SeytLines

There’s Gold in Them Servers

Posted in Analytics, Technology

GoldRushOn January 24, 1848, John Wilson Marshall was building a water-powered sawmill for John Sutter. The mill was close to Coloma, California, near the base of the Sierra Nevada mountains. Marshall was a carpenter who had emigrated from New Jersey. Although Marshall wasn’t looking for gold, he later claimed that he new immediately upon see the flakes what he had found.

At the time Marshall found the flakes, Mexico and the United States were still at war over the California territory. The population of the territory was mostly Native Americans (around 150,000) with some 6,500 Californos (people of Mexican or Spanish descent) and about 700 others (mostly from the United States).  A few days after the discovery (and not because of it) the United States and Mexico signed the Treaty of Guadalupe Hidalgo which ended the Mexican-American War and left California to the United States.

Sutter and Marshall tried to keep the discovery confidential, but obviously did not succeed. Within two months a newspaper was reporting on the discovery. By mid-June, three-quarters of the male population of San Francisco had left to goldmine, and by August the number of miners in the Sutter Mill area had reached 4,000.

The next year was written into U.S. History as The Gold Rush of ’49. The non-native population of California grew from 700 before the discovery to 100,000 at the end of 1849. By September 1850, California had become a state. The Rush peaked in 1852 when approximately $81 million (in 1852 dollars) of gold was pulled from the ground. By 1857, the annual production had dropped to around $45 million where it stayed for many years. The Rush was one of the most important events in re-shaping the face of the United States.

The 19th century in the U.S. Was know for gold, but the 20th century was marked by hydrocarbons. While some believe the he 21st century’s gold, especially later in the century, may be water, the current rush focuses on data.

The Strange Stories of Law

You have heard the statistic: each day more data is generated and stored than the amount of data that existed in all of history prior to the computer age. Large companies that entered the world as retailers, search engines, or social media companies found the real value of their businesses was in data. In Silicon Valley, it almost became irrelevant what your business could do, the focus was on the data set it could build.

And then we come to the legal industry. We can tell two versions of the legal industry story. The first story goes like this:

Recognizing the threat cybersecurity breaches present to their clients, law firms decide to thwart the attackers using an unusual approach. They accepted the futility of keeping hackers out of their systems. Instead of following the norm of keeping information as accessible data, which can be indexed, accessed, and manipulated, law firms keep their information somewhat like teenage boys keep their rooms. As one law firm leader said, “We decided that if our data was a mess and even we, who know it best, have difficulty finding and doing anything with it, hackers would have more trouble and simply give up.”

A team of red hat associates was tasked with hacking the system to find a group of documents to use as templates when drafting for a client. The blue hat defense team’s strategy was simple. “We pretended we were partners and randomly withheld helpful information from the red hat team.” The red hat team gave up after many hours and decided to draft from scratch.

The second story goes like this:

While clients and the world around them screamed about data, lawyers continued their quest to be oblivious. Lawyers in firms, corporations, and other service organizations knew that if they hadn’t enjoyed knowledge management, they would enjoy data management even less. Again adopting the “to do nothing is to do something” approach, lawyers have ignored pleas to treat their documents as data gold.

When asked about this strategy, a lawyer responded “The world around us has been changing for decades and yet here we sit today, almost unchanged. To respond to this ‘data fad’ by doing something would go against our strongly held belief that all tasks should be done by lawyers and not other service providers, even computers. Indeed, we are considering asking bar associations to file actions against all computer companies for the unauthorized practice of law.”

Choose which version you prefer, but the reality is that lawyers in firms, departments, and other legal service provider organizations are in the same boat. Legal data is not created and stored as the precious commodity it is.

The Stories Data Could Tell

The work that lawyers do tells stories of risks and response. What gave rise to the lawsuits? What did the parties do? What steps were taken in the ligation? How long did they take? What were the responses? We can explore similar questions in any area of law, and it is those questions and responses which are embedded in what law firms store on their servers.

The challenge with most data sets, unlike those in law, is not getting to them. Finding data sets can be easy. The challenge is getting them in shape to use. Data scientists call this step data wrangling or data munging and it eats up 80% of their time.

Think about a data set in your firm that you actually keep as a data set: your customer information. Your firm or law department has a system for keeping track of customer (in the case of law departments, law firm) information. If you check the system, you will find out of date entries, missing information, duplicate entries, and incorrect entries. Imagine how long it would take if you froze the system today and had someone focus on cleaning up the database. Of course, as soon as they finished and you resumed using the database, you would find it out of date.

Now apply those problems to your real data. All of the documents sitting on your servers form your database. You may have a knowledge management system, and still your data is not ready for use. At best, you have a collection of documents with some perfunctory information filled in by field. Your knowledge management system uses a not-too-sophisticated search process to locate documents responsive to your request. When you find them, you can’t do much with them except copy and use them as templates. Definitely not state-of-the-art.

When I talk about data, I mean the ability to access specific information from those files, combine it with other data, and produce information that will help solve client problems. For example, what if you could combine data from all the employment lawsuits you have handled with data from government and court data sets. Could you construct a model that gives specific information about each type of employment lawsuit?

You may think of this as fantasy, but it isn’t. Today, startups have breached the barrier and are applying this type of analytics and more as they find and use data sets. One small but growing area is computational linguistics. Put very simply, CL applies statistical tools to text. Through machine learning, computers can use the CL tools to understand text far beyond “supreme w/5 court.” Tools using CL in law are in the early stages, but they all face the same challenge: getting access to clean data sets.

This is where lawyers enter the picture. By recognizing today that the information built into the data sets is the gold that will help law firms and law departments protect clients, lawyers take the first step. The second, is to start transforming what already is in the sets into data, and the third is to store whatever new items are created as data.

If You Make It The Bad Guys Will Come

At this point, a good question to ask is what about the cybersecurity threat? As they say, there are two types of companies: those that have been hacked and those that don’t think they have been hacked. The experts with whom I have talked agree that law firms are and will continue being hacked. The firms just do not have the sophistication to prevent the hacks. That is not a slam against law firms. It is hard to find any organization, and so far no one has named one, that is immune to hacks.

So if the hacks will happen, why should lawyers turn what they have into data? My first scenario above was written in jest, but lawyers do ask if it isn’t better to have the hackers find the messy teenager’s room than a nice, neat library?

The response to hacking isn’t to abandon the quest for data, just like the response to computers isn’t to become a modern-day luddite. All firms and corporations should take reasonable steps (and today more are going well past reasonable) to protect against hacks. Assume there will be hacks and focus on the data. Just because a hacker can get into a system doesn’t mean the hacker can get access to, un-encrypt, and assemble all the data in a way that will help them. You have a security alarm on your house, but you don’t leave all of your valuables lying on the kitchen counter. Thieves still take gold, but we still mine it. Cybersecurity is a challenge, not a bar, to keeping and accessing data.

Data Is Becoming Essential

Data is going to be more than a way to use and manipulate what you create and store. It will become an essential part of the modern law practice. Let’s look at one last example: blockchains. I won’t go into a detailed description of blockchains, I’ll keep it simple. A blockchain is a database that is distributed, not centralized. Each record in the chain may hold data, a program, or both. The cords are hardened against tampering through strong encryption and distribution. Blockchains reduce and sometimes eliminate the need for intermediaries.

The terms of a smart contract are built into the code embedded in the blockchain. If condition X happens, then Y occurs. No ambiguity, no equity (at least that is the theory). Once the contract is formed and built into the blockchain, no on can alter the blockchain (more precisely, an altered blockchain becomes an instantly visible anomaly rejected by blockchain holders).

Lawyers who do not understand blockchain, code, computers, or how the system should work will be at a severe disadvantage. Yet big banks and other large players are actively looking into using blockchain or similar technologies as part of their systems. Since the contract is in the code, we can treat the contract as data and start combining and manipulating it.

Mine the Data Now

Lawyers have believed for centuries that they need to study the law, but they can pick up everything else quickly so that they can apply the law to it. Litigators are famous for believing they can litigate an employment case in the pharmaceutical industry this week and an antitrust case in the retail industry next week. Large firms have moved beyond this by making everyone specialize (and sub-specialize), but the feeling still exists. So, lawyers wait and watch. When they think something has become so well established that the world can’t possible go back, lawyers make their move.

While lawyers may believe they can wait until everyone is deep into data and then put their toes in the water, it doesn’t work that way. I mentioned at the outset competitors in the retail, search engine, and social media industries. They have built data sets so large and deep that it is unlikely anyone can catch them. In fact, recognizing that the prize is data and not tools, Silicon Valley has embraced a new trend. These companies are posting on the Internet for anyone to use many of the most sophisticated tools they have developed.

Why would they open source the tools? Because these companies know that the tools are useful and by open sourcing them they may get interesting insights from others who use them. Making the tools available allows the scientists who develop them to showcase their work, an important part of attracting and keeping talent. But these companies also know that without their incredible data sets, others will not be able to use the tools to replicate what these companies do. The tools help, but the data sets are essential.

Law firms and law departments have yet to realize that tools are becoming widely available. The firms and departments will need help, from academia, consultants, and others, to understand and employ the tools. But, the tools will not be the chokepoint. The real value is in the data. Each firm and each department has value in its proprietary data. To realize that value, they must start treating it as gold and not as dirt. Welcome to the 21st century.

The Low Cost of Lean (Part 4)

Posted in Efficiency

LeanCostThe first week, we started down the path of evaluating the cost of process improvement for a law department. The second week, we finished that analysis and started to look at process improvement from the law firm’s perspective. The third week, we continued our look at the value of process improvement from the law firm’s perspective. In this final part of the series, we will look at it when we bring technology into the picture and close out the post.

The Technology ROI Analysis

Mention replacing labor with computers in most law firms and law departments, and you get certain responses. First, you can see the dollar signs floating in the air. Law departments have restricted budgets and are cost centers. The idea of adding more cost to a cost center generally does not excite general counsel. Law firms, now in a competitive environment, do not relish taking money from the partners to pay for computer systems that many partners will refuse to use.

