Lexpert, Vol. 17, No. 5, March 2016
Efficiency systems found in manufacturing are just as applicable to legal services.
THOUSANDS OF BOOKS have been written about process improvement, Six Sigma and LEAN methodologies over the past 15 years. One recent addition, LEAN Six Sigma for Law Firms, by Catherine Alman McDonough, argues that this methodology is easy to understand, inexpensive to implement, and that it lowers costs, improves quality, enhances communications, facilitates lawyer training, makes fixed fees profitable and makes clients happy.
While the genesis of process improvement was found in the manufacturing sector, the same basic methods have also been applied in the legal services industry. Some firms, like Seyfarth Shaw LLP, have established consulting entities to leverage their hard-won track record into a revenue stream. A number of Canadian firms have retained them to advise on how better to manage internal processes and service delivery. Others have lawyers and professionals certified as Six Sigma green belts or higher.
There are six basic principles in support of process improvement for the law department. The first three focus on the customer for value creation, figuring out how the work gets done and removing waste and inefficiencies. There is a lot of opportunity for savings with the third principle when taking into account eight types of waste: defects, over-production, waiting, non-utilized talent, inventory, transport, motion and extra processing.
The fourth process-improvement principle requires a certain doggedness because it entails tracking progress and making decisions based on evidence rather than on assumptions and goodwill. The fifth principle empowers people to work within the process. And, finally, the sixth principle, sustainable process improvement, depends on doing everything in a systematic way so that elements can be adjusted over time.
This sounds tedious, detail-oriented and not what “lawyers learned in law school.” Yet success with such an initiative is significant. Law departments and the law firms they work with understand that they can improve their value proposition by delivering “less for less” faster without compromising their effectiveness. I have recently heard one global and three national law firms claim that, under the right conditions, they can reduce a company’s demand for legal services and total spend by 10 to 17 per cent with process improvements.
In a recent round of meetings with a dozen law firms following a request for proposals, the client was able to ask each firm about their experience with legal process improvement. Every firm talked about collaboration technologies, the training in project management, and the specialty teams they had recruited to support process improvement. But none were able to demonstrate that those changes translated into lower rates for clients. Instead, the savings for the law firm hardly paid for the costs of technology and training. The client does not notice the difference.
Still, three firms had enough confidence to say they could apply process improvement to the client’s business practices, at least insofar as they related to retaining external counsel. Their focus was on how the work was done and on eliminating some of the eight wastes.
Coupled with this was a determination by the firm to modify undisciplined behaviours that inflate the need for legal services. Making this type of undertaking viable depends on three factors. First, a robust, multi-year forecast of legal work, by type and volume, must be available. Second, the usual 15- to 20-per-cent discount on fees should be in place in exchange for a commitment to a large volume of work to the firm. And the third is the migration away from time-based fees in favour of a negotiated price, possibly with a performance component. These are prerequisites to the next stage where the firm can reduce the discounted price by 10 to 18 per cent on a permanent basis. In other words, the law firm will undertake to reduce demand for legal services through process improvement — hence “less for less.“
When pressed, two firms agreed to a price reduction before commencing process improvements for a three-year period. The third firm preferred to rebate or discount based on a semi-annual review of progress. It appears counterintuitive for a law firm to ask for lower fees. Yet, a fixed fee with a performance feature can be more profitable for firms than discounted hourly rates because there is an incentive to be efficient. It is also a way for firms to grow their market share with existing clients and to maintain volumes over time.
General counsel should reconfigure their work, their partnering arrangements and their pricing to take advantage of such emerging opportunities.