Last night, I was reading our Declaration of Independence–don’t ask me why–and I noticed something very interesting. First, let me say that I am no expert on it. Just another average joe with a law degree.

You know how programmers in the early ’80s always built “back doors” so that if they had to hack back into the program, they’d be able to get back in?

Well, I found the Declaration’s. Seriously.

“That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”

Just thought I’d share.

The other neat-o thing is that they weren’t too subtle about it either. It’s the last half of the third sentence!

Poor, mad King George didn’t stand a chance against ye ole’ “I can’t tell a lie” George W. … I’m just sayin’.

Jordan Furlong brings up an interesting insight in his recent post, “Law firm of the 21st Century.” He notes “the company that used to sell lawyers their textbooks and caselaw databases is now, in effect, competing with them in the delivery of legal services.” He’s referring in large part to the recent acquisition of Pangea3 by Thomson Reuters (TR). I think he is sounding the right alarm bell here. I’ve been surprised we haven’t seen more of an out-cry over this. Maybe that is yet to come.

For years I’ve kept an eye on both TR and LexisNexis (LN), waiting to see if they will cross this line. In the past I even brought it up with reps from both companies. I suggested there must be some temptation to go around lawyers and sell directly to clients, cutting firms out of the middle so-to-speak. In the past, these comments were met with quick and decisive responses that such a move was not part of their strategy.
The Pangea3 acquisition noted in Jordan’s post deal got me thinking about a number of moves by TR that suggest this opinion may no longer prevail there. Some things to consider:
  • As posted on 3 Geeks, TR is cutting services to large firms. Laying off the people who sell and service law firms indicates, at a minimum, a shift away from them.
  • Last year I had to remind a consultant connected to TR that we were their client, not the companies we represent. I had seen too many reports, articles and comments from consultants on how clients can cut their legal fees using AFAs. In fact, I am still waiting for consultants to approach firms on how to deal with AFAs. Instead these consultants are going around firms, represent clients’ interests against them.
  • In October TR acquired Serengeti. This is a matter management and e-billing tool for clients. I repeat – this tool is for clients not law firms. It serves as “a system that helps in-house counsel control legal spending.” Or in other words, cut law firm revenues.
  • This month, TR buys Pangea3 which sells legal services to clients in direct competition with law firms. Over 90% of the press I have seen on LPOs shows them selling to clients – not law firms. I understand some law firms are hesitant to be public about using LPOs, but either way, clients are the buyers right now. The best example is clients using LPOs for first review in discovery. Although this saves clients money – this also is work that used to go to law firms. In this instance, TR has completely crossed the line into competing with their customers.

Now – do I understand why TR is doing this? I understand there is money to be made. However, I also understand whose market they are taking.

I know all too well clients are trying to save money on their legal spend. An example is clients growing refusal to pay for online legal research costs. So this cost is now hitting law firms’ bottom line. With so many firms looking to save money, I wonder how they will chose which primary law provider(s) to use?
TR provides an excellent online legal research tool. But they may also be providing law firms with an easy decision on which duplicate subscription services to eliminate. Whatever happens, law firms should wake up to what’s going on in the market and know who is there to help them … and who is not.

[Guest Blogger – Marlene Gebauer]


Do you have a Service Level Agreement, or SLA at your library? If you do, I would love to hear about it. If you are wondering what I am talking about, Wikipedia defines an SLA as “a part of a service contract where the level of service is formally defined.” SLAs are common in the IT industry and particularly in the ISP world. How it works is that IT supports various Line of Business (LOB) clients (in our world think departments and practice groups) and formalizes service levels with each of them.

What is interesting about SLAs is that they define the service to be provided, and when they are commonly used, can set standards across an industry. When used appropriately, SLAs can be an excellent service marketing tool that executive management can understand and clients appreciate.

Make no mistake, an SLA is not a goal or mission statement. One of the key elements of an SLA is that the service to be provided be defined in measurable terms. So instead of saying “It is our mission to provide timely research service…”, as you might in a mission statement, you instead say “We will provide an initial response to a research request during normal hours of operations within 15 minutes of posting..”

