DNARemember those crime shows on television? You know the ones I mean. The bad guys committed the crime, the police investigated the crime, the forensics lab solved tricky scientific problems, and the DAs  prosecuted the crime, and the jury delivered a verdict. Everything was tied a neat bow. In one hour, injustice and justice combined.

Scientists got smarter and tests more sophisticated. DNA testing became commonplace. At first it took months to get the results, then day, hours, and now I am sure there is a show where they swipe the suspect’s hair on their iPhone and get the results before the police can raise the yellow crime scene tape.

DNA testing is the rage. Genealogy companies offer it as a service, you can get tested for health problems, and at least one company offers DNA testing as an employee benefit. I love the genealogy company commercials where the actor says he is part this, part that, and part the other thing. Confirmation that we all have a lot of everybody else in us.

We have the same DNA mixing going on in the legal industry right now. Four hot methodologies share common ancestors: lean thinking, agile (scrum) project management, design thinking, and lean startup. If we look closely, we can see the family resemblance.

Think Lean

Lean thinking sits closest to the roots of this family tree. Bits and pieces of what we call lean thinking started coming together in the 1850s, though of course nothing is new. We can find antecedents to many lean ideas if we look at how people solved nagging problems. But, most people point to the 1970s as the period when many ideas that became known as the Toyota Production System jelled. In 1996, Womack, Jones, and Roos published Lean Thinking. For most, this book was the tipping point. Lean thinking started growing in the United States. It now sits in all industries and as the most popular form of process improvement.

Manage the Project

Project management comes in two basic flavors: heavyweight and lightweight. Heavyweight is the traditional, waterfall approach to project management. Most people touch waterfall project management at some point in their careers. It requires significant planning, proceeds methodically from stage to stage, and works best if the situation calls for tight and sequential process control. Want to build a 100-story skyscraper? Waterfall project management will do the job. Lawyers have found waterfall project management a bit restrictive and not well-suited to a rapidly changing environment.

Lightweight is “agile” project management and includes several of flexible approaches. Scrum is the legal industry’s favorite. Scrum requires small amounts of planning, adapts quickly to changing circumstances, and focuses on doing only what is needed when it is needed. Lightweight project management was born in the software industry and has replaced heavyweight for many projects.

Think Design

Design thinking is gaining traction in the legal industry. It also has an interesting lineage. The version we see most often dates back to the 1960s (though it also has roots dating farther back). Brothers Tom and David Kelley developed it as part of their IDEO design business. As the wheel diagram shows, it has grown as the theories behind design have moved from user participation to users being an integral part of the design process. Design thinkers take a fresh approach to creating solutions, focus on the customer, and use rapid ideation and prototyping to avoid the slow and wasteful linear process to design.

DT Circle
From “A Brief History of Design Thinking: How Design Thinking Came to ‘Be’ ’” by Dr.Stefanie Di Russo. https://ithinkidesign.wordpress.com/2012/06/08/a-brief-history-of-design-thinking-how-design-thinking-came-to-be/

Startup Lean

Eric Ries brought us The Lean Startup and the idea that new ventures should adopt principles that helped old manufacturers. Most lawyers forget that their practices are startups. Client demands evolve, law changes, competition introduces new ideas. A lawyer, regardless of where she practices, should think as an entrepreneur thinks. Avoid waste, prototype and pivot quickly, focus on what your client needs not what you want to deliver, build only what is needed, and stay nimble.

Sharing the DNA

All four methodologies focus on delivering what the customer needs when the customer needs it. This focus ties into a broader theme in business right now, typified by the one-to-one marketing philosophy. Rather than trying to sell a product or service that compromises in many ways to meet the needs of the average consumer, businesses try to sell products and services tailored to the desires of each consumer. The closer the product fits the customer’s needs, the less waste involved.

