How To Use The 10% Challenge And Design Thinking To Break Boundaries
Using the power of constraints can inspire real innovation
Hang around with some general counsels and sooner or later you will hear someone say they have to cut their budget by 10% or even 15%. Others will nod knowingly, feeling relief because this year they can budget flat with the prior year. A bit more talk and most settle on the time-tested obvious solution: hire more in-house lawyers.
Hiring in-house trades expensive law firm hours for less expensive in-house lawyer hours. Problem solved and everyone wins. The general counsel has a broader span of influence, the in-house lawyers get out of the sinking ship of large law firms, and the stockholders benefit from a cadre of dedicated in-house lawyers at lower cost.
During the financial crisis (I’m not going to use the “r” word), many law departments were challenged to do better. Budget cuts of 25% and even 50% floated around the table at conferences for lawyers. Those cuts required “big thinking.” Law departments jettisoned services, leaving clients to handle the risk. They forced law firms to swallow lower rates, stop using first year associates, and accept other draconian measures. Many law firm equity partners held on to the Mercedes for three years rather than the usual two before trading it in for a newer model.
The 10%, 25%, and even 50% reduction challenge is a good one. It forces you to think harder about what you currently do and why you do it. But it isn’t good enough. For disruptive change, rather than incremental change, I want you to take a new challenge. What if you had to reduce your budget to 10% of what you currently spend?
Let me put that another way. The current average rate across the U.S. that a lawyer charges an individual is $232 per hour. For a person at the top of the middle class $100,000 per year or $48 per hour, that means working 4.8 hours pre-tax to pay for one hour of legal services. Your 10% challenge is to reduce $232 per hour to $23 per hour, while holding constant (or reducing) the number of hours it takes to handle a matter.
A word about $23 per hour. I don’t literally mean someone charging $23 per hour. I mean the effective rate. How much are you charged for the service and what is the total time to provide the service? There are better ways to go at the cost and revenue questions, but that will complicate this post. So, I’m sticking with $23 per hour as something everyone can wrap their heads around.
A moment of panic sets in. You want to yell at me “wait, doesn’t the lawyer get to earn a living?” As the panic subsides, your response probably is: “can’t be done!” But, as your mom would say when you refused to do something when you were young, “how do you know until you try?” That was good advice, so let’s follow it.
A challenge like this needs more than an incremental response, so we should turn to our new friend design thinking. Design thinking shares a strong bond with lean thinking. In lean thinking, we frequently used this type of exercise to force us into examining a problem from a new perspective. Many people know lean thinking as an incremental improvement approach for existing processes. It can do that. But, spend time with it and a mentor who really knows lean, and you will get to know it as a design approach similar to design thinking.
We have to cut those $10,000 invoices to $1,000, which seems very hard. Your second inclination (the first being to say it can’t be done), may be to eliminate the service. “The law department will no longer review contracts which present a risk under $100,000.” Sorry, but another constrain is that you still have to provide the services you provide today: with one caveat.
You may a way to provide the service as a “no human in the loop” service. The phrase “human-in-the-loop” is used when talking about artificial intelligence. A human-in-the-loop system requires just what it says — a human must make one or more key decisions. The drone won’t fire until a human tells it to. No-human-in-the-loop means the drone can fire on its own.
You Can Do This
Before you start panicking again, let me give you some additional clues.
- The billable hour, our old nemesis, becomes a real issue. No lawyer will work for $23 per hour, you think. (Surprise! Using IRS data the average solo practitioner earned $49,000 a year in 2010. That income level has not changed since the mid-1980s (adjusting for inflation).¹ Over a typical year of 2,080 working hours (40 hours per week x 52 weeks) that solo earns $24 per hour.) To solve this puzzle, you need to move past the billable hour.
- Legal services don’t always require people. You must confront technology head on. Don’t assume tech means high cost tech. Also, remember that amortizing costs over many instances makes the cost per unit go down.
- Solving this puzzle means empathizing with your client. Don’t ask if they will accept lower risk (a world-class ambiguous question). You must get to know “risk” from their perspective and then design appropriately.
- Start from the bottom up, not the top down. Top down means starting with a $232 per hour service and stripping things away. Bottom up means starting with the bare essentials. Each step may require reinventing how things get done.
Try this as a lunch exercise with your team. Adding another constraint to the mix — time — will force the team to focus. You may not get to $23 per hour, but you may learn something that will help you reduce the cost of your existing services.
¹ Benjamin H. Barton. Glass Half Full: The Decline and Rebirth of the Legal Profession (2015), p. 47.
About: Ken is a speaker and author on innovation and on the future of people, process, and technology. He is a Fastcase 50 recipient, a Fellow-Elect of the College of Law Practice Management, and a Medium “Top 50” writer on Innovation. He is an Adjunct Professor at Michigan State University’s College of Law and a Member of its LegalRnD Faculty. You can follow him on Twitter @LeanLawStrategy, connect with him on LinkedIn, and follow him on Facebook.