Law Firms as a Business: A Broken Model Ripe for Lean Process Innovation

Ephraim Michael and I were able to grab the "LeanLegalTeam.com" url, which I found a bit surprising because we are not the only lawyers who are actively touting the benefits of legal practice the lean way.  For example, the US mega-firm of Seyfarth Shaw has a practice group it calls "Seyfarth Lean," which got a nice write up in the New York Times last year.  There is also a Canadian consulting firm, Gimbal Canada, with a business model of helping lawyers become more efficient by applying Lean Six Sigma to their practices. These, and likely others, examples demonstrate that their is a burgeoning movement by lawyers to transform the traditional practice model, a model that is undeniably broken.

There are striking parallels between application of Lean Six Sigma principles between traditional law firm models and manufacturing, the latter of which served as point of adoption for building efficiencies into existing business infrastructures.  Much like corporations, law firms originated as a way to centralize resources and build efficiencies into a validated business model.  In the case of law firms, clients needed legal services, but it was expensive to practice alone.  Lawyers joined practice groups to share not only expensive law books needed for access to cases setting out precedent, but also to join with partners having highly sought after specialties (e.g., tax law, patent  law), that allowed them to provide "full service" to clients.  In time, clients came to rely on the law firm as a mark of quality legal services in that lawyers in a prestigious law firm provided reflective credibility to the apparent legal skills of lawyer in the same firm.

Over the years, however, the business model morphed from providing legal services to being a law firm which, in turn, made client the customers who provided the profits that made high salaries and nice offices possible for successful lawyers.  Support of this model required the hiring of more associates and staff to allow scaling of the revenue stream and this, of course, caused even more expense that had to be recouped from client billings.  Business people would understand this as increasing the lawyers' fixed costs.


Moreover, increasing scale made the profits at the biggest firms even larger. We began to see smaller and mid-sized firms unable to offer salaries and perks that matched those of the more resource-rich firms, which resulted in defections of partners and associates to "follow the money."  To survive, the also-ran firms either merged into larger firms or dissolved--in fact, both of the prestigious law firms at which I practiced are no longer stand alone entities, having merged into larger firms that desired their respective niche specialties.

This "bigger is better" model was all well as long as clients kept rolling through the doors but, as we know, that didn't happen.  Big law firms found themselves with falling client revenue, huge staffs and opulent offices. Layoffs were rampant, which helped somewhat, and additional mergers happened.  A surprising number of big law firms made it through the economic turmoil of the last several years, albeit with smaller staffs and lower revenue than in the "good old days."

While some lawyers are breathing the proverbial sigh of relief about making through "the crash," others have recognized that there is something really wrong with the traditional law firm practice model.  They likely realize that they could have been one of the unlucky ones who did not make it through the downturn.  This is why I think the move toward Lean Six Sigma and other efficiency-directed processes in traditional legal practice models are highly analogous to that seen with large corporations over the last 20 or so years.  Adoption of lean practices at existing corporations resulted from recognition of management at those businesses that their respective organizations were wasting a huge amount of their resources on efforts that were not directly related to bringing profits into the business.  Likewise, I think we are or soon will be seeing a tectonic shift at some law firms in the way they practice law.  Lean Six Sigma and related processes provides them with a roadmap for transformation, as this process did with corporations over the years.

In Part 2 of this post, I will demonstrate why adoption of Lean Six Sigma and other efficiency-directed processes in a traditional law firm model still does not serve the interests of most business clients.