Time out: Removing time from pricing and compensation

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In honour of Star Trek‘s 46th anniversary (corrected!), let’s write a little sci-fi story.

Suppose you woke up one day and found that for some reason — maybe a tear in the fabric of the space-time continuum, who knows — it had become impossible to docket time at your firm anymore. No device for tracking time would function, from the latest time and billing software down to wristwatches or sundials. No invoice could be generated based on hours devoted to the client’s tasks. No salary or bonus could be issued that was based on time spent on a project.

 Simply put, you could no longer price using time or compensate using time.

What would happen? Well, once the panic attacks had subsided and the screaming had died down, you’d still be faced with a real and pressing need to issue bills to clients and to pay your lawyers. You’d have to figure out how much you should charge your clients for the work you’re doing, and you’d have to come up with a way to recognize each lawyer’s contribution (or lack thereof) to the firm’s success.

On the first point, you’d quickly find yourself on the phone to your clients, explaining the situation and asking for an urgent meeting. “Look,” you’d tell your client, “we’re doing X number of things for you right now, and we both know that some of them are critical to your success and some of them are not so much. We would normally bill you by counting how many hours we took to do that work and multiplying that number by our hourly rates. But the equation is broken; time is missing, and rates are useless without time. We need a new system to help determine our fees to you, but we need your input.”

Some of your clients, the good ones, would be sympathetic — who among us hasn’t had a run-in with the space-time continuum? They’d try to help pull together at least a short-term fix. Straightforward or routine work that any firm could do just as well would be covered by a monthly lump sum, while more complex, important or valuable work could be priced within a mutually pre-set range, with the final amount determined by the satisfaction of several previously agreed success indicators. I imagine you’d walk away from these meetings relieved and grateful for the lifeline.

Then you’d turn to the second point, internal compensation. You’d be forced to find new ways of reckoning each lawyer’s contribution to the firm. You’ve always considered a range of factors, of course, but let’s be honest: time-based billings were invariably on top, followed closely by income generated (on an hourly basis) by clients whom the lawyer had brought into the firm. Thanks to the space-time rip, both of these engines would now be seriously damaged or broken altogether.

Without access to time-based anything in assessing internal value, you’d soon find yourself thinking about more than just your lawyers’ direct and indirect “billings.” You’d look more closely at those lawyers who referred business to other partners and practice groups. You’d notice those lawyers who had a knack for answering clients’ calls and calming their worries, keeping those relationships strong. You’d identify those lawyers who both brought in business and kept it coming, those who took the best young lawyers under their wing, those who assumed real responsibility for knowledge management or talent retention or technological capacity. And you’d find yourself both eager and suddenly able to reward these lawyers and their behaviours.

Not only that, but over the course of time, you’d also notice that work patterns within your firm were starting to change. Your people could no longer think in terms of “how long this work will take,” so they’d need to come up with a new approach to their work. Naturally, they’d start trying to get the routine flat-fee work done as quickly and efficiently as possible, maybe through some kind of process or automation, because it’s only worth $X per month and so the sooner it’s done, the better.

They’d also start looking at the success factors — case won, damages limited, deal closed, budget respected, and so on — that drive the pricing of the higher-end project work. Each box they could tick off would become another premium added to the final fee. Time could still affect price as a client success factor — e.g., the work must be performed within three weeks — but in ways that further drive brisk, efficient workflow. Over the course of time, the tempo and rhythm of life at your firm would start to change.

Pretty soon, you’d find that without any way to track their time, your lawyers were focusing more on getting the job done efficiently and effectively, so they could increase their fees and move to the next task. You’d find that what used to be called “non-billable” activities were flourishing, because they could now be rewarded. You’d find clients calling to compliment you on your firm’s new attitude, the “breath of fresh air” you’ve brought to the relationship.

 And when the space-time rip was eventually fixed, you’d be hard-pressed to find anyone clamouring for a return to the old system.

This is my long-winded way of making a point: time is a factor in law firm pricing and lawyer compensation only because we choose to make it so. In most law firms, pricing is cost-plus, and cost is heavily time-based: the firm estimates how many hours from how many lawyers will be required to do the job, checks those lawyers’ rates, does the math, and puts a dollar sign in front of the result.

Remove or amend these two drivers — take time out of pricing, take time out of cost — and you have a legitimately new and potentially game-changing way of doing business.

[Note: This post was inspired by a conversation at ILTA last month among Toby Brown, Ron Friedmann, Susan Hackett, Doug Stansfield and me. Toby and I agreed to write about our respective views on the subject in point-counterpoint blog post fashion. Check out Toby's post "Logic and the Value of Time" at 3 Geeks and a Law Blog, and please feel free join in with your own post on the subject!]

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

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4 Responses to “Time out: Removing time from pricing and compensation”

  1. Ron Baker

    Jordan,

    As the leader of the Value Pricing revolution, I totally concur with you on timesheets. Not only are they not necessary (see my reply to Toby’s post), they are the real cancer in firms since they keep professionals mired in the mentality they sell time. This of course is nonsense since no customer buys time.

    Not only is trashing them a game-changer, approximately 1,500 professionals firms worldwide have already done it, so we have empirical evidence it works (which folks love to ignore). If you believe in knowledge workers, you have to believe that time has no place in valuing their contributions. Jonas Salk’s polio vaccine is valuable for the results it creates, not the time it took to develop. The only place time spent should matter is in prison.

    We will bury the billable hour, but more importantly, the timesheet that created it. The only question is how long will it take? I don’t know. I do know that its death may not be within reach, but it is within sight.

  2. Tim Donovan

    There has been an incredible amount of commentary over the past 10 or so years about the future of the traditional law firm. From where I sit this seems to be of more interest to in house counsel and clients than to the vast majority of law firms who hang on to the old models even as traditional firms find themselves disappearing. Your semi-humorous view of what a future could be like for lawyers in law firms and their clients, however, is a breath of fresh air. As you point out the quality of the profession might be “immeasurably” improved if we stopped “measuring” it by the ticking of a clock. Let’s hope it does not take a tear in the fabric of the time and space continuum to bring about the change!

  3. Tom Bowden

    Extending your analogy, one often reads imaginative descriptions of falling into a black hole, which is in fact a rip in the fabric of spacetime. The descriptions of agony, pain, powerlessness and inexorable demise from “spagghetification” (that’s a word, look it up) are riveting and terrifying. Kind of like working in a large law firm that only respects billable hours in ever increasing numbers with each passing year. You ultimately get stretched to the point that you cease to exist. Now, in contrast, switching to a system that makes no reference to time is like emerging from that black hole and becoming “whole again” – de-spagghetified. In space, that’s impossible, but in law firms, all it takes is a little imagination.

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