Kaizen and Its Place in a Revised Legal Industry

kaizenThe term “kaizen” is Japanese and translates loosely as improvement or change for the better. In the practices of many of our clients, kaizen refers to a process of continuous improvement; finding the inconsistencies, the trouble spots, and the waste in a particular part of a system, and fixing them. Kaizen can be applied to as large or as small a portion of the organization as necessary, and perhaps most importantly, it is a continuous process. We fix the model. And then we fix the fixed model.

In our topical area of “legal logistics”, the concept of kaizen is of supreme importance. It is noteworthy because, from the outside looking in, our industry has done virtually nothing that would even resemble kaizen.

This perception, of course, is not wholly accurate, but as discussed in previous posts, action is taken in any business only when there is some benefit to be gained. If no benefit exists, the action will likely remain shelved.

The arena of legal logistics has a wide range of contributors. Some of them call for a complete overhaul of the system, while others question the concept and whether it can truly work. As is typical with any somewhat controversial topic, I think most are somewhere in the middle.

My view is that most (although definitely not all) of those seeking a complete overhaul are doing so from the outside looking in: commentators, law students and professors, process experts with little experience (or often without so much as a law degree). Likewise, those that believe these concepts have no place in law seem to have little experience with the type of law being practiced by the vast majority of attorneys, either because they truly are practicing more art than science or they are so far removed from caring about what their clients care about, that there is simply a lack of acceptance.

So what do those of us in the middle do, and when will this tangent that I’m on end? Well, looping back, we find and develop value-based attacks on the challenges being faced by our clients, and we continue to engineer and re-engineer those solutions, changing our clients’ legal spend for the better: lower cost, more value, and a better relationship between firm and client.

My clients and colleagues who work with me on the major and minor projects that include value-based billing could tell you, probably in one voice, that I describe my projects as being 85% of where they need to be. We are saving the clients huge percentages over the old models, but the projects still need improvement. One of my clients asked me in response when I expected to be at 100%. My reply was simple: “never.”

I have been representing one company for the vast majority of my career. In the representation of one product line, the defense is elegantly simple, and it is virtually always the same. More often than not, the tweak – the kaizen – involves different ways of developing the defense or fitting the facts to the legal defense. Any trial lawyer worth her salt will tell you that there is rarely if ever complete satisfaction with a closing statement, but rather a recognition that there will be no more return on investment from the continued revisions.

puzzle_redNot so with these types of projects. Continuing to strive to find efficiencies, to change process, and learn from experience is required in order to continue to profitably deliver high value legal services in these types of arrangements. Under the billable hour model, increased revenue and profitability requires a fairly simple adjustment: bill more hours. With a value-based arrangement, it is more difficult. And frankly, that may also be part of the problem. Deep down, there are experienced lawyers who have to be thinking to themselves “I don’t know how to do that.”

Let’s assume for the sake of argument that an average associate can carry 30 files and fill out a 2,000 billable hour requirement with the firm. Under a standard hourly model, if a client sends 45 files, I need 1.5 associates, which means I need to find roughly 1,000 hours worth of work for the second associate. If I can’t find another 15 files or another 1,000 hours from another source, I have a problem. I cannot expect 3,000 hours from a single associate. Nor is it appropriate to reduce the hourly requirement (and presumably commensurate compensation) of both. So, what to do?

The problem in a straight, hourly arrangement begins to rear its ugly head. If an associate is required to put in 2,000 hours in order to keep his job and maximize his compensation, then that associate is incentivized to get those 2,000 hours, whether he has 30 cases or 15. Thus, the pressure from a senior, supervising attorney is not required. The incentive is built into the system. So what about the value-based process?

Well, if by the application of process, document assembly, and constant analysis I can increase the allowable number of files for a single associate, I can deliver the value that is required by the client with fewer billers or at least less expensive ones. Rather than two associates and a paralegal to handle 45 cases, appropriate work is pressed down, process is applied, and perhaps the same level of legal work can eventually be handled by one associate and two paralegals. The firm can continue to increase profitability by relentless execution of kaizen across the entire portfolio, without a commensurate drop in service.

A word of caution, more for clients than for outside counsel: continuous review of process necessarily will result in misses. Educated guesses are exactly that, and a continuing relationship requires profitability. That does not mean that whatever alternative arrangement is chosen should change every quarter. Trust and confidence in the relationship will reap great rewards, but it will not be easy.


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