In part one and part two we looked at how Procurement has become involved in purchasing legal services, the challenges this presents and then an alternative approach to how it might be done more effectively.

Maintaining Alignment

To demonstrate this misalignment, consider our acquisition matter from Part 1. A client, perhaps overly concerned about risk on a deal, makes continued and on-going due diligence requests. With a fee cap in place, the client has little concern over the cost of expanded diligence, so why not be safe and make the expanded requests? These types of requests can unnecessarily drive up the cost of the service and even complicate the negotiation phase, as the acquiring party is now more suspect of the purchaser and will push harder on certain issues. The client, inadvertently, is creating an unhealthy relationship with its outside counsel. The goals and incentives for each side are misaligned. So although the client may come out reasonable well in this specific example, the long-term relationship will suffer.

I submit that clients will benefit from healthy long-term relationships with outside counsel. When outside counsel is truly a trusted adviser, clients receive better results. And by making cost savings a combine goal, meeting budgets will be an integral part of these successful results.

Does this means Procurement should be locked out of the process? Definitely not. However, I think they will bring the highest value to the process by serving in an advice and counsel role to GCs. GCs are experts in the law and hiring law firms. Procurement brings expertise for qualifying and quantifying savings. So it is best to keep the GC in their role, allowing them to select the right outside counsel for a given engagement. If a company allows cost to become the driving factor in selecting law firms, then companies will succeed at lowering cost, but likely at the cost of trusted relationships and getting the right level of service.

To highlight this possibility, consider again our acquisition example. First, Procurement will not be involved in the management of the matter and will have no knowledge of the problems that occurred. And likely, at the end-of-matter review, Procurement will conclude the outcome a success since the acquisition was completed and the budget was met.

Procurement, by design, works to neutralize relationship in the selection process. In a formal RFP process driven by Procurement, all informal communications are cut off. In order to neutralize relationships and level the bidding field, all communications go through pre-defined, formal channels and are shared with the entire group of bidders. Although this process is fair and drives prices down, per its intent, it also neutralizes what should be a trusting relationship between lawyer and client. In my experience, the most successful fee deals, both in terms of legal outcomes and meeting cost savings goals, come about due to a trusting relationship.

Address the Challenge

The moral of this story for GCs is essentially the same that is being told to law firm partners: The world has changed and now so must you. Partners and GCs are both far better served when they face the challenges of change. Sitting back and waiting to see how things will play out means you are letting others take over what should be your role and your business. Recently I heard a consultant suggest that in the future if things continue down this procurement path, GCs will no longer be part of the executive suite in a company. Instead, they may answer to the CFO or another executive.

In an ideal world, Procurement would act … ideally. But from what I am seeing in the market, this ideal world is some ways off. Instead, GCs may be bending to the will and drive of Procurement out of frustration and necessity. Are there some legal services that can be purchased on the basis of price? Yes. However, I would argue that legal services are at their highest value when they serve the strategic goals of a company. Savvy GCs will work hard and take on new challenges in order to maintain this level of value for their clients. Otherwise, as my old friend and mentor used to say, “we will be left with law firms standing in line with the toilet paper sales people, waiting to bid on the next RFP.”

Partnership, Partnership, Partnership

In my opinion, the keys to successful fee deals are trust and communication. These two things come about when lawyer and client sit down and define goals in a partnering approach. In my experience, most lawyers and firms really want to help clients succeed. Unfortunately as the market has evolved, clients and their lawyers have not been adapting well. Conversations about rates and fees have always been something to avoid. Now they need to be central to the conversation and to the success of the partnership between client and lawyer. Procurement can be an asset; however, I suggest GCs will be better served by driving this process. In turn the GC’s client’s best interest will be served.

Lexis put out this video from the AALL Boston conference (with many familiar faces you may recognize.) In a post on their “This is real law” site, they talk about the perceptions of law librarians (think Forbes “worst Master’s Degree for Jobs), and the new roles that law librarians are taking on. Many of the same ideas we hammer away at here on 3 Geeks, such as, Librarians without Libraries, Librarians as Technology Drivers, Librarians as Researchers, Not Searchers, and many more.

Take a look at the video and listen, not only to the clever snippets of quotes from these law librarians, but also notice the theme of moving away from traditional library services, whether that is “brick and mortar” libraries, or “I’ll pull that book/case for you” librarians. There is a lot of potential out there for proactive law librarians that are willing to take on the risk of breaking tradition and moving into areas that make us more valuable to those that we serve.

