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February 24, 2009 5:30 AM

Welcome to the Future: Quality, Suicide, & LawBall

Posted by Paul Lippe

When asked whether his firm might reduce prices in light of the meltdown, Linklaters senior partner David Cheyne replied, "[Clients] might have doubts as to whether a firm is really able to deliver quality at a suicide rate [emphasis added]."

I'm sure Mr. Cheyne is a supremely capable person, and perhaps he was misquoted, but he appears to be saying: quality = cost.

So can Linklaters deliver quality at $900/hour, but not at $700? Does that even begin to make any sense? Of course, if Linklaters can find enough clients who will buy their hours at $900 instead of $700, they will sell their hours for $900--that's how markets set prices. But what does that have to do with quality? If clients will only agree to buy hours at $700, will the firm's lawyers go on a quality sit-down strike? The banks that lost nearly a trillion dollars, were they using the $700 lawyers; and did the banks that avoided losses use the $900 lawyers? Or does equating quality with cost just obscure our understanding of quality?

When I was a summer associate twenty-five years ago, quality meant the absence of typos or grammatical errors, correct and complete citations, adherence to proper document forms, and identification of low probability issues. As a general counsel, quality meant managing legal issues to maximize opportunity and minimize losses by understanding the interplay of business, law, and people. Quality had to be measured in outcomes, not intent; in terms of relevance, not cost.  What I found was this--the less I spent, the better the quality, and the more profitable the firms who worked with us.

If quality = cost, then the only way to improve quality is by spending more. But clients are going to be spending less. Does that mean an inevitable decline in quality? Not at all. Cost reduction will almost certainly result in an improvement in quality, because it will force clients and lawyers alike to get serious about defining and managing quality, and move beyond the sterile rate increase--rate discount discussion to real shared understanding and win-win.  And the firms who move first will gain work and improve profitability.

Discussing cost doesn't put quality at risk, failing to discuss quality puts quality at risk. But quality is hard to talk about, so the quickest path to a serious discussion about quality is to start discussing cost.

One of the best examples of this conversation is Michael Lewis’ Moneyball, which recounts how teams began to analyze which characteristics of baseball players helped their teams to win.  The Oakland A's Billy Beane noticed that scouts and other long time "baseball people" would evaluate whether a player "looked like" a ballplayer, a recursive assessment that tended to lead them to seek out players who looked the same, but didn't necessarily win.  

Lewis updates this story in the February 15 New York Sunday Times Magazine,  describing how Moneyball is now being applied to Basketball. He identified Shane Battier as the quintessential hoops Moneyballer.  Battier doesn't score a lot, he isn't super-athletic, and yet his teams always seem to win. Lewis explores how Battier helps his teammates play better and his opponents play worse. A sophisticated understanding of quality is especially urgent because of the NBA's salary cap--any team can pay top dollar for Kobe Bryant or Lebron James, but understanding which players deliver the most value for the money is critical when every team has the same amount to spend.  And of course in baseball, the Yankees absence from the World Series for the last eight years, despite a superstar-laden payroll, puts to rest the notion that cost = quality.

The same issue of the New York Times profiled the incoming CEO of Toyota, Akio Toyoda. Toyota is the world's fifth largest company, with revenues three times bigger than all Global 200 law firms combined, and widely consider the world's leader in Quality in any sector. Nevertheless, as demand drops, Toyota will have to deliver quality while selling fewer cars for less money.  

Toyoda-san, who happens to be the founder's grandson, is described as crawling around under cars at dealer lots and cutting executive pay, deeply engaged in ensuring quality despite the financial turmoil. Toyoda doesn't claim that the Camry is high quality because the Lexus is, or because of where the engineers went to school, or because of how it performed twenty years ago; the company accepts that it must be measured according to its actual performance. Toyota measures outcomes, accepts its customers' feedback in understanding those outcomes, analyzes how processes lead to the outcomes they want, and comes up with better ways of executing those processes. And, more deeply, Toyota understands that even if makes great cars, but its use of fossil fuels yields long-term catastrophic consequences, then quality means it has to own that problem as well. So the company leads in hybrids and electrics, and it intends to lead in hydrogen.

Toyoda may secretly be hoping that the meltdown means death for Mazda, but I doubt he interprets customers who can't afford to buy a Lexus as asking him to commit suicide.  That's also how markets work.
In nearly every field our understanding of quality has moved from capabilities to outcomes, from generalities to specifics, from one-shot to systemic, from lore to metrics, from entitlement to performance.  As in so many other areas, law is behind this evolution, and now must catch up. The good news is that lawyers are incredibly quality driven, and given the new tools and approaches, will catch on very quickly.

The opening day of law school circa 1981, Dean Vorenberg told us the now classic story of the two campers and the grizzly bear  . Upon encountering a grizzly, camper John asks camper Dave "why are you lacing up your sneakers, you can't outrun the bear?," and Dave replies "I'm not trying to outrun the bear, I'm just trying to outrun you." Managing through the meltdown is and will remain a bear, but outrunning the other firm by getting closer to clients and delivering better quality and value is quite doable and will improve profits, satisfaction, and security. Any lawyer who focuses on quality, rather than time, will quickly uncover (together with his clients) ways to deliver better quality with fewer resources and then will be able to pass some of the savings on to the client and keep some as improved profits.

