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1 Executive Summary
2 Contents E-Discovery Landscape... 2 Survey Highlights... 5 Strategic Importance... 5 Current Services... 6 Future Services... 7 Revenue Expectations... 8 Spending Focus... 9 E-Discovery Technology Conclusion About The Survey About HBR Consulting
3 E-Discovery Performance + Priorities Revenue exceeded expectations for Spending a high, essential or medium priority for 93 % of firms 71 % of firms Technology initiatives include: Technology Assisted Review Legal Hold Document Review Tools E-Discovery Landscape The process of identifying, reviewing and producing relevant documentary evidence in the context of litigation and / or investigations has evolved rapidly over the past fifteen years. A process that was once dominated by banker s boxes is now firmly rooted in the digital realm. The volume of electronically-stored information ( ESI ) has grown exponentially along with the speed of business in the knowledge era. Over the past decade, innovations have attempted to lower the cost of managing electronic discovery while accelerating the process. What began as the first attempt at innovation -- recording an attorney s decisions in a database -- has advanced to computer algorithms attempting to replicate and propagate the attorney s judgement. We ve gone from nearly stone age to space age in the span of a decade. Along the way, attempts to lower the cost of document review personnel have taken the industry around the world and back again. Progress has been made, and yet, the root problem persists: discovery costs too much. While the perceived value of reviewing documents has declined, the complexity of delivering the service has substantially increased. See Figure 1. The introduction of 2
4 Perceived Value advanced technologies to the process has expanded the expertise required to encompass not only legal mastery, but knowledge of statistics, algorithms, linguistics and information technology. Hig h Complexity of Service Delivery Lo w Figure 1 Pre Corporate law departments have not been asleep at the switch. To supplement HBR Consulting s Annual Law Department Survey, we conducted a Flash Survey in November 2014 to identify trends in law department e-discovery operations and 2015 planning around staffing, spending and technology. Cost Management continues to be the most cited key challenge for law departments, second only in terms of priority to the regulatory environment. Litigation spending on outside counsel fees has increased significantly year over year and measures to reduce costs remain a priority for most corporations. With outside counsel fees accounting for as much as 50% of discovery costs, it s no surprise that the focus on e-discovery remains a priority. Over 80% of the law departments surveyed indicated that spending on e-discovery improvements will be at least a medium priority in Our survey revealed that while over half of the companies report having less mature e- Discovery programs, 2015 will find them working with existing staff and technology tools to drive efficiency in an effort to reduce costs. Without the benefit of capital budgets to introduce new tools or resources, the spotlight frequently lands on reducing the hourly rates and fees of outside counsel as a means to reduce costs. 3
5 Several forces are currently at a confluence in the industry: client demands to contain costs; judicial acceptance of advanced technologies; growing document populations; a plethora of service providers; continuous technological innovations; expanding sources of digital evidence; and proposed revisions to the discovery rules in the Federal Rules of Civil Procedure. Additionally, the ever-present legal obligation to take reasonable efforts to provide complete and correct productions of evidence to opposing party(ies) remains. This report addresses how law firms are responding to these industry demands. 4
6 Survey Highlights Q: How important is the firm's e-discovery capabilities to securing new clients and/or retaining clients? Strategic Importance E-Discovery is perceived as being strategically important to the growth of the firm. 19% 6% 25% 50% Very Important Moderately Important Unimportant Important Of Little Importance HBR Insights A law firm s capability to provide e-discovery services has gone from a novelty to a business necessity. The pendulum between outsourcing and building in-house capabilities has shifted as technology solutions evolve, enabling the delivery of services without the necessity of employing computer programmers to fix software bugs or build custom programs. With so much attention given to the technical and data aspects of electronic discovery, it s easy to lose sight of the fact that the heart of the matter is the evidence to support or defend the client s case. Rapidly identifying relevant documents, and ultimately finding the key documents, are vital to developing an effective case strategy and providing timely and accurate counsel to clients. Therefore, e-discovery capabilities and competence is integral to securing and retaining clients as reflected in the responses to this question. 5
7 Q: Indicate the e-discovery services that you currently offer your clients and the party that has the primary responsibility for delivering each service. Current Services The majority of firms support the full e-discovery lifecycle with some firms relying upon vendors for collection, processing and data hosting support. Defining e-discovery Strategy on Matters Negotiating ESI Protocols (with Opposing Counsel) Legal Hold Management Processing Data Hosting Document Review Application(s) Collection Technology or Computer Assisted Review Application(s) First Pass Review (Initial Relevance)* Privilege Review* Second Pass (Final Review) Production Current Responsibility *N/A responses from a firm primarily focused on Plaintiff matters Firm Vendor N/A Source: 2015 HBR Law Firm e-discovery Survey HBR Insights Participating firms were asked to disclose the services across the e-discovery lifecycle they currently offer to clients and to identify if the services were provided by the firm s personnel or delivered via third party vendors. The majority of firms provide the full spectrum of services with some firms relying upon vendors for collection, processing and data hosting support. The majority of firms rely upon vendors to provide collection services. This comes as no surprise given that the process of collecting the data from source systems is a complex activity requiring specialized technology and often involving logistical challenges. Processing services are almost evenly split between in-house and vendors. That said, it is common for a firm to maintain some inhouse processing capabilities for smaller matters or matters where the sensitivity prevents engaging third-party vendors. Maintaining 6
