December 3, 2021

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May I ask, what have you actually built and what did you learn that might help us?

Thinking of innovation as only big tech-driven initiatives misses a critical element of the realities and effort required to produce innovative outcomes – controlled experimentation. Firms that can de-risk their innovation efforts while accelerating their progress gain a competitive advantage regardless of the ultimate commercial success.

Summary

This case study shares the story of Koenig, Oelsner, Taylor, Schoenfeld & Gaddis, PC (“KO”) and its efforts to test and build a new contract management service that would complement its legal work.  Their effort earned recognition from the Corporate Legal Operations Consortium in 2020 when the firm was recognized for their Legal Innovation in Operations (LIO) submission. 

KO’s experience in prototyping and building contract management as a service offering holds instructive value for legal operations professionals as well as law firms. For in-house teams, the KO story offers insight into how to empower outside counsel to direct innovation efforts toward initiatives that matter most to their legal function’s business customers. For law firms, this story provides a case study on the steps that can be taken to position a firm’s innovation efforts for the maximum chances of commercial success. 

Dialogue questions

To spark business ideas and create meaningful yet de-risked progress towards innovation, in-house teams can use the following questions to guide a dialogue with their law firms on how to collaborate on and instigate experimentation:

1. What can we, as one of your many clients, do to help de-risk your attempts to build something new in terms of a service, product, or business?
2. Recognizing that “failure” is not commonly sought after or celebrated within the legal profession, what can we do together to begin shaping the narrative that experimentation is okay and should not just be tolerated, but actively sought?
3. How can we help you build something that serves many clients, not just us?
4. How are decisions made in the firm in terms of shifting from talking about doing something to actually doing something that could lead to innovation? Would you say this is an effective an efficient process? Why?
5. Would you be willing to partner with one or more of our other providers to build and test a new offering?

Narrative

KO’s contract management service was developed in response to insights formed in relation to KO’s two primary practice areas: corporate transactions and commercial transactions.

“Oftentimes on the commercial side, we never actually see the final version of the contract,” explained KO partner Ben Oelsner. “Additionally, we do a lot of M&A work on the sales side, so we help our clients get organized for the sale of their company. Buyers conduct due diligence on those companies, reviewing all their contracts, and we assist in that work. Frequently, the client is scrambling to get its contracts organized for the other side to review. We help clients with this task but we also try to help them get organized before they are involved in an M&A transaction.”

Oelsner had worked with a number of companies that employed in-house contract managers and understood their value to the contracting process. He saw the opportunity for the firm to offer contract management as a complimentary service to complete the scope of their offerings to clients. 

Development

Oelsner teamed up with industry advisor Bill Mooz, as well as Andrea Policky, a veteran in-house contract manager who KO hired to help lead this initiative. The three had discussions about what would be required for KO to actually offer a contract management service. Their discussions quickly led to planning, and before long, they started approaching KO’s existing clientele about their nascent contract management capabilities.

They spoke with clients about KO’s ability to come in, assess where the client was in their contracting process, help them figure out what they needed to do to improve that process either from a technology perspective or from the perspective of staffing, training, or process design.

The approach that KO took to developing this service is one that emphasized action over discussion and prototyping over planning.  In short, they experimented to learn rather than build first and hope things worked out. To do this, Policky went full time with KO, and Oelsner and Policky collaborated to develop proposals for clients on an ad-hoc basis. The thinking was “this is interesting to us. We think it will help our clients. We have the capability and a client that has requested our help. Let’s just go for it,” said Oelsner.  

Oelsner’s view of the initiative was that it was low risk. “The thing for me was, you can talk about this for a long time, but you have to start doing something. That’s really what I did – talk to the partners and say we’re going to do this. What’s the worst thing that happens if it doesn’t work? It fades away. We’re in a pretty good position to try this. There’s not a lot of downside if it doesn’t end up working.”

Their focus was simply creating and testing out a prototype – not going into full bore development and implementation. Because of this approach, the contract management prototype did not require a fundamental permanent change to the operating model of the firm, nor did it require a significant investment of cash. 