Second, you can see the discomfort on the faces of the lawyers. Lawyers are, as a general rule, not tech savvy. The thought of loading up on more technology creates more stress for a group who do not like being involved with anything they do not understand.

The fundamental question most lawyers ask is the same one their business counterparts ask—will the cost, time commitment, and other resource commitment of using the technology be justified by the return they get from using it. We are back to the ROI question.

From Complex to Simple

I will divide technology into two categories. The first is complex technology. Complex is not synonymous with expensive. In our case it means implementing the technology falls at the end of the continuum where the time, commitment, and resources are high for the environment (what is complex for a one-person department may be simple for a 100-person team). An enterprise level contract management system could be complex for a large law department and a matter management system could be complex for a small law firm. The second category is simple technology. This technology falls at the low end of the continuum. It typically includes single purpose software that is user-friendly to implement. Many contract automation tools fit into this category.

Calculating the ROI on technology often is complicated, but not impossible. The approach is straightforward. First, determine the current process for doing the work. A process mapping exercise will help. Then, create the new process if the technology is implemented. Compare the cost of the old process to the new process (plus the implementation cost) using the ROI calculation. If the new process including the implementation cost yields a positive ROI, then you should consider the technology. If not, skip the technology.

The more the technology affects processes within and outside your domain, for example in areas outside the law department or in areas controlled by clients, the more difficulty you will have mapping the process and tracking costs and benefits. Rather than coming up with “an answer,” think about coming up with a range of answers and probabilities (we call this the Bayesian approach). Also, recognize that the costs and benefits are unique to your environment. A vendor can help with a template and some ideas about where to look for those costs and benefits, but a generalized ROI will not reflect your unique situation.

Beyond looking at the ROI, there are some other factors you should consider. Assume you installed some software (e.g., contract management software) before doing anything to improve the five hour process your attorney uses. You integrate what the attorney does with the software package. You have now done what we call institutionalizing waste. The wasteful process is built into your systems in ways that are deeper and more difficult and expensive than before.

To change the process, you need to re-work the workflow outside the computer system, probably re-work the workflow within the system, and re-train everyone on the new workflows. All of that costs money. And, you get to spend money to change the computer system and re-train each time you do a process improvement event. You have increased your costs and institutionalized waste, a toxic combination.

Institutionalizing waste is quite common. In fact, except in companies that have a strong process improvement culture, it is the norm. I have seen instances where companies introduce computer systems, do not get the improvement they want or eventually see improvements stall, bring in process improvement experts, and end up ripping out the computer system.

Does this mean you should forego the benefits of computers? Of course not. First, analyze, standardize, and remove waste from processes as much as you can before moving to software. Second, when you do move to software, be skeptical of the “one package does it all” solutions. These packages typically do many things okay, but seldom do many things well. In some situations, your process study may show that outcome is fine. If the many things the software does okay are all peripheral to your service and your requirements are simple, the software may be a good choice. If many of the things you want the software to do are important to your service offering, you may want to look elsewhere.

As an alternative to one-package software, consider single solution packages. For example, there are packages that only do document automation, logic trees, or customer relationship management. If you want to excel in these service areas, then a single solution package may be better for you.

Single solution packages take the place of certain steps in your processes, they do not replace processes. Today, someone may open a template and fill in each blank by copying and pasting from another document are typing the entry. The document automation software fills in the blanks by doing these steps for you. They save labor and avoid typos. Whether it makes sense to use the software is something you will learn from your process improvement event and ROI calculations. But, it is much easier to change a process with single solution packages than with a package that tries to do everything in the contract process.

Think of a process as a string of beads. Each bead is an operation in the process. As you use process improvement events to improve those operations, you will come to points where replacing a human bead with a computer bead makes sense. We do not handwrite documents, because typing them on a computer makes sense. No matter how much process improvement we do, creating the document on a computer will go faster and be more legible than hand printing it. Over time, we may even replace the entire string with a computer. But, we do not simply jump from human to computer.

Teaching Lawyers to Fish

I hope I have convinced you of a few things. First, using an ROI analysis, you can determine whether a process improvement event has the potential to generate a positive return on your investment by calculating what level of improvement you need from a team. Second, at the early stages of implementing process improvement, it is very easy to generate positive ROI events. Third, moving to process improvement opens up other possibilities that can benefit both the lawyer and her client (whether that means outside lawyer and company, or inside lawyer and businessperson). Time is valuable. Fourth, technology can be a benefit, but the benefits increase when you use process improvement to take out waste first and selectively add technology, versus replacing processes with “do it all” technology. If it sounds too good to be true …

Sometimes, the payback on a process improvement event just is not there. Often, if you look at the event, focus the project a bit more and reorganize the team, a negative ROI event turns into a positive ROI event. Remember that events build on each other and through that stacking you compound returns. Take small steps.

Usually I tell stories to show lawyers that process improvement works. In this series of posts, I have given you the primary tool to prove to yourself that process improvement works. When lawyers ask “what’s in it for me” the answer lies in doing the analyses I have laid out in these posts. In harsh terms, a positive ROI means there is money in it for you.

The challenge to using process improvement in law does not lie in the methodology, the field, the intellectual nature of what we do, or any other imagined barrier. The challenge lies in the extraordinary resistance to change lawyers present to themselves and the world. As one general counsel put it to me, “When you get right down to it, even lawyers can learn what others have been able to pick up with a few hours training. The challenge is not in this process improvement stuff, the challenge is in getting lawyers to realize that when it comes to law they own the knowledge, but when it comes to delivering services, they do worse than retail clerks and factory workers.”

Some Final Thoughts

I have taken a book-length topic and condensed it to 8,000 words. Obviously, I simplified some things and did not cover others. My point was not to oversimplify to win you to my viewpoint. Rather, it is to educate you about the evolving view of efficiency in law. I call the new combination of human and computer the “augmented lawyer.” This lawyer must understand the law, of course. But understanding the law and advising the client have now become table stakes for most lawyers.

The new lawyer must be able to combine human skills plus computer skills. To do that, the lawyer must understand processes, how to improve them, and when to add technology. That does not mean the lawyer must become a process improvement expert, project manager, or a technologist. In our complex world, no person has the ability to do it all—even a lawyer.

It does mean that a lawyer must become conversant in the tools of the trade. He must understand processes and process improvement. He must know how and when to use project management. He must understand value versus time and deliver more of the former while using less of the latter. He must know where data resides and how to leverage it for his client.

This last point is important for it underlies what I have discussed in these posts. To do ROI calculations, you need data. Data has become to the 21st century what hydrocarbons were to the 20th century. That is a great line, but it is not mine. It belongs to Virginia Rometty, CEO of IBM, who said it in her commencement speech at Northwestern University in 2015.

Pedro Domingos, a computer scientist at the University of Washington, put it this way in his book The Master Algorithm:

Think of big data as an extension of your senses and learning algorithms as an extension of your brain. The best chess players these days are so-called centaurs, half-man and half-program. The same is true in many other occupations, from stock analyst to baseball scout. It’s not man versus machine; it’s man with machine versus man without. Data and intuition are like horse and rider, and you don’t try to outrun a horse; you ride it.

Process improvement is a tool that helps you understand when and how to use the horse effectively. ROI is a tool that helps you understand when and how to use process improvement effectively. You can choose not to use the tools. But in every other area of human endeavor, those who ignore tools find themselves at a disadvantage compared to those who do use them. Choose wisely.

The Low Cost of Lean (Part 3)

Posted in Efficiency

LeanCostThe first week, we started down the path of evaluating the cost of process improvement for a law department. The second week, we finished that analysis and started to looked at process improvement from the law firm’s perspective. This week, we continue our look at the value of process improvement from the law firm’s perspective.

When we did the ROI calculation for the law firm’s process improvement event, we got an ROI of -$35,927. As I noted, however, that is how it looks at first blush. We should dig deeper.

It turns out that what seems to be a disastrous event from the law firm’s perspective really is an opportunity. Ask lawyers, and they say the opportunity is to use the “saved” time to do more work for the same client or do work for a different or even new client. In other words, if a lawyer bills 40 hours per week she sees the time saved from the process improvement event as an opportunity to keep billing 40 hours per week, just with a different mix of clients and matters. That is an opportunity, but not the one I see and not one that would drive a rational investor to use the process improvement event.

Rethinking Law Firm Pricing

The opportunity I focus on offers much more to the lawyer and her client. It starts with the value model. Process improvement supports the lawyer moving from the billable hour to an alternative fee structure which can be more profitable for the law firm while costing the client less. We used the assumption that the lawyer bills at $500 per hour, so the lawyer was charging $2,500 for five hours work. After the first process improvement event, it takes the lawyer three hours to do the work, so everyone assumes the price will drop from $2,500 to $1,000. That is a bad assumption.

The value the client received has not changed. The only thing that changed was the input volume to produce that value. The lawyer could switch from charging by the hour to charging a fixed fee based on the value. On a fixed fee model, the lawyer can choose one of several paths including charge the original price, reduce the price a little, reduce the price a lot, or keep the price the same but offer additional services. The demand for the lawyer’s services will play an important role in the decision. The value of the services is determined by what clients will pay, not by the time it takes to provide the service. For example, even though it only took five hours to perform the service, clients may have been willing to pay $5,000. Of, while it still takes two hours to perform the service, clients may be willing to pay only $250.

Lawyers often think about revenue, but not about profit margin. Firms compensate lawyers based on revenue and often pay little attention to profit margin. Lawyers focus on revenue over profit because they are rewarded for doing so. Most large firms still have some partners generating millions of dollars of revenue on which the firms lose money. For example, the firm may have decided to support a practice area as part of the firm’s mix of services even though that practice area does not make moneyIf that is a conscious decision. In that case, the firm has made a rational decision.

Unfortunately, firms often maintain these money-losing practices for the wrong reasons. They may not want to have the firm’s overall revenue drop, the partner who owns the book of business could b politically powerful in the firm, or the firm simply does not know what it makes or loses on the business.

