Is the billable hour slowing down innovation?

  "Is the billable hour slowing down innovation?" was the title of a webinar I had the privilege of being part of recently.

The webinar was organised and facilitated by Ivan Rasic founder of LegalTrek one of the few practice management vendors out there that I know of who is a thought leader in the legal profession and who is genuinely interested in innovation and the future of law rather than simply trying to sell a product.

The other panel members were D.Casey Flaherty noted former In House & Out House Counsel and founder of the US technology, training and benchmarking consultancy procertasand Jonathan Tobin IP and Technology attorney at Counsel for Creators.

A link to the YouTube video of the webinar with slideshow can be found here.

I think fair to say that while each of the panel might have differing views on the ongoing role of the billable hour in law firm pricing (no prizes for guessing my view-there should be no ongoing role!) each of us agreed that the billable hour has impeded and will continue to impede genuine innovation in the legal profession.We agreed that innovation (which admittedly is relative & contextual, especially when it comes to the law) seems to be all too often inextricably linked solely to technology and little else,yet as Casey so eloquently pointed out in the webinar:

“I, as a huge proponent of technology, am very skeptical when people refer to introducing new technology as an innovation. It is one thing to purchase technology, it is another thing to use it, and it is yet another to use it well.

I spent a lot of my time focusing on technology we already have and how poorly we use it. We tend to fall into the exact same patterns – no matter what the technology can do we use it the way we do and have done things before.

And innovation is about doing things differently. Innovation is a discipline. Technology can support a process improvement. But technology can not substitute what you need to do in order to be innovative." (my emphasis)

While still lagging far behind most other industries and professions, in recent times our profession should be lauded for at long last starting to understand the role technology can,and increasingly in the future will, play in both lowering our costs to serve and more effectively servicing ours and our customers needs. But I too query whether merely purchasing and using technology can really be described as innovative, especially if, as Casey rightly says, most firms use it to prop up their existing patterns and thought processes.

With a couple of notable exceptions, notwithstanding law firms PR claims to the contrary, most firms use of technology can hardly said to be a differentiator in the marketplace.Technology these days is simply a table stake and at best allows firms to stay in the game (at the moment) but is hardly any guarantee of future sustainable success, let alone evidence of true innovation.

Most firms use technology to incrementally improve their Oldlaw business model which essentially is to continue to leverage people x time x hourly rate. Oldlaw firms are not adopting new technology to change their business model nor their mindset which for most is still inherently buried in the the 20th century "we sell time" mantra.

While firms continue to adhere to the Oldlaw business model I do not believe they will ever truly maximise the benefits they and their customers could receive from technology, let alone differentiate themselves to any significant degree.

As is evidenced in other industries,real innovation is built on a mindset of entrepreneurship and a culture of collaboration which are not the traditional hallmarks of a lawyers.The billable hour together with its partner in crime, the timesheet, as I have said many times before is a huge collaboration & innovation killer.It measures and rewards the deeds of an individual over the best interests of both the customer and the firm.

In industries that do not subscribe to the "we sell time" mantra, if someone were to come up with an idea that would mean instead of taking 5 hours to do a task it could be done in 1 hour they would be applauded and rewarded. But in Oldlaw world under the billable hour model such an idea would be ignored.

Think about it.Under the Oldlaw business model any investment in innovation or technology that reduces the time it takes to do something is not rewarded with increased revenue or profits.Exactly the opposite-a firm's revenue is actually reduced and any benefits of investing in such an innovative idea go straight out the door to the customers.An unsustainable business model in the extreme.

This is not to say even Oldlaw is adopting methods to reduce the time it takes to undertake some tasks,but in the main that is because they are being forced to by client and market pressures-not because they want to or they see it as the right thing to do.

Contrast this with the Nextlaw/Newlaw providers of legal and associated services, the lawtrepreneurs, the start ups, the genuine disruptors, the real game changers.  They have adopted a totally different mindset and business model having dispensed with the restrictions and disincentives imposed by the billable hour, and are reaping the rewards of using technology much more creatively and effectively to benefit both themselves and their customers.

As the late Andy Grove said:

"Disruptive threats come inherently not from new technology but from new business models".

Unless Oldlaw makes a paradigm shift and adopts new business models,technology for them will continue to be mainly limited to process improvement. There will come a tipping point (I am not sure when,perhaps not in my lifetime) but until then only those with courageous & different mindsets will drive true innovation in our profession.