Learnings from Commercialization

Once they had a prototype, KO began stress testing it with eight clients. They were learning and refining while generating actual revenue. In the process of doing this, KO developed several key learnings about their service.

1. The sales cycle was long

The sales cycle for getting people to commit to a contract management service provided by a law firm was long. “There were several clients that thought it was an amazing idea but getting them to actually commit to hiring me to do those services for them, it was a little bit more of a challenge,” explained Policky, “so the sales cycle was just longer than we had anticipated it was going to be.”

2. The positioning of their offering within the market was suboptimal

KO defined a profile for their target customer. “We felt like startups weren’t going to be the right type of clients for this initially because they’re not ready yet,” explained Oelsner. “You could tell them about this service, but they’re not going to need somebody for that work because they don’t really have a lot of contracts or deal flow. The companies who had gone through a round or two of financing, depending on where they were in selling their products, were likely a better target for our service because they would have started to feel the pain from a lack of contracts management.”

Targeting later stage companies came with several consequences. First, later stage companies are more likely to get acquired, which runs the risk of disrupting the type of long-term business relationships that KO was hoping to establish. Second, later stage companies have the resources to hire in-house contract talent, which placed a greater need for KO to articulate why their offering would be superior to hiring someone in-house.

3. The pricing was a sticking point

KO provided clients with an initial assessment on a fixed fee basis. After the assessment, everything was done on an hourly basis, as is conventional for law firms. “It was harder for companies to find the funds to support an undefined amount” explained Policky. “If it wasn’t on an hourly billable rate and instead on a fixed fee basis, I think that would have been easier for clients to swallow”

In general, the monthly price came out to around $5,000. “The key for the service,” Oelsner explained, “was making sure that they understood exactly what we were going to do for that amount because that fee did not include the legal services such as the creation or negotiation of the contract.”

The benefit of prototyping and experimenting is that it gave KO a way to measure the upside and downside of continuing the development of this solution. Ultimately and based mostly on the reasons above, KO chose not to mature the contract management service beyond the prototyping phase. Policky and KO parted on excellent terms, and Policky returned to doing legal operations in-house. However, Policky feels that her time spent working inside a law firm has enriched her perspective and capabilities as an in-house legal operations professional. “Being part of building something like that at KO was incredible. I learned so much. And now, I have that much more depth to my experience because I now have an appreciation and understanding for both sides of the coin.”

Most of KO’s investment in prototyping the contract management service was recuperated by the revenue that it generated. In other words, it was truly low risk. The main benefit of the experience is that it generated many insights and lessons learned that will pay forward for other services the firm may decide to prototype and test. As Oelsner predicted, the downside risk was very limited, and he is happy to have gained this valuable experience.  

Future Options

Oelsner still believes that there is a market for an outside contract management service, but that “it has to be a separate business. It really shouldn’t be the province of a law firm to do this because of the nature of what businesses do.” 

In other words, KO designed a service but stopped short of actually designing a business around that service. If they had taken those next steps, here’s what it might have looked like.

• They might have developed a B2B marketing competency to educate earlier stage companies about the value of contract management to expand the top of their funnel pipeline.
• They might have achieved greater standardization in the scope of their service, enabling them to design fixed and transparent pricing.
• They might have established a sales team to help usher prospective clients across the finish line in terms of committing to their service.

Each of these initiatives would consist of a series of experiments, and each of those experiments would require time and attention. KO implicitly recognized that these types of experiments would be beyond its operational comfort zone.  

CONCLUSION

The lesson in this case study for firms is that there is a virtue in courageous experimentation. Even experiments that do not commercially succeed still generate valuable learnings, and the risk of downside, if planned well and vetted appropriately, can be minimized. For in-house teams, this is important to consider and discuss with your current law firms. Failing is likely viewed as a risk to the firm and perhaps their relationship with their client. By recognizing the merits and positive outcomes of experimentation, in-house teams can prompt more action and behaviors that drive towards innovative outcomes.