cc] RobertFrancis

Like the series on Marketing 2.0, this series on Staying Relevant is taken from an article written for an upcoming presentation. In 1999 I gave another presentation called Staying Relevant which covered a range of technologies coming online which would significantly impact the legal profession. I suggested lawyers should embrace change if they wanted to stay relevant. Some of my predictions came true immediately (e-filing), others came to be after some years (alternative fees) and others are still waiting in the wings (trusted digital signatures). In this series I review various changes impacting the legal market well beyond technology and again suggest lawyers will benefit from embracing change. This series also highlights the impact of some of my prior predictions, further making the case to embrace.

Part 1 takes a broad look at what has lead to the current climate of change.
“Change before you have to.”
Jack Welch
The Perfect Storm
The legal industry is sailing in a perfect storm of threats to its future. The first storm factor is the economic shift from a sellers’ market to a competitive one. This shift started ahead of the Great Recession. A second factor is the actual Great Recession. With the underlying forces of the market already in flux, this recession greatly accelerated the economic shift. Finally, amongst this economic chaos the pace of technology change continues to accelerate, adding more energy to a raging storm.
The impact of this perfect storm is hitting all corners of the market. It first appeared in the larger firm market, and it has quickly spread. It now includes everything from law schools to the courts, all of which are struggling to deal with vast changes.
To better understand the potential impacts of this storm, let us explore the various aspects of what is happening in different segments of the industry and the forces driving change. As a consequence of this exploration, some predictions will be given, along with some suggestions. However, these comments and various others coming from the market should be weighed against our ability to know the unknown. We have reached a point in human history where predicting the future beyond a few years is quite a challenge. A perfect example is that of Facebook, which grew from zero to 100 million users in less than two years. What things will look like in five to ten years is anyone’s guess. So the best we can do now is keep a vigilant eye on the storm and stay prepared to constantly alter course.
Economic Forces
Up through the mid-2000’s, lawyers across the market were raising rates on a consistent year-to-year basis. This action reflected the relative strength in the market they experienced as sellers. A relatively limited supply of lawyers, along with a growing demand for services, produced consistent growth in revenues. But then things began to shift, slowly at first, but truly at a foundational level.
The changes materialized with clients asking for discounts on rates. Discounts had been given by firms before, but now they became broadly requested and expected by clients. Meanwhile, larger firms continued to push up starting salaries for associates and kept them on lock-step compensation plans, driving up firms’ costs of operation. This economic conflict was hardly noticeable at first, since rate increases and a consistent volume of legal work were still coming in.
To better appreciate the nature of this conflict, we need an understanding of the basic economics of law firms, which are driven primarily by leverage and realization. Leverage is the number of non-partner hours to partner hours. Non-partner hours are those that produce the profits which go to pay partners. Realization is the percentage of dollars realized against standard rates. Realization plays a role since each point below 100%, equates to about a three point reduction in profits. This formula and the profit-squeeze conflict noted above will play a central role in the financial health of law firms going forward. It is therefore essential to our discussions and exploration of the forces at play.
In Part 2 of this series we will walk through the first waves of the storm and how the market has been adapting.