Maximizing Value: Eliminating Waste Through Legal Process Excellence
Law firms are witnessing the rapid evaporation of market share. Why?
Corporate clients are insourcing more of their legal services, corporate legal departments are reducing or converging the number of their outside counsel, and alternative service providers are bleeding away commodity legal services. In many cases, the driving force for these changes is unpredictable legal fees caused in part by law firm inefficiency.
While legal expertise continues to be important to compete in this environment, new skills are making their way into a client’s definition of lawyer proficiency. Learning from their business unit counterparts, corporate legal departments are issuing requests for proposals (RFPs) to procure legal services and are requiring respondents to demonstrate the ability to provide predictable costs, manage work efficiently and continuously improve their service delivery model. These demands require lawyers to look beyond traditional law practice techniques.
At Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, we’ve experienced a five-year journey toward legal process excellence, and we’ll share our recommendations for incorporating these practices into the delivery of legal services. If lawyers embrace these changes, they will quickly recognize that operational excellence is an essential competitive strategy.
WHAT NEEDS TO IMPROVE?
Most lawyers continue to operate under an hourly billing model, which assumes that the value of the legal service is directly tied to the number of hours required to complete the service. Under this model, the lawyer has no true incentive to find the most efficient path for delivery of services other than the ethical requirement to provide a reasonable price. ABA Model Rule 1.5 prohibits a lawyer from collecting an unreasonable fee and defines reasonableness to include the time and labor required, the scope of the representation, and the fee customarily charged. As a result, many clients incentivize their lawyer to be more efficient by moving to fixed or flat-fee models, which lock their lawyers into a set price. There is, however, an alternative solution that can inject renewed trust into the lawyerclient relationship — a commitment to legal project management and process improvement, i.e., Lean and Six Sigma.
To understand how these techniques can improve legal workflows, there must be an understanding of legal waste. Waste is anything for which the customer is not willing to pay. Waste is the opposite of value. According to Dr. Jeffrey K. Liker’s book, “The Toyota Way: Using Operational Excellence as a Strategic Weapon,” in the manufacturing context, waste occurs in the following instances:
- When there is wait time between processes
- When there is unnecessary human motion
- When mistakes occur that require rework
- When excess inventory is stored for long periods of time
What is legal waste? Legal waste is anything that does not add value to the client under an hourly billing model, or that undermines a law firm’s profit in a fixed or flat-fee model. Several examples of legal waste include:
Overworking a matter or spending more time than is necessary on an issue or activity. This is typically referred to as “gold plating,” which occurs when lawyers work to create a perfect product versus one that sufficiently addresses the needs of the client. This can occur when conducting legal research, drafting a document or analyzing a legal issue.
Parkinson’s Law, where the amount of time necessary to complete the task is the amount of time available to complete the task, as noted on Wikipedia. This tendency occurs when lawyers or paralegals operate with no guidance on the reasonable amount of time to invest in a task.
Overstaffing occurs when the needs of a legal matter are not evaluated prior to assigning resources (for example, assigning multiple associates to an emergency research or due diligence project prior to confirming the scope and relevance of issues).
Assigning the wrong resource to the task/activity can occur when a higher rate (or cost) resource is assigned to a task or activity that could have been completed by a lower rate (or cost) resource. It can occur, for example, when a litigation associate is assigned a task/activity that could have been more efficiently completed by a transactional associate.
Performing unnecessary tasks can occur when tasks/activities are duplicative of work performed by
other team members, when tasks/ activities are conducted in error or due to lack of instruction, or when team members make mistakes due to an error in judgment.
Delays resulting in starts and stops in a matter that might require lawyers to re-educate themselves when returning to the matter after several weeks or months.
Rush orders that require significant work to be performed to meet a deadline prior to a clear understanding of the requirements.
Underutilizing the creativity or innovative thinking of the team.
HOW CAN LAWYERS IMPROVE?
There have been many methodologies discussed in the past five years to evaluate and improve legal processes. Prior to undertaking a process improvement evaluation, you must understand how and when these methodologies should be used, the types of matters that are most appropriate for evaluation, and what information is critical for the improvement of process.
Three common methodologies for improving lawyer workflows are project management, process improvement (Lean) and process improvement through data analysis (Six Sigma). These techniques can be applied in isolation or as a complete program. Recognizing that lawyers must balance the demands of their practice with the integration of these techniques, the following sequence is the most practical for lawyers and law firms embarking on a journey toward legal process excellence:
|Objective One: |
|Implement techniques to clarify expectations with the client as to scope, cost and communications; and use that information to proactively manage and control the matter. These measures will help stabilize the process.|
|Objective Two: |
Process Improvement and Lean
|Once the matter is under control, conduct a thorough evaluation of repetitive processes to remove waste, reduce cycle time and, ultimately, reduce cost.|
|Objective Three: |
Process Improvement Through Data Analysis and Six Sigma
|Capture data regarding matter workflows in order to evaluate statistical trends, variables and anomalies. The purpose is to evaluate and control the process and identify opportunities for continued improvements.|
A word of caution before getting started with any of the above approaches: Lawyers and legal teams must be willing to change. This willingness can arise from the need to retain a client, increase market share with a client or differentiate services for all clients. However, without this element in place, a law firm’s efforts to create opportunities for improvement will struggle and probably fail.
