SeytLines

Keep Calm and Come Back

Posted in Uncategorized

Screen Shot 2016-08-15 at 1.06.22 PM

I am taking a short break to re-charge and get ready for the fall onslaught. But don’t worry, I’ll be back next week with a new post and new ideas about how we can improve the delivery of legal services.

If you haven’t done so, please read last week’s post, “We Need a Moonshot for Lawyers.” I’m counting on all of you to come up with great ideas for a moonshot we can use for lawyers during the next 10 years.

Thanks for reading and see you next week!

We Need a Moonshot for Lawyers

Posted in Leadership

MoonshotIt takes an undergraduate degree, a law degree, and passing the bar exam to become a lawyer in the United States. In other countries, it takes less time in the classroom, but some time in the real world. The money and time invested in training a lawyer before he or she has practiced for a day is enormous. Those investments represent a commitment by society to the idea of rule of law. Yet the overwhelming concern among lawyers today is not how to improve society, but how to make a buck.

It would be easy to chastise those in the profession and say this has not always been the case, but from what we can tell, it has. Law historian Lawrence Friedman said, “Most lawyers always served, mainly themselves, next their clients, last of all their conception of that diffuse, nebulous thing, the public interest.” As much as law was one of the learned professions (along with medicine and theology) it has been a way for an educated craftsperson to earn a living by solving problems. There is nothing wrong with earning a living by being a professional problem solver. But as Elon Musk, the man who expects to land humans on Mars in the next 10 years, has said, “Life can’t be just about solving problems. There have to be things that are inspiring and exciting and make you glad to be alive.”

From Solving Problems to Apocalyptic Collapse

Problem solving has worked well for most lawyers and presumably for most clients. But the web tells us that the legal industry is heading towards a total collapse. Large law firms are (almost) in free fall. Law schools are on the edge of closing their doors. Clients are willing to use any service provider that can bring down their legal costs while keeping them out of court, jail, or the media. Each morning I click on my iPhone waiting to see the headline, “The Legal Industry is Gone.” Richard and Daniel Susskind have predicted it, so it must be true.

While this apocalyptic vision of the legal industry’s collapse may arrive some day, reality seems to have outwitted the pundits for the moment. Things are not as rosy as they were a decade ago, but chances are high the legal industry will still be here a decade from now.

Yet, one thing bothers me every time I set foot in the classroom, give a presentation, talk to lawyers in a firm, or meet with in-house lawyers. The entire industry seems caught in a fog. Students and lawyers show up each day, do their thing, go home, and show up the next day to do their thing again. But I don’t see sparks, enthusiasm, excitement, or sense that they feel they are serving some greater purpose. I do not see lawyers who are “glad to be alive.”

I would like to believe that what I don’t see in the students at school or the lawyers at work, they have in their personal lives. Law is the thing that puts food on the table and fills the days with an honorable and sometimes interesting way to earn a living. It doesn’t always have to involve great ideas or massive challenges.

But this is where the story gets muddled. If all we can point to for the profession is the daily grind, then not many would (or should) want to join the profession. If money is the only driver, then we should expect to see exactly what we have seen: once money becomes hard to get prospective students and even practicing lawyers look to greener fields.

Some of this is good. There always will be people who chose a profession because it offers the greater gold, not because they have any particular interest in it. When gold is hard to come by, they will seek out the new gold avenue. But some of it is not so good. Individuals who could do much for society will choose another profession because who wants to spend seven years in school and take the bar exam only to find a “Not Hiring” sign on the door? Isn’t there something other than “pays the bills” and “makes me wealthy”?

Shoot for the Moon

The term “moonshot” goes back to the American space program conceived during President Eisenhower’s tenure. The United States had started its human spaceflight program in the 1950s with Project Mercury. It then moved to Apollo, a three-man spacecraft. President Kennedy followed President Eisenhower. In his May 25, 1961, address to Congress, President Kennedy announced the U.S. goal of “landing a man on the Moon and returning him safely to the Earth” by the end of the 1960s. President Kennedy’s goal, finally realized in 1969, has become known as a moonshot and programs with equally audacious goals have taken on the nickname.

During his 2016 State of the Union address President Obama announced a cancer moonshot. President Obama’s Cancer Moonshot started a new surge in the war on cancer. The moonshot, under the leadership of Vice President Biden, “aims to make more therapies available to more patients, while also improving our ability to prevent cancer and detect it at an early stage.”

Not all doctors, nor even all cancer researchers, will be directly involved in the moonshot. But many will. Many will devote their time and effort to eradicating cancer, and those who already have been on that mission hopefully will find new energy for their cause. We like big ideas and big challenges, because they give us goals. Solving a problem today has its own satisfaction, but solving a problem today that takes us a step closer to solving a massive problem can be far more satisfying. It gives us, as Elon Musk said, a reason for being glad to be alive.

Lawyers are Indispensable

As we look out across the issues affecting society, we see that law plays a role in almost all of them. Rule of law features heavily in discussions about major challenges facing countries. Access to justice is a major problem in the United States and around the world. Legal service costs have skyrocketed over the years, leaving many without any access to justice. Emerging technologies are raising new questions for which the law has no answers. How will we decide whether robots may take lethal action outside the scope of human control? What will we do about climate change?

Lawyers do things every day to help solve the world’s problems. As Professor Friedman says, “The truth is that the legal system is so complex, and so ubiquitous, that lawyers have become indispensable.” But the efforts of lawyers are hard to see and they blend with the background of all the other things happening in the world like one tile in a giant mosaic. To excite students and lawyers about what they can do, we need something bigger, something that will stand out, and something to which many of us can contribute.

To have that something, I think we need a legal moonshot. We need a legal equivalent of putting humans on the moon or taking a big step towards eradicating cancer. That is a big ask, but if we don’t have a big ask we aren’t shooting for the moon.

Because lawyers are a service profession, we think of ourselves as not having the problems, we are the ones that help others solve their problems. NASA’s engineers were there to make space travel possible, and doctors are there to help us eradicate diseases. Lawyers think of themselves as being there to help those who do the big things.

So, to find our legal moonshot, we first need to re-cast how lawyers view themselves. What is the greater good lawyers accomplish or can accomplish in the world? With that greater role in mind, go 10 years into the future to the year 2026. As you stand in 2026, look around and then look back at the past 10 years. The world’s population will have increased. The climate will have shifted a bit more. Technology will have advanced, we will have survived many calamities, and we will know much more than we know today.

What would you like to be able to say that lawyers accomplished during those 10 years as their legal moonshot? What idea do you think will galvanize those in the profession who want to make a difference? What are you willing to spend time on during the next 10 years and then be able to say “Do you see that? I helped make that happen.”

The Ask

I’m sure there are many worthy candidates for the legal moonshot. Please take a few minutes and think about what you would propose. Submit your ideas through the comments to this essay, or send me an idea on Twitter at @LeanLawStrategy. I hope to get many ideas and share them so we can together find our moonshot.

Lawyers like to say that practicing law stifles their creativity. This is your moment to let your creativity out and encourage it to have fun. Our legacy 10 years from now should not be: “We reduced the use of the billable hour by 20%.” If we want students to become lawyers for the right reasons, if we want lawyers to stay in the profession, and if we want the profession to survive as something greater than a highly educated bureaucracy, we need to create our own vision of what we can do as lawyers. I look forward to hearing your ideas.

To share a moonshot idea:

* Post a comment to this essay.

* Send me your idea on Twitter: @LeanLawStrategy

* Send me an email at kgrady@seyfarth.com (I will not share publicly who sent these ideas without the permission of the person submitting the idea)

On the Future of Law Departments

Posted in Change

LawDeptWe move forward by challenging the way things are today. It is easy to look at the world, see what is happening, and assume that is the way it has been and will be. It is hard to imagine a different future, but if we do, we often find ways to improve. The chatter today is about a world with different types of large law firms. In this essay, I’m going to ask a different question, “Is there a future with different types of law departments?”

Law Departments Are Not Immune to Change

There was a time when large corporations operated without law departments or, at most, had a general counsel. The legal work was done by law firms. Often, a lawyer from the main outside law firm representing a corporation would sit on the corporation’s board of directors. Practicing law was not considered, in the terminology we use today, a core competency of a corporation. Law firms were trusted advisors to corporate leaders.

If the corporation had a small law department, the lawyers were gatekeepers handling the legal work flow between inside clients and firms, and they handled simpler matters, such as routine corporate governance for subsidiaries. A general counsel might be a well-respected internal strategist, but the substantive work was done outside the corporation.

For many corporations, having a law department is a recent thing. Forty years ago, when I started working in law firms, it wasn’t hard to find a large corporation, even a Fortune 500 corporation, without a law department. I remember when Continental Bank, one of the largest banks in the United States, outsourced its law department to the law firm known then as Mayer, Brown & Platt. My first in-house job was with a Fortune 500 corporation that had started its first law department less than a year before I joined.

If you have been around corporations long enough, you have seen them go  through organization philosophy phases. At one time, corporations boasted large IT departments charged with running the heavy metal computers that comprised the IT infrastructure. The people in IT were not closely intertwined with the business. They were there to make sure the corporation’s backbone (accounting, ordering, etc.) functioned.

Over time, the heavy metal phase gave way to lightweight servers which gave way to the cloud phase. IT departments became integral business partners often charged with developing technology structures to support or implement new business models. IT leaders still must make sure the bills are paid and the orders tracked, but they do far more than that in a good corporation. At the same time, they have shed the routine, day-to-day work to outside providers.

We have seen corporations go from no law departments to large, labor-burdened law departments. Is it time for a phase-shift in law department philosophy?

Shifting the Corporate Law Department

Obviously, there are no legal barriers to operating a corporation without a law department, though in some corporations we would need to pull out the  compliance functions and keep them in the corporation. Law departments have advantages over law firms in many (not all) situations. But, advantages are not barriers to outsourcing. There are advantages law firms enjoy over law departments. In fact, most corporations do not have law departments until they reach a certain size or need level. Smaller corporations often operate without law departments, and “smaller” can be quite large including $1 billion corporations.

The question I’m posing, then, is whether we will get to the point where multi-billion corporations go without law departments or at least scale the law department down. Think of a law department with a general counsel and a few subject matter leads (securities, employment, etc.), but no one else even though the corporation ranks in the top 50 on the Fortune 500 list.

Today, the answer would be no. The cost gap between in-house lawyers and outside lawyers continues to grow while the skill gap shrinks. Over the past 30 years, and particularly over the last 5 years, corporations have learned they can bring in-house the same lawyer they use in a law firm, but at a greatly reduced cost. This knowledge has led law departments to go on a hiring binge as they trade outside spending for in-house payroll.

