Features – Knowledge Management is a Business Imperative

Gretta Rusanow is a lawyer, management consultant and author of Knowledge Management and the Smarter Lawyer, published by ALM Publishing. As the CEO of Curve Consulting, a New York and Sydney-based management consulting firm, Gretta advises law firms and law departments worldwide on their knowledge management, e-business, management and technology initiatives.

Law is a knowledge based profession. Knowledge management – the leveraging of your organization’s collective wisdom by creating systems and processes to support and facilitate the identification, capture, dissemination and use of your organization’s knowledge to meet your business objectives – should be key to your practice and business. However, for many lawyers, knowledge management remains a narrow theoretical concept.

Regardless of whether you are a large law firm, solo practitioner, in-house counsel or a lawyer in the public sector, knowledge management is about understanding what knowledge you use in your practice and in your business – and how you can leverage that knowledge – to achieve your business objectives.

Why Knowledge Management is Critical

The legal industry has faced significant pressures in recent years, making knowledge management a business imperative. In the past, law firms could depend on long-standing relationships with their clients, lawyers who stayed with the firm throughout their careers, and an unlikely threat of competition beyond the city in which the firm operated. Law departments faced little pressure from their organizations to demonstrate their value to the organization. Lawyers, whether in the public or private sector, did not face the time pressures produced through the introduction of instantaneous communication tools, such as e-mail, faxes and mobile telephones.

Clients place increasing pressure on law firms to provide efficient, proactive, commercially focused legal services at a lower cost.

Law firm clients have become very sophisticated buyers of legal services. Clients expect certain efficiencies from their law firms, including lower costs and a faster turnaround time. Law firms must find more efficient ways to work, leveraging the knowledge of their experts by delegating work to more junior (cheaper) staff. Firms can use knowledge management to work more efficiently. Precedent documents, repositories of prior work product and project methodologies are examples of knowledge management initiatives that reduce the time it takes to draft documents, conduct research and run a matter.

Clients often talk about the “proactive lawyer.” Corporations are looking for their outside counsel to practice preventive law—identifying legal issues before they become high risk, and navigating the corporation through these issues. Through creating a culture of knowledge sharing, a key component of knowledge management, a law firm ensures that lawyers across different practice groups are working together to identify client needs.

Clients also want access to their law firms’ knowledge. As corporations become more sophisticated about knowledge management, their law departments look to outside counsel to provide access to their knowledge. Implementing knowledge management systems and processes in a law firm creates the opportunity to market these systems and processes to clients.

Technology creates an expectation of faster and alternative legal services.

In the age of instantaneous communication, lawyers have been forced to find quicker ways to deliver traditional legal services. Knowledge management systems and processes enable lawyers to work more efficiently and provide legal services quicker than ever before.

The Internet has also opened a whole new market for lawyers to sell their services. Lawyers must examine how they will use technology to deliver services to their clients. On-line advisory and drafting tools, developed and managed by law firms, are becoming commonplace. Knowledge management systems and processes provide the foundation of on-line services.

The information age has led to an explosion of information that lawyers must digest.

In this age of the Internet and other electronic information services, lawyers face a multitude of information sources, and an exponential increase in the amount of information they must digest.

With the mass of information passing a lawyer’s desk, how does he have the time to focus on the information that is critical to his practice? Consider the risk implications of missing a critical piece of information. Lawyers must be able to access accurate information when they need that information. Knowledge management involves identifying what knowledge a lawyer needs and where that knowledge can be found, and then delivering that knowledge to lawyers in an easily digestible form.

Lawyers can pursue alternative career paths.

It is not unusual for a lawyer to spend less than three years in a law firm. Many choose not to practice at all. To attract and retain lawyers, law firm salaries have risen dramatically in recent years. The result is that lawyers need to be trained in a significantly shorter time frame than before in order to become profitable for the firm because they cost so much, and because they may generate a profit for only a short period. Professional development programs are therefore critical.

Improving retention rates is another goal of law firms. The traditional large law firm environment of exceedingly long hours does not hold much charm for a lawyer with options. Law firms are no longer competing only with other law firms to keep the best staff. Law firms have been forced to examine their work environment, and create ways to improve retention rates.

Creating a work environment where lawyers are intellectually stimulated and challenged is very important. Enabling lawyers to do their work and go home at a reasonable hour is also important. Minimizing the low value added work in a lawyer’s practice is just one way knowledge management creates a more rewarding work environment. No matter how specialized a lawyer’s practice is, there will be some element of low value added work in his practice.

