In this article, we will examine: 1) the concept of Lean for law; 2) the business case for using Lean in the practice of law; and, 3) examples of where to use Lean in the practice of law.
Lean management relies on team effort to improve efficiency, speed and performance by systematically removing waste from a process and increasing its flow. While the concepts have been around forever, Mr. Taiichi Ohno codified the Lean management philosophy into the Toyota Production System.[1] Waste is defined as anything other than that which adds value.[2] The eight wastes of Lean are Defects, Overproduction, Waiting, Non-Utilized Talent, Transportation, Inventory, Motion, and Extra-Processing (commonly referred as DOWNTIME). Two significant aspects of Lean to the practice of law are its focus on the “voice of the customer” and its value of defect prevention over defect detection. The goal is to “get it right, the first time around.”
Many thought leaders advocate the implementation of Lean with Six Sigma for law. Six Sigma’s is a statistical-based methodology and set of tools to reduce and control variations. While Lean focuses on waste reduction in the end-to-end process, Six Sigma tackles areas of sub-optimization within that process to reduce variation. Six Sigma was developed by Motorola in the early 1980’s based on quality management fundamentals and became a popular approach at General Electric in the early 1990’s. Sigma represents the population standard deviation, which is a measure of the variation in a data set collected about the process. If a defect is defined by specification limits separating good from bad outcomes of a process, then a six-sigma process has a process mean (average) that is six standard deviations from the nearest specification limit. This provides enough buffer between the process natural variation and the specification limits.[3] . Six Sigma relies heavily on statistical data analysis and design work to reduce variation.
Lean and Six Sigma are an ideal combination. However, lawyers have a negative, and sometimes valid, reaction to reducing their work to a process with little or no variation. We will posit that introducing a combination of Lean and Six Sigma to start innovating traditional legal processes may be too much to tackle in the first-instance. Rather, a focus on Lean first will produce significant and measurable improvements to your practice. Best of all, it can be implemented with a few adjustments.[4]
Lean achieves its goals by using simple tools such as Kaizen[5] events, Kanban[6] systems, value stream mapping, and DMAIC cycles.[7]
It is important to remember, however, that Lean is not only a set of tools; it is a culture. When a Lean culture exists, improvement will be sustained. How do you start? By training your teams on the concept and value of Lean. Then select a process you want to improve, it could be anything: conflict checks, time entries, invoicing, preparing for an initial 26(f) conference, responding to discovery requests, document review, or any process that has become a pain point. Lean applies anywhere where waste exists. If you are introducing Lean to the organization, it is important that you select the right project to start. It should be narrow in scope but, when improved, it should impact key performance metrics such as resources, costs, and client satisfaction. The next step is to prepare and run a well-executed Kaizen event and start the path to continuous process improvement. Lawyers are familiar with the relentless pursuit of perfection, we only need to improve the way we map that pursuit.
Law firms must adjust to remain competitive in a market where technology, alternative legal service providers (ALSPs), the Big Four, and sophisticated in-house legal operations departments, are all eating into law firm profits. The competition is doing this by listening to the voice of the customer and delivering results. Clients will continue to demand innovation through technology and business approaches. They want quality services delivered faster and at a lower price point. Lean is a tried and tested business methodology that addresses precisely those demands. It increases efficiency by reducing waste in any process. Since wasted time, resources, and money are endemic of so many legal processes, it follows that embracing a Lean management style at the law firm level will help firms stay competitive. To give the business case additional context, let’s look at the past and the current state of affairs.
Traditionally, lawyers have profited from the billable hour concept and a steady stream of high-volume work. Both of those avenues for generating revenue are under attack. Clients prefer fixed rates, capped fees, alternative fee arrangements or contingency fee-based engagements. If the firm sticks to the hourly fee structure, clients are often demanding steep discounts or realization rates go down, sometimes both. It has become customary practice for clients to refuse to cover many costs that were traditionally passed through or to pay for first or even second-year associates. Additionally, much of the labor-intensive work at law firms, document review being the main one, is being contracted out to vendors almost 100% of the time. Moreover, if done right, buyers should be seeing document review time drastically reduced given the availability of artificial intelligence and the analytics tools available in the market. Artificial intelligence will also continue to take away work from lawyers in the areas of legal research, contract drafting and management, and due diligence reviews, to name a few.
