A few years ago my friend Greg Kyte,-CPA, Thriveal member, twice ranked in Accounting Todays Top 100 Most Influential People in the Accounting Profession (he asked me to pop that in), former math teacher, current stand up comedian, proprietor of Bob's BBQ, winner of the “G. Robert Newhart Non-Value Added Fellowship” from the VeraSage Institute,Blackberry aficionado, cartoonist, dad, husband, value pricing devotee and opening bat for the Salt Lake City Cricket Club (OK I might have made up this last one)- with the help of his wife Laura, made this wonderful video clip about clients of professional firms playing the Billable Hour Scratch & Win game.

If you have not watched this short video before have a laugh and watch it now

 

This video would be even funnier if it were not so true.

I, like many others, have shown this video to countless clients of professionals around the world, including in house counsel, and the response is always pretty much the same

"that's me-but I have never experienced the win yet!"

So why is it our customers rarely, if ever, experience "the win"? As Greg says in the video

"before any engagement I always ask them for an estimate of how many hours it is going to take..... and they always tell me an estimate is just an estimate...........so that means they could be over, or, they could be under."

Yet professionals are rarely "under" and that is because when we base our estimates of price by relation to time and only time, being human, we always, always underestimate the amount of time it is going to take us to perform any task.

In everyday life and in our every day purchases, that underestimation of time often doesn't matter so much-unless of course the price you or your customer are paying for something is pegged to time.

Again as Greg Kyte points out in the video

"....of course they're (professionals) experienced enough to give me a fixed price, but if they did that would take away the rush of finding out how many hours they actually billed me for".

The calls for the professions to move away from the 20th century time based billing model are not abating, notwithstanding the resistance from the bulk of Oldlaw and other professionals who still prefer to continue to leverage their people x time x hourly rate.

As Matt Fawcett General Counsel of NetApp recently wrote in an excellent post titled "Things Lawyers Do":

"It’s 2017 – why are the clear majority of law firms still stuck in same billing model? Why are they still selling me their time? This makes no sense."

No Matt it doesn't make any sense to either the professionals or their customers to think they are selling or buying time, but most in the professions continue do it because- they can!

Greg Kyte, as much as I love him, made a couple of mistakes in his video.

One was asking his professional providers to give him an estimate of hours (or even an estimate period) and fail to ask them for a price up front.

The other mistake was to call his video "Billable Hour Scratch & Win". There is no win for anyone longterm under the time based billing model.A more appropriate title would be "Billable Hour Scratch & Lose". Sorry Greg.Careful what you ask for.

And professionals, next time one of your customers asks you for a fixed price and you can't provide one, don't be surprised if they go to a professional who can. They exist and they are coming for you and your customers.

 

 

 

The Billable Hour Must Die

Earlier this week I wrote a post titled Death Of The Billable Hour and I am encouraged by the support the article has received from many quarters (if not from Oldlaw partners, from several Oldlaw employed lawyers).

In that post I mentioned that serious calls for the death of the billable hour have been occurring regularly over the last decade.As evidence of this I came across an old ABA Journal dated August 2007.Here is the front cover.

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It contains a 6 page article by Scott Turow calling for the billable hours' death. It is well worth reading the article in full.

The article describes the billable hour as:

  • rewarding inefficiency
  • making clients suspicious, and
  • it maybe unethical

It it however the author's final paragraph that is well worth reprinting in full and reading aloud.

"If I had only one wish for our profession from the proverbial genie, I would want us to move toward something better than dollars times hours.We have created a zero-sum game in which we are selling our lives, not just our time.We are fostering an environment that doesn't provide the right incentives for young lawyers to live out the ideals of the profession.And we are feeding misperceptions of our intentions as lawyers that disrupt our relationships with our clients.Somehow, people as smart and dedicated as we are can do better."

Here, here. Mr Turow.We can and we MUST do better.

I do not know Mr Turow (except via the books he has written) and now as a partner at Dentons I do not know whether he still shares the same views as he did in 2007. I hope so. 

10 years on and still the calls are being made for the billable hours demise and while there has been some progress away from time based billing since 2007 it is incredibly slow and very painful to watch.

Oldlaw still maintains the billable hour via the timesheet life support. 

Shameful Oldlaw shameful.

 

 

 

The Death Of The Billable Hour

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There are several excellent commentaries on the recent Georgetown/Thomson Reuter's 2017 State of the Legal Market (US) but Richard W Smith's concise observations titled "Death of the billable hour is nigh-really?"is one of the better ones-especially on pricing & for Australian audiences.I recommend you read both.

Much of the profession's discussion on the Georgetown/Thomson Reuters Report has centred around the following comments:

" Death of Traditional Billable Hour Pricing. One of the most potentially significant, though rarely acknowledged, changes of the past decade has been the effective death of the traditional billable hour pricing model in most law firms. This isn’t to suggest that most firms have done away with billing based on hours worked; indeed the majority of matters at most firms are still billed on an “hourly basis.” But focus on that fact alone misses a fundamental shift that has occurred in the market. This change has been overlooked principally because of a definitional problem. In much of the writing on this subject, the focus has been on so-called alternative fee arrangements or “AFAs,” pricing strategies that are based on fixed-price or cost-plus models that make no reference to billable hours in the calculation of fees. Since other pricing models typically incorporate some reference to billable hours, it has often been assumed that only AFAs are genuine non billable hour alternatives and every other approach is simply business as usual. That conclusion, however, overlooks a major shift that has occurred over the past decade: the widespread client insistence on budgets (with caps) for both transactional and litigation matters. (my emphasis)"

I agree with Richard's assessment that, to be frank, caps are crap. They benefit no one and if anything have helped extend the life of time based billing.

