The changing face of KM in law firms

Know-how management (KM) in law firms is changing, as firms move more towards expertise rather than commodity-based KM, a trend that has been noted in a recent major review of KM strategy at Allen & Overy. DAVID JABBARI, global head of know-how, explains the changing strategic thinking at his firm and how this is impacting KM policies and procedures.

KM in law firms tends to be a combination of commodity and experience-based approaches. These terms are taken from management theory on professional-service firms, which organises firms’ capabilities on a spectrum, from commodity at the left to expertise at the right, with experience in the middle. The idea is that over time firms will drift to the left because pressure from clients and competitors turns yesterday’s lucrative cutting-edge expertise into today’s experience and tomorrow’s commodity.

The theory goes that firms will want to avoid over-dependence on commodity in favour of cutting-edge work because of factors such as fee rates, the business levels required to get a decent return and the risk of de-skilling lawyers.

The theory is over-simplistic because much of what appears to be commodity work is often highly complex or flows directly into cutting-edge work. It also takes no account of the realities of offering a full range of services to large clients in areas such as banking and finance. But the theory is useful as a way of deciding where the KM activity of a law firm should be directed. For example, the commodity approach encourages improvement in the efficiency of lawyers, through a focus on standard-form agreements, checklists or, more adventurously, automating drafting and other working practices. The experience approach suits those areas that are less standardised and focuses on the capture and utilisation of past experience, for example, searchable know-how databases, taxonomies, deal-precedent systems, briefings, etc.

A good KM strategy must be flexible enough to provide high levels of support for these different requirements. But there is an increasing awareness that commodity or experience approaches have been too dominant in law-firm KM: the focus on servicing the left end of the spectrum risking neglect of the right. This is where a new expertise-based approach to KM becomes relevant.

Old and new order

One way of explaining this more clearly is to think in terms of an ‘old order’ and ‘new order’ in KM. The key features of the old order are that KM is:

Linked closely to the research function and to information categorisation;
Concerned largely with updating (law or standard agreements) and the production of briefings;
Something that ‘belongs’ to professional support lawyers (PSLs);
A support to existing client relationships;
A support to e-business;
Not about the way lawyers actually manage deals;
Very tied to IT and search technology (so much so that some see KM as a branch of IT).

While it makes sense to keep trying to improve the value of old-order KM, by refining the link between KM and profitability, the days of this very passive, inward-focused approach to KM are numbered. New-order KM is more concerned with building the expertise base in law firms and presenting this externally. Expertise-based KM is less about capturing and applying past experience to present problems, and more about how a law firm can differentiate itself through its expertise. The key features of this new-order approach are that KM is:

An integral part of business development and e-business thinking;
Much less concerned with routine information gathering and briefings;
The joint responsibility of partners, associates and know-how lawyers;
The largest part of what ‘added value to clients’ means;
One of the drivers of innovative e-business products;
A partner with finance in improving the management of deals;
Tied much more to people networks than IT systems.

What’s behind the new order?

First, there is a growing awareness that firms can only differentiate by their distinctive expertise and their approach to client relationships, not by strong transaction-management experience alone. This is not just about differentiation in a marketing sense, but about proving premium value to clients and resisting any move to view law-firm services as simple commodities. Demonstrating thought and expertise leadership in core practice areas is vital and an important counter-weight to the idea that expertise sold by law firms is a commodity.

Second, the bulk of law firms have recognised that much of the routine updating provided internally, and to clients, is becoming a generic commodity that delivers no competitive advantage. Some firms have gone so far as to outsource some of the legal updating that would have been a cherished possession of know-how teams. Again, there is a feeling that we must focus on the content that distinguishes us by reference to our unique expertise and knowledge of our clients’ concerns. This becomes particularly important as legal publishers and other industry groups attempt to aggregate the publications content of many law firms in single publications portals.

As an aside on this second point, we will almost certainly see more of this aggregated-content model. Clients are becoming tired of receiving similar know-how from a multitude of firms and want to pull it together into single portals, provided either by alliances of clients or publishers. This will put pressure on firms to improve the value of content distributed into portals. This, in turn, will mean that a lot of what had been thought of as crown-jewels know-how (for example, standard-form precedents) will become a commodity that is supplied free in this way. This will put even more pressure on know-how staff to prove that they can add value to the client relationship beyond the production of the existing range of know-how materials.

Third, there is a desire to raise the bar in terms of the expectation of PSLs and fee earners. In some cases, there has been a drift by PSLs towards tasks that do not make use of their very high levels of expertise, for example, routine information gathering, production of briefings, etc. Far from being something to be imposed on PSLs, this raising of the bar is what most PSLs want, as they wish to play a much greater client-facing role and to be fully integrated with transactional lawyers. At the same time, the growth of the PSL function has created a sense among partners and associates that KM is somebody else’s job. This is a very dangerous understanding for any firm that wishes to distinguish itself by its pre-eminent expertise.

