Law Department 2.0

I just heard an excellent presentation by John Barker, Wolters Kluwer’s guru of all things Web 2.0. In it, John refers frequently to Marc Prensky, a futurist who posits a fundamental difference between “digital natives” and “digital immigrants”. According to Mr. Prensky, a “digital native” is anyone born in or after 1981. In essence, digital natives have evolved past email to Web 2.0. They have grown up instant messaging, texting, and tweeting. They rely on social networks, blogs, and wikis to communicate. They require video game excellence in user interfaces and Google-like performance. Importantly, they rely heavily on the “meta” in the digital world, in which the ratings from their community on a particular product or piece of content are as important, or more important, than anything else. According to Mr. Prensky, the digital native not just demands all things Web 2.0, their neurons require it. Studies have shown that digital immigrant’s nervous system is hard-wired differently than digital immigrants.

The rest of us are “digital immigrants” (he says having been born a couple of decades before the cut off). We might be adept at the use of technology, even excited about it, but the vast majority of us will never have the wiring to fully understand the digital native.

What does this mean for the legal community?

By my calculations, the first digital natives are about half way to becoming partners in law firms and senior members of law departments. In other words, those individuals who expect video game excellence in graphics and all the bells and whistles of Web 2.0 are only a couple of years from making “buy” decisions on the technology that the profession will use to communicate among itself. Suffice it to say that application platforms that rely on the design metaphors satisfactory only to the digital immigrant (like Microsoft’s current UI metaphor) will likely face a tough audience in the natives.

More than just a usability issue, I believe that the ascendancy of Web 2.0 -- and its adoption by digital natives -- will help the legal community finally claim that Holy Grail called knowledge management. Why? Web 2.0, and its use by digital natives, solves the two main impediments to successful KM.

From my perspective, the first impediment to successful KM was difficulty of adding and extracting – in a timely meaningful way – the data that puts the “K” in KM. Correct input required slavish adherence to a onerous workflow, as well as strict discipline regarding the addition of structured metadata. These two tasks added so much overhead to the input process that it very quickly fell into the category of “more trouble than its worth.” Once in, the data was then lost in an imperfectly structured blob, forever lost to potential consumers of the info. Web 2.0, in its various flavors, creates so many channels to share the data that the “overhead” issue is resolved. Moreover, the combination of concept search and tools designed to lever the abundance of metadata available in today’s data stores enables users to easily retrieve contextually relevant content. This process if refined even further when used inside of “profile driven” networking sites like Legal OnRamp and LinkedIn.

The second primary obstacle to success in KM? Digital immigrants. There are mindsets and behaviors among most digital immigrants that do not easily adapt to the openness required for KM to attain its highest state. Personally, I don’t feel comfortable “publishing” my work until I have had a couple of chances to review it. Even then, I have some apprehension before I push the publish button. I do not see that type of self censorship with digital natives. A peek onto any Millenials’ Facebook page is an object lesson in my point. Therefore, as digital natives become the majority, the primary behavioral impediment to successful KM will disappear.

Finally, you may be asking yourself, why in the heck is a guy who sells the industry leading matter management and e-billing platform waxing on about Web 2.0, digital natives, and KM? Well, I certainly find it interesting. Also, I’m sufficiently paranoid that I work hard to anticipate what’s next. At the end of the day, however, the reason that I’m really interested in the topic is because I see it as the next stage in the evolution of law department technology. Currently, and at the risk of immodesty, our T360 platform is the best in the market and the core operating system for law departments that use it. Candidly, for as good as it is, I think that most digital natives would find it somewhat restrictive. In order to serve both our current clients – most of whom are digital immigrants -- and the next generation, we are going to have to incorporate the wisdom of digital natives into our thought process.

Legal Spend Management Is News Fit to Print

Alternatives to the billable hour, long a "holy grail" topic among legal thought leadership, has gone mainstream. Take a look at the New York Times article entitled Billable Hours Giving Ground at Law Firms. In the piece, our newest champion of alternative fee arrangements, Evan Chesler of the esteemed law firm Cravath Swain & Moore, as well as other luminaries of the profession, lay out the basic argument against the billable hour. I would be very interested to know how much of Cravath's revenue is based on the billable hour and what, if any, specific plans the firm has to offer value billing alternatives. That, to me, would truly be news fit to print.