Also: I know a lot of these folks (like Estes, Trotta and Sellers), but there are a few that I am not familiar with… I know, I know… I should know them all!! So, if you recognize these commenters, could you put their names and a bit of their quote in the comments so everyone can put a name and face to the quotes? Thanks!! – Greg

NOTE: Micheal Saint-Onge from Lexis was able to get me a list of names for the librarians in the video. Thanks Mike!!

Librarians in the video:
Name
Firm/Organization
Title
Jean-Paul Vivian
Nassau County Supreme Court Law Library
Principal Law Librarian
Mark W. Podvia
Dickinson School of Law Library of the Pennsylvania State
University
Assistant Law Librarian and Archivist
Andrew J. Tig Wartluft, Esq.
Thomas M. Cooley Law
School
Reference Librarian
Mark E. Estes
Bernard E. Witkin Alameda
County Law Library
Law Library Director
Christine Sellers
Nelson Mullins Riley & Scarborough,
L.L.P.
Research Specialist
Daniel B. Cordova
Colorado Supreme Court Library
Supreme Court Law Librarian
Emily R. Florio
Fish & Richardson P.C.
Manager of Libraries
Kyle K. Courtney, Esq.
Harvard Law School Library
Faculty Research and Scholarship
Yesenia  P. Santiago
MetLife and Pace
University School
of Law Library
Reference
Law Librarian
Thomas Sneed
Emory University School of Law
Associate law librarian for research and electronic services
Dawn Smith
Loyola Law School
– Los Angeles
Acquisitions/Serials Librarian
Joan Taulbee
Hodgson Russ LLP
Manager of Library and Information Services
Victoria K. Trotta
Arizona State University Ross-Blakley Law Library
Associate Dean for Information Technology and the Ross-Blakley
Law Library

In Part 1 of this series, we looked at the recent history and current role of Procurement in the purchase of legal services. I suggested that Procurement is struggling in this new role and there may be a better approach. In Part 2, I suggest that approach. Again -comments are encouraged.

An Alternative 

My counsel to in-house counsel when it comes to working with Procurement is Be Proactive. I have an old saying, “The guild was broken in the General Counsel’s (GCs’) office.” Which is to say that in 2008 when the CEO came in for the annual ‘save money’ talk, s/he didn’t take “I Can’t” for an answer. Instead, the CEO introduced Procurement to the GC and let them know they were there to help. What this demonstrates is that GCs have been waiting too long to get in the cost savings game. Waiting means someone else is going to come in and address that need for you: Procurement in this case.

In what I would consider to be a best case scenario – Procurement serves as an adviser to the legal department. In this scenario Legal must take a very proactive role in cost savings. This means directly confronting the issue with outside counsel and working in partnership with them to achieve this goal. There are numerous examples of GCs who have taken on this challenge and succeeded. One often quoted example (for good reason) is Jeff Carr at FMC Technologies. Jeff’s company has grown dramatically in the past five years, while his total legal spend has gone down. He did that by aggressively taking on a cost savings role.

Recently I moderated a panel with another GC who is taking on this challenge. He made a very good point about holding Procurement at bay. He commented that Procurement is very comfortable about achieving savings, but when it comes to living with the result of that effort, the legal department is left holding the bag. Legal not only has to deal with securing legal services, they also have to manage the services over time. This GC sees tremendous value in embracing a cost savings role so that his client (a.k.a. the company) will receive the right level of service as the best possible price.

Taking this thinking to the next level, I suggest a GC set savings targets and refocus the conversation with outside counsel on that goal. Merely saying you want to “save money” and “realize efficiencies” as requested in numerous RFPs is not enough. Instead, pick a category of work and set a savings goal for the year. For arguments sake, let’s say this is 10%. Then the GC can sit down with its trusted, outside firms and ask them how they can help meet that goal. This would lead to a conversation about scope and a meaningful dialog on how costs can be reduced, the nature of desired efficiencies and most importantly, how the GC and the firms can meet this goal together.

I believe a partnership towards a cost goal will be far more productive than a one-sided request. On numerous occasions I have seen engagements go over budget based on the client’s actions instead of the law firm’s. Admittedly, the firms do need to take serious steps towards reducing costs at the fee level, but that can be a bigger challenge when the client is not aligned with that goal.

