TrashIn my neighborhood, it happens on Wednesdays and Thursdays. It is a muffled sound in winter. But, in spring and summer with windows open, you can hear the heavy duty diesel engines as the trucks patrol the streets. Wednesday and Thursday are  trash collection days.

Each day, my wife and I take our constitutional in our neighborhood. This is in part a holdover from walking our family dog. He died last year, but we stayed with the walk. Because we have circled our neighborhood one or two times a day for 10 years, we know the patterns. We can predict, with amazing accuracy, what will happen and at what time.

Trash days are easy to predict. The main variables are trash hauler, number of buckets, and recyclables or no recyclables. Several trash haulers work our neighborhood (the subject of many pricing discussions on the neighborhood social media site). We have identified the factors that tell us which hauler works which houses. Certain houses use two large buckets, but the majority use one. And, depending on the hauler, the pattern for collecting recyclables varies (e.g., one time a week or every other week). We rock at predicting our neighborhood’s trash patterns.

What I mean, of course, is that we are good at predicting trash. The training has been valuable—we are healthier for the walks. But, the actual information we generate has no utility. Who cares what the trash hauling pattern is for our neighborhood? No one, even the trash haulers, wants the information.

Welcome to predictive analytics in the legal industry. We have many companies pushing their data analytics skills, with some focusing on predictive analytics. One popular area is predicting legal spending. The analytics may focus on entire law department budgets or on individual matters. For many, the idea is to train the learner (computer speak for teach the software) to look for spending patterns by looking at invoices. The problem is that spending data in the legal industry is garbage. And, as we all know, garbage in, garbage out. So, studying past spending patterns to predict future spending patterns is similar to knowing the waste hauling patterns in my neighborhood.

Examining the Garbage

Legal spending data is garbage. That is a strong assertion so you may ask what I have to support it. Start by breaking the billable hour process into components. It begins with each timekeeper recording what he or she does in the timekeeping system. We know there is variability in the system. Timekeepers enter time at their leisure. Some do it contemporaneously, but most do it in batches. For example, some enter time at night, some in the morning for the prior day, and some at the end of the week. The greater the gap between the time worked and the entry, the greater the inaccuracy of the time entry.

Even if the timekeeper enters time at the end of the work (say, every hour), timekeepers vary on how they code time. Some enter basic text descriptions. A basic text description has insufficient information to do a granular analysis of the work. “Draft letter” gives me nothing to analyze or improve a process. Those who use the UTBMS (Uniform Task-Based Management System) codes force their time into boxes and the descriptions match the boxes. As with any taxonomy, the gross level of data keeping does nothing beyond time buckets. Surprise! Most time in litigation goes to discovery.

All this is to say that timekeeping varies and each timekeeping entry is unique. But that is the tip of the timekeeping iceberg. The real problem lies in the processes captured by the timekeeping. As my example shows, processes vary from timekeeper to timekeeper.

Consider this simple example. Two lawyers share an office. Both receive the same assignment: review this contract. The processes the two lawyers follow, the time each takes, what changes each recommends, will vary. Play the role of the client and decide which revised contract you use. Translate that work into timekeeping, and you have a mess.

Apply analytics to that mess. You will produce statistics. The mean time to review a contract, the median, the standard deviation. You can produce nice metrics. The greater the number of data points (the number of contracts reviewed), the greater the accuracy your metrics. But, those metrics measure chaos. Some lawyers spend lots of time on irrelevant aspects of the contracts. Some focus on key parts. Some use inefficient processes (lots of waste built in). Some use efficient processes. The list of variables grows and grows. The metrics accurately measure nothing. We can calculate the mean time for a person in the United States to commute to work. But, that tells us nothing given all the variables underlying that metric and the lack of standardization in the processes.

Predicting Waste Has No Value

A counter-argument says that the data we have may be garbage, but it is the data we can collect. It is better than nothing and running predictive analytics on the data does give us information. That information is that our current, waste-ridden, chaotic process for doing contract review takes, on average, a certain amount of time. We know the mean, the median, and the standard deviation. If the process to review contracts stays the same, those statistics will help us predict the cost of future contract reviews, as wasteful as it may be.

That argument has merit. But, if that is all we do—predict waste—we look like the colorful wheel that spins as you wait for the computer to process your command. We need to move past predicting waste and gain control of the processes. With that control, we can go beyond predicting waste, we can reduce the cost of matters by eliminating waste. We can save money rather than predict waste.

A common client complaint is that they have metrics, but fail to get the improvement they expected from using the metrics. This is the “half equation” story. It is the ability my wife and I have to predict trash collection in our neighborhood. That ability has nothing to do with the volume of trash generated each week, the important half of the equation. To help reduce trash collection costs in the neighborhood we need to reduce the volume of trash generated. By doing that, we could reduce the frequency of trash collection and that should reduce the cost of trash collection.

Clients want to do the same thing. They want to work with their legal services providers to reduce the trash. As a team, they want to capture the process for reviewing the contract, improve the process, standardize the process, and drive out waste. The client undoubtedly contributes to the waste in the process. Having it on the team will help reduce the waste it generates. The law firm starts with the product the client handed it. If the law firm spends time removing waste from the contract, the client should look for the causes of the waste. The client can eliminate waste so the law firm avoids having to remove it, reducing review time.

The client can work with the law firm to focus reviews. If the law firm does a great job reviewing the indemnification clause, but the client is okay with the clause, the law firm has inserted waste. The client can guide the law firm on the scope of the review. Working as a team, the client and law firm can integrate the process for contract review across the walls of the client and law firm. They can standardize the process and coordinate timekeeping entries to the process. The timekeeping entries will provide useful, behavioral data.

The Real Value of Predictive Analytics

I have focused on predictive analytics using timekeeping records. This is, of course, the sideshow. The main act is predictive analytics focused on behavioral data that we can use to reduce risk and avoid expensive mitigation strategies. In other words, find what behaviors to change to avoid the lawsuits rather than focusing on how to reduce spending per lawsuit.

Sixteen years ago, I became general counsel of a company of a spin off company. I started with a law department of one. I discovered that I had a docket of 100 lawsuits involving personal injuries alleged to have happened in or near our retail stores. That was the current docket, but plaintiffs kept re-filling the docket. I would settle one lawsuit and another lawsuit would come at us. Each lawsuit cost the company $50,000 to $75,000. We were on a treadmill.

I had been a retail lawyer for several years before I became general counsel and I had no ready explanation for the size of the docket, the staying power of the docket, and the total cost of the lawsuits. I smelled opportunity and charged. In under one year, we worked the docket and brought it to 10 cases. It stayed in that range. The cost per lawsuit dropped to $5,000 to $15,000. I wanted to keep improving, but it was a great start.

