Let’s take a look at it together.

The first objection I usually hear is in the top-left corner of the chart.

“Lawyers can’t increase revenue.”
“We’re not in sales.”
“We don’t set prices.”
“We can’t just raise prices to see if they stick.”

Agreed.

But lawyers can increase revenue without touching price because we have a unique superpower: we hold the pen. Two agreements with the same price can generate different revenue for the business, and Legal is often the team that shapes that difference.

The other point I always emphasize is that reducing risk is only one of many ways to add value. Yet most lawyers focus almost exclusively on risk, ignoring dozens of other levers on this chart.

In this post, we’ll look at a few specific examples: increasing revenue, increasing margin, and improving morale. We’ll revisit other bullets in future posts. If a particular one jumps out at you, let me know.

One last note: this post touches on a few accounting concepts. Accounting knowledge is foundational for lawyers working in business, and we’ll explore it more fully in future NLOM chapters. For now, we’ll keep things simple.

Let’s increase some revenue, shall we?

Increase Revenue

Revenue is an accounting construct. It’s generated by applying accounting rules and company revenue policies to the raw inputs of a deal. Those inputs determine whether revenue is recognized immediately, over time, deferred, or reserved.

This matters for any business using accrual accounting, which includes nearly every company large enough to have an in-house legal team.

Step 1 of the NLOM 4-Step Process to Add Business Value is to understand your company’s value stream. In this case, that means understanding how the company creates revenue. Revenue recognition rules are fairly uniform across companies, which makes revenue a useful metric for investors (one of our Primary Customers in the NLOM).

That also makes the following example nearly universal.

Lucy’s 39-Month Contract

Lucy is working on a major recurring-revenue deal for Acme. The customer is ready to sign a three-year contract at $10,000 per month. Sam, the salesperson, is thrilled. He just needs a quick change to give the customer the first three months free while they transition from another vendor.

Lucy revises the agreement to make it 39 months long with the first 3 months free.

Why?

Let’s look at the revenue.

If Lucy structures it as a 39-month contract with 36 months of paid service:

• Total service revenue: 36 × $10,000 = $360,000

• Total service period: 39 months

• Monthly recognized revenue: $9,230.77

If Lucy simply gives 3 free months in a 36-month contract:

• Total service revenue: 33 × $10,000 = $330,000

• Total service period: 36 months

• Monthly recognized revenue: $9,166.67

Lucy increased monthly recognized revenue by 0.7 percent by understanding:

• how investors view revenue,

• how accrual accounting works, and

• how contract structure influences the revenue value stream.

She mapped the value stream, learned what matters to Accounting, partnered with Sales, and when the opportunity appeared, she increased revenue without changing the price.

Go Lucy.

Increase Margin

The next bullet under Increase is margin.

Margin can mean different things depending on which accounting layer you’re looking at:

• Gross margin

• Contribution margin

• Operating margin

Let’s take a quick detour to clarify them.

The Lemonade Stand: A Simple Margin Primer

Imagine you run a lemonade stand for one day and sell 40 cups at $2 each.

Gross Margin
What’s left after paying for ingredients.
Price = $2
Ingredients = $1
Gross margin = $1 (50 percent)

Contribution Margin
Subtracts all variable costs; anything that changes when you sell one more cup.
Add a $0.25 payment-app fee:
Ingredients = $1
App fee = $0.25
Total variable cost = $1.25
Contribution margin = $0.75 (37.5 percent)

Endnote: Here we assume every cup uses the app. In real accounting, contribution margin is calculated per unit type when variable costs differ. This version keeps it simple.

Operating Margin
Includes everything needed to run the stand.
Helper kid = $5
Stand rental = $10
Sign = $2
Total fixed costs = $17

Now calculate profit:
Gross profit = 40 × $1 = $40
App fees (20 cups via app) = $5
Profit = $40 − $5 − $17 = $18
Operating margin = 22.5 percent

Back to Legal: How Do Lawyers Increase Margin?

Consider reselling.

Your company buys a product or service from a supplier and resells it to customers. Under accounting rules, the contract structure determines whether your company is treated as:

• an agent of the reseller, or

• a principal selling its own product.

If treated as an agent, you recognize only your markup as revenue, but your gross margin on that markup can be extremely high (sometimes close to 100 percent).

If treated as a principal, you recognize the entire sale as revenue but must subtract supplier costs to calculate margin.

Legal can influence which treatment applies by shaping:

• rights and obligations in the reseller contract,

• who controls delivery,

• who bears risk,

• how pricing and billing work, and

• how obligations are allocated.

Understanding the agent vs. principal rules lets lawyers structure reseller relationships intentionally to protect or even improve margin. Even initiating the conversation that helps the business decide whether to optimize for revenue or for margin is itself a value-adding act. It’s a clear example of Legal increasing business value by holding the pen and driving an outcome, rather than leaving it to happenstance.

Improve Morale: The Easiest Free Value Lever

Morale sits in the Improve column on the chart, and it’s one of my favorite examples because it’s available to everyone at every level of the legal team.

Morale is not soft.
Research shows that higher morale and happiness at work consistently drive:

• higher productivity,

• higher quality, and

• better performance.

