This is a joint post by David Barnard & Mark Shapiro of Blaqwell and Jack Bostelman of KM/JD Consulting Blaqwell is a pre-eminent consultancy that advises top law firms on high-level issues, such as strategy, mergers & acquisitions, compensation systems, performance measurement and lateral hiring strategies. KM/JD Consulting advises leaders of Am Law 200 firms how to improve practice group productivity and achieve real follow-through from lawyers on internal initiatives.

This is a three-part post. Part 1 explained that productivity in the law firm context means the amount of client value delivered by a given partner-associate team – what many think of as efficiency but actually encompassing more. Part 1 also explained why improving productivity is essential for most firms' survival and the importance of metrics for productivity improvements. Part 2 provided four examples of easy yet very effective productivity improvements that a law firm may consider. Part 3 below provides 20 additional examples in the areas of revenue/profit management, service delivery changes, people management, knowledge management, process management, and technology solutions.

The Management Committee drills down on productivity ideas

The Management Committee of an AmLaw 100 firm with 600 lawyers and over a dozen offices across the United States heard from a consultant a few meetings ago why improving productivity is essential for a law firm to compete. At its last meeting the Committee identified and launched four productivity initiatives that are easy to implement and produce a high value result:

• Analyzing profitability of matters, understanding why some matters are more profitable and then emphasizing the drivers of profitability, whether that be certain types of matters or a certain way of managing matters;
• Offering temporary discounts to put excess capacity to work;
• Communicating better with clients according to a formal template that defines roles and responsibilities for parts of a matter, as well as frequency of communications. The goal is to avoid duplicative and unneeded work, avoid overlooking work that needs to be done, and minimizing work that has to be redone; and
• Expanding the use of detailed checklists and playbooks.

Types of productivity improvements

The consultant kicks off the meeting explaining there are many ways for a firm to improve productivity. Some involve improving efficiency – doing the same work with a lower cost mix of lawyer hours; some involve improving revenues – earning more from the same lawyer hours; and some involve improving the service delivery model – re-engineering the way lawyers collaborate and the resources they use. Below are some examples.

The meeting is lively, with many ideas being suggested by the Management Committee, and many more being suggested by the consultant and endorsed by the Committee. After the discussion, the consultant organizes them for easier review by the Committee.

Revenue/profit management

There are a variety of techniques that allow the same lawyers to produce greater client value, and thereby improve productivity and profits.

1. Variable pricing. As noted in Part 1, the airlines have become very sophisticated at price management – when and how they price seats to maximize profits. Some law firms are also succeeding at this variable pricing, which is considerably more sophisticated than offering temporary discounts to use excess capacity. The firm determines a price for each matter by taking into account a variety of factors in addition to capacity – type of matter, type of client, geography, special timing or expertise needs, etc. In addition to employing a strong analytical team, successful firms have developed a good database of lawyer and matter experience (#s 9 and 10 below) and a sophisticated staffing system (#6 below) that enables the firm to know who is available when, where and for how long.

2. Reduce price competition by establishing a strategy to be distinctive. The purpose of a strategy is to be distinctive. Firms with good strategies, and good execution of these strategies, can compete primarily based on expertise and other non-price factors, thereby improving profitability of work performed by the same lawyers. Establishing and executing a strategy is addressed in our 3-part blog series, What is a strategy, and why you need one (Part 1); How to choose a strategy – and why it must include growth (Part 2); and How to build a strategy to focus and excel at a handful of businesses (Part 3).

Positioning a practice to win more high-value work may require paying up to bring in additional expertise and training partners and associates on the new work. The firm needs to weigh the cost of these investments against the potential benefits of higher unit revenues, but many firms have come out favorably on the analysis.

An effective strategy can improve productivity by increasing the value of services delivered from the client's perspective, and therefore fees received for those services, while incurring no additional cost to produce that value. An effective strategy rarely makes a firm invulnerable to price competition, but it reduces pricing pressure by protecting a firm from having to compete solely on price.