We changed the metrics by focusing on behaviors. What triggered the lawsuits? What drove the costs (legal fees and expenses plus settlement costs) higher? As we dug in and learned the facts, we saw the patterns that led us to change behaviors. Putting a wire stand with copies of the recent store flyer outside a store was a good one. The wind would blow, the flyers would scatter on the sidewalk, and slip-and-fall claims would increase. Solution: put the rack inside the store.

Small changes can have big impacts. Tracking and analyzing the right data shows the way. Crunching timekeeping data would have helped me reduce the cost of those 100 lawsuits, but eliminating 90 lawsuits and ensuring they stayed off the docket was the ultimate cost saving approach.

Lean relies on eliminating waste. Analyzing waste to manage waste strikes me as a diversion. Going to the root cause of the waste seems a better way to spend our time and money. Let’s take out the trash rather than focus on predicting how much it will cost.

EfficiencyYou 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.

Reaching Limits

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.

PapillonIn 1974, Allied Artists Pictures, Corona-General, and Solar Productions released Papillion, a movie based on Henri Charrière’s book by the same name (his nickname, which is the French word for butterfly). The book covers the time he spent in the brutal French Guyana penal system. Charrière became famous for his many attempts to escape from prison. The movie has a great cast, including Steve McQueen and Dustin Hoffman. The screenplay was by Dalton Trumbo. Trumbo was an excellent screenwriter. But his greater fame came in the 1940s as one of the “Hollywood Ten” who refused to testify before the House Un-American Activities Committee (HUAC). Hollywood blacklisted him. He continued to write, however, using front men. Two of the front men movies—Roman Holiday (1953) and The Brave One (1956)—received Academy Awards for screenwriting. It is hard to keep a good author down.

One scene from Papillon has stuck with me. For bad behavior, such as attempts to escape, the guards put prisoners in solitary confinement cells. The prison’s conditions were poor and, of course, cells lacked mirrors. A prisoner could guess if his physical condition was deteriorating. But he had another way to tell. To get his hair cut or to get deloused, a prisoner stuck his head through a small hole in the door of his cell. He would turn his head and look at the prisoner in the adjacent cell, who had his head stuck through the door of his cell. the first prisoner would ask, “how do I look?”

For some reason, this scene reminds me of lawyers working in their offices. Even in large firms, they work alone, oblivious to the world. For comfort, they meet at the coffee station and ask each other, metaphorically of course, “how do I look?” They don’t ask clients or others outside the industry, typically afraid of the answer or wanting to avoid it. They trust the word of the lawyer in another cell.

The light for these lawyers would come by inviting other disciplines into their thinking. I wrote an essay explaining the need for multidisciplinary thinking. If lawyers considered what others have studied, they would find answers—or at least potential answers—to many of the questions they struggle with each day.

Holmström’s Career-Concerns Model

The recent Nobel Prize in Economics brings this point home. Oliver Hart and Bengt Holmström won the award for their work on the economics of contract theory. Contracts are dear to most lawyers’ hearts and one might think that lawyers would stay current on research into contract theory. One would be wrong. To most lawyers, Hart and Holmström are strangers. Lawyers remain ignorant of their work.

This gap in lawyers’ knowledge is disappointing. Economic theory and contract studies could help lawyers understand their own practices. But that disappointment deepens, because the knowledge could help lawyers help clients.

(I’ll come back and address the complaint you raise. First, you say, he wants me to learn project management, process improvement, metrics, and AFAs. To that he adds economics. Doesn’t this guy get that I practice law. A day gives me 24 hours and I squeeze in eating, sleeping, and relaxing.)

Corporate clients complain that legal services come with unpredictable costs, inefficiency, mediocre quality, and arrive late. They direct their ire at large law firms, though the problems seem agnostic—every legal services supplier is at fault.

For years we have enjoyed guessing “why.” Why are law firms unresponsive? Some lawyers are responsive and deliver, as best they can, what their clients want. It seems, though, that the challenge for clients to get what they want grows each day. Clients have responded by taking steps, such as bringing legal services in-house. Increase lawyer hiring, say the general counsels. The problems stay, but reducing use of legal services providers reduces the volume of problems.

Of course, the “why” question remains. If we look to Holmström’s research, we can find a potential answer.

Holmström and Milton Harris studied what happens between employer and employee as the employee ages. For employee, substitute lawyer. Remember, Baby Boomer retirement is underway. By 2030, all Baby Boomers will have reached age 65. We should ask, “what happens to the lawyer-client relationship as the lawyer ages?” As a related question, we should ask whether the general counsel push to move work from first and second-year associates to senior associates and income partners makes sense.

The Harris-Holmström study, titled A Theory of Wage Dynamics, questions some of our basic ideas. Let’s start with this one. The longer an employee works the greater the employer’s knowledge of the employee’s skills (or client’s knowledge of a lawyer’s skills). “This learning allows more senior workers to be matched better to tasks than less senior workers. The result is that more senior workers exhibit higher productivity on average, and this accounts for their higher average earnings.” The higher you rank in the law firm, the higher your income.

But what if that relationship isn’t correct. “Some … empirical evidence suggests, however, that there may be factors other than acquisition of productivity enhancing human capital which produce upward sloping experience-earning profiles. …Medoff and Abraham … find that more experienced managerial employees earn more on average even though their performance is not as highly rated as less experienced workers in the same job category.” Harris and Holmström go on to show that senior workers may get paid more for reasons other than productivity. For general counsel, this could mean you pay higher rates for senior attorneys even though you don’t get higher productivity from them.

Perhaps the Harris-Holmström view holds true for lawyers in firms. We do not know. But, this is a nice example of lawyers acting based on guesses even though economic studies would give them data-based knowledge. Harris and Holmström published their paper in 1982. I’m sure an economist would point to all of the studies following the paper. Perhaps their idea did not survive. The point is that lawyers tread ground others have covered, for no good reason. By working alone, lawyers deprive clients of what we (the broader “we”—society) already know. Doing so wastes time and money. As I have said, law and the delivery of legal services is too complex to leave to lawyers.

Join a Team

I promised I would come back to your complaint. You say lawyers lack the time to become project managers, process improvement experts, pricing experts, and economists. I’ll go back to my usual response. I argue that lawyers must become part of expert teams. I get it — I was a partner in a law firm and spent 20 years in-house, most of them as a general counsel. As a general counsel, I worked on teams composed of experts. In-house lawyers get used to this approach. Law firm lawyers avoid it.

I argue that practicing law takes a wide range of skills and those skills should come from blended teams. Lawyers should avoid the lone wolf syndrome. Law firms and law departments will be better off with teams that include project managers, process improvement gurus, data analysts, economists, and other professionals.

