Law Firm and Knowledge Management

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This is a research document that looks at Law Firm needing to retain knowledge to provide impeccable service to their clients at an alternative fee arrangement. It ties Legal Project Management to Knowledge Management.

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Law Firm and Knowledge Management

2011

By S. Lynn Bond

Abstract: The legal market is changing and clients are demanding more for less from their lawyers. With the need to maintain intellectual capital to satisfy their client legal needs, law firms have to venture away from the standard tried and true and become more innovative with how their legal practices and back offices operate. Knowledge Management is about sharing, capturing and creating knowledge. The legal industry is starting to embrace legal project management (LPM) as a way to help structure how their practice is organized, codified and managed. A new role that manages the LPM and knowledge sharing allows the lawyer to practice law and the firm to still be profitable with new client demands.

Law Firms are surrounded with Knowledge Management. Lawyers and law firms share, capture and create knowledge every day. It is a staple of their everyday work environment. Parsons (2004) said, Law firms, and lawyers, have been ‘doing’ knowledge work and knowledge management, since lawyering first began. In every advice, in every transaction, in every call of a colleague to show an opinion or critique an idea, in every training session, in every practice team meeting, and in every work-related break room conversation, lawyers have been building and sharing knowledge. A lawyer is a knowledge worker and is filled with tacit knowledge that needs to be transferred to the client (Squire, 2009). The legal market is about helping clients maintain a competitive advantage while mitigating risk. A law firm is only as good as their knowledge workers. The problem today is that clients are no longer willing to write blank checks to their legal counsel to help mitigate risk. With this economic climate, clients are asked to stay within budget in all areas, including legal, and expect the law firms that represent them to do the same. This new dynamic means that the more efficient law firm will be more lucrative for clients. Michael Rogers from MSNBC.com’s column, “The Practical Futurist”, said that there will be VLO (virtual law offices) to help people with their legal needs (Black, 2011). On the internet you can find paralegal services for divorce, ediscovery companies, standard legal forms, incorporation, trademark and patent standards that can all eliminate the need for an expensive attorney. Times are changing, technology is rapidly moving, law firm’s need to be agile to move at the speed of their clients. Clients are demanding more for less. Alternative fee

arrangements have been the topic of discussion in the legal market. Clients are asking their legal teams to do things at a fix price. I can go on the internet today and do a trademark search and pay $495. That’s a fixed price. I can pay a fixed price to incorporate a business for about $295. This is the beginning stages of the VLO that Rogers referred. So what has to happen to allow the law firm to remain profitable and meet the needs of their clients? Old school Knowledge Management was about creating documented procedures (Awad, 2010). The new knowledge management is about all areas of knowledge sharing, capturing and creating (Awad, 2010). There are 10 distinct areas of

Knowledge Management according to Holtshouse (Powers, 1999). The team at Xerox categorized the 10 areas to quickly understand and frame Knowledge Management. Table 1 - Domains of Knowledge Management Sharing knowledge and best practices Instilling responsibility for knowledge sharing Capturing and reusing past experiences Embedding knowledge in products, services and processes Producing knowledge as a product Driving knowledge generation for innovation Mapping networks of experts Building and mining customer knowledge bases Understanding and measuring the value of knowledge Leveraging intellectual assets Powers, V. 1999. Xerox Creates a Knowledge-Sharing Culture Through Grassroots Efforts A knowledge centric organization will be one that can master all ten of the knowledge management domains (Powers, 1999). Lawyers compete against each other within an organization to become a partner.

Sharing knowledge can bring fear to an individual. How can that person have a competitive advantage over a colleague, if they have the same knowledge? Without trusting the organization and your team members, the organization and individual will not be successful. Creating an atmosphere of sharing and collaboration starts at the top (Beaumont, 2010). All levels of management and departments need to buy-in to the knowledge management concept. Although knowledge sharing is critical for the future success of law firms, it was found that it was an exception rather than the rule (Gottschalk, 2009). Without changing the law firm culture about knowledge sharing,

