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Business Process Re Engineering In Law Firms 2010

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An introduction into how law firms can apply re-engineering methods to drive major improvement. Includes case study examples.

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  1. 1. CODEXX WHITEPAPERBusiness Process Re-engineeringin Law Firms– opportunities & challengesV2.1 April 2010Alastair Ross CONTENTSDirectorCodexx Associates Ltd Note on the new edition Introduction The pressures on law firmsCodexx Associates Ltd Good times will not come to all after the downturn3-4 Eastwood Court Let’s talk about business processesBroadwater Road What is Business Process Re-engineering?Romsey, SO51 8JJUnited Kingdom The opportunity, challenge and benefits for law firms How to re-engineer – an introductionCompany RegistrationNo. 04481932 Why you should re-engineer in a downturn A time for actionTel +44-(0)1794-324167www.codexx.com Acknowledgements and further information
  2. 2. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltd Note on this new editionThis whitepaper is a significantly updated edition of a previous whitepaper published in March 2008,which provided an introduction to business process re-engineering for law firms. Since then, interestin this subject has greatly increased, driven primarily by the economic downturn during 2008-9 whichhas had a major impact on law firms. In parallel, our re-engineering work with law firms (and withother businesses) has enabled us to further develop our understanding and methods in the legalsector. This updated edition of the whitepaper allows us to share that experience and our views witha wider audience. We hope that this whitepaper provides a useful primer for law firms consideringprocess re-engineering as a way to significantly improve their competitiveness. IntroductionWhat is ‘Business Process Re-engineering’ and how can law firms apply it to reduce cost and improveservice? This whitepaper seeks to answer that question and so guide change leaders in law firms onhow they might apply this transformational approach. Whilst we believe that this paper is ofrelevance to all law firms, our experience to date is with UK law firms and our market analysis is UKfocused.Whatever we may believe about the potential for law firm re-engineering, it is critical to recognise upfront, that for the great majority of law firms, process re-engineering and even process thinking arealien concepts. Most firms, partners and lawyers simply do not think of their business in this way.When they look at their firm, they see legal experts working together and using their expertise andintellectual property to solve problems for clients. They don’t see their firm’s services as processesthat snake between departments and offices, and out to clients, powered by IT and operated bylawyers. We were strongly reminded of this fact from comments received from law firms on the draftversion of this paper. And these were comments from Partners who believed that process re-engineering methods were very relevant for their firms, but they also knew that the challenges toapply them – let alone embed them – in their firms would be significant.Whilst some firms have applied process re-engineering methods to some of their services, in thegreat majority of cases, these have been for the more repetitive processes such as Wills,Conveyancing and Probate. Re-engineering has been much less applied to the more complex and lessrepetitive services such as Dispute Resolution and Merger & Acquisition. Why is this? Simply, it isbecause it is at the higher volume end of the market where competitive pressures, the internet andderegulation have put the most competitive pressure on firms – and they have had to respond if theyare to maintain a profitable service. However, many Partners consider that it is only in theserepetitive processes (at the so-called ‘lower end of the market’) where these techniques can beapplied. Such thinking typically will conclude that since their own services are less repetitive andmore complex (at the so-called ‘higher end of the market’), this process thinking cannot be applied totheir area of work. It is indeed true that the ‘burning platform’ for change is actually only lukewarmat the ‘higher end’ of the market where competitive pressures have been less acute, but this will notalways be the case. For example, over the last decade we have seen how the Litigation business hasbeen impacted by the growth of Alternative Dispute Resolution. The lower cost paradigm that istaking hold of the ‘bottom end’ of the legal service pyramid will invariably spread upwards as lowcost paradigms do within a market (witness the triumph of low cost airlines over the major airlines inthe last 15 years).The other point to tackle is the one of the potential application of process thinking and re-engineering to less repetitive legal processes. Even those services considered as ‘less repetitive’, willtypically comprise of some common work elements structured into a typical sequence required tocomplete the matter. What differentiates these more custom matters is the degree of configurationrequired – that is those work elements which are required to be performed for a specific matter. But 2 of 18
  3. 3. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltdthey can still be considered as a sequence of work elements – in other words a process. Byconsidering such services as processes, we can consider the value provided to clients and how itmight be enhanced; we can identify inefficiencies in the work; we can look at the people performingthe process and whether they are over or under-skilled for the work and we can consider howrepetitive elements can be systemised. So we would contend that process thinking can be appliedacross all legal work.Hopefully this introduction will have set the scene for the rest of the paper – setting out ourcontention that process thinking is highly relevant for firms – offering an opportunity for majorimprovement – but also that we understand the challenges that firms face in adopting this new wayof thinking. The pressures on law firmsIn 2006, the UK legal sector was in the midst of a boom, driven by property development, mergerand acquisition work and ever increasing regulation. However, even then there were clouds on thehorizon with the Clementi Review advocating major regulatory reforms in the legal market andconcerns about the long term nature of legal work:“Much of this predicted growth in work is transactional corporate work which is more prone tomarket cycles than other areas and suggests that many law firms face hard times if and when thepresent corporate boom ends as bread-and-butter commercial work is retained in-house.”