Knowledge management involves identifying low value added work and developing systems and processes to minimize the time spent on those elements. This results in lawyers having more time to spend on intellectually stimulating and challenging work. They may also be able to work fewer hours and lead a more balanced life.

Consolidation of law firms has led to multi-office, multi-practice organizations, and many associated diseconomies of scale.

The size of law firms has grown exponentially in recent years. The aim has been to grow the firm’s profitability by leveraging the firm’s expertise in certain markets and by expanding its client base by associating with other firms. The result has also been certain diseconomies of scale.

A large firm may find that there is little sharing of knowledge across practice groups and offices. There are a number of cultural reasons for this. Where the partner compensation model rewards the individual rather than the firm, practice groups tend to operate as separate business units, focused only on growing their own practices. There is no incentive to share work with others, since there may be no reward for referring work to colleagues. Indeed, there may be overlap in areas of practice between lawyers in different practice groups. These groups may be competing with each other in the market. Lawyers may also believe that their knowledge base is their power base, and that sharing that knowledge would dilute their value.

This lack of knowledge sharing between individuals and practice groups means that the firm is not leveraging its multi-practice, multi-office infrastructure. Practice groups are not looking at cross selling opportunities with other practice groups. These inefficiencies and lost business opportunities may directly impact the firm’s revenue. In some instances, the lack of cross-referrals to other more appropriate practice groups may even affect the firm’s risk exposure.

Without knowledge management, the larger the firm, the greater the danger that this vast infrastructure will not be leveraged.

Global consolidation and the entry of multi-disciplinary practices h
as increased competition.

As firms grow beyond their traditional local market, they have created new markets for themselves. Conversely, they face increased competition from others. This places enormous pressure on the law firm to differentiate itself in multiple markets and from multiple competitors.

Firms need to have a thorough understanding of their business and take a strategic approach to their future growth. To understand their business, law firms must manage knowledge about the firm’s market position, competitors, key clients and market trends. With this knowledge, a firm can develop a business strategy to build upon its market strengths, address its market weaknesses and differentiate itself from its competitors.

Law departments must demonstrate their value to the organizations they serve

A law department cannot demonstrate its value in terms of increasing revenue and profitability. It must demonstrate its value by controlling its organization’s legal costs. This means managing its organization’s legal risk exposure, so that litigation and settlement costs are minimized. It also means controlling the costs associated with operating an internal law department. This includes managing the number of staff, finding the right mix of inside and outside counsel, and managing costs associated with using outside counsel.

A law department must use its knowledge about legal matters impacting its organization to manage the organization’s legal risk exposure. It must use knowledge about its staff, workload and outside counsel to manage the operation of the law department. It can work more efficiently through the use of precedents and best practice documents.

This combination of pressures forces law firms and law departments to rethink their traditional business models. Because law firms and law departments are knowledge-based organizations, knowledge management is critical to their continuing success. This is not about a management fad. This is about how well you run your business and how well you use your knowledge to address these ever-increasing pressures.

How Lawyers Currently Approach Knowledge Management

Several components of knowledge management already exist in law firms and law departments, such as precedent libraries, work product repositories and professional development programs. However, lawyers tend to take a narrow approach to knowledge management.

The emphasis is on capturing explicit legal knowledge. There is little acknowledgement of the importance of managing knowledge about clients and their industries, the skills and expertise of staff, or knowledge about third parties. There is also little attention paid to identifying and sharing tacit knowledge. Most law firms and law departments limit their knowledge management initiatives to technology. Having a solid technology platform is critical to the successful capture and delivery of knowledge. However, it is not enough. Knowledge may also be captured and delivered without technology.

Generally, law firms and law departments have not adequately addressed who will build and maintain knowledge management systems and processes. Knowledge management initiatives are often the domain of the library or IT department, and consequently, initiatives tend to be narrow in scope. It may be appropriate for the library or IT to be responsible for specific components of knowledge management – but neither can be responsible for developing content or for ensuring that lawyers and staff contribute to knowledge management initiatives.

Lawyers have not yet addressed the many cultural barriers to knowledge management, such as the time based billing model and the partner compensation model. In a firm where compensation is based almost solely on revenue generated, and where revenue is generated based on number of hours billed, lawyers hear a strong message that time invested in knowledge management initiatives is not valued.

At a firm where lawyers are not rewarded financially for referring work to colleagues, there is no incentive to promote knowledge sharing across practice groups. In some law firms, the “knowledge is power” culture means that lawyers believe their career prospects largely depend on their ability to amass a unique base of knowledge. Sharing that knowledge with others would dilute the value of that knowledge.