I am going to assume you want every revenue stream to generate a positive profit margin. Firm-wide profit margins vary at large firms, so I will pick 50% for this example to keep the numbers simple (large firm profit margins more typically range from the low 30s to the 40s, though individual practices can go much lower and higher). Our lawyer was billing (and we will assume collecting) $2,500 for five hours work. At a 50% profit margin, the firm made 0.50 x $2,500 = $1,250. What can the firm do when it takes only three hours to do the work under the various options I listed above:

1. Keep price the same. Profit margin increases to 70% ($2,500 – $750 cost = $1,750 profit, $1,750 / $2,500 = 70% profit margin).

2. Reduce the price a little. Our lawyer charges $2,000, and the profit margin still increases to 62.5% ($2,000-$750 cost = $1,250 profit, $1,250 / $2,000 = 62.5% profit margin).

3. Reduce the price a lot. Our lawyer charges $1,500, and the profit margin stays at 50% ($1,500 – $750 = $750 profit, $750 / $1,500 = 50% profit margin).

4. Keep the price the same but offer additional services. The profit margin will be somewhere between 50% and 70%, depending on the services the firm provides and assuming those services are not too costly so they push the profit margin below 50%.

The price our lawyer uses as the fixed fee will depend on many factors. They include the relationship with the client, the competitive market generally, competition for this particular matter, and the firm’s pricing philosophy.

But, one additional factor the lawyer should consider is the ROI on the investment to reduce the time on the matter from five to three hours. Ignoring the investment means the law firm will not recoup the investment, which is just bad business. There is an exception. If market prices are dropping drastically, then investing in process improvement may be a way to reduce costs while keeping pace with the drop in market prices. In that event, the law firm’s profit margin could get squeezed (from 50% to, say, 35%). Practitioners serving individuals and small businesses may be experiencing some of that with technology-driven competitors entering the market.

Improving the Law Firm ROI

Looking back at our law department example, we recall that the in-house lawyer repeated the process once a month. Over five years, the lawyer would iterate the process 60 times. That may sound like a lot of iterations, but when you break down what lawyers do, it is easy to find tasks that lawyers do hundreds of times each year. Time adds up across those tasks, which makes it easy to find ways to generate large ROIs on process improvement events.

We can translate the effect of repetition to the law firm setting. Again, to keep our example simple, we will assume our lawyer in the firm also does the five hour task once a month, though she performs the task for various clients (one month for Client A, the next for Client B, and so on). The initial cost to do the process improvement event stays the same at $15,000. Now we will look at the ROI for the law firm under a few scenarios.

First, we will assume that our lawyer decides to reduce the price for the matter from $2,500 to $2,000. In the first year, the firm will spend $15,000 during the first month. In the second month, the firm will spend $750 (versus $1,250 before improvement) to do the work, but it will collect $2,000 (versus $2,500 before the price drop). In other words, it will spend $500 less but it will collect $500 less, so the net change in cash flow (before the event to after) is $0. It will remain the same throughout the five years for an ROI of -$13,636.

If the firm spent $15,000 and saved $0 why is the ROI only -$13,636? The firm will have spent $15,000 to get no change in net cash flow, but a profit margin increase from 50% to 62.5% (plus whatever benefits they get from reducing the price to clients). The basic ROI formula assumes the $15,000 is spent at the end of the year, not the beginning. It discounts the amount to the present, which is why the ROI is less than $15,000. For those who want to be very precise, you can tweak the formula to address the timing issue.

The ROI went to -$13,636 from -$35,927, which is good, but we still don’t have a compelling argument for process improvement. Before we abandon this process improvement event, we should ask again whether we have considered in our calculations all of the benefits the firm will get from the event.

The answer is no. In our calculation, we assume no value to the two hours per iteration that were picked up from the event. In the first year, the firm picked up 11 x 2 = 22 hours and in years 2 through 5 it picked up 24 hours per year, for a total over five years of 118 hours. If the firm cannot do anything with those hours (they have 0 value to the firm), then our calculation was correct. But, if the firm can use those hours (do work and charge clients for the work), they have value.

Currently, each hour has $250 of value to the firm ($500 billed rate – $250 cost). If we add that value to our ROI calculation, we get a new ROI of $6,154. If the firm can use those hours at the 62.5% profit margin (for example, do the same task for more clients using only three hours and charging $2,000), the ROI increases to $11,101.

We can do a quick summary of process improvement from the firm’s perspective:

1. If a firm does a process improvement event and it sticks with the billable hour for its pricing model, it will be hard to justify doing process improvement. Firms that are comfortable billing by the hour and who have sufficient clients willing to pay by the hour may not benefit by becoming more efficient (at least not using this simple ROI analysis).

2. If a firm does a process improvement event and changes to an alternative fee pricing model, it is easy to justify doing process improvement, provided the firm sees value in the time saved by becoming more efficient. I showed one value—using the time saved to do work for other clients on an alternative fee schedule. There are other measures of value that could be used, such as lower employee turnover, higher client attraction and retention rates, and higher employee satisfaction from doing less wasteful work. Always remember time is the one thing we cannot replace, so saving time has value.

3. Process improvement events have value beyond the obvious. We did not talk about the value to the client of reducing the work time from five to three hours. The client may value getting the work product more quickly. That value may express itself as client satisfaction. Some clients may be willing to pay more for a faster resolution.

We have seen how process improvement events can generate positive ROIs within a law department and a law firm. But process improvement does not live alone today, like it did back when companies first started using it. In the 1970s when Toyota put more structure around its corporate process improvement program, and in the 1980s and 1990s when U.S. companies adopted process improvement, the question was often binary—do process improvement or stick with the current method. Today, another alternative frequently pops up, and that is technology and more specifically computer systems.

It makes sense for us to look at process improvement and ask whether the ROI method of valuing an event has anything to offer when we consider using computers as an alternative to labor. Next week, in the final installment of this four-part post, I will look at technology, the ROI analysis, and add some closing thoughts.

The Low Cost of Lean (Part 2)

Posted in Uncategorized

LeanCost

The first week, we started down the path of evaluating the cost of process improvement for a law department. This week, we finish that analysis and start to look at process improvement from the law firm’s perspective.

We ended last week on a cliffhanger: how to solve the following equation:

ROI Formula

This should not be a scary equation. Finance departments often use this equation (or a very similar one) to help them decide whether to approve a project. Law departments can use this equation to decide whether to invest in software, a process improvement project, or any other undertaking that requires an investment. Law firms should (and presumably some do) use this approach as well. For example, will a new office be worth the investment? New software? You could use it to evaluate a new partner or practice group. ROI is a powerful tool if used correctly.

So how do you use it? Let’s define the variables in the above equation:

t = A counter. In a five-year analysis, t goes from 1 to 5. In a three year analysis, it goes from 1 to 3.

r = The discount value. As I said last week, we typically use the corporate cost of capital. For our example, we will use 10% (0.10).

CF = Cash Flow. When calculating savings, it is the amount saved each period minus the amount spent each period. For example, if you spend $15,000 in year but you only saved $10,000, your cash flow would be $10,000 – $15,000 = -$5,000 (negative cash flow). If you saved more than you spent, you would have positive cash flow.

Terminal Value = This is the expected cash flow value beyond our measurement horizon (five years or three years). Think of it this way, at the end of five years if you are still using the process, then you still save from the initial process improvement project (assuming you didn’t eliminate the steps where you got the savings). To be intellectually honest, we should include those savings when calculating whether the process improvement effort has a positive ROI. Five years is a long time. So, we can make a very conservative assumption. We assume that the process only lasts five years—that is, we assume we do not get any savings after five years. If the calculation yields a positive ROI with 0 as the terminal value, then we should do it even if we do not get any savings after five years. If it yields a negative ROI, adding a terminal value may save it, but we would want to be very sure the process will survive more than five years. For our calculation, we assume 0 as the terminal value.

Now we can write out our formula with specific numbers and do the calculation. First, I will do a pseudo formula. I will use words and write the formula informally, putting in numbers for the variables. Then, I will write the formal formula and do the calculation.

Pseudo Formula

In year 1, we spend $15,000 and get a savings of 11 months times $500 per month.

In years 2 – 5, we spend $0 and get a savings of 12 months times $500 per month for each of four years.

Actual Formula

CF Calc

Do the math, as they say, and you get an ROI of $8,654. From a rational investor’s viewpoint, it is worth spending the time to do the process improvement, because you will save money over five years. From the lawyers’ viewpoint, it still may be a tough sell. Given all the other benefits and that this was a training exercise, it still makes sense to do it (at only one hour savings per iteration, the ROI is -$2,719 so the other reasons would have to be more compelling).

The next step shows how you start to realize the true power of process improvement. The team can do additional process improvement events and they can tackle any process they want. For small processes, they can go it alone without the trainer. For larger or more complex processes, they can use the trainer as a consultant. As the team brings on different members and those members become trained, the process improvement knowledge spreads and many teams can do process improvement simultaneously. Eventually, you move from isolated events to continuous improvement.

At continuous improvement, teams take on larger or more complex processes, while everyone does daily process improvement. An organization where all the employees look for and implement improvements each day will achieve tremendous efficiency and cost savings. It also realizes the compounding effect of process improvement.

The Power of Compounding

If we go back to our first example, the team eliminated two hours of waste from a five hour process. Whenever teams do process improvement events, they find more things to improve than they can tackle during the time available. The ideas they don’t reach go into a “parking lot” and become the ideas to implement during the next event. Assume our team went back to the five (now three) hour process two months later. After two more days, they may be able to cut the time from three hours to 1.5 hours (a 50% reduction). The ROI would be $5,354, so doing the event would make sense. Overall, with two events, the team has taken the time to do each iteration from five hours to 1.5 hours, a 70% reduction in about two months. In process improvement events, reductions in the 50% to 75% range are quite common, at least at the start.

Many of you will have caught another benefit. The three and one-half hours saved each iteration become available for reassignment. The employer could do some combination of the following 1) use the time for other work not being done, 2) use the time to do work currently being done by an outside law firm, 3) use the time to do new things that need to be done, or 3) (gasp) give the time to the employee (e.g., reduce the work week from 50 hours to 46.5 hours). There is a value to each of these and we should include that value in our ROI calculation, which means the positive ROI for each of the two events just increased.