Part 3 of this series will look at the value of being proactive and working to ensure alignment of interests between client and law firms.

As part of a publication on the growing role of Procurement in the purchasing of legal services, I was asked to give a law firm point of view. Beyond the law firm view, I shared my own view and give advice as to how I would approach Procurement if I were a General Counsel (GC). For brevity’s sake, I have broken my article down in to three parts. I appreciate that my view may not be universally held. As a result – comments are encouraged.
A Counterpoint on Procurement

Much has been written and discussed about the rise of Procurement’s role in the selection of legal service providers. The focus of this dialog has been on how Procurement can help a legal department in making more informed purchasing decision to drive down costs and how Procurement is here to stay as part of this process.

Offered here is another point of view on this subject. As a seasoned pricing director for a large firm, I have had extensive involvement with Procurement and purchasing departments. Having watched the evolution of this effort, I hope to bring some insights and points of discussion that bring value to the dialog.

In the Beginning …

Early experiences with Procurement were not favorable. In one instance, I reviewed a large spreadsheet showing the number of hours purchased by a company by time keeper type (partner associate, etc.), by practice type (labor, securities, etc.) and by jurisdiction. This example was no small deal either. Some categories had hundreds of hours, obviously representing a significant legal spend. The basic RFP request was that law firms should review the spreadsheet and then submit their bid for next year’s work. Firms were supposed to include a spreadsheet with their hour and rate bid numbers input in to each cell of the spreadsheet.

These RFP efforts have evolved since then. Now the most typical scenario is one where a brief / general scope is provided. An example would be for an acquisition of a certain value along with the statement that due diligence is included and up to four rounds of negotiation. Some of these requests will include a deadline, or closing date in this example. Then a fee cap with discounted rates might be suggested as the fee type. Although not all of the Procurement driven RFPs are exactly like this, I would suggest this is a reasonable, representative example.

On closer inspection, the scope is only moderately useful since it does not include the more meaningful information about the intention and goals of the client. Is this a strategic acquisition? Is the acquiring entity one that should be trusted or not? Are their known tax concerns? Answers to question like these will give the bidding firm the type of information that drives a quality response. In addition, as much as a client will say they want their firms to be healthy and profitable, fee caps with discounts are not the best recipe for that. In these situations, the client generally limits the list of submitting firms to those they deem ‘competent’ so the bid processes focuses primarily on price.

Procurement’s Role

These examples represent the traditional Procurement methodology. Procurement’s primary role within a company is driving costs down while holding quality at an acceptable level. For many purchases this means unitizing the product or service; then securing bids from vendors on a per unit basis to push vendors to compete on price. The problem raised in the example above is that the best known unit for legal services is hours, so the result is forcing firms to compete on hourly rates to the exclusion of other factors.

Procurement’s role with Legal continues to evolve; however, for the most part I am seeing similar problems arise across the board when Procurement takes over the process for bidding on legal work. Of course there are some sterling exceptions. But at this point, these are truly exceptions.

This is not to say Procurement will not eventually figure out the best fit in working with a legal department to secure legal services. For legal departments working with Procurement, I hope this is the case.

Part 2 in this series provides an alternative approach to involving Procurement.

In response to Greg’s post, A Chicken…, I thought I would expand on what caused me to goad him into thinking more creatively about the library and its structure. The other day I was reading an article about defining value in law firm billing, which referenced several disruptive entrants to the legal market. I was only familiar with one of the names, so I jotted them down for further review. Here is the list:

Except for Axiom, these are UK businesses or firms that have become extremely creative about how they provide legal services to their clients. (Side note: I know that Legal Services Act of 2007 affects the creation of these entities, but that doesn’t mean that it won’t eventually be more prevalent here in the US). I was especially impressed with LOD. This is a separate business entity of the law firm Berwin Leighton Paisner that was created with a completely different business model. The firm listened to the concerns of their clients and decided to create a solution, which has won them numerous awards as innovators. I would encourage you to look at their site. Bottom line, all of these businesses are being extremely creative about the way they think and provide solutions to their clients. They are way ahead of the curve that is certainly coming.

Cue Greg and his post about Embedded Librarians. It really got me thinking about what the firms mentioned above are doing and how they have taken their models apart and rebuilt them. They didn’t try to force their clients to continue using the traditional law firm models, instead they developed entirely new solutions. Why couldn’t we do the same thing?  If you started from scratch and built an information services department at a firm, what would it look like? Would it have the same basic structure we have today (i.e. reference, technical services and management) or would it look totally different?
As an example, I mentioned in my comments to Greg, why should the research professionals even be a part of the library organization? Why shouldn’t they be a members of the practice groups they serve, just like a specialized paralegal? Basically, if you can’t beat them, join them.