The following chart, which comes from a paper Roland M. Mueller and Katja Thoring prepared for the 2010 Leading Innovation Through Design Conference, briefly touches on some of the similarities and differences of design thinking and lean startups. Their paper, titled “Design Thinking vs. Lean Startup: A Comparison of Two User Driven Innovation Strategies,” gives you a flavor of how two of the four methodologies bear a family resemblance.

Screen Shot 2017-03-18 at 8.04.09 AM
From “Design Thinking vs. Lean Startup: A Comparison of Two User Driven Innovation Strategies,” by Roland M. Mueller and Katja Thoring .

I can buy shoes and apparel that I’ve customized with colors and features. I can use websites to build my car or my furniture, selecting the specific accessories I want. Retailers are famous for marketing one-to-one, sometimes using a bit too much information to guess what the customer needs (the retailer offering discounts on baby items to the teen who hadn’t told her parents she was pregnant).

The four methodologies share a focus on speedy development and revision. In the past, businesses focused on planning. They built business models, planned for contingencies, and worked through as many angles as possible before they made a move. In the present, they try, change, try, change, and repeat. They get something out there, test it, and change direction as fast as they learn from customers. The lean-based methodologies I have named make that rapid approach possible.

We Know What We Don’t Know

The practice of law—the methods and techniques of delivering legal services—has received almost no attention from scholars. Why bother spending time on something everyone does the same way and no one will change? For decades, this omission distorted our understanding of law. How law is delivered impacts the substance of law as much as what law is delivered. Take a simple example. Contracts of adhesion. We sign them every day—every time we click through something that says “by clicking here you acknowledge our terms and conditions.” That method of legal services delivery impacts your rights (embedded somewhere in those terms and conditions) more than the theories of bespoke negotiated contracts.

The odd legal industry culture has received some attention, especially in recent years, as its idiosyncrasies have impeded progress in solving society’s problems (e.g., poor access to civil justice, quality issues, affordability issues). At this time, that culture—resistance to change, failure to adopt technology, lack of affordable legal services—has stirred resentment and anger among citizens. If someone cannot protect their legal rights and loses their job or their house, someone else is to blame. Lawyers play a part in those dramas. Ineffective legal services delivery has more importance than the substance of the law involved.

Four “Leans” and the Law

For the past five years, as interest in project management, process improvement, design thinking, and lean startups, has accelerated, we have seen a kaleidoscope of implementations. Few have a good grasp of how to combine these methodologies into a coherent program for delivering legal services, or choose which ones to emphasize and which to de-emphasize. Think of four musicians each learning a different instrument. One challenge is to learn the instrument, but the second challenge is to learn how to play as a band. We have inexperienced musicians who skip band practice.

This confusion has negative affects on law firms, law departments, and clients. Rather than providing coherent ways to deliver affordable legal services, based on concepts such as efficiency and increasing quality, they are seen as an extra burden to practicing law. Law firms and law departments have not learned how to make these methodologies work together. They have lacked the assistance of scholars to light the path. Some consultants have helped, but most focus on only one or two of the disciplines. A few of us work on researching, synthesizing, and explaining these disciplines combine in law, but it is—admittedly—a slow process.

This leaves the industry with a gap. Many lawyers acknowledge the need for change, but find it difficult to do so without significant help. Other lawyers need convincing. They want proof that if they change, they will succeed. Most stay on the fence. Clients, however, are not on the fence. They want change.

Getting the Band Together

How can we proceed? In the context of the four methodologies I have discussed, I will make some suggestions:

1. Collaborate and Share. Break down the historical barriers between the practicing bar and academia. Scholars need access to practicing lawyers, data, and clients. With this access, they can apply many tools and techniques to identify challenges and point to solutions. Scholars have strong interest in this work, and law firms, law departments, and clients benefit.