You can see how process improvement brings “force multiplier” benefits to an organization. This is one reason why organizations of all stripe have embraced process improvement. You also can see how it engages employees. My description covers the most basic form of process improvement, and yet you can see employees attacking the problems that bother them every day. Becoming a process improvement virtuoso takes years of dedicated practice just like becoming a piano virtuoso. Talented process improvement trainers can accelerate the learning and effects of process improvement teams, so organizations find they want to have them around at least until the develop or hire their own experts. That increases cost a bit, but the cost increase is quickly offset by the increased efficiency.

The Law Firm View

The ROI analysis I just did makes sense if you work in a law department. The lawyers and their colleagues do not get paid more if they spend more time doing work, so efficiency rates high on the list of things valuable to them. But what about a law firm? Law firms work on the the inverse presumption: the more work they do the more money they make (under the still-predominant billable hour model). Why would lawyers in a firm do process improvement if their clients were not demanding it?

We will go back to our familiar ROI analysis. We will use the five hour to three hour to one and one-half hour example above, but now we will do the calculation from the law firm’s perspective. To make the example easy to follow, we will assume the cost to the law firm of the lawyer and the cost of other professionals is the same as the cost to the company. That is, a lawyer costs $250 per hour and other professionals cost $70 per hour. I know the cost for these professionals at law firms often is much higher, but that is not the point in this example. You will substitute actual costs for my imagined numbers. Our purpose here is to learn the method not find absolute truth.

One more note about the cost of lawyers and other professionals to a firm. There have been many arguments about whether the cost of the lawyer is her base salary or draw, or base salary or draw plus bonus, and whether to add in overhead. On the first question, I think cost is what you pay the person – all in. You should use salary plus bonus or draw plus bonus (using the prior year’s numbers is close enough). On overhead, I also think you should apply an overhead cost, because the firm spends the money.

Now let us go back to the calculation. In the first year, we assumed a total cost of $15,000 to the employer (in this case the firm). That included time, trainer, and supplies. In the law department example, we assumed 11 months of savings at $500 (two hours) per month. But, for the law firm, there is an additional impact. The firm saves those two hours but it also does not bill those two hours. At first blush, it seems like we should save $500 but lose the revenue of two billable hours (assume each lawyers bills at $500 per hour, so two hours lost revenue means $1,000). Our cash flow calculation now changes.

In the first year, we spend $15,000 and then we have 11 months of $500 – $1,000 (two hours cost saving minus two hours revenue loss), or 11 x -$500 = -$5,500. For years 2 though 5, we have twelve months each year of -$500 cash flow per month, or -$6,000 per year for each of four years. We can run the ROI calculation (the result is -$35,927), but it doesn’t take a finance expert to know that if you lose money every year, the ROI will be negative. It looks like this is a disaster from the law firm’s perspective.

As you may guess, the problem does not lie with process improvement  it lies with our calculation. To be a bit more precise, we are not properly looking at the inputs, outputs, and value so we have a GIGO problem (garbage in, garbage out). Our calculation gives us a misleading result because what goes into our calculation is not accurate.

Next week, I will go through how we can correct the inputs to our calculation so we get a meaningful result. If you are skeptical, think of it this way. Toyota started doing process improvement in the early 1900s and pulled together the program by the 1970s. It still carries on the program today. Beyond Toyota, process improvement has swept through companies in all industries, manufacturing and service, so that today it is easy to find even very small companies regularly engaged in process improvement. Process improvement has proven its worth and next week I will show you how our ROI calculation, once we improve the inputs, shows that process improvement works even in law firms.

The Cost of Lean (Part 1)

Posted in Uncategorized

LeanCost

In this two-part four-part post, I am going to cover how to calculate the return on investment from a process improvement event and why I think you should do (a lot) of process improvement before moving to software.

Efficiency. It has moved from new buzzword to table stakes status in most conversations about legal services delivery. But how to get efficient is still a debated topic.

One the one side, we have the techno-efficiency advocates. Get this program, get that program, or better yet get them both and you will become more efficient. Computers trump humans.

On the other side, we have the human-efficiency advocates. To become efficient you must practice, practice, practice, as in practice law a long time. The more you practice the larger your toolkit of efficiency tricks grows, the more efficient you get. Nothing magical here. The 30-year practicing lawyer writes a brief more efficiently than the 3-year practicing lawyer.

In the middle (not a popular place to be this political season), are those who advocate for some combination. I use the term “augmented lawyer” to mean one who combines the best of the human and computer worlds to practice law. To become an augmented lawyer, I say lawyers should start by learning processes and process improvement and then, after a while, introduce simple, dedicated technology that handles certain defined tasks.

I get resistance when I argue that process improvement is a low cost approach to improving things. In fact, I get called on this low-cost assertion often enough that I thought it was time to lay out the argument.

The Process Improvement Argument

Process improvement is incredibly complex and unbelievably simple. I often compare it to playing the piano. In one short lesson, you can start making music. But it will take a lifetime and some serious coaching if you want to master the instrument. The same holds true with process improvement.

The simple end starts something like that first piano lesson. A trainer will take you through the basic theory, some simple methodologies, and explain how to keep track of what you do. Process improvement lessons can be short or long, but a half-day is a good length of time to get your introduction to process improvement.

The standard  event lasts one week. Stop laughing—I realize that lawyers will not devote a week to anything unless they can bill the time. For the legal industry, a three-day event is pushing it and one- to two-days seems to be the limit for most lawyers. For your first process improvement event, it is best to block out that half-day for training and then one- or two-days for the event. You will learn much more and have a far better outcome than if you try to dribble the training and event over several days or weeks. Once you know the basics, you can use the dribble approach, just recognize it slows things down, results in fewer benefits and introduces more risk to finishing improvement projects.

The size of a team, not including the trainer, isn’t fixed. You can do a one-person event or a 20-person event, though I would avoid both extremes if possible. The size I think works best ranges from six to eight. The supplies for a team are simple. Sticky notes, fine point markers, a conference room, and a clear wall to which you can tape long sheets (liked 30” x 10’) of kraft or butcher paper. The total supples cost under $25.

Now to the core. If we assume a six person team for two and one-half days plus a trainer for one-half day (and we make some assumptions about wages and the trainer’s fee), we could say that the first event costs around $38,025. To get there, I used $250 per hour (a rough number for an in-house attorney) as the cost of each attorney ($250 x 6 x 8 hours x 3 days), plus another $2,000 for the trainer, plus $25 for supplies. A note to those who do this training for a living. I have no idea what process improvement trainers charge today, so my apologies if this number is far off.

That sounds like a huge investment, but let’s look a bit deeper. First, you might include six attorneys on the team, but I would recommend against doing so. You would have a better team if it included a people with a mix of skills: paralegals, assistants, project managers, and anybody else who works in your firm. In other words, process improvement works best when you have a combination of skills.

Next, look at the time spent cost. There are four major views on this issue. One view is that time spent is a sunk cost. The employer (firm or department) will pay the participants for the time regardless of what they do. The cost to the employer is a sunk cost and should not be included as a cost in the way that the trainer’s fee is a cost. A second view is to include the cost, as I did above. A third view is to include an opportunity cost. Assume each timekeeper could have billed the time and then include what the firm would have been paid if it had billed the time. The fourth view sometimes is used by law departments. They include the replacement cost: what did it cost the department to go outside and purchase legal services to do what the employees would have done if they were doing their regular jobs (e.g. cost of hiring a law firm to do two days of work).

Each view has merits and there is no right or wrong answer. As a general counsel, I used the approach I first described (cost) because it was consistent with how the companies where I worked accounted for training generally. I also used teams that had lawyers plus others, so the cost was much lower. Using no more than two attorneys on a team, the cost for the other participants usually was less (often much less) than $70 per hour, but to be conservative I’ll use that figure. Updating our calculation, we get $14,505 which I will round up to $15,000 (($250 x 2 x 8 x 2) + ($70 x 4 x 8 x 2) + $2,000 + 25). That still seems like a lot of money, but it is far less than the $38,000 starting amount.

Of course, the real question is what does the employer get for that $15,000? The obvious answer is an improved process, by which I mean a process with waste removed. The value to the employer is the stream of future process iterations multiplied by the savings due to the waste reduction, discounted to the present value.

There are a few other things the employer gets for its investment:

1. Six employees with basic training in process improvement. Think of this as at least the start of “train the trainer.” Each of these employees is on a journey to train other employees and lead improvement teams. Right now, they can look for and start implementing small improvements in daily activities based on what they learned.

2. Six employees who have seen the value of waste elimination. This is the beginning of a culture change process. Once you are educated about waste, you look at things differently. You start asking “why” more frequently. Unless an organization can charge its customers for waste and still achieve all its corporate objectives (ironically, law firms have been doing this throughout their existence), getting rid of waste is a good thing.

3. I can add many other things to the list, but I will just pull some of them together here. The participants build teamwork skills, analytical skills, and process understanding skills. The teams learn how to use metrics to track performance, so team members learn how to construct and use metrics. As your teams evolve to include clients, you build stronger client relationships and goodwill by reducing the waste burden you impose on clients. In short, lots of good things come out of process improvement teams.

The Process Improvement ROI Journey

But lawyers always look for the honey pot: what is in it for me? To get there, we must do a return on investment (ROI) analysis, and to that, we must go back to that confusing equation:

The value to the employer is the stream of future process iterations multiplied by the savings due to the waste reduction, discounted to the present value.

Let’s break it down into its components:

1. Stream of future process iterations. The team will focus on a process., A process is a defined series of steps taking us from a start to a goal, which we repeat over and over. Law practices are filled with processes. Conflicts checks, sending emails, preparing for depositions, drafting contracts, are all processes. This component reflects that once we improve a process, we get the value of that improvement each time we run the process. Each time we do a conflict check, it takes less time. We want to add up those savings to calculate our ROI.