While I would not score an invitation, I would love to read the eulogy at the billable hour's funeral but alas, while it is sick & has been for a long long time now, it is experiencing a slow tortuous death and not quite ready for burial. It is kept on life support by any number of those with misguided and/or vested interests.

I strongly believe the billable hour will never totally be killed off until the providers of legal services make a paradigm shift and change their business model.

It seems every week around the world, thank goodness, newlaws/nextlaws/disruptors and some innovative incumbents law firms (plus many in other professions), have made or are making the paradigm shift to totally change their business model to something more meaningful and fulfilling to both themselves and their clients.

However while Oldlaw still leverages people x time x hourly rate in the misguided belief that TIME is not only a cost to a law firm but THE major cost, (and therefore continues to measure and reward TIME over all else instead of measuring what really matters), billable hours, either naked or in drag will hang in there. 

For so long as time is recorded firms will forever remain fixated on the Oldlaw "we sell time" model and will always default and compare everything to time which in turn perpetuates faux AFA's (of which capped fees are but one example) at the expense not only of genuine strategic pricing alternatives but a better and more sustainable profession.

A billing model change to fixed fees for example without a genuine business model & mindset change won't cut it now or in the future.

There has been increasing widespread dissatisfaction with the billable hour- and the profession's real innovation and collaboration killer, the time sheet- now for well in excess of a decade. The profession can bleet all it likes about clients demanding more certainty around price and wanting"more for less" but it can't say it was not warned and cannot complain it didn't bring all this on itself.

The profession can also not complain that they are blissfully unaware of any alternatives to time based billing when genuine alternatives have not only been written and spoken about during this same period but an increasing number of legal services and other professionals have been successfully operating a different and better business model for several years now.Regrettably the majority of the profession has been exposed to all this but has chosen to either ignore it completely or apply a band aid to a festering and potentially mortal wound-and then only when forced to by clients.

The current Oldlaw business model is of course not sustainable ( "we are investing in technology & improving our processes to get work done in quicker time but we are still going to bill you by time" is a business model heading in only one direction) but regrettably Mark Twain's quip "the report of my death was an exaggeration" rings true.

It does not have to be of course, but perhaps the legal profession needs to go through this death by a thousand cuts for another decade or so before it will make real change? There will come a tipping point and then the late majority and the laggards will be falling all over themselves, and in the meantime the innovators and early adopters will have moved on.

This will all take longer than it should and longer than any opportunistic billing model change, but the change will be structural, long lasting and the legal profession, its clients, business generally and the community will be all the better for it.

 

Ready Reckoner Table of Advocates for the Retention of Timesheets

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*Glossary for the billable hour

  1. 'Rush hour' - trying to perform as many tasks that take fewer than 6 minutes as possible, in an hour, knowing that the practice management system deems everything to have lasted for at least 6 minutes. In some cases, this can mean 2 hours of chargeable time recorded in any 1-hour block.
  2. 'Nearest whole hour' - under this methodology, any task that takes at least 30 minutes is rounded up to a full hour, again potentially delivering exponential returns.
  3. 'Parallel plains' - this strategy involves charging one client for travel time while working on (& also charging) another client's matter.
  4. ‘Going for the $10,000 hour’ – this involves getting as many lawyers of a firm as possible into a project ‘strategy meeting’ – benchmark of ‘success’ is normally set at around $10k worth of time charged for the hour.
  5. 'Penalty provisions’ – where a client is not paying what the partner believes is otherwise fair, the ‘Donkey Principle’ of work performance is imposed – i.e everything takes as long as humanly possible. 
  6. ‘Who will ever notice’ – these are the clients of other partners who have matters where a few random entries for ‘reviewing’, ‘advice’ or ‘attendance’ will never be second guessed – a great technique when there is no ‘go to matter number’ otherwise easily to hand (see below). 
  7. ‘The go to matter number’ – used when a partner will try to have at least one matter where they can dump a few chargeable units at the end of any day, week or month (depending on when they actually get around to filling in their timesheet) to ensure they get to whatever targets they might otherwise miss.

(with much thanks to my friend and one of my partners-in-crime in killing timesheets Matthew Burgess )

 

RELATED

Trashing the Timesheet

10 Rules About Hourly Billing

Why timesheets are damaging to your practice

Burn Baby Burn

 

                      www.innovim.com.au

                    www.innovim.com.au

Is the billable hour slowing down innovation in law firms?

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

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 procertas, and 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.

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Why your firm which bills you by time also bills you at the end of the month.

                                                        http://www.andrewfyfe.com.au

                                                       http://www.andrewfyfe.com.au

As a client of a law firm have you ever wondered why,notwithstanding whatever your agreement with your law firm states, many of them bill you at the end of each month?

On the last day of a recent month I met with some young lawyers from different law firms when one of them had to excuse themselves to get back to the office "to do the bills".This led onto an interesting discussion about what it was like working in a traditional law firm (one that leverages the people x time x hourly rate business model) in the 21st century on the last couple of days of any month.