The mix of those professionals for each project and matter will vary. But, the modern legal team needs skills and knowledge lawyers lack. The leader of the team, which may be a lawyer or could be someone else from the team, should be familiar with these other disciplines. She should know how to leverage these individuals and how to compose teams suited to answering client problems. I do not argue the lone lawyer should become an expert in all areas.

Lawyers are stubborn. They refuse or ignore this advice. What happens? Precisely what we see happening today. Lawyers get displaced. Consultants, accounting firms, entrepreneurs, and others embrace teams. They leverage teams, which may include lawyers, to the benefit of the client. Lawyers become tacticians, others become strategists.

The retirement of Baby Boomers means the legal industry will watch some knowledge walk out the door. We will lose some experience. But if we don’t change our behavior, we will lose an important opportunity. We lose the opportunity to become team builders and team players. We lose the chance to integrate what we do with what others do to enhance our problem solving abilities. We lose our chance to solve problems. We become the technocrats that computers can replace.

References

Harris, Milton, and Bengt Holmström. “A theory of wage dynamics.” The Review of Economic Studies 49.3 (1982): 315-333.

CellThe word “cell” has picked up an unfortunate connotation in recent years as terrorist cells have taken over the news. Lawyers probably want to avoid any suggestion that they work as part of a cell. But the truth is, cells can be a good thing.

Today, when many of us hear the word “cell” we think of a terrorist group operating distributed cells throughout our city or country. That use has given a good word a bad name. In the original lean thinking parlance, a cell was a small area devoted to a certain group of tasks or activities. For example, on a production line you could have a cell that assembles the right-hand mirror for a car.

The cell concept is popular in lean thinking for many reasons. But, outside of manufacturing, the cell idea has not caught on. To avoid the negative connotation now associated with the word, and to move into a way of looking at things more familiar to legal services providers, I’m going to switch to the term “team station.” Cell and team station are not substitutes, but team station will help us get to where we need to go. More importantly, thinking about teams will help us work through how to generate predictable, productive, quality, and low cost legal services.

The Team Station Concept

It is tempting to bring in a sports metaphor here, but while I am replacing cell with team station, I don’t think the metaphor would work. Instead, I’m going to use … the eye doctor’s office.

A few years ago, I suffered the fate of age and nearsightedness—I had a retinal tear. To show you how devoted I am to helping lawyers, the tear happened sometime during the night so I first realized I had a problem when I woke up in the morning. I had a full day ahead of me doing presentations and facilitating as part of the Association of Corporate Counsel’s Legal Services Management training. I did not know why I had trouble seeing out of one eye, but I knew I was flying home later that day. I called my wife who got me an appointment at 8:00 am the next morning with the eye doctor, and spent the rest of the day doing my thing while seeing out of one eye. In retrospect, I should have gotten on the first flight home because I risked going from a tear to a detached retina, but as I said, I am devoted to helping lawyers.

The eye doctor quickly diagnosed the problem and sent me a few blocks away (my wife driving both times) to a retinal specialist. This is where the team metaphor comes into play. To make the story more interesting, my new retinal specialist doctor was working with a lean thinking consultant on how to make his office run more efficiently.

I started by checking in at the front desk. This was the first team station (or cell, using the old terminology). At the check-in team station, the “operators” had a set of simple machines designed to help with the processes performed at that station. The team members had to perform insurance tasks, phone tasks, medical records updating and retrieval tasks, and other administrative tasks. Immediately behind the front desk was the storage area for patient records. The team members had phones, staplers, scanners, computers, and other tools arranged neatly around them.

After check in, I was sent to the first examination room, or the preliminary examination team station. This room was devoted to processing the patient through a variety of tests and information gathering processes necessary to give the doctor general information about my physical condition and information specifically related to my eye problem. The room had a variety of devices devoted to specific aspects of the relevant processes.

I then moved to the examination room. Again, the room had tools devoted to the specific processes handled in that room. By the way, the hallway had a large kanban board that the medical assistants used to keep track of each patient’s progress through examination and treatment. Each room also had an andon outside the door to signal everyone about the status of the room. All very cool.

The final two rooms were the laser treatment room, where the doctor and his assistant repaired the retinal tear, and the recovery room, where I waited for a short period after the laser surgery. As with the prior rooms, each of these rooms had equipment designed for the specific tasks performed in the room.

You can see how the office operated. The workflow involved moving patients from room to room (team station to team station or cell to cell) for processes to be performed in the proper sequence. The kanban board was used to control flow, the andons were used to avoid bringing a patient to a room in use, and the team members moved among the rooms as needed to perform processes.

The workflow was not perfect (of course, no workflow ever is perfect). There were unnecessary wait times, lots of traveling (from team station to team station), challenges sequencing processes, and other inefficiencies. All of these were part of the improvement efforts the doctor and his colleagues were working on with the consultant. But the backbone was there and the doctor explained to me the significant improvements they already had achieved in workflow.

Now let’s move to law.

Legal Services Team Stations

You may have trouble seeing (pun intended) how the doctor’s suite of team stations relate to delivering legal services. Let’s start by freeing ourselves from the physical constraint of the office. Legal services provider teams work virtually, with the “thing” they are working on floating through the electronic universe. That is okay—a team station does not have to be a tangible location like a check in desk or a room, it can be a virtual grouping of individuals.

Think about how we break down legal services matters. Litigation has depositions, documents discovery and review, brief writing, witness book presentation, and many other processes that come together under the umbrella heading “litigation.” Transactions have due diligence, agreement drafting, ancillary document preparation, and many other processes we pull together under the umbrella heading “transaction.” In fact, any legal project is made up of many groups of processes pulled together under some heading.

Each of those groups of processes can have a team assigned to it. That team may have legal services providers from one organization (the client, the law firm, the ediscovery vendor), or it may have providers from several or all of those organizations. The team will perform the processes related to achieving their goal. The team station is their virtual universe for the inputs needed to perform the processes or the outputs from the processes.

When you break legal processes down this way, you can think about who needs to be on a team and what tools that team needs. Typically, the team does not need fancy, complicated, do everything tools. Instead, the team needs simple tools designed to help it efficiently perform the tasks needed to complete the processes.

Teams and Team Stations Facilitate Simplicity

I just pointed you to a very powerful concept—one that is hard for most people to grasp. Simple tools often beat complex tools when it comes to many things: cost, efficiency, quality, maintainability, training, and re-configuration, to name a few. We get hung up on the idea of big tools, because of two things: interoperability and compatibility.

Interoperability means that the tools work together. You can connect tool A to tool B. In the case of legal services providers, we want our software packages to work together so that we don’t have conflicts. Our document management system should work with our word processing software, and our contact management system should work with our email system.

Compatibility means that the output of one system can be used by another system. For those with good memories, this was the problem that Windows users and Mac users fought for a long time (and still do, a little bit). If we prepared a document in Word at work we wanted to take it home and revise it on our MacBook and then take it back to work and finish it on Word.