You don’t need budget or authority to improve morale.

Practical moves for any lawyer

• Be friendly and approachable, even under pressure.

• Make eye contact in the office and smile when you join a call.

• Appreciate colleagues and thank the people doing behind-the-scenes work.

• Take a moment to connect on a human level.

These actions:

• build trust,

• reduce stress in interactions with Legal,

• make other teams more willing to involve you early, and

• support better collaboration.

And here’s the deeper value-stream point:

Higher morale improves collaboration.
Better collaboration improves flow.
Better flow increases value creation.

Or even simpler:
That person you made smile may be speaking with a customer next. And that positive interaction will be valued by the customer.

Morale improvements are contagious.
Watch others follow your lead.

There’s a personal benefit too. When you set an intention to add value in this way, your own work feels more meaningful and that naturally increases your happiness.

Closing Thoughts

You’ve just seen three examples from the 30-plus ways to add value on the chart:

• Increase revenue.

• Increase margin.

• Improve morale.

Each lives in a different part of the matrix, but they all come from the same mindset:

Legal can add value everywhere, not just by reducing risk.

In future posts, we’ll explore other bullets from the Increase / Reduce / Improve / Create chart. If there’s one you’d like me to cover next, drop a comment.

Leave a comment

The next step in the New Legal Operating Model is to make those ideas more practical.

Here’s a simple framework I use: my 4-step process for adding business value.

The Tool

It’s a four-step process to begin to bring your new knowledge of value into your daily work. If you start to apply it, you will take your first step into the New Legal Operating Model. It helps to shift your thinking into how to improve the way you and your team add value to the business.

Here are the four steps, in increasing order of importance (and, unfortunately, difficulty):

1. Understand your company’s value stream

2. Understand your role in the value stream

3. Add activities that add value

4. Eliminate as much waste as you can

It sounds simple enough. But once you start applying it, the results can be transformational.

Step 1: Understand your company’s value stream

Most lawyers have a general idea of what their company does. You might work in a B2B SaaS company that sells subscriptions and add-on services, or in a B2C company with physical stores that sell merchandise.

But do you truly understand why customers are willing to pay for your company’s products? And more importantly, what would make them willing to pay more?

Remember the other Primary Customer we recognize in the NLOM: investors. Do you understand what drives an investor to buy, or hold, your company’s securities? And what would make that investor willing to pay more, or decide not to sell?

These questions might sound simple, but most lawyers have never actually asked them. I’ve met only a few lawyers who can clearly describe how value flows through their company.

Step 1 is to understand your company’s value streams. Start with one. Find a single thing your company does that creates value for a Primary Customer. As you think it through, trace how inputs (time, materials, data, relationships) become outputs that customers will actually pay for.1

A great way to begin is by talking with people who live closest to the flow of value. Buy your favorite product person2 a coffee and ask them to explain why customers would be willing to pay for your company’s product. Or start your exploration with the other Primary Customer and talk with your investor relations person. The investor relations team spends all of its time facing investors and they have a keen understanding of what your company’s investors value. Buy them a coffee and ask what would make an investor value the company more.

You don’t need to map every value stream to get started. Begin with one, and expand over time. The more value streams you can recognize, the more ways you’ll discover to add value.3

Step 2: Understand your role in the value stream

You can start this step as soon as you’ve identified a value stream in your company. Now ask yourself: Where do I fit?

Which activities in that stream depend on your team’s input, decisions, or approvals?

Remember that most legal work is indirectly value-adding. I often visualize this as a chain of “hops” that connect what Legal does to the step where direct value is created.

I do X, so that someone else can do Y, which allows a third person to do Z; and Z is the direct value-adding step.

For example, imagine an engineer working on a feature that depends on an open-source software library. The company’s IP counsel (X) designed a process to vet open-source software before use. That process is used by the back-end developers (Y) to determine which libraries they can safely install, which then allows the front-end team (Z) to make the new feature visible to the customer.

There are two hops in this example. The customer pays for the finished feature they can use, not for the vetting process or the back-end installation. But without those earlier steps, the value-adding activity couldn’t happen.

When you map your company’s value stream, you may find that your own work sits two or more hops away from the customer. Don’t let that discourage you. Even the widest river begins with small streams that feed into it. If you can trace your contribution to value creation, you’re adding value.

This step also forces clarity about the purpose of the legal team. I don’t think of Legal as a “support function” or, worse, a “cost center.” Those labels are unhelpful because they shift responsibility away from G&A functions to think about how they create value. Legal is a contributor to defined stages of value creation, and seeing your role in the value stream makes that contribution visible.

Step 3: Add activities that add value

Start small.
You don’t need to reinvent your department overnight.

Pick one place in the value stream where you can make a meaningful difference and add a single activity that clearly creates value. That might mean improving how information flows, reducing turnaround time, or increasing predictability for your business partners.

Returning to the IP-counsel example: if your company doesn’t yet have an open-source vetting process, create one. If it already exists but moves slowly, make it faster.