Some of the comments made by this group included:

  • "its a madhouse,the usual emails from the MP imploring us to complete our timesheets and prepare draft bills by COB",
  • "alot of timesheet entries get done on the last few days of the month",
  • "you can tell the partners who are under budget-they are running around like headless chooks trying to find some "time"",
  • "timesheet narrations are always getting changed,added or deleted by partners before the final bill goes out",
  • "my partner rarely posts bills out to client on the last day of the month, he just makes sure the bills "get into the system" and then "reviews" the bills over next few days before sending to his clients".
  • "everyone is stressed out on the last day of the month-the partners, the lawyers, the p.a.'s, the accounts department.We all hold our breath to see if we have made budget for the month.If we have its "good job" all round.If we haven't it is like losing a game of football you should have won-we are all made to work harder and stay longer on the training track the next month!"
  • "I would hate to be a client of my firm on the last day of the month-everything is focussed on billings and not much else".

Most of these comments are probably not surprising to any reader who has had much to do with a traditional law firm. To avoid "months end" I have seen numerous incentives (and disincentives) tried in order to get partners to bill;

  • in accordance with the actual terms agreed with their clients (shock horror I know),
  • at staggered times during the month, or
  • as soon as a matter is completed ( again shock horror),

most with little, temporary or no success.

This group then got talking about what could be done to stop or diminish the deleterious effects of this dreaded "end of the month mayhem".

After all very few of the Costs Agreements I have seen actually state that the law firm will bill their client at the end of each calendar month. Most of the Costs Agreements use words like "we will interim bill you", "bill you monthly", "bill you every 30 days",but I don't come across many that say:

"whatever work we do for you and whenever we do it during a calendar month, we will always bill you on the last day of the that month"!

I asked this group why they thought bills are mostly left to the last 24 hours of the month? 

Their responses included:

  • "our firm has always done it that way",
  • "that is what all firms do",
  • "my partner said that is what his clients want",
  • "we are too busy doing legal work and meeting our billables during the month to do non billable billing".

There was one response however that I thought was particularly enlightening.

One lawyer told me that in their firm that,even if a matter finishes early in the month, it wont get billed until the end of the month and that even if draft bills are prepared they sit on the partners' desk until end of the month.When I asked why they thought this happened the lawyer said this:

"If bills are sent out at various times during the month the partner has no idea if they are going to reach their monthly billable hour targets.However if all the draft time entries and draft bills are lined up together at the end of the month, the partner is able to calculate what the totality of all those bills are and is able to make any appropriate "adjustments" to ensure monthly targets are met or exceeded".

So there you have it. It seems some partners in some law firms calculate bills at the end of each month,not based on any contractual agreement with their clients, not based on their clients perception of value and not even billed based on the partners own perception of the value created on individual matters. Rather these bills are more reflective of an individuals performance against their firms internal measurement-in this case their monthly budgets. 

"What gets measured gets managed" is a quote often (erroneously) attributed to the late management guru Peter Drucker. Behavioral economist Dan Ariely however said, “You are what you measure.

The things that any organization track are the things everyone in the firm pays attention to so be very careful if you measure the wrong things-you will get the results you ask for.Track time you will get time-one way or another.

In a previous post I gave some advice to clients who are silly enough to still use a law firm that bills them by time.Here is some more advice to such clients.Instruct your law firm early in the month as, notwithstanding whatever your actual agreement is with your law firm, you are more likely than not to have longer time to pay your legal bill as you won't receive a bill until the beginning of the following month.Go and see them however in the last week of the month and you are likely to get a bill in a few days time!

 For the law firms that don't bill by time and don't rely on time as the expression of value to their clients most of this is not an issue. They instead commit to behaviours and processes that accord with the agreements they have in place with each client and measure what matters most to their clients-not those that simply accord with some outmoded and irrelevant internal measurement and reward system.

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What I would do if I wanted to run a 20th century law firm in the 21st century

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If I wanted to start up a law firm in the 21st Century based on a 20th Century model, here is what I would do.

  1. If I could find other 20th century thinking lawyers I would form a partnership.
  2. My business model would be to leverage my lawyers x time x hourly rate.
  3. I would undertake retrospective pricing and bill by time for as much as, and for as long as, I can.
  4. I would make my lawyers record their days in 6 minute increments.
  5. I would refer to my staff as  "fee earners" or "non-fee earners" ( and make the "non-fee earners" feel very guilty).
  6. I would provide all my "fee earners" with annual, monthly and daily billable hour targets.
  7. I would measure and reward my "fee earners" by their performance to their billable hour targets.
  8. Each of my lawyers will be assigned the same hourly rate for whatever task they are performing solely based on their title and seniority.
  9. I will provide estimates of my fees to my clients based on expected time to be spent on their matter (but only when asked or made to) which will invariably be exceeded.
  10. I will undertake annual performance reviews on my staff.
  11. Under the guise of benchmarking, I will willingly share my hourly rates, the remuneration I pay to my employees, my billable hour targets, my realisation rates,utilization and other financial information with my competitors to ensure we all look the same.
  12. I will tell everyone that I am a "full service" law firm.
  13. I will avoid potentially risky traps like social media and the Cloud.
  14. I will state on my website that:I will be my clients "trusted adviser";that I will understand my clients business and the industry they operate in;that I will treat all my clients equally; and that what will make me different is that I  am "innovative","progressive","client focussed",have a "collaborative culture" and as a firm we are "recognised thought leaders".