Obviously, if you license one big package, everything will be compatible and interoperable with everything in the package. But, if you decide to use many simpler, smaller, packages you may run into interoperability or compatibility problems.

Those problems are on the decline. No entrepreneur in his or her right mind would design a contract editing program that worked with Google Docs but not Microsoft Word. Going the other way, yes to Word and no to Docs, would not constrain the market as much, but ultimately vendors want everyone to use their products. So, the interoperability and compatibility problems can be minimized or avoided when selecting software.

Another way to reduce the problem mimics what companies outside the legal industry have done. Take the base program (e.g., Word) and customize it to the smallest amount necessary. Build macros or use other software to build small tools that manipulate the Word document (yes, that isn’t the easiest thing to do). Large law firms have attempted to do this, although in a ham-handed way. Done with some understanding of workflow and processes, it works very well.

Our due diligence team needs certain tools for its processes. Those tools could be dedicated tools, or customizations of basic tools set up specifically for the due diligence teams’ needs.The brief writing teams needs different tools or different customizations. When a person works on both teams, they will need to learn both sets of tools or customizations, but otherwise they only need to know the tools for their team. Look across all the teams and you will find that seldom does anyone need the big tool that does everything.

Multidisciplinary Teams

If one lawyer does everything, as a solo practitioner might, then you could argue for one tool. I think law is moving towards multidisciplinary teams, even at the solo practitioner level. Multidisciplinary teams can reduce costs, increase efficiency, and help bring law to the masses. To get there, we need to break down what we do into processes, assemble the right tools for those processes, and not overload the team with big tools.

I see many students come through law school who do not like to write legal briefs. I do not mean they dislike the style, I mean they dislike writing. But, they may have great negotiation skills or oral argument skills. This isn’t something new. Those who like to write gravitate towards practices where they can write. Those who like to negotiate go a different path. The solo tries to do it all. But, we can use processes and technology to create virtual practices (and many already exist), where a team comes together each member contributing his or her skills. Done correctly (that is, done in the way many other businesses have), the overall cost comes down, quality goes up, work satisfaction increases, and the products or services become available to more at lower cost.

Most lawyers resist the teams and teams stations ideas, in law firms (large and small) and law departments, because it goes against how they were trained. The “one lawyer does it all” concept still prevails in law schools and law practices. But, we have all the tools to change that concept and deliver some great benefits to our clients. It will take the brave few to step out and implement these ideas, not just in large corporate law, but in solo practices, legal aid, and government legal services, if we want to get past our current logjam where only the elite can afford lawyers. The nice thing is, there is a way.

AirplaneStop me if you have heard this one. A law department says that it wants to “increase efficiency.” Not really sure what that means, the department leaders decide that it must include moving some things they do manually—or things they don’t do at all—onto a computer system. All agree that computers make things efficient and by using technology, the law department will be perceived by those outside the department as “with it.”

The department proceeds to spend a lot of time developing “specs,” researching possible solutions, vetting vendors, and bringing home the idea. The planning process stretches over months, the paperwork is drawn up, the GC makes her pitch, and the department gets authorization to move forward.

Now the fun begins! The vendor comes in and helps the department plot how to bring the software online. The software is introduced (no need to get IT involved, this is software as a service (Saas))so all you need to do is reach out over the Internet, configure the system, integrate it with your existing processes, train everyone, and make sure all happens as it is supposed to happen. Naysayers are shot down as Luddites committed to a way of life no longer acceptable in an enlightened law department. Within the time budgeted the project goes from idea among law department leaders to implemented software doing its thing.

And then the other shoe drops. All agree the software helped. But it hasn’t helped as much as everyone thought it would help. There also is the time. The software wants information to do its job, so people in the law department get caught up feeding the software. Also, the business changed while the software was being implemented. North is now South, East is now West, and Southeast is now part of the corporate family. All those changes meant the software had to be re-jiggered.

Some questions have come up. Since the software is a data hog and everyone now feels like a data entry specialist, people want to know what is being done with the data. In many cases, the answer is: not much. It is being collected for the very good reason that it can be collected. And by the way, when they said the software “works” with the twelve software packages already used by the law department, they meant “does not aggressively destroy.” It seems “works” is a squishy concept.

All-in-all, people now use the software, the software has changed how people do things, people don’t waste time on things they did before, but they do seem to spend a lot of time on new things, and no one can definitively say whether the new things are better than the old things, but they sure are different. The key is that the GC can proudly report the law department is tech savvy.

Follow the Data, Not the Pack

The story may sound familiar because it is one repeated often by law departments. Many departments other than law fall into the same trap, but I’ll keep my focus on law departments. This also isn’t a “who is to blame” essay. Software vendors are in the business of creating and licensing software, so we really can’t blame them for doing what they do. It is tempting to blame the law department, but that wouldn’t help, and they really aren’t to blame anyway. They followed a traditional path trod by many for bringing software into a department. So what went wrong?

In lean thinking, we prefer to focus on the process not the people. When things go sideways, we look to the process and how it could be changed. The people were just implementing the process and we should not blame them because they did so. We should change the process so the next time the people implement it things do not go sideways.

We can identify some process problems in the law department story. First, it seems they jumped the gun in going to software. Rather than learning and improving existing processes, reducing waste along the way, they went to software as the silver bullet. Put in process improvement terms, they went to software before they had reached the limit of process improvement. Second, in going to software, they went big. The decided to go for the platinum, all bells and whistles, cooks your breakfast while making coffee and feeding the dog, version of software. Third, they did not test the software hypothesis before jumping to implementation. The hypothesis was that software would improve efficiency. But, instead of running some experiments they acted on the assumption.

Since these are process failures, we can improve the process to reduce waste and improve the likelihood of a better outcome next time. In the next three sections, I’ll briefly look at how the processes could be improved.

Jumping the Gun

Every law department delivers legal services using a bundle of inter-related processes. Those processes vary by department (often by lawyer) and so there is no one-size-fits-all. The processes vary by corporate culture, historical precedent, who is performing the processes, and constraints imposed by the organization (e.g., processes other departments use). The first step should have been to identify and document existing processes. Then, the department could have used process improvement techniques to eliminate waste. If nothing else comes out of the exercise, it means the law department will not “institutionalize waste” by building it into an expensive software program.

Of course, documenting and improving processes can do much more. Often, you eliminate many steps, so neither people nor computers need to do them. Simplifying steps may mean that existing software can handle the job. Documenting processes means that everyone can follow the processes, which eliminates problems caused by conflicting ways of doing things. Finally, process improvement is quick, low cost, and flexible. When the business changes, it is much easier to change processes than to change software.

