The knowledge trinity

Are law firms really leading in the knowledge economy?

Law firms are at the very pinnacle of knowledge-based businesses, and they totally depend upon the knowledge and expertise of their fee-earners to create and maintain a profitable business. But are law firms really in the vanguard when it comes to using their knowledge and expertise wisely? Ray Jackson of Solcara tackles the issue of knowledge management within law firms by using the ‘knowledge trinity’ model.

We are all very aware of the information overload that affects every organisation in the 21st century, and while many firms are taking steps to make sense from this information and to turn it into corporate knowledge, how many are really using this knowledge wisely in improving business performance? As T. S. Elliot wrote in his poem The Rock: “Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?”

Essentially, law firms sell knowledge and expertise. However, when it comes to turning information into knowledge and converting this knowledge into business wisdom, there is a serious problem. In attempting to manage the valuable knowledge assets of a firm, there is a worrying trend to immediately delegate this to the information and communications technology (ICT) people. This is very dangerous. In today’s knowledge economy, managing knowledge assets in any organisation is vital, but even more so in a law firm where knowledge assets represent almost 100 per cent of the value of the firm. Knowledge management (KM) is not just an issue for a service department, it is an absolutely strategic, top priority for chairmen, managing partners, partners, and indeed all of those who care about the current and future profitability of their firm. There are five key messages for law firms in managing their most precious asset:

KM is about increasing billings, improving overall profitability and increasing partners’ earnings. Failure to manage knowledge effectively will decrease competitiveness and will inevitably result in a significant reduction in partners’ earnings,
Successful management of knowledge assets needs total, consistent commitment from the top,
Cultural change to encourage sharing of documents (explicit knowledge) and individual knowledge (tacit knowledge) is vital,
Acquisition of new knowledge via training is a key ingredient,
ICT is needed for effective KM, but implementation must be managed by partners and not delegated to the ICT department.

Hopefully I have now established that KM is far too important an issue to be left solely to the ICT staff, but quite clearly technology is vital in implementing an effective KM solution. Let’s look at what is needed for an effective technology-based solution, and to help us do this I refer to a model that I call the knowledge trinity (Figure one). The three key elements of the knowledge trinity are:

Explicit knowledge: contained in documents such as contracts,
Tacit knowledge: found primarily within the skills and know-how of individual lawyers,
New knowledge: where a lawyer needs to gain more knowledge via training.

Explicit knowledge

Explicit knowledge is apparent, communicable and normally documented in writing, for example in reports, contracts, property leases, bond issues, shareholder agreements, precedents, best practice, and so on.

Using modern ICT, it is relatively simple to store and index these documents so that they can be found easily, re-used and become the basis for a firm’s knowledge bank or silo. To ensure that active and regular contributions are made to the knowledge silo, it is important that these contributions are made as simple as possible. For example, once a contract is finalised it can be saved to the firm’s knowledge silo at the same time that it is saved using the normal ‘save as’ dialogue in common word processing systems such as Microsoft Word. Once the document has been saved, it is then very simple to search for information of particular interest or relevance to a lawyer working on a specific matter.

Perhaps even more importantly, it is now possible for the system to ‘learn’ about an individual lawyer’s area of interest, and to pro-actively inform this lawyer about new documents that have been contributed to the system and that are particularly relevant to their current workload and practice area.

The system can also learn about which individual lawyer is ‘expert’ in a particular subject area. For example, if an individual contributes a large number of documents relating to bond issues for telecommunications companies, then the system learns that this individual is very knowledgeable about bond issues for telecommunications companies. The benefits are enormous:

Best practice contracts or clauses can be easily re-used,
Junior lawyers can assemble the draft document for final approval by the expert,
Experts are easy to identify and can be quickly consulted on difficult issues,
Difficult work is completed quickly,
The firm is seen as being genuinely expert in this area of law,
Billing rates are maximised.

Tacit knowledge

This is the really difficult area because tacit knowledge is often jealously guarded by individuals. Tacit knowledge is also much more difficult to pinpoint and then to capture. It lies below the level of awareness and is largely stored in lawyers’ minds. Lawyers normally use their individual tacit knowledge in a totally unconscious yet very effective ways.

For example, the value of assigning the same lawyer to a particular client as the designated client partner enables this lawyer, over time, to anticipate the client’s needs and preferences, and to provide legal services that are highly valued and that specifically address the client’s business priorities. But, if this lawyer suddenly left the firm, it would be virtually impossible to pass on all that is known about the client to a successor.

On the other hand, if the original lawyer leaves to work for another firm, his or her tacit knowledge of the client might not be as valuable, since the application of knowledge, especially tacit knowledge, is usually context specific. Firms which head-hunt apparent high-fliers away from competitors should beware. In a new context, much of the tacit knowledge that made the high-flier so successful may be useless. Research in the US has shown that many lawyers who move to new firms, very often prove to be disappointing in their performance for firm.