A New Model Law Firm to Support Law Department Change

What would it take to change? Let’s engage in a thought experiment. Imagine a new large law firm. The organization structure is similar to what we see in many businesses, with a central services function composed of centers of excellence (CSE). Those centers include human resources, technology, marketing, finance, and supply chain management. What does supply chain management do? It handles retaining and integrating resources outside the law firm that are needed for particular matters. These could include e-discovery vendors, managed service providers, and specialized technology services.

The CSE functions work together on a common platform (something like SAP for law). They each use specialized modules that hang off the backbone of this common platform. The modules talk to each other through the backbone, eliminating much of the complexity that exists in the modern, siloed law firm world. The backbone also could be used by law departments, allowing law departments to work seamlessly with many law firms and law firms to work seamlessly with many law departments.

The client-facing part of the law firm is more interesting. First, the firm has three major brands. We’ll call them Queen’s Counsel, Middle Lex, and Average Joe. All three use the CSEs, but each presents a different (though at the margin, overlapping) face to the world. In fact, each business is housed in a separate legal entity, all owned by the parent firm.

Queen’s Counsel markets itself as the best of the best. It is a high end purveyor of bespoke legal services that clients use when price isn’t the issue. It has partners with tremendous experience and the price for legal services reflects the premium quality. When Queen’s Counsel handles a matter, the matter leaders (not all lawyers) quickly disaggregate it into the high-end work (usually strategic planning and work on key documents), and other work. The other work is performed by a combination of one or both of Middle Lex and Average Joe, and outside service providers hired by the supply chain CSE. Very experienced project managers coordinate the process using the project management module attached to the backbone.

Middle Lex handles what the lawyers jokingly call “department store” issues. Clients are somewhat price sensitive when it comes to this work, but it still has a fair amount of non-standardized elements. Occasionally, the Middle Lex lawyers will call on Queen’s Counsel lawyers for expertise, but generally Middle Lex uses its team supplemented by the Average Joe team and outside providers arranged through the supply chain CSE. Middle Lex also uses project managers very experienced in handling its type of work.

Average Joe is a volume shop. The attorneys have specialized teams organized to very quickly and efficiently handle simple or routine (but not necessarily simple) legal work, heavily relying on technology. Most of the team involves domain specialists who aren’t lawyers, but are very well trained in their specialized areas. It has a steep pyramid structure, with very few supervisory personnel compared to the number at the base of the pyramid. Process improvement specialists fine-tune everything Average Joe does to make sure waste is kept to a minimum.

Average Joe is a supplier to both Queen’s Counsel and Middle Lex, because their matters generally have components well-suited to what Average Joe does and using Average Joe brings down the price. But Average Joe also does a lot of work directly with clients. For example, Average Joe can turn many types of contracts very rapidly at low cost. With its sophisticated software, database of tens of thousands of contracts (growing rapidly), and dashboard analytics, Average Joe can input a contract and tell in seconds where to focus its energy during negotiations.

Clients know the three businesses are owned by the same firm, just as they know hotels at various prices ranges are owned by the same company. Clients choose among the law firm businesses based on the matter at hand, just like they choose the hotel where they stay depending on need. The law firm operates the three businesses on different revenue and cost models, rolling the results up to the parent law firm. Lawyers own the firm and bear liability for all it does. But the firm manages the three units differently. Hiring, compensation, work environment, marketing, and more are differentiated based on the market for the services. Technology is held in a separate subsidiary that handles research and development and licenses specialized modules to other firms and law departments.

One of the key CSE teams is the Data Analytics Group (DAG). DAG captures streams of data from all of the legal work flowing through the firm. It gathers basic information, such as lead time, process time, and percent complete and accurate. It also does natural language processing and computational analytics. Each text document is stored in the same, prescribed format. As part of the storage process, the document is tokenized (broken into chunks, such as words), annotated (each word assigned a label), and parsed (relationships assigned within the document). Using machine learning and other tools, DAG creates the dashboards lawyers use as part of their workflow.

When a lawyer is asked whether a term is “market,” she can instantly query the firm’s database using DAG analytic tools and provide an answer across all similar matters the firm has handled and across all similar matters the firm can access. DAG combines the firms’ data with external sources, to provide rich models used as part of the firm’s predictive analytics offering. For example, the firm can look at all single plaintiff employment lawsuits it has handled, the results of all reported cases, and the results of all EEOC investigations. From that analysis it makes recommendations to the clients that could decrease or eliminate the risk from such lawsuits.

Evolving the Law Department

With this law firm model in mind, we can go back to whether a corporation needs or wants a law department. The corporation could decide to outsource its legal work to one or several firms of the type I just described. The work could be organized by geography, product line, or risk level and distributed among firms. All of the work would be done under value fee arrangements. The firms bear the risk, under the assumptions agreed to between the firms and the corporation, of cost overruns but the business model enables them to manage the risk.

Going to my question: would a corporation outsource its legal work and eliminate its law department? Probably not. More precisely, it probably would keep a small crew of lawyers in-house. The role of the in-house lawyers would change, however. The in-house lawyers would not oversee teams of lawyers, but would oversee the interface between the corporation and outside providers. They would also focus most of their time on strategic, business focused issues. The law firms would be far more cost efficient than the corporate law departments under the model I described.

If you think this theoretical law firm is unlikely, then consider a variation. The Big 4 accounting firms are all moving into the legal industry again. They already have all the capabilities I described for the new law firm, though they don’t use them as part of providing legal services—yet. A Big 4 firm would not have to move far to create the law firm structure I described, and already has the CSE and technology infrastructure to pull it off. The accounting firms tend to focus on the Middle Lex work right now, but adding subsidiaries to do Queen’s Counsel and Average Joe work would not be difficult.

We look at the way the industry is structured today, recognize that it has been structured the same way throughout our lifetimes, and assume change will happen slowly or not at all. Law firms are very fragile organizations (in the words of one of the largest law firm leaders, they start as a new firm each year). Changing the legal service delivery model is more about culture and habit and less about technology, processes, and costs.

Just as law firms will evolve into many models, law departments should evolve and some should become more like the model I describe—skeleton in-house teams managing sophisticated and multi-layered outside law firm models. Law departments have tremendous opportunities to re-shape legal practices, not just through their outside law firm spend but by re-designing their internal models to meet what clients need. Just as law firms have been slow to evolve, law departments are sticking largely with mini-me law firm models (even the law departments in the UK, where we have seen the most evolution). For law departments to really cut costs, become highly responsive to clients, and reduce risks, they too need to re-think their legal service delivery models and evolve.

Insecurity, Cybersecurity, and Career Security

Posted in Technology

JobSecurity

“I actually think that law enforcement should be difficult,” Marlinspike says, looking calmly out at the crowd. “And I think it should actually be possible to break the law.”

Moxie Marlinspike

Moxie made that statement while sitting on a distinguished panel of cybersecurity experts at RSA, the main conference on computer security. Meanwhile, the legal industry was pre-occupied with how much to bill or pay for legal services and whether knowing almost nothing about computers is okay for lawyers. This juxtaposition plays out every day as the legal profession ignores the issues that concern society and focuses more and more on a shrinking set of issues that concern only lawyers.

Cybersecurity is Big Time

This past week, one of the big news stories was the hack of the Democratic National Committee’s email system. This was the latest in a now long string of hacks that have raised cybersecurity to one of the biggest issues on many CEOs agendas. The United States government believes Russia was behind the DNC hack, but regardless of the perpetrator, that fact that it happened and affected one core aspect of a democratic nation—the presidential election process—brought cybersecurity into full view, again.

Moxie Marlinspike is one of the good guys fighting the cybersecurity battle. Our vision of what a good guy looks like is closer to Moxie’s peers. We think of military officers wearing uniforms filled with medals, serious looking men and women in dignified corporate uniforms, and academic types who lean towards the corporate style. Then there is Moxie. At 6’2” and rail thin, he stands out (literally) among the crowd. Top that off with a head full of dreadlocks, and you have a guy who does not give off at first glance the good guy vibe.

Moxie is on the panel where he made his “break the law” statement because he created Signal, a free encrypted messaging and voice-calling app which most consider the easiest and most secure to use. In fact, it is so easy and so good, former law enforcement officials recommend it and computer scientists drool over it (literally).

Moxie made his statement because he is highlighting a deeper question: do we really want a world where law enforcement can know everything? This question has become one of the hotly debated topics of our time. If you don’t think so, just recall Edward Snowden, Apple’s battle with the FBI, and closer to home the FBI’s warning to all large law firms that they are being or have been hacked.

In a world where we are trying to connect everything, we can be certain the bad guys are trying to invade. To what extent will we give up our privacy to fight the bad guys? Each of us has an answer. All of us should agree the question is a serious one deserving plenty of attention. In fact, “The World Economic Forum…listed cybersecurity as one of the greatest threats to businesses globally.” But, the troubling question is why lawyers are more focused on their own issues than client issues?

Climb Into the Lawyer Foxhole

The cybersecurity talk is interesting, but you may ask what use is it to lawyers to know a dreadlocked cybersecurity expert thinks it should be possible to break the law? The answer lies in the role you think lawyers should play in the evolution of our digital society. It appears that most lawyers think turning a blind eye to the issues and problems is the best approach. But if CEOs think cybersecurity is a major issue, shouldn’t their lawyers take a more active interest in it?

You may say I do real estate / benefits / tax / antitrust / environmental / [fill in the blank] law, and that is an issue for cybersecurity lawyers, so leave me alone I don’t have time to climb out of my foxhole and look around. In the most narrow, “I only do one thing” sense, you may slide by with that response. But in the broader sense of lawyers serving clients’ interests, it is hogwash.

Lawyers Need to get in the Tech Game

We can go back to Moxie and Signal. Start with Model Rule of Professional Responsibility 1.1 “…a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with technology…” Then look at Rule 1.6(c) “A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client.”

You may be one of the lawyers complaining about these requirements. You have to stay current on the law and now you have to stay current on technology? On top of that, you have to market, bill, and manage, so where do you get the time to become a technology guru? If that is what you said, then you have company in Virginia. The Supreme Court of Virginia recently considered adding the Model Rule requirements to the state’s rules, and received comments in opposition voicing those same thoughts. The Court, wisely, added the ABA provisions to the state’s rules.

Before I go further, let’s debunk the straw man arguments. The Rules do not require lawyers to become IT gurus, just that they get in the game. The lawyer who thinks he can operate off the technology grid has a fool for a client. The CEO of a major company does not know how every aspect of her business works. But, she also better not answer an analyst’s question about a key area of the business with “I never did mind about the little things.” (Extra points if you know the movie from which I took the quote, without using Google.) There is a noticeable difference between tech guru and tech familiar.