Going Big

For law department leaders, there seem to be two goals to software: zero or big. They justify big on the grounds that everyone in the department must use the software. Most lawyers may work on contracts, but those contracts vary across the board. Despite the variance, everyone must use the contract management software which has a workflow designed for the lowest common denominator. That may make sense, but seldom do I find a law department that learned their processes well enough to make that decision before plunging into expensive software. Conversely, I often find law departments who learned that the one-size fits all assumption did not work well.

This is where the lean concept of “cells” comes into play. A cell can be a group or team that does a contract type. A lawyer may belong to many cells, but a cell is devoted to one thing. The team that does distribution contracts should work out their processes and, if software fits into those processes, look for simple software that fits the purpose for their cell. Perhaps some Word macros, or simple implementations of workflow logic or document automation would work best. The software tools will be easier to program (and re-program) and will handle the tasks needed, without interfering with other areas of the processes. The cost is much lower, quality is easier to control, and the department leaders will not be forcing everyone to do data entry or learn tools that don’t help them. Training someone new to the cell is easier, because the software is simpler to learn. Even if you do need to go big (e.g., everyone uses the same package to store and retrieve documents) you can focus on a tool that does that one thing well, instead of the multi-purpose tool that does many things not very well.

Test Your Hypotheses

As I said, law department leaders view the world in binary fashion when it comes to software: zero or big. There is an alternative. Instead of jumping to the big software, law department leaders can look at the adventure as a startup. Again, always start by learning and documenting existing processes. Yogi Berra’s admonition, “If you don’t know where you are going, you’ll end up someplace else,” is a good one. Then, instead of going big, start small by testing hypotheses.

One online grocer started this way. Instead of building out the software so people could go online, fill their cart with food choices, pay, and then sit and wait for the groceries to be delivered, the grocer went small. It put up a simple web page describing the service and a phone number. When a customer called, a real person took the order. Another person went shopping, delivered the food to the customer’s home, and took payment. Hardly a scalable model, but a great way to gather data and test hypotheses. The startup founders knew they could build the software. But they didn’t know if the idea would work.

The manual system allowed them to test their ideas at very little cost. Would people call (they could always move to online orders)? What would people order (keep track on a spreadsheet)? How frequently would they order (another spreadsheet)? What features would they want from the service (keep a list of desired features)? These and many other questions were easier to test in “small mode.” As they understood more about what the customer wanted, they could (and did) start building the online business. Eventually, they transitioned out of the manual approach and into the online approach, but by then they had answered many critical questions.

Law department leaders can follow the same approach with software ideas before going to software. Instead of boiling the ocean, pick a small group and have them “manually” do what the software would do. Keep testing, asking what features you need, learning where there are rough spots in processes, and gathering data. At some point, you may be ready to look at software. Now your focus will be on what you need not on what vendor’s sell. You may find that a much simpler package, or perhaps two or more very simple packages, will do what you need for less money, with better quality, and give you more flexibility, than the one big package.

Why Go the Lean Path

It is easy to spend money. It has gotten easier to spend money and successfully install software. It still is difficult to hold off, assess what you really need, clean up processes, re-think how you do things, and then spend only what you need to spend, not what you are authorized to spend. Going the lean path yields greater and more sustainable results, often getting results well before the traditional path of plan then spend big. It also fits much better with the modern, flexible business.

Running a law department efficiently, one of the keys to getting greater responsibility within the modern corporation, is much more than trimming costs. It involves knowing how to do things differently, innovate, and create new models to replace old methods. Having seen the fallout from those who simply pursue the traditional path, I have found that many programs intended to create efficiency end up creating more waste (especially when you add in the costs of having to redo the efficiency effort). For your next adventure, think lean startup and follow a new path to a better outcome.

ValueWhen you read hype, it sounds like something is about to take over the world. Read an article on artificial intelligence in the law and you can be sure that the offices next to you are now occupied by robo-lawyers. In another article, you learn about blockchain technology. By the time you are done reading, you fear that if you haven’t mastered blockchain by the end of the day, your legal career is over. The art of hype has taken to new levels the ability to scare the bejeezus out of those being hyped.

Unfortunately, hype has a dark side that we all experience. If you do think there is something to artificial intelligence, blockchains, or any other development, hype is sure to set expectations so high that reality cannot reasonably reach them.  When those scared into learning more dig into the facts they find that the real world pales in comparison. Over-hype a good thing and you can send something down the path to obscurity before it reaches its potential. Value fees almost became one of those victims.

Value Should Be at the Heart of What We Do

Value fees (alternative fees, appropriate fees, etc.) came close to never reaching its potential. Apart from the head of finance at a major law firm, it is hard to find anyone who really likes the billable hour. Everyone knows its evils, but few sing its virtues (we all know there is a reason for that, but some valiantly try to squeeze out a few notes). Value fees were hyped far ahead of their time.

The idea of value fees was and is great. It is hard to argue with the basic proposition that the client should pay what it thinks the service is worth and the service provider should receive what it thinks the service is worth. But you may also think, it sounds like there will be a gap. The service provider will go high, the client go low, and they won’t be able to agree on a price.

Ponder this false dilemma a bit more, and you can see what will happen. The service provider will bring down its price. If the client doesn’t come up, the service provider will learn its prices are too high. If the client does come up, the service provider and client can find a point where the value exchange equalizes and they engage in the transaction.

Value fees adjust for risk apportionment. They also adjust for cost, context, point in time, and a myriad of other factors. Value fees are a way of adjusting more than just the pricing, they can adjust the entire value chain for the transaction, and that is far more efficient than having a pricing system based on a measure insensitive to the concerns I listed above (I’m looking at you, billable hour).

What is Value?

We have just hit the point where many lawyers—law firm and client—drop out of the value fee discussion. These fees require something that has been bred out of most lawyers, and that is the ability to understand how they provide services. Without the knowledge of how services are provided, lawyers find it almost impossible to make value fees work consistently. They see this as value fees being over-hyped and stop using them.

To understand this cycle, we need to explore the concept of value fees more deeply. First, we need to get past the stumbling block for all lawyers. Say “value fee” and the first question you get is “how do we determine the value.” A simple answer usually is best, especially when it is accurate: the “value” of a service at a point in time is whatever the client and service provider can agree on as a price. Second, we must recognize that the billable hour has nothing to do with value. It is a measure of inefficiency—the greater the invoice the more inefficient the process (though not necessarily the service provider).

Most people get, even if they struggle with, the part about the value being what the client and service provider agree upon. They have experience with these types of transactions. When you buy a car, a house, a pair of shoes, or a dinner at a restaurant, the value of whatever you buy is what you are willing to pay the other party.

The other part of the definition—at a point in time— throws many lawyers. The value of the exact same service can vary from time to time. In fact, lawyers also are familiar with this phenomena even though most don’t know it.

