This is the second in a three-part blog series on last month’s conference The Future is Now: Legal Services 2.017 that took place in Chicago. A dominant theme that emerged from many of the speakers’ TED-like talks was the evolving law firm experience and its untapped value for the client and for the attorney.
Untapped Value Is Boxed Out of the Billable Hour Model
It’s not a new concept, but speakers came at the deficiencies of the billable hour law firm model from various new perspectives. William Henderson, Professor of Law at Indiana Maurer School of Law, challenged the paradigm, arguing that like the telecom industry before, law firms suffer from “the Last Mile Problem.”
Explaining that 3 out of every 4 dollars spent on legal services comes from corporations, Prof. Henderson focused his talk on the relationship between lawyers and corporate clients. The Last Mile Problem in delivering value, he argued, is not technological. “We have the technology, process, data to solve the legal profession’s cost problem, but we lack a business model to actually deliver these things.” The problem is that our current business models fail to reward higher lawyer productivity which stymies growth in the industry.
Projecting slides showing the rise in regulatory complexity over the years, Prof. Henderson demonstrated that the complexity of legal problems that corporate clients need lawyers to solve is increasing exponentially. Therefore, the billable hour model increases the cost of legal services more than the corporate legal department’s budget increases.
Given the lack of productivity increases in the legal profession, the rising costs of legal services fuel a poisoning environment between law firms and clients. The firm’s inability to invest in productivity forces corporations to drive their costs down through rate cuts or in-sourcing legal work. In turn, firms are not incentivized to increase productivity because it decreases revenue. He argued that lawyers should position themselves as solving more of their clients’ complexity per hour, thereby benefiting both the client and the firm.
One way to accomplish this goal was addressed specifically by Nicole Auerbach, founding partner of Valorem Law: use alternative fee arrangements (AFAs). (Much of her message was that the billable hour punishes lawyers who have obligations outside their work, disproportionately women and minorities, which will be discussed in the next post.) Valorem Law was started in 2008 with a defining principle to provide complex litigation priced to clients in creative alternatives to the billable hour. Nicole argued that to remain competitive, we have to figure out how we value intangibles like quality over quantity and results over hours. She endorses AFAs, which focus on the end result and are designed to help people be more efficient, use technology, lower costs, and increase profits.
Data Is The Key To Unlock Untapped Value
Related to the weakness of the billable hour model, Jack Newton, CEO & Founder of Clio, argued that lawyers make decisions without the benefit of data. According to Jack, “being data-driven is about leveraging data insights to make better business decisions.” As Jack pointed out, the problem with current data is that it mostly originates from self-reported, out-of-date surveys with small sample sizes.
In its Legal Trends Report, Clio anonymized and aggregated data from thousands of lawyers to provide metrics that can help lawyers make better business decisions. Jack showed how the billable hour rates varied across the country, how they related to purchasing power, or the Consumer Price Index, and how they varied by practice area.
One of the most fascinating metrics was the breakdown of the lawyer’s day from a revenue perspective. Using the image of a funnel, Jack put up a slide showing that, assuming an 8-hour workday (not necessarily accurate for most, but a good starting point for a maximum), lawyers really are not billing or collecting the income they thought they were.
On an 8-hour work day, the utilization rate (how many hours were billable) was only about 2 hours, the realization rate (how many hours were actually billed) was 1.6 hours, and the collection rate (how many hours of revenue actually received) was 1. 4 hours.
Jack called this the devastating funnel. Based on real data and assuming an 8-hour workday, lawyers have a utilization rate of only about 2 hours. So, the question is: What are lawyers spending the other 6 hours per day doing? Further, how can they be more efficient so that more of their efforts can be billed and collected? His message was that lawyers need to collect and analyze data about their own practices to help transfer more value to clients while making a fair living at their craft.
Using Technology and Process Can Help Lawyers Provide Value
Darth Vaughn, a partner at Haight Brown & Bonesteel, as well as a principal with Procertas, a technology assessment and training company, highlighted the importance of technology proficiency. It is used in lawyers’ most basic tasks from communicating with clients, opposing counsel, and judges to more advanced tasks like cross-referencing in Word. Attending law school after a business consulting career, Darth recalled his surprise about how far behind the legal profession was as compared to the consulting world. Lawyers can prove their value to clients by gaining tech proficiency and efficiency.
Darth argued that lawyers need to recognize that technology “is not magic” and is learned over time. (He also challenged the assumption that younger lawyers are better at tech—a concept addressed in my next post.) Darth criticized the current CLE model based on time, asserting that time is a poor substitute for learning. Noting that “we don’t know what we don’t know,” Darth proposed competence-based education and learning as the solution to unlocking untapped value. A competence-based approach identifies what users don’t know and teaches them the applicable skills.
Some of the participants in the town hall meeting session disputed the importance of technology. For example, a participant commented that using a Dictaphone as he did when he started practicing decades earlier was a good approach. Surprisingly, both Darth and Jack Newton agreed—as long as a person wasn’t hired to transcribe the tapes. Creating documents through voice recognition can be efficient and serve clients well.
Related to other speakers’ exhortations that lawyers need to better use both technology and data, Josh Kubicki, Chief Strategy Officer at Seyfarth Shaw, argued that lawyers need to understand and design better processes for serving clients. Designing an experience for the client will unlock that elusive client value.
Josh provided the metaphor of a lawyer and a Starbucks barista: Each has its own complexity and each solves a problem. Starbucks capitalized on the global shift to the experience economy, and their success shows how designing an experience for the client can be a winning formula.
So, how do we deliver legal services like Starbucks provides its coffee?
To start, firms must blueprint their business. The service blueprint documents everything that goes on internally, everything that makes up what the customer experiences. Next, firms must create a journey map that captures each customer’s interaction with the firm from their perspective. Combining the two maps provides invaluable insight into your business and how your client interacts with you.
Once we understand how our business interacts with the client, then we can begin to design an experience tailored towards them. We can see where there is friction, where there is inefficiency, and how we can sell innovation, without sacrificing revenue, to the client.
During the town hall meeting discussion, Josh noted that much of this project management expertise may come from those who are not practicing lawyers. Lawyers’ propensity to divide the world into lawyers and non-lawyers, and listen only to the lawyers’ perspectives, can hamper progress and undermine the lawyers’ ability to provide better client value.
A firm’s goal should be to improve satisfaction, remove friction, and fill unmet needs. By orienting ourselves towards the client’s point of view, we can begin to design, capture, and deliver the enigmatic value that will characterize legal service providers that survive in the future.
The Commission’s legal intern from Northwestern Pritzker School of Law, Tommy Heiser, contributed to this post.