I would echo what John Digilio asked in his comment to the Chicken post…”why sit back and accept what tomorrow simply hands you?”

Several months ago I was asked by a partner to review the privacy policies and terms of service for a number of consumer cloud storage providers and to rank them according to how well they met his requirements based on firm policies, ABA missives, and a handful of other relevant opinions about client confidentiality and the cloud.  Long story short, they all failed miserably.  None of them came close to meeting the “requirements”.  

The partner was hoping to be able to tell his fellow attorneys that the firm doesn’t approve of consumer cloud storage for client related information, however, if you are going to use a consumer solution for “personal information” we recommend provider X.  My pessimistic report made even that a difficult statement.  Still hoping to salvage something from this conversation he asked a follow-up question. 

“Do any of these services provide anything close to the level of security we have in email?”

Had I sipped my coffee a second earlier I surely would have showered my office with stale joe.

“Excuse me”, I said, “Could you ask that again?”

“Attorneys send client confidential information all the time via email, so do any of these services come close to meeting the standards for email security?”

That’s what I thought he meant.  I broke the news to him slowly, explaining it this way. “I wouldn’t put anything in consumer cloud storage that I wouldn’t leave in a file folder on the front seat of my locked car.  But, I wouldn’t put anything in an email that I wouldn’t write on the back of a postcard and hand to a stranger on the street to mail for me.  The least secure of these consumer cloud storage solutions is many, many times more secure than a standard unencrypted email.  In fact, some of them have much better security protocols than your average law firm.”

The partner was flummoxed.  “Then what’s the big deal about this cloud thing?”

I was reminded of this incident when I attended the ILTA conference a couple of weeks ago.  In the vendor hall I saw a lot of vendors pushing their cloud-based SaaS solutions and a lot of firms saying, “Sorry, we have to host all of our own data.”  Typically the vendor went on to explain the value of allowing them to host the data. The product is constantly monitored, backed up, and securely encrypted in transit and at rest.  The product and mobile apps are updated multiple times a day. They simply can’t provide such a high level of service if you insist on hosting the product behind your firewall.  

These conversations went back and forth for a long while.  I never once heard a cloud vendor acquiesce and say, “Well, OK. We’ll let you host it yourself.”   Chances are good that if you host their service, you will have a less than ideal experience.  And if you have a less than ideal experience, they will have to spend a lot of time and money to make you happy, which will eat into their profits.  They would rather not have you as a customer at all, than to have you be a less-than-completely-satisfied customer.  It seems some vendors have learned a lesson that many law firm’s have not: not all revenue is profitable. 
Taken together I think these incidents are representative of a larger paradigm shift. Traditional IT services, even the big traditional Legal software vendors, are moving to the cloud.  Attorneys will eventually figure out how to work with the cloud and still meet their ethical obligations, or they will just get used to the risks and ignore them like they have with email in the last 20 years.  The ABA will eventually make some coherent and unambiguous statements about the acceptable use of cloud services. And all of these will come together at the same time that firms begin to realize the economic benefits of not supporting an entire service infrastructure in-house.

Once that happens law firms will look back on all of the sturm und drang surrounding the Cloud, Software as a Service, and the Consumerization of IT, and they’ll wonder what all the fuss was about.  They’ll probably also wonder what all those nice people who used to run their network are doing now.

Image [cc] Magic Trax

[Recently I was asked by Bridgeway to write a section for an AFA Handbook for Clients. My section is meant to give clients a look in to how law firms are approaching AFAs and give clients some tips on how they might better partner with their outside counsel on this subject. In my usual fashion, it’s too long, so the handbook will have a shortened version. Since I spent the time writing it, I thought I would share the full version here. Enjoy.]

The Law Firm Side of AFAs

Many clients are exploring Alternative Fee Arrangements (AFAs) as a means for controlling their legal spend. AFAs do present many opportunities for attaining this goal. However, clients will find that their best chance of meeting this goal is in partnership with their outside counsel. This approach makes the goal a shared one and allows the law firm to focus the types of AFAs and its service directly towards that goal.