there will always be limitations to the success of knowledge management within the organization (Beaumont, 2010). A law firm is a social community. They specialize in creating and transferring legal knowledge (Nahapiet, 1998). If the knowledge they create can be categorized and codified effectively, then it could be more accessible in the future to share and transfer knowledge more efficiently. Coding a document for future retrieval can be difficult. Future use considerations will need to be understood. The key component is that when somebody needs something similar they can find it and use it as a starting point. The issue with legal documents is that there may be similar cases and no exact cases. A law firm works in all areas of the Nonaka’s Model of Knowledge Creation and Transformation. The term tacit knowledge means knowledge that is in the mind-set of the individuals. It includes intuitions, values and beliefs that stem from experience. Explicit knowledge is knowledge codified in documents, books or other repositories (Awad, 2010). Breaking this down into four quadrants, we can visualize how information can be created and transferred within a law firm and to their clients.

Tacit to Tacit Term Venue Socialization Team Meeting and Discussions Collaboration and Sharing of Knowledge

Example

Tacit to Explicit Externalization Dialog within Teams where expert answers questions Brown Bag or Knowledge Cafe where Expert discusses a topic with others

Explicit to Tacit Internalization Learn from a Report

Explicit to Explicit Combination E-Mail a Report from Repository Expert reads report and applies knowledge to create new knowledge

Reads a document and understands

Table 2. Awad, 2010. Knowledge Management, page 101 As laws have become more complex and all-embracing, it becomes increasingly difficult for lawyers to access the tools they needed quickly and efficiently (Creamer, 2009). It is more efficient to sit in your office and do a quick search to find the information or assign the research to another knowledge worker at a lower pay grade, than it is to walk down the hall or call an attorney that may not be available for an answer. Coding the document for proper indexing and having a front end tool to limit searches can streamline the process for knowledge retrieval. Knowledge Capture will always be the most difficult since it can be anywhere in the firm (i.e. individuals, documents, databases). Retrieving information or trying to capture more knowledge for future use has issues. With information at people’s fingertips, lawyers can be overwhelmed with the amount of information available. This is called “data glut” (Awad, 2010). Information is thrown at lawyers all day. It happens in a conversation with a colleague, an email

thread, a link to an article, RSS feeds, Lexis/Nexis, Westlaw, Law Journals, Reports, etc. A lot of time can be wasted just sifting through emails all day. Breaking down 100 emails in a 10 hour day is spending 6 minutes per email. As everyone knows, some emails may take more than 6 minutes to explore and articulate a response to a client. A new paradigm is needed to manage information for lawyers. Several articles spoke of a new role to help reduce the information that impacts the attorney. Each author has coined or quoted a different name for similar roles: professional support lawyer, knowledge manager, Legal Project Management or Value Partner Team. The point is to lift the burden of sifting through information that may not be actionable to a less expensive resource so that the lawyer can provide exceptional value to the client. The big buzz in the legal market is “Legal Project Management”. This is just another form of Knowledge Management where information is shared with internal and external teams. It best works in a portal environment. The idea of LPM is that you have codified similar cases so that you can outline risks of the engagement, communicate with the client and manage the process as a project. Breaking this down into real terms, it has Knowledge Management written all over it. Legal Project Management helps outline how to manage an engagement (case or matter) for a fixed price. It embodies collaboration and understanding the clients ROI for this type of case. If the case is “win at any cost”, the law firm will put their best team and spend as much time to satisfy the client. On the other hand, if the client says that this patent or trademark is generating $2 million a year, they wouldn’t want a law firm to charge them $5 million to defend it. In order to effectively manage a case, it should be framed similar to an IT project. Levy (2009) outlines these steps:

Table 3: Legal Project Management Control or better understand the cost Control or predict the time spent, both cumulative time (hours) and running time (start to finish) Be better prepared for events, especially unplanned events Deliver only the work necessary to meet the client’s needs Engage the most appropriate resources to do the work best suited to them Improve communication on the team and with the client. Table 3: Legal Project Management (Levy, 2009) The above table has many knowledge management elements including sharing knowledge, collaboration and creating knowledge. The best way to manage these elements is with a portal that provides the right information to the lawyer and client. A new role to help with legal project management and data glut could be a “knowledge manager”. This change in the business model can catapult the firm with a competitive advantage. There are three important areas: knowledge codification, filtering data glut with attorney, managing the legal project. Knowledge codification will require standardizing terminology and meaning for the end user (Awod, 2010). By managing the data that is pushed to a lawyer can increase productivity and billable hours. The legal project management role is the sharing of information, collaboration between internal and external team members and helping to manage expectations. When I first started working for a law firm after being a software consultant and project manager, I viewed the billing attorney as the project manager for a client engagement. I didn’t believe that the lawyers poor planning should require the secretary, paralegal or law clerk to have to work an “all-nighter”. The fire fights that the back-office and the attorney project team can be overwhelming and is plagued with problems. Some problems are inefficiency, employee dissatisfaction, client