 

Thank goodness there are no 20th century law firms around now.

 

 

 

Cross selling aint collaboration

                              

                             

 

Some time ago Australian law firm business development advisor Sue-Ella Prodonivichwrote a very good article titled "5 reasons to stop cross selling".Essentially Sue-Ella pointed out why firms need to be very careful about how & why they cross sell their services and why it doesn't always work for either a law firm or a client.

In most traditional BigLaw firms,especially those that have many areas of practice,partners' KPI's usually have some mention of cross selling (usually down the list after- a long way after-personal billable hours,supervised billings,introduced billings,blah,blah).Conceptually it is pretty easy to see what's in it for those law firms to cross sell their services-principally of course additional revenue for the law firm.

"You use us for X services and you are happy with us so why not use us for Y services as well?" goes the pitch.One stop shopping for legal services all under the one roof.

How could a client resist? But of course they often do.

Many clients give it a go but as Sue-Ella explains in her post;

"When you force introductions upon people and the other part of your firm can’t provide the same level of service and expertise you do, your relationship can become strained.  And you’ll leave yourself vulnerable by association".

So sometimes partners don't even bother attempting to cross sell at all.

I remember several years ago a General Counsel explaining to me why they thought law firms pitches for using other services of their firm often fell short. He said something like this:

"The firms think that, simply because they do a good job for us in one area,by telling us or introducing us to other people in the firm in other areas, that will be enough to make us start using them in those areas.It's not.There has to be something in it for us.Sure if we were unhappy with our current providers in those areas we might listen or give them a go but if we are happy with our existing providers why would we change?"

Another GC told me that,for them, one of the benefits in using a firm for more than one area might be that the firm has more than the legal expertise they require-the firm might actually possess knowledge that they may not be able to get from other firms and sometimes "even from ourselves".

The GC said that this knowledge can be manifested in many forms,for instance,

"they know our systems, our processes,what we like, what we don't like,what is really important to us and what is not,what the politics of our place is, who makes the real decisions, where the dead bodies are buried.That knowledge is so valuable to us".

Regrettably however the GC went on to explain that often this knowledge was not possessed by the law firm per se but by one- or at best maybe two- individuals within the law firm and that it is rarely, if ever, communicated by one partner to another-even by a referrer partner to a referree partner.It is usually carried around in the head of those that have acquired it over time and not passed on.This GC,along with others who have since told similar stories, say that worse still, it is often the client that has to either point out to the referree partner that the firm already has this knowledge or provide it to them once again.To quote one GC "they even charged me for communicating that knowledge to them when they have had it all the time". 

While law firms rabbit on about cross selling, as we know there are often enormous inbuilt inhibitors to effective cross selling within many traditional firms.

Mostly it is because law firms,notwithstanding all the rhetoric, are not collaborative workplaces when it comes to the sharing of work and client knowledge.

I wrote about collaboration-or more correctly lack of collaboration- in law firms in 2013 in this post "Collaboration is key to future success in law firms" after reflecting on my own experiences and after hearing then Assistant Professor of Business Administration in the Organisational Behaviour Unit Harvard Business School, Heidi Gardner present her research on “Collaboration:A Challenging but Strategic Imperative for Today’s Law Firms” at Georgetown Law School earlier that year.

Prof Gardner's research at the time concluded that professional firms which have more people collaborating together,enjoy not only higher revenue & profit, they also experience higher employee and client satisfaction. Prof Gardner's research has been ongoing and she has written on this topic extensively, most notably in some recent Bloomberg posts the latest one headed "Harvard Study Lays Out Keys to Collaboration among Lawyers" which is well worth a read.

So even though there is plenty of empirical evidence to support the concept that the better the internal collaborative culture the better the firm and the more contented the client,there is enormous anecdotal evidence to suggest firms have a long,long way to go to get this right.I suggested in my 2013 post,and I still maintain,that firms that adhere to the traditional law firm business model of leveraging time x people x hourly rate are always going to struggle to really collaborate effectively. That is principally because that business model measures and rewards the wrong things. In short it measures & rewards the individual over the collective. It only serves to enforce the silo mentality that many law firm partnerships were built upon.

Clients are not silly.They know those firm partners who genuinely collaborate internally in their (the clients') best interest,and they are a wake up to those who try to engage in cross selling for their own ( the law firms') self interest.They know this primarily through partner behaviour.

Because cross selling aint collaboration. 

Some advice for customers of Oldlaw*

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Unlike machines no human being is fully productive and creative 24/7.

So if you are a customer of a law firm and for some reason you are silly enough to allow your law firm to bill you by time at least ensure that the lawyers working on your matter only work on your matter when they are at their most productive and creative best.

This will mean those lawyers are free to work on the firms other customers matters when they are less productive,abit tired,slow to get going,day dreaming,a little disorganised,unprepared,or just having a bad day.

 

*"Oldlaw": firms which business model leverages people x time x hourly rate.