Service delivery model changes

3. Change service delivery for commodity-priced work. For work that is generally fungible across firms, competition will be based on price. In order to reduce the cost in line with the value being delivered, the firm can change from a typical partner-associate delivery model to use of less expensive contract lawyers and outsource providers, managed by a senior associate or Of counsel, and emphasizing standard forms, standard processes and new technology. Setting up the new model will require planning and time to create the standard forms and processes and to test for quality of results. When operating, though, the model should deliver legal services at a reduced cost and appropriate quality.

This contract attorney/outsource process has been followed for many years for e‑discovery work (to the extent the client hasn't removed it altogether from the law firm). Some firms have also begun to use the model for corporate due diligence in the M&A, capital markets and real estate transactional contexts.

4. Joint venture with a client. A firm may choose to partner with a client on a mutually beneficial service improvement project. For example, the two could jointly develop a database of information about a series of many small matters the client regularly encounters, which can be used to handle those matters more efficiently. The client would underwrite at least a portion of the work establishing the database; the firm would use the database to handle its work for the client more efficiently; and the client would also use the database in working with other firms. The overall goal is not only to make the firm more productive, but also to strengthen the firm's relationship with the client.

People management

Productivity can be improved through better management of the firm's lawyers within its existing service delivery model.

5. Improve collaboration across offices. By expanding staffing of matters to consider lawyers across all offices, the firm can expand the pool of available expertise and eliminate redundancy across its network. Matters proceed more efficiently when staffed by lawyers having relevant experience. An expertise database (# 9 below) will be needed to make this work.

Another cross-office collaboration initiative is to coordinate business development efforts for clients and prospects that can be served from multiple offices. Pooling client contacts from all offices expands the number of potential contacts within the prospective client to which the firm can cross-sell.

Even more powerful than staffing and conducing business development across offices is to manage all aspects of a practice group's operations without regard to office location. Under this approach, each practice group head manage the lawyers in that group as an integrated team. Partners designated as office heads have greatly diminished or even no roles regarding lawyer management.

6. Staff with lowest cost lawyer qualified to do the work. Leverage can be increased by improving staffing information, planning and decisions in order to find the most junior available lawyer who is qualified to do the work, rather than assigning the most quickly found available body. A sophisticated staffing system can tell assigning partners in real time who's working on what, when they will be come available and who has what experience. This enables the work to be staffed in a way that optimally balances

• full employment (better utilization),
• pushing work down to the lowest cost lawyers qualified to do the work (improved leverage),
• performing the work with lawyers who have done it before (improved efficiency), and
• spreading the work to lawyers who have not done it before (improved bench depth for future staffing flexibility and improved morale leading to reduced turnover).

7. Avoid perverse incentives. If pushing work down is a goal, the firm should move away from billable hours targets for partners and even senior associates. These targets can cause hoarding of work by senior lawyers that can be performed more economically by more junior lawyers. These senior lawyers should instead be incentivized to seek new business opportunities for the firm.

8. Improve practice group management. Regular and substantive practice group meetings can be part of an overall improvement in collaboration. These meetings are opportunities for new business coordination, team building, recognition of efforts, sharing expertise, promulgating recent developments, training, and building presentation skills. Meetings should have agendas circulated in advance, include associates and partners, be positioned as a commitment (with bad attendance noted in performance reviews) and include regular elements, such as new business, practice developments and CLE presentations.

Knowledge management

Knowledge management is about how lawyers share what they know about client work, clients, markets for their services, and their firms as businesses. Capturing and re-using this knowledge brings efficiency gains, as well as higher quality through improved consistency.

9. Build an experience database to find similar matters. Profiling each matter with lawyer-verified standardized information enables finding similar matters for purposes of identifying work product, staffing with lawyers having relevant experience, finding internal experts to answer questions, pooling knowledge about clients, generating pitch books and responding to RFPs, and fee benchmarking. Although engaging with the lawyers to obtain the needed information can be difficult, the high value of this initiative makes that effort worthwhile. On the other hand, these initiatives frequently under-deliver when they proceed without lawyer engagement.

