March 2002

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Smart Practices

Why Implement Knowledge Management?

Justifying the Investment

John Hokkanen

KM projects represent a considerable investment. But they can also bring immeasurable benefits. Firms are particularly well served to consider creating a blend of KM activities. There are four chief justifications for diving into these knowledge initiatives.

In the past five years, many firms have funded knowledge management, or KM, initiatives. Firms have seen some amazing successes. They have also seen that KM can be expensive and project success can be hard to predict. Particularly in this economic climate, firm management properly asks, "Why should we implement KM?" There are four answers that, in turn, helto prescribe each component of a KM strategic plan.

Instead of a theoretical definition of KM, such as "conversion of tacit into explicit knowledge," take the pragmatic definition of KM as "the leverage of firm knowledge across time and geography." This explicitly focuses KM strategies on leverage, recognizing that its benefits accrue over time. The traditional justifications for KM programs have largely fallen into two categories: business expense and return on investment. These two categories are quite meaningful for certain classes of activities, yet they do not explain others. Consequently, let’s consider two additional justifications: attention management and proactive building of strategic skills. Together, these four justifications explain why firms should invest in KMÑand the scope and implementation of such programs.

An Unavoidable Business Expense

Justifying KM as an unavoidable business expense is based on the premise that law is a knowledge enterprise, with its raw materials and final result being pure knowledge products. Because law firms are inherently predicated on the leverage of their knowledge—not their relatively small capital investments—managing that knowledge is an inherent part of a firm’s business. Done well or done poorly, all law firms engage in different forms of KM. And because knowledge is a firm’s key competitive asset, a firm had better manage it well. A formal KM program is designed to do exactly that. The alternative is comparative ignorance, and a firm should not ignore how expensive or strategically debilitating that can be.

Notwithstanding the expense of KM versus the cost of ignorance, KM expenses can often be postponed. For example, a firm may have many clients that are reliable sources of work, and as long as the work is performed reliably, the firm remains on sound financial footing. In this case, strategies of all sorts—including strategic programs to collect, organize and leverage the firm’s knowledge—can collapse into operations as the focus turns to satisfying work flow. Though clients may expect greater efficiency in the future, today they simply want the work done. Under such circumstances management can reasonably conclude that while technology-platforming expenses are truly unavoidable, it is best to put off KM investments until another day. Doing so keeps the eye on the ball and the revenue figures up.

The notable exception, however, may be the customer relationshimanagement (CRM) systems that law firms have recently put into place. These are clearly KM systems, because they seek to capture, maintain and leverage lawyers’ knowledge about current and potential clients. By knowing who knows whom and who has talked to whom, the firm is better able to manage its client relationships, cross-sell its services and connect with prospects. There is something of an arms-race quality to these systems: If a firm’s major competitors have committed to CRM systems, can a firm afford to forego one? Maybe it can, but these systems, like fax machines and e-mail, are driving client-service levels to a new standard and thereby becoming unavoidable business expenses.

Return on Investment

ROI analysis has been used for years to justify major IT capital expenditures. It is natural that KM practitioners have extended it as a justification for KM. Like the leverage of capital assets, the investment of staff and lawyer time on KM work generates returns through the leverage of knowledge assets.

For example, summer associate work-tracking systems, firm newsletter applications, conference room schedulers and employee evaluation tools are all KM applications that helto collect and distribute information and can all be analyzed with an ROI perspective. While such applications may not share prized legal know-how, they provide efficient frameworks for sharing and collaborating around well-defined administrative tasks. Results and savings, whether in copies avoided, mail expenses prevented or staff hours saved, can be estimated and compared to the cost of implementing the application.

Though ROI analysis may be a powerful tool for identifying worthy administrative projects, it presents numerous difficulties when applied to core legal practice systems. The problems include the conflict that these systems may have with hourly revenue models, the difficulty of being able to take relevant measurements and objectively calculate returns, and the difficulties of successfully executing KM projects to achieve theoretical returns. Consequently, an actual ROI may be impossible to calculate, leaving the analysis to turn on anecdotal evidence.

The compelling financial nature of ROI analysis has the unfortunate side effect of drowning out other considerations. In so doing, it can collapse complex, strategic questions into a one-dimensional inquiry of profit and loss. But the benefits of legal practice systems are likely to be much more complex than those of administrative functions (such as which copiers to buy). Firms must be aware that these benefits are therefore much harder to capture and quantify in an ROI model.

