Cash in the attic: How KM can improve firm profitability

The value of information and internally-developed knowledge has never been more important ?to a law firm. It acts as a differentiator ?and demonstrates expertise above ?and beyond what competitor firms ?can offer clients.

However, the boundaries between what is developed and maintained internally and what is now available online is becoming increasingly blurred. Content providers are making their services easier to use and more flexible to access. Equally, they are showing an increased willingness to support better integration with law firms' own internal systems and processes. This makes it harder for individual firms to differentiate the services they offer and makes it easier ?for new competitors to enter the legal market, with the ability to quickly ?access high quality and reliable information services.

Firms that can improve the efficiency of their information and knowledge management functions will be able to drive up and support higher margins, ensure that fixed price and capped ?fee work remains profitable, and ?ultimately support growth in profits per equity partner.

Financial impact

How can more effective information and knowledge management impact a firm's profitability? The simple fact is that it aims to improve efficiency, which has a direct impact on realisation.

David Maister, a Harvard academic and consultant to professional service firms, has defined the law firm business model as follows:

Net income per partner = (1 + leverage) x (blended rate) x (utilisation) x (realisation) x (margin)

An important factor in his formula is that all elements are interlinked and it is hard to adjust one without having a direct and immediate impact on others. Small improvements in efficiency can have a dramatic impact on net income per partner by driving up the realisation percentage, with minimal or no impact on other elements of the formula.

Consider a three per cent improvement in realisation brought ?about by a more efficient and effective information and KM service. The impact on a relatively small firm with 120 fee earners and 20 partners is show in Figure 1. The result is a growth in net income of 9.6 per cent and a growth in earnings per partner of £22,950 or 4.2 per cent.

 

Improving systems

The knowledge and expertise developed by law firms represents their intellectual property. The management of this IP falls to knowledge management, information management, professional support and library functions. The specifics and structure will differ from firm to firm, ?but all will use systems such as the following to collect, manage and ?share information:

• intranets and extranets;

• document management systems (DMS);

• KM solutions;

• emails;

• blogs; and

• wikis.

Firms that consider their own know-how to be their most valuable asset will have invested in specific internal KM systems. Such systems act as a repository for core materials and enable information to be quickly found, used and managed in a more efficient manner than would otherwise be possible.

In conjunction with internal systems, much of the legal research and more generic know-how or current awareness materials are now accessed via a variety of online systems and services. This content is located in what is often referred to as the 'deep web', i.e., the content that is locked away in specific online legal databases or behind paywalls, where it is not easily accessible to traditional content gathering and indexing solutions.

Online legal information services that your firm may already use might include ?a mix of subscription and free-to-access services such as:

• Westlaw and Lawtel;

• Justis and JustCite;

• Legislation.gov.uk; and

• online news aggregators.

The number and quality of online ?services available has improved in recent years, while the volume and variety of content maintained via these services is increasing all the time. At some firms, day-to-day information development and management is partly 'outsourced' to ?these online services so that internal experts can focus on developing higher value know-how.

The rapid pace of change in legislation, the need to access the most up-to-date case law and the growing pressure of regulation and compliance in a more litigious world is driving this change. To keep pace, firms need to ensure that not only do they develop and maintain their own content, but that they also have consistent and seamless access to the right online services ?across the firm.

The expansion in choice and the overlapping of different systems and services can lead to higher costs, inefficient search practices, greater inconsistency and increased risk.

Simplifying usage

Consider the following scenario in which lawyers and trainees are introduced to the systems and services used by a law firm.

1. They are directed to an intranet that lists the different services available.

2. They receive an introduction to and training on the core internal and online systems.

3. They are assigned different access credentials and methods for the different services.

4. Over time, they develop their own set of shortcuts, favourites or indeed search practices - not all of which may be in line with the behaviour required.

5. Some systems and services start to get overlooked or, in some cases, not used at all.

6. There is an ongoing programme of training and re-training.

Over time, different practice groups and individuals use the resources available in a manner that is, at best, hard to manage and, at worst, inconsistent or incorrect. Simplification is the key to ensuring the highest possible quality and consistency, while minimising costs and time spent.

Information systems

This wide mix of internal systems and 'deep web' content presents a challenge when it comes to accessing and using the most reliable, up-to-date and appropriate information. The challenge is that the 'Google' generation of users expect the complexity to be hidden and the information they need to be available via a simple interface and at the click ?of a button.

One way to solve this problem is to implement an enterprise search solution. This would identify and map or effectively cross reference all required content sets and then index the entirety of the content in a new 'super' index or set of indexes.

This sounds great on the surface, but such an approach takes a long time, a lot of internal resources and is very expensive. Furthermore, it may only address part of the problem, i.e., the integration and searching of the content that the firm owns and produces, along with content that can be collected and indexed from a small number of online systems and services. Much of the content held in online services cannot be accessed and indexed in this way due to copyright issues, the sheer volume involved or because content owners will simply not authorise such an approach.

For a firm that is spread across a dozen offices in three or four jurisdictions, the variety of systems, online services and languages used, combined with the different and dynamic nature of the internal systems and procedures, makes the complexity of the problem apparent. The required enterprise search solution may take years to complete, with ?costs running into the high six or even seven figures.

Once implemented, the solution needs to be supported, with appropriate resources and infrastructure put in place and maintained over the long term. This solution, when delivered, can produce impressive results, but is only suitable for the very largest of firms and those that have a complex mix of internal systems.

For other firms, the enterprise search approach may be quickly ruled out as an option due to the costs and resources required. Firms in this category often struggle to overcome what is seen as an insurmountable problem.

A seamless experience

The way in which information and knowledge is developed and maintained in law firms is changing, and the pace of change is continuing to increase. Multiple overlapping online services provide both high quality and reliable information but, if not integrated into how your firm works, they can result in frustration and inconsistencies across the firm and within practice areas. 'Deep web' services must be effectively linked to internal information systems and services to ensure a seamless experience for end users.

When choosing your next system, ensure that it:

• is comprehensive, incorporating both internal and 'deep web' resources;

• is extensible, enabling new content resources to be included without significant cost or disruption;

• is easy to manage, with minimal training and IT involvement;

• honours the security of content being accessed;

• is language independent; and

• is affordable to implement and maintain.

The results can be dramatic and ?should include:

• better utilisation of high quality and often high cost content services;

• cost savings, with less time required on training and overlapping services removed;

• improved efficiency, with internal information experts focused on high value tasks;

• more consistency across the firm, with information services better integrated and more readily available; and

• improved competitiveness and an ability to retain or improve margins.

Rob Martin is director of federated search and KM strategy at Thomson Reuters (Professional) UK (thomsonreuters.com)

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