8 significant in-house processing and data hosting capabilities requires capital expenditures in hardware and personnel to meet the voluminous document populations. The majority of the firms reported maintaining the primary responsibility for the delivery of those services. Despite the commoditization and low margin of the technical-centric processes, firms are maintaining those services inhouse in order to sustain continuity of the overall delivery of professional services. Q: Do you plan to change the e-discovery services your firm provides to its clients in 2015? If so, please indicate which services you plan to add by selecting Add from the list next to the service or if you plan to stop providing specific services indicate by selecting Stop next to the service. Future Services In 2015 firms are focusing on adding perceived higher value services, such as: adding Technology Assisted Review capabilities and Legal Hold Management services. HBR Insights The survey responses indicated that firms will focus in 2015 on adding perceived higher value services: defining e-discovery strategy on matters, legal hold management and technology assisted review ( TAR ). This is a shift in the market and reflects recognition that providing high value e-discovery services requires earlier and substantive involvement of the attorneys to make critical legal and business decisions. The addition of TAR to the spectrum of services will require an expansion of knowledge and development of skills not presently taught in law school. While some firms may be investing in purchasing TAR tools, there appears to be alignment between the firms relying upon third-party suppliers for data hosting services and firms with externally provided hosted TAR tools. While there has been commoditization in the e-discovery market, the services most affected are those not requiring legal expertise. Opportunity exists for law firms to provide high value professional services by combining industry domain expertise with advanced analytical tools. 7
9 Q: In 2014, how did the revenue generated from e-discovery services compare to expectations? Revenue Expectations Far Below Expectations 7% Revenue from e- Discovery services met or exceeded expectations for 93% of firms. Below Expectations Met Expectations 57% Above Expectations 29% Far Above Expectations 7% 0% 10% 20% 30% 40% 50% 60% HBR Insights During a year that brought declining revenue for e-discovery service providers, firms realized revenue levels that met or exceeded expectations. The survey did not gather pricing details for the e-discovery services provided by the firms. As such, information cannot be gleaned as to the delineation of services charged per unit (e.g., per GB) versus those charged hourly. Nonetheless, the participating firms are seeing a positive revenue trend with 64% of firms reporting increasing revenue over prior years and 33% indicating static revenue. 8
10 Q: What will be the level of focus for spending on e-discovery investments in 2015? Spending Focus Spending on e-discovery will be a high, essential or medium priority for 71% of firms. 50.0% 40.0% 30.0% 43% 20.0% 21% 21% 10.0% 7% 7% 0.0% High Priority Essential Medium Low Not a Priority HBR Insights Where e-discovery spending is a high or essential priority, firms intend to invest in an expansion of resources in several roles, implement new or enhanced technology across multiple phases of the lifecycle, and add multiple areas of new services. Firms reporting e-discovery spending as a medium priority indicate plans to invest in specific roles within the team and/or technology for specific aspects of the lifecycle but not as far-reaching as the firms with a higher priority on spending in That said, firms in this subset intend to add multiple areas of new services but perhaps intend to do so without a capital investment. Firms indicating that e-discovery spending is a not a priority, or is a low priority in 2015, fall into two buckets: 1) firms that have mature e-discovery practices with technology already implemented and an established team, or 2) firms that do not plan to invest in e-discovery as a service offering. The latter is the minority with only one firm indicating no plans to offer e-discovery services. 9
11 Based on the majority responding firms, 2015 will be a year of e-discovery investments in the forms of expanding teams and/or new or upgraded technology. E-Discovery Technology Technology Assisted Review, Legal Hold and enhancing or upgrading traditional Document Review tools top the list of 2015 technology initiatives. Technology Assisted Review Traditional Document Review Processing Collection Legal Hold Management 0% 10% 20% 30% 40% 50% 60% No plans for internal acquisition Implemented; plans to enhance/upgrade Considering purchasing in the next 1-2 years Implemented; no change expected Implementation in Process HBR Insights The vast majority of firms maintain processing capabilities despite a large percentage of the firms reportedly relying upon third-party vendors for processing services. This is typical given the fluid and unpredictable nature of litigation demands. The responses to the survey indicate that one third of the firms are either currently in the process of upgrading or enhancing processing technology or plan to do so in The survey did not gather information related to internal processing capacity. 10