If Steve Jobs had run a law firm 20 things he might have said*

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  1. "Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do."
  2. "Be a yardstick of quality. Some people aren't used to an environment where excellence is expected."
  3. "Innovation distinguishes between a leader and a follower."
  4. "Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations."
  5. "Technology is nothing. What's important is that you have a faith in people, that they're basically good and smart, and if you give them tools, they'll do wonderful things with them."
  6. "Being the richest man in the cemetery doesn't matter to me. Going to bed at night saying we've done something wonderful, that's what matters to me."
  7. "But innovation comes from people meeting up in the hallways or calling each other at 10:30 at night with a new idea".
  8. "My model for business is The Beatles. They were four guys who kept each other's kind of negative tendencies in check. They balanced each other, and the total was greater than the sum of the parts. That's how I see business: Great things in business are never done by one person, they're done by a team of people."
  9. "Things don’t have to change the world to be important."
  10. "That’s been one of my mantras — focus and simplicity. Simple can be harder than complex. You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.
  11. "You’ve baked a really lovely cake, but then you’ve used dog shit for frosting."
  12. "If you keep your eye on the profit, you’re going to skimp on the product. But if you focus on making really great products, then the profits will follow."
  13. "I’m convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance."
  14. "Deciding what not to do is as important as deciding what to do."
  15. "If you really look closely, most overnight successes took a long time."
  16. "Let’s go invent tomorrow instead of worrying about what happened yesterday."
  17. "Here’s to the crazy ones — the misfits, the rebels, the troublemakers, the round pegs in the square holes. The ones who see things differently — they’re not fond of rules. You can quote them, disagree with them, glorify or vilify them, but the only thing you can’t do is ignore them because they change things. They push the human race forward, and while some may see them as the crazy ones, we see genius, because the ones who are crazy enough to think that they can change the world, are the ones who do."
  18. "Stay hungry. Stay foolish."
  19. "Older people sit down and ask, 'What is it?' but the boy asks, 'What can I do with it?'."
  20. "Throughout my years in business, I discovered something. I would always ask why you do things. The answers that I would invariably get are: 'Oh, that's just the way things are done around here.' Nobody knows why they do what they do. Nobody thinks very deeply about things in business."
     

*Oh wait Steve Jobs actually did say these things.But of course he never ran a law firm and of course none of these could possible apply to a law firm because..........................................?(please feel free to complete this sentence)

 

Dumb & Dumber LLP:If Jim Carrey & Jeff Daniels ran a law firm 50 things they might say*

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  1. "I haven't met a billable hour I don't like yet".
  2. “Strategy eats culture for breakfast"
  3. “All clients are equal-so lets treat them all the same”
  4. "Lets recruit the brightest & most creative talent-and then make them account for every 6 minutes of their day"
  5. " Lets benchmark-so we can copy our competitors"
  6. "If we stand for everything everyone is a potential client"
  7. “Debtors should be treated like fine wine-they get better with age”
  8. "Lets discount our fees to get in as much work as we can."
  9. "Instead of talking to our clients lets subscribe to all the benchmarking reports out there”
  10. “ Let’s invest in IT to make things happen quicker- but let’s keep billing by time”
  11. "Lets tell our employees to keep their remuneration confidential-while we share it with our competitors"
  12. "Once we get profitable, we'll go to work on our positioning."
  13. "Yes we know everyone fudges the numbers in their timesheets, but it is okay because the lies cancel each other out."
  14. "We regularly offer AFA’s – just yesterday we discounted our partner rack rates 20% across the board when a client threatened to kick us off their panel."
  15. "Let's devote more than 10% of firm resources to tracking time and 0% to understanding the value we deliver?
  16. “Staff feedback says we need some values around around here-quick get hold of that external consultant we use and ask him to shoot over a list of values we can select from”.
  17. "Our clients demand hourly rates"
  18. "Everyone follows business plans-no one follows dreams".
  19. "Lets go with the most modern management structure-a partnership"
  20. "Lets develop a reputation for being the cheapest lawyers in town rather than "they are expensive but so so worth it"".
  21. "We have an annual strategic retreat where all partners contribute to setting the aims of the firm …. fortunately other than those 2 days a year we don’t need to do any of that planning stuff the consultants go on about."
  22. “We set our hourly rates but we let our clients set the payment terms”
  23. "Lets divide each day into billable & non billable 6 minute intervals to inspire our people".
  24. " Lets do something our clients will love.......lets retrospectively price everything".
  25. "Lets have the same hourly rates as our competitors-that will differentiate us".
  26. "We are going to be different....but only a tiny wee bit different".
  27. "To help inspire our lawyers, we will email their weekly chargeable hours to the entire firm every Friday afternoon at 4.45pm."
  28. "Bad lawyers can make matters drag out for several years … so we only hire good lawyers-they can make matters last even longer."
  29. "Lets pretend to be collaborative but put in measurements & rewards to actively discourage same".
  30. "We will give clients a fee estimate, exceed it without telling them, raise the invoice on the last day of the month and then delay sending it until after it is due for payment?"
  31. "The big 4 accounting firms will not have any impact in the legal industry – just look what happened last time they tried; they won’t have learnt anything."
  32. " Of course we love travelling to see clients – it means we can charge them time for travelling, while phoning other clients and billing for that at the same time."
  33. "We have implemented a comprehensive project management tool; the quality of our time recording has gone up by over 7%."
  34. "Innovation?! Our clients don't want us to be innovative".
  35. "We are going to concentrate on being the most efficient law firm around-just not the most effective".
  36. “ Lets go for brand integrity but forget about pricing integrity”.
  37. “I don't care what is on their timesheets,I just want them in on time”.
  38. "Lets innovate....now who do you know out there that is doing something innovative we can copy?"
  39. "We sell time!"
  40. "Only lawyers know how to manage a law firm".
  41. "We only recruit young people who think exactly like we do".
  42. "Lets say we are a full service law firm".
  43. "Of course we are going to give you feedback-once per year".
  44. "Lets track time because nothing else matters"
  45. " Lets put each partner in charge of their own pricing"
  46. "We are never going to use anything in the Cloud-its too risky.Pass me my mobile please".
  47. "Let’s develop innovative technology systems to track time spent as efficiently as possible, but not for any other purpose."
  48. "Wherever possible, we will send as many lawyers to a meeting to maximise our overall hourly rate."
  49. "Let’s micro manage talented people with time recording and then wonder why we have a depression problem and high turn over?"
  50. "Our firm values work-life balance – we require 0.25 chargeable hours less per day than most of our competitors."

