My recent post (4/11/04) reviewed how hospitals are closely examining procedures to improve work flows and quality. This approach may be the best hope general counsels have to control outside counsel costs. In Staying Power in the April issues of both American Lawyer and Corporate Counsel magazines, reporter Krysten Crawford examines “Five Big Ideas” from the 1990s for controlling outside costs.” The verdict is mixed at best.  

The Five Big Ideas are “law firm ‘convergence,’ legal auditing, task-based billing, research outsourcing, and online auctions.” The article examines each in detail and finds that convergence works if properly managed, legal auditing disrupts relations so does not work, task based billing is hardly used and has had little impact, Fortune 500 general counsels have never embraced outsourced legal research, and auctions may work for high volume routine matters but not for high-stakes, one-off cases.

It’s not clear to me whether the returns on these five approaches are lower than initially expected because of inherent limitations or execution issues. I suspect that, with the possible exception of legal audits, the problem is in the execution, not the concept. If so, it’s not obvious that a “Toyota best practices” approach will work either. This would require law firms, of their own accord or at the behest of their general counsel clients, to carefully examine their processes and make significant changes.

One way or another, general counsels will have to become more demanding customers of law firm services. The options for managing outside counsel and reducing costs are narrowing. One possible next “Big Idea” is e-billing. But that’s not likely to significantly reduce costs unless accompanied by task based billing and a willingness of general counsel to apply careful analytics to bills across multiple matters and firms.

The path to lower cost is changing the way large law firms work. The Five Big Ideas are mainly about economic incentives or after-the-fact analysis that, in theory, will change how lawyers work. A “process” approach as described in my recen post on applying process analysis – while enormously difficult culturally – might actually find ways to lower cost by changing the way lawyers work. And that’s what’s ultimately needed in my opinion.

For a very interesting case study on using auctions, which in part questions the idea of convergence, see eLawForum Case Study by Professor Clay Christensen, Harvard Business School (PDF format) posted on the eLawForum website in February 2004.