Why Knowledge Management isn't Enough

With the rise of the 'knowledge economy', knowledge management has become all the rage. However in a law firm, knowledge management is not really about managing knowledge. Clients buy know-how rather than knowledge from law firms. Therefore, managing know-how should not be a support function (as knowledge management is in so many businesses): it is the very essence of a law firm.

Knowledge and Know-how

My first observation about knowledge management is that 'knowledge' is an inadequate word to capture what is important in law firms. Effectiveness as a lawyer is not only dependent on knowledge of the law: it requires the skill and experience to use that knowledge for the benefit of specific clients (with their own backgrounds, expectations, and particular circumstances), and to use it in the context of a particular transaction, deal or dispute. It may also require local knowledge. We should instead talk about 'know-how'. Unfortunately, to many lawyers, 'know-how' is the bits of paper on which deals and advice have been recorded. A 'know-how system' is the physical or electronic collection and retrieval of those bits of paper. But these things are not truly 'know-how'; they are recorded know-how. Real know-how resides in people's heads: it is their accumulated knowledge, experience and skills.

However, even when lawyers move beyond the recorded to the real, their thinking about know-how is restricted to technical legal knowledge and experience. What clients want from their lawyers is the sum of their practical, relevant, applied know-how. The technical legal position is usually the ultimate fall back; for most societies, there are other customs and norms of behaviour that govern our dealings with others before people resort to law. Technical law has to operate within this broader frame of reference, and lawyers need to understand what that it is. Further, simply knowing the law (land law or company law, for instance) would not in itself be sufficient to allow a lawyer to transfer property or complete a 'M&A' deal. The practical application of the law, in a given context, often following an accepted process or structure (transaction), taking into account the relevant bargaining positions, expectations and objectives of the parties, requires much more than knowledge: it requires know-how. Law firms are, therefore, know-how businesses. It is the essence of what they buy and sell.

My second observation is then that managing know-how is not the same as knowledge management. Every time a law firm makes a decision about what sort of work and clients to take on, who should be hired or fired, which fee-earners should work on what client work, who should be trained and in what, it is making a decision that will affect its stock of know-how. This will in turn determine what services, which clients and what types of transactions or matters, that firm is capable of supporting. Managing know-how is not a support function; and it is not about systems (any more than managing finance or managing people is about systems). Managing know-how concerns the firm's strategy (clients and services), reputation, structure, ownership, recruitment, work allocation, training and much more.

For competitive advantages to emerge, there must be differences between firms. Establishing a competitive advantage depends on the extent of the differences, and the sustainability of those differences. The notion of 'difference' is therefore crucial to competitive advantage: this is why it is sometimes also referred to as a 'unique selling proposition' ('USP'), or 'differentiation'; it may also be described as a 'value proposition'. The essence of competitive advantage is thus that the firm offers something to the market that its competitors do not or cannot offer. This may be a single thing, or a combination of things. I suggest that competitive advantage is principally derived from the effective combination of the right elements of know-how to deliver value to the client. Know-how is fundamentally in people's heads; no other firm can offer exactly the same package of people, knowledge, experience or application. If this unique package can be made meaningful and valuable to clients, there lies the firm's competitive advantage.

Categories or Components of Know-how

If know-how is not just about recorded technical legal knowledge, then let me try to be more specific about what it is. The range of what I will call 'professional know-how' comprises:

1. Services know-how: technical legal knowledge, procedural knowledge and skills and transaction-specific know-how (knowledge and experience of particular deals or transactions, how they are structured);
2. Client or market know-how: knowledge of industries in which clients operate, client-specific knowledge (corporate, business or family details; preferred ways of working with lawyers); and
3. Geographical know-how: local knowledge and market knowledge derived from being part of a local community (often one of the principal benefits of opening an office locally rather than trying to serve client's needs remotely, or vicariously through network relationships).