There has also been little exploration of how a law firm’s knowledge management systems and processes can be leveraged with clients.

How Lawyers Should Approach Knowledge Management

To succeed at knowledge management, lawyers must take a broad view of knowledge management, and consider both the strategic and operational elements of knowledge management.

Knowledge management must be closely tied to a lawyer’s business objectives.

Since law is a knowledge-based profession, there is a direct relationship between a firm or department’s approach to knowledge management and its ability to achieve its business objectives. Lawyers should therefore be clear on their business objectives before investing in knowledge management.

Before any knowledge management initiative, lawyers should have a good business reason for pursuing the initiative. Ask yourself: How will this initiative help us achieve our business objectives? Do the benefits justify the investment?

Measuring the value of knowledge management is key. If a lawyer has defined demonstrable benefits at the outset, the lawyer can measure the outcome of the initiative. Every knowledge management initiative should be judged on how well it meets a knowledge management objective and a business objective.

Management must be in front of, and behind, knowledge management.

Management support for, and involvement in, knowledge management is key to its success. The message that management sends to your staff conveys the importance of knowledge management to your firm or department. If management sends a message that knowledge management is critical to the future growth of the firm or department, lawyers will start to pay attention to knowledge management. If management addresses the cultural barriers to knowledge management, such as rewarding lawyers for contributing to knowledge management initiatives, lawyers will begin to adopt knowledge management into their daily work practices.

The scope of knowledge – legal knowledge and beyond.

Taking a broad view of the knowledge a lawyer uses to run a practice and a business is the first step in ensuring that knowledge management supports the business, as well as the practice.

As a lawyer, you must manage your core legal knowledge sources, such as case law, legislation, commentary and interpretation, best practice (or model) documents and precedents (or form) documents, to operate your practice.

You also use other categories of knowledge to operate your business, such as:

· Firm (or department) and practice area knowledge
· Client knowledge
· Business and industry knowledge
· Staff skills and expertise
· Methodology and processes
· Past projects and lessons learned
· Third party knowledge (e.g., regulators, judges, counsel, experts, external consultants and competitors).
· The firm’s market position
· The firm’s revenue, costs and profitability (or the department’s costs)

The scope of knowledge management initiatives – beyond technology.

While a database is an effective tool to capture and disseminate knowledge, there are many non-technology means of managing knowledge. Professional development programs, mentoring programs and communities of interest are some common examples of knowledge management initiatives that do not involve technology. Even office design, such as creating open plan offices, team rooms and a café space, can be a knowledge management initiative – by creating a
physical environment that encourages knowledge sharing.

Knowledge management needs an organization to support it.

Managing the process of identifying, capturing, disseminating and using knowledge is labor-intensive. A law firm or law department needs central leadership to direct and implement its knowledge management strategy. Since knowledge needs differ across practice groups, a law firm also requires knowledge management staff at the practice group level. Existing functions, such as the library, intranet, and precedents group, should become part of a wider knowledge management organization.

Since knowledge management touches upon all areas of a law firm and a law department, careful attention must be paid to positioning the knowledge management organization so that it has the authority to implement knowledge management across all areas, including practice groups and administrative functions.

Knowledge management needs a culture to facilitate it.

There are some fundamental clashes between the law firm culture and the objectives of knowledge management. With the focus on the billable hour, lawyers have no incentive to work more efficiently, while knowledge management is all about working more efficiently. In some law firm cultures, lawyers believe that knowledge is power, and amassing a unique knowledge base is key to their future success. Knowledge management, on the other hand, is all about leveraging knowledge by sharing it with colleagues. Law firms need to address cultural barriers, such as the lack of time to invest in knowledge management, and the lack of knowledge sharing between and within practice groups, by building knowledge management into their business processes, such as the compensation system, career progression model and budgeting system. Similarly, law departments must address cultural barriers such as limited interaction between different divisions and differences in regional cultures.

Knowledge management needs a solid technology platform.

While knowledge management is not just about technology systems, technology does play an important role in the capture and dissemination of knowledge. Law firms and law departments must have core technology tools, and use them well, to support knowledge management.

The Results of Knowledge Management

Knowledge management, like any other initiative, requires significant investment so it must deliver results. The best way to justify investment in knowledge management is to ensure that knowledge management is directly tied to your business objectives. Where a law firm or law departments is clear on its business objectives, and how knowledge management can drive the achievement of those business objectives, justifying knowledge management is easy.

If knowledge management is done well, it will lead to reduced costs, increased revenue, increased profitability and the achievement of your other business objectives.

Posted in: Features, Information Management, Law Firm Marketing