2. Savings due to waste reduction. Our process improvement team focused on taking waste out of the process. To know if they succeeded, they used metrics. For example, if the process took four hours before improvement and three hours after improvement, they removed one hour of waste, a 25% reduction in time. As they say, time is money so we can calculate a cost savings from waste reduction. There are many metrics, but typically we can reduce any of them to cost savings.

3. Discounted to present value. This is the finance part of the equation. One dollar five years from now has a different value than one dollar today. You could invest a dollar today and, assuming you invested wisely, you would have more money in five years. Conversely, one dollar five years from now should be discounted to a lower value today (again, I could invest the lower value today to get the dollar in five years).

There are a few ways to calculate ROI, but I will use one finance departments often favor: the five year no terminal value ROI (yikes!). Stay with me. This fancy term simply means we will calculate the value of the cost savings over fives years, discounted to present value, and see whether the result is positive or negative. A positive value means we saved more than we invested when examined over that five year period, and a negative value means we invested too high given the savings. Five years is not fixed in stone and today you may find companies that look for a faster payback, for example three years.

For our first example, we will assume that the team looked at a process that took one lawyer five hours to perform. We also will assume the lawyer does the process once per month. Over five years, our lawyer will do 60 iterations of the process. If the team shaved two hours off the five hour process, the 40% waste reduction will save 120 hours over the next five years. Using our standard cost of $250 per hour, it looks like the savings to the company would be $30,000. But, we need to compare that $30,000 to the $15,000 you will spend today on the team, so we need to discount the savings back to present value.

We could spend a lot of time arguing about what number to use as the discount factor. Think of it this way, if I asked you to tell me today what percent return you would get on your investment over the next five years, you probably would find that hard to do. To avoid the debate, most people in finance departments default to using the corporate cost of capital. This is another debated topic, but in simple terms it means what the company must pay as a return to get the capital needed to run its business. That could be the return rate to stockholders or bondholders. (Hint: no, you do not have to calculate this, just ask the CFO.) For our example, we will use 10%.

This is the equation we will use to calculate the ROI:

ROI Formula

Again, yikes! Next week: I will go through the ROI calculation, tell you why you should know how to do an ROI calculation, and talk about the other side of the coin: why I think you should start with process improvement and pursue that for a while before looking at technology.

Another “It’s the Data, Stupid!” Essay

Posted in Change

DataStupidIt was the 1992 election campaign, and James Carvill, candidate Bill Clinton’s campaign strategist, was fighting to keep the troops focused on what mattered. He hung a sign in the campaign’s Little Rock, Arkansas campaign headquarters with three messages:

1. Change vs. more of the same

2. The economy, stupid

3. Don’t forget health care.

Nothing stays quiet in politics, the contents of the sign made it out, and now we all know the phrase “[it’s] the economy, stupid.” The phrase has been modified and used in many situations, including: it’s the data, stupid!

The Four Revolutions of Legal Materials

We can segment the history of legal materials using several dimensions. I divide the history into four phases:

  • Parchment to paper
  • Paper to published
  • Published to digitized
  • Digitized to data

At one time, legal materials meant writs penned by lawyers or scriveners. The few things written were put on parchment (sometimes called vellum, an animal skin paper). While it is easy to think we are far past this phase, the House of Commons and House of Lords in the UK recently debated whether official acts should now be recorded on paper instead of vellum (answer: no, vellum will still be used).

The next step was from paper (by now, wood pulp or cotton based) to published. Books of cases, closing binders, treatises, all became the place to go for collections of documents.

In the latter part of the 20th century, we moved from published to digitized. Documents were created and stored on computers and case books became online research databases. Today, we live mostly in the digitized era. But in law, even though documents are digitized they aren’t very useful.

The Era of Legal Data

Digitization still represents state-of-the-art for law firms and law departments. But the next revolution is digitized data, and that move already has started.

The world of law is the world of unstructured documents. Imagine working on a document with the following sentences:

Grainger accepted payment from Duncan. Duncan delivered the payment to Grainger by handing him a check made payable to “Grainger Consulting, Ltd.” in the amount of $2,150.00, dated April 21, 2014.

The sentences mean nothing to the computer. They could as easily be written this way:

Xxxxxxxx xxxxxxxx xxxxxxx xxxx Xxxxxx. Xxxxxx xxxxxxxxx xxx xxxxxxx xxxx Xxxxxx. Xxxxxx xxxxxxxxx xxx xxxxxxx xx Xxxxxxxx xx xxxxxxx xxx x xxxxx xxxx xxxxxxx xx “Xxxxxxxx Xxxxxxxxxx, Xxx.” Xx xxx xxxxxx xx xx,xxx.xx, xxxxx Xxxxx xx, xxxx.

This is unstructured text. The computer does not have information about the characters or words telling it, for example, that “Grainger” and “Duncan” are named entities or that “payment” is something different from “handing.”

We can easily give the computer more information, and we often do this through something called “tagging.” You already know about tagging. You tag photos with the names of the people in them, you tag blog posts with the subjects covered, and if you are an SEC lawyer you have seen XBRL tagging of financial data in 10-Qs. The tagging you see and do (with the exception of financial data) requires that you manually assign the tags. But, much of the tagging for text, as with financial statements, can be done automatically. Instead of a digitized, but unstructured, document lawyers could have data—a document broken into pieces that can be manipulated with the proper tools.

Legal Data and The Future

Of course, the key question is not whether lawyers can convert text to data, but what is the value of doing so? It the conversion simply means computer geeks have another thing to play with, then it makes no sense for the world at large to shift.

The value of doing so, I believe, is deep and will accelerate the change from law being a religion of the past practiced by a cloistered tribe, to a flexible tool of the future that can help individuals and organizations at all levels of the economic ladder. That is big value, so the next question will be “what do you have to back up that belief?”

We all know by now that data—as an augmentation to what we can do as humans and not as a replacement—will play a big role in our future. The same is true for lawyers. Let’s go through some examples.

As a transactional lawyer, one question I was often asked was whether what we were proposing to do or what the other side was proposing to do was “market.” This simple question usually leads to a spirited, but worthless, debate between opposing counsel. The proponent of the clause argues it is market, the opponent argues it isn’t market. Clients sit there perplexed: surely this is a question that can be answered objectively? The answer is “of course,” but not as law is currently practiced.

Three years ago, as I was working on a large (over $1 billion) financing agreement, the question came up all the time during negotiations. The firms on either side of the negotiations were (and are) top tier firms recognized as “the” firms to use for financing. Yet, neither firm could answer the market question. The usual response was “we could have our library staff look at recent financing documents to see if there is a pattern.”

The documents they would search were “materials agreements” to the companies involved, and so they had been attached to filings with the SEC. That is, they were publicly available. Anyone could download the document, convert it to data, and do searches on the documents. In fact, collecting these documents, tagging them, and using them as a corpus would have put any firm in a great position. But, to my knowledge, no firm has gone that far.

As a second example, consider the many briefs filed in lawsuits each day. Judges consistently complain about the quality of brief writing. Their complaints, by the way, are not directed solely at small firms or lawyers who occasionally appear in court. The epidemic of poorly written briefs extends up through the ranks to the largest firms.

If those briefs were turned into data, we could use the data for many purposes. For example, we could perform quality studies on the briefs. We also could compare the briefs to the court decisions (did the brief overlap with the decision, were the cases cited used by the court, did the arguments make their way into the decision, and so on). We could compare briefs across firms and even develop quality measures to tell us which firms and which lawyers have the best written most persuasive briefs. Instead of measuring the quality of law firms based on where the lawyers went to school, we could measure quality based on the legal product.

The list of ways we can use legal data is long and growing every minute. Legal data can be combined with data from other sources to construct predictive modeling. Data streams from sensors and mobile devices can be combined with legal data to create early warning systems—predictive analytic models that tell us when certain actions may lead to a lawsuit. Turning documents into data also is the first step in converting contracts into smart contracts, connecting law to the world of blockchain technology.

I’m a Lawyer, Not a Computer Scientist

Most lawyers are dizzy at this point. They don’t understand technology in its basic form (Can you describe to me how the internet works? What happens when you hit “send” for an email?) and now I’m asking them to go from those .docx files to computational linguistics and natural language processing. Time to run!

The key is understanding the difference between the lawyer trying to do it all, and the lawyer managing a collaborative team that does it all. None of us can do everything (despite what we think), but we all need to learn to manage teams. Law departments should move from hiring lawyer after lawyer to hiring one or two legal data scientists (who may be lawyers with technology training). By using the legal data scientists to automate certain steps (document assembly) and combine that with data tagging, a law department would take itself instantly into the 21st century. The future of law belongs to teams.

One final note about legal data. What law firms and law departments seem not to realize is that stored on their servers is 21st century gold. Today, Google, Facebook, and Amazon have put themselves in enviable positions. They each control massive data sets that enable them to analyze the world in ways we didn’t believe possible a decade or so ago. It will be difficult for other companies to build comparable data sets. IBM CEO Virginia Rometty puts it nicely:

What steam was to the 18th century, electricity to the 19th and hydrocarbons to the 20th, data will be to the 21st century. That’s why I call data a new natural resource.

In the law, the large legal publishers have data sets that also give them an advantage. Other publishers are looking for data sets that will help them build positions in the publishing industry similar to what Google, Facebook, and Amazon have done in their respective domains. For example, Elsevier recently announced it is purchasing the Social Science Research Network (SSRN). SSRN is a significant publishing platform for social sciences and humanities, and one of its main libraries is devoted to law. Overall, it has about 673,000 papers. Elsevier will be combining SSRN with its technology platform, Mendeley:

SSRN is devoted to providing “tomorrow’s research today” through specialized research networks in the social sciences and humanities. We facilitate the free posting and sharing of research material (e.g., conference papers, preprints, non-peer-reviewed papers) in our subject areas. Social science papers tend to have fewer co-authors, so networking and sharing ideas, hypotheses and drafts during the research process are critical; SSRN helps authors evolve their research and communicate their results worldwide.

