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Law firm management

Will technology bring an end to the billable hour?

Nayeem Syed  Assistant General Counsel at Thomson Reuters

Nayeem Syed  Assistant General Counsel at Thomson Reuters

Law firms today face the challenge of clients spending less with them than before as a result of alternative service providers who are aggressively reentering liberalized markets using emerging technologies to disrupt the tasks typically done by lawyers.  For many law firms, it means fewer billable hours.

Technology has been used to displace lawyers from their profitable roles in areas such as documentation review, e-discovery, legal form drafting and patent applications.  An International Data Corporation report estimated e-discovery services to be $8.2 billion in 2015 and to reach $14.7 billion by 2019.  In terms of the next wave of disruption, there are already several dynamic firms growing fast which employ cognitive computing to offer entirely new types of legal analytics to empower lawyers. New technologies have also powered start-ups like Legal Zoom and Rocket Lawyer to very successfully offer mass-market legal solutions directly to the retail market.

In terms of the next wave of disruption, there are already several dynamic firms growing fast which employ cognitive computing to offer entirely new types of legal analytics to empower lawyers.

Lawyers can however learn from large accounting and consulting firms which have become adept at developing compelling technology-augmented hybrid offerings: focused on process-oriented work, applied at scale, with an alternative fee structure, leveraging technology to produce effective solutions that address the corporate manager’s evolving role as manager of their functional supply chain.

Automation and standardization are therefore both a threat and an opportunity, and therefore, it is useful for law firms to consider their traditional business model in order to provide technology-augmented solutions to GCs. The prize is uncovering what legal solutions could evolve to look like, and be priced at.

Traditional charging models

The main professional services firm charging models broadly consist of billable-hours, fixed fees, and value based pricing.  The traditional billable-hours model still dominates, but is the source of much client frustration as it rewards length of time spent and does not incentivize the focus on results. Billing pressures can drive the wrong behaviors, either intentional (casual dishonesty) or unintentional (inefficiency). It also fundamentally fails to reward efficient or talented advisors to find great outcomes in less time. However, it remains the dominant charging model for its simplicity but also, the lack of well marketed alternatives.

Fixed fees are typically outcome based and so, not dissimilar across different types of professional services providers who are offering clients standardized deliverables. It reassures CFOs for planning purposes and rewards efficiency and avoids time spent defending invoices to clients

However, for professional services firms, value based models are still challenging.  Larger firms typically require stable, smooth and predictable earnings. Smaller firms with more individual partner autonomy seem more able to take such risks and in this way, be more entrepreneurial.

Lex Freemium

Freemium is the very effective online pricing strategy that offers both free and premium services, enticing clients to try services.  Indeed, increasingly, they are used to good effect by larger accounting and consulting firms with metrics, parameters and controls which enable this model to be used systematically and effectively across their organizations.

Whilst this approach is practiced somewhat now in law firms, it is on an ad hoc basis, however, and is inconsistent and depends on the seniority of the fee earner and the freedom they have in relation to their colleagues.

When considering where to experiment with alternative models, law firms should consider which types of work it currently does that are most price-sensitive.

When considering where to experiment with alternative models, law firms should consider which types of work it currently does that are most price-sensitive.  To maximize what you can charge, clients must really feel the added value you bring to them. Some law firms are innovating with packaged online legal know-how and compliance tool-kits to reward client loyalty. With low marginal cost, it can serve as a pathway to continued lucrative paid work. This type of thinking will help uncover new ways a firm can provide clients value, leveraging emerging technologies and applying it to its underutilized assets.

Outcome focus

The latent power of software has helped others from the limitations of the billable model, so they can with more confidence, explore offering hybrid charging structures. If adopted by law firms, it will help them better align with clients and achieve optimum wealth creating outcomes which in turn will win more chargeable work.

They must deconstruct their work processes, reexamine the underlying value they provide clients, leverage the technology enablers that are emerging, be able to reorder their cost structure and use alternative methods to reach (a) higher quality and higher spending clients, or (b) many more clients who pay little or nothing – directly.

Law firms should obsessively consider their offering from the perspective of their target GC clients, and work out if what they are offering and how, is best serving GCs in terms of value for money.

Law firms should more obsessively consider whether what they are offering best serves GCs in terms of value for money.   Focusing on what outcomes GCs will pay for will clear the fog and help them make the right choices in terms of what technologies and charging models might mean the GC will choose them over the alternatives. 

And, the motivation is simply this: they get the rare chance to – in a world of shrinking budgets – to develop new ways to charge for their services and to develop new things to charge for.

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