dissatisfaction and stress. My point of view looked at an engagement as a project. Somebody needs to lead the project and I didn’t think a paralegal or secretary was the right person to lead. Today, I believe the lawyer should spend time practicing law and the firm should have knowledge managers or legal project manager should lead the engagement. This will keep the project moving forward and on task by communicating critical deadlines to internal and external team members. This model better serves the client and the firm. If you are doing what your competitor is doing, you may be behind the 8-ball. In the article, “Innovation and Competitiveness in Construction Company: A Case Study, the author, Pellicer (2010) stated that 60% believed their construction company was similar to that of other construction companies (Pellicer, 2010). As a former consultant specializing in the legal market, I would agree that most law firms are similar. They bill for professional services rendered. Law Firms do not have real competitive advantage over other law firms. If you are like your competition, you are doing what your competition is doing, than you have no competitive advantage. Law Firms are relying on the quality of their legal team for their intellectual capital. Senior Partners have more tacit knowledge then new associates. Although it is expensive to mentor, train and develop new hirers, it is critical to the overall success of an organization. Knowledge creation has a direct relationship to the value of an organization. The more knowledge creation that occurs within the organization the more the company is worth (Awad, 2010). The problem is creating the culture and environment with the right technology to make the learning process less overwhelming. A good knowledge management solution could be a key factor if the associate decides

to stay with the firm or jump ship for greener pastors at another firm. To keep a competitive advantage it is about the intellectual capital within the company. So organizing and collaborating can create a culture that develops great lawyers. A lawyer should concentrate on practicing law. The best litigator may not be the best at budgeting, project managing, developing teams, providing vision or demonstrating other leadership attributes. Many law firms have started to run their firm like a corporation by hiring executives to help manage the business and allow the lawyers to practice law (Gottschalk, 2009). Think of it this way, a professional athlete may not be a good business man and an accountant may not be an exceptional running back. Should lawyers be required to wear every hat in the business? Leadership is about surrounding yourself with great people to do the things you cannot do well. Clients are demanding alternative fee arrangements since the economic downturn in 2008. Without having a template to handle similar cases and the tools to find similar cases, the lawyer will go over budget and work harder for less profit. Imagine working hundreds of hours and only being able to bill a fixed fee of $10,000. Firms that handle this well are the ones with the competitive advantage today. Pellicer (2008) quoted that 80% of Executives believe the organization is familiar with its core processes and that it concentrates all its efforts on ordinary operating activities, occasionally offering incremental improvements. They also add that changes only take place in such processes when serious problems are detected (Pellicer, 2010). If large law firms don’t quickly embrace the economic changes, they will be left behind and emerging on-line legal services will pick up market share. Business leaders are directly responsible for the competitive success of

companies and, therefore, for inspiring fostering and protecting the creative initiatives of their employees. As a result, it is essential to know how these leaders perceive organizational innovation for the competitive success. It is essential as well to ascertain their sense of responsibility and commitment in the innovative process of the company, their organizational culture and other factors that, on the whole, are required for an organization to be able to innovate and therefore to be in a position to respond to the challenges offered by today’s competitive environment (Pellicer, E.) Companies prosper because of innovation. It is “the act of introducing something new”. Implementing new methods to organize or run a company can create such results (Shahin, 2010). According to Shahin (2010), An organization learns when its employees are continuously creating, organizing, storing, retrieving, interpreting and applying information. This information becomes knowledge (and hopefully wisdom) about improving the working environment, improving performance, improving business processes and achieving long-range goals that will make the organization successful. It is critical for a law firm to be innovative and be a facilitator of learning and creativity on the job. The legal market is expanding to serving clients via the internet. Consumers will be able to handle more legal activities online over the next several years. It is predicted by Rogers that the virtual law office (VLO) will be commonplace by 2020 (Beaumont, 2010). The way a law firm does business will need to change or they may lose some of their market share. If you explore the internet for online legal services, you will find several companies. Know your competitor, review their offerings and enter the online

