Lawyers jump into process improvement

When Clifford Chance, one of the world’s largest law firms, published the whitepaper Applying Continuous Improvement to High End Legal Services earlier this year, it was seen by some as a turning point in Big Law.

No longer were high end legal providers seen to be above process-focused management disciplines like Lean and Six Sigma, once the domain of manufacturers and Corporate America. Clifford Chance, which has adopted both Lean and Six Sigma tools, employs a handful of staff devoted full-time to process improvement and is actively training both lawyers and staff in support functions in "lite" versions of process improvement tools. The firm is running projects in each of its 36 offices across the globe.

Tipping in favor of process improvement

Process excellence methodologies like Lean and Six Sigma have spread to virtually every industry and corner of the planet. A 2007 research study from trade publication iSixSigma, for instance, estimated that over half of Fortune 500 and as many as 82% of Fortune 100 companies have used Six Sigma methodologies to produce savings totalling $427 billion.

Even those who don’t operate conveyer belts have recognized that whatever work you do, there are process aspects of it that can be improved.

But the legal profession has been slower to jump on the process improvement bandwagon. The erudite discipline of law, or so the argument would have gone, relies on highly educated professionals to apply their judgement to unique situations.

It is an art rather than a science and therefore cannot, according to this thinking, be reduced to mere process.

That position is changing quickly among both in-house legal counsel and law firms as the so called "perfect storm" has started to bite.

"Part of it is commoditization. Part of it has been driven by the recession. Part of it is a growing awareness of the possibilities and benefits. All this combined means the legal function needs to be able to demonstrate the right amount of effort on continuous improvement activities," says Jonathan Townend, Head of Technology Consulting at global law firm Eversheds, which set up its own process and technology consulting arm three years ago in response to client demand.

While all industries have been affected by these larger trends – commoditization and recession - there are certain additional drivers specific to the legal profession that have made a change in traditional thinking and practice all that much more critical.

In the United Kingdom, for instance, when the 2012 Legal Services Act came into effect it brought with it changes to the ownership structure of law firms. Prior to the Act’s introduction, only lawyers were able to own and operate these firms. But when the act came into effect, suddenly non-lawyers were able to get into the market.

"All of a sudden you had highly commercial people coming in and either running law firms, buying law firms or setting up law firms," explains Arlene Adams, CEO & Founder of Peppermint Technologies, a legal process management software provider. "That essentially challenged the status quo where only lawyers were allowed to run the operational part of the business. It was completely game changing."

What happened, explains Adams, is that as these new entrants came into the market they challenged one of the concepts at the heart of law firms: hourly billing. Suddenly, new entrants were offering fixed fees for legal services, reversing a concept which offered a perverse incentive for inefficiency.

"All of a sudden you need to understand your cost base and how long it’s taking you to do the work. If you can’t deliver on things like fixed price or alternative fee arrangements, then the chances are that you won’t survive in the market," says Adams.

America, meanwhile, has been suffering an oversupply of lawyers as law schools churn out more lawyers than there are jobs. According to one report, 46,000 law-school graduates hit the market looking for jobs in 2012 and only 27,000 of them had found full time work within nine months.

These unemployed students are instead turning to alternative practices, says Karen Skinner, principal at Gimbal Canada, a boutique consulting firm offering law firms and in-house legal departments advice on using Lean. She says that they’re setting up online services and resources which is giving more power to customers to help themselves in a sort of "Do-It-Yourself" law.

"All of this means growing competition, greatly empowered clients, and downward pressure on fees. In short, clients that demand lawyers do a lot more for a lot less," says David Skinner, also from Gimbal, the firm he co-founded with his wife Karen.

This is starting to show up in the pay packet of lawyers. According to Skinner, growth in profits per partner are down from over 6% per year in 2007 to about 1.5% now or even lower depending where you’re working and in which sector.

"Clients and their procurement departments are starting to treat legal services the same way as they treat any other service they have to purchase," he says. "Routine work is being seen as a commodity that anyone can do, so they look for the lowest-cost provider and the result is a downward pressure on fees."