“Wow,” you might say to yourself, “That sounds great, but how do I quantify the appropriate time? “Using dashboards with reporting functionality can assist in quantifying what, in the past, has been difficult to quantify. We use a dashboard product, Footprints, produced by a company Numara, that we have customized to record pertinent reporting data for our teams of Research, Acquisitions, Systems and Education. So with the right customization, a report can be created to see the average time a request is in queue before it is picked up. Based on this sort of reporting, you can determine a reasonable SLA focus point, whether it is time of initial response, timeframe to disburse expenses or something completely different.

Still not comfortable making a formal declaration of service levels? No problem, you can first establish Service Level Objectives, or SLOs, internally. After tracking your success rate with the SLOs, you might be more comfortable going public with an SLA.

The idea of quantification and establishment of SLAs is something for knowledge centers, research departments and libraries to closely consider. While the total scope of our work and skill cannot be boiled down into statistics, being able to clearly define to our clients and to executive management what we can deliver, even if just on a few points of service, can be invaluable because we are speaking in the language of business objectives and expectations.

The Social Network director, David Fincher, may have brought his experience from films like Fight Club and Seven, but you may have wondered what The Social Network would have looked like had someone else taken the director’s reins.

Luckily, CollegeHumor’s production gives us a chance to see it through the eyes of famous directors like Wes Anderson, Michael Bay, Christopher Guest, Quentin Tarantino, Guillermo Del Toro, and Frank Capra. Makes me wonder how M. Night Shyamalan would have messed this one up…

When Reed Elsevier announced the retirement of its current CEO, Andy Prozes, it also outlined a change in how the LexisNexis business will be organized after January 1, 2011. LexisNexis will be split into two different units, each with its own CEO. There will be a “Risk Solutions” group with Jim Peck as CEO, and a “Legal Businesses” group with Mike Walsh as CEO. Both Peck and Walsh will report to Reed Elsevier’s CEO, Erik Engstrom.

A LexisNexis spokesperson told me that more information will be released on the overall objectives of this move following the February 2011 Reed Elsevier annual meeting. At this time, the purpose of the split is to allow each of the units to “focus on their respective priorities and create value for their customers.” Apparently, the Risk Solutions unit will have a much broader market in which products like ChoicePoint will be marketed, while the Legal Businesses unit will narrow in on the legal industry. The LexisNexis spokesman said the idea was that the “risk and legal businesses will continue to leverage each other’s content, technology, sales channels, and other resources.”

According to one report, the move to split off the legal businesses unit is an effort to “help it win back market share lost to Thomson Reuters’ Westlaw in a difficult market.” With Thomson Reuters new initiative to push its product into the one- to three-attorney firms announced last week, and LexisNexis’ push into that same market with its Lexis Advance for Solos product, it should be quite a battle between LexisNexis Legal Businesses and Thomson Reuters Legal in 2011.

This is the third post in an emerging series on law firm profitability. The first was on AFAs and LPM, and the second was on realization’s role. This one explores the role of leverage in profitability.
Traditionally when lawyers spoke of leverage, they were referring to the good ole pyramid. When I talk about leverage, I am focused on two very different things:
  1. Pushing tasks to their lowest cost labor source, and
  2. Improving the profitability of work

Old school leverage is an unsustainable model of growth. This new school leverage is about restructuring a firm for the future.