market to stay profitable in those practices. This market will require standardizations, structure and an effective knowledge management solution to stay in business. In Conclusion, Law Firms need to master knowledge management. It begins with management buying into this concept and helping lead the vision but not necessarily the details of how. The article by Shibayama (2009) which discussed knowledge management with a M&A, the goals was always collaboration and trust. We need to create an environment of sharing information with a tool that allows the lawyer to practice law and not manage paper. The second component is to create a knowledge manager or legal project management team that works with the lawyer and the client. Reduce the noise of useless information and provide only actionable information. A support team that efficiently filters the “noise,” will allow the attorney to concentrate on the legal element of the client needs. The last piece to tackle is the development and sustaining lawyers. The right organization and structure will nurture innovation and the creation of knowledge. This is a firm’s intellectual capital and they should focus on managing it effectively.

Bibliography Attfield, S., Blandford, A., & Makri, S.. (2010). Social and interactional practices for disseminating current awareness information in an organizational setting. Information Processing & Management, 46(6), 632. Retrieved February 20, 2011, from ABI/INFORM Global. (Document ID: 2153208651). Awad, E., Ghaziri, H. (2010). Knowledge Management. An International Technology Group, LTD Publication Beaumont, J. (2010, December). Knowledge management in a regional law firm: A worthwhile investment or time wasted? Business Information Review, 27 (4), 227. Retrieved February 20, 2011, from ABI/INFORM Glboal. (Document ID: 2246757551). Black, N. (2011, February 8). Commentary: The latest innocations in law from LegalTech NY. Daily Record. Retrieved February 20, 2011, from ABI/INFORM Dateline. (Document ID: 2266172971). Bock, G.W., Zmud, R.W. and Kim, Y.G. (2005), "Behavioral intention formation in knowledge sharing: examining the roles of extrinsic motivators, social-psychological forces, and organizational climate", MIS Quarterly, Vol. 29 No. 1, pp. 87-111. Creamer, H. (2009, November). OPINION: Knowledge management needs serious consideration. The Lawyer,6. Retrieved February 27, 2011, from ABI/INFORM Global. (Document ID: 1906887691). Gottschalk, P. & Karlsen, J. (2009). Knowledge management in law firm business. Journal of Small Business and Enterprise Development, 16(3), 432-442. Retrieved February 27, 2011, from ABI/INFORM Global. (Document ID: 1882616571).

Levy, S. (2009). Legal Project Management: Control Costs, Meet Schedules, Manage Risks and Maintain Sanity. Day Pack Books, Seattle, WA. Nahapiet, J. and Ghoshal, S. (1998), "Social capital, intellectual capital, and the organizational advantage", Academy of Management Review, Vol. 23 No. 2, pp. 242-66. Parson, M. (2004). Effective knowledge management for law firms. New York: OUP. Pellicer, E., Yepes, V., & Rojas, R.. (2010). Innovation and Competitiveness in Construction Companies: A Case Study. Journal of Management Research, 10 (2), 103-115. Retrieved February 13, 2011, from ABI/INFORM Global. (Document ID: 2205268071) Powers, V. (1999, Q4). Xerox Creates a Knowledge-Sharing Culture Through Grassroots Efforts. http://www.realcom-inc.com/pdf/Xerox.pdf. Shahin, A., & Zeinali, Z.. (2010). Developing a Relationship Matrix for Organizational Learning and Innovativeness: With A Case Study in a Manufacturing Company. International Journal of Business and Management, 5(7), 187-203. Retrieved February 20, 2011, from ABI/INFORM Global. (Document ID: 2224239141). Squire Sanders Launches 'Partnering for Worldwide Value' Initiative. (19 November). PR Newswire. Retrieved February 20, 2011, from ProQuest Newsstand. (Document ID: 1904171111).

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