 

 * with apologies to Jim & Jeff....even they wouldn't be so stupid to say most of these!

                        www.innovim.com.au

                      www.innovim.com.au

Why timesheets are damaging to your practice

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Lawyers Weekly published this Opinion piece on 15 April 2015.The original post can be read here.

Below is what I wrote. As usual I would be most pleased to receive your comments.

 

“The billable hour’s partner in crime, the timesheet, is holding back law firms.

The adverse effects of the billable hour on law firm culture, the quality of life of lawyers and their relationships with their clients have been well-documented in recent years. Even so, resistance to change is deeply entrenched and time-based retrospective billing remains the poison of choice for most law firms and their clients.

The movement away from the billable hour has been led by a growing number of innovative and courageous firms (incumbent and new) that have come to the realisation that time-based billing is a sub-optimal business model built on outdated philosophies. But in the main, most change has been prompted by clients seeking:

• lower fees

• predictability and certainty of fees

• pricing aligned with value rather than time spent

For an increasing number of firms and commentators and advisers to the legal profession, the debate has moved on from “do I continue to bill solely by time?” to “do I offer clients a range of billing and pricing options including time-based billing?”. This represents progress, but in my opinion it’s still the wrong question. While I strongly encourage and support firms offering a range of pricing options, none should include time-based pricing. All prices should be agreed upfront, even if that agreement allows for contingencies and unforeseen circumstances.

One discussion, however, that seems to create unwarranted fear and opposition from any number of quarters, is suggesting that firms should also burn their timesheets. After all, it follows, doesn’t it, that if you don’t keep timesheets you can’t possibly bill by time? As Chicago lawyer Pat Lamb, founding partner of Valorem Law Group, succinctly stated, one of the great benefits of not billing by time is that it “frees you from the tyranny of timesheets”.

The reasons often espoused for the retention of timesheets have been solidly debunked, both from a theoretical perspective and by the real-world experience of professional firms, yet the timesheet aficionados refuse to concede. So, let me state it once more, and unequivocally: if you want to truly move away from billing by time, you must not only ditch all time-based billing – you must also tear up your timesheets.

I understand the hourly billing model has been and, for many, continues to be financially successful, and that for generations of lawyers it has become part of their DNA. So of course it will (excuse the pun) take time, probably years, for most individual firms to make a successful transition to what is not just a different billing or pricing model, but a different business model.

I appreciate that even if owners of law firms get it, for many it will be totally impractical to dispense with their timesheets immediately. They will continue to retain them at least until they become more competent and confident with their new pricing offerings.

I also know that the larger the law firm, the harder it is to foster real change as there are more minds to shift, the risks appear greater, and they have invested a small fortune in their management systems in support of the “we sell time” philosophy.

I know, too, there are those so entrenched in their way of thinking that they, together with those with vested interests in retaining timesheets, are never going to be swayed.

Letting go of timesheets is not going to appeal to these individuals, but it does appeal to the increasing number of lawyers who genuinely have an open mind, are looking for a better way of practising their craft and want to be part of an early adopter movement. For those who understand the potential benefits of non-time-based pricing but are also wary of throwing the baby out with the bathwater, here are just a few reasons timesheets are bad for your practice:

1. timesheets keep firms mired in time

While some firms are making the transition to a timeless practice, they retain their timesheets like a security blanket. But most of the firms that  successfully kicked the hourly habit will tell you they regret that they didn’t kill off their timesheets sooner. They ultimately realised that as long as the firm retained timesheets, it was extremely difficult not to relate everything they did, every price they set, somehow back to time. This in turn often led them to charge lower fees than they might have in some cases, and to turn down profitable work in others.

2. timesheets send a mixed message to your lawyers and team

It’s demoralising at worst and confusing at best to tell the world your firm sells value while telling your professionals that their time matters so much that they need to track it in six-minute intervals.

3. timesheets discourage innovation

Can you point to even one really innovative organisation in the world that makes their people account for every six minutes of their day? I can’t. Recording time simply discourages the kind of creative thinking that creates real value.

The message from management is: “Grind it out like you always have because any innovation that would reduce the time it takes to achieve a result will just make it harder to fill your quota and reduce our revenue.” Not many people will go looking for new and better ways to do their work under a regime like that. In contrast, you only have to ask the firms that have ditched their timesheets and they will tell you the creativity unleashed when you go off the clock can be astounding.