In pursuing healthy fee partnerships with their outside counsel, clients will benefit from a deeper understanding of how law firms are approaching AFAs. What follows is a brief description of the internal workings of how a firm might be responding to requests for AFAs. As part of this description, also provided are ideas for how each step in the process can be improved with better levels of trust and communication

The Request

Currently most law firm AFAs are generated at client requests. A partner receives a communication from a client about a potential matter. In addition to the legal issues, the client will request a quote on rates along with a note about being open to alternative fees. Sometimes the request is more direct, suggesting that the law firm “be creative in proposing some sort of AFA.”

This is a key point in time when a partnership between client and outside counsel should be established. Law firms can be creative and propose all sorts of fee options. However, for a fee option to be successful it needs to be crafted with a client’s specific fee concerns in mind. As a client, your fee drivers will change from matter to matter, for each type of legal practice need, and maybe even over time. Sometimes risk sharing will be the right approach. Other times monthly predictability will be best suited. The main point here is that to get the best suited fee type, you should meet with your law firms and have an open conversation about those needs. Without that information, your outside counsel is making a wild guess as to how best to help you meet your fee goals.

The Fee

Once a firm has an understanding of your fee needs, they can prepare a specific AFA proposal, including fee amounts as appropriate. Using best practices, the law firm should be modeling this fee arrangement to know whether it is profitable or not. I suggest you will want these to be profitable. Doing business with a low-cost provider who is not profitable is unsustainable. This is not to say that firms are not able to lower your fees while maintain profitability. In fact it is quite the opposite. Firms must find ways to meet this challenge and many are devoting expanded resources to this goal.

With a specific proposal in hand, another best practice is to meet in-person to present the proposal and discuss it together. Too many intentions can be lost with just the written word. As noted above, the best approach is one where you develop a common goal. A conversation about the proposal leads to refinements and improvements that stay focused on the goal while generating a win-win option.

Providing the Service

Many clients have “efficiency” as a stated goal. However, much like the AFA request, efficiency can take many forms. This presents another opportunity to forge a healthy partnership with your outside counsel. With a fee arrangement in place, or perhaps as part of establishing that arrangement, you should consider engaging in a dialog about efficiency with your outside counsel. Efficiency generally means: a) doing less, b) doing more with less time, or c) doing the same, but with lower cost resources. Your dialog can explore each of these aspects, helping focus on which of these make the most sense for your situation. For instance, a firm could expand its use of staff lawyers (a.k.a. non-partner track lawyers) to move work to lower cost resources, but only if that approach aligns with your needs and goals.

Both the efficiency and fee dialogs need to be on-going conversations. In the past, a single conversation at the onset of a matter was too common. In this new environment, with these new dimensions, conversations need to be before, during and after. Too many things can change during the course of an engagement. What neither party wants is a big surprise when a course change is made, but not calculated in to the fee deal or the delivery model. For instance, a decision to join a third party to a litigation case, results in a substantive change. Regular conversations (e.g. monthly or quarterly) will catch these modifications and keep both the fee and the delivery model clearly aligned with the goal.

Law firms are committing a growing level of resources to concepts like Legal Project Management (LPM). These LPM efforts are focused on both efficiency and quality. Smart firms know that in order to help clients meet their changing goals, they need to change their approaches. An excellent question to add to your outside counsel conversations is: “What are your efforts related to efficiency, including process improvement and the use of technology?”

Concluding a Matter

Perhaps the single most important conversation about the fee and service needs to occur at the end of a matter, or in the case of on-going work, at the end of each year. These meetings should be open, honest assessments about how things went. The lessons learned from these conversations will lead to better defined goals for the next matter and continued success towards goals of cost savings and efficiency gains.

Conclusion

Law firms really want to help clients meet their legal needs in a cost effective manner. Most firms are trying very hard to adapt to changing demands and realign their business models to continue to meet client needs. The theme from this section should hopefully highlight that whatever steps are taken by both client and outside counsel, they will be best taken together. As I like to say, the keys to all successful fee arrangements are trust and communication.

As law firms look for opportunities to grow revenue, there really is only once place to look: Down. By down I mean further down the food-chain of legal services. Most lawyers and firms like to hold themselves out as a unique brand: a brand worthy of only the highest levels of legal work.

Even in the old days, that probably wasn’t true. It was just the case that big-name clients gave all of their work to big-name firms. So firms were actually getting a broader spectrum of work, across the value chain.