(Legal Week Intelligence, ‘Client Satisfaction Survey’, September 2006).By January 2009, these clouds had become a raging storm of deep recession and law firms have sinceseen a severe contraction in client work. Particularly hard hit are those firms with sizeable real estateand finance practices as the volume of corporate and property transactions was dramaticallyreduced. In response, firms cut discretionary spending and for the first time in a decade lawyers werelaid off in large numbers. By the first quarter of 2010 the UK economy may be emerging fromrecession, but with the high levels of public debt it is clear that business conditions in the UK andmuch of the world will be challenging for much of the next decade. This will hit the volume of legalbusiness available to firms. In addition, as clients respond to their own business challenges by cuttingtheir own spending, legal services will come under the purchasing spotlight and significant pricereductions demanded. If firms respond with another wave of redundancy, they risk cutting into theirkey ‘muscle’ of talent and repeating the talent wars of the mid-90’s when the eventual marketupturn sees them lacking legal resources.Another way for firms to improve their competitiveness is to examine their business to look forfundamental new ways to add value and reduce cost in they way they work – what we call businessprocess innovation or re-engineering. Are firms ready to take this step? The Business DevelopmentDirector of one Top 50 UK law firm asked this question by one of our consultants replied: “We’re notspending any money on things like that. If we have any spare budget, I’d rather spend it on taking aclient to a rugby match.” Whilst we would not disagree with the client-focused sentiment, we dobelieve that this is a short-sighted view and that process re-engineering has a major role to play forfirms in surviving the downturn and to emerge from it in a more competitive position. In this articlewe will explain why and how. Good times will not come to all firms when the recession is overUnderstandably the immediate challenges of the recession have been the prime focus of law firmmanagement as they work the twin levers of sales and cost management. However, there are alsolonger term threats to the current law firm business model (see fig 1) that will also need to beaddressed: 3 of 18
  4. 4. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltd Client focus on value and increasing use of Purchasing approaches to buy legal services Ongoing impact of web-enabled IT on established ways of working Growth of in-house legal teams Trend for hourly charging to be replaced by fixed price Growth in ‘de-lawyering’ in key business areas such as insurance and dispute resolution Challenge of recruiting and retaining adequate levels of legal talent UK market deregulation from the legal services bill – enabling new competitors Threat of New Entrants •Talent Management Retailers, Banks, Accountants •Increasing IT challenges enabled by Legal Services deregulation, offshore competition Existing Bargaining power Competition Bargaining power of Suppliers Mergers of Clients Pricing New products & methods Value-focused clients, using Growth in de-lawyering: Panels & Procurement to buy, growth Mediation, Personal Injury, of in-house legal teams use of Insurance Threat of Source: Codexx SubstitutesFigure 1: Law firms are facing increasing business challengesThe UK Legal Services Act will initially affect private client services such as Personal Injury, HomeConveyancing and Wills by enabling new competitors such as accountants, financial services firmsand major supermarkets to enter the market. However, this will only be the tip of the iceberg. A ‘lowcost paradigm’ arriving in a market has the tendency to become a dominant paradigm in that market.Witness the triumph of low-cost airlines against premium airlines over the last decade. A similarthreat exists for commercial legal services – all clients will expect to see the benefits of valueimprovement from innovation pioneered in the “lower end” of the legal market. Multi DisciplinaryPartnerships may provide the opportunity for highly efficient and focused ‘one-stop’ offerings atbetter transaction value to clients than today’s fragmented offerings – partly because accountantsand other service businesses are typically better at service delivery, with lawyers tending to rely onhigh technical quality to satisfy clients.Another challenge comes from the impact of Information Technology. IT has enabled major efficiencyimprovements in repetitive legal processes which have driven down costs and commoditized some(particularly private client) offerings. The internet has greatly eased the ability for businesses to workelectronically with clients, but this has resulted in the emergence of new web-based competitors forprivate client services. Law firms are finding their IT capabilities (and hence the support of their ITsuppliers) to be increasingly key to their competitive ability.Business clients are increasingly expecting on-line services, more cost-effective solutions and alsodemanding innovation from law firms. Larger business clients are growing their in-house legal teams 4 of 18
  5. 5. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltdand are thus capable of performing an increasing level of their company’s legal work. They areincreasingly using panels and procurement to drive down law firm charges. This focus on costreduction has accelerated during the recession.The ‘war for talent’ and ‘Generation Y’ were subjects that occupied much time in law firmmanagement prior to the recession. The focus on these areas has reduced significantly due to thelevel of layoffs from firms. This is likely to be just a temporary situation. Generation Y employees donot think like their elder partner colleagues – they are seeking a better work-life balance and manywill want sabbatical breaks to enable travelling and a more 9-5 work-style. They are also morefamiliar with using the latest internet-technologies for working and collaboration. Indeed we know ofone firm that noticed a drop off in billable hours of younger associates as they collaborated betterthan their peers thereby completing work faster – something very much in the interest of the client,but something that challenges a time-charging legal business model. The result of the