Want to buy a book from a well-known online retailer? You go on its site and check out the book, but you can’t make up your mind. The book costs $19.95 and you aren’t sure you want to pay that much for it. A few hours later, you are surfing the web when an ad from that same retailer pops up on a site you are visiting. The ad features the book you wanted, except the price is $18.95. You think “wow, a deal” click on the ad and buy the book.

The retailer’s service is selling you the book, but the retailer couldn’t close the deal at $19.95. The retailer was at $19.95 as its value point, but you were at something less. Based on experience selling millions of books, the retailer decided that dropping the price by one dollar would do the trick. So, it offered the same service at a lower value, $18.95. You agreed, and the transaction went through.

What you did not know, is that when you were buying the book for $18.95, the retailer was selling another copy for $19.95 and another for $19.25. Each time, the service was the same—selling a book and delivering it to the customer (assume that cost of delivery was the same in each instance). But, three different values were placed on the transaction, based on what the service provider was willing to accept and the customer was willing to pay. There wasn’t a “right” value for the service.

A ride-sharing service has become famous (or infamous) for understanding that value varies based on context. Hail a ride on a warm sunny day, and you will be charged $X for that two mile ride. Hail a ride from the exact same location on a day when it is cold and rainy, and the cost will be $X+Y for the same trip. Demand for rides has increased so what you the customer are willing to pay has increased, because the ride has greater value to you (staying out of the cold rain versus staying out of the warm sun).

There isn’t one “value” for a service. There are many values, each dependent on many factors. But if trying to find a value to charge (or pay) for a service is difficult, then how can the parties choose among the many values? A large part of the answer lies in that area lawyers don’t understand—how they provide their services.

If You Don’t Know Cost, You Don’t Know Value

When you don’t understand how you provide your services, you don’t understand your cost structure, and without understanding your cost structure setting a value for your service is the same as being left in the middle of a golf course with a blindfold on and being told to find the golf ball. There is a chance it will happen, but the probability is low.

From the service provider’s side, knowing what you will accept as payment for a service starts with knowing the cost of providing the service. Once you know that cost, other factors come into play that will help you set the value. Assume you know the cost of your services is $20,000 (put aside for the moment how you know that). If you accept $20,000, then you don’t lose or make any money. Now, you can adjust up or down what you will accept for the service, based on other factors.

If the client is a new one who could spend hundreds of thousands of dollars at your firm, you may decide to accept less than $20,000 for the service. If the client is problematic and the risk of payment is high, you may decide to charge $30,000 for the service (keeping in mind, of course, professional responsibility requirements). The $30,000 isn’t an arbitrary value, it includes a profit margin and an amount to cover the risk of non-payment. In each case, the client may agree to your value amount, or disagree and decide to negotiate, or simply go elsewhere. The better you understand your services and the market, the less likely you are to lose the sale.

Now we need to circle back and examine how you knew the cost of your services. Trained in the billable hour, most lawyers assume you determine cost by multiplying the number of hours it will take to provide the service by the cost of each service provider. If it takes the partner 10 hours, and his cost per hour is $250 (even though his billable hour rate is $500), then his cost is $2,500. Do that same step for each service provider, add them up, and you have the cost of the service. Not really.

Every day, each lawyer does things at work that fall into one of four categories: value added, necessary but not value-added, unnecessary and not value-added, and other. We can dispense with “other” quickly. It includes all the things that fill up the day but have nothing directly to do with providing services to clients. Getting coffee, talking to your friends, surfing the web, and so on. Forget about those things.

The other three categories are the ones to focus on. When you say that it costs the firm $250 per hour for that partner, you really mean that it costs $250 for one hour of time spent on some combination of value added, necessary waste, and unnecessary waste. Necessary waste includes those things you must do, but which do not add value. Unnecessary waste includes those things which do not add value and which we can eliminate. Law firms typically do not break time out into those three categories, so they don’t really know the cost of the services they provide. In hour one, the lawyer might provide 45 minutes of value added services, 10 minutes of necessary waste, and 5 minutes of unnecessary waste. But in hour two, it might be 45 minutes of unnecessary waste, 10 minutes of value, and 5 minutes of necessary waste.

We can go back to that partner who spent 10 hours to perform his service. The real question is how many of the 10 hours were wasted? Let’s assume this partner is more efficient than the average lawyer and wastes only 50% of his time. That means that out of the 10 hours, 5 hours were value added and the other 5 hours were waste. Remember there are two types of waste, so one of the 5 hours was waste, but we would not have been able to prevent the waste. The remaining 4 hours of waste truly was waste—it should have been eliminated.

From the firm’s perspective, it cost 5 hours value added work by the partner (at $250 per hour) to provide the service, another 1 hour (again at $250 per hour) to provide waste that they couldn’t remove, and 4 hours (also at $250 per hour) to provide pure waste. What should have cost the firm $1,500 to perform (6 x $250) cost the firm $2,500 to perform. This is what I mean by knowing your cost.

When a market has minimal competition (the good old days in the legal industry), spending too much time to perform a service didn’t hurt a firm. It simply passed the excess cost on to the client. In a competitive market, paying more than necessary to perform a service decreases the potential revenue and profit for a firm. Other firms will reduce their cost, lower their prices, and win the client.

This is where process connects with value fees. The firm that controls its costs—not just the billable hours spent, its true costs—has more flexibility on pricing. It can even reduce prices and make more money than a competitor who doesn’t have control of its costs. The firm controlling its costs can use value fees as a competitive weapon while at the same time giving clients predictable pricing.

Flexibility in pricing is not the same as strategy, though without flexibility you are limited in strategy. Flexibility means you can drop your price below your cost, price at your cost, price over your cost, or charge a premium price, all depending on your pricing strategy. You also can vary pricing depending on the context. In other words, you now control the profitability of your organization. Clients always set the price, but by aggressively reducing costs you can increase your organization’s profitability even when revenue drops.

Conclusion

Lawyers shy away from value fees, claiming they are too complex, require too much work, or that they simply don’t work. Value fees are more complex than billing by the hour and they do require more work. Value fees are for firms that respect their clients and trust them. They are for sophisticated firms that understand pricing legal services should not be an exercise in demonstrating your firm’s inefficiency. They also are for lawyers who believe they should get paid a fair price for what they deliver to clients. For clients, value fees are a better, more nuanced way of making sure they pay for the value they receive, reward superlative service, and recognize when there has been a service shortcoming. For all lawyers, value fees get us off the belief that working 24 hours a day is a good thing.

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! 

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.

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 looked at process improvement from the law firm’s perspective. This week, we continue our look at the value of process improvement from the law firm’s perspective.