Now let’s look at Signal. Signal is distributed by Open Whisper Systems. As the name implies, it is an open source product. For those not into the lingo, open source means the developer makes the computer code freely available. In most cases, they go further and ask the community to contribute improvements to the code. (Stop me if this sounds like the antithesis of lawyering.) Open source isn’t a fringe area. Linux is one of the more commonly used computer platforms (don’t be surprised if your law firm uses it) and it is open sourced.

You install Signal on your smartphone and it works on both iPhone and Android operating systems. It works with calls and text messages (but you must have an internet connection). Signal says it provides the following benefits:

  • “Send high-quality group, text, picture, and video messages, all without SMS and MMS fees.”
  • “Use your existing phone number and address book.”
  • “We cannot read your messages, and no one else can either.”
  • “Pay nothing.”
  • “Make crystal-clear phone calls to people who live across town, or across the ocean, with no long-distance charges.”

Signal seems to have a fairly strong value proposition, putting aside for the moment whether Edward Snowden and Laura Poitras endorsing it is a plus or minus for you. When we compare what Signal can do to what Rules 1.1 and 1.6(c) say, you should at least ask whether it is “reasonable” to not use such free encryption software. We can do a quick comparison of the reasonable test in the Comments to Rule 1.6 and what Signal offers:

I am not pushing Signal, I am merely using it as a convenient example (and yes, I recognize Signal has some limitations). Before you run out and install Signal, make sure you ask your IT department whether it will work with any systems they have installed or connected to your phone. But, recognize that the National Lawyers Guild uses it and Facebook has installed the Signal protocol in its Messenger system. As they say, what is good for over 1 billion people can’t be bad for everyone. Or, as Marlinspike says, “The big win for us is when a billion people are using WhatsApp and they don’t even know it’s encrypted.”

So on the one hand we have Signal, a freely available product being built into the most widely used social media tool, and on the other hand we have lawyers who should be taking reasonable efforts to protect client confidentiality. Most of those lawyers use their smartphones to communicate with clients, the lawyers at large law firms know they are targets of hackers, and yet we can surmise that most lawyers don’t think about whether their communications with clients are protected. Notice that the Rules don’t focus on whether the lawyer practices real estate / benefits / tax / antitrust / environmental / or [fill in the blank] law.

Mind the Big Things

If the goal of this story was simply to chastise lawyers for not being more careful with confidential information, we could stop here. But I have bigger goals in mind. Let’s start with lawyers’ obsession with revenue and profits. I use the word “obsession” because the focus goes far beyond building healthy businesses. For lawyers, it is the beginning, middle, and end of each day (I have actually heard lawyers greet each other in the hallway with “how are the billings?”). Run a Google search on “lawyer and revenue” and you get 36,900,000 hits in an impressive 0.38 seconds and for “lawyer and profit” you get 73,600,000 hits in 0.53 seconds.

That obsession is pushing out time for anything else. Moxie created a system that we can easily imagine bad guys using to help them break the law. Moxie then sat on a panel and said he thinks being able to break the law is a good thing. I think Moxie is raising a point we should discuss and it is healthy to debate privacy versus law enforcement access. But there wasn’t a lawyer on the panel to engage in that debate. It was technologists debating among themselves, and that is not healthy.

Lawyers are ceding their role in society by building a wall around themselves. That wall has a sign on it that says “don’t come talk to us unless you bring money.” Sure, lawyers need to make a living. But part of making that living is serving a broader purpose, just as corporations have learned that part of operating in society involves more than focusing solely on profits.

Clients want to do business with engaged lawyers, just as customers want to do business with engaged corporations. It wasn’t Moxie’s fault that no lawyer was there to respond. It wasn’t even the fault of the RSA conference organizers. Lawyers have created the perception that they are uninterested and irrelevant by training others to believe they don’t care about technology or really anything except the economics of the practice.

Today, Moxie is an industry insider, though he describes himself as an anarchist living on the outside for a long time. He led Twitter’s security team, has the deal with Facebook to use Signal in Messenger, and has created the “largest end-to-end encrypted communications network in history.” He also isn’t a radical, at least in the sense that he isn’t the wild-eyed one we all fear. His comment about breaking the law ties to his bigger theme that “privacy allows people to experiment with lawbreaking as a precursor for social progress.” The debate about encryption software isn’t about software, it is about larger societal values and where breaking the law fits in, something all lawyers should find interesting.

You don’t need to be a cybersecurity lawyer to ask whether you are doing what is reasonable to protect client confidentiality. You don’t need to be a computer expert to care about the issues that are top-of-mind for your clients. You do need to be a lawyer concerned about more than the next six minutes of your time. Lawyers need to do a lot to climb out of the deep foxhole they are digging for themselves. The first step in job security is having a skill that others need. Clients don’t seem to need people whose primary skill is counting the money they get paid.

One of these days…

Posted in Efficiency

HoneymoonersI grew up watching the first runs and in some cases re-runs of great, early sitcoms. The Honeymooners (1955-1956). The Dick Van Dyke Show (1961-1966). The Andy Griffith Show (1960-1968). I Love Lucy (1951-1957). Each of these shows featured pioneers in television comedy. They have been so influential, that if you watch sitcoms today (something I rarely do), you can catch moments when the writers will pay homage to the early shows by throwing in one of the famous tag lines.

Jackie Gleason’s show The Honeymooners ran in its first outing for only 39 episodes. It faced a timing problem—it was up against the extremely popular The Perry Como Show. The Honeymooners broke new ground by featuring a working-class couple living in Brooklyn. Years later, All in the Family  would pick up on this theme by featuring a working class family living in Queens.

Jackie played Ralph Kramden, a Brooklyn bus driver, and his wife Alice was played by two actresses, the more memorable being comedienne Audrey Meadows. Ralph’s friend was Ed Norton played by another great comedian, Art Carney. Ed’s wife, Trixie, was played by Joyce Randolph. Alice was the inspiration for Wilma Flintstone, Ed was the inspiration for Fred Flintstone, and Trixie was the inspiration for Betty Rubble (and if you don’t know The Flintstones cartoon, you missed a popular culture icon).

The plot revolves around Ralph who has a never ending series of get-rich-quick ideas, each of which Alice shoots down throughout the show. Ralph and Alice, with Ed jumping in, bicker about Ralph’s ideas shooting streams of one-liners. And, of course, by the end of the show Alice’s concerns are borne out and Ralph never reaches the pot of gold.

One of Ralph’s taglines became the instant identifier for those who watched the show. As Alice and Ralph bickered, both would get frustrated until Ralph would bark out (with many variations): “One of these days…” followed by “BANG, ZOOM! Straight to the moon!

Lean is More Than Cost

Today, when I hear over and over again misleading to blatantly wrong descriptions of lean, I’m tempted to shout “BANG, ZOOM! Straight to the moon!” Of course, I’m seldom around someone who would get the line, so I just say it to myself.

Why do I get so frustrated? First, I recognize that most of the comments come out of ignorance (and, in that, I see myself ignorantly speaking about other areas). It is a lawyer habit to read what is written in a paragraph or a blog post and think, “now I too am an expert.” We then want to pontificate on the topic and that leads us into swampy waters. Nevertheless, when I hear someone say “lean is all about cost cutting …” Well, BANG, ZOOM!

Second, I know as we all know that repeating incorrect things often can derail good ideas. It is easier for us to take in what we hear as gospel rather than dig deeper and learn the facts. Say lean is all about cost cutting enough times, and lawyers (who already aren’t interested in becoming efficient) will take those comments as defining lean and reject it.

Third, the person who describes lean as merely cost cutting frequently follows their statement by adding that they tried lean and it doesn’t work. Lean is not the only new idea in law that elicits negative comments. The same people often deride value fees. Dig a bit deeper with them and you find that they were opposed to the ideas, they didn’t make an effort to implement them correctly, and that the so-called failures were mostly if not entirely due to the person not the ideas. In other words, the person is against change and their agenda is to prove they are correct, not to explore new ideas.

The Real Lean

Lean thinking (the original name was Toyota Production System, but I’ll use the name given by James Womack and Daniel Jones in their book, Lean Thinking) brought together many ideas from many streams starting at Toyota back in the 1890s. It worked in part because the right people were in the right place at the right time.

Japan was in its post-World War II phase. As an island nation, it did not have the raw materials necessary for automobile production, which is what Toyota was focused on shortly before and coming out of World War II. Lean was born in a situation of many constraints, which made efficiency and creativity priorities. Contrast that with the United States, which had the necessary raw materials,  could be inefficient without blocking progress, and traded space and brute force for creativity in operations.

Japan also had a very strong cultural belief in employing individuals for life. In fact, to this day Japan still places a high value on lifetime employment. Many businesses will re-deploy workers to keep them busy (even tending gardens) rather than lay them off when times get tough. In the United States, employees always have had less job security and today are treated as disposable by most businesses. When workers aren’t afraid to lose their jobs they are more likely to actively support efforts to remove waste from their jobs, even if doing so eliminates the job they do today.

Japan’s management style was quite different than the management style in the United States. Japanese companies placed a high value on discipline and order. In fact, order is something prized in Japanese society, while clutter has been widely accepted in the United States. If you already favor order, then engaging in a system designed to bring more order doesn’t seem as foreign.

I am not praising Japan over the United States. There were many challenges to Japan’s approach, and emotional intelligence in management was one of them. But it is important to understand the context in which lean thinking came together. Lean thinking flourished in an orderly, disciplined, clutter-free, secure world. Porting lean from Japan to the United States, therefore, was always going to be a difficult task. But it was not a task first and foremost about cost, it was about waste and creativity.

One of the early contenders for this new system’s name was Respect for Humanity (as was the Ohno System, in honor of Taiichi Ohno who did much to pull the streams together). So let’s take a brief trip back to Japan post-World War II as the lean thinking story started and think about respect for humanity.

Don’t be Wasteful

The Toyoda family (they switched to Toyota for public use) had decided to enter automobile production prior to World War II. Coming out of the war, they resumed their efforts, but all the things they needed—steel, rubber, iron—were in short supply. Toyota also faced an efficiency challenge when compared to auto manufacturers in the United States and other countries. What took Toyota 100 workers to accomplish, took Nissan only 30 workers, and Graham-Paige (a U.S. manufacturer) 18. Ohno had to figure out how to get the most possible from each unit of raw material and how to use brains instead of brawn to compete with other companies. In other words, he had to get waste out of the system and harness creativity to solve operational problems.