Peppermint’s Arlene Adams agrees: "What we’re seeing is that law firms are being pushed to catch up with how other commercial organization run and operate. The ones that jump in that race will survive and really prosper. The ones that don’t will go to the wall."

Not all legal work is created equal

Legal work is widely seen as a spectrum. At the top of the spectrum are high end legal services, such as those that would be provided during a corporate Merger & Acquisition, for instance. This is a highly bespoke practice that requires a lot of experience, judgement and customized work. No transaction is ever the same.

At the other end of the spectrum is the routine and repetitive legal work. An example is the work required to purchase a house. While there may be some discrepancies between cases, the process is going to be largely the same regardless of the transaction.

The Hunoval Law Firm operates at what could be considered the routine and commoditized end of the legal spectrum; the work is high volume and repetitive. This North Carolina-based law firm, which provides fixed-fee foreclosure services to mortgage lenders, has been using Lean Six Sigma since 2012 to reduce errors, increase efficiency and decrease processing time of transactions.

"The pejorative or negative term that some people use for a firm like mine that is a high-volume practice is that we’re a "mill"," explains Matt Hunoval, founder and CEO of the firm. "Whether that’s true or not, there may be at least a grain or kernel of truth in that - again, high-process, high-volume. So, a management discipline that has had great success in a manufacturing context, in an analogous way there’s got to be some overlap in a high-volume, highly process-driven legal environment."

The firm was introduced to Lean Six Sigma concepts by Kevin Divine, a Six Sigma trained executive who had worked at GE, Xerox and various financial institutions and the results have exceeded even their "loftiest expectations," according to Hunoval.

The firm says it has saved an estimated $4 million since 2012 through increased efficiencies, better timelines, and error reduction. It has, for instance, reduced the time it takes to file a North Carolina Notice of Hearing (NOH) from an average of 70 days to around 8.

"I knew that we would attain real operational benefits - increased efficiencies and reduction in errors - and it would help us run a better, more efficient law firm management," says Hunoval. But, he adds, there were a lot of unexpected benefits including workforce engagement and marketing.

"Over half of my workforce does not have a college education and so they tend to see my firm and others in my space as almost interchangeable," he explains. "To get folks engaged and be excited and have a pride about where they work and what they’re associated with - this cutting edge effort - that was a very big part of what we’re doing."

But’s not just the so-called commoditized end of the legal arena where process improvement can be beneficial. Many law firms – including Seyfarth Shaw, Barley Snyder, Borden Ladner Gervais – have been applying Lean principles in various ways to great effect.

Seyfarth Shaw, for instance, has been running its SeyfarthLean program for over 5 years. The company says the "approach manifests itself with tangible processes and special tools, as well as the more intangible and fundamentally different way of thinking about how to deliver legal services."

But for the most part, law firms are relatively new arrivals to process excellence in contrast to many industries, which have been doing process improvement for decades (techniques like Six Sigma, Lean, TQM, business process reengineering and others really hit the big time in the 90s when they became popularized by charismatic business leaders such as GE’s Jack Welch championing of Six Sigma).

So why have lawyers been so slow to the party?

"There is an element of legal practice that will remain just so: the higher stakes, bet the farm, high complexity work will always remain subject to relationship, reputation, individual staffing, skillset and high costs because the stakes are so high," says Trevor Faure, Global General Counsel, Ernst & Young Global and author of the Smarter Legal Model. "What we’ve often done as lawyers is take refuge in that top part [of legal work – i.e. highly bespoke, highly customized] and ignored the rest of the pyramid, where the vast majority of work is. This work [in the rest of the pyramid] is susceptible to process analysis, systematization, and technology."

Oliver Campbell, Global Head of Business Transformation at Clifford Chance, agrees that while not everything can be treated as a process, there are parts of all legal work that can be improved.

"Even though Clifford Chance works at the highly bespoke and customized end of the legal spectrum, there are inevitably there will be some elements that will be standard from transaction to transaction," he says.

Campbell, for instance, explains that one of their earliest process improvement projects looked at how the creation of their "bound volumes". These volumes are an indexed compilation of all the documents related to a given legal case. The company’s London office alone was producing over 1500 bound volumes per year, leaving lots of opportunity for huge efficiency gains to be had by small improvements.