Mendeley is a researcher workflow tool that helps researchers organize, discover and share their research. Mendeley is also becoming a collaborative environment for sharing early results of research but is more focused in science, technology and medical fields. Its technology platform, enhanced by Elsevier’s investment, uses metadata from articles and usage on its site to develop a suite of analytic tools that directs researchers towards the best people to collaborate with and what to read.

What does the combination really mean? It gives Elsevier unprecedented access to an enormous database. It isn’t the papers, it is the data. In this case, data represents influence or impact within the scholarly community which is something very valuable to scholars and institutions. As one blogger put it: “The reason is obvious to anyone who works in the university: impact = higher rankings, higher rankings = more and better students, more donors, more reputation for the institution… all of which translates into the ability to hire more high impact researchers.” The motivation to access data may be different for lawyers, but the need is no less than in academia.

Lawyers also object by saying that the knowledge of how to convert text to data and manipulate it is a computer science, not something for humanities majors who became lawyers. Ironically, text tagging grew out of the humanities where language, history, philosophy, and other professors have been tagging text for decades.

Lawyers love to find excuses for resisting change. In fact, a recent Altman Weil survey shows that over 90% of large firm managing partners know their firms need to change (become more efficient), and yet over 64% of partners resist change (up 20 points from a year ago). So be it. There will be a few firms that can get by ignoring change, while technologists and clients (the real clients) work behind the scenes on software that reduces or even eliminates the need for lawyers (don’t chuckle, the software already exists).

Lawyer are their own worse enemy. The profession is changing slowly and will not disappear overnight or perhaps ever. In the meantime, the demand for lawyers (versus legal work) shrinks, alternatives pop up daily, and the world moves past the era of scriveners with their vellum. If you don’t believe me, just check—it’s in the data.

Make Some Beautiful Music

Posted in Change

MusicI remember going into the basement of our house in the 1950s and 60s and listening to music on the large record-payer we kept there. The LPs, as they were called (LP for long playing) spun lazily at 33 1/3 revolutions per minute. The discs were thick, heavy vinyl and you had to handle them carefully or you would scratch the surface (and incur a fair amount of displeasure from your dad). If you liked music, you had to master the skill of gently letting the needle down onto the LP and then lifting it up when the album was done playing. None of that “automated” needle moving!

Music was special, I think, because it wasn’t so easy to come by. You could turn on a radio (AM) and fiddle with it to get a clear channel. But the station played what it wanted to play and if your musical tastes were not the same as your parents then the radio sitting in the living room was probably off limits. For many of us, a record player in our room didn’t happen until we got to middle school. Even with a record player, your record collection was limited.

Because music wasn’t everywhere, it became a group activity. Your friends had some records, you had some records, and someone would “borrow” their older brother’s or sister’s record player. By pooling records, you could spend an afternoon listening to a broader variety of music than you could get at any person’s home. If you look at pictures from the time, you often see groups of kids gathered around the record-player. Today, you see the individual with earplugs listening to iTunes. Music was a team-event.

Growing the Orchestra

Most large law firms, though certainly not most lawyers, accept that clients have moved from tolerating inefficient lawyers to expecting more efficient partners. Say the words “project manager” 10 years ago and you got a blank stare from everyone in the room. Today, ask a firm about project management and it will immediately jump to tell you about the firm’s program.

Project management and process improvement are just getting their start in legal service delivery. Lawyers have grown tired of hearing about them, so the number of conferences and webinars on the topics have dropped off. My friends outside the industry are astonished when I tell them that most law firms think they have control over the project management thing and aren’t that interested in learning more about process improvement. These are disciplines that take decades to understand and apply to complex work, yet lawyers think they have them mastered after 60 minutes.

It is difficult to explain to lawyers and firms the gap between where they are in these fields and and masters of the methodologies. More recently, I have used this metaphor. Imagine your five year old tells you she would like to learn to play the violin. Pleased, you take her to her first lesson which lasts about one hour. You sit in on the lesson, so you know what the teacher has told your child and can reinforce it during practice.

The teacher explains the basics of the violin. It is a stringed instrument, she explains. You can bow the strings or pluck them to make sounds. The teacher explains the parts of the violin, shows the basics of moving the bow across the strings, and how to hold a violin properly. The teacher then takes your child through the steps to play a few notes and asks the student to practice the tune during the week.

You leave the lesson with a happy child who goes home and promptly ignores the new violin sitting in its case. That night, your tell your husband about the lesson. Then, you say that you are ready to play a concert at Carnegie Hall. After all, you say, you heard the violin lesson, you are a lawyer, you got this because how hard can it be? Lawyers are smart and quick and can learn new skills in a flash. You must be a violin player, because you sat through that one hour lesson.

You have a few children and you repeat this exercise with each of them. The next week it is a clarinet lesson and the week after it is a flute lesson. Each time, you return home claiming you are ready for the big concert because you sat through that one lesson.

The story sounds ridiculous, yet I meet the lawyer in this story every week. After a one hour lesson in project management or process improvement, they feel ready to play the big house. “Of course I know project management,” they want to tell clients. “Yes, we are all over process improvement,” they proclaim to general counsel. The metaphor works for me, because the one-hour violinist is just as silly as the one-hour project manager or lean thinker.

Make Your Own Kind of Music

To keep the metaphor alive, I tell lawyers that if they really are looking for their place in the story about musicians, they are the composer. This shocks many lawyers, because they expect me to put them in the place of the conductor. Lawyers are not good conductors, as a general rule, but they fit naturally into the composer’s role.

A good composer understands the capabilities of each instrument and how to blend them to make the music. Each composition calls upon different combinations of instruments and explores their capabilities in unique ways. A good composer excels at blending these capabilities. The composer typically plays one or two instruments herself, so she understands the role of the instrumentalist, but her forte is not as the soloist it is as the creative person who can craft the beautiful music.

The conductor serves a different role. He helps the orchestra interpret the composer’s work. The orchestra is guided when to go faster or slower (adagio does not mean the same thing to everyone). He blends the voices, increasing some and decreasing others, so that the combination achieves what the conductor thinks the composer wanted.

If we translate roles, the conductor is the project manager. The members of the orchestra are the lawyers, process improvers, analysts, paralegals, and other legal professionals who form the team executing the composition. The composer is the lawyer whose creative vision (the structure of the deal) is being played out.

Many lawyers (especially litigators) believe they must be the conductor and some are very good at the role. But, that usually assumes that the client has no concerns about cost and is willing to pay whatever it takes to “win” the lawsuit. In some cases, the composer conducts and the outcome is fantastic. But “some cases” does not a rule make, and most clients are cost sensitive on most cases. Too many lawyers think they are Leonard Bernstein conducting the New York Philharmonic in the first rendition of West Side Story.

The Future of the Legal Orchestra

It is easy to overuse a metaphor, and I’ve probably already gone past the point of no return. But, perhaps the visual image will stick with you. It takes a long time, over many years and performances, to learn do something well. A good project manager or process improvement guru will have spent years polishing his or her trade. They did not just jump into the role. An astute lawyer should know that he must use talented people in each role on the team that is executing his vision, and that it would be bad for the lawyer to try to jump in and play a role for which he is unprepared.

Lawyers have great difficulty, having been trained in law school and law firms to rely upon their own skills, in ceding their autonomy to the group. In the early 1900s when legal “teams” meant two lawyers working together, the skill of the individual lawyer was paramount. Louis D. Brandeis did much of the work himself on many of his famous cases. Today, Brandeis would have large teams with dozens or more lawyers working on the same cases. The skill lies in leading the team. The leader must provide direction, but it is the rare leader who can provide that direction and give day-to-day guidance at the same level.

The 21st century buzzword for the orchestra in business and law is “collaboration.” Collaboration is the way today of explaining that team-event we used to do when I grew up listening to music. By pooling our resources, just as we pooled our records, we can improve over what any one of us could do on our own. It seems we are returning to the need to get along with one another.

By 2020, about 50% of the workforce will be freelancers. Law departments will realize they can’t afford dedicated staffs encompassing all of the skills needed to do the legal work for their clients. They will build ad hoc teams using combinations of dedicated staff, law firms, and freelancers who will work together for a project or tow and then disband (this already happens – think company, law firm, and Axiom).

While companies will use more freelancers with a wider variety of skills, the real change will be this: technology will be the glue that binds them. Instead of a world with dozens of software packages that don’t play nice music together, we will use platforms that interconnect with dozens of programs (SAP for lawyers). Corporations will plug in law firms, freelancers, and other parties as needed and then close out the team when the matter is done. As this happens, the team will get more creative, the tools more useful, and the results more powerful. Then we will really hear some beautiful music.

Industry Versus Specialty Focus: Tie Goes to the Lawyer

Posted in Leadership

IndustryFocusIn the 1970s when I first worked at a large law firm, new associates had only a few choices for substantive law practice areas when they joined a firm. They could choose the litigation department, the corporate department, or one of a handful of other practice areas. For example, large law firms still handled trust and estate work at that time.

Depending on the firm’s roots, those other choices might include tax, labor and employment, antitrust, or finance. Most firms did not break out smaller practice groups they just bundled them into the large blocks. The key, of course, was that lawyers were grouped according to their specialty and that grouping had nothing to do with clients.

For 100 years, clients seemed to accept that structure without complaint. But, I remember attending legal industry conferences 10 years ago and listening to in-house lawyers talk about what they really wanted from law firms. Five years ago I attended the same types of conferences and heard in-house lawyers say the same things. This year, I am again attending industry conferences and the message hasn’t changed. Clients want lawyers focused on the their businesses and industries. Clients want lawyers focused on what is best for clients, not for lawyers.

Whenever you see a sign that says “everyone should go right” but all the drivers keep going left, it is worth stopping to ask why? Why do we hear the same request over and over again from clients yet all the large firms go a different direction? Surely the law firms have heard what the clients say. If the firms aren’t changing and they are still doing well (and despite all the hand wringing, the vast majority of large law firms are still doing quite well), there must be a reason they aren’t changing.

The Clients Changed and the Law Firms Didn’t

In the early 1900s, organizing a law firm by practice specialty made sense. Firms were very small and covered many industries. The number of substantive legal specialties compared to now was much smaller. As the regulatory world expanded and firms subdivided practice areas, the balance of power still rested in favor of specialty over industry. There were exceptions, but the majority of firms served a wide range of industries. Organizing by industry was not practical.