different workexpectations of this younger workforce will be that law firms will likely struggle to meet all theirneeds for these skills and will have to be innovative in the way they perform legal tasks, throughapplication of business process design and management, use of paralegals and increasing use of IT. Inaddition, to enable retention of the best younger lawyers, firms will need to create a working culturethat is more open to changing ways of working and more receptive to their associates’ ideas forinnovation. Let’s talk about Business Processes“Organizations are not built to serve customers, they are built to preserve internal order. Tocustomers, the internal structure may not only mean very little, it may serve as a barrier.Organization charts are vertical and serving the customer is horizontal.”George Fisher, past CEO of Motorola Service 1 – Due Diligence Service 2 - Litigation Admin process – Skills Development Business Dispute HR Finance Development IT Resolution Commercial Real EstateFigure 2: Services result from business processes running through functionsBusiness processes are the means by which organisations use resources – be they brainpower,machines or intellectual property – to create value for customers (both external and internal).Business processes in law firms (see Figure 2) are the highways along which legal services aredelivered to clients or administrative support (such as HR or Finance) is delivered to internaldepartments. These processes cross vertically aligned functions and departments within firms.The result of this is that business processes are performed through participation of many differentdepartments within a firm, together with external parties. For example, the performance of a DueDiligence matter would typically require the involvement of the seller’s lawyers, the client, partner,lead lawyer, real estate specialist, employment specialist, regulatory and licensing specialist, 5 of 18
  6. 6. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltdadministration and billing teams. This level of involvement creates opportunities for errors,duplication of work, delays and other inefficiencies, which can only be addressed when the end-to-end process is considered as a whole.Using the Due Diligence process as an example, the four elements of any process are:Inputs - Proposed terms of sale for example, which are converted to outputs by the processOutputs - Due Diligence report – what is produced by the processResources - Lawyers and Support staff – what is needed to operate the processControls - Firm procedures, Seller’s lawyers responses – control how the process operates“A process is a series of definable, repeatable and measurable tasks leading to a useful result for anexternal or internal customer.” IBMThe IBM definition precisely identifies three key attributes of an effective business process, namely:Definable – It is documented and measured so it is clear as to how the process is to be performedRepeatable – This enables the process to be performed on multiple occasions and by different people or machines in a consistent wayPredictable – The outcome of a definable and repeatable process is that the outcome will be predictable, so that consistent working leads to consistent resultsIt is clear, that against this definition, many of the processes operating within law firms are noteffective. All organisations utilise a number of business processes to produce outputs for theircustomers. In many organisations, processes will have developed (rather than having been designed)in an ad hoc fashion over many years and become established by practice. They will not necessarilyrepresent the optimum way to achieve the required outputs and so cost more and provide a poorerend result than the optimum process. In professional services organisations, the concept of a‘business process’ is much less familiar than in an industrial organisation.In a professional services business, common tasks are often not even performed in a consistent wayby different personnel, so the results will not be predictable or consistent, resulting in quality andservice issues and incur excess costs. This also applies in law firms (as shown in Figure 3) which aretypically far behind the process thinking and management applied in accountants. The result of this isa business where service can be inconsistent, time is spent on low or non-value added activities suchas searching for files, checking and correcting work (which adds cost, but not value to the client) andthe value provided to the client is highly dependent on the Partner, Lawyer and Office delivering it. over-skilled personnel limited IT no defined inconsistently performed by in some areas integration process partner/lawyer/office service quality issues process Figure 3: stage CLIENT Typical weaknesses in law firm business processes delays no defined service level targets lack of process performance high levels of waste activity – monitoring or measures searching for documents, checking, correcting errors 6 of 18
  7. 7. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltd What is Business Process Re-engineering?The term ‘Business Process Re-engineering’ was first coined by Dr Michael Hammer in the early1990s to describe a radical process-focused review and transformation of an organisation. Thetechniques were applied by major companies such as IBM, General Electric and BT in the 1990s totheir operations to significantly reduce their business costs and improve their service. Thesetechniques often utilised Information Technology to automate manual portions of business processesand as a result, ‘Re-engineering’ became associated with job losses. However, re-engineeringapproaches were recognised as enabling businesses to significantly improve their efficiency andeffectiveness, much faster than the incremental improvement which resulted from the ‘Total QualityManagement’ (TQM) initiatives which were prevalent at the time.Another major competing philosophy for business improvement emerged in the West in the early1980s, developed in Japan by Toyota from the late 1940s as the ‘Toyota Production System’, basedon a focus on waste elimination and becoming known as ‘Just in Time’. This approach enabledJapanese companies to establish manufacturing practices that were so superior to Westerncompanies that their competitiveness surged. Japanese companies such as Toyota, Nissan, Kawasakiand Matsushita were able to produce products faster, cheaper and at higher functionality and qualitythan Western companies. During the 1980s Western companies saw a Japanese