Beyond Hard ROI: Attention Management

Legal KM practitioners have long had the gut instinct that KM in a pure knowledge profession "just must be right." Discussion has thus turned to "soft ROI" to describe the other tangible benefits of KM. Though many tangible benefits can be explored, let’s look in particular at attention management.

In The Attention Economy (Harvard Business School Press, 2001), authors Thomas H. Davenport and John C. Beck persuasively argue that many businesspeople have reached or exceeded their capacity to deal with the demands on their attention. For example, in law firms, partners’ work lives are consumed not only by profitable client work, but also by internal committee and governance meetings, marketing efforts, associate workload management, lawyer recruitment and reviews, associate mentoring, charitable and community activities, board responsibilities, continuing legal education and, finally, client and industry developments. Activities such as phone calls, e-mails, voice mails and in-person meetings break upeople’s attention to the point where they must come in early or spend the weekend at the office "to get any work done."

Moreover, focusing our attention on something new means that something else must go unattended. For a knowledge profession in a "zero-sum attention" situation, KM presents the means to better manage and extend lawyers’ attention. The tangible benefits that accrue have tremendous value even if a project cannot sustain strict ROI scrutiny. Where partners have reached the limits of their attention capacity, systems that allow them to do more will give their minds some room in an increasingly crowded mental space.

This is hardly a new argument. For years, law firms have paid assistants to make copies, dial phone calls, file documents, deliver faxes, run legal documents and the like. These service expenses are justified because they allow lawyers to stay focused on key tasks, including revenue-generating work, client development and firm management. Knowledge services, on the other hand, differ because they are concerned with practice-related attention. Instead of removing a task from a lawyer, knowledge services aim to assist in focusing the lawyer’s involvement.

Consider the ongoing dilemma of what to do with new associates. Owing to write-offs, their costs can exceed their produced revenue. The pressure to get them uto speed to increase overall billings is counterbalanced by the cost of partner involvement. And in a zero-sum attention environment, partners may tend to their own billable and client activities rather than give attention to associates’ needs, exacerbating new lawyer turnover.

KM activities can helwith this predicament. Work product retrieval systems, internal treatises, form and example banks, practice treatises, best-practice checklists and document assembly all serve a training function. Indeed, in one firm, an antitrust grouoff-loaded the updating of the internal treatises’ case citations to new associates so they could learn about the field while supporting a key asset. Partner time invested on a KM project targeted at making new lawyers more effective gets leveraged across numerous associates. Thus, the attention of new associates is focused on relevant guides while the attention demands on the partner are eased through leverage.

Enterprise portals and content publishing systems are also attempts to solve the information-onslaught problem by presenting third-party and internal content through a consistent interface. Rather than have each lawyer scan the same materials, the task is centralized and a content specialist subscribes to, scans, categorizes and prioritizes the information and publishes it in ways that are appropriate to the item’s value. Important items can be e-mailed or placed prominently on a subject matter intranet, and less-important content can be archived into a repository for access on an as-needed basis. Lawyers thus get prefiltered information that becomes more valuable as the environment becomes attention-stressed.

Better attention management and enabling the creation of non-obvious value also underlie the so-called "attorney desktop" software applications. The attorney desktois a client and matter-centric view of related electronic resources. These might include e-mails, documents, project plans, task lists, contacts, discussion threads, budget and billing data, research results and client and industry-related news. By presenting previously disconnected information together in a related context in the same visual space, lawyers can see connections that may not have otherwise been obvious. The result is improved client service and quality control. These are the sorts of value propositions that allow premiere firms to charge higher fees.

A great benefit of thinking about KM in an attention framework is that it forces the right questions. When you work on this kind of matter, how do you connect different kinds of information? How can pre-processing and pre-relating of information be useful? How can the firm describe the processes that are used for a matter and connect the knowledge components to their relevant context? In short, how can we relate information in ways so that the lawyer can perceive and add non-obvious value?

Building a KM Skills Platform

In thinking strategically about KM projects, the preceding criteria should provide solid value analysis for the vast majority of projects. However, continued KM efforts create lasting effects that transcend specific projects in the same way that a firm is more than the legal advice and documents it delivers. This added dimension of KM is the development of a law and technologies "skills platform."

A skills platform is like a technical or geographical platform. A network infrastructure of wires, servers and software creates the capacity to create documents, send e-mails and create invoices. Likewise, a large geographical platform adds to a firm’s value proposition in a global economy, especially if it wishes to engage in cross-border work. Consequently, both platforms are enablers of work.

