Last week, we introduced everyone to the Toyota Production System, its place in operational research and strategy, and how law firms could adopt the Toyota Production System in their operations. Today, we start our more detailed examination by taking one of the concepts, minimizing wait times, and apply it to law firm operations. This is a simple step that any lawyer can apply to their practice. The concept is scalable to the practice group and firm level. I intend to show how it can double realized annual revenue and triple profit margins.
By eliminating wait times, lawyers can very quickly increase productivity, shorten collection cycles, and increase client – and lawyer – satisfaction.
Short Refresher on the 7-Wastes
Let’s summarize the concepts so far. As we mentioned in our first post on this subject: Operations Strategy and the Law Firm – Opening our 7-Part Series, one aspect of the Toyota Production System is the elimination of the “7 wastes”.
There are many aspects to the Toyota Production System. We will only scratch the surface. A common starting point, though, are what is often called “the seven wastes”:
- Waste of overproduction
- Waste of time on hand (waiting)
- Waste of transportation
- Waste of processing itself
- Waste of stock at hand
- Waste of movement
- Waste of making defective products
A significant goal in the Toyota system is to minimize each of these wastes. One should not produce more than what is demanded (hence the famed “just-in-time” delivery system). Waiting means idling resources – a waste of resources. Unnecessary transportation and movement uses up valuable resources and cost. Inefficient processing is more costly than necessary. Re-work is costly both in time, money, and potentially customer goodwill. Each of these “wastes” affect each other. Minimizing one often reduces others. To minimize one will often require reducing others.
As I indicated earlier, each of these seven wastes has a law firm equivalent. We’ll be exploring each in detail, how they relate to the law firm, strategies and tactics that lawyers can use to reduce each of the wastes, and the benefit to the bottom line. They are:
- Waste of overlawyering
- Waste of delay
- Waste of unnecessary delivery
- Waste of inefficient processing
- Waste of time and knowledge inventory
- Waste of silo work
- Waste of error and re-work
Minimizing Wait Times
What is wait time? Wait time is any length of time, whether it is five minutes or one year between steps in a process. It is a time when no resource (in a law firm’s case, no person) is engaged in any activity adding value to the final result. Here’s a concrete example. A lawyer sends the first draft of a completed will to a client, waiting for the client to provide further comments. The client takes seven days to get back to the lawyer. After seven days, the lawyer receives the client’s comments, enabling them to revise the draft and return it to the client. In this example, the wait time is seven days.
It’s incredibly important to distinguish “wait time” from “work”. In the recent example, the client may have spent an hour reading the will, making comments, writing down questions, speaking with their spouse, and assembling a reply to the lawyer. However, this was one hour in a seven day period in which no other value added work could take place to complete the will. I remember when I was engaged in active litigation practice. I may have only taken three hours prepare client for an oral discovery (or deposition if you are American); but, we might have waited one month from the time that we scheduled the discovery/deposition to the time when it actually took place. Unless I made use of that time to engage in other value-adding activities, that whole period was a wait time.
Wait times matter because they represent a delay from the time that the an activity should take place to the time that the person engaged in the activity realizes value from it. Taking the will example again, a week that a lawyer cannot finish a will is an extra week that a lawyer has to wait for payment on that job.
An Example from Will Preparation – The Traditional Process
Here’s how reducing wait times boosts a law firm’s profitability. Consider the following diagram:
In this diagram, it has taken 10 days to draft a will, not even including the time it takes to schedule an appointment. It’s not uncommon to receive a telephone call and then to schedule that first client intake meeting a week later. The diagram illustrates what happens when we take a sequential approach to will preparation. A lot of time is taken preparing a draft, giving it to the client, awaiting instructions, preparing a further draft, getting further instructions, and so on. The result is a will that takes 10 days to prepare, even if it only engaged a few hours of professional time.