Recently I saw a presentation from David Wilkins, a Harvard law professor specializing in law firms. He drew a simple, yet elegant graph that helps illustrate my point:
[Graphing technique borrowed from ThisIsIndexed]
The previous post on realization mentions the “rule of three.” When firms measure profitability, they apply a cost rate for each timekeeper. In our rule of three, this cost rate covers the two components of comp and overhead. The graph visually displays this rule – at least for non-partners. And it shows that very ‘young’ associates generally don’t generate enough revenue to create profits. The sweet spot for profit comes from experienced associates or other non-partners, whose revenue to cost ratio is high. Looking closer at this rule shown by the graph, what emerges is the understanding that the rule of 3 only applies to non-partners. This is reasonable, since a portion of partners’ incomes come from that profit. In other words, their revenue to cost ratio is negative especially when you account for their own, base comp. In turn this means firms generally don’t make profits on partner hours billed. As with all rules there are exceptions to this one. Very young partners with relatively low comp and high rates can have profitable hours. Or partners who bill (and collect) extremely high numbers of hours can be exceptions. This happens since cost rates are calculated on a per hour basis, and super high numbers of billable hours drop the cost per hour. A benchmark of billable hours per year for this ‘rule’ might be 2600 per partner. As you might guess, this happens infrequently, so the general rule above on the profitability of partner hours holds pretty well.
The graph makes it abundantly clear that law firms profit from associate hours. And the path to profitability becomes clear: leverage your work. Send as much work as possible to higher margin associates.
Seems simple, doesn’t it?
Yet most firms don’t get this. Primarily because comp systems reward a different behavior. They’re not designed to reward profits – they reward hours and revenue. This is the case since these compensation systems were designed under a different model. This was a cost-plus business model, where profit was built into prices (a.k.a. rates). So partners have not focused on the metric of profitability in this fashion.
Once partners understand this, then it becomes quite natural to shift work to its lowest cost, effective labor source. Ron Baker will likely appreciate this statement: Tasks should be performed at their cheapest, most effective, level of timekeeper. This behavior will lead to improved profitability for law firms. But more importantly, this same behavior will lead to lower costs of service for clients. On a simple, illustrative level this means partners should not be performing tasks associates or paralegals can perform sufficiently well. Doing so undermines profits and raises costs for clients.
So why is this not already happening? Why are firms and clients not behaving like economists would expect? IMHO – because they don’t get it. They don’t yet understand how things have shifted at this basic economic level. This underscores the real transition facing law firms right now. They have lived in the cost-plus world for 50 years and now have to figure out the profit margin model.
Oddly, many clients are actually demanding partners perform most of their tasks. They see this as a “hire the lawyer, not the firm” decision. They want the high expertise of the partner and think an associate is less efficient. This approach assumes all or a majority of tasks are best performed by partners, which is not accurate.
When clients figure this out, and they will, law firms have the much bigger task of living in a profit margin world. This will be the subject of the next post in this series.
Conclusions: Leverage is the key factor in law firm profitability. Although realization has an influence, leverage has a much greater impact. In modeling various fee deals, small changes in leverage have measurable impacts on profitability. I always enjoy quoting Karl Marx when lawyers push me on this issue, “You get rich off of the sweat of another’s brow and not your own.” Which is to say, you make money leveraging the work of others. Both law firms and clients alike will do well to understand this. As they come to an awareness of these dynamics, I predict significant shifts in market behavior.

We thought we would have a little fun this week and play off of the “geek” in our contributors. This week’s question is:

Which Fictional (Star Trek, Monty Python, Dr. Who, mythical, etc.) character do you think would be outstanding in your profession?

Off the top of my head, I picked Mr. Data from Star Trek: The Next Generation. I think he would make a great librarian… especially in these days of electronic books, databases and Google searching. Of course, I’d have to teach him a little bit about the “reference interview” technique, but I think he’d catch on after a few months behind the reference desk (especially around 4:50 PM on Friday’s before a three-day weekend.)

We want to “give thanks” to all of the different perspectives we got this week and wish everyone a Happy Thanksgiving. While you’re on the couch – taking that obligatory nap – think about contributing to next week’s post. We’ll make it an easy one, since I’m sure the tryptophans are probably going to slow you down. So, read all the perspectives, then take a look at next week’s question to see if you want to dive in and add your special perspective. If you do, then simply email me or tweet me and I’ll give you the instructions on how to contribute.

Patent Librarian
Information Junkie
Kristin Whitman

Hermione Granger, no question!  Her nose is always in a book, cross referencing information, double-checking facts, and using logic to put the whole picture together.  She makes full time use of all sources available to her (including the Hogwarts Library restricted section), but won’t be fooled by a honeyed sales pitch (least of all from those Ministry of Magic types!).  She’s got her (extendable) ear to the ground and a mind like a Devil’s Snare, always gathering new information.  She’s the real behind-the-scenes hero!