10. Establish an expertise database to find lawyers with specialized knowledge. Whether the firm is seeking to improve staffing efficiency by considering expertise of lawyers in all offices (#s 5 and 6 above) or to avoid reinventing the wheel by tapping into granular partner expertise across the firm for questions arising on matters, an automated system for capturing and finding experience of its lawyers will be needed. These systems, referred to as “expertise databases,” come in various forms but their effectiveness is only as good as the information collected. Firms have found it worthwhile to combine substantial lawyer efforts to collect information with artificial intelligence tools to make the information most findable.

11. Conquer e-mail. Filing, sharing and finding substantive e-mail is today's equivalent of having a good reference library of memos and correspondence. Yet many firms have no effective system for capturing and quickly retrieving relevant e-mail based on subject matter, or often even by client/matter. The firms that do have good e-mail retention and retrieval systems have recognized that the solution requires a combination of culture change, leadership effort, strong technology and accountability. For more on this topic, see our prior posts, The e-mail conundrum - Part 1, Part 2 and Part 3.

12. Appoint partner as ombudsman for new developments in a practice group. In practice groups with frequent new developments, rule changes and evolving issues – or even the occasional major development – appointing a single partner as the “go to” clearinghouse for questions avoids duplication of effort, improves consistency of advice and speeds assimilation of the new development within the practice group. For more on this topic, see our prior post, Establish an issues ombudsman to improve practice group efficiency and quality.

Process management

Improving the process for performing the work can avoid waste.

13. Eliminate unnecessary work. By studying matters with discounts and write-offs, the firm may be able to identify work that is not necessary in order to achieve the client's objectives or that, based on hindsight, the client does not consider valuable. For example, a long research memo on collateral questions may have been more than was expected; a more general e-mail based on input from a firm expert may have sufficed. Improving communications with the client, one of the low-hanging fruit ideas discussed in Part 2, may also avoid wasting lawyer time.

14. Change the process. In litigation, early case assessment is an example of changing the process to improve client value. The firm and the client work together to identify at the outset the most important factual and legal issues of the case, then focus research and discovery on those issues to determine the strength or weakness of the case and possible settlement value. Settling the case before completing full discovery can save a substantial amount, depending on the circumstances of the case.

A similar example would be early due diligence assessment in mergers and acquisitions matters. By conducting due diligence in successive stages of detail, an initial review may identify early the areas of serious concern or greatest sensitivity. A firm adopting this process will likely want to develop a checklist of standard questions for typical key areas. An example due diligence assessment checklist is included in an ABA book entitled Using Legal Project Management in Merger and Acquisition Transactions (American Bar Association 2016). Early due diligence and negotiations around these areas may reshape the transaction or even result in its being abandoned. On the other hand, if early due diligence results are satisfactory, the client and law firm can proceed to more detailed due diligence.

15. Engage in legal project management lite. By introducing a simple system of weekly reports to supervising partners, the firm can help them avoid waste and identify scope creep in time to speak to the client about a revised fee estimate. The system also produces granular data that can be used for future fee estimates.

The key is to break the matter into 5-10 phases that correspond to the way the lawyers think about it. For example, in M&A it could be due diligence, merger agreement negotiations, stockholder approval, regulatory approval, etc. The weekly reports show timekeeper hours and fees, broken down by these phases. Lawyers must code their time using these phases, but should find that easy because the codes are intuitive. Each matter type will have its own set of intuitive codes. The supervising partner can also prepare a budget and have the reports compare actual hours and fees to budget, broken down by the coded phases.

These weekly reports can be highly effective in aiding the supervising lawyer to identify scope expansion, allowing the lawyer to curtail the work or obtain client consent to a higher fee; to halt unauthorized expansion of staffing; and to speak to the client when the work is veering off budget or behind schedule. The reports will also pressure the working lawyers to improve timeliness of their time entries. This reporting and monitoring process comprises the elements of legal project management that lawyers will find least difficult, and could be called “legal project management lite.”

