Traditionally, knowledge management in law firms has focussed on legal, technical and practice based knowhow. Its aims have been to improve quality through knowledge sharing, reduce inefficiency (in the sense that lawyers spend less time starting from scratch) and reducing risk. Many firms make a significant investment in these activities.
In response to an increasingly competitive market, in which it is difficult to demonstrate difference, a few of the most forward looking firms are beginning to take a more pro-active approach to knowledge management. In particular, they are looking at how to use good knowledge management more effectively to deliver the goals set out in their firm and practice group business plans. But this practice is not widespread, and the majority of firms who have not examined the role and usefulness of their knowledge management activities are in danger not only of failing to capitalise on their often considerable investment but also of being left behind.
As early as 2009, in a survey conducted jointly with PLC magazine, we identified that General Counsel were concerned about levels of inefficiency and poor working practices at the law firms they used. The general view was that firms should be proactive in suggesting ways to reduce the cost burden and if they were not able to manage work efficiently in a fixed fee environment they would have to take the consequences. The recession may have eased since 2009 and the businesses may be kinder, but General Counsel will not be relaxing their pressure on fees any time soon. Why should they? Having imposed much stricter expectations in relation to fee levels and become used to working with the certainty that fixed fees provide, it’s hard to see why GCs generally would be prepared to revert to outdated practices. And though we may be officially out of recession, the law firm market is still crowded and competitive and those who fail to take a client friendly approach to pricing are hardly likely to stand out – at least, not for the right reasons.
Moving to more imaginative pricing models presents a number of challenges to law firms. It’s surprising that so many partners are still relatively financially illiterate, at least as regards costs and the drivers of their firm’s profitability. Many firms continue to use accounting systems which fail to deliver sufficiently granular information about the results of particular categories of work – much less of individual pieces of work for particular clients. It is often very hard to slice the data gathered by these systems to reveal more than headline figures on key metrics and data is rarely gathered by work stream or project type. This makes it very difficult to assess where efficiencies would have the most impact. Add to this the continuing risk in many firms that individual fee earners (often including partners) will under record or hide time by using “free” resources such as PSLs and the picture with which Finance Directors, COOs and partners have to work it is at best incomplete and at worst misleading.
However, despite the limitations of their financial systems, there is a great deal firms can do to make it easier to respond to client demands for greater pricing certainty without compromising profitability. The firms that are doing this most successfully are those which have adopted a more enlightened and holistic approach to the way they manage their knowledge. Instead of retaining knowledge sources in silos – financial data in one pot, client relationship data in another and legal and technical information and expertise in third – they are working to combine this information so that lawyers can use it intelligently to inform the way they work with clients. Importantly, this approach enables them to budget and manage budgets much more cleverly – including by identifying where working practices can be adapted and materials standardised (or, in some cases, commoditised) to deliver greater efficiencies.
This more holistic approach to managing knowledge – with a much greater emphasis on using knowledge to underpin the firm’s business goals and drive the profitability of its working practices – also enables it to interact more effectively with its clients. These stronger relationships and more intelligent working practices also improve fee recoverability, on the basis that where work have been efficiently delivered and budgets properly put together and managed, the client is much less likely to query the final bill.
The business benefits of a more intelligent approach to knowledge include:
Efficiency and value: it reduces the time and effort spent producing similar work for another client – not just through the use of standard documents, but also by adopting standard processes which the firm is confident are efficient and cost effective and will deliver both value to the client and an appropriate return to the firm;
Pricing: the ability to understand and manage its processes enables the firm to assess the likely cost of particular work and to compete more effectively with other firms on price and value, as well as demonstrating to clients that it has put internal efficiencies in place to enable it to manage cost;
Resourcing: work is easier to resource: junior lawyers are able to advise on more complex matters and run more complex transactions, freeing up more senior lawyers to focus on the most difficult – and higher value - aspects of the matter or to spend time developing relationships with clients and winning other work. Underutilised fee earners can more easily be redeployed from one practice area to another;
Innovation: better understanding of price, process and client need supports effective innovation, by enabling the firm to identify client’s needs more effectively and develop new and more imaginative pricing and process models in response to those needs;
Client relationship management: by pooling knowledge about its experience, clients and contacts, the firm is better placed to develop its client relationships - identifying and responding to clients’ needs more effectively and cross-selling its services;
Winning work: as well as enabling the firm to develop stronger relationships with its existing clients, better knowledge sharing – about markets and sectors as well as law and practice – enables the firm to identify and capitalise on its strengths in order to win work;
Risk management: well managed and documented working practices enable the firm to manage risk more effectively.
We work with firms to help them refocus their approach and ensure that they are leveraging all the knowledge and expertise available to them to ensure they stand out.