As described above, one way of attempting to capture tacit knowledge is to build a system that learns about the skills of individuals within an organisation by analysing the documents that they contribute to the knowledge silo. It is then relatively simple for employees to ask the IT system ‘who knows more about this subject?’ The system will then produce a list of company experts on the subject matter giving telephone numbers, e-mail addresses etc. In this way, a junior lawyer is able to quickly seek the advice of a senior partner, and therefore will be able to solve a particular problem swiftly rather than labouring for days trying to figure it out on their own.

However, there is a new way of capturing this elusive tacit knowledge. ICT systems can now store correspondence with clients and employees so it can be used to the future benefit of the firm. This applies to letters, faxes and emails. Expert answers to very difficult client questions can be captured for the benefit of future lawyers dealing with this client or matter. Again the benefits are significant:

Corporate knowledge or IQ is not totally lost if an expert leaves,
The client sees that the new contact lawyer has access to all relevant history,
The firm retains the business that may have been lost to an individual’s ‘following’,
The firm’s knowledge base builds day by day,
Junior lawyers and trainees can get answers to most of their questions without the need to interrupt senior fee-earners,
Increased productivity, improved efficiency and more profitable billings.

New knowledge

Everyone, no matter how experienced, has knowledge gaps that can only be addressed through training, or as I would prefer to call it, ‘new learning’. Let’s be clear that I am not only talking about professional training that is required to satisfy the requirements of professional bodies, but also about management skills, client relationship skills, presentation techniques and computer skills. Indeed, all of the areas of expertise needed by the modern law professional. Today’s lawyer must be a legal expert, marketer and sales person all wrapped into one. That’s a pretty tall order without effective ongoing learning.

It’s well known that lawyers are the very worst culprits in cancelling training courses, particularly at the last minute. When one considers the long hours that they work, the pressure to maximise billable time, and the number of roles that they have to fulfil, it is hardly surprising.

Fortunately, there is now an answer to this; it’s known as e-learning. E-learning is a method of delivering education in an accessible, just-in-time, personalised and individual manner. It provides a more flexible and convenient approach to learning that is not limited by time or geographic proximity. Being available over the internet 24 hours a day, seven days a week, learning can be undertaken at any time of day and in any place. Information and knowledge can be accessed as and when required. This ‘just-in-time’ rather than ‘just-in-case’ learning style decreases the cycle time of lawyers learning new skills and actually using these skills in their practice.

E-learning provides virtually unlimited access to many hundreds of courses. Quality training content is guaranteed by using material from suppliers such as McGraw-Hill, BBC for Business and Harvard Business School among others, with courses ranging from business and professional skills to IT and e-commerce.

Because these courses are provided online, it ensures that lawyers spend less time away from their primary billable work activities, and that they do not incur the costs of travel, accommodation and subsistence that are always associated with external training organisations. With e-learning, experienced lawyers and trainees alike are motivated by learning new skills and the firm’s training budget will stretch much further than ever before.

Courses are completed 50-60 per cent faster than those held in classrooms,
Lawyers spend less time away from normal work, so billable hours are maximised,
Courses can be taken at the individual’s preferred pace. For example, it is perfectly possible to complete a course by doing 20-30 minutes each day,
Significantly increased comprehension and retention. Any sections that have not been understood can be repeated as many times as necessary until the learner is satisfied. This is impossible with classroom training,
Easy to train large numbers of people simultaneously,
Dramatically reduced training costs. Many users of e-learning claim a reduction of, at least, 90 per cent in training spend.

The combination of explicit knowledge (documents), tacit knowledge (lawyers minds) and new knowledge (learning) completes the ‘knowledge trinity’, and it is management of all three of these areas that leads to a successful law practice in the knowledge economy.

The business of a law firm is all about selling expertise and knowledge in legal matters, but clearly what is really important is how this expertise can be directly, wisely and effectively applied to client’s business problems, and how this advice and expertise results in business advantage for the client. If a law firm uses its information and knowledge wisely to deliver highly valued services to clients,

then the firm will prosper. Failure to manage the knowledge assets effectively will inevitably lead to decreasing competitiveness, reduced profits and lower earning for partners.

Surely this is far too important an issue for law firms to be delegated entirely to a service department. Management of the firm’s key business asset is not just an issue for ICT people and I make no apology for repeating the key message that it must be an absolutely strategic, top priority for chairmen, managing partners, partners and indeed all of those who care about the current and future profitability of their firm.

Ray Jackson is managing director of Solcara Limited and can be contacted on 0870 33 2966 or ray.jackson@solcara.com.