Determining the metrics of ‘value’
Week 3. Each week via the In-House ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. ACC Value Challenge steering committee member Ken Grady, General Counsel and Secretary of Wolverine World Wide, offered to profile his selection and start-up process of launching a trademark portfolio management engagement with law firm Seyfarth Shaw. Ken’s co-blogger is Lisa Damon, a member of Seyfarth’s Executive Committee and leader of the firm’s efforts to incorporate Lean Six Sigma into its business. To catch up on the story so far, click here.
The client side
We built a relationship and chose the law firm, and we haven’t talked about fees. To discuss fees, we also should discuss metrics. This will probably take a few posts, so bear with us. I’m going to start by stepping back and getting philosophical. When I talk about value fee relationships, part of what I’m talking about is a way for the company to lower its costs, and the other part is for the firm (and the company) to become more efficient. I want the firms to be profitable, and I think they can be just as profitable working efficiently as working inefficiently. The following example might help:
Suppose a firm will bill for 12 hours at $300 per hour, for a total of $3,600. Let’s assume the firm could do the same quality work, but do it in 6 hours rather than 12 hours. If the firm charged $2,400 for 6 hours, I would have saved $1,200. The firm would have been paid $2,400 for 6 hours, versus $1,800 for 6 hours under the old arrangement. The firm also “saved” 6 hours and can use those hours as it wants: work for another client and be paid another $2,400 for 6 hours (a total of $4,800 for 12 hours versus the previous $3,600 for 12 hours), or maybe work the associates less and only use 3 hours (putting it at $3,600 for 9 hours versus the prior $3,600 for 12 hours).
This all makes sense except for one thing: How does the firm do the same quality job in 6 hours instead of 12 hours? The answer is to tackle the efficiency issue. In my opinion, law firms are extremely inefficient (okay, airlines are much more inefficient, but that is a separate story). Throwing that statement out usually creates some heated discussion. Many partners tell me about how they work very efficiently. But, I don’t see that lawyers (private practice or in-house) have anything to brag about.
So how do lawyers become efficient? There are many ways to improve, but the one I find the most sensible and I think works well with the legal world is "Lean" or its hybrid cousin, "Lean Six Sigma." In simple form, Lean is about removing everything that doesn’t add value, leaving only value added steps. It sounds simple, but Toyota (which has been doing this for almost 70 years) would tell you they are still in the early stages of learning about Lean. So, how does Lean work in a law firm? I’m going to let Lisa tell you the story. Lean is important to metrics in our story, because that is how we have chosen to find ways to make ourselves more efficient internally and externally, yet make sure this isn’t something where we benefit at Seyfarth’s expense – we want Seyfarth to benefit from helping us become efficient. Put another way, efficiency has value to us, and we are willing to pay for that value.
Next: The metrics story continued.
The firm view
So how DOES Lean work in a law firm? In many ways, the cards are stacked against it. Lean requires the discipline to step back, look at data, talk to clients, examine root cause and then design a way to work more efficiently — cutting out steps that don’t add value, adding steps that do and re-aligning what remains to deliver superb service that meets the client’s definition of value. Read: Do a better job in less time.
Law firm economics, however, taken to their logical end, incentivize inefficiency. Historically, law firm reward systems relate to more time — more minutes, more hours, more billings, more money. So, the first paradigm shift you need to make is: Believe that doing a better job in less time makes the clients more delighted (Kano Model for those of you doing Lean-speak), and that more delighted clients means more great work. Lucky for us — the formula actually works. And any firm can do it — it just takes investment, discipline and some knowledge.
Second paradigm shift is Lean itself. Cue the eye rolling. We have heard it all — that’s for cars, not lawyers; process discipline has no place in the art of law; only good for commodity work; too hard; too complex; too simple; too much jargon; just marketing; and, the current favorite, "Look where it got Toyota." There have been times along our journey-in-progress when we have thought each of those things. But, what we are doing is working, and we believe there is a lot that can be relatively easily implemented by all — large and small firms and legal departments.
Take any project. Let’s take a complex litigation. We have invested our lawyer and staff time to study the way we approach different types of litigation — so we have process maps, technology tools, resource banks, and data we have collected and analyzed from our own work. Doable for any Firm whose partners have a core concept of investment time. So now, a client comes and asks for us to work with them on a piece of complex litigation.
If we were approaching this with a Lean frame, we would spend much more time up front with the client, understanding what they wanted, customizing our process maps (for both the client and the matter), putting a plan into place to execute according to the client’s definition of value. We then set metrics to ensure we were satisfying their needs and driving the result.
For instance, we might measure a variety of things . . . Some clients value "cycle time" – how quickly we can move the case through mediation or to trial; some value results — a trial win under a certain price or within a certain time frame; others may value a thorough early case assessment or budget predictability. The "voice of the client" provides us with the information we need to decide what Lean tools we will use and how we will measure our performance.
In educating lawyers about Lean, we find it is sometimes better to talk about what it is not — it is not rigid and inflexible; not about commodity work; not about statistics; and, not confined to an area of practice. For us, the simplest way to approach Lean is to remember that Lean is a way to think, a way to break out of the way we have done things and to look at a problem – very complex to very routine – differently – and then work to deliver the highest quality, directly in synch with the client’s value, at a lower cost.
Being a lean bunch, metrics are a big deal for us — we love to measure things and look at data (amazing what it often tells you). So we often start by sticking to a few basic measures –lowering cost and increasing satisfaction. When we started talking metrics with Wolverine, we knew they were also a metrics-loving group, but we had no idea what was next. We started by proposing a set of metrics that related to client satisfaction, cost and cycle time.
Next: Ken comes back with a set of metrics far more finely tuned to what he valued. Just wait…math is required.