TOC applied to law firms
Ron Baker has an interesting pair of articles in his guest spot at the [non]billable hour in which he presents the underlying problem that he has with inordinate focus on the billable hour at law firms: The Firm of the Past and The Firm of the Future. He talks about a problem that is familiar to anyone who uses efficiency as their primary measure: it severely inhibits growth. He also presents some good arguments on a path out of this situation.
Ron details the ill effects of using efficiency as a prime measure in law firms. It has similar ill effects everywhere else too. Resources, be they people or equipment, used to "full capacity" creates inflexible organizations that cannot respond effectively to changes in the marketplace or plain old Murphy. I also like that he mentions historical utilization numbers (another efficiency measure): the statistics have remained relatively flat over 50 years, even with the inclusion of computers and other technology.
A business doesn’t exist to be efficient. It exists to create wealth for customers. The relentless focus on efficiency is misplaced in a knowledge environment, where we do not even have proper metrics to measure the output of a knowledge worker, let alone to value it. Yet we cling to our 100+ year-old metrics––designed for manual laborers––because they give us a false sense of security.
From a Theory of Constraints perspective, Ron presents many of the arguments (assumptions) people use to measure success based on efficiency. All decisions for increasing revenue are based on hiring new intellectual capital (people) when the system hits the maximum efficiency that each member can reach. Ron suggests that very little thought it made around making the existing resources effective in what they are doing. (For some fun with this, have a look at Kelvyn Youngman's website with the classic P&Q example.)
Ron then move on to a suggestion for a better theory of management, based on effectiveness of the intellectual resources at hand. In manufacturing organizations, the change is to move towards effective utilization of the constraint. Effectiveness is measured by delivering what your customers want, when they want it. It has little to do with how many hours you spent on the project.
I'd like to see one more thing in Ron Baker's discussion: suggestions about how to move from "the firm of the past" to "the firm of the future." How do we cause this change? In manufacturing and supply chain management and project management, TOC creates a set of strategically-placed buffers and a mechanism for managing those buffers to ensure effective operations. These ideas apply equally to professional services.
4 Comment(s)
the same was thought before TOC's Critical Chain
Project Management methodology reinvented the
world of projects.
TOC is a focusing tool. if your industry requires
focus, constraints management will help.
there are also numerous documented cases of TOC
used in service oriented businesses.
but true, it takes a lot of hard work to apply
the simple yet profound thinking processes.
-ski
dgrey,
I think you're right, it's hard to apply TOC to tacit knowledge. The point is to make the knowledge less silent.
I think you can apply TOC to a professional services firm, but it is much more firm and industry specific as opposed to being able to set some basic ground rules as in manufacturing, retailing and those industries.
For example, I am a sole practitioner with 5 full employees (2 paralegals, 1 secretary, 1 part time paralegal, 1 part time law clerk) and a number of outside vendors that assist with work, such as private investigators to track down information and legal nurse consultants to provide medical summaries and determine future medical care costs.
The issue is to define the process and find the constraints. One of our constraints was summarizing medical records. Determining the highpoints and problem areas in the client's medical treatment. It's something we could do easily inhouse, but it was a constraint so when we need to, we outsource to a legal nurse consultant.
Another constraint is the attorney. The more the processes can be defined and the less that has to flow through the attorney, the more the constraint can be widened. In my mind, that consists of the attorney defining beforehand the possible results and the actions taken with each one.
In my line of work, there are only so many possible problems and so many possible actions. The more process driven you can make it, the less of a constraint the lawyer becomes.
You stated "Difficult to manage insight, innovation, awareness, relationships....." I believe you're spot on correct on that. However, you can use TOC to take the other responsibilities off the lawyer so that what they are doing involves the insight, innovation, awareness, relationships and the like.
Just my thoughts.
said:
Dave has the right sense of it. You can't really manage a constraint that isn't explicit. However, if you can figure out how stuff (materials, information, knowledge, people) flows through your system, and find the places where it is getting slowed down or "bottled up," you have a start at being able to think about the process in terms of TOC.
The conceptual struggle that people have is that there really is only one constraint. It frequently looks like there are many constraints or maybe the constraint moves around because of the way we operate and manage the business. In the case of manufacturing, you might see slow points move around the line as a work cell receives a big load of work. But at other times those same work cells are idle or processing much less work. Similarly, in Dave's law firm, their in-house medical records person gets overwhelmed on occasion, so they farm it out from time to time.
For Dave, I ask what is the one area that should control the flow of work through the entire organization?
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Hard to see how TOC applies when the constraint is application of tacit knowledge. Difficult to manage insight, innovation, awareness, relationships.....
So I'm not sure if TOC does always apply equally well to professional services. Have I missed the point?