Applying Six Sigma, Toyota “Lean” to Legal and Regulatory Work: It’s About Incentives — Or Lack of Them (Part I of II)

The vast majority of law firms and in-house departments haven’t adopted Six Sigma, Toyota’s “Lean” protocols, or other process improvement standards.   

Why? Because the legal industry’s cost-plus business model undercuts any incentive for operational efficiency. The legal industry doesn’t structure its work into activities sequenced in a specific order to produce a service or product for the customer. 

Instead, both law firms and in-house departments assign bodies (of admittedly smart people) to tasks. They aren’t motivated to take process improvement seriously because their work flows aren’t sufficiently organized to be called a “process”.     

Six Sigma at GE — Motivation Driven from the Top Down: 

As an executive at GE I saw firsthand how incentives for operational discipline drove Six Sigma adoption under Jack Welch.

More accurately, Jack Welch himself was motivated to drive those incentives down into the rest of the company.

After a painful start as GE’s new CEO in 1981 (cutting 100,000 jobs over four years) — Welch famously ramped-up top-line growth. He made Six Sigma the foundation of GE’s operational discipline — assuring that increasingly healthy revenues went to growing profits and not to bloated costs.

By the time I was a GE executive in the late 1990’s Six Sigma was a virtual religion. CEO Welch’s way of keeping costs in line.

During good times.

Not just bad ones.

Toyota / GM — Motivation from the Rank-and-File Up:  

When Toyota and General Motors opened GM’s shuttered Fremont, California plant as a joint venture in 1981 — the most important motivations were those of the plant’s workers:

They wanted to regain and keep the jobs that they’d recently lost when GM had closed their plant.

Toyota’s motivation? They were under congressional pressure to produce cars in the U.S. and hadn’t done so yet. So they wanted to learn about the American market: Its workforce, regulatory system, suppliers — and the United Auto Workers.

GM? GM saw a chance to re-open a defunct plant — and it gave lip service to an interest in Japanese auto quality techniques.

I’ll leave the method of this joint venture to the ample books, journal articles, and academic studies about the Toyota Manufacturing System and its “Lean” protocols.

Let’s focus on the results:  

  1. Absenteeism: Immediately a militant, cynical UAW workforce went from a chronic 20% — to a “steady 2%”.
  2. Quality: The worst in the GM organization at the time of shut-down — “in just one year … became GM’s best.

U.S. Legal Industry — No Motivation at the Top — None Among Rank-and-File

Adoption of process improvement standards begins with motivation by management or among the rank-and-file. And that motivation requires a focus on operational efficiency.

With one* laudable, outlier exception that I know of, law firm managements and in-house counsels haven’t gotten serious about Six Sigma, the Toyota Production System’s “Lean” protocols, or similar process improvement standards. Neither have rank-and-file law firm partners and associates — nor their counterparts in-house.

Until the legal industry finds a business model other than cost-plus — and until their organizational method moves beyond the assignment of bodies to tasks — they’re unlikely to use the sort of systematic business processes that prevail in the rest of the commercial world.

And until that happens there’ll be little incentive to adopt process improvement methods.

 

* Seyfarth Shaw LLP and its affiliates

In Part II of this series I take up an admirable, path-breaking exception to what this post describes: the Electronic Discovery Reference Model (EDRM). As Professor Bill Henderson of the University of Indiana Law School puts it, EDRM, “is an industry consortium comprised of law firms, major corporations, and legal vendors attempting to set standards around methods of conducting electronic discovery.”

In this next post I address how incentives for cost efficiency and inducements to team work have arisen in an important sub-sector of the legal industry.