The Teacher’s Perspective
Instant knowledge
Véronique Abad

The obvious character for me would be Mr Spock!  He would just have to put his hands on the head off his students and they would instantly know the full content  of the course! Or understand what they done wrong! No communications problems! Also it would be fun to see how he would react to the behaviour of the young generation living their virtual lives online while they are supposed to be practising an exercise.

Marketer
Brain Power
Kathryn DeLia

Going with someone new, Megamind would be a good marketer. Lots of brain power, creative, clever, able to be good and bad at the same time, dresses well and able to choose music. Plus he has good delegation skills as his gives tasks to Minion and his brain bots. See the movie and you’ll know what I mean!

AFA Perspective
Solution Focused
Toby Brown

Austin Powers.  Cuz he’s the International Man of Mystery.  Talk about a man ready to face any challenge head on ….  For example: A challenging partner-like personality – Dr. Evil.  Aggressive Colleague – Felicity Shagwell.  Unexpected group reaction – The Fembots.  Crazed ego-maniacs – Goldmember.  Hands-on research – directly sampling Fat Ba$tard’s ‘evidence.’  Embracing new technologies – running the DVD on the phonograph.  Setting difficult but achievable goals – the Japanese twins.  Keeping a positive attitude no matter the circumstances – Yeah Baby!

Online Marketing Perspective
The Great and Terrible
Lisa Salazar

Dorothy from the Wizard of Oz: Because there’s no place like home … and don’t look behind the curtain!!

Law Librarian Perspective
Going the Extra Light Year
Janet McKinney

I think Scottie (original Star Trek) would be a good librarian, because of his dedication to his job, co-workers, and organization; his ingenuity when having to resolve problems; and because he’s often “givin’ her all she’s got, Captain.”  And knowing how to operate the transporter could be a desired skill in a law firm.

The IT Perspective
Winning in a no-win situation
Scott Preston

Captain Kirk.
One of my favorite Captain Kirk stories is the Kobayashi Maru story.  The Kobayashi Maru refers to a test that is a no-win test.  It is designed to see how a cadet handles a no-win situation.  Kirk who has taken the test twice already figures out how to reprogram the simulator to make it possible to have a winning outcome.  We are, on occasion, faced with what seems to be a no-win situation.  It would be great to have Captain Kirk reprogram the problem to have a winning outcome.

Knowledge Management Perspective
“Shockproof and can think faster than [a] super computer”
Ayelette Robinson

Stitch, from Disney’s Lilo & Stitch, is described by his creator in the film as “shockproof and can think faster than [a] super computer.” I couldn’t think of a better skill set for knowledge managers — the ability to bounce right back from challenges is key; and as the liaisons between attorneys and technologists, we need to be able to address substantive issues both quickly and correctly. As for Stitch’s “superhuman strength,” well… we can dream, can’t we?

