For the better part of two years, law firms have been buying just about everything AI. Every vendor I talked to over that time expected renewals and expanded licenses at every firm. Every firm I spoke with said they were licensing widely and would cut back once they figured out what fit. Those two things can’t both be true. So I gave the vendors all the same warning: “You’ve only got a few years. At some point somebody in a partner meeting is going to ask what the firm got for the money, and if they don’t see clear ROI, you’re on the hook.”
I was right about the clock. I was wrong about who would end up on the hook.
Over the last few weeks, every one of my clients with a KM function has started some version of the same reorganization. The KM team, the Innovation team, or both are being folded into an IT-led AI group, often under a newly minted Chief AI Officer. My client list doesn’t make for an industry trend. But when I started calling friends at other firms, I heard very similar stories about firms I don’t work with.
Putting KM and Innovation under IT may not be optimal, but it isn’t necessarily bad. I started in IT, and my company works with several innovation teams that live in IT. This is not an anti-IT rant. But the trend does raise one big concern for me.
My concern is that firms are undervaluing knowledge, and in some cases sidelining the teams that manage it. We’ve spent two years with firms exploring which AI tools to buy. Now that many of them have made that choice, they need to shift their focus to telling those tools what the firm knows. Instead, they’re handing AI to the people in the firm who procure and manage technology. KM is how firms know what they know. The firms that win the AI era won’t be the ones with the best tools or the biggest budgets. They’ll be the ones with the best Knowledge Management feeding into their AI.
Why now
Four pressures are converging at this moment.
First, AI spending has gotten big enough that firm leadership wants one person to own it. One budget line, one org chart box, one throat to choke. And the logic for who that person should be is simple. AI is technology. IT manages technology. Therefore, AI belongs to IT. Both premises are true. The conclusion is still wrong.
Second, many contracts from the first wave of AI tools are coming up for renewal. That means the first real reviews and the first real ROI analysis. For a lot of AI purchases, clear ROI is hard to point to. Adoption is uneven. Some time savings are real but hard to measure, and firms are learning that AI use doesn’t automatically equal time saved. And in a business that bills by the hour, saved time isn’t obviously a win.
Third, it’s budget and review season. If a firm is going to redraw its org chart for next year, now is when it happens. Budgets get set, headcount gets allocated, and someone gets named the owner of next year’s AI line item.
And fourth, very few law firms have original ideas. When one firm names a CAIO and restructures KM and Innovation under them, every managing partner starts asking why their firm hasn’t done the same. Nobody wants to explain to the partnership why they’re the last firm follow suit.
Each of those reasons makes complete sense on its own. Together, they look like an AI strategy. They’re not.
Where I got it wrong
I assumed a large number of vendors would take the hit when their products came up for renewal, and they may still. But vendors aren’t in the partner meeting when someone asks what the firm got for the money. The KM or Innovation leader is. They championed the tool. They picked it, ran the pilot, promised adoption, and wrote the business case. When it doesn’t deliver, for any reason, they own that.
The vendors got a reprieve. Their internal champions are paying for it.
KM isn’t blameless here. Too many KM and Innovation teams have focused on procurement, chasing vendor demos and conference swag instead of their lawyers’ needs. And frankly, KM has never been great at explaining its value to the people who hold the budget. That said, I don’t see any connection between how well a team performs and whether it’s being reorganized. And failing to make the case is no reason to take KM out of the equation.
The wrong moment to make that call
For the last few years, treating AI like any other technology procurement wasn’t entirely crazy. AI is definitely technology. We’re not exactly sure how it works. It keeps changing. We don’t know how we’re going to use it. Let’s just get it in here and figure it out as we go. If AI means licensing a legal AI platform, rolling it out, and training people to use it, then it looks a lot like buying a document management system. Pick the vendor, negotiate the contract, pass the security review, deploy, and measure adoption. That’s the standard playbook that KM and Innovation teams have been running for two years. Unfortunately for them, every step of it is squarely in IT’s wheelhouse. For management, that makes the reorg decision an easy call.
But that’s not where the technology is heading. And I don’t think anyone, including me, has done a good job of explaining to firm management what comes next. Hence their Underpants Gnome approach to AI:
Phase 1: Buy AI.
Phase 2: ???
Phase 3: Profit.
The tools that will matter going forward are agents, not chatbots. They sit on a lawyer’s desktop, read the files, and carry out multi-step work on their own. What will take those tools to the next level isn’t the model, the interface, or the infrastructure. It’s context. Does the agent know which precedent the firm relies on? Which positions the practice group takes, and which it abandoned years ago? How a particular partner wants a particular document built? What this client cares about? None of that is in the model, and none of it is in the vendor’s product. It lives in the firm, scattered across people, documents, and habits. KM is the only group whose job has ever been to capture it, curate it, and make it usable.
The people in KM think of themselves as knowledge professionals, not technologists. At a law firm, many of them are lawyers or former lawyers who never had any interest in working in IT. To them, the move looks like a step backward in their careers, and they’re likely to leave. When they go, a lot of what the firm knows goes with them.
Your knowledge is your advantage
Large firms are all buying the same AI tools. And despite what the big vendors tell you, those tools are interchangeable. This one has a feature that one lacks. That one does a certain kind of work slightly better. Underneath, they’re the same. You need them to stay in the game, but buying one of them, or all of them, gives you absolutely no competitive advantage.
Your firm’s knowledge is what can make AI a competitive advantage. And giving your AI tools an MCP connection to your DMS and other systems of record doesn’t give them your knowledge.
Your systems of record store documents and data. Your firm’s knowledge is bigger than that. It’s knowing who has handled this exact issue before. It’s knowing how a matter actually gets staffed and run. It’s knowing which deal went sideways and why. It’s knowing which argument the judge didn’t buy.
Much of it was never written down. So an agent with access to every system you own still won’t find it. Somebody has to capture it. Somebody has to keep it current. Somebody has to put it where an agent can use it.
That somebody is KM.
KM is Phase 2.
And without KM, underpants never turn into profit.
If your firm has recently reorganized in this way, or is in the process of reorganizing like this, your KM people are probably still in the building, for now. Go find them and beg them to help you build a Context Strategy. The firms that don’t will figure it out eventually and they’ll have to rebuild KM from scratch. But if you start now, you should have a two-year head start over your competition.
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