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Lean in law firms – five key lessons

December 4th, 2017

by Alastair Ross

I’ve been working with many major UK law firms since 2005, helping them to improve both the value and the efficiency of their services. A key philosophy I have used in this work has been Lean thinking. I thought it would be useful to reflect on that experience and capture five key lessons I’ve learned over the last 12 years about applying Lean in law firms.

Lesson 1 – A law firm is not a factory (not quite anyway)

I first applied Lean back in 1990 as a manufacturing manager in IBM. It was not known as Lean then – but as ‘Continuous Flow Manufacturing, ‘Just in time’ or Kaizen. Later I used it in improvement projects in chemicals, automotive and aerospace companies. In the late 1990s the term ‘Lean’ was coined by Womack and Jones to cover this improvement philosophy and tools. In 2005 I began working with major law firms in the UK that were feeling the heat of increasing competition and market deregulation. It quickly became clear that Lean thinking could be readily applied to help these firms improve their service value and delivery efficiency. But it was also clear that the culture in a law firm, the ‘craft’ based working methods and the terminology meant that Lean needed to be communicated and tailored differently. Partners did not readily relate to case studies of car factories – they needed to understand how lean could be applied to knowledge-intensive services such as law. And equally lean approaches that worked on the factory floor did not always work quite so readily in a legal team!

Lesson 2 – Process thinking does not come naturally to lawyers

Lean thinking is naturally focused on how work activities and resources are applied to the flow of value from the business to the customer – the so-called ‘value stream’. This value stream is realised in a business process that delivers products or services to the customer. So lean thinking is used to assess and improve these processes. This approach comes naturally in a manufacturing environment where there is a common understanding of work being codified into production processes. But this is not the case in a law firm – ‘process thinking’ is an alien concept especially for work types where one fee earner may currently perform all of the work. This is where process mapping is very effective in getting a team of fee earners to draw up the activities that are required to deliver a service – thus producing a visual map of the process. This can then be used to highlight wastes and begin the journey to improvement. Doing this in a collaborative way with fee earners in a change team is the best approach in my experience – getting lawyer buy-in to the improvements and also creating a cadre of ‘process improvement advocates’ within the firm. (And by the way this is why I am not a fan of Six Sigma for law firms – it’s overkill and not as easily deployed as Lean).

Lesson 3 – There is a lot of waste in legal services

A core element of the Lean philosophy is a ruthless focus on the identification and elimination of waste. But what can be considered as waste? It is any activity or resource that does not add value to what is provided to the customer. Waste accumulates in businesses just like dust and debris in a house. Regular hoovering and the occasional major ‘spring clean’ is the solution in a house. And something similar is required in a business to keep its business processes effective and efficient. But what if a business doesn’t feel the need to do this? If the competitive and market pressures are not sufficiently tough that they need to do such ‘process housekeeping’? This was pretty much the situation in the legal sector for many years – times were good and margins were high. But since the financial crash in 2008, the dramatic impact of the internet and other information technologies and in the UK the deregulation of the sector – things have changed. Law firms are feeling the pressure from budget-squeezed clients, new entrants and new business models. So now firms are looking at their how they deliver their services – and they are finding much waste: Poorly defined, inefficient working methods, inefficient use of people (so much legal work is performed at too high a skill level), errors, rework and poor use of IT, for example.

There is a positive message: With this high level of waste, there is much improvement possible.

So firms can significantly improve their competitive position by using lean to identify and radically reduce this waste (see Lesson 5).

Lesson 4 – Start with a partner champion and a fixed fee service

Making change in partnerships is tough – much more so than in a corporate where the ‘it’s my way or the highway’ diktat can more readily be applied… The other major challenge is that ‘the billable’ hour discourages law firms from improving efficiency – as it results in reduced revenue. Great for the client, but not so compelling for the partnership. But the fee regime is changing with more clients in the UK looking for budget certainty and so enforcing reduced and fixed fees for many transactions. This has created financial pain for firms – much of my work has been with firms who have been forced to move to a fixed fee for a service and are making little or no profit for each matter.

To effectively harness this ‘burning platform’ for improvement, a Partner ‘champion’ is needed – one who is positive and committed to driving major improvement in the service. They are critical in being the business partner to an external change agent, in leading a change team of fee earners and removing road-blocks to change within the firm. From my experience, the presence of such a partner champion is a key ‘Go/No Go’ for a Lean improvement project.

 Lesson 5 – More for less is an achievable outcome

There is a common believe in professional services firms that cost reduction will inevitably lead to a reduction in service quality. In other words something has to give – you either have a high quality or low cost service, you can’t have both.

 This is simply not true.

My work with multiple law firms covering 20 legal services has enabled direct cost reductions of between 25 and 75% – whilst improving value to the client, with more consistency and responsiveness. Why is this possible? Because firms can reduce service cost by reducing or eliminating the waste inherent in legal service delivery (see Lesson 3). This waste adds no value to clients and indeed consumes lawyer resources and time – so removing it will not have any negative effects on client value. Only positive ones.

 So service quality can be improved and cost reduced at the same time.

So what’s the key message for law firms?

It’s a simple one, if a firm is not yet using Lean thinking as part of its transformation work it’s failing to grasp a major opportunity. For Lean can deliver significant business improvements with little capital investment (IT can help, but it’s not mandatory) and provide a foundation for ongoing improvement. And if a firm is looking to exploit new technologies such as AI, it had better make sure it’s building on solid foundations – automating a poor process may simply deliver the proverbial ‘pig with lipstick’….

 

This article was first published by Alastair Ross on LinkedIn on 1st December 2017.

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