4. timesheets tempt otherwise ethical lawyers to act unethically

It is unsurprising that timesheets foster a culture where lawyers sometimes face huge ethical dilemmas and anxiety over recording the time they really spent on something, or recording a time to meet their expected measurements and rewards.

5. Feeding the time machine is expensive

Think about how much you invest in your practice to feed the beast. Some data indicates between 7 and 12 per cent of a firm’s gross is spent supporting the time-recording system. I think that figure may be conservative. Even if those numbers are in the ballpark, you could, in theory, ditch your timesheets and give your whole firm a month’s vacation with no loss of profit. Or better still you could invest all of it in education, training, technology, business development and other initiatives that would make a real difference to your practice.

6. timesheets do not predict your costs

A timesheet is just the timekeeper’s best effort at recording the time spent on some activity. Even if one rigorously tabulates and analyses historical timekeeping data, this tells you very little, if anything, about how much time future matters might require. As opponents of flat fees love to point out, legal matters are very unpredictable – even with similar fact patterns, two cases or transactions may take wildly different paths.

7. timesheets do not reveal anything about what a legal practice needs for sustainable success

No amount of timesheet data can tell you the quality of your work or how the client regards your service. timesheets can’t tell you how to improve professionally. Most importantly, perhaps, for some – timesheets can’t tell you how much more a client might have been willing to pay.

8. Time spent recording time is wasted time

There is absolutely no economic or accounting justification for treating time as a cost. Salaries are a cost. Rent is a cost. Paperclips are a cost. Time is not a cost, it’s a constraint, but rarely a binding constraint. Defenders of the timesheet often claim to use them to measure costs, but in my 35 years in the legal profession I am yet to see or experience a law firm that truly uses timekeeping data to measure or project costs. They use them to bill, to punish or to reward.

9. timesheet-based costs are misleading and arbitrary

Dividing an arbitrary subset of your largely fixed costs by an arbitrary number of hours to be worked by an arbitrary sub-set of your people gives you a deceptively precise – but still arbitrary – number.

10. timesheets build silos and are a disincentive to collaboration

Firms that maintain timesheets encourage an “I, me, mine” culture. If I have to fill my timesheet, I’m going to be less likely to share work with a colleague. This leads to lawyers thinking about their “personal books of business” and the portability of their clients.

 

Despite all the deleterious effects discussed here, for firms that bill for time, timesheets remain a necessary evil. However, for the increasing number of law firms that truly understand the value of their services and their costs, timesheets are but a costly distraction that stands between them and their real potential.  ”

 

                      www.innovim.com.au

                    www.innovim.com.au

 

 

Burn Baby Burn*

 photo courtesy of Matthew Burgess  Viewlega  l

photo courtesy of Matthew Burgess Viewlegal

As I have written before the really smart time debate in the legal profession has moved from do I continue to bill solely by time (does any firm?) to do I offer a range of billing and pricing options including time based billing?

Unsurprisingly I say, unequivocally, no. 

There are a multitude of pricing options available to firms without firms needing to retain time based billing.It of course goes without saying that if you have any form of time based billing you need to keep timesheets, but if you genuinely want to move away from billing by the hour you must not only ditch all time based billing but also burn your timesheets. I elaborate on the reasons I say this in this Lawyers Weekly article "Why timesheets are damaging to your practice".

The reasons often given for retaining timesheets have been debunked over and over. See for example this post "Timesheets are terrible cost accountants"

More and more empirical evidence of the benefits of moving away from the insidious time recording culture the profession has leeched onto are out there for those that are genuinely curious or would like to see how they too could make the move.

Take for example this recent brilliant interview of former Matthew Burgess,co founder of ViewLegal, on his Journey from Time to Value .

Or this interview of one of Australia's most experienced and respected Legal Cost Lawyers my friend and business colleague Liz Harris from on "Why clients want to pay for results not time" talking about how you can practise law without timesheets.

Or these innovative law firms that have made the move away from time based billing and have dumped timesheets- which in Australia include the aforementioned ViewLegal, together with Moores, Marque LawyersBBVHive Legal to name a few.

These firms have realised that to move away completely from relying on the traditional leverage based model of time x people x hourly rate does not simply mean a different billing or pricing model but an entirely different mindset and business model.True that is what often makes it harder and more difficult to implement and get traction within,but also that is what makes it much,much more rewarding for them,their clients and I believe for future generations of our profession.

Moving away from time based billing is of course not without its challenges.See for example this very practical post by Jocelyn Honour headed "Value Pricing:Obstacles & Opportunities for Professional Firms" on her experience, observations and learnings in moving a firm towards value based pricing. 

Educating and teaching professionals to value price is not of itself difficult. What is difficult is the amount of unlearning professionals have to do. Regrettably some will never, or will never want to,unlearn. 

 * you can hum away to Ash if you want.

 

                     www.innovim.com.au

                   www.innovim.com.au

Firms Get Over It: The Pricing Debate Has Moved On

I know the death throes of time based billing in Oldlaw firms are significant with some clockroaches now finding even more ways to track their time via mobile apps & the like just in case they miss out on some billable time while driving, flying, eating and in those little intimate moments (clients must be deliriously happy with this as they have always felt their law firms have never been able to "capture" enough time!).

Yet the smart debate has really moved on from do I continue to only time base bill? to two much more salient questions:

  1. what range of billing/pricing options do we offer? and
  2. do we still keep recording time?

