Coca-Cola recently announced it was going to a value billing system with its professional services advertising agencies. The alternative fee topic is obviously spreading to many professional services industries, beyond legal and accounting. Doug Cornelius picked this story up from the Economist.
I attended a webinar on this topic that came to my attention via my connection with Ron Baker. His book was prominently displayed in the program and he was given credit (as it is due) for being a thought-leader on alternative fees. The Coca-Cola fee program is straight forward, going to fixed fees allowing for performance bonuses. Coca-Cola directly stated it wanted to reward value instead of activity.
The Coca-Cola speaker stated point-blank – This program is not about reducing costs. It’s about increasing value. I think this lesson would be well-taken by various in-house counsel looking to alternative fees as a magic bullet for controlling costs. As I have noted previously, clients and law firms will need to first understand the relationship between value and cost before they can truly impact cost. Otherwise they risk driving value down along with their costs. Coca-Cola obviously understands this.
I have to chide Ron here a little bit (and know I will pay the price). It appears Coca-Cola (aka the client/buyer) is changing the pricing model. My past dialogues with Ron have touched on this issue. We have generally agreed that sellers influence pricing models and buyers influence price. Coca-Cola apparently doesn’t agree with us – defining their own pricing model. That being said, their marketing department is obviously very innovative. With some minor exceptions, I don’t see many in-house legal departments moving quite so boldly in this direction.
More movement on the alternative fee front is a good thing – even outside the legal arena. I’ll watch with interest for the experience and success of the Coca-Cola fee project.