Everyone seems to be real excited about knowledge management. But when it comes down to putting a program together, it is not a technology issue – it comes down to dollars and cents.  Almost every strategic plan we are involved with these days makes some mention of the management of knowledge capital.  It’s the hot topic of the 2000s, driven by general counsel who are demanding some form of knowledge sharing by their outside counsel, at least as the politically correct thing to do in showing their cost control sincerity to their boards.

We all know the issues involved in trying to put together a knowledge management program:  little financial win for the law firm, little benefit for the partners who have the knowledge, reluctance by clients to have legal work product they paid for given out free or for a reduced charge to other clients, concern by the receiving client that they are paying top prices for recycled “boilerplate” responses to their legal issues .

To bring the issues into the sharp focus of reality, the following is a Knowledge Management Program we are working on with a client as a strategy for differentiation:

In every engagement letter (if your firm does not require the use of engagement letters, stop reading here — you have bigger fish to fry) the firm retains the right to use all non-competitive or trade secret legal and industry knowledge obtained during its engagement for other subsequent clients.  In return, the firm agrees to pay the client a 10% commission on amounts charged for any legal work product resold to another client.

What happens is that at the conclusion of an engagement, each document is assigned a value based on how much the client was charged for its creation.  For example, the drafting of a purchase contract for a widget factory might have cost the client $30,000.  That value is placed on the document in the firm’s document management system.  Subsequent users pay 50% of the cost of the document for its reuse plus any hours spent in its modification.  The attorney using the document has the right to reduce the percentage based on how beneficial the document was – the full 50% charge would be made for a dead-on usable document, while 10% might be charged if it had served as nothing more than a rough model.

The client gets 10% of the amount charged as an offset to fees on his next bill while the attorney who entered the matter in the system gets 10% commission (shown as a guaranteed payment on his K-1).  The remainder goes to the firm as revenue and shows up as working revenues in client statistics for the attorney using the information.

Set aside the mechanics of accounting for this (which are easier than you might think if you have Elite or CSS) and ask yourself how each of the interested parties would view this:

  • The client who paid for the original work has its work product available to other clients (presumably with appropriate redaction) and receives a commission each time it is used ($1,500 in the example cited).  Theoretically, they could actually turn a profit on a popular document – of course, they have to remain an active client to benefit.
  • The attorney who put the document into the system and put his value to the firm at risk by openly sharing his work product received a commission ($1,500 in the example).
  • The attorney who used the document has working credit for $15,000.
  • The client relationship partner has billing credit for $15,000.
  • The client receiving the document sees a charge for $15,000 stating “Royalty Payment for Reuse of Knowledge Database Document.”
  • The law firm receives a net of $12,000 revenue and a visible point of differentiation.

Here’s the test.  Place yourself in the shoes of each of the parties.  Would you find it of sufficient beneficial to cause you to want to participate in knowledge management?

We’ve noodled this from every possible direction and concluded, given some modifications for firm systems and cultures, that this is about the only system that seems to have much of a chance for success.  I remain interested in how others view the concept of knowledge management — not so much on the mechanics of the system, but whether any program can work; or is the whole issue of knowledge management a giant red herring snatching valuable time from more feasible strategic efforts?