2. Focus and Share. A big challenge in evolving legal services is deciding where to focus your energy. Every month someone has a new thing to draw your attention. Metrics. Technology. Process. Project. Doing the basics of a law practice seems to take a full day. Add these new things to the old add-ons (e.g., marketing) and focus drifts. Nevertheless, you must focus. Go T-shaped. Understand your domain in depth, but become familiar with the other areas. If you spread what you need to know among many, the burden on each of you drops.

3. Bend and Share. Inflexibility. Lawyers do what they do because that is what their mentors did, and their mentors, and so on. Decades of doing the same thing worked well for most lawyers, until the late 1980s. The two-humped camel of the legal industry emerged. Large law firm lawyers to the right, everyone else to the left, and a valley between them. As real competition emerges in the legal industry, lawyers must learn to flex, to bend, to adapt. Sharing knowledge and techniques among themselves and with others will be key to coming through this transition and succeeding on the other side.

The Stakes Are Higher Than Large Corporation Legal Fees

Although the legal industry has existed for centuries, it is an immature industry. The business model that brought many lawyers fortunes was fixed a century past. Now, it has a stranglehold on us inhibiting change. The four lean methodologies I described are opening new business models, but we have a long journey ahead. We need to progress faster if we want to keep the profession from slipping deep into irrelevance. That is a worthy reason for change. The compelling reason lies outside the industry. A healthy, functioning, and responsive “legal infrastructure” (as Gillian Hadfield has named it) is essential to our society. Letting that legal infrastructure decay, the way our general infrastructure has decayed, brings a massive threat to all of us.

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! 

LeanCost

The first week, we started down the path of evaluating the cost of process improvement for a law department. This week, we finish that analysis and start to look at process improvement from the law firm’s perspective.

We ended last week on a cliffhanger: how to solve the following equation:

ROI Formula

This should not be a scary equation. Finance departments often use this equation (or a very similar one) to help them decide whether to approve a project. Law departments can use this equation to decide whether to invest in software, a process improvement project, or any other undertaking that requires an investment. Law firms should (and presumably some do) use this approach as well. For example, will a new office be worth the investment? New software? You could use it to evaluate a new partner or practice group. ROI is a powerful tool if used correctly.

So how do you use it? Let’s define the variables in the above equation:

t = A counter. In a five-year analysis, t goes from 1 to 5. In a three year analysis, it goes from 1 to 3.

r = The discount value. As I said last week, we typically use the corporate cost of capital. For our example, we will use 10% (0.10).

CF = Cash Flow. When calculating savings, it is the amount saved each period minus the amount spent each period. For example, if you spend $15,000 in year but you only saved $10,000, your cash flow would be $10,000 – $15,000 = -$5,000 (negative cash flow). If you saved more than you spent, you would have positive cash flow.

Terminal Value = This is the expected cash flow value beyond our measurement horizon (five years or three years). Think of it this way, at the end of five years if you are still using the process, then you still save from the initial process improvement project (assuming you didn’t eliminate the steps where you got the savings). To be intellectually honest, we should include those savings when calculating whether the process improvement effort has a positive ROI. Five years is a long time. So, we can make a very conservative assumption. We assume that the process only lasts five years—that is, we assume we do not get any savings after five years. If the calculation yields a positive ROI with 0 as the terminal value, then we should do it even if we do not get any savings after five years. If it yields a negative ROI, adding a terminal value may save it, but we would want to be very sure the process will survive more than five years. For our calculation, we assume 0 as the terminal value.

Now we can write out our formula with specific numbers and do the calculation. First, I will do a pseudo formula. I will use words and write the formula informally, putting in numbers for the variables. Then, I will write the formal formula and do the calculation.

Pseudo Formula

In year 1, we spend $15,000 and get a savings of 11 months times $500 per month.

In years 2 – 5, we spend $0 and get a savings of 12 months times $500 per month for each of four years.