As I noted above, the idea of removing waste, or not even creating it, fits well with many Japanese philosophies. When you live on islands and have constrained resources, efficiency becomes a way of life. Look at Japanese farming techniques and you will instantly recognize terraced hills for rice growing, making use of space only a very sure-footed individual would dare to reach. Go to a Japanese fish market and you can buy whole fish or every part of the fish separately. Nothing goes to waste. Even Japanese martial arts share the no-waste philosophy. The movements of a great martial artist are lean and focused on the goal. Students spend their lives trying to master the physical and mental goals of simplicity.

Many societies have similar practices, but in post-World War II Japan frugality and simplicity were central to daily life. It did not feel unnatural to have the same view in manufacturing (although Ohno met with resistance just as we do in the United States, since change seldom comes easily).

Lean was focused on removing the eight (originally seven) types of waste, or muda. One clear benefit of removing waste is cost reduction. If you don’t waste raw material or humans, you reduce the cost of the product. Ohno reminded everyone that the equation for a business is Price – Cost = Profit (not Profit = {rice – Cost or Price = Cost + Profit). The customer will only pay a certain price. Therefore, a business earns its profit by reducing its costs. Remove waste, costs drop, and the business becomes more profitable. Cost reduction is part of, but not all of, lean.

Lean Concepts Seem Foreign in the U.S.

Contrast the Japanese context with the United States context post-World War II. The United States had gone through the Efficiency Era, which lasted from 1890 until 1932 and the start of the Great Depression. Many blamed the Depression in part on an excessive focus on efficiency. As a result, businesses downplayed efficiency.

World War II brought incredible demand for products, but even the United States had trouble meeting demand for raw materials. After World War II, supply remained tight for many years. Still, the United States was the land of great riches and it could grow supply to meet demand. Japan, the land of islands, had to import its raw materials.

As you look at the period from 1945 to the present, you can see how the paths taken in Japan and the United States diverged. Toyota remained focused on efficiency through to the present. United States manufacturers did not swing their focus back to efficiency (in large scale) until the late 1980s. Law did not start dabbling with efficiency until after 2005.

By the time lawyers in the United States even started looking at lean, it had gone through several evolutions. I learned lean thinking from sensei (teachers) who worked at Toyota with Taiichi Ohno and were part of the original Toyota Autonomous Study Group that created most parts of the Toyota Production System. I studied at Shingijutsu Co. Ltd., a consulting firm Ohno encouraged these sensei to start to spread lean thinking beyond the automobile industry. I look at lean through the lens of those who developed it.

Contrast that with the background of many who talk about lean in the legal industry today. Most have learned lean from individuals who were two or more generations removed from the original lean thinkers. Much of the discussion about lean comes from an incomplete understanding of its philosophy, because the training they got focused on discrete goals rather than the big picture. The lean practitioners in law skip many of the essentials and concentrate on cost. This distortion makes lean look either like something a low-cost manufacturer would use (not a great law firm) or a misguided attempt to turn lawyers into automatons.

For those who want to really understand how lean thinking can help the legal industry (and work harmoniously with innovation and technology), start by asking yourself this basic question: “Do I believe it is good to have people spend their days on tasks that have no value?” If you answer “yes” then lean thinking won’t work for you. If you answer “no” then lean thinking can help.

Let’s put some meat on those bones. Look at what you do through the eyes of a client and a lean thinker. Is there value in any of the following, or are they simply things you do because you haven’t been creative and found ways to reduce or eliminate them:

  • Moving papers from one place to another (electronically or physically),
  • Emailing,
  • Photocopying,
  • Searching for anything (templates, cases, documents),
  • Waiting,
  • Revising,
  • Reviewing,
  • Correcting,
  • Transferring,
  • Re-creating,
  • Etc.

A big part of the value lawyers bring clients comes through the solutions they create to client problems. The execution of those solutions is the embodiment of the lawyers’ ideas. We should encourage creative problem solving, but we should also encourage efficient execution of ideas. Our current system encourages inefficient execution and, when each day is constrained to 24 hours, that limits the time to spend on problem solving.

Lawyers have trouble separating efficient from inefficient execution, because they haven’t been trained to do so and have been encouraged and taught not to do so. Legal training is largely about teaching inefficiency. If someone has taught you to be inefficient, rewarded you for your inefficiency, and you have been successful (at least financially) because of your inefficiency, you will fight alternatives.

Respect for Clients and Lawyers

The topic of how lean relates to delivering legal services deserves more attention, and I am giving it that attention in other places. But right now, I’ll close with this. Lean thinking reduces costs, but it is not about reducing cost. Lawyers who remove waste from what they do will be happier, less stressed, have more time to focus on substance and quality, and be more engaged in their daily activities. All of those changes encourage creativity and show Respect for Humanity.

All of those changes also reduce the cost of legal services (note: cost, not price, which is the topic of a different discussion). There is nothing wrong with reducing cost through waste elimination. In fact, if you look at the businesses who hire lawyers you will find most of them believe in cost reduction through waste elimination. On a broader scale, society benefits from removing waste (healthcare is one example, another is the food supply chain—approximately 50% of the produce in U.S. supermarkets is thrown away as waste, which is one reason we have an imbalance on access to food).

If you still don’t believe that lean has benefits beyond cost reduction, then do this exercise. Ask one of your lawyer colleagues to sit down with you and the client (that is, the person who really pays the bills, not an in-house lawyer). Tell the lawyer that she will spend more than 50% of each day doing things that add no value to the service the client will get. None. Zero. She will do those tasks merely because no one has bothered to spend time figuring out how to eliminate them.

Then, turn to the client and tell her she will pay for those tasks, even though she gets no benefit from them. None. Zero. Tell her she pays for them because it keeps lawyers busy, makes some rich, and overall because no one has bothered to spend time figuring out how to eliminate them. Ask both if they feel the legal system is showing Respect for Humanity with this structure.

Lean thinking is not a panacea, it is not a silver bullet, and it is not the solution to all that ails the legal industry. But it is a great place to start requiring creativity. So, next time you say to me that lean is simply about cost cutting, don’t be surprised if I say BANG, ZOOM! Straight to the moon! 

Law Departments Shouldn’t Overhire to Fire

Posted in Leadership, Strategy

OverhireWhat might be cause for cheers today is really another warning shot across the bow. The growth in law department hiring will be followed by a dark period as law departments shrink. General counsel can avoid some troubled times ahead if they don’t overhire and modernize their practices now.

Most lawyers believe they are mostly immune to developments in the automation of legal tasks and artificial intelligence. They think what they do requires human abilities computers can’t match. On the analytical side, these abilities include legal argumentation and abstract thinking. On the personal side, they include empathy and collaboration. Despite what some futurists tell us, lawyers hold steadfast to the belief that no black box will replace them.

Lawyers aren’t alone as they defend this ground. A recent McKinsey report says that certain types of jobs, including those done by lawyers, are among the least likely to be replaced by computers anytime soon. Apparently many general counsel believe “anytime soon” is far enough in the future that they should build headcount today rather than improve the efficiency and expand the use of computers in their departments.

Don’t Confuse AI Hype With the Value Computers Can Add

We should ask two questions when considering whether a computer can do a lawyer’s job. First, have we reached the point where we can program a computer to do the tasks lawyers do? Despite the abundant hype and stream of articles saying AI is about to do it all, the answer clearly is and will remain for a long time (decades) no. More on this in a bit.

Second, even if a computer can do a task, do we want it to do the task? The answer here is a bit more complicated. If the task is routine, boring, and not very complicated, some lawyers are willing to cede the ground. Not many lawyers cried when computers took over large volume document review. But humans do not seem excited about computers replacing lawyers for tasks like serving as a judge, even when the computer will be more consistent. In some roles, people want people.

So the world is split, with most lawyers falling on the side of tradition: it takes a person to practice law. Reinforcing that view, general counsel seem to be placing large bets on people over computers. The Association of Corporate Counsel’s Chief Legal Officer’s 2016 Survey shows strength in law department hiring:

Few CLOs made any cuts to their in-house lawyer staff last year. In fact, 37 percent added in-house staff and 14 percent made significant increases (greater than 10 percent) among in-house lawyer positions last year. CLOs in Europe, the Middle East, and Africa (EMEA), and the Latin American/Caribbean region outpaced other regions in adding in-house lawyers last year. Following compliance, law departments were focused on creating positions in the practice areas of contracts, general legal advice, and regulatory/ government affairs.

After years of slow growth in law departments, general counsel got the go-ahead a few years ago to bring in bodies and since then the trend has been up, up, and away. Good news for lawyers and law schools!

Things aren’t all rosy for in-house lawyers, however. It seems general counsel can hire but the hiring quid comes with a budget decrease quo. The money to pay for those hires must come from somewhere and that somewhere is the pockets of Big Law. When in-house hiring picked up outside spending dropped. According to the ACC’s Survey, general counsel are hiring to bring work in-house and decrease outside spending.

Budget cuts can be a predictor for staffing trends. Forty-one percent of CLOs who expect their outside budget to decrease by more than 10 percent also anticipate the work outsourced to decrease. Eighteen percent who anticipate a reduction in outside sourcing to law firms or legal service providers intend to increase the number of in-house lawyers in their department.

The good news for lawyers really turns out to be good news for those lawyers who can get in-house jobs. The profession is transferring work from outside to inside.

Computers Will Displace Many Lawyer Tasks

Let’s go back to what computers can do and compare that to what general counsel their new lawyers to do. According to the survey, general counsel want these lawyers to handle compliance and “contracts, general legal advice, and regulatory/ government affairs.”

Contracts is an obvious choice. Corporations swim in contracts and the pool gets deeper each year. We don’t know what impact the current nationalist trend in many countries will have on global business. But aside from that trend, as countries have increased their regulatory and compliance activities, companies have had to do more contracting.

Recognizing the contract trend, lawtech has made contract automation software one of the hottest development areas. . It seems like every other startup has a tool to help with contract drafting and management. Those tools have focused on automation, but there are some tendrils out there touching the edges of AI. Combine what computers already offer with some process efficiency, and you can significantly reduce the time it takes a lawyer to do a contract.

Before we see much in real AI, blockchains and smart contracts will come into play. Fintech is growing and banks know the disruptors have them squarely in their sites. Blockchain may not be everything, but it also may be a way to dis-intermediate or de-centralize some lucrative portions of banking, and smart contracts will play a role. With finch pushing blockchains, lawtech is catching up. Expect to see contracts migrating to code.