I’m a strong believer in James Clear’s Atomic Habits approach for this step:

“If you can get one percent better each day for one year, you’ll end up thirty-seven times better by the time you’re done.”
— James Clear, Atomic Habits: An Easy and Proven Way to Build Good Habits and Break Bad Ones

Every small improvement counts. And it also compounds.4 Over time, you’ll spot more opportunities to add value, and the cumulative impact will be significant.

Step 4: Eliminate as much waste as you can

This is the hardest step, but also the most important one.

Adding new things feels productive.
Stopping things feels uncomfortable.

Once you understand your company’s value streams and your role in them, you will start to notice activities that no longer make sense.

Maybe it is a report no one reads.
Maybe it is a redundant approval.
Maybe it is a manual process that adds no value for anyone.

If something does not create value, directly or indirectly, it is waste.

Waste is more than a drain on resources. It acts as a negative multiplier. A single wasteful task often triggers other wasteful steps upstream or downstream.
That unused report might require others to collect inputs.
That redundant approval might need to be tracked or chased when it stalls.

Eliminating waste is one of the best ways to add value.

Over time, many thinkers have observed that bureaucracy tends to expand unless checked. In 1955, the British historian and civil servant C. Northcote Parkinson published a satirical essay in The Economist called “Parkinson’s Law,” later expanded into a book of the same name. He noted that bureaucratic organizations often grow even when their core work diminishes, since officials create work for one another and multiply subordinates to appear busy. (See The Economist, Nov 19 1955; also Parkinson, Parkinson’s Law: The Pursuit of Progress, 1957.)

Much of the work that followed Parkinson’s Law focused on governmental bureaucracy, since public institutions lack the market pressures that force efficiency gains. Companies are often viewed as less vulnerable to bureaucratic bloat for that reason. That is true, but only if they actively work to steer against it.

And guess which function often leads the way in creating bureaucracy? Legal.

This observation is not meant as criticism of Legal or of all bureaucracy. Not all bureaucracy is waste.5 Control functions such as Legal, GRC, and Compliance often accumulate complexity precisely because they carry responsibility for risk, ethics, and trust. In the New Legal Operating Model, the goal is not to remove necessary controls but to reduce unnecessary ones and to simplify how essential safeguards operate.

That is why, in the New Legal Operating Model, we elevate the elimination of waste and the effort to steer against bureaucracy itself to the highest form of value-adding work. Legal teams can counteract bureaucratic growth by treating the removal of waste as a deliberate and continuous discipline.

This part is often psychologically difficult. It is easy to keep doing familiar tasks simply because they have always been done. But once you confirm that an activity is not necessary, you can stop with confidence, and you can use the language of value and waste to explain why.

When I talk to lawyers about waste, they usually have an example ready. Their instincts already tell them that something should not be done. Trust that instinct. When you and your team dislike a recurring task and suspect no one depends on it, you are probably right. Use the framework of value and waste to validate that instinct. Once you stop, you free up time, attention, and energy for work that truly matters.

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Closing the Loop

These four steps are simple to understand but powerful when practiced together.

Step 1 grounds you in how your company actually creates value.
Step 2 helps you see where Legal fits into that flow, often indirectly but always meaningfully.
Step 3 builds momentum by adding small, compounding improvements.
Step 4 makes the biggest impact by freeing the organization from waste and bureaucracy.

Together, they form a practical path to apply everything we have covered so far in the New Legal Operating Model. Each step deepens your understanding of value, clarifies your role in creating it, and helps you focus your effort where it matters most.

What Do You Think?

- What quick way to add value did you discover?
- Where do you see waste hiding in your own work or across your company?
- What would it take to eliminate it with confidence?
- And how could Legal lead the way by making waste reduction part of its daily discipline?

Share your thoughts in the comments.

By the end of this post, you will understand how activities that do not directly add value still matter, how to tell when they matter, and why that insight is essential for everything that comes next in the New Legal Operating Model.

This post is the third and final part of the Defining Value series.

Let’s put the whole puzzle together.

Recap: What We Learned in Parts 1 and 2 (skip if you read them)

In case you are new to this series, here is the quick version:

• Part 1: The New Legal Operating Model defines value as the customer’s perception of usefulness and necessity, at a target cost, in the context of competition. This forces a critical mind-shift: value is judged by the receiver, not the producer.

• Part 2: Companies create value through the value chain and the value stream. The chain shows the big picture. The stream traces the specific sequence of activities that increases value step by step.

• Together: Parts 1 and 2 gave us the lens and the map. We can now see how value flows through the business and where it is created. Now we need to figure out how Legal can add value.

👉 If you missed the earlier posts, you can read them here: What Value Means (Part 1) and The Value Chain and Value Stream (Part 2).

The Three Kinds of Activities

Using our understanding of what value is, we can classify every activity inside a company into one of three categories:

1. Direct value-adding

2. Indirect value-adding

3. Waste

Direct Value-Adding

Direct value-adding activities are just that: activities that directly create value in the eyes of the customer1, for example by transforming inputs into outputs the customer is willing to pay for. Making a pizza is the simplest illustration: mixing the dough, adding toppings, and baking it. These are the actions that turn ingredients into the finished product. Even the simple act of slicing the pizza is directly value-adding since the value of the pizza cut into slices is greater than the pizza before it was sliced.