At Allen & Overy, we have captured these ideas and formed them into a new KM strategy. Very broadly, this constitutes an aim to use KM to keep us pushing to the right, in the sense defined at the beginning of this article. This strategy identifies five key aims for our global know-how. These aims are being used to agree detailed measures with practice groups and jurisdictions. I will list each aim and then say a little about our thinking.

1. Profitability: To be an efficient service that increases the profitability of our practice areas
This represents our desire to properly utilise our KM staff and ensure that they make a direct contribution to profitability. The aim also recognises that there is still a valid role for KM in building efficiencies around those parts of a transaction that have some standard elements. The drift to the left means that the cycle towards commodity is a natural one in law firms, particularly in finance work where many standard product lines started their life as highly innovative structures. Sometimes it is right to move out when a service becomes commoditised but, more often, it is right to stay in, for example, to maintain the proper relationship with the client as a trusted adviser on the full range of issues in a particular area. KM has a very valuable role to play in making the more commoditised work streams as efficient as possible, for the benefit of clients and the firm.

As well as fairly straightforward things like improving automated document assembly, better time recording for PSLs, access to know-how and expertise through the fee-earner desktop within defined times, this aim also promotes greater integration of finance and KM. KM should work to ensure that standardisation of documentation moves into standardisation of process and working practice in more commoditised work streams. Working together, KM and finance professionals can boost efficiency in areas of capped or fixed fees. The challenge is to reconcile the need to promote standardisation in certain areas with an overall KM strategy that promotes creativity and expertise.

2. Clients: To add value to client relationships and develop new services
KM has a great role to play in building a premium service for key clients. This runs from simple things like opening up know-how systems to clients, getting KM staff into client-relationship teams and even to consultancy on know-how systems for clients. This aim also prompts us to continue to move from a culture of producing high volumes of client publications to one of producing high-impact content for the market and clients. Practice-group KM teams should also drive the thinking on new e-business offerings that support existing client relationships. As so much information becomes a free commodity, it will be important to identify the information that can’t be treated as commodity and which can be the basis for higher value, often chargeable, services. In such situations, it will be right for firms to take responsibility, not just for content, but for innovative online-distribution platforms, as our firm has done for its successful online productsin the derivatives field.

While much KM client activity will be centred on assisting with transaction-management issues in particular product areas, it is very important that KM is involved in a broader engagement with clients. It is vital in relation to large clients that we do not split too much into silos of know-how: we must be able to identify board-level issues of policy and regulation that affect our clients’ businesses as a whole, and play an active role in helping clients to formulate solutions as their trusted advisers. In many respects, this is the most important form of know-how produced by law firms.

3. Distinctiveness: To lead competitors by being at the cutting edge of legal and market developments
It is a key part of our strategy to maintain thought leadership in our practice areas, both at the execution and policy end of our clients’ concerns. It is not acceptable to say that PSLs can handle this activity on their own. Partners and senior associates have to join with senior know-how staff in being at the forefront of new developments in the law and market, by being closely involved in consultation processes on new legislation, market practice, etc. This is also part of ensuring that PSLs gravitate to these tasks and see them as more important than the routine maintenance of experience-based know-how systems. Senior know-how staff can play an extremely valuable role in ensuring that a firm is the first to identify the implications of new legal and market developments. This should help to focus partner input on those processes that have the greatest impact. The challenge is to reconcile pressure on chargeable time with the necessary investment of partner time required to build relationships at the right level within the market and our clients.

4. People: To foster the very highest levels of technical expertise in our practising lawyers
This follows from the earlier points about the need to shift to expertise. The twin factors of growing commoditisation and development of a professional KM function have led to a risk of passivity in transactional lawyers. For a lawyer to be passive about know-how is rather like a premier-league footballer being passive about their footballing ability. I do not think that there is any factor more important to the profitability of law firms than the ability and flair of their lawyers, and how they harness this to provide creative solutions for clients. Again, this requires an erosion of the idea that KM is the job of a professional caste within law firms.

5. Risk: To manage risk in our advice and documentation
A KM strategy must accept an obligation to work with law-firm compliance professionals to manage risk, given the numerous legislative and regulatory interventions now upon us, from insider dealing to copyright policies. But expertise is also highly relevant here because while being fully cautious of all risk areas, lawyers must continue to advise confidently and creatively for their clients. As I have heard it put: “The requirement is to be creative but also to be right.” It is a high level of expertise, backed up by a culture that respects know-how, that builds this confidence.

The need for buy-in

Stating aims is the easy bit: making them stick is harder. In a global law firm, the means of securing implementation of a strategy is complex. High levels of central stipulation won’t work. The answer is to take a very coherent vision, consisting of aims and objectives, to the practice groups and jurisdictions, and work with them to agree measures. Measures should be seen as specific future results that will realise the aims and be the basis against which progress is judged. This is much more about reiterating the core vision and securing partner buy-in than about elaborate central planning. We have to recognise that the living part of any law firm is an untidy arena where well-intentioned e-mails and memos do not enter, unless partners can relate the new KM story to their critical practice issues, a KM strategy will not get past first base.

David Jabbari is global head of know-how at Allen & Overy LLP. He can be contacted at david.jabbari@allenovery.com