So which is the 'suicide' strategy? Intensively managing quality and cost, and engaging with your customers, like Toyota, or intensively managing income, presuming quality, and declaring cost off-limits?

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This article is completely off-track.

Quality is important. Quality at a cheaper price is preferable to quality at a high price. And, it may sound circular, but, price does _not_ equal quality, while quality _does_ equal price.

From the perspective of supply and demand, the better the lawyers in your firm the more you can charge for them. If clients see you cutting costs, the implication is that you can no longer sustain the quality that would permit you to charge the higher rates. That may be unfair, it may be untrue, but perception is everything.

I think the idea that "perception is everything" is precisely the problem. When you can't measure actual outcomes, you go with perception and true enough, if you can't measure quality, you can infer in a *competitive* market that higher price must mean higher quality. But the problem for law is that's it's not been very competitive,it's pretty insulated as markets go. Moreover, it's been seen to be so hard to measure quality that it's not even clear when the higher price signals. I think the other problem with the conventional way of looking at this is that second equation, that quality *does* equal price. Not so--high quality can mean cost-effective and disciplined use of resources (research, analysis etc.) and in law it's clearly not the case that every additional unit of effort produces a better result. Quality is in many cases knowing when to stop.

Naturally, I am inclined to agree with Gillian here.

If the deepest defense of the current model of “Quality” is a three-sentence, anonymous post, whose ultimate argument is that “Quality = Perception,” then that is as telling as it is cynical.

There is no doubt that a part of the market for legal services is about assurance (which is not the same as insurance), i.e.., “we spent a lot of money with Firm X so don’t get mad if things went wrong because we spent a lot of money.” If that’s what a client is buying, then yes by definition the more they spend the more assurance they will have acquired. It’s not a bad thing that such assurance is a component of this service, and commands some premium.

But in the end I deeply pray that’s not what the legal market is predominantly about, that it is indeed about substance and not merely perception, that assurance is a complement to true Quality, but not a substitute.

Is there any white paper that explains how today’s Quality model is compelling? Is there peer-reviewed literature? Is there any data, any study, any formalism of any kind? Is there anyone willing to passionately defend the status quo? The “no” answer to each of these questions is quite telling.

I’m more than prepared to debate this in any setting, from Linklaters’ conference rooms to Legal OnRamp.

The path from capabilities to outcomes, generalities to specifics lore to metrics, entitlement to performance, etc. requires a clear understanding of the objective – quality. What is quality? Whether it is at Toyota or any one of the other organizations that are renowned for quality, clients [customers] alone define quality.

Quality requires a deep understanding of clients’ needs and expectations, and services (or products) that meet those needs and fulfill those expectations. Quality is 100% client-centric. Quality is not determined casually, it requires structure, rigor, systematic thinking and persistence. Only when a firm understands quality, i.e., its clients’ needs and expectations, is it able to build the work processes, systems and organizational culture necessary to repeatedly and reliably provide high quality work to its clients.

So, price does not determine quality. Clients define quality and sometimes they will buy a Camry at $500 per hour and at other times a Lexus at $1,100 per hour to have their needs met and expectations fulfilled.

I commented fully over at The Legal Watercooler about this post yesterday.

What I am reading about every day are the numerous firms laying off staff, attorneys and partners. They are instituting pay freezes and pay cuts. Revenue is down or stagnant in many premium firms. Profits per partner are down as well (including -24% at Cravath).

Yet, somehow, a conversation in regards to pricing is off the table because it might infer ... what??

I'm not saying cutting rates or instituting "alternative billing" arrangements would be appropriate in all cases, or for all firms, especially if you have a premium practice for today's economy (bankruptcy or labor & employment, for instance).

I'm just saying that both attorney and client need to be open to the conversation when, if and where it is appropriate to have one.

Paul makes some terrific points here. I also wrote recently (but not as cleverly) that lawyers need to focus on what quality means to their clients (http://idaabbott.com/news/news24.html), and stop fooling themselves that clients assume they are the best because they charge the most. But lawyers' equation of cost and quality is firmly entrenched in the legal psyche - especially of those lawyers who charge the most.

When I was a new associate (eons ago), I went to the partner I worked with and apologized for taking so long on a project that the bill seemed very high. He assured me that he would make any adjustments he felt were necessary before sending the bill (hah!), and then said that the client expected to pay a lot for our services. "That's how he knows he's getting the best quality lawyers." It seemed strange to me then as it does now, but that's how much of the world used to think. Many people still think that more expensive items "must be" better. Have you heard the old marketing story of the jeweler who couldn't sell an item for $75.00 until a clerk messed up the sign so it read $750, and then it flew off the shelf?

But things are changing. Many people still pay more for what they deem prestigious. But the transparency and information distribution afforded by the internet has made people more conscious that high prices do not necessarily mean high or even different quality. What's more, Amazon, eBay, Sidestep, and hundreds of other sites make it possible, easy,and even fun for people to shop around for the the best values. Law blogs, legal auction sites, LegalOnRamp, and other law-related sites - coupled with clients' reduced budgets - are likely to have a similar effect on the legal market.

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