The Horndal effect and continual, cost-less improvements in productivity

As in-house counsel handle matter after matter of a similar kind, they gain experience and they can do more, better, and in less time. The knowledge they accumulate can be thought of as a by-product — a spillover from the repeated production of advice and counsel. The legal department does not need to invest anything, aside from compensation, to enjoy these gains.

Such an improvement in productivity as a result of doing tasks over time has been dubbed the Horndal effect, after a Swedish steel mill where the phenomenon was observed. At the mill, annual output per worker increased steadily for 15 years, with no additional investment. David Warsh, Knowledge and the Wealth of Nations: A Story of Economic Discovery (Norton 2006 at 152).

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