invasion ofmanufactured products that they were mostly unable to sustainably compete against. Westerncompanies began to adopt these techniques, which became known as Lean (see Figure 4). Over thenext two decades Lean became established in many western manufacturers as the guiding businessphilosophy. And since the mid 1990s it has been applied in many other sectors and business areasthat were well away from its starting point on the factory floor. Resources Process Firms use excess resources to EXPENSES PEOPLE TIME cover up the multitude of process problems or rocks‘. IP Rework W gh Hi s Inter-department sue Errors ls is Late completion working Skil ction issatisfa Excess time Write-offs Client d Over skilling matters Break rocks and lower required resources Lean breaks the ‘rocks’ to enable processes to run with less resources Resources Process and more efficiently. EXPENSES PEOPLE TIME Rework s sue Errors High W IP ls is Late completion Inter-department Skil working Resulting in improved service at tis faction Write-offs Clie nt dissa Over skilling matters Excess time dramatically reduced cost.Figure 4: Lean can have a major impact on law firm operational efficiency 7 of 18
  8. 8. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates LtdLean techniques can be used as part of Law Firm process re-engineering, particularly in repetitiveprocesses (and in the repetitive elements of more complex processes – such as Litigation or M&A).Indeed we have applied elements of Lean in process re-engineering projects in Probate, DueDiligence and Property processes for law firms. There are five key elements of Lean. 1. Focus on value 2. Understand the value stream and eliminate waste 3. Enhance flow 4. Make only what the customer pulls 5. Strive to deliver perfectionThe potential impact of re-engineering on law firms is shown by examining the value chain in aprofessional services business such as law (see Figure 5). Re-engineering will help improve internalservice quality by producing a better and more stable business process, it will enable improvedpartner and employee productivity through standard methods (where appropriate) and faster accessto required information, resulting in an improved service to clients. The result of this is improvedclient satisfaction and hence higher client retention. The consequential reduced cost of marketing tofind new clients will result in higher profitability for the firm. The Service Value Chain Process re-engineering focus Source: “Putting the service-profit chain to work”, Heskett J.L. et al, Harvard Business Review, 1994Figure 5: Process re-engineering impacts the Service Value Chain for law firms The opportunities for re-engineering in Law FirmsFrom our experience in re-engineering across multiple business sectors over the past two decades,and with our work with law firms over the past five years, we see great opportunity for law firms tosignificantly improve their competitiveness through re-engineering. And since legal processes haveoften not been systematically reviewed or improved for decades, the level of improvements inindividual processes can be major. We have seen cost reductions of more than 40% in re-engineeringsome legal processes. But cost reduction alone is not the only benefit – nor the only goal – for re-engineering. Improving the value delivered to the client is just as critical – and in complex legalservices will often be more important. The key areas of opportunity for firms varies depending ontheir mix of service particularly – the nature of re-engineering for a high volume repetitive private 8 of 18
  9. 9. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltdclient service such as Probate is quite different to that required for a lower volume more customisedservice such as Dispute Resolution. Given that, the opportunities we see for applying re-engineeringin law firms include: • Standardising processes – or elements of processes – where there is repetition of activity and there would be benefit of a consistent work approach. There are many types of work in law firms where this can be done – from our experience Probate, Wills, Property leases, Due Diligence, Personal Injury are a few examples of such services. But internal processes such as bidding and financial reporting are others. Re-engineering approaches such as process redesign, Standard Operating Procedures, new team structures, use of workflow IT and paralegals, are all applicable. • Preparing support processes for outsourcing. Many law firms are interested in outsourcing of support activities, but in most cases these processes are not defined well enough to enable satisfactory outsourcing to an agreed service level and price. • Redesigning services to increase value to the client and improve client satisfaction. Techniques such as Client Experience Mapping and applying innovation to the service can enable an enhanced service to be developed and differentiate the service from rivals. • Streamlining processes to reduce process time – through reduction of non/low value-adding activities. This improves response to the client and typically reduces cost in the process. • Redesigning services and internal processes to exploit web-enabled IT – to provide improved responsiveness and quality cost effectively. Most law firms in our experience do not integrate their IT projects with process re-engineering – they typically automate the current process. This fails to fully exploit the benefits that IT can bring.CASE STUDYNelsons Solicitors LLP, a major regional law firm, founded in Nottingham in the early 1980s, launcheda new level of online services for both commercial and private clients in January 2009. Thenelsonsonline.co.uk site offers fixed fee services, delivered over the web and covering over 200 legaldocuments including Employment law, Purchase & Sale agreements, NDAs, Lease, Divorce andProbate. Nelsons’ Chief Executive, Tim Hastings said: “We’d been thinking about exploiting the web asan additional way of delivering our services for many years. Our research unearthed what was beingdone by other competitors, including both law and non-law firms such as Tesco, Halifax andemployment consultancies. These were all online forms-based propositions. We saw the need to geton with this and also to defend our client base from incursion by new on-line legal service providers.”Nelsons’ solution uses online forms, completed by the client, which are then automatically sent toNelsons solicitors for review and authentication via a workflow system and then returned to theclient. Thus, the firm is able to differentiate its service from non-law firms, who only provideconfigurable forms, with its additional legal review. The online solution offers clients a clear price list,a configurator to enable users to select the right form and a ‘try before you buy’ form completion.Nelsons is also a founding member of Mylawyer.co.uk; a collaboration with five other law firms, toprovide a ‘virtual law firm’, offering similar online services. 9 of 18