Today, we have massive industries which have evolved into complex regulatory, compliance, and political environments. Lawyers may know the nuances of their specialty (often a sub-specialty), but trying to have comprehensive knowledge about the sub-specialty and a broad range of industries is asking too much.

As corporations evolved, client sophistication with legal matters evolved. The movement of lawyers from law firms to in-house, the increased reliance on in-house lawyers, and increase in size of corporations (which has increased the volume of matters in-house), have combined to create an in-house base of lawyers whose skills equal or exceed their outside peers.

Industries have their own languages, customs, networks, and problems. It takes a long-time to develop knowledge about those idiosyncrasies and integrate them into your advice. I started as a lawyer in a manufacturing company, but I spent most of my time practicing in the retail industry. As I learned, giving legal advice about an employment matter was very different in the two industries.

The Risks of Change

Talking about the situation raises the obvious question: why hasn’t a large law firm moved from legal specialization first to industry specialization first? As a gentle nod to clients, firms have developed a structure where lawyers from different legal specialties band together as industry focused. These ad hoc affiliations fall far short of what the consulting and accounting firms do to build industry expertise. As with most of the questions we post about the legal industry, we don’t know the answer and probably never will. But, we can guess.

First, even if one firm moved to an industry-first focus it isn’t clear other firms would move. In an industry obsessed with lawyers jumping from one firm to another or from firm to corporation, this creates a problem. The lawyer at the industry-focused firm becomes an expert on retail industry. Now, her firm stumbles or she wants to move on. Other firms will be concerned that she can only handle retail issues and they (being “the best change is no change” stalwarts) want lawyers who can work in many industries. The lawyer may find her movement limited. If she wants to go in-house, she may have limited the field to retail companies.

Second, lawyers are the ultimate “keep my options open” players. If a firm organized around a few key industries and those industries fell on tough times, the firm might fall on tough times (of course, tough times might mean more legal work, so this one can be hard to call). To large firms, specialization means taking more risk—a retail focused law firm could not become a manufacturing law firm overnight.

Third, building industry expertise takes time. Even if a firm has a large cadre of lawyers who have worked with retail clients, turning that work into a sophisticated understanding of the retail industry does not happen quickly.

Compare the depth of knowledge a law firm has about an industry (and of course there are exceptions) to the depth of knowledge a consulting firm has, and you will see the gap. It is hard to market your firm as the leader in retail legal services when your claim is based simply on lawyers representing clients in the retail industry on isolated legal matters.

Fourth, law firms face the same problem they face when confronted with any request to change. The current system has worked for a long time. The industry may be changing, but that doesn’t mean changing the firm will make things better and it may make things worse—pity the first mover when no one follows. The platform isn’t burning, so why jump?

Put simply, change means risk, lawyers do not like risk, so they prefer to stick it out. What clients want may be good for the clients, but it doesn’t sound better for the lawyers and in the event of a tie, the tie-breaker goes to the lawyer.

Clients Do An End-Around

What do the in-house lawyers do when the firms stay the path? They find the lawyers who do know them and their industry and then stick with them not the firm. In effect, they create a virtual firm of lawyers who meet their requirements. This virtual firm has many drawbacks, but it is better than the alternative of the lawyers who do not know the client and industry well. This is one of the reasons lawyers hear clients say: “I hire the lawyer, not the firm.”

The drawbacks include inefficiency and lack of innovation. The in-house lawyer is burdened with coordinating a network of lawyers who can meet her needs. Sometimes, the in-house lawyer must sacrifice using a lawyer knowledgeable with the industry to use someone less knowledgeable but in the same firm as a primary lawyer. For example, the corporate lawyer may know the client and the industry but not have a tax lawyer in the same position. The in-house lawyer will default to using the tax lawyer because of the firm connection even though there is a tax lawyer at another firm who does know the client and industry.

Innovation, something which large firms usually do not provide and (though there is a lot of debate on this point) at least some clients seem to want, comes hard when the firm does not have client or industry expertise. How do you suggest innovative ideas for emerging legal issues and ways to efficiently deliver those legal services when you just don’t know what is emerging?

This view is somewhat at odds with the law firm convergence movement, where clients have reduced the number of law firms they use from hundreds to a dozen or so. Many in-house lawyers have had to give up using the outside lawyer who did know the client and industry in favor of the law department’s perceived greater good. Many clients have gambled that, with no large firm having industry expertise, picking a firm and hoping it will develop that expertise through concentrated work is better than what existed. And, of course, some clients have converged on the firms that do have some industry expertise and plan to build on it.

Time to Move Along

What clients seem to want is not what lawyers want to deliver and a stalemate has emerged. Will the tie-breaker go to the disruptor? Will we see new providers emerge who are focused on an industry? Yes, we have some smaller firms that do so, we have boutiques, we have large firms with some niche practices, but we really don’t have any larger players who offer a soup-to-nuts set of legal services focused on an industry.

I recently used the word “kaleidoscope” to describe what the legal industry will look like as it evolves from the current one-type-fits-all model. Within that wide set of options, we could see, for example, a retail-focused consulting firm forming a partnership with a retail-focused law firm to offer clients a retail solution set, much like we saw audit firms connect to (but not merge with) consulting firms. That type of combination would provide some interesting solutions and ideas for clients (and I pick on retail since I know the industry it represents almost 30 percent of the nominal U.S. GDP).

Whether we see the law firm-consultant combination, a large law firm organized along industry lines, or some other variation, it would be nice to go to these conferences in another five years and not hear the same in-house lawyer problems from the last 10 years. It is time to move on.

A Note to Entrepreneurs About Calls

Posted in Strategy

CallMeOne of the great privileges of doing what I do is having entrepreneurs call me to talk about their ideas. Many of the conversations I have are very interesting and enjoyable. The entrepreneurs are excited, they have thought long and hard about the problems they are trying to solve, and they are doing creative things with technology. After those calls, I have the feeling the legal industry really might change.

I do get some calls, however, that do not go as well. The callers want to tell me all about their tech, and then clearly want me to praise what they have done and tell them they are the next Zuckerberg. When I try to have a conversation with them, I hear “we have thought of that”, “we have solved those issues” or “we are quite familiar with the industry.” Even if all those statements are true, the point is they aren’t listening. In fact, in those calls the entrepreneur typically spends 80% of the time talking. Yuk.

This post is my guidance to all of those who want to talk with me about their ideas. Again, I feel very fortunate that you want to talk with me, so thank you. But, to make sure we both get a lot out of the conversation, I’d like to share with you why I am making some suggestions, my suggestions for what not to do, and my suggestions for how to make these calls worthwhile. Most of what I say applies not just to talking with me. It applies when you talk with anyone about your idea.

Where These Suggestions Come From

These suggestions come from several sources:

1. My experiences from when I was an entrepreneur.

2. My experiences teaching entrepreneurs (in many settings).

3. Reading what others recommend entrepreneurs should do during these calls (i.e., angel investors, venture capitalists, private equity investors).

4. Talking with others like me who get these calls.

I want to see every entrepreneur I talk to succeed. It is incredibly difficult to work as an entrepreneur and we need many more successful ones in our industry. So I am making these suggestions, because I think they will help me assist you.

What Not to Do

Before I get to my suggestions, let me suggest some things that you should avoid doing in a call with me or anyone else:

1. Talk down to me.

I may be the least intelligent person you will talk to this year. Don’t talk down to me, treat this call as an opportunity to learn how someone less knowledgeable than you views your product or service. Lawyer-entrepreneurs especially fall into this trap (the arrogant lawyer turned arrogant entrepreneur). If you have done your homework before the call, you should know enough about me to carry on a conversation at the right level.

2. Lecture me about the industry.

I want to know about the problem you are trying to solve and that should be a target customer problem. Telling me what you think the problems are in the legal industry doesn’t help either of us.

3. Try to impress me that you know it all (or have solved all the problems).

I know you don’t know it all and I know you haven’t solved all the problems. Trying to convince me otherwise is not a good use of your time. Besides, no matter what you think, you don’t know it all and you haven’t solved all the problems.

4. Name drop.

Some entrepreneurs try to impress me by telling me the names of the law firms, companies, or other advisors with whom they are talking. Don’t. First, your object should not be to impress me, but to find out what I think. Second, this isn’t a sales pitch. If you want to explain that your product has been tested in large law firms or corporations, you can do so without name dropping (“we have done beta tests in three AmLaw 100 firms to find out how our product works in that environment”).

My Suggestions to Entrepreneurs

Making these calls work well and serve a very useful purpose is not hard, but it requires a bit of planning and some discipline. Most of the work is necessary for all the calls you will do when you want to talk with people about your product or service.

1. Have a plan when you talk to me.

Most entrepreneurs do not have a plan when they call. Instead, they talk about their product followed by a “whadda ya think”? That isn’t a plan. Start by assuming that if you scheduled a 30 minute call, you only have 30 minutes. We may go longer because I have a lot of questions or thoughts, but assume that won’t be the case. Now, you need to plot out how to use those 30 minutes.[1]

2. Don’t just jump into the pitch.

This can be a very cultural thing. For example, if you go to China and just jump into your business conversation with a stranger, you may find whoever you are talking to isn’t that impressed with you. It is better to start with a minute or two of appropriate socializing. The same is true for these calls. Spend a minute or two talking with me about us, our industry, common friends, etc. This isn’t wasted time, it is time spent building a relationship and finding some common ground.

3. Make sure you know something about me.

I get many calls because people read my blog posts or articles or hear my presentations. But, surprising to me at least, often these people have not looked up my background (I’m on LinkedIn). Without knowing who I am, they waste time on the call talking about things they would not talk about if they new my background (“I know you work at a big firm, but you would think differently if you worked in-house”). Spend one or two minutes on the call making sure you are up-to-date with my background. An easy way to do this is to ask what type of things the person you are talking to is working on. Knowing who you are talking to gives you some perspective when you think about what they say.