Actual Formula

CF Calc

Do the math, as they say, and you get an ROI of $8,654. From a rational investor’s viewpoint, it is worth spending the time to do the process improvement, because you will save money over five years. From the lawyers’ viewpoint, it still may be a tough sell. Given all the other benefits and that this was a training exercise, it still makes sense to do it (at only one hour savings per iteration, the ROI is -$2,719 so the other reasons would have to be more compelling).

The next step shows how you start to realize the true power of process improvement. The team can do additional process improvement events and they can tackle any process they want. For small processes, they can go it alone without the trainer. For larger or more complex processes, they can use the trainer as a consultant. As the team brings on different members and those members become trained, the process improvement knowledge spreads and many teams can do process improvement simultaneously. Eventually, you move from isolated events to continuous improvement.

At continuous improvement, teams take on larger or more complex processes, while everyone does daily process improvement. An organization where all the employees look for and implement improvements each day will achieve tremendous efficiency and cost savings. It also realizes the compounding effect of process improvement.

The Power of Compounding

If we go back to our first example, the team eliminated two hours of waste from a five hour process. Whenever teams do process improvement events, they find more things to improve than they can tackle during the time available. The ideas they don’t reach go into a “parking lot” and become the ideas to implement during the next event. Assume our team went back to the five (now three) hour process two months later. After two more days, they may be able to cut the time from three hours to 1.5 hours (a 50% reduction). The ROI would be $5,354, so doing the event would make sense. Overall, with two events, the team has taken the time to do each iteration from five hours to 1.5 hours, a 70% reduction in about two months. In process improvement events, reductions in the 50% to 75% range are quite common, at least at the start.

Many of you will have caught another benefit. The three and one-half hours saved each iteration become available for reassignment. The employer could do some combination of the following 1) use the time for other work not being done, 2) use the time to do work currently being done by an outside law firm, 3) use the time to do new things that need to be done, or 3) (gasp) give the time to the employee (e.g., reduce the work week from 50 hours to 46.5 hours). There is a value to each of these and we should include that value in our ROI calculation, which means the positive ROI for each of the two events just increased.

You can see how process improvement brings “force multiplier” benefits to an organization. This is one reason why organizations of all stripe have embraced process improvement. You also can see how it engages employees. My description covers the most basic form of process improvement, and yet you can see employees attacking the problems that bother them every day. Becoming a process improvement virtuoso takes years of dedicated practice just like becoming a piano virtuoso. Talented process improvement trainers can accelerate the learning and effects of process improvement teams, so organizations find they want to have them around at least until the develop or hire their own experts. That increases cost a bit, but the cost increase is quickly offset by the increased efficiency.

The Law Firm View

The ROI analysis I just did makes sense if you work in a law department. The lawyers and their colleagues do not get paid more if they spend more time doing work, so efficiency rates high on the list of things valuable to them. But what about a law firm? Law firms work on the the inverse presumption: the more work they do the more money they make (under the still-predominant billable hour model). Why would lawyers in a firm do process improvement if their clients were not demanding it?

We will go back to our familiar ROI analysis. We will use the five hour to three hour to one and one-half hour example above, but now we will do the calculation from the law firm’s perspective. To make the example easy to follow, we will assume the cost to the law firm of the lawyer and the cost of other professionals is the same as the cost to the company. That is, a lawyer costs $250 per hour and other professionals cost $70 per hour. I know the cost for these professionals at law firms often is much higher, but that is not the point in this example. You will substitute actual costs for my imagined numbers. Our purpose here is to learn the method not find absolute truth.

One more note about the cost of lawyers and other professionals to a firm. There have been many arguments about whether the cost of the lawyer is her base salary or draw, or base salary or draw plus bonus, and whether to add in overhead. On the first question, I think cost is what you pay the person – all in. You should use salary plus bonus or draw plus bonus (using the prior year’s numbers is close enough). On overhead, I also think you should apply an overhead cost, because the firm spends the money.

