Articles Posted in Tools

In an interview for MIT Sloan Mgt. Rev., Vol. 50, Spring 2009 at 67, Prof. Clayton Christensen warns that “93% of all innovations that have ultimately become successful started off in the wrong direction; the probability that you’ll get it right the first time out of the gate is very low.”
It may be that this finding – and how could he have come up with such a number, by the way – applies to innovations in products. Still, innovations in processes and approaches may be just as fragile.

Taken at face value, the sobering odds of initial failure would deter any general counsel from trying a new idea. If the odds are 9:1 against you, why embarrass yourself? But we learn by doing, and you can always change course if an initiative appears headed south. I still favor trying something new (See my post of Dec. 16, 2005: innovation with 7 references; and Oct. 29, 2006: creativity with 11 references.).

How do we define a practice? I believe there are hundreds of solid practices that many, even most, law departments should recognize and contemplate for their own department (See my post of April 2, 2005: survivor bias and best practices; July 14, 2005: the most important practices are the hardest to imitate; Sept. 13, 2005: how easily we overlook common good practices; and May 30, 2006: our bias toward novel practices.).

At what level of specificity do you define a practice? A practice is to file important documents; a sub-practice is to track those saved documents so you can search for them; a sub-sub practice is to prepare red-wells and labels for those documents; a sub-sub-sub practice is to send some of those physical files to long-term storage; a sub-sub-sub-sub practice is to negotiated 24-hour retrieval times with the archival company. An analyst can keep breaking down practices into smaller components.

Do practices stay still, butterflies pinned to a page? No, practices evolve (See my post of July 15, 2006: Horndal effect of gradual improvement; and June 20, 2007 # 1: Horndal effect of increasing productivity.).

A charming and informative book, Peter Leeson, The Invisible Hook: The Hidden Economics of Pirates (Princeton Univ. 2009) at 5, takes as its bedrock model of individual decision making what economists call “rational choice.” The rational choice framework makes three key assumptions about people. First, they are self-interested, caring more about their personal benefits than anyone else’s. Second, they are rational, meaning that they “try to achieve their self-interested goals in the best ways they know how.” Third, they respond to incentives; costs discourage their behavior, benefits increase their behavior.

A tremendous amount of the 4,700 posts on this blog fall neatly into the framework assumptions of rational choice. Without burying this one with hundreds of back references, I will simply mention some of the connections.

Self-interest among in-house lawyers relates to career paths, competition, compensation, layoffs, responsibilities, and recognition

In the nick of time after just-in-time budgeting (See my post of Aug. 11, 2009: four techniques for budgets.), I ran a comb through my output since the most recent metapost on budgets. Sure enough, out fell a slew of them.

The costs that comprise an internal budget surfaced regularly (See my post of Oct. 11, 2008: budget should not include purchases of counterfeits; Dec. 23, 2008: one-half of administrators have no separate budget; Dec. 26, 2008 #2: match-gift donations not in budget; Jan. 15, 2009: might not include costs of support staff provided by business units; Jan. 7, 2009: get budgets with firms even for general advice; March 9, 2009: discretionary funds available in larger law departments; and June 5, 2009: budgets gone haywire over currency fluctuations.).

Budgets submitted by outside counsel accounted for several posts (See my post of Dec. 18, 2008: Firm B has the right to take or pass on Firm A’s budget; Nov. 21, 2008: performance against budget should determine if panel firms get more work; May 24, 2009: predictability’s alleged value; and Aug. 4, 2009: expect the fee funnel for budgets.).

I have written extensively about budgets for legal departments, both internal and for matters handled by external counsel (See my post of Sept. 9, 2008: internal budgets with 27 references; and Sept. 12, 2008: internal budgets with 25 references.).

Thus, when an article in the McKinsey Quarterly, 2009, No. 3 at 115, discussed four measures to make the budgeting process more effective, it made sense to pass them along and track down earlier posts here that referred to its ideas.

1. Scenario planning (See my post of July 9, 2009: scenarios instead of single figures, and decision trees; Nov. 8, 2007: ask for scenarios on budgets; Dec. 9, 2005: scenario thinking.). The article explains the importance of deciding on “trigger events” that would cause a shift from the primary scenario to an alternative.

The consequences of this change to legal departments occurred to me as I read E. Leigh Dance, Bright Ideas: Insights from Legal Luminaries Worldwide (Mill City Press 2009) at 161. Simon Slater of First Counsel expressed this view.