When we did the ROI calculation for the law firm’s process improvement event, we got an ROI of -$35,927. As I noted, however, that is how it looks at first blush. We should dig deeper.

It turns out that what seems to be a disastrous event from the law firm’s perspective really is an opportunity. Ask lawyers, and they say the opportunity is to use the “saved” time to do more work for the same client or do work for a different or even new client. In other words, if a lawyer bills 40 hours per week she sees the time saved from the process improvement event as an opportunity to keep billing 40 hours per week, just with a different mix of clients and matters. That is an opportunity, but not the one I see and not one that would drive a rational investor to use the process improvement event.

Rethinking Law Firm Pricing

The opportunity I focus on offers much more to the lawyer and her client. It starts with the value model. Process improvement supports the lawyer moving from the billable hour to an alternative fee structure which can be more profitable for the law firm while costing the client less. We used the assumption that the lawyer bills at $500 per hour, so the lawyer was charging $2,500 for five hours work. After the first process improvement event, it takes the lawyer three hours to do the work, so everyone assumes the price will drop from $2,500 to $1,000. That is a bad assumption.

The value the client received has not changed. The only thing that changed was the input volume to produce that value. The lawyer could switch from charging by the hour to charging a fixed fee based on the value. On a fixed fee model, the lawyer can choose one of several paths including charge the original price, reduce the price a little, reduce the price a lot, or keep the price the same but offer additional services. The demand for the lawyer’s services will play an important role in the decision. The value of the services is determined by what clients will pay, not by the time it takes to provide the service. For example, even though it only took five hours to perform the service, clients may have been willing to pay $5,000. Of, while it still takes two hours to perform the service, clients may be willing to pay only $250.

Lawyers often think about revenue, but not about profit margin. Firms compensate lawyers based on revenue and often pay little attention to profit margin. Lawyers focus on revenue over profit because they are rewarded for doing so. Most large firms still have some partners generating millions of dollars of revenue on which the firms lose money. For example, the firm may have decided to support a practice area as part of the firm’s mix of services even though that practice area does not make moneyIf that is a conscious decision. In that case, the firm has made a rational decision.

Unfortunately, firms often maintain these money-losing practices for the wrong reasons. They may not want to have the firm’s overall revenue drop, the partner who owns the book of business could b politically powerful in the firm, or the firm simply does not know what it makes or loses on the business.

I am going to assume you want every revenue stream to generate a positive profit margin. Firm-wide profit margins vary at large firms, so I will pick 50% for this example to keep the numbers simple (large firm profit margins more typically range from the low 30s to the 40s, though individual practices can go much lower and higher). Our lawyer was billing (and we will assume collecting) $2,500 for five hours work. At a 50% profit margin, the firm made 0.50 x $2,500 = $1,250. What can the firm do when it takes only three hours to do the work under the various options I listed above:

1. Keep price the same. Profit margin increases to 70% ($2,500 – $750 cost = $1,750 profit, $1,750 / $2,500 = 70% profit margin).

2. Reduce the price a little. Our lawyer charges $2,000, and the profit margin still increases to 62.5% ($2,000-$750 cost = $1,250 profit, $1,250 / $2,000 = 62.5% profit margin).

3. Reduce the price a lot. Our lawyer charges $1,500, and the profit margin stays at 50% ($1,500 – $750 = $750 profit, $750 / $1,500 = 50% profit margin).

4. Keep the price the same but offer additional services. The profit margin will be somewhere between 50% and 70%, depending on the services the firm provides and assuming those services are not too costly so they push the profit margin below 50%.

The price our lawyer uses as the fixed fee will depend on many factors. They include the relationship with the client, the competitive market generally, competition for this particular matter, and the firm’s pricing philosophy.

But, one additional factor the lawyer should consider is the ROI on the investment to reduce the time on the matter from five to three hours. Ignoring the investment means the law firm will not recoup the investment, which is just bad business. There is an exception. If market prices are dropping drastically, then investing in process improvement may be a way to reduce costs while keeping pace with the drop in market prices. In that event, the law firm’s profit margin could get squeezed (from 50% to, say, 35%). Practitioners serving individuals and small businesses may be experiencing some of that with technology-driven competitors entering the market.

Improving the Law Firm ROI

Looking back at our law department example, we recall that the in-house lawyer repeated the process once a month. Over five years, the lawyer would iterate the process 60 times. That may sound like a lot of iterations, but when you break down what lawyers do, it is easy to find tasks that lawyers do hundreds of times each year. Time adds up across those tasks, which makes it easy to find ways to generate large ROIs on process improvement events.

We can translate the effect of repetition to the law firm setting. Again, to keep our example simple, we will assume our lawyer in the firm also does the five hour task once a month, though she performs the task for various clients (one month for Client A, the next for Client B, and so on). The initial cost to do the process improvement event stays the same at $15,000. Now we will look at the ROI for the law firm under a few scenarios.

First, we will assume that our lawyer decides to reduce the price for the matter from $2,500 to $2,000. In the first year, the firm will spend $15,000 during the first month. In the second month, the firm will spend $750 (versus $1,250 before improvement) to do the work, but it will collect $2,000 (versus $2,500 before the price drop). In other words, it will spend $500 less but it will collect $500 less, so the net change in cash flow (before the event to after) is $0. It will remain the same throughout the five years for an ROI of -$13,636.

If the firm spent $15,000 and saved $0 why is the ROI only -$13,636? The firm will have spent $15,000 to get no change in net cash flow, but a profit margin increase from 50% to 62.5% (plus whatever benefits they get from reducing the price to clients). The basic ROI formula assumes the $15,000 is spent at the end of the year, not the beginning. It discounts the amount to the present, which is why the ROI is less than $15,000. For those who want to be very precise, you can tweak the formula to address the timing issue.

The ROI went to -$13,636 from -$35,927, which is good, but we still don’t have a compelling argument for process improvement. Before we abandon this process improvement event, we should ask again whether we have considered in our calculations all of the benefits the firm will get from the event.

The answer is no. In our calculation, we assume no value to the two hours per iteration that were picked up from the event. In the first year, the firm picked up 11 x 2 = 22 hours and in years 2 through 5 it picked up 24 hours per year, for a total over five years of 118 hours. If the firm cannot do anything with those hours (they have 0 value to the firm), then our calculation was correct. But, if the firm can use those hours (do work and charge clients for the work), they have value.

Currently, each hour has $250 of value to the firm ($500 billed rate – $250 cost). If we add that value to our ROI calculation, we get a new ROI of $6,154. If the firm can use those hours at the 62.5% profit margin (for example, do the same task for more clients using only three hours and charging $2,000), the ROI increases to $11,101.