Matter Management 2.0

I've been invited to participate in a LegalTech panel on Tuesday, February 3.

Matter Management 2.0
If there was ever an offering that was in need of reality show make over, it is (at least as commonly conceived by the market) good old “matter management”. Like the Ford 150 that just got taken for granted as a necessity, it is time for a redo. And I think there is actually a lot to talk about if you compare what people think as to what is or should be included in or asked of matter management circa 2000 verses 2009 / 2010. This very subject will be put to a panel organized by Huron at Legal Tech Tuesday in NYC. Myself and two leaders from other legal software companies will all be asked to talk about how matter management has changed, what its ROI is or should be, and what is coming around the corner. In short, why should the law department market care and think about updating their old system.

At Huron’s request, the three leading vendors have agreed to “lay down their arms” for the session and talk openly about what is on the road map in the area of integrated platforms, EDD, legal holds, DM, spend management, reporting, and a host of other topics. I am looking forward to it and I do feel it is time to challenge the industry in tough economy to show how these platforms add value and how it is possible for a law department to not have to stop at every booth at Legal Tech to stitch together a solution that meets its needs. “Necessity is always the mother of invention”, but happily I think the market is ready to meet this challenge.

Value Billing -- The UK Way

Following my recent post on the billable hour, I saw an article in law.com about how firms in the UK have never fallen as hard for the model as American firms. Of particular interest to me was the reference to the model used by Slaughter and May, a distinguished old-line London firm. As Nigel Boardman, a partner explains, Slaughter and May has never billed clients by the hour, nor do partners and associates have any targets for hours worked. "At the end of a deal we sit down with a client and ask, 'How good a job do you think we've done?'" says Boardman.

This reminds me very much of my early days as a litigator at the venerable -- but now defunct -- firm of Thacher Proffitt & Wood. At the end of case, the billing partner would ask the associate (typically only one) to bring the file into his office. The partner would look at the number of substantive documents/pleadings that were in the file, adjust for case results, and then announce the amount to be charged for services rendered. This amount was then discussed with the client and invariably approved. It was value billing in a very pure sense.

When I think back on that approach, I wonder how much better both Thacher and the client would have been with the knowledge that comes from the benchmarking data available with e-billing. Thacher would have been able to accurately predict the fees for a client, a must have for any in-house lawyer today. Moreover, Thacher would have been able to use e-billing data to create success based alternate fee arrangements that increased the premium that it received for an excellent, as opposed to adequate, result.

Has the Billable Hour Become a Liability for Law Firms?

The billable hour and its place in the legal business has always been a hot topic for us. In a pleasantly surprising change, the issue has been raised recently by two high profile law firm lawyers. First, Fred Bartlitt asked the question “Is the litigation market at last ready for a new business model?” on the fascinating new site Legal OnRamp, an invite only site for the glitterati of legal thinking. Next, Evan Chesler of Cravath detailed his case against the billable hour in a recent Forbes Magazine editorial, which sparked a flurry of further conversation in the legal blogosphere (including a law.com article, an abajournal.com blog entry, LegalOnRamp, and of course, the blog entry you're reading right now.)

This discussion is of particular interest to me because, in a very real way, the question of whether, and how, firms can move beyond the billable hour is the reason that my company, CT TyMetrix, was founded.

In 1994, TyMetrix was founded to answer a single question: How can corporations identify which of its firms is providing the most value for each legal service dollar spent. Since that time, we have developed business methods and solutions that are designed to do just that. Our clients gather the information required to assess the value being provided by their firms with our patented e-billing solution and collaborative matter management and case planning tools. They then use our business intelligence tools to mine the data gathered and determine which firms are providing the most value. Our clients then use the data that they have gathered to help firms value cases and implement alternatives to the billable hour.