Outside the banking industry, we have the Internet of Things. More than a trillion devices will inter-connect by 2020. You will ask your watch to tell your phone to start your car, which will drive you to work and start the coffee maker just as you get there. Welcome to George Jetson’s life.

As all these things talk to each other, they will need some rules—some way of negotiating who pays for what and what to do if things don’t go as planned. More smart contracts.

As the number of smart contracts grows, it doesn’t take much imagination to see the technology  of smart contracting migrating into commercial contracting. Lawyers like to massage documents. But, it is hard to argue convincingly that we need thousands of boilerplate language versions and thousands of tweaked basic agreements.

How many ways and times do we need to say “if there is a fight, we will duke it out in New York” or “your payment is due on the last business day of each month”? Overall, general counsel could offset much of the growth in contract work by embracing existing ways to improve efficiency and augmenting what lawyers do with some computers.

What about the other areas where general counsel are placing these new hires? General legal advice. This is a mushy area that often means: we get so many questions each day we need lawyers on the phones and in meetings to answer those questions. Talk to many in-house lawyers and you find that those requests for advice can be sorted into two broad categories: the questions they get over and over again and the truly unique questions. The first category sounds suspiciously like what expert systems can handle. The second sounds like the field where lawyers think computers will have a tough time playing.

Finally, general counsel need more lawyers on regulatory/government affairs. This category keeps general counsel up at night. More countries, passing more laws, and more corporations doing more business in those countries. Weaving business through those laws isn’t easy and the complexity constantly grows. Having more lawyers helps. Having more lawyers operating inefficiently just increases the coming labor crash.

Lawyers Repeat Sins of the Past

Overall, this leads us to a bit of a mess. It reminds me of what happened decades ago in the IT and human resources departments (both service areas within companies). The growing complexity of their fields and the greater demands placed on the departments led to increased hiring in those departments. IT and HR departments grew to handle new responsibilities. And then judgment day came.

CEOs started asking fundamental questions. Were their corporations in the business of running IT and HR departments, or were those ancillary to the core activities of the corporation? If ancillary, and if there were others who handled IT and HR as their core businesses, wasn’t it better to shed what wasn’t core and let others do it? And what about cost? Could a corporation decrease cost by having outside experts, who did the same thing for 50, 100, or 1,000 corporations, handle the tasks instead of trying to do everything within each corporation?

Today, at large corporations, IT and HR focus on the value-add activities they can do in-house and let outside providers do everything else. Why build non-core operations in each corporation when outside providers already have created what is needed? By outsourcing, a department head can reduce headcount, get the expertise of someone who does the task each day 100 times, and focus the people in her organization on what makes it unique.

Build Abilities Instead of Headcount

Let’s do a mashup. Computer automations is creeping into law practices. The startup disruptors will continue their push, computers will become more powerful, and what today is mostly automation and a little AI will become a movement to do more and more within law. A computer won’t take over 100% of a lawyer’s job, but if it takes over 50%, then you need only one lawyer, not two. Do the math, and the law department should shrink by 50%.

We have seen the beginnings of outsourcing in the legal industry. Managed service providers grew out of legal process outsource providers. They  have strong incentives to use technology more effectively. If they can show better quality, lower cost, and faster response times, these providers have an edge over humans. We are early in the disruption cycle, but the signs are clear that these and other businesses entering the legal industry can take more work away (a lot more work away) from lawyers.

The mashup comes when these businesses bump up against law departments, and the CEO does some management by wandering the halls. Even the CEO who is the most ardent law department supporter will eventually ask: “why do we have so many lawyers and not enough X”? That X can be engineers, designers, or any other job classification directly tied to the revenue stream. Directors and shareholders don’t ask CEOs to build large internal service organizations, they ask them to cut costs, grow revenues, and increase profits.

When the CEO makes that walk, the general counsel who grew headcount will have some difficult questions to answer. We already have the methodologies and technology to offload a tremendous amount of what lawyers do onto computers. This isn’t wishful thinking, this is simple blocking and tackling. We have software that has been around for decades that we know works. We have businesses and consultants who know how to use the software and have lots of experience with it in the legal industry.

We also have lots of experience studying processes, simplifying them, and rebuilding them to be less costly, higher in quality, and faster than labor-intensive systems. We have corporations and consultants experienced with these methodologies.

Put it all together, and you have proven ways to reduce the burden on law departments without building a headcount overhang that will come back to haunt everyone. We don’t need to repeat what IT and HR did to learn the same lessons they learned. History teaches us how to do better, but we must listen to the lesson.

Hiring serves an immediate need, but it isn’t strategic planning or running a department for the long term. Lawyers learn managing by headcount in law firms, but it also reflects much of modern corporate thinking. Hire today because headcount can be reduced tomorrow. The long-term bond between employee and corporation does not exist any more.

The strategic alternative to piling labor on labor is building a law department that can flex with the business and the times. To do so, general counsel should get to the roots of how their departments operate, start with a proven technology backbone, and then add lawyer services. In other words, general counsel should build a sustainable practice not just a large labor pool.

They should build the 21st century law department from the ground up, not from the law department out. We have moved past the law department being an in-house version of a law firm, and have moved past the general counsel managing like a former law firm partner.

The new generation of law department and general counsel are professionals running complex internal service organizations. The trend towards hiring “chief of staff” to help manage those organizations is another step in the right direction. Law departments deserve individuals with the analytic and management skills prevalent in other departments. All of these skills go to waste, however, if law departments don’t move past replicating past mistakes.

Ten to fifteen years from now, if the current law department hiring binge doesn’t stop, we will see law departments go through some traumatic changes. Building efficiency and integrating computers will help law departments avoid the trauma. There are many reasons for law departments to embrace a new business model today. Avoiding the long term consequences of this hiring binge is another one.

Blast the Meteor

Posted in Change, Leadership

MeteorYou must have seen the movies. Even if you haven’t, you know the plot. Computers (typically, but not always, in human form which makes them more threatening and/or more likable) have intelligence surpassing that of humans. Things go bad, but at least one human is on top of it. In the end, humans win and computers lose.

This story now plays out in the minds of lawyers, but without the happy ending as they read article after article telling them computers (artificial intelligence or robots, the language varies) are one transistor away from taking over their jobs. Startups are signing deals with law firms and from what we read, the day of the pleasant voiced iEsquire robot taking over an associate’s job is virtually here.

Before you start cruising the Internet for your next career (sustainable farmer looks good, you always did like vegetables), pack up your office and head for the elevator, I suggest you read a bit further.

A Stimulating Un-conference

I had the privilege of spending much of last week at the SubTech 2016 conference hosted by the University of Richmond School of Law. SubTech (which stands for substantial technology) has been held every other year since 1990 (Richard Susskind was one of the early attendees). The conference had about 40 participants and, unlike most conferences I attend, had a somewhat academic bent. In fact, the focus of the conference is substantive technology in education, not just in law schools but also in law firms and legal services for consumers.

The conference planners expanded the group attending this year to include a few more from outside traditional academia. We had individuals from publishing, tech startups, consulting, hybrids (that would be me), and a few other fields. And, of course, a heavy sample of those from traditional academic environments (law professors and law librarians).

The conference is, and has been for a long time, an “un-conference.” We are all used to going to conferences where an individual spends 30 or 60 minutes talking about topic A or a panel spends an hour discussing topic B. The audience spends half the time listening and the other time reading email, tweeting, or catching up on the latest story to come through on their newsfeed (cute cat videos are saved for the break). We learn some things at these conferences, make a few hasty connections as we grab another cup of coffee, and hopefully have some interesting conversations at the receptions.

An un-conference focuses on sharing information. We start with very informal presentations on a topic by one or few individuals. Knowledge of the topic is assumed, and the presenters focus on updates, tweaks, nuances, or interesting personal experiences. Most of the time is saved for discussion in small groups where we talk about areas of shared interest. In those groups we focus on, among other things, developing ideas that we can take outside the conference and continue developing.

WIIIFM

We started the session by going around the room and introducing ourselves, and then touching on two questions: 1) what is the promise of substantive technology, and 2) what is the peril? I’ll address those questions in a bit, but before I do let me give you some examples of typical conversations from the law conferences I attend:

Idea Person: If you look into this idea, I think you will find that it helps with your practice.

Lawyer: Sounds great, what’s in it for me?

IP: Well, as I said, it will help with your practice by [fill in the blank: reducing workload, making you efficient, automating repetitive tasks, etc.]

L: Sounds great, but what I really want to know is what’s in it for me?

IP: What more can I tell you?

L: Will it make clients give me more work? Will it really increase my billable hours? Will it allow me to charge more per hour? You know, what’s in it for me?

IP: Well, it will make your clients more satisfied and less concerned about your bills, which could mean they will send their work to you instead of someone else.

L: Yeah, I suppose, but what’s in … sorry, I have to take this call because I can bill for it. If it ends before the break is over I’ll grab you because I really am interested in hearing what’s in it for me …

Okay, that was a bit tongue-in-cheek, but it also was disappointingly accurate. I have had consultants and trainers who do not regularly work with lawyers express their shock after meeting with lawyers. They say the same thing—as a group lawyers lack the curiosity and drive to do better they see in others. Lawyers replace those characteristics with a “what’s in it for me” attitude.

The Promise and the Peril

Back to SubTech 2016. On the promise question, the group was optimistic to a person. This was impressive because some of the people in the room have been tilting at windmills for 40 years (on the other hand, as some said, you can’t tilt at windmills for 40 years unless you are optimistic). Everyone believed that technology is making more in-roads in legal education and law practices, and everyone expected continued progress.

That brings us to the peril. On this question, our answers varied. At the risk of over-generalizing, I’ll highlight some categories:

  1. Hype. Each day we see a new article promising that AI will take over law tomorrow, robots will replace lawyers, and we are one-step away from a dystopian universe where computers rule the legal industry (and the world). Hype outdistances reality and not by a small amount. Don’t fret, computers will not take over the legal industry. If you don’t believe us, check out this McKinsey Report which just came out. It concludes that professional occupations, including lawyers, are one of the groups least likely to be replaced by AI or robots anytime soon. (Teachers rank least likely, which means as a lawyer teaching, I’ve got it made!)
  2. Chokepoints. In academia, the curriculum committee and the academic dean hold considerable power over what courses are available for law students. If you have one or both on your side, you can get courses approved and if not your course will not see the light of day. We have some very forward-thinking individuals in these roles, but the majority aren’t with us yet.
  3. Fear. The more successful we become with technology, the more fearful many become. This is a bit different than the first point. Even modest advancements in technology raise the threat that knowledge workers will be displaced to some degree by computers. As much as lawyers may hate some manual tasks, they still prefer them to unemployment.
  4. Meteors/Dinosaurs/Segways. This one requires a big hat tip to John Mayer. He arrived wearing a T-shirt showing a dinosaur riding a Segway while a meteor screams toward the dinosaur. It was a nice metaphor for lawyers (the dinosaur) using outmoded tech (the Segway) just as we are about to be blindsided by the future (the meteor).
Working Together

After 2 1/2 days and 3 nights of listening, sharing, and learning, it is hard to summarize the event in a few words. The biggest outcome was building greater bonds (and we have things in the works to build more) between academia and the greater legal community. Unlike other disciplines within universities, law has remained a field of silos. Very few law professors know what practitioners do, much less work with them. Startups tend to work apart from universities and practitioners. Practitioners do their best to ignore startups and academia. This all must stop.

