The Value of Efficiency?

Ron Baker left one of his usual insightful comments on the 3 Geeks blog this week, so I wanted to address some of the issues he raised in relation to the concept of Efficiency.
Ron notes: “There's a fundamental problem with this relentless focus on efficiency. A business isn't paid to be efficient; it's paid to create wealth for its customers.” He goes on: “Excellent customer service is not efficient--ask Nordstrom or Disney. These companies sacrifice efficiency for effectiveness, the true source of all competitive advantage …”
Ron’s point is that efficiency is doing the same thing better, which is not a true source of competitive advantage. Effectiveness is a better goal to have for remaining competitive.
In essence, I agreed with Ron’s comment via my post on Legal Project Management. I feel this approach is truly doing things the same way only better, and will only get you so far. All that being said, I still see significant value in a focus on efficiency, especially in the short-run.
  1. For Clients. They serve up repeated messages on wanting to see efficiency gains. For them this means getting the same service at a lower price. Having engaged in direct conversations with GCs, my attempts to redirect the dialogue to value and effectiveness fall on deaf ears. So for now, efficiency is perceived as a differentiator by the customer.
  2. For Law Firms. With market prices dropping, efficiency means profits. In the short-run, cutting the cost of delivering the same service means maintaining profit margins. From the law firm perspective this is not about competitive advantage, but plain ole being competitive.
Back to Ron’s point - every business should have an on-going and “relentless focus on efficiency.” As Ron points out, “Any efficiency gain will be copied rapidly by all players.” This means that market players who don’t maintain this focus, drop out. I believe the reason efficiency is such a compelling topic in the legal market today is that it is a relatively new concept. In turn this means there are likely numerous inefficiencies that currently exist in the business model. So significant reductions in cost (for clients) and measurable gains and/or maintenance of profit margins for law firms will result from new efficiencies.
In the long-run, Ron’s view must rule. Competitive markets drive down margins which incentivizes innovative behavior.
Which brings us back to the value of KIIAC and technologies like it. These technologies are about being more effective. Lawyer time is not spent reviewing and regurgitating content. Instead, time is spent on higher-value efforts.
I understand and fully appreciate Ron’s POV and frustration with this short-term thinking. However given our market’s upheaval and transition, this short-term behavior will drive a more rapid movement to understanding and ultimately embracing the concept of Effectiveness.

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Rebecca G B said...

Efficiency is the tool, not the goal. David Allen says about the brain that it "is a great servant and a terrible master". You can look at efficiency the same way, in of itself it means nothing. Rather it is the how of the implementation of a process.

Effectiveness IS the goal. One you have the right process implemented, the more efficiently you can execute it, the more effective the outcome. But increasing efficiency on a flawed process defeats its own purpose.

Ron Baker said...

Hi Toby,

Thanks for expanding this discussion.

I still believe efficiency is the wrong talisman, and I take issue with your statement that an increase in efficiency automatically leads to increased profits.

No it doesn't. Why? Because law firm costs are fixed, so if you do something in 50 hours instead of 75 you are still paying people (and all your other costs) the same amount.

Furthermore, if you bill by the hour, efficiency gains are all transferred to the client. It's a zero-sum effect in a billable hour business model (which is another reason why Value Pricing makes so much more sense).

Again, there's no such thing as generic efficiency, and the way we measure the efficiency of knowledge workers--by the hour--is deeply flawed. Hours is not the yardstick for knowledge worker efficiency or effectiveness. It's like plunging a ruler into your oven to determine its temperature--it's the wrong measuring device.

The fact is, we can't measure the efficiency of a knowledge worker. Was Einstein efficient? Who knows? More importantly, who cares? He was certainly effective. I don't want an efficient heart surgeon, but I demand an effective one. So do law firm clients.

Efficiency will take care of itself with sentient human beings. I will be more efficient doing my 100th brief than I will my first few. This is a normal learning curve effect. Six-Sigma, TQM, and all the BS fads that take credit for efficiency gains are nothing more than the normal learning curve of knowledge workers getting better at what they do over time.

Trying to increase efficiency through less hours sacrifices client service, innovation, creativity, and experimentation--all things clients want from lawyers.

There's much more to say about this, and I've written extensively about the fallacy of efficiency on VeraSage. Check out these posts:




Let's continue the dialogue, as I believe this is more misunderstood than hourly billing vs. value pricing, and it's far more controversial. Attacking efficiency is like attacking motherhood and apple pie.

But someone's got to do it, if firms want to reap the rewards of knowledge workers, not union employees.

Ron Baker, Founder
VeraSage Institute


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