You decided to go to law school because you wanted to become a lawyer. You studied the law, passed the bar, and practice law. You have friends who provide legal services using their unique skills, which include project management, data analytics, and eDiscovery. But every day someone nags you to improve. “Improve” means something other than being a better legal services provider. But what exactly does it mean?
One way to find the true meaning of improve is to ask your clients. If your clients work for a corporation, you will hear “become more productive” or “increase your efficiency.” Both sound good. For decades we have heard how corporations are increasing productivity and efficiency. But, as a trained skeptic, you want greater clarity. What do you mean, you ask your clients, by “productivity” and “efficiency”?
They point to the dashboard glowing on their computer screen and say, “if this number goes up” I am more productive or “if that line goes down” my efficiency dropped. You smile and nod, still wondering what they mean. Let’s satisfy your curiosity.
New Ideas for a New Century
The turn of the 20th century brought with it the Efficiency Movement. The Industrialization Age had been going full tilt for decades. Starting in England, we moved from people to machine plus people. The next step was to increase the machine speed, and encourage people to keep pace. Experts such as William Shewhurt studied what people did in factories and developed ways to improve.
After WWII, Toyota Motor Company re-started its automobile production and developed the Toyota Production System (TPS). In the 1990s, TPS came to the US in the form of lean thinking. It was joined by Six Sigma, Business Process Management, and a list of other improvement methods with names just as catchy.
Corporations throughout the world grabbed the improvement concept and thrust it onto the shop floor and into the corporate offices. Law firms took the productivity path. They pushed for more output from the same team (choosing output per person versus output per hour as the measure). Corporations became more efficient and law firms became more productive, leading to the current clash. Clients want more efficient law firms and law firms see clients as threatening their productivity.
The Productivity and Efficiency Equation
Data alone lacks meaning. We must put it in some context to attach meaning to the data. If I tell you that during my career as a litigator, I won 10 cases that data tells you nothing. How many cases did I try? How long was I a litigator? Were the cases small? Big? What does “won” mean? Data without context takes us nowhere.
One way to give data context is to create a ratio. If I told you I won 10% of the cases I tried as a litigator, you have some context. You want more information, but you know that I lost nine cases for each case in which I was victorious.
Productivity and efficiency are names for a ratio. The ratio, the same in both cases, is outputs divided by inputs. We can write the equation this way:
Productivity or Efficiency = Outputs ÷ Inputs
When you look at the equation, you think that “productivity” and “efficiency” are synonyms. Many people use them as synonyms (my Roget’s Thesaurus does not treat them as synonyms). We hear them used casually. We think of ourselves being more productive or efficient after many years practicing law. But what do they really mean?
With a ratio, you have two levers you can pull to affect the result of the equation. First, you could hold inputs constant and increase outputs. For example, assume you work eight billable hours each day (yes, I hate billable hours, but I will start with something you know). On Monday, I do one hour work for each of eight clients. I have filled my eight billable hour objective.
On Tuesday, the firm’s Managing Partner walks into my office and plunks a tool on my desk. She tells me the tool can help me do my job. “Ms. Lexbot,” the cute name I give the tool, helps me do in 30 minutes what took me 60 minutes. On Wednesday, I do 30 minutes work for each of 16 clients. I billed my eight hours, but my output doubled with the help of Ms. Lexbot. I am more productive.
My friend sits in the office next to me. He also works eight billable hours each day. On Monday, he too did one hour work for each of eight clients, filling his eight billable hours. But on Tuesday, the Managing Partner asked Mr. Lexbot to work with him on the processes he uses to do work. Mr. Lexbot found waste and helped him redo processes. Now, he can do in 30 minutes what took him 60 minutes the day before. On Wednesday, he does 30 minutes of work for each of eight clients. He bills four hours. He has become more efficient.
Telling the story these two ways highlights the difference between productivity and efficiency. It lies in the objective, rather than the formula. Over decades as corporations have used improvement methodologies, they focused on efficiency. The goal was to drive waste out of the system. A more efficient company was a less wasteful company. Reducing waste was good, for society and for the bottom line. But that concept clouds some issues.
Removing waste is good, but waste reduction hits limits. Business people know this and have coined a phrase for it: “You can’t cost cut your way to success.”
Waste reduction confronts three constraints: (1) people, (2) technology, and (3) creativity. If a process depends on people, waste reduction reaches limits as it bumps against what people can do. I can handwrite documents legibly at a certain speed. Beyond that speed, my physical abilities create a limit. Process improvement aimed at my handwriting can do only so much.
Technology has limits. Though computers can do amazing things, they have limits. Ask Siri to compare equal protection to due process and you will see a limit. Process improvement will not take me past that limit.
Finally, creativity hits limits. These limits are practical, not physical, but real. People working alone or brainstorming reach limits. Time, education, training, and other enhancements may take them past the limits, but for some period creativity will slow or even stop.
Corporations today are starting to test the limits. They keep looking for and finding efficiency gains, but the rate has slowed. And, as they know, efficiency gains are not the path to success.
An alternative is to look at productivity gains. Take the resources you have today (the inputs) and grow the output using those resources. You can grow your way to success.
Client Efficiency and Firm Productivity
The legal industry is struggling with productivity and efficiency. Clients understand and legal services providers are starting to realize that the legal industry needs to improve efficiency. Clients resist paying for 60 minutes of time when the same output could be achieved in 30 minutes.
Legal services providers, and here I will focus on law firms, worry. Efficiency sounds like reducing eight hours of work to four hours, which cuts revenue in half under the billable hour model. Efficiency to a law firm means something different than efficiency means to the client. But if we talk about productivity to the law firm, we see eyes brighten. Managing Partners would love to get higher outputs from the same inputs. To the client, that sounds like billing for waste.
The common ground is the area where both parties understand we are looking at one equation, but have two strategic objectives. The client wants increased efficiency and the law firm wants increased productivity. The client will trade something to get something. If the law firm increases efficiency, the client will accept a lower invoice but share some of the cost savings with the law firm.
The law firm wants increased productivity, and will trade something to get something. It will reduce the price it charges for the service as it increases efficiency, but retain some of the cost savings for itself. It will use the saved time to increase the output per input without increasing the total hours worked.
This solution will not work under every market condition. If the total market for corporate legal services was shrinking, increasing productivity would not help firms. But we know otherwise. The demand for legal services increases each day. Corporations struggle with the overload. Pricing, productivity, and efficiency stand between corporations and getting the work done.
Finding the Win-Win
The legal industry lags decades behind corporate clients in efficiency. We must keep pushing forward with our operations improvement efforts. But, clients need law firms. Despite the rush to hire in-house, clients understand that law firms bring them many benefits. Clients want the benefits without paying for the waste that comes with them.
Corporations are starting to turn their attention to productivity as they see diminishing gains from efficiency. The limits make it harder for corporations to get the same return on investment in improvement that they got 10 or 20 years past. As corporations look for productivity, they will encounter increased regulatory and compliance challenges. That, in fact, is what we hear from CEOs and general counsels. Legal services providers should listen to the call for help. Becoming more efficient will help the services providers and they can grow productivity by helping their clients. Productivity and efficiency may not be synonymous, but in this case they could spell win-win.