We can do a quick summary of process improvement from the firm’s perspective:

1. If a firm does a process improvement event and it sticks with the billable hour for its pricing model, it will be hard to justify doing process improvement. Firms that are comfortable billing by the hour and who have sufficient clients willing to pay by the hour may not benefit by becoming more efficient (at least not using this simple ROI analysis).

2. If a firm does a process improvement event and changes to an alternative fee pricing model, it is easy to justify doing process improvement, provided the firm sees value in the time saved by becoming more efficient. I showed one value—using the time saved to do work for other clients on an alternative fee schedule. There are other measures of value that could be used, such as lower employee turnover, higher client attraction and retention rates, and higher employee satisfaction from doing less wasteful work. Always remember time is the one thing we cannot replace, so saving time has value.

3. Process improvement events have value beyond the obvious. We did not talk about the value to the client of reducing the work time from five to three hours. The client may value getting the work product more quickly. That value may express itself as client satisfaction. Some clients may be willing to pay more for a faster resolution.

We have seen how process improvement events can generate positive ROIs within a law department and a law firm. But process improvement does not live alone today, like it did back when companies first started using it. In the 1970s when Toyota put more structure around its corporate process improvement program, and in the 1980s and 1990s when U.S. companies adopted process improvement, the question was often binary—do process improvement or stick with the current method. Today, another alternative frequently pops up, and that is technology and more specifically computer systems.

It makes sense for us to look at process improvement and ask whether the ROI method of valuing an event has anything to offer when we consider using computers as an alternative to labor. Next week, in the final installment of this four-part post, I will look at technology, the ROI analysis, and add some closing thoughts.

ModularityLawyers think about things in somewhat discrete units called matters. No one has a formal definition of matter we all must use, but we all know them when we see them. A lawsuit is a matter, a contract is a matter, a policy is a matter.

We have, of course, managed to confuse this neat world by using “matter” indiscriminately at times. If you do a lot of over-the-phone counseling for a client, your system may show “Grady Counseling” as a matter. We also collect things, like all the work necessary for company A to buy company B, into a matter we call “A Acquisition of B.” This matter includes many contracts and other documents, counseling activities, and other tasks.

When we talk about matters which include multiple tasks—that is, when we refer to matters as collections of tasks rather than discrete tasks—we create the possibility and usually the reality of a networked system. “A Acquisition of B” includes contracts and other documents, some of which are based on templates taken from “X Acquisition of Y.” These matters are now linked through a common document template, the asset purchase agreement template.

Active law practices have lots of networking, or linking, because templates get used often. I may have a standard form or motion I use in litigation, a basic form of will, or a standard ERISA 401k plan document. The more often I use it, the more networking affects my system even if I modify it for each particular use.

We can think of each template as a module that gets used and re-used in our network. That module addresses one thing. But, we can plug the module into many situations which need the one thing. Using the module stops us from re-inventing the wheel each time we need whatever the module covers. Using the example above, you would not want to draft an asset purchase agreement from scratch each time you had a client making an asset purchase. You use a template (the module) which allows you to customize the basic template.

The Modular Office

Although programmers have used modules for a long time, certain of the key programs most lawyers use are not modularized when viewed from the user’s perspective. The most famous programs comprise the Microsoft Office Suite—Word, Excel, PowerPoint, Outlook, Access, and OneNote. Office (in one of its many forms) has about 1.2 billion users so anything involving Office could have a massive impact.

Microsoft has explained many times that the organization’s focus is moving toward the cloud and mobile computing. Neither is a surprise as these are overwhelming trends in the tech industry. The interesting note here is that Microsoft also plans to modularize Office. What does this mean?

Start with how you work today. If you want to write a document, you open Word. If you want to crunch numbers, you open Excel. And if you want to tell a story, you open PowerPoint. Behind the scenes, these and the other Office applications share data and processing modules, but to the user they are three separate programs. With the evolution of mobile computing, things get a bit more complicated because some of these applications are easier to use in the desktop world and some work just fine on a smartphone.

Microsoft’s vision involves looking at the “problem” from the user’s perspective and re-defining how the applications work based on what the user wants to do. One example given by the executive vice president of Microsoft’s Applications and Services Group is the post-meeting distribution task. After a meeting, you need to circulate the notes and PowerPoint deck from the meeting to the attendees. Doing this task today would involve using parts of different applications. Tomorrow, in Microsoft’s view, you could simply ask (orally) your computer to do the task. It would know the meeting, the PowerPoint, and the notes and send an email (via Outlook) of the relevant documents to the meeting participants.

Modularity and the Augmented Lawyer

Microsoft’s focus on the modular Office product takes us in the direction of what I call the “augmented lawyer.” This lawyer combines human skills and computer capabilities to deliver solutions to client problems. Augmented lawyers look for ways to combine the best of what computers can do and the best of what humans can do to find higher quality, lower cost, and more timely solutions to client problems.

The augmented lawyer could use the new form of Office to accomplish many tasks faster and with better quality. Assembling a motion for summary judgment might happen when the lawyer asks the computer to assemble the various parts into an e-filing document. Quality increases, because each time we take the human side down and bring the computer side up we have an opportunity to reduce mistakes (when we don’t get better quality, we typically had a process design issue not a computer problem).

Modularity is another way of talking about disaggregation. At the macro level, we can disaggregate projects into tasks and operations. At the next level, we can disaggregate tasks and operations into components done by humans and ones done by computers. As we disaggregate and automate (again, putting aside our mistakes in re-designing the process), we make improvements. Each improvement may seem small, but over the course of days, weeks, and months these small improvements can mean the difference between a viable practice and one that is too inefficient to survive.

Modularity is Coming to Legal Services

Lawyers who have not already done so need to think about modularity in their practices. Having lawyers in a firm or law department continuously repeating what others have done does not add value. When several lawyers, each sitting in his or her own office, review and revise contract terms that that have been beaten to death by generations of lawyers, clients get poorer and lawyers get richer but value is not created. Lawyers’ desire for autonomy needs to become subservient to clients’ desire for for improvement.

One of the early hallmarks of becoming an effective augmented lawyer will be adopting the modularity concept. Lawyers, firms, and departments that do so will see significant efficiencies and quality improvements, and most likely many other benefits. For those who move first, it will give them many opportunities and a significant lead over their competitors. The danger of being the first-mover and choosing Betamax over VHS exists, but only for those who act by tying themselves to an inflexible structure. Another hallmark of the successful augmented lawyer will be avoiding the urge to become inflexible.

Microsoft’s vision is one example out of many about where software is headed. Law firms and departments have tended for many years to prefer enterprise systems or network systems that, once installed, are difficult to adapt to rapidly changing worlds (and expensive). While the future always is murky, focusing on modularity in both computer systems and legal practice design will enable lawyers, firms, and departments to move quickly and focus on client needs rather than face the titanic task of changing course every year (or less) in the new, competitive, legal world.