Feature

posted 19 Feb 2003 in Volume 5 Issue 9

KM: Now the hype is over, is it worth the investment?

For over six years, knowledge management has been an important issue for business leaders – but business success is still very mixed. John Kay, member of the management team at PA Consulting, examines why so many firms are still struggling to get it right and how they might overcome the obstacles to enjoy a more rewarding KM future.

While there are a small number of highly publicised KM success stories, across the board the level of hype stimulated by the KM industry has created expectations on which few organisations have fully delivered.

There are a number of reasons why this might be so but it is clear that the path to success lies in applying KM to your firm as a whole, responding to the value-for-money challenges that clients are posing and driving up the long-term profitability of client relationships.

KM – most firms still struggle to get it right

Two annual surveys of the Top 100 law firms have shown that successful KM remains a key issue for all law firms – so it is not hype, it is important. However, where knowledge-management initiatives have been implemented, only 32 per cent of respondents believe there to be a good return on investment. The most common reasons for this within law firms are:

The failure of the IT “magic bullet”;
The appointment of a knowledge manager allowing others in the firm to avoid responsibility;
An overbearing focus on inputs rather than outputs;
The prevailing culture of the firm itself.

The IT magic bullet

Some IT vendors in the legal market claim that their systems provide KM out-of-the-box, creating the illusion that they will provide a magic-bullet solution. Information systems provide a capability to store, categorise and search for information, but without context that information loses its value. In preparing a legal contract, for example, it is often valuable to have access to historic contracts, but the value of a particular precedent increases when we understand the context in which it was written. Again, IT is a strong enabler of KM, but it is only part of the solution.

The role of the knowledge manager

Our surveys have discovered that leadership of KM within the firm is largely by knowledge managers or IT directors (64 per cent of respondents). This can lead to a focus on tactical inputs and facilities, rather than the strategic value that can be extracted from KM. In appointing knowledge managers, there has also been a perception by some employees that KM is now someone else’s responsibility, creating inertia to change.

Where KM is led by the management group (14 per cent in the survey), there is a stronger strategic focus, broader involvement and engagement, and greater success.

Input focused

All too often, firms focus solely on initiatives to capture the knowledge related to legal matters. They have appointed professional support lawyers or paralegals to capture learning and systematise it within IT systems, such as document-management systems. While this is an important enabler for KM, it does not ensure that information is accessible when and where needed.

The culture of personal wealth

Lawyers see their personal value to the firm as based upon their knowledge of the law and their application of it for their clients. The traditional performance metric is to reward lawyers based on the number of billable hours charged in a particular year. Such a reward structure, which reflects the concept of individual value, can act as a barrier to knowledge capture for the benefit of the firm as a whole.

Within the partner levels of the firm, a greater cultural barrier to knowledge capture is the concept of eating what you kill – with partners being rewarded proportionally for the amount of work they bring directly to the firm. This leads to distrust in sharing client information between partners and across practice groups. Yet establishing firm-wide client teams to market and sell the full range of a law firm’s services to a client can be extremely rewarding; it is much easier to sell to a client with whom you have a good track record and known contacts.

Successful KM will be more important in the future

Law firm experience of KM to date must lead many to question investing in it further. There are, however, a number of factors that are forcing firms to re-examine the return that KM can provide and ensure that it is delivered.

Historically, there has been a relative lack of competition within the legal sector. Firms have been able to thrive in virtually any market conditions, with clients remaining steadfastly loyal to the advisers they know and trust, and who deliver an acceptable quality of advice at a price they can afford. However, clients are asking for – or in some cases demanding – fixed or value-based billing. They are even accepting that law firms may charge more than they would under time- based billing, but are willing to accept the certainty that this may provide.

In this environment, firms need an effective means of sharing information, through consistent processes that deliver the whole of the firm’s knowledge (and not just that of the individuals involved) cost effectively. They need to be able to gather all information on a particular matter from their currently separate document management, contact management, financial and case management systems. They need to be able to find individuals within the firm who have worked for a client in the past; find which staff are available to work on new client matters; know the current profitability of a particular client matter; and know whether the advice being given to the client contradicts any previous advice. They need to be able to do this in any regional office, even those that are still maintaining their own autonomous systems.

Fixed or value-based billing provides an opportunity for increased profit. If they are to realise this profit, most firms will need to apply much more rigorous, efficient and consistent information sharing and operational and management processes. Such changes will require a step change in law firm performance if they are to retain their current levels of profitability. KM is a catalyst to this.