Now let us go back to the calculation. In the first year, we assumed a total cost of $15,000 to the employer (in this case the firm). That included time, trainer, and supplies. In the law department example, we assumed 11 months of savings at $500 (two hours) per month. But, for the law firm, there is an additional impact. The firm saves those two hours but it also does not bill those two hours. At first blush, it seems like we should save $500 but lose the revenue of two billable hours (assume each lawyers bills at $500 per hour, so two hours lost revenue means $1,000). Our cash flow calculation now changes.

In the first year, we spend $15,000 and then we have 11 months of $500 – $1,000 (two hours cost saving minus two hours revenue loss), or 11 x -$500 = -$5,500. For years 2 though 5, we have twelve months each year of -$500 cash flow per month, or -$6,000 per year for each of four years. We can run the ROI calculation (the result is -$35,927), but it doesn’t take a finance expert to know that if you lose money every year, the ROI will be negative. It looks like this is a disaster from the law firm’s perspective.

As you may guess, the problem does not lie with process improvement  it lies with our calculation. To be a bit more precise, we are not properly looking at the inputs, outputs, and value so we have a GIGO problem (garbage in, garbage out). Our calculation gives us a misleading result because what goes into our calculation is not accurate.

Next week, I will go through how we can correct the inputs to our calculation so we get a meaningful result. If you are skeptical, think of it this way. Toyota started doing process improvement in the early 1900s and pulled together the program by the 1970s. It still carries on the program today. Beyond Toyota, process improvement has swept through companies in all industries, manufacturing and service, so that today it is easy to find even very small companies regularly engaged in process improvement. Process improvement has proven its worth and next week I will show you how our ROI calculation, once we improve the inputs, shows that process improvement works even in law firms.

Not your father's / mother's lean thinkingNot that long ago, I gave a presentation with a few co-presenters, one of whom had been involved with lean thinking for as long as I have (decades). We both came to lean through manufacturing roles, but then our paths diverged. He remained in manufacturing, but today he is bringing lean to service industries as well as manufacturing industries. I moved out of manufacturing and have been using lean in the service sector for 20 years.

Each of us presented at several times throughout the two-day event. We shared a common background in lean, so when we were talking about the basics we spoke the same language and had the same views. But, when it came to implementing lean in the legal industry, things got interesting. I spoke from the experience of implementing lean in the legal industry and guiding lawyers on how lean fits with practicing law. My co-presenter spoke about how he thought lean could work in the lean industry, though the closest he has come to the legal industry is the healthcare industry.

As we talked during breaks, my co-presenter commented about how lawyers use lean tools a bit differently than manufacturers use those tools. Part of the difference came from lawyers focusing on certain tools more or less than manufacturers. Another part came from lawyers using certain tools more extensively than they are used in manufacturing.

Recently, a friend at another law firm raised a similar point. He knows lean from a stint working in a major corporation that had implemented lean six sigma. He remarked that in the legal industry, we spend a lot of time talking about process mapping, which is something not used much in his prior corporate lean six sigma life.

These discussions, a few others like them, and my own experiences in implementing lean in the legal industry have led me to a description of how and why lawyers use lean. Before I give you that description, keep in mind a few additional points. First, as I discussed in another post, lean thinking is in a phase where what someone means when they say “lean” has moved quite a bit from where lean started. Second, the motivations for doing lean aren’t as simple as they once were (more on this below). Third, lean has been incorporated into areas outside of its original scope, so lean today means something much broader than it did years ago.

Why Lean Looks Different with Lawyers

Think of lean thinking starting as a book written in Japanese many years ago. Lean thinking was not exclusively developed in Japan and many of its components come from ideas and methodologies developed before Toyota pulled them together. But, clearly Toyota led the way in combining pieces, adding new ideas, and built the philosophy of lean thinking. Taiichi Ohno, considered the father of lean, wrote his treatise in Japanese.

Over the years, the original book was translated into English, other lean thinkers wrote books on lean, and the lean story developed beyond its Toyota roots. It became a more complex story with many authors and viewpoints, but it still held true to the original version. This story is what many of us know today as lean thinking.

