Law In Business: Knowledge is power

Knowledge differentiates a law firm from its competitors. Knowledge management is about leveraging that differentiating asset so that a law firm leads - and breaks away from - its competitors.

Knowledge management is the leveraging of your firm's collective wisdom by creating systems and processes to support and facilitate the identification, capture, dissemination and use of your firm's knowledge to meet your business objectives. It is about recognising that practising law is a knowledge-based profession - and managing your knowledge is key to managing your business. In essence, knowledge management is about working smarter.

In December 2005, 71 of the world's leading law firms participated in a comprehensive survey of law firm knowledge management conducted by ALM Research and Curve Consulting. The survey covered a broad range of topics relating to knowledge management, including scope, culture, organisation, technology, measuring value and relationship with client service delivery. The survey was also the first to collect comprehensive data relating to the size of the knowledge management organisation and staff compensation, knowledge management budget and spending and technology products used by law firms as part of their knowledge management systems.

The average firm responding had 611 full-time equivalent (FTE) lawyers, including 193 partners, and 787 FTE support staff, a mean revenue of $200m-$299.9m (£107m-£161m), and an average of 9.3 offices.

It is clear from the survey results that law firms have embraced knowledge management as a critical function. However, the knowledge management organ-isation is typically isolated and faces challenges in engaging the firm in the broad scope of what knowledge management is - and what it can bring to this knowledge-based business.

Key findings - scope

Law firms have broadened the scope of knowledge they manage, though the emphasis is still on knowledge relating to the practice of law, rather than the business of law. Law firms have broadened the scope of knowledge they manage to include both explicit and tacit knowledge. There is a strong emphasis on managing knowledge of the firm as it relates to the practice of law. There is, however, little emphasis on managing the firm's financial information, market position, prospective client information and competitor information - suggesting a lack of focus on managing knowledge relating to the business of law.

The leading knowledge management initiatives implemented so far are precedents/forms; legal research tools and systems; a best practice document repository; and practice group meetings. Roughly half of the firms have also implemented know-how files; skills and expertise locators; clause libraries; professional development programmes; client relationship management systems; and third-party contact databases.

When it comes to collaborating with other functions, knowledge management initiatives are underway typically with business development/marketing and learning and development. There is little focus on working with human resources and finance on knowledge management initiatives.

Business approach

There is not enough alignment of knowledge management with the firm's business objectives. Two-thirds of firms take a hybrid approach to knowledge management - where a central knowledge management function sets the direction for knowledge management and provides the infrastructure for practice area knowledge management. Initiatives are typically formed by a combination of practice groups and the central knowledge management function, with some differences across the regions.

Just 61% of firms have a formal knowledge management strategy, which suggests that knowledge management may not be adequately aligned with the firm's business objectives. Also, 75% of respondents report they develop a project plan before implementing a knowledge management initiative, though only 62% of respondents develop a business case to go with it, suggesting that many firms may not be adequately engaging management and the partnership in understanding how the knowledge management initiative will bring value to the firm.

Organisation

Dedicated knowledge management staff numbers have grown, although there is work to be done in positioning the knowledge management organisation to work effectively across the firm.

The head of knowledge management is most likely to be a director of knowledge management or a chief knowledge officer, reporting to either the executive director, chief operating officer or the managing partner.

A little more than half of the heads of knowledge management are responsible for leading the knowledge management organisation, despite 87% of firms taking a hybrid or centralised approach to knowledge management. This implies that while the heads of knowledge management are charged with the responsibility to lead implementation of knowledge management initiatives across a firm, it may be a challenge to do so.

All firms have dedicated knowledge management organisations, although their size differs significantly across the regions.

A heavy dependence on informal, collaborative relationships with other functions in the firm suggests it is a challenge for knowledge management organisations to engage the firm and implement initiatives that touch on other areas of the firm.

This is supported by the finding that 62% of responding firms wish to improve their relationship with other functions. More than half the firms do not have a knowledge management committee - suggesting it may be a challenge to engage the broader firm in knowledge management.

Culture

Many firms say that they have a knowledge management culture, though not enough is done to reward lawyers for contributing to knowledge management, or to demonstrate the value of knowledge management to management.

An overwhelming number of firms (84%) describe having a culture that supports knowledge management. Despite this, a number of indicators suggest that law firms face several challenges in developing a culture that supports knowledge management. In particular, there appear to be gaps in wide user understanding of the broad scope of knowledge management and in management engagement.

. The time-based billing model is the greatest cultural barrier to knowledge management.

. Return on investment is measured by just 13% of responding firms.

. Knowledge management is included as a criterion in performance evaluation more than in compensation reviews, suggesting a gap in recognising the value of contributing to knowledge management.

. Despite being more likely than not to expect everyone at the firm to contribute to knowledge management, firms are unlikely to give fee relief or billable hour credit to lawyers for contributing to knowledge management.

. Knowledge management is included as a criterion in planning but not in reporting, suggesting a gap in accountability.

Technology

Law firms have the technology tools to implement state-of-the-art knowledge management systems. The challenge lies in how best to leverage those tools. The typical components of the law firm knowledge management system are the document management system, intranet, databases, email and online research services. More than half also include a client relationship management system, enterprise information portal and extranets.

Technology systems storing financial, business and staff information are typically not included in the law firm knowledge management system. This is consistent with the finding that information relating to the business of law is rarely included in the scope of knowledge managed.

Taxonomies have been implemented by less than two-thirds of firms, with significant differences across regions. Firms face many challenges associated with ensuring that the taxonomy meets the present and future needs of a diverse user base.

Clients

The top objective of knowledge management is improved client service delivery, both as an outcome of better knowledge management and through giving clients access to the firm's knowledge management 'know-how'.

Clients expect firms to be active in knowledge management. Clients are focused primarily on the outcome of a firm's approach to knowledge management as it relates to client service delivery, rather than on directly accessing a firm's knowledge management systems and processes - with the exception of Australia and New Zealand.

Improving the quality of client service is the main objective. Other top objectives include leveraging expertise, gaining a competitive advantage and improving the speed of client service delivery. These results suggest that firms see knowledge management as a market differentiator and intrinsic to its delivery of client service.

Despite the above findings, only 61% of responding firms promote their knowledge management efforts to clients.

With the exception of US firms, responding firms generally do not offer access to their native systems, instead favouring client-specific solutions. Seventy-two percent of responding firms stated that they generate no revenue from developing client-specific knowledge management solutions.

The future

In 2006, it is all about better use of technology. The top initiatives for law firm knowledge management in 2006 focus on technology and, in particular, on how best to present knowledge stored in native applications - implementing or developing an enterprise information portal, implementing an enterprise-wide search engine and developing the intranet.

Gretta Rusanow is chief executive of Curve Consulting.