For more on legal project management lite, see our prior two-part post, Legal Project Management for practitioners – The non-scary version – Part 1 and – Part 2

Technology solutions

While technology is not an end in itself, powerful results can be achieved when technology automates existing processes or performs a function that is infeasible without technology. Examples include:

• 16. Various forms of “Artificial Intelligence” – Expert systems, contract analysis software, data analytics (such as judicial insight tools);
• 17. Centralized firm experience data that is linked to other firm data (also known as “data warehousing”);
• 18. Revamped practice group intranet with fresh content that is truly useful and actually used by lawyers – see our prior post, Unify a practice group through fresh content, Part 1 and Part 2;
• 19. Contract automation software for high-volume/routine documents; and
• 20. Enterprise search that employs filtered search like on-line shopping, possibly accompanied by automated filter creation – see our prior post, Finding our work product should be as easy as shopping on Amazon.com.

Additional sources of ideas

Clients are well situated to know many of the things other law firms are doing to improve productivity. It may be worthwhile to speak to a handful of clients about improvements they see other firms making in productivity.

Canvassing laterals, both partners and associates, for techniques they observed at their prior firms is also a worthwhile effort. These ideas come with the added benefit of built-in testimonials for their efficacy from the lawyers who saw them work at their prior firms.

Management Committee makes a decision

The Management Committee remains enthusiastic, though a bit unfocused.

Artificial intelligence and big data

“I have a question about artificial intelligence,” asks Josh, the young real estate partner. “Can we use AI for our sophisticated staffing model to predict who's going to be available when, and what our new workflow will be? Maybe even to predict how many associates we'll need to hire and when we'll need to train them.”

“I've never heard of anyone doing that, but we should investigate,” replies chairman Keith. “Let's set up a subcommittee to explore and pilot emerging AI and big data applications. Would you be willing to chair it?” he asks Josh.

“Certainly,” replies Josh. “I think we might also want to explore whether AI or data analytics can identify factors that correlate highly with successful matter outcomes – such as substantive result, time frame, cost, and profitability for us. I'm willing to bet some of the factors will turn out not to be intuitive.”

“You're clearly the right guy to lead this subcommittee,” replies the chairman approvingly.

Where to start

“We can do a lot of these 20 things,” says Samantha, the Corporate chair. “We should get started right away – but where?”

“I suggest we pick half a dozen initiatives and pilot them in one Department,” says Jerry, the Litigation head. “We can pick them using Tamara's prioritization method of highest value for least effort.”

Keith, the firm's chairman, endorses Jerry's suggestion (having put Jerry up to it prior to the meeting) and Samantha signs on for the Corporate Department to be the pilot Department.

“I think we should also canvas our laterals for ideas,” adds the Corporate chair. “I'm not ready yet to ask clients. But I'd like to do that as well, once we're further along and can show some results to clients so they know we're serious.”

They invite Tamara to help them select the pilot initiatives and ask the consultant to help oversee the implementation.

Conclusion

Continuous productivity improvement is necessary for all firms, even if they are pursuing a differentiation strategy. Because of the ease of emulating others' improvements, the competitive standard of productivity is continually improving. This improvement drives prices lower, including prices for most differentiated services. In the absence of standardized measures, firms must develop their own productivity metrics.

There are many types of productivity improvements – revenue/profit management, service delivery changes, people management, knowledge management, process management and technology solutions.

Productivity improvements require effort, and may involve hiring additional professional staff, seeking outside assistance or changing the way the lawyers work. These changes require support from the top, perseverance and accountability to achieve true change. However, a firm's long-term survival depends on continuously improving productivity. This can also be very rewarding financially, while at the same time maintaining or improving the firm's competitive position for talent and clients.

[Photo credits: © Can Stock Photo Inc. / jirsak, jirsak, dizanna & Mazirama]