A New Process
Here is a new workflow:
In this case, we have used the time between client’s first contact with the firm and the first intake visit. During this time, we have sent a detailed questionnaire that enables the lawyers to learn as much as possible about the client to enable the lawyer to select the appropriate precedent. We propose that the lawyer sends the precedent to the customer along with an instructional guide explaining different parts of the precedent and various drafting options. Then, the lawyer and the client sit together in “sprint” – a term borrowed from software engineering. During this face-to-face meeting, the client and lawyer work collaboratively to draft the will in real-time. The client provides further instruction to the lawyer. The lawyer poses relevant questions and obtains contemporaneous feedback and then incorporates that feedback into the draft. The client can provide drafting guidance and ideas as the lawyer drafts. At the end of the sprint, if the template was properly selected and the sprint elicited thorough responses, it is highly likely that the session will produce a final will, or something very close to final. If the will is complete, the client can approve the will and immediately execute it. The lawyer can immediately register or perfect the will. Then, on the same day, the lawyer can collect his or her fee.
Benefits of Reducing Wait Times
Here are some benefits of reducing the cycle time to create a will in our example. Let’s try to standardize the example a bit by assuming that one week passes from the time that a client calls a lawyer to the time that a will is registered. So, a will prepared with a traditional workflow takes 17 days to prepare. A will prepared using the new workflow takes 8 days to prepare.
First, we have just doubled the throughput capacity of the firm to produce a simple will. All else being held equal, a firm can now produce twice the number of wills in a given time period. Again, let’s put some numbers to this. Again, to simplify the example, we will assume that a lawyer can only work on one will at a time. In a year with 365 days, a lawyer can produce 21.5 wills using the old workflow. If a lawyer charges $300 per will, the lawyer generates $6,450 in revenue from this particular offering. Under the new workflow, a lawyer can produce 45.6 wills, or generate or $13,680 in revenue. We have almost doubled revenue potential – just by reducing cycle times.
Second, the lawyer will experience a higher productivity and lower their risk profile. How often have we as lawyers needed to pick up a file, re-read it, and re-learn the material when a lot of time has passed between file activity? The re-learning of a file materially increases the risk of error, wasted effort, and cost. By compressing all of the work required to complete a task into a short amount of time, we minimize redundant work and reduce our risk of error.
Third, clients will be far more satisfied with the work product. They will get their will done in 8 days, not 17 days. They will collaborate with their lawyers, not work in isolation from the lawyer. They will experience a face-to-face, personalized interaction – and be far more willing to pay for that experience than the anonymous, mechanical process of working with an online, canned will service.
Finally, by shortening the production cycle, the lawyer is shortening the payment and cash cycle. The sooner a lawyer can complete the task, the sooner the lawyer can bill for that activity, and collect cash for that delivery. By shortening the cash cycle, you minimize receivables and increase cash in hand, reduce credit risk, and increase working capital.
Conclusion and Some Further Thoughts
To illustrate the model, we made a couple of simplifying assumptions. The most important of which, and which forms the the basis of many of the objections that I encounter when presenting the illustration, is that the lawyer is working sequentially – that is, we assumed in this model that a lawyer can only one work on one will at a time. This is often not the case. Quite frequently, a lawyer is working on multiple matters at a time. In an ideal world, the lawyer is maximizing the use of his or her productive capacity – in this case the time available to work on matters. In this example, a lawyer could have a sufficient volume of work such that he or she is closing a will each day, even if each will is taking 17 days to close.
It’s the rare individual practice that can truly boast that they are able to close a file every single day. More often, there are clusters of closing in a single day or we spread those closings over a time period. Second, the example still illustrates the main point. Reducing cycle times improves turnover, which improves revenue potential. Simply by reorganizing a work process, we can produce the same quality and value per unit, but do it more efficiently. We were able to increase the firm’s revenue potential by focusing on the production of the product and not on trying to grow the number of units taken in – a more common paradigm to law firm strategy. However, all else being held equal, reducing cycle times is a more profitable means of improving revenue potential. Increasing intake volume (i.e. getting more clients through the door) requires promotion and advertising spending, more time spent on business development, and involves a higher degree of risk as much of that expense is a sunk cost. However, reducing cycle times costs nothing. If anything, it has the potential of even reducing the resources required to produce the same unit of production.
Most importantly, when we combine the goals of reducing wait times and therefore shortening cycle times with other techniques that we will explore in further articles, we can generate powerful operating leverage and increase a firm’s profitability significantly.
Looking for a tool that can help you draft complex documents quickly in collaboration with clients? Visit www.contracttailor.com/tour.
- Operations Strategy and the Law Firm – Opening our 7-Part Series (contracttailor.com)
- Legal Knowledge Management – A Key Discussion in 2012 (contracttailor.com)