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What pace of productivity increases might reasonably apply to legal departments – one percent a year?

Those who manage in-house lawyers should have a framework for how to assess potential rates of productivity increase. In the August issue of Strategy + Business, at 33, Booz & Company states that during the 20 years from 1987 to 2008, US manufacturers increased productivity at a cumulative annual growth rate of 1.6 percent. The entire private business sector only managed a 1.0 percent rate, which means service-sector productivity barely rose year over year.

Law departments may have fared the same. I have several times returned to the topic of the meaning of in-house efficiency and productivity, which has multiple factors because it rests on labor and capital – capital primarily consisting of technology and knowledge resources (See my post of March 24, 2005: the gaping hole of productivity measurement; April 3, 2006: analysis of the term “productivity”; Aug. 8, 2006: assumptions in the term productivity; Feb. 7, 2008: productivity compared to capacity; and Nov. 29, 2009: productivity defined and talent tools discussed.). Multifactor productivity, which Booze defines as “the changes in economic output per unit of combined inputs,” probably can increase more where tools and machines operate, less where personal services such as legal counsel are paramount.

If one percent per year or so of productivity improvements has validity, expectations of increases in law departments – assuming we were able to measure it – should be in line. To that point, though, someone might say that legal departments wallow in 19th century practices and culture, so they are ripe for dramatic productivity boosts. I have my doubts, since the essential tool of lawyers – an experienced and educated brain – has evidenced few operational improvements recently.

Law department productivity merits much more discussion, so I will close with citations on this blog that consider higher-level considerations about law department productivity (See my post of Jan. 27, 2006: business managers increase departmental productivity 10-15 percent; April 3, 2005: clues to whether technology increases a law department’s productivity; Aug. 13, 2006: assumption that technology increases productivity; July 27, 2007: trade-off between risk reduction and productivity increases; Dec. 21, 2008: steady decline in lawyers per billion may show productivity; March 11, 2009: experience or learning curve with 9 references; March 24, 2010: staff cuts because productivity increases or because legal demand drops off; and Aug. 16, 2010: Total Factor Productivity and the technology residual.).

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