Lean Thinking and the Legal Industry: Where We Are Today
The legal industry is facing historic challenges. Technology has reached the point where it is making an impact on legal services delivery. Outside the industry, people are experiencing rapid change in every aspect of their lives. New questions and issues arise that demand fresh ways of looking at how to do things. Yet, through all of this, the legal industry hangs on to high cost, lower quality, and slow service practices that fail to yield what clients want. This paradox raises a fundamental question: Is there a way, short of going through an expensive and complex technological revolution, to deliver affordable, high quality, and timely legal services?
For more than 25 years, lean thinking has offered the legal industry a way to answer that question with a resounding “yes”. It is 80-years old and the most popular of the process excellence methodologies. A PEX Network survey shows that lean thinking and Lean Six Sigma ranked first and second. Corporate clients across industries favor lean thinking to reduce cost, improve quality, and shorten lead times in their businesses.
In the legal industry, though, lean thinking has struggled to build a following. According to PEX Network’s 4th Biennial State of the Industry Report, process excellence (dominated by lean thinking) penetrated around 21% of corporate law departments in 2013. But, it dropped to about 9% in 2015, recovering to 11% in 2018. Law firms have shown more resistance. We don’t have reliable figures, but the consensus among lean thinking aficionados is that a far lower percent of law firms use lean thinking to a meaningful degree, perhaps less than 1%. Why has lean thinking dominated process excellence initiatives outside the legal industry?
Lean Thinking Magic Revealed
At its core, lean thinking offers a simple goal: remove waste from all that we do leaving pure value (perfection). Lean thinking uses a set of tools used to identify what a client values, streamline the transformation of inputs into outputs, and deliver those inputы transformed into what the client values. The challenge is not in understanding lean, it is in using the tools. It takes devotion to achieving what is best for the client and persevering with process improvement. This is where the legal industry has balked.
Everything we do as lawyers, we do through processes. A process is a sequence of steps that takes us from start to finish. A process can be simple — I start my MacBook by grasping the lid and moving it to the open position. A process can be complex — preparing a contract involves gathering facts, doing research, drafting, editing, reviewing, negotiating, and executing. Lean thinking tools focus on removing waste from processes. To do that, one must study the processes and improve them again and again, with a relentless focus on delivering only value to the client.
A lean thinking improvement team starts by creating a “value stream map”. It is a drawing showing inputs (e.g., documents) flowing through areas that add value (e.g., lawyers) until they reach the desired output (e.g., a signed contract). Using the value stream map, the team identifies constraints (choke points). It maps the processes used at those constraints. A process map is a type of flowchart showing each step in the process. The team gathers data on the processes — how long does each step take, quality misses, etc. Now the team makes an impact. Using the process maps and data, the team begins removing waste and standardizing on one process. The waste removal part is at the heart of lean thinking and deceptively hard. The second part is obvious — find the optimal way to do something and follow that process.
Lean thinking sorts waste into eight types. For example, one type is transportation and another is overproducing. Transportation waste happens when we move things around, but the movement does not add value. Think of carrying a draft contract from a central printer down the hall to your office. Overproduction waste happens when you do too much of something. For lawyers, it can mean doing more work than the client needs. One example is over-reviewing a contract when the client only needs one clause checked.
The team revises the proposed process removing as much waste as practical. It asks the lawyers to follow the new process and collects more data. The team repeats the steps, removing waste, standardizing on a new process, collecting more data. This cycle continues with each iteration yielding a tighter process—a higher value-to-waste ratio. Over time, the lawyers move from episodic team efforts to continuous improvement. They identify waste to remove, update the standard process, and collect data continuously. The goal is perfection—all value, no waste. The reality is no one gets there, so the focus is on continuously improving.
When examining legal services, we find that processes vary greatly from lawyer to lawyer. Two lawyers, each given the same contract and asked to do the same review, will employ different processes and reach different results. The client faces a problem — which version to use? It gets worse. Asked to do the same task a second time, each lawyer uses a new process and gets a new result. The client has four versions from which to choose. The time it took to do each review varied (meaning four different amounts billed) and all four versions often miss key issues. The lawyers were not lacking in skills. But, because they did not follow a standard process the end results varied in cost, quality, and time to completion, all to the client’s detriment.