  10. 10. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltd The challenges for re-engineering in Law FirmsOur study of law firm innovation in 16 of the top 75 UK law firms in 2006-71, found that very fewfirms had a focus or structured approach to improving their business processes. There are somenotable beacons of best practice for process thinking in law firms – such as Allen and Overy’s work onfinancial transactions and Eversheds’ in visibility and management of Litigation spend. However,these beacons are notable due to their rarity and in our work with Law Firms, we have typically foundthe following to be true:1. There is often little process thinking in firms – so firms have little understanding of currentprocess performance and cost and the business benefits of good process management. This is notsurprising given law firms’ partnership governance model which enables individual partners to havea high level of autonomy and the ‘star’ culture where particular lawyers effectively become ‘brands’due to their performance and reputation in the market. There is thus often resistance againstprocess management by partners as it is seen as interference and bureaucracy. Its need is typicallyonly recognised by some firms as an effective way of enabling them to provide competitive servicesfor low margin ‘commoditized’ business areas such as wills, probate and personal injury.2. The process often depends on who is performing the job – each Partner/Fee Earner will performthe matter differently depending on their office or team, meaning that the service provided and thecost of providing it will be inconsistent and there is no guarantee that specific tasks have beencompleted or performed as required (which has compliance and risk implications). Indeed a recentexample of a real estate partner in a major UK law firm, found to have failed to make stamp dutypayments on major commercial property transactions would indicate a lack of processmanagement, rather than a lack of knowledge of the law.3. Processes have been defined as ‘this is how we do this job’ and have often been unchanged foryears, even if they have been automated by Case Management systems. Therefore they are unlikelyto be the optimum way of performing the required task.4. Firms are not close enough to clients to understand their wants and needs – typicallyrelationships with clients are on a transactional basis and this means that law firms do notunderstand their major clients’ businesses well enough to determine what these clients wouldreally value and so how best to design a service experience that delights them.5. There is Partner resistance to change. Whilst resistance to change exists in all organizations, inPartner-based businesses it has much more impact than in Corporate organizations where the ChiefExecutive can mandate change, whilst the Management Board in a law firm can typically onlyrecommend change and it is often up to Partners whether they decide to participate or not. Thismeans that making change in law firms requires much more work on establishing support amongstkey partners, to establish Champions who are prepared to lead change efforts. For successful re-engineering, it is critical that initial projects be selected where both opportunity exists and wherePartners are prepared to Champion and support these projects. Success in these areas can then beused to encourage other Departments and Partners to get involved.6. Major IT investments have not been implemented in tandem with re-engineering – this meansthat the full benefits of IT investments such as Case Management are not realised. We have seenfirms implementing case management by replicating the existing way of working, which hasdeveloped over years. This means that unnecessary waste will typically be present in the automatedprocess (e.g. rework, duplication of effort, over-skilled personnel performing tasks).1 ‘Study of innovation practices in major UK law firms’, Ross and Bessant, January 2007. 10 of 18
  11. 11. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltd7. Re-engineering projects can be difficult to resource as key processes will require cross-functionalworking to re-engineer and so do not naturally fit into a firm’s departmental andFinance/IT/Marketing/HR resource silos. This creates an ‘inertia barrier’ to tackling them and atendency for each function to act independently – thus reducing the potential benefits from a re-engineered end-to-end process. There is also the resistance from Partners for associates to work onnon-fee earning activities – the paradigm in many firms is akin to ‘if it’s not billable, it’s notvaluable’. Indeed associates to will often be reluctant to work on these projects as the time spentwill not count towards their utilisation targets.8. Firms do not believe that complex low volume services such as M&A and Litigation can besystemised – and so see any re-engineering work as only applying to high volume, lower value,simpler processes such as in Private Client. However, even in complex services - such as M&A -which are customised for the client, there is repetition: searches, analysis, form filling, repeatedwork sequences for example. These areas can be re-engineered through systemisation. And theoverall process can be examined for improved approaches and the use of a front end ‘configuration’step to enable the lead partner to best define how the process should operate to meet the clientrequirements.CASE STUDYCodexx worked with a major UK law firm to re-engineer their Probate process which was challengedby competition from lower cost firms and the difficulty in recruiting new Private Client lawyers. AProbate core team was established and the current process mapped to show the problem areas. ATO-BE Probate process and organisation was developed, by challenging current thinking, developinga Standard Operating Procedure, process cycle time reduction, a new team based organisation,applying Lean thinking and utilising lower cost paralegals. The benefits of the new process are inimproved responsiveness and quality at a significantly lower cost. Reviewing the new process sixmonths on, we found that in one