Once again, the world’s attention is captivated by the FIFA World Cup tournament, this year being held in multiple venues around Brazil. Because of the better-than-expected performance by the United States team, emerging from the “Group of Death”, even Americans are fascinated and engaged by a sport that has a huge multinational following, but has enjoyed limited and fleeting success in the United States. It is that very success that has led me to this post.
On Friday night, after the US team had lost but still advanced (another concept somewhat foreign to US fans), the talking heads at ESPN had already begun breaking down the U.S vs. Belgium matchup (which I broke down by purchasing an American Strong Ale and a Belgian Trippel, but I digress.) During the discussion, and the repeated discussion on Sunday morning on a different show, the commentators noted that, coming into the tournament, just getting out of Group C would have been considered a major success for US Soccer. But now, having avenged a bad loss to Ghana, tied perennial powerhouse Portugal (in stunning fashion), and lost to Germany but not by enough for it to matter, winning a game in the Round of 16 seems essential to defining success.
We have a name for this in the field of portfolio-based management: the law of diminishing returns. For our purposes, it is a bit of a bastardization of a more complicated economic model, but we can define it as follows: a continuing application in a project, without any changes to the application, will decline in perceived effectiveness as time goes on.
There are a lot of pieces to that definition, and it is cobbled from a number of different definitions to suit our discussion. There are certain scalable projects that are intended to achieve a certain goal. For those projects, unless they are extremely long-term, much of this discussion will not apply. Most projects for which portfolio-based or scalable initiatives are developed and used are not on a set time frame. The defense of a portfolio of litigation, or a series of smaller deals, that come up relatively consistently for a given client are examples of projects that are not time-based as a portfolio.
As we’ve discussed, process is essential in making projects like that work. The process, however, needs to be tweaked from time to time. We’ve talked about the Kaizen approach, and working through the process again and again to find and root out the inconsistency and waste in the system. But even more, the way to continue to support a happy client is to recognize that your returns with that client will diminish with time when working on a project like this. Therefore, continuing to work with your process to provide increasing returns to the client will combat the ennui and dissatisfaction that is surely coming.
Moving to a macro scale, this law of diminishing returns is applicable to the changes facing the industry. The cycle of expansion and contraction of in house legal departments is moving back to expansion, which means more work is being retained in house. But the unchanged process leading to the diminishing returns is the hourly rate. You will recall that the “Cravath model” as it’s often called, started out as a way to manage work both internally and externally. The administration of the firm knew what the associates were doing, and the clients knew what the firm was doing and why it was being charged. The hourly model has its place, and it is a solution to a problem of scale: how do you manage this many moving parts without being able to know what they are doing at all times? And it worked…..for a while…
But the expectations associated with that model have now changed, and different problems have resulted from its use. Clients want to know why so many people were involved, or why a project took so long, or why they are being billed for such minor events. What the firm in a bad relationship hears is “why is nothing ever free?” These discussions have bred resentment and mistrust between the consumers of the legal industry and the servicers of the industry. The returns on the billable model have diminished to a great degree.
We can fix it. Cooperation and communication are themes common to many of my posts. This industry will look much different in 5 years, let alone 15 or 20. Behemoths will continue to falter and fall, merge and be bought. To far less fanfare, smaller firms will be gobbled up by medium ones who seek to change the manner in which legal services are rendered: not necessarily to every single client, but certainly to those that want, need or will embrace the change. Those with the right values, client service first and foremost, will seek out ways to improve those relationships and make them more concrete and long-lasting. And the next generation of our industry will pick up that gauntlet and move it in ever more interesting and exciting directions. I believe. I believe that…..I BELIEVE THAT WE WILL WIN!!!!