Indirect Value-Adding

Indirect value-adding activities are activities that are not directly adding value, but are necessary for someone else to add value (directly or indirectly). We’ll spend the rest of this post looking at this in depth.

Waste

Waste is everything else. If an activity does not create value directly, and you cannot identify a direct value-adding step that depends on it (even if it is a few hops of indirect value adding away), then it is called waste. This is not meant to be a derogatory term or to make you feel bad about the work that you are doing. And it also does not mean it feels pointless while you are doing it. It simply gives a name to the type of work inside a company that in the eyes of the customer, is wasted since the customer values the product the same with or without this activity.

Beyond the Kitchen

Let’s begin our examination of indirect value adding work by returning back to the pizza shop example from Part 2. Not all value in the Pizza shop comes from the person making the product. I asked you at the end of Part 2 to think about what other roles matter in the pizza shop? Well, here are three examples beyond the kitchen:

The Janitor

A janitor keeping the restaurant spotless shapes the customer’s experience directly. Cleanliness creates a perception of quality. It can even enable higher pricing: what might sell for $2 a slice in a dingy shop could sell for $5 in a clean, well-kept one. Those activities that the janitor is doing that enable the higher price are therefore directly value-adding.

The IT Systems Person

An IT systems person implementing an online ordering system may increase point-of-sale efficiency by 40 percent and expand customer reach to nearby neighborhoods, which ends up boosting revenue by 30 percent. None of that necessarily changes the value of the pizza itself, but it enables more pizzas to be made, sold, and delivered, which increases the value in the eyes of the investor customer. It allows the pizza baker to bake more pizzas (do more directly value-adding work) and so the activity of implementing an online ordering system is indirect value-adding work.

The Clerk

And then there is pure waste and we need an example for that, too. Imagine a clerk who prints out every online order and files it in a cabinet “just in case” or because “we’ve always done that.” No customer cares, no one uses it, and it does not enable anyone else to create value. That is waste.

Why These Examples Do Not Capture Legal

These examples are useful for learning the three categories, but they do not fully capture the challenge for in-house legal teams. The janitor is easy to classify as direct because customers literally pay more for pizza if the restaurant looks and smells clean. The IT person is easy to classify as indirect because you can trace their work straight to efficiency gains and expanded reach. Both roles connect directly, or almost directly, to the customer’s experience.

Legal is different. In the real world, value creation is far more complex than in our simple pizza shop example. The chain of activities that produces outcomes for customers and investors is longer, less linear, and more specialized. Legal sits inside that complexity. And because our work is highly specialized, its contribution is not constant. In the right context it can be immensely valuable. In the wrong context, it can be waste. That is why we need a different kind of example, one that captures this context-dependence more sharply.

The Cheese Quality Inspector

To see how indirect value works in more depth, let us step into the shoes of an imaginary cheese quality inspector in our pizza shop example.

At the $2 slice shop, the job is simple. The inspector checks the bag of shredded cheese for visible spoilage and confirms the expiration date has not passed. If it checks out, the inspector clears it for use and lays it out for the baker. The inspection does not create the pizza, but it makes sure the baker can. That is a necessary enabling step and a clear example of indirect value-adding.

Now move to the $50-per-pizza gourmet restaurant. Expectations change. A quick glance at the bag is not enough. The inspector is selecting among multiple artisanal suppliers, assessing aroma and texture, testing fat and salt balance, and advising the chef on which batch pairs best with seasonal toppings. They might also be verifying the restaurant’s non-GMO promise, auditing and supervising suppliers to ensure every delivery meets that standard. Even the visual inspection goes deeper: checking that all the cheese kernels are roughly the same size so the cheese melts in a perfectly even layer across the pie. None of this puts cheese on the pizza, that is still the baker’s job, but it enables the restaurant to deliver an experience that commands a premium price. This is indirect value-adding at its highest level.

But here is the conundrum. What if you are the world’s best cheese inspector, capable of exquisite assessments, but you forget where you work? If you are in the $2 slice shop, all of that extra effort is wasted. The customers there care about speed and cost, not provenance, GMO certification, or melting consistency. In that context, anything beyond a simple spoilage and date check is waste.

Why the Analogy Works for Legal

This is why the cheese inspector analogy matters. Like the inspector in our example, lawyers are highly trained and highly educated. We bring expertise that most of the business does not have, able to see what others cannot see, and to appreciate danger they cannot foresee. But the hard part is not whether we have the skills. It is whether applying them in a given way actually helps the company create value.

At the $2 slice shop, applying a deep inspection standard is waste. A simple check is enough. At the $50-per-pie restaurant, that same depth is indispensable. The same is true of Legal. Our knowledge is constant, but whether its application enables the business or wastes resources depends on the place and the time.

And just as the inspector enables the restaurant to make and keep its non-GMO promise, lawyers enable companies to make and keep a variety of promises: privacy promises, security promises, compliance promises. In the right context, applying our expertise this way is immensely valuable. In the wrong context, it is waste.