Some work done in universities should be theoretical, just as it is in physics, chemistry, and so on. But, we need more work that ties into what happens in the real world. We saw signs that is happening, but there is much more that we can do. Startups are, in a few cases, blazing new ground (though all agreed that much of what we see in startups is work aimed at making better mousetraps). Still, it is disappointing when a startup publishes work tackling a problem that scholars attacked (and sometimes solved) years ago. Startups can leverage work academics did that was before its time, and academics can blaze ground that startups can use.

Of course, I saved practitioners for last. WIIIFM defines practitioners’ lives. What is in it for me, they constantly ask? This focus on the next billable hour and next rate increase seems to drown out paying attention to almost anything else.

The Lawyer as Frog

I enjoyed the SubTech 2016 conference, more than other conferences I attend. In part, that was because it was intellectually stimulating and other conferences are heavily focused on money not the mind. It was stimulating, partly because of the diversity of interests attendees brought to the conference.

As we talked, complacency emerged as another conference theme. Clearly, those in attendance have been and still are fighting complacency. There is an old metaphor about frogs and hot water. The metaphor (which, for those who don’t know, is absolutely wrong) says that if you put a frog in a pot of boiling water, the frog will jump out. But, if you put a frog in a pot of room temperature water and slowly increase the heat, the frog will stay put until it dies.

The frog metaphor may be wrong, but the lawyer and technology metaphor will prove to be true if we don’t change things. Most lawyers seem content to sit around while technology heats up around them. Law students aren’t just uneducated when it comes to technology, many won’t dive in when given the chance. Law firms are willing to continue doing tasks by hand which computers could handle many years ago, as long as clients are willing to pay for efficiency. Corporate clients seem willing to pay for inefficiency. Individual clients simply go without legal services (and not always by choice).

Despite the attendees’ optimism, lurking in the background and a few times stated out loud was the thought that if we don’t move away from complacency, we will end up in obsolescence. By simply staying still, lawyers will allow (already are allowing?) the world to move past them. One morning we will wake up and the world will have moved on. There will be few things left for lawyers to do because others will have absorbed them and develop new ways to do them.

Get Out Your Blasters

Lawyers are intelligent and have the ability to adapt. Like all organisms that have the ability to adapt, they will adapt given the right conditions and enough time. For lawyers, the key condition is motivation—what will it take to drive us to change. As to time, the question is whether we will have waited too long to change.

So far, at the corporate end of the legal services scale, we have placed our bet on clients forcing change. That isn’t working, because clients just are not that interested in change. At the client-as-individual end, we have placed our bet on shame forcing change. Lawyers will see themselves as professionals letting down society and will force themselves to do more, through pro bono or other charitable acts. That also isn’t working.

Because lawyers are focused on WIIIFM, perhaps the simpler tack is to focus on self-preservation. Within humans, the urge to survive is very strong. Lawyers will not disappear overnight (the meteor striking the dinosaur on the Segway). In fact, lawyers may never disappear (we will morph, like the few dinosaurs that survived). Lawyers can defeat the meteor by adapting and embracing new things—technology and new business models, at least. New lawyers in particular have strong incentives to see themselves and the profession adapt.

Law students should seek out opportunities to learn about the changes, through classes, workshops, and attending conferences focused on new ways to practice law. Newly licensed lawyers should do the same, and should force themselves to incorporate these new ideas into their practices (even lawyers in large firms can do that). Students and lawyers can become active in those parts of associations that focus on change and the new, instead of reinforcing the old. They can seek out mentors who are at the forefront of change and become part of the push for change.

Like any social movement, changing the legal profession will be a grass roots thing not a top down thing. If lawyers start pushing harder now, we have the time and tools to adapt. Instead of watching for the meteor, let’s figure out how to blast the thing out of the sky.

First Year Lawyer Salary Increases Are Good for All—Clients Too

Posted in Change, Leadership

SalaryIncreaseWhen starting salaries at many of the “elite” law firms jumped to $180,000 several weeks ago, Twitter lit up, the blogs started pumping out posts, and in-house counsel were deluged with requests to comment (criticize) what had happened. Now that things have slowed a bit, I thought I would chime in with what some may find a surprising viewpoint: the increase was a good thing for all of us. Now, in this essay I talk about “elite” law firms, by which I mean the 20 or so firms that have put themselves at the head of the profit pack in the AmLaw 100 list. Many use the term “elite” to describe them, which is why I’m using it. Don’t read anything else into it.

Start with the Bad

Before we get to the good, let’s dispense with the bad. First, there is no free lunch. Associates going to firms willing to pay $180,000 a year (and I’m ignoring bonuses), should go in with their eyes open. Firms expect those associates to work for that money. Each time the starting salary ratchets up, the expectations for associates ratchet up.

Firms probably will not say anything as crass as “we are paying you more, so work harder” (some partners might get there, but not the firms). But, the pressure will be on. Associates already at the firms probably thought there wasn’t much room for working harder, but the pressure will still be there, even if implicit. Hint to associates: if you got a job at an elite firm, you can get a job elsewhere.

Second, to state the point causing everyone to fuss, the money to pay the increased salaries must come from somewhere. Since a firm’s revenue stream comes from clients, the presumption is that clients will pay for the increases. That is an excellent presumption (where else would the money come from?). It isn’t clear whether the firms will cover the raises by increased rates, billing more hours, reducing future payouts to partners, or some combination. The expectation is that partners will bear little of the burden and the brunt will fall on clients through increases. Bad for clients (who, of course, can use other firms, but I digress).

Third, there is the “this is bad for the profession” argument. Clients and the public already show low confidence in lawyers (about 21% of the public trusts lawyers, down from around 34% over a decade ago). In part, the public perceives lawyers as driven by money. Increasing the starting salary adds to that perception. For lawyers at the elite firms, this might be called truth in advertising.

Fourth, we hear about the trickle-down effect. The elite firms will match the salary price leader. The next tier may will not match elite firms, but will move up incrementally, and so on down the ladder. Again, since revenue comes from clients, the overall effect is to increase costs to clients at a time when they already think costs are too high. Most commentators stop here. Higher salaries are bad. But with a little creativity, we can look at this another way and find good in it for all of us.

Ask Why

Having surveyed key reasons for not increasing salaries, the commentators then ask “why did the firms do it”? The working presumption is that elite firms are ignorant (or impervious) to the concerns of clients. Starting salaries have been stable for many years. So, elite firms did this without thinking it through and to serve some mysterious, narrow purpose.

The explanation offered most often is “the market made them do it”. The pool of applicants to law schools has shrunk dramatically since the 2008 recession. In fact, it has reached levels last seen in the 1970s. In addition to the pool shrinking, the perceived quality of the applicants has dropped (measured across the pool). For example, median LSAT scores have dropped. Since LSAT scores seem to track with bar passage rates, the score drop raises concerns. And we have seen first time bar passage rates drop.

The change in the applicant pool has flowed through to graduating students and newly licensed lawyers. When applications were high and demand for law school slots was strong, elite law firms felt comfortable hiring deep from within graduating classes. As the pool has shrunk, elite law firms are not comfortable going deep into classes.

Of course, elite law firms are hiring fewer lawyers, so not going deep has been offset to some degree by hiring fewer associates. But, there are other market pressures. Elite law firms, once an attractive place to work (or at least not as unattractive), have lost much of their luster. Students struggle to understand, apart from the money, why they should spend time working in environments known for all sorts of horrible things. They are looking for alternatives and there are many.

To get what they think are the best of the best, elite firms had little to offer beyond money. The partnership track moved from a highway (single lane), to a gravel road, to a path hidden in the forest. Odds of getting on that path are slim and not going to change. When your business model is based on hard labor, it is difficult to talk about a balanced work-life experience. As organizations outside the legal industry look for candidates with characteristics beyond the ability to grind away for long hours each day, even the resume-burnishing aspect of working at an elite law firm is tarnished.

Money addresses the problem. Some portion of the best of the best will use money as the deciding factor when choosing an employer. Going to a startup may look very attractive, but it has a high risk profile. The pay isn’t great (lawyers are not data scientists) and most startups fail. Startups have many other desirable elements, but if you have loans to pay the security of a large salary can make the difference. Money is one way elite law firms can nullify what competing environments may offer.

Then Ask How It Helps Us

We have heard the arguments about why the increase is bad, so now let’s look at the alternative arguments. This increase could really help us.

First, while the impact may be small, some of the new lawyers who go to elite firms will use the salary increase to pay off their student loans faster. In a world where the typical debt held by a student graduating from a private law school is around $120,000, and where those students probably also have debt from their undergraduate days, more money to pay off loans helps. The faster students pay off loans, the better for all of us—less risk of default, the sooner those lawyers can go on to other careers, and the sooner they can participate in other aspects of the economy (buy cars, homes, etc.).

Second, the salary increase may push clients closer to the tipping point. Think about the scene in the old spaghetti westerns. The outlaw starts pushing the good guy in the chest. The good guy stumbles backwards and warns the outlaw not to do it again. This happens three or four times until the good guy snaps—he punches the outlaw who hits the ground. The crowd murmurs appreciatively.

Elite law firms feel comfortable. Clients need them for large, risky things. Cross-border mergers and acquisitions, bet-the-company litigation, complicated financing packages, and other sophisticated legal transactions demand the skills of elite firm lawyers, the elite firms argue. Clients who purchase their services tend to be price-insensitive (yes, we saved money on the lawyers, but of course we lost the lawsuit and the company). Elite law firms probably feel the risk from the increase is outweighed by the benefits.

But we could view this as the outlaw (elite law firms) pushing the good guy (clients). Each push to the chest increases the likelihood clients will reach the tipping point. A few more clients may get there and, instead of taking a swing at the elite law firms, vote with their wallets. “Are these elite law firms really worth the higher price,” they ask? If not, they move to less expensive service providers. Law firms that offer more attractive value propositions should cheer as should the clients who get pushed too far.