Making KM an enabler of sustainable profitability

Firms need to think of KM more in terms of effectively managing the business of law, rather than simply capturing legal knowledge. It is processes, not information repositories that deliver value and there are key points of action where the delivery/availability of information and knowledge will make a material difference to the profitability of law firms. KM is most successful where it is seen as a strategic and all-pervasive capability of the organisation to bring all its relevant experience to any particular point of action, whether it is knowledge of a complex legal aspect or knowledge of the status of client matters. This capability needs to be developed by being applied to specific objectives, and focused on known value add, that is, what you want to get better at. Once these strategic objectives are set, they need to be supported with a single authoritative source of all information, presented through a single system interface that integrates all information systems.

Leaders need to understand the high degree of culture change that could be required within firms and implement things that will work now, seeking to evolve the culture in the desired direction rather than to change overnight. The leaders of the firm must drive such cultural change – knowledge managers cannot deliver it alone.

Leaders also need to ensure that KM takes place within an environment where everyone understands the firm’s goals. They should complete and publish a one-page strategy to provide the link between the managing partner and the rest of the firm. This will ensure that all partners and senior managers know and understand the vision and development programme for the firm. Our surveys suggest that less than half currently do so (and this figure is getting worse over time).

A one-page strategy forces clarity across the firm by documenting, in an easy-to-communicate way, the firm’s mission, vision and ambition. It expresses these as goals and measurable targets for clients, partners, managers, employees, business partners, etc. It develops these external-facing targets into internal process improvements and clearly shows the single unified way in which the firm will work in the future. By identifying the goals and aligning the processes that will deliver them, the firm can prioritise its change programme.

This is a highly participative process, thus ensuring full ownership of the plan. It positively draws out creativity from within the firm, which results in plans that are more ambitious and deliver more value. Indeed, one professional firm found this approach to be especially successful in engaging all partners and senior fee earners in developing and driving a process that led to a 25 per cent increase in profitability.

A holistic approach to deliver successful KM

The implementation of KM should be a holistic programme consisting of people, leadership, culture, process, information management and technology. Law firms should start with their business strategy and build on any existing KM projects, moving towards their version of “the ideal” with a mixture of quick-win projects and longer-term strategic projects.

Quick wins will provide early evidence to all within the firm of the benefits of KM. This is important to drive change and also convince anyone who may be disillusioned with the lack of benefits realised from previous KM initiatives within the firm.

It can be worth it

As demonstrated by the two case studies, KM has delivered significant benefits for professional service firms of different sizes. PA has applied KM to its own business with astounding results, developing from a struggling firm nine years ago to a turnover of £364m in 2001.

There is no magic-bullet solution. The challenge for managing partners is to provide the leadership necessary to drive the holistic solution of people, management style, culture, process, information management and technology that will deliver the value to their firm, their staff and their clients.

Case studies:

BDO Stoy Hayward

Prompted by a need to replace its financial systems, BDO Stoy Hayward reviewed its entire approach to commercial and business management, including its knowledge-management strategy. The firm developed and implemented a two-year business- change programme that had an impact on every area of operation.

The approach to managing engagements was changed to enable greater analysis of individual and client profitability. The resulting visibility of engagements encouraged a team approach to account management while up-to-date facts about the client accounts enhanced decision making.

The knowledge-management facilities that were implemented transformed engagement resourcing. Far from limiting themselves to their immediate teams, partners were able to resource their work from the talent across the firm. Further, firm-wide knowledge of clients ensured that there was a co-ordinated approach to every forthcoming engagement.

The knowledge-framework systems – and their integration across the business – helped BDO Stoy Hayward establish a set of principles that were credited with lifting profits from £16.5m in 1999 to £27.9m in 2001. The firm's cash flow has also been improved, with a ten per cent cut in average work-in-progress per time per partner per year. In total, work-in-progress decreased from 164 days in 1999 to 109 days in 2001, which makes it possible to collect revenue earlier.

Masons: Improving client service by delivering information for action

With any professional services firm, the ability to gather and exploit the knowledge of its staff for the benefits of its clients is fundamental to business success. Masons’ strategy is to deliver high-quality client service, by distributing the firm’s knowledge to partners and fee earners wherever they are, both in and out of the office.

A key element of Masons’ strategy was to create a central well of information sourced from core business systems. It was also important that this knowledge be co-ordinated across various practice areas and offices into a single integrated framework. To achieve this aim, PA Consulting Group worked with Masons to develop a new intranet - InSite.

InSite has provided Masons with a platform to deliver the firm’s knowledge to partners and fee earners, both in and out of the office. InSite is specifically designed to be a global system rather than one that just reflects the perspective of individual offices or practices. Users are able to create, own and maintain specific areas of knowledge or information. Additionally, information entered only once can be exploited across the site, ensuring both consistency and accuracy and enabling the firm to work effectively as a ‘one Masons’ team worldwide.

John Kay is member PA’s management group. He can be contacted at: john.kay@paconsulting.com.