When it came time to use lean in the legal industry, the story was re-written. I think of this as a book being adapted into a screenplay. The writer adapting the book must take a complex and nuanced work and turn it into something that works in a two-hour movie format. The writer cuts many parts, simplifies some, and combines others to make the transition. To those who read the book, the movie usually seems quite different. You recognize changes made by the screenwriter. The movie still is entertaining, but comparing it to the book is unfair. Books and movies are different storytelling media, they have different pros and cons, and what works in one doesn’t necessarily work in the other. For example, long soliloquies may work well in a book, but often don’t work well in a movie. They start from the same story, but each must stand alone in how it tells the story.

The version of lean adapted for the legal industry is different than the book of lean written in Japanese. Viewing lean in the legal industry, lean thinkers from manufacturing will see ideas missing, other ideas combined, and some ideas modified to work in our “media.” This doesn’t mean lawyers are doing lean “wrong,” that lawyers don’t understand lean, or that lawyers miss the point of lean. It means that lawyers have to make the story work for them. It needs to be meaningful and provide value to the legal community.

Lean Implementation for Lawyers

Process mapping is an example of something from lean used more extensively in the legal industry than outside it. For those of us who learned lean from first generation lean thinkers, process mapping is a minor thing, at best. When I learned lean, we did very little process mapping. We jumped in to the process and, after a few quick steps to capture the existing state, went immediately to improvements. In rapid succession, we would come up with changes, implement them, measure, adjust, and then repeat. The emphasis was on rapid. In the legal industry, however, process mapping has a much higher profile. Why is that?

The legal industry has been very low on process understanding. Obviously, the legal industry has processes since processes are simply a set of steps that lead you from beginning to end. How you prepare a meal, cut the lawn, and get ready for work each involves a process. Lawyers complete transactions, resolve disputes, and create contracts. To do so, they employ processes. But, unlike other functional areas, law departments and law firms tend to use uncontrolled processes. Even the lawyer sitting in his office who writes contracts tends to approach each contract somewhat differently. That is, he follows a different process each time. This holds true even when the lawyer handles only one type of contract.

Let’s use lawyers who do leases for retail tenants in malls as an example. Although you might think these lawyers would approach each lease the same way, they often don’t. In many cases the variations from how they handle one lease to the next are significant.

Think of a law department with 10 attorneys. If you gave the same contract to each of those 10 attorneys to review and revise, you would get 10 different results. The 10 attorneys would follow 10 different processes. Some of the processes may be fairly similar, but some will differ significantly. The final revised contracts also will have many differences. The lawyers may have changed the same sections of the contract, but their changes will use different terms. One lawyer will have added sections; another lawyer will have deleted sections. You will have 10 new contract versions. We are all too busy today, but if you find a few spare minutes try this test with just a few attorneys in your department.

Therefore, the legal industry uses process mapping to build an understanding of what processes currently exist and, in some cases, to create a basic, repeatable process. In other words, the legal industry is starting a step or two back from other functional areas and using process mapping to catch up. We spend a lot of time on process mapping so that we get to a common foundation for our improvements.

There are other differences between lean in law and lean outside law. For example, many legal processes have adversarial components, something not often found outside law. Contract negotiations involve two or more parties. Litigation involves two or more litigants. Regulatory matters involve the regulated and the regulator. Legal processes in these adversarial situations must take into account waste created by another party not within the control of the law department and unexpected actions by the other party.

Finally, there is the data challenge. As a group, lawyers have been dataphobic. It is one thing to say lawyers do not collect data. While in some ways that is correct, in many others it isn’t. Law firms and law departments often are treasure troves of data. The challenge is that no one thought of themselves as collecting data, so the treasure trove is a mess. When I started working at one company, I asked about the historical records on legal spending. I was taken to the basement (where old records were stored), and led to a caged area. Once we found the person with the key, we went into the cage where we found several pallets with boxes stacked on them. The boxes were marked for different periods, such as January 19XX to December 19XX, and each box contained the invoices sent to the law department for that period. The invoices were stuffed into the boxes – thousands and thousands of pages of invoices. They weren’t organized in the boxes and the data on them was hard to access (an understatement). We had data, but it was worthless.