Law Librarian Perspective
“Ford Prefect”
Ellen Quinn

Ford Prefect, the roving researcher from The Hitchhiker’s Guide to the Galaxy is my choice for an outstanding library related science fiction character.  The Hitchhiker’s Guide is originally set in 1980s England where Ford, an alien from another planet, meets up with his friend Arthur Dent, just minutes before the earth is destroyed to make way for a hyperspace bypass.  As Ford later explains,  he was sent to earth to research the entry for an encyclopedic electronic book “The Hitchhiker’s Guide to the Galaxy.”  While Ford’s work ethic is somewhat lacking, he spent 6 years on earth and his entry in the HHTTG for the earth is:  somewhat harmless.
The books in the series are loaded with odd quirky humor and sarcasm.  My brother once described the books as just too weird, even for him.  I have always found them to be delightfully odd and very funny.  The focus of the books, radio program, the 1981 BBC TV series (highly recommended) and other HHGTTG spinoffs is an e-book called The Hitchhiker’s Guide to the Galaxy.  Please note that at the time these books were written, there were no ebooks, no one had personal computers and there was no internet or world wide web.  Name any other TV show or book about a book.  Ok, maybe you can com up with one or two titles but none with the style and wit of the HHGTTG.  The late Douglas Adams who created the HHGTTG also wrote some episodes of Dr. Who, but it is his love of words, satire and humor combined with a very Dr. Who like science fiction world, that make these book and the character of Ford so appealing.
References to the HHGTTG appear throughout the internet.  Have you ever gone to Yahoo’s Babelfish translator and wondered at the odd name for this service?  It is named after the Babel fish, a creature described in the HHGTTG that provides instant language translations.  Although in the book you have to drop the little fish in your ear and it instantly translates any spoken language into something you can understand.
The very sarcastic references in the book to Megadodo Publications are a welcome bit of comic relief for those of us that have to deal with large publishing companies on a daily basis.
Type the “ultimate answer to life the universe and everything” into Google and you will get an answer straight from the HHGTTG = 42.  You need to read the book to get the joke but it is a widespread bit of humor.  The internet was developed by people who clearly knew and loved Adam’s books.  And his anti-authoritarian style while it was developed in the late 1970’s still rings true today.
Ford is Arthur’s guide through the galaxy and like today’s librarians, he interprets the world around him for others and explains the mysteries of the universe.

Another Librarian
Guts & Savvy
Mark Gediman

For my money, Gowron would make a great law firm librarian.  His wild expression and unpredictable nature hid a shrewd politcal operator.  Not everyone could have manipulated both the Romulans and the Federation into fighting a civil war on his behalf.  Can you imagine what this guy’s budget meetings would look like?  Not mention his reference interview skills.  He may not know the answers but can sure manipulate someone into telling him what they are.  And imagine the consequences for those who have the nerve to question whether he’s “necessary.”

Yet Another Librarian
Gorilla Librarian
Jan Rivers



Next Week’s Elephant Post Question:


What Free (or very low-cost) Product do you use everyday that helps you accomplish your job?


Although the saying of “you get what you pay for” usually applies, there are some products that are out there that don’t cost a dime, yet are extremely useful. I probably should have added the caveat of “with the exception of Google,” but I’ll even keep that option open. I know there is one product that I use a lot that is free (although I have contributed to the developer in the past for his hard work.)

If there is something that you use and you’d like to share the name of the product and how you use it, then send me an email or tweet and I’ll give you the instructions on how to submit your contribution.

Happy Thanksgiving!!

Law firms need libraries and need law firm librarians. There have already been several rebuttals posted in reaction to Mr. Lamb’s article, but mostly from the perspective of the library, who presumably want to keep their spaces and their jobs. I however, as a competitive intelligence practitioner, come at from a different perspective – I couldn’t do my job as effectively if I didn’t have law librarians doing theirs and I know many an associate or partner who would feel the same. The question we should be asking instead, is what is the cost of not hiring a law firm librarian??

As Mr. Lamb mentions in his article, the pace of information creation is accelerating. It is my job to take that mess of information, digest it and provide my lawyers with something tangible, actionable and competitive. And how do I do that? For a start, I employ law firm librarians, to help me at every stage of the process. In addition to being the best keepers of information, law librarians are also the most knowledgeable in respect to what sources are the best. As many people (especially inexperienced associates), I am a creature of habit. When a problem comes across my desk – I turn to the sources I use time and time again whether paid subscription databases (which law librarians also spend time vetting and scrutinizing for useful content), free sources or media searches to answer the question. And every time I run into a wall – I send the question to my law librarians, telling them what I have already done and they, without fail, the librarians (seasoned and new) suggest another several places I should look. I’ve seen many partners, students and associates often doing the same. Moreover, once we’ve strategied about new places to source additional information, they do that looking for me, saving me time – letting me get straight to the analysis. To put it in basic terms without over simplifying what they do, law librarians know stuff and they know how to execute. They know how to look for stuff, where to look for it and most importantly in the billable-hour-is-king environment, they know how to do it efficiently.