The Lesson for Legal

This is the reality for in-house legal teams. Much of our work is indirect. The business cannot move without it, but whether it is value-adding or waste depends entirely on context.

As John Brunning, a partner at Fieldfisher, observed in response to Part 2:

“Sometimes the customers want the cheese pizza and sometimes they want the pepperoni. So the perception of value can change not just between customers but with the same customer depending on the time, task, or desired outcome.”

That is the heart of it. Context has two dimensions: place and time.

• Place means knowing your company. The same legal work looks different in different businesses. A startup is not a Fortune 500. A SaaS company is not a manufacturer. A high-growth company is not a mature one. A detailed, multi-round contract review might enable value in one company but slow it down in another.

• Time means knowing the moment. Even inside the same company, what counts as value shifts. A startup in its first year might need speed above all else, just get the deal signed. Five years later, with enterprise customers and investor scrutiny, the same type of deal requires rigor. Or think about the last few weeks of a quarter. In a public company reporting to the street, or a private company racing to hit milestones for the next financing round, closing revenue is paramount. Legal’s value-add at that time may be in finding ways to close the deal despite higher risks present. Just a few weeks later, after the quarter or financing closes, what is valuable may have shifted.

List of Legal Value-Adding Activities

At this point, some of you may be expecting me to give you the magic list, the thing that tells you exactly what activities count as “value-adding” for Legal. But here is the reality check: there is no such universal list2.

Value is always dependent on place and time. What is indirect value-adding in one company, or at one moment, may be waste in another. That is why understanding value has to come first.

What you can do starting today is think about what is valuable in the work you do, directly or indirectly, using the tools we explored in this series:

1. Start with value as defined in Part 1. Ask: What do the primary customers of my business value?

2. Locate the customer as explained in Part 2. Ask: What value of a primary customer does my work serve? Or am I maybe serving a proxy customer?

3. Map your work against the value stream from Part 2. Ask: which step in my company’s actual value-creation process does my work enable? And what does the customer I’ve identified value (perception given alternatives)?

4. Test it against place and time. Ask: in this company, at this stage, and in this moment, is there a way that my work is adding value or is it waste?

If you can already clearly link your work to a direct value-adding step in the company’s stream, congratulations! Do more of that! If not, start by practicing this thinking method with your immediate proxy customers. Find some way you are directly adding value in their eyes and do more of that.

Closing the Loop - A Way of Working That Is Maximally Value-Adding

This is why I created the New Legal Operating Model. Not to hand lawyers a checklist of value-adding tasks, but to give us an operating model, a way of working, that leads us systematically toward maximizing value-adding activities and eliminating waste.

The promise of the New Legal Operating Model is simple: if you follow it, you will always know how to judge what is valuable in your context. And you will have the framework, tools, and techniques to align your work with it. That is how we move from being reactive risk managers to becoming indispensable enablers of the business.

In future posts, I will share examples of highly value-adding legal work and real case studies of teams putting this into practice. But those examples will also not be “the list.” They are illustrations. You will still need to bring them back to the context of your company, your place and your time. That is what the New Legal Operating Model will teach you how to do.

What’s Next?

This was a long one. I could have split it into two posts, but I wanted to get the whole picture in front of you at once. With the Defining Value series complete, we now have one of the essential foundations of the New Legal Operating Model: what value is, how it is created, and how Legal fits in.

I’d love to hear your perspective. Where have you seen Legal’s work shift from indirect value-adding to waste, depending on place or time? Do you agree that context determines whether a task adds value, or do you see some activities as always valuable? Is there some way you can test whether your own work is enabling value in your company?

By the end of this post, you’ll understand how to visualize the creation of value and how to trace it through your company using a tool called the value stream.

This post is the second in a multi-part series. By the end of the series, you will:

• Know how we define value in the New Legal Operating Model.

• Understand the principles of how value is created by your company.

• See how Legal can add value and have a positive effect on the business.

Recap: What We Learned in Part 1 (skip if you read the post)

In case you’re new to this series, here’s the quick version:

• The New Legal Operating Model defines value as the customer’s perception of usefulness and necessity, at a target cost, in the context of competition.

• This definition forces a critical mind-shift: value is judged by the receiver, not the producer.

• It gives us a rigorous foundation to evaluate how Legal adds value by aligning with what the business and its customers actually perceive as useful and necessary.

👉 If you missed it, you can read the full Part 1 here: Defining Value: What Value Means

Since we know what value is, the next step is to understand how companies create value.

Let’s map it out.

The Value Chain

In Lean thinking, we visualize value creation through something called the value chain.

At the center is your company.

• You source inputs from suppliers, paying them for what you need.

• You transform those inputs through activities.

• You sell outputs (products or services) to customers for more than the cost of the inputs.

That difference, between sale price and cost of input, is value. We already know that it is judged at the point of output, in the eyes of the customer. The ability to create that difference is the reason your company exists. So there is something very special that happens inside that box labeled “Your Company.”

Before we focus on the “Your Company” box, though, we need to talk a little bit more about the customer, in whose eyes value is determined.

Who Is the Customer?

