1/4/11

More for Less: Reducing the Cost of Legal Services (Part 1)


In the last post in this series on law firm profitability, we examined the implications of shifting from a cost-plus business model to a margin model for law firms. The bottom-line is that firms need to reduce the number of hours it takes to provide a service, and/or reduce the average cost per hour for the same service. For both law firms and clients alike, this means getting more for less – a theme that permeates our world these days.
Part 1 - How to Reduce the Number of Hours
The theme-du-jour for this topic is Legal Project Management (LPM). The basic claim is that project management can drive efficiencies in how matters are managed. This claim makes a number of assumptions, the primary one being that some plan exists. This “plan” will be executed well through the use of LPM. Without a plan that outlines efficiencies and reductions in hours used, LPM gets you nowhere. So … where do these plans come from? Presumably the Project Managers (PMs) will participate as ‘Planning’ is step 2 from PMBOK. PMs will sit down with lawyers and draw up a plan showing how resources will be spent to meet both the budget and legal goals of a matter. Here is where a significant challenge arises. The PMs’ role is not really about process innovation which is an effort to redefine plans. They may play a role, but it is not their focus or skill set. At times they identify problems in a process, however, correcting these problems is only their job within the context of a given plan. Others have addressed this difference via discussions on Six Sigma and other process improvement methodologies. My 2 cents – LPM has enough challenges of just keeping lawyers on a plan , so they won’t have the time (nor expertise) to serve as process improvement people as well. So LPM will only be as a good as the plans and processes lawyers already use. Subject to some tinkering with a plan, LPM will only advance the ball so far. As I like to say, LPM will be necessary, but not sufficient to address this challenge.
One potential exception: Partners could look at PM as a way to re-examine matter staffing. Instead of sending one partner and two associates to conduct a deposition, they could send one senior associate. This approach will cut the number of hours and could easily produce the same, or an acceptable level of service quality. However, I see this outcome as unlikely. What is a more likely outcome from such an exercise is one partner conducting the deposition, if the choice is actually made to reduce the number of hours. It is more likely since comp systems motivate the hoarding of billable hours. It is unsustainable since partner time generates little to no profit. Since partners will be motivated by self-interest instead of firm financial interest (a.k.a. profitability), they will most likely not take full advantage of this opportunity.
In contrast, process improvement and innovation holds tremendous potential for reducing the number of hours used in delivering a service. This effort is about identifying wasteful and/or repeatable processes, and then implementing new processes to eliminate the waste, and automate wherever possible. The business world is awash in ideas for meeting these goals. Six Sigma is a more recent, well defined approach. One firm (Seyfarth) has taken this method on, although it’s outcomes are yet to be seen. To law firms’ benefit, most legal work is handled within a loosely defined process. Of course, some processes are better defined than others. But at a minimum there is usually a process to follow, be it a case (note the rules of procedure) or a deal, following due diligence, negotiating, etc, or perhaps the best examples: regulatory filings. Although, with rare exceptions, most of these processes are not defined as such within law firms. This identifies a valuable role for LPM – building the first process descriptions via the plans they develop.
Eliminating Waste
Wasteful process or effort is that which produces low value results. Lawyers will find this exercise very challenging, since they tend to think all effort is valuable. This is a legacy of the ‘no stone unturned’ education, training and practice they have experienced. It is also the product of the ethics framework of the law. “Representing your client’s best interest” implies an exhaustive search for the truth, regardless of cost. In other words, they tend to think all depositions have the same value, since any one of them could lead to the discovery of the ‘smoking gun.’ In reality, there is a cost/benefit decision to be made for all legal tasks. This mind-set will need to take a more prominent role in defining legal processes. This is how waste will best be identified, then eliminated or reduced, resulting in fewer hours on a matter.
Using Automation
Automation will be the long term, best effort for reducing the hours involved. We have previously posted examples of this idea on 3 Geeks. KIIAC’s tool is one that demonstrates the power of this approach. This system actually displaces time currently spent by lawyers doing relatively menial tasks. This automation effort will also be a challenge for lawyers to accept. Much like the e-discovery world, it will take some time for lawyers to develop trust in the automation technologies. Although this time-frame is accelerating there, evidenced by the relatively quick embrace of predictive coding. Lawyers will also bristle a bit at the thought of technology replacing them, given their self-interest and their role as knowledge workers. However, e-discovery has clearly demonstrated both the necessity of embracing technology and its value in automating tasks. It would be physically impossible for lawyers to review all discovery content today. As well, they would be much less effective than technology, since they cannot hold all of that information in their heads at one time. Bottom-line here: automation will be a highly effective tool for reducing time in legal work. And it will become a necessity as it proves itself out.
Process innovation will be necessary and sufficient in order to lower the cost of delivery of legal services. This will be an on-going, never-ending effort, as most any business can attest to now.
Law firms looking to reduce hours of effort, would do well to; 1) define their processes through LPM, 2) identify wasteful or redundant efforts and reduce or eliminate them, and then 3) explore automation technologies that will enable long-term sustainable reductions in the costs of delivering services.
Part 2 of this discussion will explore reducing the average cost of time. There will be some overlap of ideas, so a convergence of the two will be provided as well.

Bookmark and Share

0 comments:

 

© 2014, All Rights Reserved.