There is a strong argument to be made that the hourly method of billing is no longer effective in all litigated cases. In fact, many of the top corporate legal departments are using TyMetrix 360 and similar tools to assign, plan, measure, and cost effectively manage litigation using alternative billing arrangements.

How do they do it? With the correct structure and data, it is actually quite simple. With a sufficient number of cases of a particular type (scores not hundreds), the exposure reserve, the litigation reserve, and the actual results, a company is able to use segmentation and a simple algorithm to accurately estimate which firms are resolving cases for the lowest total case cost. With this knowledge in hand, corporations are then able evaluate the staffing and tactics of the successful firms and share them with all the firms used by the corporation.

With a modest amount of historical billing data, they can work together to fairly value cases and set up alternate fee arrangements for matters or portfolios of work. Moreover, corporations and firms can collaboratively plan cases and effectively manage the staffing and workflow.

Using these methods, our clients have made some findings that are quite interesting. For example, based on our experience (which includes more than $20 billion in legal fees), there is strong evidence that cases are most cost effectively handled by small teams, often teams of one, and that the optimal staffing profile includes what can best characterized as junior partner level attorneys. This is the gist of Fred Barlitt’s argument on Legal OnRamp.

In addition to the objective methods for assessing the value of a firm or attorney’s work, our clients rely on attorney and firm ratings. These ratings, while qualitative, often add necessary color to the quantitative findings.

This, of course, begs a big question. If the tools for correctly valuing and managing a case and the litigation expense associated with it already exist, then why does the billable hour continue on as the dominant model of billing for litigation?

Although there are as many answers to this question as there are companies, I would offer some of the following as examples that I have heard over the years.

• I’m too small or I don’t have enough cases of a given type of litigation to have a meaningful segment.
• My cases are unique/too large/too complex/et al.
• Even if I have enough cases to have a statistically valid segment, I don’t want to share what I have found because it is a competitive advantage.
• Even if I have enough cases to have a statistically valid segment, I don’t want to share what I have found because I have data security concerns.
• I don’t want to offend my firms.
  

To these objections, I say this. It is your corporate prerogative to handle litigation as you wish but none of the foregoing is sufficient to continue to rely solely on the billable hour.

To make this work, I would offer a modest proposal: First, and without running afoul of any of the objections set forth above, we would need to agree to a standard for rating attorneys. This is an initiative that has been put forward by a number of companies although I believe that this type of standard is best put forward by a group like the members of Legal OnRamp, as an impartial (and "open source") exercise.

Second, we need to cooperate to build a highly segmented database that establishes fair value for the tasks and activities most commonly undertaken in litigation and, for that matter, in transactions, though that's another topic. Because there are already hundreds of companies that have most, if not all, of the required information through companies like TyMetrix, the data gathering exercise is largely complete. From there, we should consider the significantly larger task of agreeing on standards for the building and usage of a database that captures the data elements essential to enable companies and their firms to make educated bets on different projects or portfolios of work. Firms will have an educated basis on which to create alternate fee arrangements that align their interests with their clients, without the risk associated with blindly jumping into the risk pool. That's how a standard will emerge.

In addition to the existing standards for tasks and activities, we should consider standards for:

• Case types
• Exposures or reserves for the case and the litigation expense
• Reserve segments
• Staffing profile
• The type of the resolution
• The amount of the resolution

Because the quantum of data will be enormous, there will be no question about the validity of the sample size. Because the data will be anonymous, there should be no objections about privacy or a company or firm being singled out. The information could then be tapped by contributors whenever required.

I note that there are numerous precedents for this type of voluntary database. Notably, I think about ISO, to which virtually all insurers contribute “proprietary” information about their losses so that their policy forms reflect a broad risk pool.

I feel strongly that this is a critical issue. Fortunately, I think that there is a clear path to success for the entire profession.

I'd appreciate your thoughts.

John Weber
General Manager, CT TyMetrix

www.cttymetrix.com

Webinar recording now available!

If you missed our live webinar in December, we have now posted a recorded version of "How law departments can simplify their e-discovery: from matter to production."