But even this is insufficient. Once in a firm, the internal resources need managing effectively in an organisational context. This gives rise to a parallel need for 'organisational know-how'. It is a mixture of:

1. Managerial know-how: the ability to develop and manage projects and productivity, internal structures and procedures, as well as the 'factors of production' (people, money, space and equipment); the ability to innovate (for example, by creating new products and processes); and
2. Situational know-how: knowledge and experience that is derived from simply being in an organisation - an understanding of how it works, what the appropriate procedures and processes are (including procedures for assuring quality), knowledge of who's who and who is important (including how power is distributed and used in the firm), and awareness of the firm's cultural and behavioural norms.

Most law firms focus on professional know-how; few value or invest in organisational know-how. The effective execution of strategy will often, however, require both. A particular strategy will usually imply a particular mix of professional know-how. But in addition, the option will also usually imply a mix of organisational know-how that will be appropriate to the required mix of professional know-how. The 'management and support functions' should not therefore operate in isolation to the professional side of the firm and independently of it: organisational know-how should be recognised as an integral part of the business. Investment in and development of professional and organisational know-how should therefore be an objective and a hallmark of a law firm enjoying sustained strategic success. This success will reflect the reputation and credibility of individual practitioners and of the entire firm. The better and stronger each of the professional and organisational know-how is, and the better they fit and work together, the better and stronger the firm's reputation and credibility. The strength of a firm's reputation and credibility will determine the range of strategic options open to it, and its ability to take advantage of them. The relationship between know-how, on the one hand, and reputation and credibility, on the other, is not simply one of cause and effect: there will not necessarily be a linear transmission from one to the other. Although reputation and credibility are principally the result of developing and deploying know-how, increased and increasing reputation and credibility will enable a firm to attract further people and resources - that is, to add new know-how and develop new combinations of know-how - which, in turn, should add to the reputation and credibility of the firm, and attract new clients. Know-how, and reputation and credibility thus have the potential to be mutually reinforcing.

Making Money Out of Know-how

Merely having know-how of different types or degrees is insufficient to build a sustainable business. Law firms have to identify ways of making money out of that know-how, and they have to do so in ways that clients perceive the firms to be providing something they want. I propose seven ways of making money out of know-how by delivering value to clients. These seven 'value propositions' in legal practice are:

1. Personal relationship: clients often recognise that they are not dealing with a leading expert or even specialist. What they value, however, is the client-specific knowledge that the lawyer has of them, based on personal contact, and the efforts that that lawyer is prepared to go to in providing advice or service. A practice built on personal knowledge and service may be very difficult to leverage, and the availability of time will be a real limitation on the lawyer's ability to generate income. Client know-how is particularly important here.
2. Local knowledge or proximity: occasionally, the benefit to the client is not so much technical legal know-how, or even the lawyer's knowledge of the client, as the ability of the lawyer to apply that knowledge in local conditions or circumstances. This may be done for a local client, perhaps to introduce them to business opportunities or relationships that the lawyer can enable; it may also be done for a client moving into the location, to ease their introduction into the social, business or professional communities. Understanding how things are done locally may be a particular advantage to a client establishing itself abroad. Local knowledge will rarely be the principal value proposition that is attractive to clients; it can therefore be provided in many different contexts and structures - whether the local knowledge of a practitioner whose principal competitive advantage is the personal relationships he develops with clients, or of a global law firm engaged in large cross-border transactions but acting for an institutional client new into a jurisdiction. Geographical know-how is particularly important to this value proposition.
3. High level of specialisation: an individual practitioner (or sometimes a firm or a practice area in it) is recognised as one of a few recognised experts or specialists, with an outstanding reputation. The specialisation can either be in the service or in an industry or type of client. What the client seeks is the benefit of (usually personal) knowledge and expertise. Where the know-how is service related (and therefore more about technical legal know-how), it may be difficult for the specialist to build leverage. On the other hand, where the specialisation is market related, there may be a number of practitioners from different legal backgrounds (for example, corporate, employment, tax) working in a more highly leveraged firm. Services or market know-how will be most relevant.
4. Co-ordinated services: here, the benefit to clients is that the firm provides a range of services and is able to offer an integrated response that meets the needs of its current and target client base. Many professional service firms boast a dedication to team work and a 'seamless' service: unfortunately, few of them actually provide a co-ordinated response where the joins do not show. The know-how that is important here is the knowledge and skill required to bring a range of professionals and support staff together in a context of projects and processes to deliver the co-ordinated service (in other words, it is as much organisational as professional).
5. Absolute mass: by definition, the largest firms in a jurisdiction can offer something to clients in that jurisdiction which smaller competitors cannot. When clients engaged in the largest transactions or disputes in that jurisdiction need as many bodies as a law firm can devote to a single matter, they go to the largest firms for that absolute mass. Although 'absolute' within a jurisdiction, the largest domestic firms may nevertheless still be comparatively small when compared to global law firms. Although, in a sense, it is sheer size that represents the competitive advantage, size alone will not deliver value to the client: it must be combined with much the same know-how required to provide a co-ordinated service. The ability to use and manage a combination of resources and processes, and to deliver effective team work, will be of paramount importance.
6. Processing: some firms have proceduralised (or commoditised) some or all of their services. This is often thought of in the context of debt collection, housing repossession, or uninsured loss recovery. However, bank clients would also refer to large, global law firms that offer a proceduralised approach to, say, syndicated loan agreements. The know-how required is that which allows the firm to analyze its work and processes and turn them into an effective and efficient service delivery system; organisational know-how will be very important in this context. Such practice areas are often highly leveraged, and may include fee-earning staff who are not legally qualified.
7. Legal information engineering: this is Susskind's expression for the repackaging of know-how so that a firm becomes a provider of legal information to many clients (as opposed to providing professional advice to one client at a time). Typically, this repackaging will take the form of online access to legal information, forms and precedents, and perhaps even legal advice. Know-how similar to that used for processing will be important, together with the technological know-how to develop and maintain IT systems to support the information engineering.

These value propositions are not necessarily mutually exclusive, and firms may derive the competitive advantage for their chosen strategy from more than one of them. But I believe it is important to understand the basis on which a firm seeks to deliver value to its clients and thus establish a competitive difference. Each of the seven ways of making money out of know-how, or value propositions, has a different combination and emphasis on the components of know-how set out above. If a firm comes to the conclusion that more than one value proposition is crucial or important to its competitive advantage, then it will need to have the know-how mix appropriate to its combination of propositions. It will also need to be conscious of the managerial implications of this diversity (that is, to be conscious of a need for greater managerial know-how).

The Consequences for Managing Know-how

Understanding the components of know-how, and their relative contribution and importance to the firm's strategic objectives, turns managing know-how into a rather different activity to the way in which knowledge management is usually portrayed. Managing know-how and strategy are mutually dependent. The implementation of strategy is then founded on: recruitment and retention; the development of experience through considered training, work allocation, delegation and supervision; the use of managerial know-how to optimise productivity, processes and the delivery of value to clients; and embedding know-how in the firm to the extent possible (through training (again), sharing of experience, developing recorded know-how, and yes, appropriate know-how systems).

The particular way in which any one firm combines, develops, manages and deploys the know-how of its unique group of people, acting for its unique client base, provides the real potential for competitive advantage. Sadly, too many firms are too concerned with what other firms are doing, and how they are doing it, and then copying them. They lose their chance to be competitively different because they are too busy trying to be the same as their competitors. Managing know-how is the key to sustained competitive success.

Professor Stephen Mayson
Nottingham Law School

Professor Stephen Mayson has been a consultant in legal practice since 1985. He has advised leading law firms around the world about strategy, globalisation and partnership issues. He is the 'architect' of the world's first MBA in Legal Practice at Nottingham Law School, and the author of Making Sense of Law Firms (1997, Blackstone Press). He may be contacted via e-mail at stephen.mayson@mayson.co.uk or telephone on (44) 15 2526 1386.