office, the team was working very effectively and as per the processwith significantly increased profitability. In another office, the lawyers running the teams had notmade sufficient progress in moving from a ‘hands-on’ role to a leadership role and therefore were stillperforming too much of the work themselves, thus limiting the potential gains in profitability. This is agood example of the challenges in making the required culture change as part of re-engineering. The benefits of process re-engineeringProcess innovation has been applied in industrial businesses since the inception of scientificmanagement at the beginning of the twentieth century. So there is a large body of existingknowledge that can be applied to process innovation in the legal sector. We recognise that theservice offering and unique partnership culture in law firms means that process innovation must beapplied in a tailored and sympathetic way – and that a standard ‘cook book’ approach will likely fail.In our work with law firms we’ve seen clear benefits from process innovation, particularly in thefollowing areas: 11 of 18
  12. 12. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltd • Significant cost reduction – through waste elimination using Lean techniques and ‘right skilling’ of the process through appropriate use of skills. This can be more than 40% (and even more if off-shored) • Improved client service – through focus on improving the client ‘experience’ (see Figure 5). An effective service delivery process will enable a consistent and high level service to be delivered to clients with high employee productivity • A faster service – through stream ling of the process to eliminate delays and waste activities • Differentiated service – through innovation in the service itself and in how it is provided • More repeatable process – using a defined and documented ‘Standard Operating Procedure’ for repetitive activities – enabling more consistency • Reducing legal talent constraints by making more use of automation and paralegalsCASE STUDYA major UK law firm wished to improve their Due Diligence process as the current process resulted ina high level of write-off of billable time. An AS-IS workshop of the current process mapped theprocess and identified key process issues. The current process was not well defined and had notreally changed for at least 10 years and was cumbersome to execute with a finished product that wasnot always at a high enough level of quality and typically the finished report needed rework by apartner. Typically 30% of the chargeable work had to be written off to meet the client price estimate.A TO-BE workshop was then held to create concepts for a new improved TO-BE Due Diligence (DD)process, involving representatives from the firm’s departments that were involved in a typical DDmatter. This generated many ideas for improvement – quite a few being practical solutions whichcould be easily and quickly implemented – as well as a clear support for change. The new TO-BEprocess incorporated these new methods, to enable a more cost effective process which also wasbetter focused on providing an improved client-centric report and to enable follow-up services How to re-engineer – an introductionEffective Process Re-engineering requires an approach that is systematic, collaborative andprovocative:Systematic – to follow a proven structured approach to ensure that the outcome from re-engineering is a new way of working that is significantly better than today and can be sustained todeliver major benefits to the business.Collaborative – to involve key stakeholders (e.g. Partners, Solicitors, Support Staff, Clients) in the re-engineering activity to ensure both that their knowledge and experience is incorporated into the newwork design and that their involvement will help improve buy-in to the new way of working.Provocative – to ensure that existing paradigms (‘we always done it this way’. ‘the rules say that…’,‘but…’) within the firm are challenged in a robust way to give the potential for radical improvement. 12 of 18
  13. 13. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates LtdFigure 6: Business process re-engineering – example approach (Codexx methodology)To achieve these requirements the re-engineering approach has to examine the process(es) underinvestigation against a number of aspects: • The process itself – its purpose, performance (target and actual), current operation and improvement needs • The supporting organisation, skills, culture and work environment which provide the resources to operate the process • The technology (typically IT) used to operate the process • The business conditions and strategy within which the process performs – so that the re- engineered process can better address the new business challenges • The client requirements (today and tomorrow) and their experience of the service provided by the processTo effectively consider these aspects a structured approach is taken as outlined diagrammatically inFigure 6 and described briefly on the next page: 13 of 18
  14. 14. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltd1. In the Preparation phase, goals and scope (firm-wide, one department, one process) of re-engineering are defined – and resources put in place. The key resource is a senior champion for there-engineering, supported by a core-team of personnel tasked to perform the project. Typically anexternal consultant(s) will be involved to facilitate the re-engineering process and to challenge andprovoke, based on expertise gained from re-engineering in other firms and sectors. What is mostcritical at this phase is that the team receives sufficient support from the firm’s management toenable them to explore, challenge and redesign ways of working with little or no limitations.Typical problems encountered in law firms in this phase: We have often seen limited support frommanagement teams for re-engineering, with individual Department Heads championing projectsalone and therefore there are limited resources and support within the firm2. The AS-IS phase examines the process and its related elements as it operates today. Techniquessuch as Process Mapping, Client Experience Mapping and review of key performance metrics (suchas process cost, client feedback and quality measures) builds a rich and objective picture of theprocess as it operates today. This enables a visual picture of the process to be created and sharedamongst stakeholders and typical problems identified. This is important in sharing today’s processand its issues amongst the stakeholders. This is key in