Will we have to call Superman to kill the billable hour? (photo credit)

The Billable Hour: BigLaw’s Headless Chicken

Part II: BigLaw’s ongoing identity crisis

In Part I of this look at the billable hour, I told readers about Mike the Headless Chicken — a rooster in 1940s Colorado who lived 18 months with no head after his farmer attempted to execute him for dinner but failed to remove his brain stem.

The billable hour is BigLaw’s headless chicken — we keep swinging the ax, yet the billable hour plods on, unfazed. The current state of service delivery in the legal profession is similarly ineffective.

Much has been written about the variables that contribute to this systemic inefficiency: failure to understand the problem to be solved, inefficiency in work processes, misaligned and sometimes competing incentives across the supply chain, gaps in communication and collaboration across teams and organizations, and many others.

The key problem is that we have not created a way to measure — and more importantly, discuss — the value of legal services. Absent that foundation, buyers and sellers of legal services default to what they know: the billable hour.

Of course, all things being equal, time spent on tasks is a material factor. For that reason, time as a unit of measurement remains a relevant concept in assessing how work is to be performed. It is the conflation of measurement with value that causes the problem.

If we are truly committed to optimizing any particular legal process, we must begin by decomposing the process and understanding each component part from two perspectives: the provider’s costs associated with each step, weighed against the value added to the buyer by each step. For service providers to make well-grounded, sustainable decisions that will drive greater efficiency, the end-goal must be to maximize buyer value while managing provider costs. In other words, we need to consider the economics for both parties in the value exchange.

It should go without saying that the objective must be to remove, rather than add, time from the process. The underlying problem, however, is that the profession treats time as a unit of value, and so the analytical construct becomes distorted — especially because time remains the most widely accepted, and the most accessible, unit of measurement in the industry. 

Dilbert by Scott Adams, 15 August 2005

For a profession that is paid by the hour, removing time equates to removing value. That is the reality of the provider perspective and it is the mindset that has been ingrained for multiple generations of lawyers, both in-house and in private practice.

Particularly when taken with lawyers’ inherent worldview that every issue has infinite capacity for additional research and debate, it is a powerful force that works against the drive for efficiency. Driving efficiency under this mindset is not impossible, of course, but it is far more difficult.

Law firms must decide what business they are in — and act accordingly

Despite this, most lawyers in private practice would like to believe they are in the business of selling expertise. Whatever they want to believe, as long as they continue to live by the hour, they remain in the business of selling their time — with the billable hour as the predominant pricing tool.

On the other hand, most clients in the market for legal services are actually looking for service providers who can translate legal expertise into solutions for their business problems — effectively, reliably, and efficiently.

Thus, buyer and seller continue to talk past each other. We lack a way to measure value being delivered to the purchaser of legal services. That lack of measurement tool means that we lack a shared language to think and talk meaningfully about how value is created for each party in the exchange. Absent this shared language, we will continue to resort to the billable hour as a crude proxy, with discounts as the sole, and rather blunt, instrument of calibration.

A significant part of the problem is the reality that, for the client, value hinges on a number of factors: the criticality of the problem at hand; the various impacts (strategic, operational, financial) of this problem and its solution on the overall health of the business; how much the client is willing to pay for various outcomes; and how much of a premium the client is willing to pay for a better service experience. Whether or not law firms can deliver the required outcomes at the proffered price is also a factor, but amidst the continuing proliferation of new entrants to the marketplace, it is quickly diminishing in importance.

Attaching a dollar amount to these factors requires a fair amount of candid, meaningful dialogue. In turn, that dialogue demands a whole new vernacular and syntax to describe and measure dimensions other than time: the client’s strategic objectives and desired outcomes, the provider firm’s commitments to deliver defined service levels, outputs, and service experiences, and how the client and firm will distribute risks and rewards at various points in that value exchange.

Whether we like it or not, the reality is that different metrics are needed to create this new language of value, and the industry needs to continue to work toward greater discipline around data and measurement. Only by creating different measurement tools can we create a basis for the right type of dialogue between buyer and seller to create different pricing structures.

In the next essay, we will discuss some of the underlying precepts behind a different way of measuring value. For now, however, it remains a nascent effort. The headless chicken still lives.

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