The company brought together a team of people who were involved in the process to identify how they could improve it. The solution, which involved a mixture of changing the sequence of work and using technology in different ways, has reduced the cost of producing a bound volume by 60% and reduced the time to dispatch it following the end of the transaction by up to 80%.

It’s not just law firms that have been adopting process improvement principles in response to commercial pressures. In PEX Network’s latest State of the Industry Survey, 12.1% of the 800+ process professionals who responded to the survey report that the legal department was one of the areas where they were applying continuous improvement. Raytheon, Tyco International, John Deere, and DuPont are a few of the companies that are widely acknowledged to have used Lean Six Sigma within their legal departments.

For instance, DuPont’s legal process model – the DuPont Legal Model – applies Six Sigma to increase efficiency, reduce costs and manage risks. They’ve successfully applied the techniques to improving processes to areas such as Litigation and Patents and run approximately 4 or 5 green belt projects every year.

Lynn Simpson, DuPont Legal Knowledge Manager (and a Lean Six Sigma Master Black Belt) says that even simple solutions can have a major impact. For instance, she explains, DuPont set up a site where they could share documents with their outside counsel.

"It really reduced faxing and sending information and not having the right version and helped to ensure that everyone had access to the same information and same version of information," she explains. "The cost savings were tremendous because we were doing it in such an inefficient way before."

Nice for them…but aren’t lawyers resistant to all this process stuff?

"I think it’s unfair to say that the legal industry is resistant to all of this. There are genuinely areas of work where [process improvement] alone can be of little value," says Eversheds’ Jonathan Townend. "But there’s certainly plenty of opportunity. That’s increasingly recognized now. […] It’s about picking the right areas to focus on, rather than thinking you can systematize everything."

Lawyers will respond to process improvement methodologies when they start to see the evidence for themselves, says DuPont’s Lynn Simpson.

"It’s helping them understand that using the methodology to apply to improving a process is value adding. It’s not just a framework that forces you to do a lot of extra work. When they can see how the results would be different by using Six Sigma – when they can see that it brings added value – that’s when you get the buy in," she says.

But, it’s also important, caution others, to make sure that process improvement isn’t adopted only as a cost reduction method. It’s important to look at the whole of what you’re aiming to achieve. Otherwise, the risk is that to save money on headcount or within process efficiency, you could be sacrificing the outcomes.

Balancing various competing objectives is the idea behind Trevor Faure’s Smart Legal Model. The model - an approach based on Lean Six Sigma Faure developed to reduce costs, increase legal coverage, and improve compliance – envisages the practice of law as a triangle. At the apex of the triangle is the practice of law with compliance, coverage and customer satisfaction as the focus. The two supporting bases of the triangle include head count and costs. The aim is to keep all sides of the triangle in balance.

"In law, if there are low levels of legal coverage or legal compliance, your costs are actually higher," explains Faure. "It’s what I call a false economy model. You may save money on internal lawyers or law firms or hours billed. But because you have low levels of coverage of legal compliance you have higher costs. You pay for fines – due to compliance failure – you pay because you used a contract with unlimited liability clauses. You can’t make progress without the triangulation."

Ultimately, as many commercial businesses have realized as they grow more experienced with process improvement, the real gains to be had come from a focus on improving customer satisfaction rather than cost.

"It’s about providing value to clients. Clearly, there are a number of ways you can provide value. You can assume that value equates to cost. But that’s not sustainable in the long run," comments Oliver Campbell from Clifford Chance. "Value means providing clients what they want in the way they expect it. It ties in quite neatly with the philosophical elements of the process improvement methodologies."

At the end of the day, the economic and commercial imperatives for in house counsel and law firms are tipping in favour of more widespread adoption of process improvement and technology.

"There’s an opportunity for legal teams to get ahead of the curve here and do this in a way that works out for them, rather than delay and risk having targets or constraints imposed ," says Eversheds’ Jonathan Townend. "There’s an opportunity now to take a pragmatic approach to demonstrating the value of the legal team, getting the right balance of process and system support to set them up for the future."