Not anymore. Clients, whether explicit or by accident, are redefining their legal market spend. First, they are shrinking that overall number, but more importantly they are classifying their work in to the traditional three tiers. Tier One – is the high-end work all firms think they are doing. Tier Two is the mid-level, day-to-day kinds of work that needs good lawyers but is not pushing the envelope of legal thinking. Tier Three is the ‘nuisance’ work, that can’t be ignored, doesn’t hold much value for the client, but must be addressed. And clients are sending Tier Two and Three work to lower priced providers.

So with a shrinking pie, and a greatly diminished Tier One layer, where can firms grow their revenue? Whatever the answer is, it is not Tier One. The competition for Tier One work is heavy and getting more intense. Any firm that wants to expand in this layer will need to do so at another firm’s expense. And displacing incumbent providers in a highly competitive market is an extreme challenge. This leaves Tier Two and Three as the only viable options. But this fact challenges a core reputation factor for lawyers, as anything off of Tier One is presumed to be commodity work. And who wants to do commodity work?

Whenever I hear a lawyer use that term, I am forced to bite my tongue. Because as an economist, I have a more precise understanding of that term.

Commodity (from About Economics):

  1. Usually produced and/or sold by many different companies
  2. Is uniform in quality between companies that produce/sell it. You cannot tell the difference between one firm’s product and another.

In English, this means if a client can go to another firm or lawyer and obtain the same level of service, then it is a commodity. I would argue 99% of services any law firm provides meet this definition. I realize many lawyers might try to argue the “quality” angle about their services, however, from a client’s perspective, that kind of quality is a given and not a differentiator.

So the real issue for lawyers when it comes to this subject is not ‘Commodity’ but is instead ‘Reputation.’

Smart lawyers will set this aspect of their ego aside and focus instead on a better question: How can I help my client?

With great interest, I have been following Bruce’s series on Growth is Dead. Bruce brings a refreshing economist’s perspective to a bear on an important set of issues.

Apart from agreeing with him, I offer yet another economist’s perspective, taking on another dimension of this analysis. Back in the Spring, I dubbed 2012 “The Year of Pain” for law firms, especially BigLaw. If you track the stats from Bruce’s posts back a few years, the situation he describes has been in place or developing for some time now. So why is 2012 The Year of Pain?

My view is that most firms, or perhaps even the entire market, have been ‘kicking the can down the road’ for some time now. By this I mean they have been cutting and tweaking to stave off any reductions in profit (a.k.a. the almighty PPP). By terminating staff and cutting various costs, firms have been able to maintain, and in some circumstances, even expand their PPP numbers. But, for the most part, this PPP maintenance has not come about based on real revenue growth.

Revenue growth in the market for the past few years has been tracking almost one-to-one the growth in billing rates. This means the actual amount of business has not been growing; only moderate price increases have produced any revenue growth.

Another aspect of ‘kicking the can’ on the cost reduction side has come from non-sustainable cost savings. By this I mean delaying expenses, such as technology upgrades or space build outs or any number of major expenses. Certainly some staff reductions resulted in long-term cost savings. In fact some of these measures came in to full impact in 2011, as the cost of severance packages were fully paid out in 2010. But even these expenses do not address the real problem. Some were obviously luxuries, but many were the reduction of the lowest cost labor sources in the firm.

Bruce rightly focuses on the revenue side in his analysis, but also within the same stats are a 6% growth in expenses for law firms in 2012. So what the market is experiencing is slowing growth (per Bruce) and rising expenses driven to a large extent by excess capacity in the lawyer ranks. Bruce is right on with this assessment, the market stats clearly show that firms have more lawyers than work and this has been the case for the past few years.

But here is where I part from Bruce’s analysis. The core issue is far more than excess capacity or even having excess capacity in the wrong practices. If we could wave a wand and ‘right size’ law firms would that address the core problem?

I say no. In fact, this wand waving act would be another ‘kick the can’ effort, trying to hold on to a reasonable PPP in the face change. It will buy firms another year or so of face-saving PPP, but only delays the real consequences. And I think further avoidance of embracing change will be disastrous for law firms. Every day that passes that law firms avoid change is another day closer to irrelevance. Susskind’s book title was right. His question mark was strategically placed saying that The End of Lawyers? will come if lawyers do not embrace change. Many of his predictions are coming true or are already in place. So in many respects, The End of Lawyers has already begun and is well under way.