Likewise, firms that implement KM services (as opposed to KM technologies) develoan internal network of people who understand how to implement practice systems within that particular organization. This network includes all the lawyers, technologists, content analysts, paralegals and other staff that collectively know how to efficiently implement these new capabilities. Individually and as a team, they develoskills in understanding what intellectual assets are available internally and externally, what types of assets are subject to reuse, how projects move through the development and implementation cycle, and what it takes to model knowledge efficiently and systematically with technical tools.

Developing these kinds of skills assets is no small feat. However, critical added value comes from the internal network’s understanding of how to act in concert within the organization’s particular processes.

Examples of projects undertaken by firms that create value-added capabilities include:

Creative use of intranets and extranets

Collaborative online work flow systems

Business intelligence systems

Collaborative filtering

Virtual legal advisors

Document assembly systems

Data mining of internal or subscription information

The hard decisions and need for frameworks come in deciding whether to systematically explore how KM and legal practice technologies might alter a firm’s practice—and then to develothe skills within the firm to handle that exploration. Because it can be hard to estimate the amount of time required to research, experiment and test ideas in an entirely new area, these initiatives can get expensive unless closely controlled. What, then, is the justification?

Funding projects that develokey skills (in addition to their other project-based benefits) allows a firm to be proactive in developing expertise in the methodologies and tools needed to meet future client requests. For example, a client might ask: Can you implement an online legal advisor for our compliance practice? Or, how would you apply document assembly on this line of work? Or, do you have an example of a vertical portal that you delivered for another client?

If it were only technology that mattered, the firm (or the client) could hire a vendor. The added value comes from having done similar projects before and bringing that expertise to the current project. Firms with experience in implementing practice systems have an expertise platform that allows them to respond, "Let us tell you about what we did for another client and how we can use that experience for your benefit."

The success of such projects can be assessed largely in terms of the skills acquired. Developing expertise among a mixture of lawyers, technology personnel, librarians and support staff allows the firm to assign people quickly, like a swat team, on a future client request. Consequently, this kind of combined legal services-technology systems "training" is equivalent to buying insurance for meeting future client needs. By diversifying investment into a portfolio of projects, the law firm ensures that one or more of the projects will prove valuable in the future. Note that skills acquisition as a formal strategic goal need not be an extravagant proposition. Taking a measured approach allows a firm to build tomorrow’s skills while keeping the overhead low.

Strategy Recommendations

KM strategies, like the business propositions of the firms that develothem, will differ. Smaller firms may reasonably focus on business expense and ROI approaches, while midsize and large firms might include attention management as well. The tofirms will likely want to engage in some level of proactive skills development. For large firms, it makes good sense to implement a variety of initiatives with differing justifications to create a balanced portfolio comprised of projects with different justifications and results timelines.

Firms considering their KM strategies should undertake the following:

Have candid conversations within the power centers of the firm and identify the views, the opportunities and the realities of firm consensus.

If the primary consensus in the firm is to proceed only with projects that have a demonstrable ROI, stay focused on administrative applications and measure costs before and after system deployment. Staying true to the agenda will keeheads from rolling.

Develoa set of strategic objectives for each of the four justifications to be pursued. Departmental directors can develobudgets and personnel requirements. Identify how interdisciplinary tasks resulting from these objectives can avoid affecting the firm’s existing resources, and explain how the departments will coordinate their work in practical terms. Assembling all this strategic thinking into a document will require each department head to confirm the connection between the strategic goals and the methods that will be used to implement those goals.

Educate the partners about the firm’s KM strategy. The effort will be quickly undermined if partners have no idea what the initiative is and how it will bring any immediate or long-term value.

Ensure that the KM strategy is used as a sword to define the program as much as a shield against budget cuts. For example, if you have established attention management goals for the project, then usability analysis and lawyer feedback are critical.

Because implementation issues will often center on having people appropriate for the work, think clearly about objectives when deciding about personnel. For example, a technical person developing the IT side of a distributed knowledge sharing system is likely to be quite different from the ego-less content manager who would helbuild a community of practice. Knowledge engineers working on new-fangled legal publishing technologies are likely to be true hybrids, combining technical depth with communication skills and legal knowledge.

Precision Execution

It is no small feat to increase understanding about KM and its goals within a law firm. It is critical to obtain buy-in by senior management and commitment by the technology team to work hand-in-hand with lawyers. And remember, clarity of objectives and solid execution will result in projects that will leverage the firm’s key differentiating asset: legal knowledge.

John Hokkanen ( is Knowledge Manager of the global firm Latham & Watkins.

The author wishes to acknowledge the contributions of comments from Alan Rothman, Sally Gonzalez, Marc Lauritsen, Jeff Rovner and Kingsley Martin.