In this post I am going to focus on the first question but in another post I will (again) return to the proposition that timesheets are hugely detrimental to law firms for a number of reasons- including that they are useless for both the costing and pricing of work any law firm undertakes.

There are numerous ways law firms can and are pricing their services. US law firm pricer Patrick Johansen's very handy guide to Continuum Fee Arrangements reproduced below with kind permission, lists 16 different fee arrangements used by law firms in the US starting at one end with the one dimensional hourly rate model right through to value based fees:

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Patrick defines value based fees as:

"Value offers a true partnership between buyer and seller.The law firm understands what the client wants and what the client will pay for,and the client understands what the law firm can contribute and why its services are valuable.Value is the antithesis of Cost-Plus:there is no connection between the law firm's costs and its fee arrangements.Value aligns client and law firm objectives and promotes an open relationship."

I make no apologies for absolutely believing that the optimum pricing approach for any professional firm, for any situation, client and matter, is to adopt value based pricing principles.

In short that means we first need to clearly understand that the value of whatever we provide is determined solely by our clients perception of value-not ours. At best we can only try and influence our clients perception of value. We need to have a conversation with our clients around what they value, agree on both the scope of the work and the price of the work before the work is undertaken- not after.It is about focussing on outcomes and results-not activities and time spent. Even if you agree on a fixed fee, if that fee is solely calculated by projected time to be spent it is not in my view a value based fee-it is merely time billing in drag.

This chart by my colleagues Jay Shepherd and Michelle Golden which many of you would have seen before is a short hand way of understanding some of the differences between menu pricingfixed fees and true value based pricing:

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Many law firms continue to confuse fixed fees with value based fees and I find firms get themselves in such a knot and partners start sweating profusely whenever the term fixed fee is mentioned.It conjures up all sorts of nightmares for the partners, principally because they feel they are forced to "discount" their fees or worse still lose money.One of the reasons they feel that way of course is that those firms still calculate everything back to time under the mistaken and totally disproven belief that for professional firms time is money.It logically follows from such a mindset if our time is reduced or fixed so is our ability to make more money.

If firms are going to continue to calculate any fixed fees based on time of course they are never going to get it "right"-actual time is never ever going to equate exactly to anticipated time. As human beings we invariably underestimate the time we are going to spend on anything. This is why firms practicing under the time based billing model have so many problems providing accurate or even realistic estimation of their proposed fees to their clients (clients of law firms continually tell me that rarely does a final bill they get from their law firm get within cooee of the initial estimate) and therefore provide their estimates and even fixed fees with so many disclaimers.

Another reason why firms recoil from fixed fees if they possibly can, is that when they fix a fee many firms still continue to produce their work in exactly the same way as if their client was still paying them an open ended time based fee. The smarter firms however have focussed on re engineering the way they produce their work- or in economic parlance have reduced their own costs to serve- and at the same time have put more skills and emphasis into proper project management.Legal project management is about focussing on what you want to happen in the future whereas timesheets merely reflect on something (and one thing only-time) that happened in the past. The only "time" good legal project managers focus on is elapsed time or turnaround time and that too is the only time your clients should really ever care about.

I encourage firms to look at a range of pricing model options but only if those models use value based pricing principles. Not all fixed fees are value based and not all value based fees are fixed fees.Value based fees don't have to be a fixed fee from whoa to go, they can and do encompass a huge variety of fee arrangements which might include such models as retainers, event based, staged pricing, success/bonus fees, contingency fees (just not in Australia, at least at the moment, in litigation), holdbacks, etc.

What value based pricing does not include are any fees that are solely time based and cannot be agreed in advance, such as blended rates, capped rates, volume discounts, and the like.

Rates are NOT prices.

You might ask why shouldn't a firm, in addition to offering non time based fees also offer time based fees? After all aren't you limiting your potential client base, revenue and profitability-especially if a client insists on paying you by the hour- by limiting your pricing offerings?

My short answer.No.Properly explained and properly discussed the overwhelming majority of your clients would understand the benefits to them of agreeing prices up front-price certainty and predicability, no bill shock, for starters. That is how the vast majority of your clients deal with their customers-and it is what you do in just about everything you yourself purchase.

You will of course encounter the odd client who won't like your price but when are you better off knowing that-before or after you do the work? You might also experience the client who wont accept your fixed fee if you continue to relate that fee to time and have so many disclaimers attached it is not really a fixed fee at all.

But as those firms and those clients of firms who now use value based fees will attest, once both parties become more accustomed to discussing and understanding value from the clients perspective and work together to become more competent and confident in pricing, the benefits to both the law firm and their clients far outweigh any effort and courage required to make the change.You will make pricing mistakes-you do now-its just we can learn from any mistakes.

The other major problem in firms offering both time and non time based fees is that, by definition, if you still have time based fees you have to record your time and record it accurately.Invariably what that has meant to many firms practising this way is that, even with the best will in the world, when they attempt to offer non time based fees they usually struggle as they still default to time as their principal costing and billing tool.

When you stop relying on timesheets as your firms indicator of cost and as a prime internal measurement and reward tool, you better and more quickly understand that value is created outside your firm. As Matthew Burgess one of the founding directors of the innovative start up Viewlegal explains:

"With timesheets you think what's billable:without timesheets you think what's valuable"

For most firms though this requires a mindset and business model change-not simply a pricing or billing model change.

Therein lies the main obstacle.

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