So I say we need The Pain. That may be the only way law firms finally stop talking about the need to change and start actually doing it.

From my economist’s perspective, we have fully transitioned in to a Competitive Market. I make the distinction between a Competitive Market and a Buyer’s Market for a reason. For one, the Buyer’s Market label smells of temporary; as in this is a pendulum swinging back – and then forth. Whereas a Competitive Market signals structural change and thus brings an impetus for embracing new methods. Layering in Susskind’s thinking, not only is it a Competitive Market, but the nature of competition is changing. LPOs and non-law firms are now beating at the door. Delayed change is merely ceding market share to new players. Every day that passes = more market share gone.

The Year of Pain means the day of reckoning is upon us. All of the can kicking has caught up with us. So instead of finding more ways to kick it, I say it’s time to … Bring on The Pain.

Image [cc] israelavila

My good friend and blogging colleague Jordan Furlong suggested an intriguing idea while we were attending the ILTA Conference. We had started down a path on the sometimes taboo topic of timekeeping and the billable hour. Jordan takes the position that it should be abolished, freeing lawyers from the yoke of billable hours. Our debate ended with Jordan’s suggestion of a set of point-counterpoint blog posts. Originally I was thinking more along the lines of a Dan Aykroyd / Jane Curtin approach (with me getting the Dan Aykroyd line), but Jordan’s wisdom prevailed, so we are going with a Star Trek meme, celebrating its 456th Anniversary.

 For Jordan’s off-based, rambling dialog (a.k.a. his point of view), check out his post here. What follows is my more prescribed, thoughtful and logical approach to the subject.

As we all know, a tear in the fabric of the space-time-continuum, such as the one Jordan suggests, brings many dangers. What we know and trust can lose cohesion. And we know the most appropriate response to addressing such a challenge: Logic – brought to us by our old friend, Mister Spock.

Mister Spock:

Although the suspension of the laws of timekeeping may have a certain appeal to the more emotional among us, logic will help us find our way back to solid ground. We all know the challenges and pitfalls of timekeeping in the legal market. However, just because something is hard, does not mean it should not be mastered.

To illustrate this, let’s step in to Jordan’s space-time breach and contemplate the world we see. Lacking timekeeping, the only apparent meter of value becomes value itself. Side-stepping the circular logic reference, we end up asking the client to share their perception of value for a given piece of work by providing the price they will pay for a service. Once they have chosen the price, do we commence with work?

Logic would dictate we will want some idea of whether we can obtain a reasonable level of profit on the work since the continued existence of our business and as an extension, our paycheck, is subject to this metric. A simple question must be asked: Are the cost of inputs greater than the price obtained? Which of course leads us to the question: Inputs?

Knowledge workers bring two types of input to bear when they provide a service: their knowledge and their time, a finite resource. So in answer to our question, we will want to know the amount of time required for each level of knowledge worker. We will stress here that we are not referencing their billing rates, but instead their cost rates. This would be our cost per hour per knowledge worker, which of course will be higher for those with more advanced and valuable levels of knowledge.

Moving back to our question, we cannot know the cost of inputs without knowing the cost of time. So we cannot know whether a piece of work will be profitable until we mend the tear in the space-time-continuum and recapture the ability to keep time.

Does this necessarily mean that time, or effort in this argument, equals value? No it does not. Only that time and effort are factors of cost. But to explore this disconnect between time and value, we should consider another possible scenario.

We return back in to our tear where our client values a service at 10,000 Darseks (he’s Klingon – btw).  We accept his offer and immediately hand him the necessary stack of completed legal documents. At this, he pulls his bat’leth and demands the return of his 10,000 Darseks. Why would he do such a thing? He has clearly valued the service at 10,000. Once we get him to agree not to behead us, he asks why he should pay 10,000 Darseks for something so easily provided. His point, although described in more base terms by him: Time and effort have a role in determining value.

It is obvious that the suspension of the laws of timekeeping would have disastrous consequences for the legal market. To be clear, our logic is not dictating that effort equals value, only that it can play a role in determining value. Logic does dictate that time and effort drives the cost of knowledge workers. So in the end, however a client values a piece of legal work, the time and effort required to deliver that service will play a role in determining the profitability of the work.

Now … a dialog on how the amount of time and effort can be reduced might be suggested as the next logical conversation in pursuing a profitable practice. For that, we should turn to Dan Aykroyd.