Two primary customers

In classic Lean thinking, the answer is simple: the end customer who buys the product or service.

In the New Legal Operating Model, we expand this concept to recognize two primary customers whose judgment ultimately defines value:

• The Classical Customer: the person who buys the company’s product or service.

• The Investor Customer: the person who chooses to buy, hold, or sell the company’s equity.

Why include investors?

We’re expanding the concept of customer to add the investor because the equity securities of the company are another type of product that your company sells. And the parameters that influence the value of this “other” product (in the eyes of the investor) can be impacted by the legal team.1

So these two groups - customers and investors - are the ultimate arbiters of value. Their decisions decide whether the company succeeds or fails.

Proxy customers inside the company

The in-house Legal team’s work rarely touches these primary customers directly. Instead, their output is usually consumed first by internal stakeholders who act as proxy customers:

• Executives and business partners act as customers when they rely on Legal’s work to advance deals, manage risk, or execute strategy. If they don’t see Legal’s input as useful or necessary, value doesn’t flow.

• Even your boss can be a customer. Their perception of whether your work advances the department’s goals influences your priorities and your effectiveness.

Why proxies are not primary

We already expanded the concept of the customer to include the investor. Should we also expand it to include these proxy customers? The answer is no. We should not recognize them as primary customers. Here’s why: if we want to be able to measure Legal’s value-add, we have to calibrate our definition of value at the right level – where the output is consumed. Only then can we understand what would be valued, so we can contribute to it. Which means that we need to be cognizant of these proxy customers and their proxy preferences (do they see something as value-adding?), but not every proxy preference is the same as creating value for customers or investors.2 In the end, to measure whether we truly added value, we have to be able to tie it back to the primary customer. We will revisit how to classify activities that add value for proxy customers and primary customers when we discuss indirect value later in this series.

A live question on measurement

Our broadening of the scope of what a customer is will also help us increase measurability. One of our readers, Nancy Jordan, raised a great point after Part 1:

“I agree that value must focus on the customer’s perspective. We can think we are adding value; however, other people’s perception is their reality and there could be a disconnect. Have you thought about how to measure value add (i.e., customer surveys) as I find this can be hard to measure?”

Nancy is exactly right. Measuring things is hard. Especially when it comes to something that is based on perception. Some things are also easier to quantify than others, and value itself is not always directly created. But once we understand how value is created by our business, we can figure out how Legal helps with that, and then measure our ability to deliver that “help.” We will examine this in depth and tackle the measurement challenge head on, but we need a few more foundational concepts and tools before we can get to that. For now, it’s enough to recognize that by clarifying who the “customer” is, we set the stage for measuring value in a way that is both rigorous and credible.

From Value Chain to Value Stream

Back to the box in the value chain illustration called “Your Company” and the magic of value creation that happens inside of it. How does that happen?

Let’s borrow some more from the Lean methodology and turn to its value stream concept. Think of the value chain as the big picture3 and with the value stream tool we can magnify the value creation box to see the details of how value is created.

The classical definition

The Lean Enterprise Institute explains the value stream as:

“All of the actions, both value-creating and nonvalue-creating, required to bring a product from concept to launch (also known as the development value stream) and from order to delivery (also known as the operational value stream). These include actions to process information from the customer and actions to transform the product on its way to the customer.”

In its ideal, the value stream is a single, giant map of all of the actions occurring in your company. With this God-mode view, you can see the entire system that is your company, not just a single process. You would then be able to systematically remove nonvalue-creating actions and improve flow. Having this kind of value stream mapped is extremely powerful, but not practical for Legal teams. We rarely have the ability to take such an expansive view.

The classical definition can also be confusing, since it nests value streams within value streams. To make this practical, think of that wide view as a value river, and use a narrower definition of the value stream focused on particular activities that incrementally add value. Many value streams flow from different sources. Those that create value come together in a powerful river. Those that do not lose energy before reaching the customer.

Our Definition of Value Stream

In light of these limitations of the classical definition, here is the definition of value stream we will be using in the New Legal Operating Model:

A value stream is a series of organizational activities that are performed in a specified sequence.4

A value stream is the specific sequence of activities a company uses to transform inputs into outputs. It traces the actual flow of work inside the business, step by step, and makes visible where value is created and where it is not.

Let’s see how this works in practice.

The Pizza Shop Example

Imagine a pizza shop.

– image adapted from ‘An Introduction to the SIPOC Diagram’ by Navvia

The pizza shop has suppliers and customers. Suppliers deliver inputs (flour, sauce, pepperoni, cheese, peppers) and customers purchase outputs (whole pizzas, pizza slices, pizza bread). From a value chain perspective, we know that the pizza shop somehow transforms the value of the inputs into something more valuable. It does so through the pizza-making value stream – by executing a series of organizational activities in a specific sequence. Let’s look at this value stream in detail:

1. Prepare the dough

2. Add sauce

3. Add cheese

4. Add toppings

5. Bake in oven

The value stream starts with the dough and then multiple steps must occur until it is baked in the oven. Once it has finished baking, it has a higher value as a result of those steps having been performed in the correct sequence.