Assume Slater spotted the movement correctly, and further assume that something similar happened around the same time in the United States. After a decade or so, the partners from those firms, more enlightened in ways managerial, move in-house and import their new-found ideas about management. Thereafter, presumably, law departments improved their levels of management. Along with in-house attorneys enhancing their management skills on their own, the importation of experience and a mind-set to run the operation smoothly would certainly complement it.

Academics who study the companies in an industry sometimes use a statistical technique called cluster analysis. “Cluster analysis procedures generally use simple mathematical measures of distance or likeness to group individual firms on the basis of how similar or dissimilar they are to one another. The average numerical values on the attributes for the different groupings are then used to infer what the different clusters represent.” The quote comes from Laura Empson, ed., Managing the Modern Law Firm: New Challenges New Perspectives (Oxford Univ. Press 2007) at 163 (by Peter Sherer). What you can learn from cluster analysis is influenced by differences in the magnitude and variance of the attributes.

The chapter cited describes how a cluster analysis was done of major US law firms. A general counsel might prepare a cluster analysis of the law firms retained by his or her law department. If done properly, the analysis might disclose unappreciated characteristics of their size, cost, location, breadth of services, period of representation, leverage and more.

Second, there may come a time when a sufficient set of descriptive benchmarks for legal departments is available. It would then be possible to do a cluster analysis to determine which law departments are similar to which other law departments and in what ways.

Preparing for a presentation on Six Sigma as it can be applied by general counsel, I collected what I have written since my first metapost (See my post of Feb. 13, 2008: Six Sigma with 18 references.).

Surprisingly different applications of the set of Six Sigma tools have appeared (See my post of March 26, 2008: flood of hard-copy invoices at Liberty Mutual; June 11, 2008: savings at Caterpillar for toxic tort cases; Oct. 24, 2008: corporate entity oversight; Nov. 22, 2008: contracting at Becton Dickinson; Jan. 22, 2009: pro bono at Caterpillar; Nov. 23, 2008: Six Sigma project allocated RACI roles to Legal, IT, Finance, Procurement, and Vendor for contracting process; June 26, 2009: Home Depot, Gulfstream Aerospace, and ING are adherents to Six Sigma.).

Several posts bring into the Six Sigma picture law firms that have applied its techniques (See my post of April 28, 2009: Morgan Lewis in its mortgage loan practice; June 24, 2009 #2: FMC likes Seyfarth Shaw because of its Six Sigma for litigation; May 4, 2009 #4: Six Sigma legal departments (including DuPont and Dow Chemical) and several law firms.

Many economic sub-disciplines have stimulating ideas to offer law department managers. I have gathered my posts on economics as a broad field, but thought I would highlight four recent sub-disciplines (See my post of Sept. 19, 2008: economic concepts with 43 references, 17 internal references.).

Behavioral Economics (See my post of Sept. 4, 2005: behavioral economics; Jan. 17, 2006: behavioral economics as a mix of psychology and economics.).

Evolutionary Economics (See my post of June 25, 2008: evolution and its implications for economics.).

Claude Shannon outlined the principles of Information Theory in 1948, and the applications of his seminal work surround us still. According to the astounding publication by Autonomy, Meaning Based Computing, 2009 at 23-24, “Shannon stated that information could be treated as a quantifiable value in communication.” For example, from a large amount of text, Information Theory provides a framework for extracting useful concepts from distracting noise. “Autonomy’s approach to concept modeling relies on Shannon’s theory that the less frequently a unit of communication occurs, the more information it conveys.”

When I compile metaposts, the ones with unusual words are easiest to do because when if find them, they shout themselves out as candidates for compilation. My hours of labor over definitions, concepts, and metaposts are efforts to apply Information Theory by hand: I quantify the presence of a term and thereby judge its importance to general counsel. In a like way, concept maps quantify the informational relationships between ideas (See my post of Jan. 8, 2009: concept mapping; and April 27, 2005: knowledge maps.).

Information Theory extends to legal departments. When an unusual statute shows up in a matter, it conveys more information to a lawyer than a common statute. When litigation support software sifts through terabytes of documents, the relatively unique names of people stand out. And so on (See my post of May 23, 2008 #4: “the first law of information theory tells us that every relay doubles the noise and cuts the message in half.”).