At the same time, corporate spending in alternative legal service providers (ALSPs) is increasing fast. This year, about 75% of corporations surveyed say they are using ALSPs in at least one service category. [8] This trend will continue. In 2018, a second global survey of ALSPs was conducted and found that the ALSP market had grown significantly to about $10.7 billion in annual revenues or a compound annual growth rate of 12.9 percent.[9] The 2018 study also concluded that the average growth rate for an ALSP not affiliated with a law firm was about 24 percent per year.[10] Equally significant, the 2018 survey confirmed that the services provided by ALSPs were rapidly moving “upmarket” to include (among others) such sophisticated work as regulatory risk and compliance, project management, legal research, and corporate due diligence.[11]
The data begs the question: Why have law firms not been quicker to adapt and provide these services in a competitive fashion? To understand the resistance, it is fun - but way too simple - to blame it on the lawyer’s pathological resistance to change. The “2018 Report on the State of the Legal Market” issued by the Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute compares the strategies of many firms to the French strategy of the “Maginot Line” – a seemingly impregnable fortification that provided a false sense of security until it was easily defeated in the early stages of World War II.[12] The report theorizes that strategic blind spots, decision-making inertia and unwillingness to adapt strategies to changing conditions can lead decision makers to ignore signs that the world has progressed, and current strategies may not be working.[13]
There are other underlying factors at play that help explain the inertia. A key one is that technology moves exponentially faster than the practice of law. It took ages to get lawyers to use predictive coding even though the technology had been around for a long time. Why? Lack of planning, training, and comfort have a lot to do with it. When you do not know how else to do it, you keep doing what you’ve always done. Yes, we know, there are many of you out there still reviewing every document hit by a Boolean search. A Lean approach would measurably improve the document review process. It all starts with team formation and collaboration. Without taking into consideration the end-user's needs, as well as the client’s and the case’s needs, technology innovation is futile.
Another reason why firms have been slow to adopt business innovation into the practice of law is because they do not believe the traditional law firm model is dead. After all, the 2019 Citi Hildebrandt Client Advisory Report, an annual survey of law firm fiscal performance, showed robust growth at U.S. law firms. When you scratch the surface, however, you see that the growth is centered around Am Law 100 and Am Law 50 in particular; that is, only those few firms that are still able to sell their “bespoke services” to GCs with bet the company litigation are performing well. Other data sources indicate a widening fiscal separation between the cadre of “elite” firms and the rest of the pack. [14] A Forbes report points out that the 6.3% revenue growth of the firms surveyed is offset by a 5.9% increase in costs, yielding a minuscule 0.4% increase in profits. “Longer collection cycles, declining realization, and ‘dispersion’— the near-even split between firms that see demand increase and firms that see demand decline year-to-year-- tell a different story than the Report’s bullish headline.”[15] Also, “equity partner headcount declined by 0.3%, a continuation of a seven-year trend where equity partner numbers have remained flat, but leverage (non-equity billers) has increased. That’s a good way to prop up profit-per-partner but not a long-term winning strategy.”[16]
Law firms should act proactively and examine their processes for delivering services. “Plan, Do, Check and Act.” Using Lean in legal processes is the right step to remain competitive and retain market share because by applying Lean you will increase efficiencies and optimize your resources. Lean requires little investment, it tells the client that you are listening, it increases lawyer satisfaction and it promotes team work. Best of all, it is simple to implement.
One of our virtues as lawyers is our skepticism. If you bring Lean into the conversation, expect the following reaction: “Do we need it? Will it make a difference?” And, my personal favorite, “Why can’t you just let me get back to doing real work?”
To show how Lean can make an impact, let’s consider examples of the types of DOWNTIME we see every day and consider the costs to your client:
These inefficiencies can be tackled with Lean. In a recent case, a client was facing a deadline for document production. After 6 months of work and with 4 months to go before the deadline, the team had gone through about 30% of the review. The client wanted the production out on time and within budget. A Kaizen event was planned and executed with a cross-functional team of key members from thee-Discovery vendor, the contract attorney vendor, and the litigation team. When we mapped the current process, we quickly identified, and were able to fix, the following types of waste:
After Kaizen, the team had an improved process plan that made it possible to meet the deadline. Waste in a process is easy to identify. Start with a well-designed scooping document and a Kaizen event and then create a process map that optimizes performance.
There is fierce competition in the market. Law firms need to embrace process improvement to optimize their services and demonstrate to their clients measurable cost savings and efficiencies. By bringing Lean into your practice, you will make a big step towards embracing the new world order.