Why sequence and timing matter

Our definition of the value stream emphasizes that the order of things in the value stream really matters. Timing is a very important element in creating value – right place at the right time. For example, assume I use the exact same ingredients and process steps, but alter the order: prepare the dough, then bake it, then add toppings and cheese, and finally add the sauce on top. The value of this alternatively finished pizza would be less than the pizza pie prepared in the correct order.

Using the value stream to examine contribution

The value stream traces each step and looks at whether and when it should occur. It makes visible how value is created and exposes all the steps that go into that creation. This also helps with measurement at intermediate steps. Think back to Nancy’s question. The value stream allows us to focus on an intermediate step and examine how it contributes to the creation of value.

Quick example using step 4: add toppings

Looking at the step where we add toppings, there are some interesting ways we could try to measure how this step adds value:

• How much value does adding a particular topping create (in the eyes of the customer)?

• How much of the topping should I add? And is there a way to maximize the additional value the customer perceives at the lowest cost of ingredient?

• Are combinations of certain toppings inherently more valuable?

• Are there some toppings that I am currently adding at Step 4 that would actually create more value if added after the pizza has already been baked?

We know many of these answers already. A pepperoni pizza is more valuable than a cheese pizza. Speciality pizzas with pre-set combinations can command a premium. Basil added after baking is more valuable than basil added before baking.

Adding a step 6: slice pizza

Let’s add another step to the value stream: slice pizza. In most shops, a whole pizza costs less than buying the equivalent number of slices. Slicing increases the value of that pizza pie. Once you see the value stream, it prompts new questions. For example, how did eight slices become the value-maximizing number?

Closing the Loop

We built on our definition of value and examined the value chain, the big-picture view of how companies create value. We clarified two primary customers: the buyer of the product or service and the investor in the company’s equity. We also acknowledged proxy customers such as executives, business partners, and even your boss, who influence whether value flows, even if they are not the ultimate arbiters of it.

Then we zoomed in to the value chain box labeled “Your Company” and introduced the value stream: a series of organizational activities performed in a specified sequence. The value stream makes creation traceable and visible. It shows that value is built step by step, in the right order, through activities that transform inputs into outputs customers will pay for.

What’s Next?

We confront the reality that lawyers are usually not the ones baking the pizza. In other words, in the value stream we are not the ones directly transforming flour, sauce, and cheese into the final product a customer pays for. Our work often shows up as indirect value-adding activities: enabling the bakers to bake, the shop to sell, and the business to keep running smoothly.

That raises an important question: what value does the pizza shop’s lawyer add?

In Part 3 of the Defining Value series, we expand our universe to include support functions, learning about the New Legal Operating Model’s three categories of activities: direct value-adding, indirect value-adding, and waste.

What Do You Think?

In the meantime, I would love to hear your perspective:

1. In the pizza shop example, who else besides the baker adds value, and how?

2. What value streams can you see in your company?

3. Can you think of lawyers who directly create value?

4. How do proxy customers, like your boss or a business partner, shape your sense of what is valuable?

Let me know what you think in the comments below!

By the end of today’s post, you will understand what we mean when we say “value,” and why having a clear definition matters. We will have created a solid footing to build on instead of a fuzzy generality.

This post is also the first in a multi-part series. By the end of the series, you will:

• Know how we define value in the New Legal Operating Model.

• Understand the principles of how value is created by your company.

• See how Legal can add value and have a positive effect on the business.

Let’s dive in.

Why do we need to define “value”?

Short answer: because if we don’t know what value is, how can we know if we are adding any?

Value is one of those concepts that we talk about all the time.

We say: I want to add value.
We say: I’m valuable.
We talk about: value-added legal services.

The challenge is that in those contexts the word “value” is used as a fuzzy concept. It’s one of those “I know it when I see it” concepts. Like the definition of “reasonableness” in tort law or “materiality” in the securities law context.

That may work in casual conversation, but it does not work if we want to create a rigorous and repeatable way to examine value and figure out how we, as lawyers, can add value. We need a definition of value that gives us a lens through which we can understand how what we do impacts our company. For that, I really like Lean and Six Sigma.

Borrowing from Lean and Six Sigma

Lean and Six Sigma have already solved the problem of defining value in a way that is rigorous, repeatable, and very successful.1

Lean gives us a precise, customer-centered definition of value. It tells us that value is not what we believe is important, but what the customer perceives as useful and necessary.

Six Sigma complements Lean by giving us rigorous methods to ensure value is delivered consistently and with minimal defects. The concept of “defects” for legal teams is another very interesting topic and we will discuss this in a future post.

Together, Lean and Six Sigma form a framework that is both customer-centered and methodologically disciplined.

The Lean Definition of Value

In The New Legal Operating Model, we use this as our definition of value:

“Value is the customer’s perception of the usefulness and necessity of a given product or service, at a target cost and in the context of competition.”2

There is a lot packed into this definition:

• Customer’s perception: value is determined in the eyes of the customer, not by us.

• Usefulness and necessity: the product or service must be both relevant and required.

• Target cost and competition: value is not absolute; it exists in a market context.

Let’s examine each of these parts in a bit more detail.