2. Tell me a story.

Many entrepreneurs just launch into a presentation of all the features they have built into their product. In other words, they start off by trying to impress me with their solution. I want to hear the story that connects your idea with the problem. It doesn’t need to be a long story, but it should start with the problem. I am expecting a crisp, well-defined description of the problem from the perspective of your target customer. Again, this probably takes two minutes.

3. Give me the solution in a well-run demo.

This is where many entrepreneurs go off the rails. First, they have designed a lot of features into their product (which hasn’t been released or is just being released). Often, that is a danger sign because it means they are throwing on features without getting proper feedback about what their target customers want. Second, it means they are focused on the features, not the problem. They also have problems because the demo wasn’t polished and tested before they get me on the phone. Spending time trying to get the demo to work, find the files you need, or explain half-baked features isn’t a great use of time. The demo should take about 15 minutes.

4. Run some tests.

This is another place where entrepreneurs go off the rails. Try some tests on me. One thing to test is pricing—and tell don’t ask! It is much better to say “we plan to use a per seat pricing model starting at $250 per seat and then dropping the price at 50 seats and again at 100 seats” and asking me what I think, than to ask “what would you pay”? You can test other marketing ideas, but tell me what you plan to do and ask for a reaction. Spend about three minutes on your test.

5. Have a closing.

As I said, most entrepreneurs jump right into the demo, run out of steam at some point, and then ask for a reaction. They never get to important points and they don’t know how to close. After you run your tests, have a wrap up. Yes, you should thank me for my time, but you can do more. Ask for permission to follow up with me (ask, don’t tell). Also, ask for referrals. You want to keep building your network and not asking for a referral is a lost opportunity.

6. Document.

When you get off the call with me, make sure you finish documenting our conversation. Whether you agree with everything or nothing that I said, make a record of it. You will forget it soon after (you are an entrepreneur and have moved on to 50 other tasks). Your interview is part of your database that helps you shape what your are doing.

Calls with target customers and people familiar with the industry should add a tremendous amount of information to help guide you in developing your product or service. If you use them properly, you will find your product becomes more useful to those who buy it, you will spend less time developing features or following useless paths, and you will have a much higher “that was time well spent” feeling. Don’t just make the calls because that is what you are supposed to do, make them with a purpose and a plan. Thank you for listening, I hope to talk with you, and good luck!

[1] Ash Maurya gives some nice suggestions about how to conduct solution interviews in his book, Running Lean (p.103).

A Root Cause of the Innovation Problem

Posted in Innovation

DataAccessAccording to AngelList, there are over 1,000 startups focusing on legal industry solutions. But, as Keith Lee points out in a nice post here (and you should read the comments) that number is inflated. After pulling out the long-departed, large firm “startups,” and other misfits, the total number of legal industry startups drops. And, of course, startups do not have to register on AngelList so there are many out there not included, which would increase the list. Still, if you are a traditional lawyer, pause to let the AngelList number sink in. Even adjusting it, there are at least several hundred entrepreneurs gunning for ways to switch legal work from your clients to their businesses. Yeah, most of them will not succeed. But when it comes to your clients, it may only take one success.

I often write that large law firms are not the place to look for real innovation, spelled with a capital “I.” This isn’t some failing of large law firms. They were not built to be Innovation engines and until very recently, no one expected them to Innovate. In fact today, most clients still do not look to them for Innovation.

Could they change? Maybe. But about 80% of culture change efforts fail, a number that has held for decades. Even if a large firm did want to change, the odds are against it and even if it did succeed, the amount of change needed to go from today’s model to one that would succeed with Innovation is huge. And then there are the clients.

I have read many stories featuring an apologia for clients. The authors all give reasons why clients do not push for change. In some cases, they argue that clients should not have to push for change. I have found, through teaching at a law college, that Latin has worked its way out of law so I’ll put this in English: poppycock!

For twenty years I was a client—if you want change you will get it and especially today. First, much of the change can be had with a simple phone call. The many existing alternatives to law firms are ready to show up in response to a simple call. Drop a note to your law firm that you will be meeting with firm X and you will see how fast your old firm becomes interested in making changes. So let’s be serious. Law departments’ interest in change is not much more than law firms’ interest in change. I have yet to see a law department re-invent itself using Innovation. Incrementalism abounds!

I may be pilloried now for my heresy, but I believe I am on pretty firm ground here. Some departments use more technology than others, some have tried more alternative service providers than others, and many profess to be more forward-thinking than their peers. But none, as far as I am aware, have re-invented how they deliver legal services. We talk about disruption, but when the best we can muster is about $8 billion out of $275 billion of services shifting from firms to lower cost labor, disruption is at an early and unsophisticated stage.

Why?

When I was in Japan being re-trained into a lean thinker, I was taught to incessantly ask one question: Why? Ask the question, don’t accept the answer, ask it again, and so on. By following this approach, I and my colleagues would eventually get to the root cause of a problem, attack it, and see improvement.

I have asked many times why we are not seeing Innovation in law, and see instead innovation or no change at all. In lean thinking we talk about using the “5 whys” but here I think I have well-exceeded the target of five. I have found a lot of explanations, some excuses, and many theories. I am sure somewhere in there lies “The Truth,” but so far it has not been apparent. That probably means that there are many reasons and the mix of reasons varies by law firm and even lawyer.

Can we at least say things are starting to change? There are signs that among those startups, we have some innovators and possible some Innovators so Innovation may come to the legal industry. In the meantime, those startups are giving us clues to what may be a root cause worth revisiting—the lack of data that could be used to drive Innovation.

You may have heard about the data challenge, so my root cause announcement won’t come as a surprise to you. The legal industry in the United States, and more so in many other countries, still locks up most of its data and provides no access, limited access, or expensive access. In a world where access to data is starting to define those who will have the most power, the lack of data access should be troubling. Data does not stop anyone from Innovating, but data sure makes it a lot easier to do a lot of Innovation.

There are, of course, many who have tried to attack the legal industry’s lack of access to data problem. I will not try to list them all, because I will miss many of the key players. Perhaps the best known is the Legal Information Institute at Cornell. There are many others. The most recent entry is the joint Harvard/Ravel Law effort. They are scanning United States case law and will make it available over time to everyone.

All of the parties who are pushing for “open access” to data in the legal industry are helping reduce the problem, and even the U.S. government is in on the action. The data.gov site is a treasure trove of information that as recently as a couple of years ago was not available.

Could Massachusetts Trial Courts Spur Innovation?

An interesting situation to watch will be the invitation of the Massachusetts Trial Courts for public to comment on the “Proposed Trial Court Rule XIV Uniform Rules On Access To Court Records.” As you might expect, access today is a bit haphazard. One group (and I am a signatory) has proposed an “API” approach. An API is an application programming interface. Simply put, it gives programmers a way to connect to a data set and extract information. A public API means anyone can connect and get the information. For example, the Securities and Exchange Commission has a public API for its EDGAR database, allowing anyone to access and download documents filed in the EDGAR system by public companies.

If Massachusetts introduced API access to its system and then other states used the same approach (or the states reconciled to a common approach), we all would have access to information already “public” but basically inaccessible. That data access would spur innovation. Researchers, law firms, entrepreneurs, and yes, even the public, could go online and access the materials that already are part of the public domain, but are sitting in closed file cabinets and boxes. (And by the way, documents filed under seal would stay under seal, so an API does not mean making public that which is private by order of the court.)

You Know You Aren’t an Innovative Industry When …

The House of Commons heard from an MP recently. It seems the House of Lords, without consulting the House of Commons, decided to stop the practice of recording laws on vellum and switch to paper. The MP was calling this to the attention of the House, because many MPs disagreed with the decision. There is much to be said for a 1,000 year-old tradition. But, pause for a moment and consider how your tech clients would think about a similar discussion in the United States.

Most of the data the legal industry could use still remains buried in files and computers, inaccessible to the world or at least inaccessible unless you are well-funded. For example, only a few states make appellate briefs available online. If you want to get materials from federal lawsuits, you must pay PACER—an irony since other government agencies are posting data on data.gov, but the judiciary is relying on a statute to charge us for access to its data. You can get some of this material from other databases (such as LexisNexis or Westlaw), but again, you must pay.

I am not ranting against capitalism. I understand that there are costs to making the data available and that agencies outside the judiciary charge for some information, such as in response to Freedom of Information requests. I also do not harbor a grudge against companies taking the data, adding extras, and charging for access to the enhanced package.

But if we (the public, scholars, researchers, etc.) do not have access to the basic data (and cost means lack of access) then we will see innovation stifled. This argument comes up frequently today, as large players in search and social media create enormous data sets. They have the data for innovating that others will not be able to replicate (or at least, not without great cost and difficulty).

The tipping point for Innovation in the legal industry may come when someone creates or gets access to the data. Many thought the major legal publishers would do this, because they already have access to great treasure troves, much like the large search and social media companies. So far, we have not seen it happen, but competition from disruptors may force that to change.

Another possible source is the large accounting firms. They have the resources to drive significant change and to acquire or build data sets, but again we have not seen much happeN. Right now, they seem to be benefitting from the same client lack of interest in re-invention that I mentioned above.

A final thought on the data issue. Many still believe that value in the legal industry comes from having the data and controlling access to it. This was the model large law firms used back when I started practicing. To get to the data, you needed to call your outside lawyer. Then, legal publishers and eventually the all-powerful internet broke through that wall. Large law firms could not control access to, for example, documents. Any lawyer could get a document to use as a template. Value came through knowledge and large law firms moved away from believing access was the choke point. This wasn’t access to data, but it was a start.

Just as moving away from a labor-centric model will be necessary for lawyers in firms and departments if they want to avoid obsolescence, moving away from hiding data will be necessary for the legal industry to spur Innovation. Imagine what would happen if the world had access tomorrow to the data locked in all of the file cabinets in all the courthouses around the U.S. Could we radically change the litigation model to reduce the cost? To even eliminate much of the burden litigation puts on society? Access to data raises many important issues. In the legal industry, perhaps the most important one is: why aren’t we making access to data happen?