In other areas touched by lean, data typically is much more accessible. Many times it is relatively easy to construct new metrics and capture data on those metrics. But, ask some lawyers about capturing data and constructing metrics and you get a different response. Think how most lawyers feel about capturing billable time and you get a feel for how lawyers think about data. Yet, lean depends on data. Without data, we have no way of knowing whether our improvements actually made things better or set things back. We would be making blind changes. The challenges of data catch many lean practitioners off-guard when they cross paths with the legal industry.

The Movie or the Book

A movie isn’t better or worse than a book just because it is a movie. Similarly, lean implementation in the legal industry isn’t better or worse than lean implementation outside the industry, it is just a different lean implementation. The trick, if you will, is knowing when to adjust traditional lean approaches to work in the legal industry.

Some people like books, others like movies, many like both. If you are in the legal industry, you are going to see the movie – the legal industry implementation of lean. For many, that will be enough. Others will want to push further, get greater benefits, and take their law departments to new levels of performance. For those lawyers, it may be worthwhile to buy the book – learn about lean use outside the legal industry. Whichever route you go, remember to have fun. Lean can do wonderful things for lawyers, and not just by saving costs. Lean implementation can free time so that you can do much more with your career, your department or your firm. But, if you can’t have fun while doing it, you are missing out on one great aspect of lean.

 

The good times are here. Stock market indices are high. Despite questionable economic growth, investors are putting money into equities. Most companies are not in crash-and-burn mode. So why should you prep your law department for a downturn?

Prepare for a Downturn When Your are on an Upturn

First, leaders should always have a backup plan. The world, markets and industries are fickle places. Sometimes, it does not take much to turn what seemed like a good year into a financial challenge. Thinking through in advance (usually the best time is when you are preparing the budget for the next year) what you would do if your assumptions changed for the worst gives you time to develop reasoned responses.

Second, economies are cyclical, at least to some degree. When everything is up, there is a good chance the next cycle will go down. If you wait until that cycle starts you will most likely make hurried and not-well informed decisions about how to reduce operating costs. It is a bit like going to the grocery store when you are hungry, but without a shopping list. All of those fattening items in the checkout lane look a lot more tempting even though you know they aren’t good for you.

Third, downturn preparation is learning how to do more with less. While the trigger might be a change in economic fortunes, the result is the same:  you have at least as much to do as you did before, but your resources are constrained. Your preparation is learning how to flex. Flexing is an essential part of being lean (great lean overview here) – learning how to scale up and down without having big swings in labor. Today, there are many ways to address surges and drops in demand by using disaggregation approaches – legal process outsourcing, for example. Still, these approaches work best when thought through in advance and you have had time to perform due diligence on vendors and costs.

Be Flexible, Be Calm, Be Prepared

There are many ways to prepare for a downturn (learn how to flex), but the key is to make it part of your regular management routine rather than a chore to be done at the last minute when adversity strikes. When the cost hammer comes down and the work surge flows through, a well-prepared legal team takes it in stride without additional stress. Clients appreciate the calm, professional “quiet in the storm”-way lawyers handle the situation. Coming out of the challenge, you may find your law department working more efficiently with fewer resources and a new normal baseline.

Consider one final point. Cost reduction programs often are treated as headcount reduction exercises, with additional work being heaped on the survivors. In addition to showing little respect for employees, such approaches typically ignore more effective ways to reduce costs. Aggressively tackling processes and improving project management should reduce the work level necessary to complete matters. Your law department may now be able to handle work formerly sent to outside counsel.