Applying the logic of lean management

The perfect storm which has turned into a tornado for many firms is leaving many practices having to decide what the future holds ?for them. Can a traditional practice survive all these pressures? The answer is most definitely yes, if a law firm can change their structure and manage their practice with more corporate governance.

We now have over 27 per cent of the profession incorporated as limited liability companies which has a dramatic impact on taxation, but more importantly creates a succession and exit strategy for the existing partners. It also creates a suitable vehicle for potential external investment where many firms will need to consider their best options in finding access to working capital.

In addition, most firms have had "chats" with other local firms about "merges", but unless they are thought through properly, many of these are doomed to fail. Yet we acknowledge that the legal market has to consolidate, certainly in the upper and mid tiers, and manage the ever increasing cost of compliance. It seems logical that firms should come together to reduce waste and benefit from the ?economies of scale created by the larger entity.

Merger failure

Why then do 80 per cent of traditional mergers end in failure? The meeting on the 19th green is no longer acceptable, and unless a clear understanding is reached between the parties and balance sheets are prepared to reflect the true position of each firm then partners cannot accept the outcome.

The consolidators are hovering, and acquisition ?seems to be the name of the game for many firms who see their only exit as avoiding run-off cover by being acquired for little or no value.

This alone will not provide the solution to many of the issues, but applying the logic of lean management will make you more presentable as a practice looking to be acquired, give the practice the vision to remain independent and grow by stealth within your own geographical area, or create a specialisation or niche ?practice that could be ?marketed nationwide.

Learning the lessons from car manufacturing will go a long way to explain the theory of ?lean management. The ?Japanese word for waste is ?Muda and Toyota, the ?Japanese car manufacturer, were the first exponents of the skill of lean management.

How much waste is in your practice? Do your processes and systems allow you to become more efficient and change the way you currently operate? ?There are two simple models that a law firm needs in order to decide on the future direction of each department.

Firstly, the pyramid, when fixed price conveyancing can be delivered by both process and a deskilled workforce. This usually works on a ratio of one partner/owner to 10 fee earners and support staff. For partners to deliver conveyancing effectively they would have to charge a premium price. This system works for any department but needs a clear strategy and an implementation process.

Secondly, the hour glass, where a partner charges a premium price for their time with only one or two fee earners and support staff. This model would apply to all reserved activities and more complicated matters where genuine clients will pay a premium price for your time.

What you cannot do is merge these two models and deliver low value fixed fees in a partner led way - you will never make any money.

Valued pricing models

Lean management is all about creating value in your pricing models, and even if you charge a fixed fee it does not have to be a low one; it is essential that you drive down costs and waste.

You must create this greater value which will be defined by your client. Asking what services your client needs and creating a product to meet their needs is an exercise being carried out by forward thinking firms. You can then create a value stream throughout your organisation and create greater value for ?your services.

Radical and incremental improvement will only happen if you create an action plan and begin to implement change. You could begin by mapping your value streams and identifying where your greatest value is and then demonstrating visible activity within the firm.

The time is here to make a radical decision and decide ?what type of law firm you ?would like to be in the next ?five years. Doing nothing is not an option. SJ

 

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Viv Williams is CEO of ?360 Legal Group www.360legalgroup.co.uk

 

 

 

 

 

 

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