Guest post by Scott Rosenberg, Esq., CPA, Solution Group Leader – Corporate Legal Services, and Dan Safran, Executive Vice President – Management Consulting and Legal Solutions, Project Leadership Associates
As consultants to law firms and corporate law departments, our clients frequently ask us two questions: “What can we do to innovate our processes?” and “What process innovation ideas are other people in the legal market implementing?” This post provides a good start for answering those questions.
First, one needs to decide what is meant by “innovation.” Like legal knowledge management, different law firms and departments interpret innovation differently. For this post, we settled on Wikipedia’s definition of innovation as, “the application of better solutions that meet new requirements, unarticulated needs, or existing market needs… accomplished through more effective processes that are readily available to markets.” (http://en.wikipedia.org/wiki/Innovation).
Next, one needs to choose where to start…but, how do you identify which areas to focus on and what criteria do you use to set priorities? We recommend the following criteria for selecting areas ripe for process change:
- Must be highly relevant to issues the General Counsel or Managing Partner is facing
- Results in the form of cost savings or practice efficiencies must be readily apparent
- Solutions must be readily obtainable
- Solutions should be transformative
The next thing to keep in mind is that innovation serves a business purpose only when it yields value. When we think of process innovation as creating value, we think in terms of the following four strategies:
- increasing revenues and profits by, for instance, creating new or revitalizing existing services or driving new and improved profits,
- decreasing operating costs by, for instance, modifying the business model or process architecture,
- reducing net investment by, for instance, modifying the business model or service composition, and
- improving value by, for instance, creating new or extending existing advantages or disrupting rivals.
Of these, we find decreasing costs of highest value to law departments, while both cost reduction and revenue enhancement generally are equally compelling for most law firms.
Innovation is a relatively new concept for the legal industry, coming when the market experienced a fundamental shift in purchasing behavior a few years ago as corporate law departments usurped the driver’s seat in their relationships with law firms. Forcing outside counsel to compete through rigorous RFP processes, in-house counsel now call the shots in setting fees for legal services. Law departments have huge pressure to minimize and more accurately predict costs; in turn, law firms are getting squeezed on rates, margins, hiring, and lawyer retention.
The following true story illustrates just how much the market has changed. In a meeting with the Managing Partner of a 500-lawyer firm several years ago, we were introducing the concept of business process automation to the firm at the request of the firm’s COO, CIO, and CKO. In the middle of the discussion, the Managing Partner interrupted to ask, “Excuse me. Are you serious? You want our firm to spend money to innovate and apply efficiencies to our internal processes? Why in the world would we do that…we will only reduce the number of billable hours to our clients! What are you thinking?!” Wow, have things changed! Gone are the 7&7 years (seven straight years of law firm rates increasing an average of seven percent).
So now we have a definition of innovation, the value proposition, and characteristics for selecting potential areas for innovation. With this in mind, one might be wondering how to tell if something is truly innovative. And, if everyone is looking at the same things, how does anything innovative arise? For that matter, how can one ever quantify the impact of innovation?
To better understand the impact of innovation, we have tried to articulate real life examples of process changes that are truly innovative, particularly in terms of revenue and cost-related process improvements.
Starting with the cost-side of process innovation, we have defined three categories of change relevant to corporate law departments and law firms. We will discuss each one of these innovation categories and provide an example of each.
One cost-focused area of process innovation is how corporate law departments are beginning to reduce the number of law firms to achieve economies of scale.
The diagram above outlines the process innovation opportunity, its relevance and application, followed by some ideas on how and when to move forward.
While the corporate law department practice of reducing the number of legal service providers they engage may not seem particularly innovative, the processes that some law departments have implemented and adopted, are. Mapping requirements around the relationships the law department actually needs (and modifying them as the needs change), as well as monitoring and giving feedback to the firms are examples of two simple but innovative processes that some law departments have adopted.
We recently delivered an engagement for a large financial institution with a very large corporate legal department. That institution was focused on reducing its provider list. It had been through the process of reducing the number of firms on its law firm panel list. Though the convergence itself led to some minor cost reductions, the corporation was not really achieving the value it had imagined. The law department had also defined and implemented a process for analyzing its satisfaction with outside counsel. However, when we reviewed the law firm evaluations, it was striking that almost all on the panel list received only an average rating. Issues included poor service, internal firm miscommunication, imperfect lawyer assignments, duplication of effort, and multiple internal law firm reviews cycles. What became clear was that culling the list of firms and grading their performance did little to truly affect results.
So, we shared some ideas for communication and collaboration that could be viewed as innovative. Not complicated or bleeding edge, but definitely effective. The department now works with a short list of law firms and sits with each to review its scores and discuss where delivery has fallen short. Expectations are set and confirmed. Both sides come to the table with concrete ideas for how to better communicate and collaborate. Matter budgeting, early case assessment, and post-closing review are included in the workflow. This process is resulting in huge improvements in delivery, satisfaction, and efficiency.
Innovation need not be complex or costly. This corporation took what might seem to be an obvious route, but one few law departments have historically had the structure, process orientation, direction, stamina, or desire to take on to forge closer relationships with their providers. This is a true win-win.
We hope this initial example offers a taste of innovation in the legal setting. While we offer an example above, please watch for our follow-on blog posting that offers other examples of innovation in both law firms and corporate legal departments.