OBJECTIVE 1: Educate Lawyers on Legal Project Management Techniques
Many in-house counsel hire their lawyers based on trust, and the price of legal services might be only a secondary consideration. Outside lawyers believe this element of trust and relationship will override any potential failures in price. This theory fails to recognize, however, that inherent in trust is clarity. The attorney-client relationship is the art of managing expectations, which can be improved through clarity, and clarity can be promoted through the integration of legal project management (LPM) into a lawyer’s matter intake and management workflows. The word “legal” has been added to the term “project management” because attorney workflows, unlike other professional disciplines, are governed by a different set of ethical rules. Any project management program must be benchmarked against a lawyer’s particular ethical rules and requirements.
LPM techniques should be used to control those aspects of the practice of law that result in unclarified expectations, scope creep and unexpected increases in costs — all of which contribute to client dissatisfaction. On the client side, these variables are caused by authorizing work prior to understanding the issues; on the law firm side by lack of planning and communication. LPM helps limit these occurrences by:
• Providing a step-by-step workflow for both attorneys and clients to clarify scope, risks and assumptions• Confirming stakeholder requirements
• Setting reasonable budgetary expectations
• Identifying client communication requirements before work begins
LPM can be implemented in any type of legal matter, whether litigation, transactional, simple or complex. LPM techniques complement legal expertise by driving the lawyer to provide more information to the client at the outset of the case and to proactively manage and control the matter throughout the engagement.
OBJECTIVE 2: Create Opportunities for Process Improvement (Lean)
Whether operating under a standard hourly billing model or an alternative approach such as fixed fees or blended rates, process improvement techniques are critical to ensure quality legal services and efficiency. After providing lawyers with a foundation in LPM, the next step is to integrate procedures for evaluating and improving legal processes.
The Toyota Production System (Lean) is a process improvement methodology that focuses on the identification and elimination of waste and “non-valueadded” activities. The goal is to promote a process that provides what is needed, when it is needed and in the amount needed, using only minimum materials, equipment, labor and space. Lean includes tools and techniques for evaluating processes and vetting waste. Matters or components of matters best suited for a Lean evaluation include the following characteristics:
• Repetitive processes
• Low risk of scope change
• Clearly defined strategic goals
If any of these variables are not present, legal project management techniques should be applied first to clarify the scope of the process to be improved. Lean tools include an “A3,” which can also clarify the scope of the process. An A3 typically includes a problem statement, goal, identification of the team, description of the current state process and proposal for the improved future state process.
OBJECTIVE 3: Create Additional Opportunities for Process Improvement Through Data Analysis (Six Sigma)
Another valuable technique for legal process improvement tied closely to Lean is data evaluation through Six Sigma. Six Sigma requires reliable data to accomplish the following:
• Measure a production process’s adherence to quality standards
• Identify controls that can ensure processes do not deteriorate over time
The challenge with most law firms is that they lack good historical data on matter performance. Many firms are trying to remedy this problem by implementing phase and task codes for all time entry. If these codes are used correctly, they create a rich database of information, which can be used to identify the cause of deviations. While legal processes are dramatically different from the process used to create a tangible product like a car, Six Sigma techniques can be used to evaluate historical data related to like matters to identify trends and variables and develop methods to improve consistency. In order for a legal matter to benefit from a Six Sigma evaluation, a matter should exhibit the same characteristics required for Lean and should also have a sufficient data set of similar matters on scope and duration to reliably demonstrate deviations from the norm. Similar to LPM’s project plan and Lean’s A3, Six Sigma utilizes the DMAIC methodology as tactical steps to achieve greater quality and to set parameters on the process to be evaluated and improved. DMAIC is an acronym for define, measure, analyze, improve and control.
Whether lawyers are willing to change or not, clients will continue to look for law firms with a commitment to legal process excellence. Firms ready to implement this type of program can start by investing in the training and/or certification of a team member in project management, Lean and Six Sigma. The team member selected for training should also have experience in the administration of legal processes, e.g., either a seasoned paralegal or a senior associate. A good foundation in legal process will permit the team member to quickly recognize how these techniques will improve legal workflows and will provide them with the credibility to train others on implementation. For those lawyers and law firms willing to change and incorporate these tenets into their practice, the reward will not just be survival, but also greater market share, more reliable estimates of the cost of services, reduction of write-offs and writedowns, and — most important — increased client trust and resilience.
This article was first published in ILTA’s November 2015 white paper titled “Business and Financial Management: Driving Client Value” and is reprinted here with permission. For more information about ILTA, visit www.iltanet.org.
About the Author David A. Rueff, Jr. is a practicing attorney with 18 years of experience in transactional and litigation practices. He is certified as a Project Management Professional (PMP) and in the Toyota Production System (Lean). David serves as Baker, Donelson, Bearman, Caldwell & Berkowitz, PC’s Legal Project Management Officer, where he works to implement the firm’s legal process excellence initiatives. Contact David at [email protected]