Legal Marketing & PR

Knowledge management is the difference between thriving and failing.

By Edward Poll, J.D., M.B.A., CMC

Today, I talked with a solicitor from London who is studying knowledge management and its implementation in UK firms to increase profits.  Since much of their work is based on fixed fees, any improvement in efficiency will go directly to the bottom line. 

They even employ a group of lawyers whose primary function is to improve their knowledge base, organize it and make it more searchable, all with the view to reduce the time needed to create documents for a new transaction and increase the margins of profit.  These lawyers do not engage with clients; their focus is on the infrastructure of the firm and its improvement.

Since her firm (she says most are like hers) uses only the fixed fee billing model, there is no focus on the billable hour; this, then, allows the focus to be on efficiency. Thus far, American law firms do not use this model much ... and thus their focus on cost cutting today is primarily because of the decrease in demand they've experienced from the crises of their clients. That is a far cry, however, from having a focus on efficiency ... Cost cutting and efficiency are not necessarily the same.

An interesting contrast presented today by the solicitor:  Increased profit by increased efficiency under a fixed fee engagement agreement.  While the American law firm model is increased profit by incresing the hourly billing rate.  As clients begin to revolt at annual price increases, American law firms will need to look at alternative fee arrangements to keep clients ... then, their focus might turn to efficiencies in the delivery of those services.

My wife is fond of say, "there is no free lunch."  The fixed fee approach is not necesarrily a panacea for profitability. With a fixed fee, there is the inevitable pressure to reduce that fee and squeeze the firm's profit margins. It's an easier target than is the billable hour (where the number of hours can be fudged without much challenge). But, that's another story for another day.

Full post as published by Law Biz Blog on October 30, 2009 (boomark / email).