What started in Toyota factories to make assembly lines more efficient has finally hit the legal profession. Ten years ago no one had heard of lean methodology. Now everyone from LegalTalkNetwork to Legal Business is talking about how to make law leaner.
Lean methodology is taking over the world. Peep into any industry and you’ll find someone applying the principles of looking at process to reduce waste and increase efficiency while maintaining quality. As slow to innovate as the legal industry might be, even it has not been entirely spared from the lean revolution.
Part of the reason for the trend is the tireless work of lean evangelist Ken Grady. He recently stepped aside as CEO of SeyfarthLean Consulting to focus on preaching the gospel of lean full-time for Seyfarth Shaw a subsidiary that uses project management and statistical analysis to reduce the cost of legal services for clients.
After seeing him tweet about lean law, I spoke with Ken over the phone about how he got started, what he’s learned, and where he sees the legal industry going forward.
He’s got experience as in-house counsel at three Fortune 1,000 companies, but it was his foray into the manufacturing world that exposed him to all things lean. It was while running a manufacturing facility that he traveled to Japan to learn from the consulting firm which developed Toyota’s lean revolution.
A leaner line
For the uninitiated, lean manufacturing is much of what’s behind Toyota’s transformation from a small auto manufacturer to the largest car company in the world. To vastly oversimplify, Toyota took apart each element of the manufacturing process to find steps which could be streamlined or eliminated, to reduce waste and keep quality high.
Grady operated his firm using the lean principles he learned in Japan. Syfarth Shaw, started in 2005, developed lean for legal. He’s now spent the last year and a half working with Syfarth on SyfarthLean, convincing others to use lean.
Law practice is “essentially unchanged” over the last 100 years, Grady said. It’s based on a system developed in the early 1900s. “Changes that have occurred in the practice of law have been minor compared to changes in other industries.”
Feeling the squeeze
Starting around 2005, law departments in major corporations started coming under more pressure and there was more focus on how much money they were spending to handle legal issues. Counsel used to be thought of as a fixed cost. Then companies started to think about managing budgets more closely. That’s put pressure on law departments to do more for less. The amount of legal needs are increasing, but the resources for law departments are decreasing.
Ned Gannon, writing for Law Technology Today, echoes that concern, “In-house legal departments are facing mounting pressure to both improve the efficiency of their own operations while tackling a more expansive workload and also reducing the amount they spend in legal fees on outside counsel.”
Find the value, root the waste
Lean is basically looking at your processes for getting legal work done, and separating each task into two categories:
- Things that add value to the customer or client.
- Things that don’t add value, which in the lean system are called waste.
The objective of lean is to remove the waste to focus on the processes that add value.
The first step is to look at how we deliver legal services, Grady explained. Whether in a corporation or firm, government or judiciary, go through using tools like CRM and analytics software and lean philosophy to start saying, okay here’s how we litigate a case or handle contracts. Then we make value/waste determinations. Once you do that you can change your processes to have less waste and add more value.
Grady was general counsel at a very brand-conscious company. Trademarks were an important part of what the company did. They had a very large portfolio of intellectual property and counsel dealt with litigation and administration around trademarks every day. This was eating up a considerable part of their legal budget.
The processes were similar to how other companies handled intellectual property, even though their needs were bigger than most companies’. The challenge was to get more legal work done for less money as the portfolio and regulation grew. Syfarth used process mapping and lean methodology to get the same results with fewer steps and resources. After entering into a fixed-fee relationship for all trademark work per year, the company only had to pay Syfarth 85% of what they paid them the prior year, but for managing an even bigger, and growing, portfolio. Syfarth saved them 15% on costs.
Having mapped processes for handling the portfolio, they were able to make an acceptable margin. Year two saw a fee of 85% of the prior year’s fee, again the same result for less money. Same thing the third year. Once they set metrics for each step in the process, they could track performance against those to see what process changes yielded improvements. They also set up an incentive program so that when the company saved money, Syfarth got some of that money.
The applications of lean methodology don’t have to be that comprehensive. Even small changes can offer big results. For example, Grady explains that a lot of lawyers will begin drafting a document before getting all the information they need to complete the document from their clients. So they’ll email the client for information, then wait for a response. But getting back into drafting takes time. Instead, Grady suggests developing a template for each kind of contract and sending that to the client.
The software trap
Law Technology Today recognizes a (relatively) “relentless drive toward cost-effectiveness” in the legal industry. This pressure incentivizes law firms and in-house legal departments to adopt technology that will make them more efficient. “Technological innovation as a means of creating more efficiency has been steadily emerging across many areas of the law. According to Altman Weil’s 2014 Law Firms in Transition Survey (PDF), when asked about the most likely change agent in the legal market over the next ten years, 32% of law firm leaders chose technological innovation.”
Legal software exists to make processes more efficient. But Grady warns that software that automates stupid processes institutionalizes waste. For example, contract management software that doesn’t change the process makes it a more expensive poor process. “Once you clean up the process, then get software,” Grady said.
Another example of software used poorly is reporting software that spits out reports no one looks at. “Most companies that haven’t looked at processes are generating lots of reports that people aren’t using,” Grady said. “Computer can report faster. But the underlying problem is that they don’t need the reports in the first place.”
I asked Grady where the resistance from lawyers to lean comes from.
“Lawyers are risk averse and resistant to change by personality type,” Grady said. “You typically don’t want to hire a lawyer that says, let’s take lots of chances!”
Grady went on to explain how firms’ billable hour model conflicts with legal departments’ desire to keep costs lower for the same quality of work.
“Few lawyers like the billable hour,” Grady said. “Most tolerate it or hate it. Many firms are trying to figure out how they can change a compensation system that people have used and trusted for a long time to a new model.”
It’s hard because firms don’t feel comfortable with the objectivity of new models.
Despite resistance, it’s becoming clear that lean law is the way of the future.
Do you use lean law in your department or firm? Do you plan to? Why or why not? Let us know in the comments!
Images by Abby Kahler