Consider all of the processes involved in providing legal services. Imagine an entire organization engaged in continuous improvement. You can get a feel for the enormous changes possible in cost reduction, quality improvement, timeliness, and client satisfaction. Legal services organizations that have adopted lean thinking have seen contract review lead times drop from several weeks to a few days or even a few minutes. Contracts are just one example of how lean thinking can change delivery of legal services for the better. The steps outlined above are the tip of the lean thinking iceberg. Improvements in cost, quality, and delivery times are the beginning of the benefits obtained by lean thinking organizations and their clients.
Lean Thinking And The Push To Automate
Lean thinking fits well with the current push to use automation and artificial intelligence. Automation is one way of addressing constraints. The speed at which I can handwrite a contract draft is limited. The quality of my handwriting decreases as I approach my speed limit. By switching to shorthand notation, I could increase my speed, but even with that change I will hit a limit. Switching to a word processor, I can go faster and the quality (legibility) is higher. Automation (the word processor) helped move the process (creating the draft) past a constraint (my handwriting speed). But, it changed the process. Instead of a pen and paper, I need a word processor (hardware and software). Built into the software is a spellcheck feature. Handling spelling errors as part of the process has changed. The software automatically corrects some errors. By double-clicking on words flagged by the software, I can “erase and replace” others.
Attempting to introduce automation without understanding current processes can increase waste rather than remove it. Processes interrelate. Decreasing waste in one process may increase waste in another. Mapping processes helps you understand how they fit together. Artificial intelligence is another step in the automation continuum. AI must be worked into existing processes and integrated with interrelated processes. Both automation and AI must fit with people as well as processes. Moving from handwriting to word processing was a significant change. Early efforts to bring word processors into law offices did not include process mapping and consideration of the people-process-technology trilogy. They reduced productivity and increased waste for a time. Using lean thinking methodologies, lawyers could have avoided the waste.
Lean thinking has other benefits for automation and AI. By examining processes, standardizing them, and rigorously rooting out waste, adding automation or AI becomes easier and costs less. If you eliminate a step, you remove the need to automate it or add it to the AI algorithm. That simplifies the technology needed and can make the technology more flexible. It also reduces technology costs by reducing complexity of the software. Simpler software means lower training costs and less maintenance. It makes it easier to re-configure the software as processes change.
It is worth taking a moment to focus on a legal industry point of pride: quality. It is difficult to objectively measure the quality of legal services, though that barrier is crumbling. Lawyers have claimed, without data, that they provide high quality services. They have not felt pressure to improve it. Yet, to even the most novice lean thinking practitioner, the poor quality of legal services is apparent. More significantly, clients are beginning to challenge lawyers on their “high quality” assertions. A recent study of legal briefs submitted by well-known firms showed the documents were filled with errors. They ranged from typographical mistakes to citing cases which did not support the argument. Lean thinking tools could help lawyers root out those errors (waste). Doing so would also reduce costs and improves service delivery times. As more quality measures become available, lawyers using lean thinking will have a key advantage in the market.
Lawyers Must Change Or There Will Be Consequences
With all the benefits lean thinking can bring, why has the adoption rate in the legal industry been extremely low compared to other industries? Greater efficiency means lower revenue for law firms and lower compensation for lawyers (fewer hours billed per matter), assuming the law firm does not replace the billable hour with alternative fee structures. In law departments, it can mean reducing the number of lawyers (though that reduction typically is offset by an increasing demand for a wider range of legal services). In all organizations, it requires lawyers to focus not just on what they do, but how they do it. Unless clients (the real clients, business people) demand lower costs, better, quality, and lower lead times, and move work away from traditional legal services providers when those demands are not met, lawyers will resist efforts to change how they work.
Whatever the reasons, the effect is clear. The legal industry has failed to take advantage of a low cost, proven methodology. Lean thinking addresses many of the industry’s current ills and would prepare it for the next economic downturn. General counsel say they need greater efficiencies and lower costs in their departments. At the same time law firms are coming under increasing pressure from alternative legal service providers (law companies). We are 10 years out from the last recession and history tells us we are overdue for the next major correction. Lean thinking offers tools to deliver what clients demand from lawyers. It also offers lawyers tools to protect themselves against the next, inevitable, financial downturn.
One thing should be clear to even the most recalcitrant lawyers: clients want providers who will meet their needs at affordable prices. If lawyers refuse to meet those requirements, clients have access to and are willing to move their work to other providers who will.
Disclaimer: The text is published as is, does not include any amendments, represents the author’s point of view, which does not necessarily coincide with that of the lawless.tech editorial board.