building a mandate for change.Typical problems encountered in law firms in this phase: Getting performance information (such ascosts and time) is often very difficult as firm’s financial systems are not process focused).3. The next step is to create the new process. This is the TO-BE phase. This is where innovation isrequired – to consider options for applying new work philosophies such as Lean (see below), or newworking organisations (e.g. empowered teams or outsourcing), or applying IT and the internet. Thefuture process should embrace best practices in working practices, organisation and application oftechnology to bring a new level of service to clients at an optimum cost.Typical problems encountered in law firms in this phase: Getting sufficient input on client needs –as law firms typically do not have an intimate understanding of their clients’ business. Creating theenvironment in which lawyers are able to effectively innovate also takes time.4. Realising the TO-BE is down to defining a realistic plan for Transition to the TO-BE and thenexecuting it. You cannot (and should not) think of realising the TO-BE in one step. A pragmatictransition plan will introduce the new features in several phases to enable early benefits withcontrolled risk. The execution phase requires sound project and change management approachesand persistence. For unless the new ways of working are fully deployed and ‘locked in’, oldbehaviours and methods can creep back in and the potential benefits will not be realised.Typical problems encountered in law firms in this phase: Project management skills and resourcesare very limited in law firms (outside of IT) and so implementation is a real challenge.5. Once the new process is stabilised, its operation should be regularly reviewed as part of aContinuous Improvement cycle.Typical problems encountered in law firms in this phase: We have yet to see any evidence ofsystematic continuous improvement operating in any UK law firm. 14 of 18
  15. 15. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates LtdSuccessful re-engineering requires the following critical success factors to be in place: • A champion for change – in the management team or a practice head • Buy-in from practice/firm management (as appropriate) • Understanding what clients value – so that the new process can deliver it • A structured approach to re-engineering • Sufficient resources and skills • ‘Stickability’ to complete the project • Ideally a remit to ‘think the unthinkable’ • A practical approach to implementation and deployment Why you should re-engineer in a downturnHow can such change be successfully made during an economic downturn? Recessions are nothingnew (for the over 30s anyway) and in the past, progressive businesses have transformed themselvesduring a recession. Nintendo (currently enjoying the success of its radical Wii gaming machine) onlymoved away from its core business of making playing cards in the late 1960s when its marketcollapsed. IBM re-engineered itself from a computer hardware business into the world’s leading ITservices business from near financial implosion in the early 1990s. Adversity can be a powerful forcefor business improvement if harnessed effectively by management.A recession can be an excellent time for innovation. That may sound a naive statement when you’refocusing on this month’s billing. But there are a number of reasons why it is indeed so:• The business challenges from a downturn provides a clear ‘burning platform’ - a case for change - for improvement in the firm• Employees will be prepared to put effort on improvement activities, to help secure their employment• Partners and the workforce will be less resistant to radical change and more focussed on profitability• Required redundancies enable ‘right-skilling’ of the workforce• Suppliers will be prepared to be more innovative in their offerings and pricing to secure business• Improved value products and services will be seen positively by clients• Lawyers are less “busy” and so can be more involved in improvement projects• Nearly new technology can be purchased at significant savings via bankruptcy asset salesSo progressive firms should be using the downturn as their ‘burning platform’ for making therequired step changes in the way they work. Of course this always brings challenges on workload. Wehave yet to work with any business that has good people available for improvement projects – thebest people are always busy, but they must be involved in this work. So the reality is that business re-engineering can (and has to be) fitted around the day-to-day operational requirements of the firm.Partners and fee earners will need to be involved to ensure their knowledge and experience isaccessed in the analysis and redesign and that they will buy-in to the new processes. Practicemanagement and the support functions must play a key role in executing the required analysis andexecution. It’s a challenge and this is a key reason why we favour pragmatic ’80:20’ approaches to re-engineering to yield most benefits with only the core work required. A time for actionThe UK legal sector is facing major changes now and in the years ahead. For firms to succeed underthese new market conditions, they must improve their value proposition to clients and significantlyimprove their efficiency with which they deliver it. It is clear that most UK law firms are well behind 15 of 18
  16. 16. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltdother business sectors in business process management and improvement. Therefore, in most firmsthere is substantial cost being expended day-by-day, hour-by-hour, on client work and administrationthat could be converted to margin and also provide an improved client service. There are decades ofexperience in process re-engineering in other business sectors which law firms can learn from andproven tools and methods which they can apply. Therefore the only real barriers lie in the firmsthemselves – in their openness to new ideas, their will to act and their courage to execute.One effective way of starting the journey, is for a Managing Team to spend some time consideringthe key business processes in their firm – both their services (be it Litigation, M&A, Licensing etc) andtheir internal administrative processes (such as Billing, Client Inception, Training) and get a view as towhich processes regularly cause issues of poor service performance or are high cost/low margin tooperate. Pick one to two of these and allocate a Partner or Director to lead a small team to take acloser look at how it is