This last point is key. Clients pay elite law firms. As long as clients are willing to pay, elite law firms will keep pushing. If clients don’t like getting pushed, they can simply walk away. If they don’t walk away, we learn something. Economists and antitrust lawyers know this situation well. The question involves the market and clients not leaving tells us that they do not believe there is an adequate substitute for elite law firms.

Take the Lesson and Run

Imagine you sell ice cream. Your store has competitors. One is two miles away, another three miles away, and a third eight miles away. Like everyone else, your costs go up each year. You decide to raise your prices to cover those costs (and maybe make a bit more profit). You decide to test the market.

You increase your prices by 2%. You lose a few customers to the store two miles away, but the price increase more then compensates you for the lost customers. So you raise your prices another 2%. Again, you lose a few customers to the store two miles away and you also lose some to the store three miles away, but the price increase more than covers the lost revenue.

Finally, you increase your price another 2%, so that your prices are now 6% above where you started. Suddenly, business at your store drops precipitously. Your former customers stream to the store two miles away, many go to the one three miles away, and some even travel to the one eight miles away. At a 6% price increase, you found that your customers view these other ice cream stores as substitutes for your store. If you want to stay in business, you better drop your prices or find another way to entice customers back.

So far, we have not seen clients streaming to the stores three and eight miles away. Certainly some have left for the store two miles away. The salary increase will probably drive away a few more clients. But the real question is whether they will stream to the lower cost legal service providers. My guess is that they won’t.

Why? I think elite law firms are right. At the high end of the market, they have not reached the point where most clients will see substitutes for their services even with a price increase. The danger comes to law firms below the elite level.

For those firms not in the elite crowd, raising prices (salaries and rates) comes with greater risk. The deeper you dive below elite firms, the more likely clients will find substitutes for what the firms offer. Those substitutes include small firms with lower overhead (and lower prices), alternative service models (e.g., fixed fee firms) and alternative service providers (e.g., software as an alternative for labor). The firms below the elite level will have to be careful that they don’t exceed the market price threshold encouraging their clients to switch.

Be True to Thyself

Richard Burcher, one of the leaders in the field of legal service pricing, argues that legal service pricing will get a lot more complicated in coming years. I agree. As the supply chain gets more complicated, the pricing possibilities will multiply. Law firms will need to assess where they fit in the supply chain, what value they provide, and what the market will pay for that value. The idea that there are no substitutes will slowly dissipate.

For those firms who can play the elite law firm game, I say go for it. Your clients are doing the same thing in their businesses. For those firms that can’t play the game, be careful about pricing above your weight class. The stratification of the legal industry, with a growing gap between the elite and the rest, means you must get comfortable competing at a different level. Those non-elite levels necessitate doing things elite firms can skip.

This is where many firms trip. Some percentage of lawyers at each large law firm believes they are among the elite, maybe not as a firm but within their practice area. The firm then wants to present many faces to its clients: elite when competing for high-end business, efficient when competing for mid-level business, and so on. Maintaining balance in this world of competing value propositions is very hard and leads to fractures, and the firms spend time fighting within instead of competing externally.

I think the salary increase will move the industry closer to the tipping point. Elite firms will still be there. Some non-elite firms will mistake their place in the market and make bad decisions. They will get weaker. Some (fewer) will take advantage of the increase and differentiate themselves in a good way. They can become stronger mid-market players. For the New Law world, this is a great opportunity to showcase the substitutes for elite firms. For clients, this is another opportunity to move work to places where the price better matches the value (and to the general counsel who complain but don’t move work, look at your own company’s pricing model).

Finally, for those who like to talk about another misstep in the legal industry, the increase gives you something else to write about. See? The increase really is good for all of us.

There’s Gold in Them Servers

Posted in Analytics, Technology

GoldRushOn January 24, 1848, John Wilson Marshall was building a water-powered sawmill for John Sutter. The mill was close to Coloma, California, near the base of the Sierra Nevada mountains. Marshall was a carpenter who had emigrated from New Jersey. Although Marshall wasn’t looking for gold, he later claimed that he knew immediately upon seeing the flakes what he had found.

At the time Marshall found the flakes, Mexico and the United States were still at war over the California territory. The population of the territory was mostly Native Americans (around 150,000) with some 6,500 Californos (people of Mexican or Spanish descent) and about 700 others (mostly from the United States).  A few days after the discovery (and not because of it) the United States and Mexico signed the Treaty of Guadalupe Hidalgo which ended the Mexican-American War and left California to the United States.

Sutter and Marshall tried to keep the discovery confidential, but obviously did not succeed. Within two months a newspaper was reporting on the discovery. By mid-June, three-quarters of the male population of San Francisco had left to goldmine, and by August the number of miners in the Sutter Mill area had reached 4,000.

The next year was written into U.S. History as The Gold Rush of ’49. The non-native population of California grew from 700 before the discovery to 100,000 at the end of 1849. By September 1850, California had become a state. The Rush peaked in 1852 when approximately $81 million (in 1852 dollars) of gold was pulled from the ground. By 1857, the annual production had dropped to around $45 million where it stayed for many years. The Rush was one of the most important events in re-shaping the face of the United States.

The 19th century in the U.S. was known for gold, but the 20th century was marked by hydrocarbons. While some believe the 21st century’s gold, especially later in the century, may be water, the current rush focuses on data.

The Strange Stories of Law

You have heard the statistic: each day more data is generated and stored than the amount of data that existed in all of history prior to the computer age. Large companies that entered the world as retailers, search engines, or social media companies found the real value of their businesses was in data. In Silicon Valley, it almost became irrelevant what your business could do, the focus was on the data set it could build.

And then we come to the legal industry. We can tell two versions of the legal industry story. The first story goes like this:

Recognizing the threat cybersecurity breaches present to their clients, law firms decide to thwart the attackers using an unusual approach. They accepted the futility of keeping hackers out of their systems. Instead of following the norm of keeping information as accessible data, which can be indexed, accessed, and manipulated, law firms keep their information somewhat like teenage boys keep their rooms. As one law firm leader said, “We decided that if our data was a mess and even we, who know it best, have difficulty finding and doing anything with it, hackers would have more trouble and simply give up.”

A team of red hat associates was tasked with hacking the system to find a group of documents to use as templates when drafting for a client. The blue hat defense team’s strategy was simple. “We pretended we were partners and randomly withheld helpful information from the red hat team.” The red hat team gave up after many hours and decided to draft from scratch.

The second story goes like this:

While clients and the world around them screamed about data, lawyers continued their quest to be oblivious. Lawyers in firms, corporations, and other service organizations knew that if they hadn’t enjoyed knowledge management, they would enjoy data management even less. Again adopting the “to do nothing is to do something” approach, lawyers have ignored pleas to treat their documents as data gold.

When asked about this strategy, a lawyer responded “The world around us has been changing for decades and yet here we sit today, almost unchanged. To respond to this ‘data fad’ by doing something would go against our strongly held belief that all tasks should be done by lawyers and not other service providers, even computers. Indeed, we are considering asking bar associations to file actions against all computer companies for the unauthorized practice of law.”

Choose which version you prefer, but the reality is that lawyers in firms, departments, and other legal service provider organizations are in the same boat. Legal data is not created and stored as the precious commodity it is.

The Stories Data Could Tell

The work that lawyers do tells stories of risks and responses. What gave rise to the lawsuits? What did the parties do? What steps were taken in the ligation? How long did they take? What were the responses? We can explore similar questions in any area of law, and it is those questions and responses which are embedded in what law firms store on their servers.

The challenge with most data sets, unlike those in law, is not getting to them. Finding data sets can be easy. The challenge is getting them in shape to use. Data scientists call this step data wrangling or data munging and it eats up 80% of their time.

Think about a data set in your firm that you actually keep as a data set: your customer information. Your firm or law department has a system for keeping track of customer (in the case of law departments, law firm) information. If you check the system, you will find out of date entries, missing information, duplicate entries, and incorrect entries. Imagine how long it would take if you froze the system today and had someone focus on cleaning up the database. Of course, as soon as they finished and you resumed using the database, you would find it out of date.

Now apply those problems to your real data. All of the documents sitting on your servers form your database. You may have a knowledge management system, and still your data is not ready for use. At best, you have a collection of documents with some perfunctory information filled in by field. Your knowledge management system uses a not-too-sophisticated search process to locate documents responsive to your request. When you find them, you can’t do much with them except copy and use them as templates. Definitely not state-of-the-art.

When I talk about data, I mean the ability to access specific information from those files, combine it with other data, and produce information that will help solve client problems. For example, what if you could combine data from all the employment lawsuits you have handled with data from government and court data sets. Could you construct a model that gives specific information about each type of employment lawsuit?

You may think of this as fantasy, but it isn’t. Today, startups have breached the barrier and are applying this type of analytics and more as they find and use data sets. One small but growing area is computational linguistics. Put very simply, CL applies statistical tools to text. Through machine learning, computers can use the CL tools to understand text far beyond “supreme w/5 court.” Tools using CL in law are in the early stages, but they all face the same challenge: getting access to clean data sets.

This is where lawyers enter the picture. By recognizing today that the information built into the data sets is the gold that will help law firms and law departments protect clients, lawyers take the first step. The second, is to start transforming what already is in the sets into data, and the third is to store whatever new items are created as data.

If You Make It The Bad Guys Will Come

At this point, a good question to ask is what about the cybersecurity threat? As they say, there are two types of companies: those that have been hacked and those that don’t think they have been hacked. The experts with whom I have talked agree that law firms are and will continue being hacked. The firms just do not have the sophistication to prevent the hacks. That is not a slam against law firms. It is hard to find any organization, and so far no one has named one, that is immune to hacks.

So if the hacks will happen, why should lawyers turn what they have into data? My first scenario above was written in jest, but lawyers do ask if it isn’t better to have the hackers find the messy teenager’s room than a nice, neat library?

The response to hacking isn’t to abandon the quest for data, just like the response to computers isn’t to become a modern-day luddite. All firms and corporations should take reasonable steps (and today more are going well past reasonable) to protect against hacks. Assume there will be hacks and focus on the data. Just because a hacker can get into a system doesn’t mean the hacker can get access to, un-encrypt, and assemble all the data in a way that will help them. You have a security alarm on your house, but you don’t leave all of your valuables lying on the kitchen counter. Thieves still take gold, but we still mine it. Cybersecurity is a challenge, not a bar, to keeping and accessing data.