Customer’s Perception

The Lean definition of value emphasizes customer perception, not objective fact. Value is judged by the receiver, not the producer. For lawyers, that requires a real mind-shift. It is natural for us to measure value by the thoroughness of our work or the accuracy of our analysis. And when we think of the customer in the Lean context, that is normally our actual company’s customer. But in some circumstances it can be a different persona, for example the company’s investors, or simply your boss. In any case, though, it is the perception of the person that is receiving the output that matters and not the perception of the person that is producing the output.

This is the fundamental mind-shift: value is judged by the receiver, not the producer.

Usefulness & Necessity

This part of the definition is most troublesome to the outside lawyers I speak with. They often insist usefulness and necessity are really the same thing. For example, in a legal memo, the memo is useful because it is necessary and necessary because it is useful.

They are not wrong. From the lawyer’s perspective, the comprehensive memo may include only what is absolutely necessary to give a complete and correct legal analysis, and every word is in all likelihood objectively useful.

But that is value in the eyes of the lawyer, the person producing the output. In the eyes of the customer, certain corner cases addressed in the memo may not be necessary because they do not apply to the business. As a result, the customer perceives those parts of the memo as not necessary, and therefore not valuable.

Target Cost & Competition

Interestingly, outside lawyers tend to understand this part of the definition intuitively. The ones who push back are often in-house lawyers. How can there be a “target cost” for in-house work, and what “competition” is there?

The quick answer is by example. A perfect redline delivered in three weeks costs too much time. The competition to a Legal-team redline may be that the business takes on some extra risk by skipping review altogether. The business person who requests Legal’s input wants that review only in the context of a target cost and in light of other available options.

The Car Analogy

I like analogies, so let me offer one here. Think of a car and two different customers. One may value sporty styling over safety. Another may value safety over styling. Both are judging the value of the car in the context of its price and the alternatives available.

If you have ever purchased a car, you have gone through the same exercise. You thought about what mattered most to you. Perhaps fuel efficiency, perhaps technology features, perhaps brand reputation. You weighed those factors against the cost and against the other cars available at that price point.

What you were really doing was calculating value: usefulness and necessity, as you perceived them, at a target cost and in the context of competition.

That is how value works. It is not abstract. It is always contextual, always comparative, and always in the eye of the customer.

Closing the Loop

We started with a fuzzy concept and ended with a clear definition: value is the customer’s perception of usefulness and necessity, at a target cost and in the context of competition. That definition gives us solid footing to build on and sets the stage for exploring how companies create value in practice.

What’s Next?

Now that we have a working definition of value, the next step is to ask: how does a company actually create it? To answer that, we first turn to Lean’s concept of the value chain, a zoomed-out lens that shows the macro view of value creation. Once we understand the chain, we can zoom in further to the value streams, the detailed paths where value is actually added.

We will pick this back up in Part 2 of the “Defining Value” series, where we will explore the value chain and the value stream in depth.

What Do You Think?

In the meantime, I would love to hear your perspective:

• How do you draw the line between usefulness and necessity?

• How do you think about “target cost” and “competition” when it comes to in-house legal work?

• Where have you seen the biggest gaps between what lawyers think is valuable and what the business perceives as valuable?

Let me know what you think in the comments below!

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But here is the hard truth: while we say we want to be value-adding, when pressed, we fall back to describing risk management. The very frame we wish to escape becomes our prison. It is like stepping into the elevator at your company and finding that only one button works: “Risk Management.”

If we cannot define our value beyond simply reducing risk, how can we expect the business to experience us as anything more?

Risk management is valuable. Yet it is only one way to add value, and it rarely tops a business leader’s list of goals. When the sales team thinks about growth, or the product team thinks about launches, their focus is not on risk reduction. Their focus is on progress.

That is where Legal needs to live as well.

Because at the end of the day, lawyers do not just want to prevent problems. We want to make things happen. We want to feel that the dollar invested in Legal generates a multiple of return back into the business. That our time and judgment are creating outcomes, not just avoiding disasters.

That is why The New Legal Operating Model starts with one word: value.

The core is simple:

Legal must relentlessly focus on creating value and eliminating waste.

This is the lens through which every activity, every project, and every decision should be viewed.

This post is the starting point.

Over the coming weeks, I will share how to put this into practice: how to see value and waste clearly, how to add value in direct and indirect ways, how to connect legal work to the company’s value streams, and how to redesign the role of in-house counsel around outcomes that matter.

But value is only the beginning. The New Legal Operating Model also borrows from Lean Product Management and other disciplines. We will look at how concepts like prioritization, minimum viable product, continuous improvement, and feedback loops translate into the legal context. And we will touch on AI in the same way: not just the tools themselves, but also the fact that AI magnifies whatever system it enters. If Legal remains stuck in risk management, AI will only make that trap deeper. If Legal is oriented to value creation and elimination of waste, AI will multiply the impact.

This series will not stop at theory. I will share foundational knowledge, practical frameworks, tips you can apply immediately, and case studies from my experience and from others. Each post will move us one step closer to a way of working that feels better for lawyers and delivers more for the business.