performing today and how it could be made better. Those Partners orDirectors selected to lead the process examination (and subsequent re-engineering) must be clearlyadvocates of change as they must be clear Champions for re-engineering their process if they are tomake headway against the inherent resistance to change in many firms. Once the will to do this isthere, the structure and practice for re-engineering can follow, making use of external change agentsas required. Final thoughtsBusiness Process Re-engineering is a proven approach to raising an organisation’s performance inmany sectors and our work with law firms has shown this to apply as well in the legal sector. Today,few law firms have performed any serious, sustained re-engineering of their major businessprocesses. There is thus a major opportunity for progressive firms to apply re-engineering todramatically improve their efficiency and value.The tough business environment today – and for the foreseeable future – has resulted in many firmsseeking ways in which they can improve their efficiency to enable profitable business with clientswho are reducing their legal spend. This has created an increased interest in process improvementand re-engineering amongst firm management and forward-looking partners – albeit from a low baselevel. Whilst this is a good starting point, there is a hill to climb in transforming individual legalservices using process re-engineering. And there is a mountain to climb to embed processmanagement and re-engineering within firms. That hill and that mountain consist primarily ofcultural resistance and skills limitations. Of course this challenge is not unique to Law Firms - it hasbeen true in other sectors where such major change has been needed.For firms who recognise that the future legal business model will be fundamentally different to whatit is today and recognise the ‘change mountain’ that blocks the route from today to tomorrow, hereare some key questions which must be answered to enable the change mountain to be successfullytackled: - How will you motivate Partners to be Champions for change? It is all too easy for Partners to be active or passive resistors, as they see that change may challenge their current roles and skills. - Some Partners will see their tasks de-skilled or even eliminated through re-engineering, how can you maintain their support through retraining or redeployment? - The billable hour is the foundation upon which a professional service business is built. Unfortunately it is also a major impediment to involving fee earners in improvement activities. The mindset of “If it’s not billable it’s not valuable” inhibits Partners and Solicitors from involvement in change activities. Firms will have to adjust this mindset so that fee 16 of 18
  17. 17. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltd earners recognise that improvement activities have to be given their time – just as personal development and marketing are as other non-billable activities. - Law Firm improvement activities (such as re-engineering and innovation) have typically not been resourced (unlike other functions such as Finance, HR and Marketing). Is this sustainable? If this is truly important to the future of the firm, then dedicated personnel and budget must be put in place. In the short term, examining and improving a firm’s processes will require funding of skills to do this – either through hiring or the use of external consultants.We hope that this short paper is of use to firms looking at the potential that process-re-engineeringoffers. From our perspective, the legal sector is at the start of major fundamental change and whilstwe believe that re-engineering can be successfully applied within firms, success will only comethrough firms and external change agents working together to apply these techniques and learn thebest way of approaching this. Therefore we hope that this publication can help in this process. 17 of 18
  18. 18. Process re-engineering in law firms – opportunities & challenges ©2010 Codexx Associates Ltd AcknowledgementsThanks to the following who contributed to this whitepaper:Robert PayRobert is a consultant based in New York. He has consulted to many professional services firms and has been incharge of business development globally for both Taylor Wessing and Clifford Chance.John BessantJohn is Director of Research and Professor of Entrepreneurship and Innovation at the University of ExeterBusiness School and has worked with Codexx on innovation since 2002.The author would like to acknowledge the valuable feedback received on the draft edition from thefollowing:Paul Chandler, Procurement Manager, Simmons & SimmonsSam Eastwood, Partner, Global Dispute Resolution, Norton RoseAlison McClure, Transformation Partner, Blake LapthornDuncan Ogilvy, Knowledge Management Partner, Mills & ReeveTerry Renouf, Senior Partner, Berrymans Lace MawyerDavid Stead, Director of Business Development, Gill Jennings & EveryAbout the author:Alastair Ross is the Director of Codexx Associates Ltd He has consulted for clients in the industrial andprofessional services sectors worldwide for twenty years in innovation and re-engineering. He hasadvised a number of major UK law firms since 2005 on establishing and improving systems forinnovation and in re-engineering key business processes. Alastair has written and spoken widely onbusiness improvement and is published by McGraw-Hill. He is a Chartered Engineer, has a Bachelorof Science degree from Southampton University and a Master of Science degree from ImperialCollege, London. His recent publications for law firms include: ‘Lean for Lawyers’, ‘Business ProcessRe-engineering in Law Firms’, ‘Innovation in a law firm’, ‘Increasing client loyalty’. Further informationFor additional information on topics discussed in this whitepaper, you may wish to read the following Codexxwhitepapers:“Lean for lawyers – an introduction.”“Increasing client loyalty to drive financial improvement.”“The Lean Manufacturer - a rare beast.”Our “New Directions” newsletter has covered a number of these topics in previous issues. These documentscan all be downloaded at no cost at http://www.codexx.com/knowledge.phpFor further information on this article or our services, contact us at:Telephone: +44-1794-324167Email: innovation@codexx.comWeb: www.codexx.comAddress: Codexx Associates Ltd 3-4 Eastwood Court, Broadwater Road Romsey, SO51 8JJ, UKUnless stated otherwise, all material in this whitepaper is Copyright ©2010 Codexx Associates Ltd 18 of 18

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