Which brings me to the next point of Mr. Lambs article that has had me in a fit for several days, “why would a firm need or want to draw a line between where that information came from?” followed closely by the differentiators of “internally created information” vs. “externally created information”. In the land of law firms, there is and should be a huge difference between these two positions and the two positions need to remain distinct, despite Mr. Lamb’s assertion. After all, it is the internally created information that is both a law firm’s currency by way of product and the service it has to sell. Not to mention that librarians as a general rule are not in habit of sourcing material of their own creation. Law librarians (or any librarian as far as I understand) tend to leave the creating of information for the law makers, the authors and the journalists.

Mr. Lamb posits that there is a gap between the way librarians describe themselves and how he would like to see them described. I disagree, law firms and the holy grail of client service are all about relationships, about building trust and being armed with the best possible answer to a problem. Would it not make sense then, for those in the position to broker this information – be it legal research, business development dossiers or client current awareness be imbued with the very same characteristics of loyalty, accuracy, intelligence and friendliness that clients want and expect from their lawyers? Law firm librarians are doing it right – they are meeting the ultimate goal of expert client service and consistency, they are evolving with firms and will continue to do so, as long law firms continue to have information and research needs.

Based on comments from the prior post, “The End of Write-offs?” I thought it would be a good idea to peel back another layer on this onion. The prior post was purposely over-simplified, to focus on the issues of AFAs and LPM. This post will better explore the impact of realization on profitability.
First-off – why is realization important? One comment to the post talked about 50% realization on $2000 per hour is still $1000 per hour. Although $1000 per hour sounds like a high rate, if the timekeeper involved is compensated as if they bill at $2000 per hour, that’s a different matter. The real issue is the relationship between compensation (comp) and billing rates. Rates need to cover comp, overhead and profit. This follows the basic rule of three where rates are broken down into three components: 1) comp + benefits, 2) firm overhead, and 3) profit (a.k.a. partner income). The general rule states that each of the three comprise about one third of the rate.
Functionally this means that every point off of realization means 3 out of profit, since comp and overhead remain the same. This also means that as you approach 67% realization on a timekeeper, a firm’s ability to make a profit disappears. So – $1000 per hour is fine if the timekeeper is compensated at a rate relative to that number. If the timekeeper is compensated relative to the $2000 rate, then 50% realization means the firm is losing money on this person. Since I don’t know many firms who run with rates that high compared to comp, it’s unlikely that $1000 per hour is a profitable rate for a firm in that scenario.
Another point made is that write-offs can come from clients that just don’t pay. This is absolutely true. I focused on write-offs in the prior post, since they are client-identified candidates for no or low value effort. However, write-offs occur for other reasons. It is also true that write-downs occur for multiple reasons. These may be ‘back door’ rate discounts or more likely recognition by the partner of low/no value work by timekeepers on the team. This is yet another prime target for LPM to tackle as it is typically time billed by associates but deemed not worthy of the client bill. LPM would suggest it’s a better idea to direct resources to certain tasks instead of condemning no-value tasks as worthless after the fact.
This was the main point of the prior post. Instead of targeting AFAs, LPM should be focused on eliminating and reducing no and low value efforts by lawyers regardless of the type of fee arrangement.
(The other, actually more important driver of law firm profitability is leverage. But that’s a topic for another post.)
On a final note – Anonymous comments “One additional point, write offs often come from clients that have no money. The client intake process is what needs to be addressed not LPM.” More importantly, I would argue that profitability needs to be addressed. Once that is a firm’s goal (instead of billables/revenue), then LPM, client intake and pretty much every other function at a firm will change. LPM is focused on a symptom – meeting budgets. The better focus is on profitability. That focus will drive real change for firms.

Toby had a chance to sit down with Shy Alter, Peter Krakaur and Andrew Terrett to discuss the practicalities of Legal Project Management. The ILTA TV program discusses the issues surrounding LPM and whether we are attempting to turn attorneys into defacto Project Managers along with the principles and best practices of LPM in law firms.

ILTA TV Roundtable LegalPM from Shay Alter on Vimeo.