Data Is Becoming Essential

Data is going to be more than a way to use and manipulate what you create and store. It will become an essential part of the modern law practice. Let’s look at one last example: blockchains. I won’t go into a detailed description of blockchains, I’ll keep it simple. A blockchain is a database that is distributed, not centralized. Each record in the chain may hold data, a program, or both. The records are hardened against tampering through strong encryption and distribution. Blockchains reduce and sometimes eliminate the need for intermediaries.

The terms of a smart contract are built into the code embedded in the blockchain. If condition X happens, then Y occurs. No ambiguity, no equity (at least that is the theory). Once the contract is formed and built into the blockchain, no on can alter the blockchain (more precisely, an altered blockchain becomes an instantly visible anomaly rejected by blockchain holders).

Lawyers who do not understand blockchain, code, computers, or how the system should work will be at a severe disadvantage. Yet big banks and other large players are actively looking into using blockchain or similar technologies as part of their systems. Since the contract is in the code, we can treat the contract as data and start combining and manipulating it.

Mine the Data Now

Lawyers have believed for centuries that they need to study the law, but they can pick up everything else quickly so that they can apply the law to it. Litigators are famous for believing they can litigate an employment case in the pharmaceutical industry this week and an antitrust case in the retail industry next week. Large firms have moved beyond this by making everyone specialize (and sub-specialize), but the feeling still exists. So, lawyers wait and watch. When they think something has become so well established that the world can’t possible go back, lawyers make their move.

While lawyers may believe they can wait until everyone is deep into data and then put their toes in the water, it doesn’t work that way. I mentioned at the outset competitors in the retail, search engine, and social media industries. They have built data sets so large and deep that it is unlikely anyone can catch them. In fact, recognizing that the prize is data and not tools, Silicon Valley has embraced a new trend. These companies are posting on the Internet for anyone to use many of the most sophisticated tools they have developed.

Why would they open source the tools? Because these companies know that the tools are useful and by open sourcing them they may get interesting insights from others who use them. Making the tools available allows the scientists who developed them to showcase their work, an important part of attracting and keeping talent. But these companies also know that without their incredible data sets, others will not be able to use the tools to replicate what these companies do. The tools help, but the data sets are essential.

Law firms and law departments have yet to realize that tools are becoming widely available. The firms and departments will need help, from academia, consultants, and others, to understand and employ the tools. But, the tools will not be the chokepoint. The real value is in the data. Each firm and each department has value in its proprietary data. To realize that value, they must start treating it as gold and not as dirt. Welcome to the 21st century.

The Low Cost of Lean (Part 4)

Posted in Efficiency

LeanCostThe first week, we started down the path of evaluating the cost of process improvement for a law department. The second week, we finished that analysis and started to look at process improvement from the law firm’s perspective. The third week, we continued our look at the value of process improvement from the law firm’s perspective. In this final part of the series, we will look at it when we bring technology into the picture and close out the post.

The Technology ROI Analysis

Mention replacing labor with computers in most law firms and law departments, and you get certain responses. First, you can see the dollar signs floating in the air. Law departments have restricted budgets and are cost centers. The idea of adding more cost to a cost center generally does not excite general counsel. Law firms, now in a competitive environment, do not relish taking money from the partners to pay for computer systems that many partners will refuse to use.

Second, you can see the discomfort on the faces of the lawyers. Lawyers are, as a general rule, not tech savvy. The thought of loading up on more technology creates more stress for a group who do not like being involved with anything they do not understand.

The fundamental question most lawyers ask is the same one their business counterparts ask—will the cost, time commitment, and other resource commitment of using the technology be justified by the return they get from using it. We are back to the ROI question.

From Complex to Simple

I will divide technology into two categories. The first is complex technology. Complex is not synonymous with expensive. In our case it means implementing the technology falls at the end of the continuum where the time, commitment, and resources are high for the environment (what is complex for a one-person department may be simple for a 100-person team). An enterprise level contract management system could be complex for a large law department and a matter management system could be complex for a small law firm. The second category is simple technology. This technology falls at the low end of the continuum. It typically includes single purpose software that is user-friendly to implement. Many contract automation tools fit into this category.

Calculating the ROI on technology often is complicated, but not impossible. The approach is straightforward. First, determine the current process for doing the work. A process mapping exercise will help. Then, create the new process if the technology is implemented. Compare the cost of the old process to the new process (plus the implementation cost) using the ROI calculation. If the new process including the implementation cost yields a positive ROI, then you should consider the technology. If not, skip the technology.

The more the technology affects processes within and outside your domain, for example in areas outside the law department or in areas controlled by clients, the more difficulty you will have mapping the process and tracking costs and benefits. Rather than coming up with “an answer,” think about coming up with a range of answers and probabilities (we call this the Bayesian approach). Also, recognize that the costs and benefits are unique to your environment. A vendor can help with a template and some ideas about where to look for those costs and benefits, but a generalized ROI will not reflect your unique situation.

Beyond looking at the ROI, there are some other factors you should consider. Assume you installed some software (e.g., contract management software) before doing anything to improve the five hour process your attorney uses. You integrate what the attorney does with the software package. You have now done what we call institutionalizing waste. The wasteful process is built into your systems in ways that are deeper and more difficult and expensive than before.

To change the process, you need to re-work the workflow outside the computer system, probably re-work the workflow within the system, and re-train everyone on the new workflows. All of that costs money. And, you get to spend money to change the computer system and re-train each time you do a process improvement event. You have increased your costs and institutionalized waste, a toxic combination.

Institutionalizing waste is quite common. In fact, except in companies that have a strong process improvement culture, it is the norm. I have seen instances where companies introduce computer systems, do not get the improvement they want or eventually see improvements stall, bring in process improvement experts, and end up ripping out the computer system.

Does this mean you should forego the benefits of computers? Of course not. First, analyze, standardize, and remove waste from processes as much as you can before moving to software. Second, when you do move to software, be skeptical of the “one package does it all” solutions. These packages typically do many things okay, but seldom do many things well. In some situations, your process study may show that outcome is fine. If the many things the software does okay are all peripheral to your service and your requirements are simple, the software may be a good choice. If many of the things you want the software to do are important to your service offering, you may want to look elsewhere.

As an alternative to one-package software, consider single solution packages. For example, there are packages that only do document automation, logic trees, or customer relationship management. If you want to excel in these service areas, then a single solution package may be better for you.

Single solution packages take the place of certain steps in your processes, they do not replace processes. Today, someone may open a template and fill in each blank by copying and pasting from another document are typing the entry. The document automation software fills in the blanks by doing these steps for you. They save labor and avoid typos. Whether it makes sense to use the software is something you will learn from your process improvement event and ROI calculations. But, it is much easier to change a process with single solution packages than with a package that tries to do everything in the contract process.

Think of a process as a string of beads. Each bead is an operation in the process. As you use process improvement events to improve those operations, you will come to points where replacing a human bead with a computer bead makes sense. We do not handwrite documents, because typing them on a computer makes sense. No matter how much process improvement we do, creating the document on a computer will go faster and be more legible than hand printing it. Over time, we may even replace the entire string with a computer. But, we do not simply jump from human to computer.

Teaching Lawyers to Fish

I hope I have convinced you of a few things. First, using an ROI analysis, you can determine whether a process improvement event has the potential to generate a positive return on your investment by calculating what level of improvement you need from a team. Second, at the early stages of implementing process improvement, it is very easy to generate positive ROI events. Third, moving to process improvement opens up other possibilities that can benefit both the lawyer and her client (whether that means outside lawyer and company, or inside lawyer and businessperson). Time is valuable. Fourth, technology can be a benefit, but the benefits increase when you use process improvement to take out waste first and selectively add technology, versus replacing processes with “do it all” technology. If it sounds too good to be true …

Sometimes, the payback on a process improvement event just is not there. Often, if you look at the event, focus the project a bit more and reorganize the team, a negative ROI event turns into a positive ROI event. Remember that events build on each other and through that stacking you compound returns. Take small steps.

Usually I tell stories to show lawyers that process improvement works. In this series of posts, I have given you the primary tool to prove to yourself that process improvement works. When lawyers ask “what’s in it for me” the answer lies in doing the analyses I have laid out in these posts. In harsh terms, a positive ROI means there is money in it for you.

The challenge to using process improvement in law does not lie in the methodology, the field, the intellectual nature of what we do, or any other imagined barrier. The challenge lies in the extraordinary resistance to change lawyers present to themselves and the world. As one general counsel put it to me, “When you get right down to it, even lawyers can learn what others have been able to pick up with a few hours training. The challenge is not in this process improvement stuff, the challenge is in getting lawyers to realize that when it comes to law they own the knowledge, but when it comes to delivering services, they do worse than retail clerks and factory workers.”

Some Final Thoughts

I have taken a book-length topic and condensed it to 8,000 words. Obviously, I simplified some things and did not cover others. My point was not to oversimplify to win you to my viewpoint. Rather, it is to educate you about the evolving view of efficiency in law. I call the new combination of human and computer the “augmented lawyer.” This lawyer must understand the law, of course. But understanding the law and advising the client have now become table stakes for most lawyers.

The new lawyer must be able to combine human skills plus computer skills. To do that, the lawyer must understand processes, how to improve them, and when to add technology. That does not mean the lawyer must become a process improvement expert, project manager, or a technologist. In our complex world, no person has the ability to do it all—even a lawyer.

It does mean that a lawyer must become conversant in the tools of the trade. He must understand processes and process improvement. He must know how and when to use project management. He must understand value versus time and deliver more of the former while using less of the latter. He must know where data resides and how to leverage it for his client.

This last point is important for it underlies what I have discussed in these posts. To do ROI calculations, you need data. Data has become to the 21st century what hydrocarbons were to the 20th century. That is a great line, but it is not mine. It belongs to Virginia Rometty, CEO of IBM, who said it in her commencement speech at Northwestern University in 2015.

Pedro Domingos, a computer scientist at the University of Washington, put it this way in his book The Master Algorithm:

Think of big data as an extension of your senses and learning algorithms as an extension of your brain. The best chess players these days are so-called centaurs, half-man and half-program. The same is true in many other occupations, from stock analyst to baseball scout. It’s not man versus machine; it’s man with machine versus man without. Data and intuition are like horse and rider, and you don’t try to outrun a horse; you ride it.

Process improvement is a tool that helps you understand when and how to use the horse effectively. ROI is a tool that helps you understand when and how to use process improvement effectively. You can choose not to use the tools. But in every other area of human endeavor, those who ignore tools find themselves at a disadvantage compared to those who do use them. Choose wisely.