12 The responding firms are unanimous in providing legal hold management services to clients. Firms that have not already implemented supporting technology will do so in 2015 with only 21% of firms considering purchasing associated technology next year or thereafter. Sixty-one percent of the firms have implemented, are in the process, or plan to enhance/upgrade the supporting technology. This is an area that may overlap with the traditional roles of in-house counsel personnel. Firms with the ability to provide the management and supporting technology in this area position themselves well to manage downstream e-discovery processes to be more informed earlier. This is an area that requires a low technology investment but strategically warrants building the capability in order to insert the firm into the process in the early stages of the lifecycle. Law firms are fully embracing TAR as reflected in the vast majority, 84%, indicating that they have implemented, plan to enhance/upgrade or are in the process of implementing TAR. Traditional document review tools are also being refreshed with over 40% of the firms indicating plans to enhance or upgrade. It s common for document review applications to include both traditional review functionality, as well as technology assisted review capabilities. The strong response from the participants indicating plans to implement or enhance tools that support traditional review and TAR may reflect that firms are considering or implementing tools with dual functionality. Nonetheless, 2015 will find firms armed with new or improved technology to support document review. Ultimately, the benefits of employing accelerated review will result in advantages to clients but may also bring challenges to firms as they traverse the learning curve of implementing advanced technology. To lessen the learning curve, firms may seek external expertise to assist with defining appropriate workflows and processes. 11
13 Conclusion The following themes surfaced in the responses to the survey: E-Discovery will remain a strong area of spending focus this year by adding services, technology and resources Revenue performance is strong and trending upward - 93% of the participating firms reporting revenue that met or exceeded expectations Firms are maintaining full-service e-discovery capabilities in-house - Firms are offering the full lifecycle of e-discovery services to clients with processing and data hosting services being supported by vendors for the minority of firms - Collection services are sourced externally for the majority of firms 2015 is a time for elevating the sophistication and expanding the scope of e-discovery services provided by law firms - Areas of growth in service offerings will focus on providing perceived higher value advisory services to include: advising clients in the defensible use of TAR assisting clients with Information Governance challenges managing the preservation / legal hold process - Technology initiatives will include: Enhancing or upgrading traditional document review technology Implementing Technology Assisted Review Legal Hold Management technology Adoption of a firm s e-discovery services is an area of challenge as an increasing number of clients are directing the use of specific providers of services and/or technology in an effort to reduce costs. Additionally, internal adoption by the firms attorneys is an area of opportunity for some firms. 12
14 Priority initiatives for 2015 directly reflect a concentration on adding perceived high value services while improving internal operations. Recognizing that corporate clients are struggling with the implications of excessive data surfacing in e-discovery, firms are positioning themselves as advisors in the areas of Information Governance and the application of TAR. Not unrelated is the ability to analyze and present information about the client s data to inform decision making and for use as a diagnostic tool to identify areas of concern or opportunities for improvement. Evidence of the shifting focus is demonstrated by firms forming specialized teams to focus on big data, Information Governance, data analytic SWAT teams for early case assessment and other emerging practices within innovative firms. Secondarily, firms plan to focus on opportunities to improve the operations and (presumably) profitability of the e-discovery function as indicated by initiatives to refresh technology and revise fee structures, staffing models, and preferred provider relationships with vendors. The journey to reduce the costs and compress the time it takes to isolate key documents in ever-growing document populations has been akin to running in front of a train exhausting and futile. Efforts to automate processes, reduce the rates of document reviewers and apply process improvement disciplines (Six Sigma, etc.) have helped, but the perennial business problem persists: discovery costs too much and takes too long. Clients are unwilling to bear the financial burden and are taking alternative measures when possible. TAR has emerged as the latest perceived silver bullet. The survey responses reflect that firms are embracing and investing in TAR capabilities. Applying TAR to the e-discovery conundrum brings its share of trade-offs to be managed. Additionally, not all TAR applications have the same trade-offs. Care must be taken to fully understand the benefits and disadvantages and define a thoughtful strategy that balances the benefits while mitigating the risks as much as possible. Technology is not the final answer. After all, every firm has access to the same technology choices. The key to capitalizing on the complexity in this post-commoditized marketplace, is to tailor the firm s value proposition to focus on the unique expertise of its professionals, coupled with enabling technologies, to deliver meaningful high-value services. Firms that orient new or innovative offerings to address client needs to contain costs, manage risk, capitalize on reusability of data and work product, provide cross-matter reporting and analysis, and facilitate upstream data reduction will emerge as trusted advisors. 13
15 Contact Bobbi Basile to receive a complete copy of the survey report, including survey findings relating to: Future E-Discovery Services + Responsibility Adoption of the Firm s E-Discovery Services: Clients Directing Acquisition of Services Adoption of the Firm s E-Discovery Services: Attorneys Option to Engage External Service Providers Current E-Discovery Staffing Future E-Discovery Staffing Revenue: Write-Offs 2015 Initiatives Bobbi Basile bbasile@hbrconsulting.com About The Survey HBR CONSULTING conducted a survey with law firms in March 2015 to elicit information pertaining to electronic discovery ( e- Discovery ) services, including staffing, technology, revenue and strategy. Firms were individually invited to participate and required to submit responses via electronic submission to ensure consistency in the form of the responses. HBR has normalized the information provided by the individual firms to protect the anonymity and confidentiality of the participants. Fifty-five firms were invited to participate and 15 firms completed the survey, including 11 Am Law 100 and 9 Global 100 firms. 14
16 About HBR Consulting 15
17 16
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