Tag Archives: Law Practice Support

The insidious side of hourly rate billing

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Much has been written about the demise of hourly rate billing by some excellent writers, and rightly so, much of the focus is on why hourly rate billing doesn’t work for clients. Encourages inefficiency, doesn’t relate to value delivered or market rate for work, makes bill auditing onerous etc etc.

These criticisms are absolutely valid and it is undoubtedly clients who are driving the nails into the coffin of the hourly rate.

Time's up for chargeable time

But I want to look at hourly rate from another angle, and investigate some of the problems it causes within law firms.

Starting with the most obvious, chargeable hours targets for lawyers. Still the numero uno metric for measuring law firm performance, and still causing associates heartache in so many ways.

The number (be it 1,400 p/a 1,800 p/a or if you’re at a US firm maybe 2,400 p/a) it’s still the main criteria that lawyers are judged in the performance management cycle. Many law firms talk a good game about recognising non-chargeable work and rewarding high performance outside of pure client work, but speaking to associates at some of these firms, this type of recognition only occurs once the chargeable hours box has been ticked.

  • Want to have your business development truly recognised? Just make sure you hit your chargeable target.
  • Want to spend some time studying an emerging area of law? Fine, as long as you hit your target.
  • Like to spend some more time with clients, learning about their business? No problem, as long as it’s chargeable.
  • Up for partnership? Better knock your hours target out of the park this year.
  • Want to devote some time on pro-bono or other CSR initiatives? That’s great, do it at the end of the day when the timesheet is full.

There are so many activities that create value in law firms, yet so few of them get real recognition in comparison to chargeable hours targets.

Note also that many of these activities above represent an investment in the future health of the firm (you may remember David Maister talked about the tension between short term firm hygiene and longer term health) as opposed to the short term focus on current revenue.

One of the consequences of this is that lawyers fit in all the additional work over and above what are sometimes very onerous chargeable hours targets, leading to the inevitable work/life issues which are a hot topic over at the Careerist right now (http://thecareerist.typepad.com/).

And yet more frustratingly still, chargeable hours as a key metric has so many flaws

  • Do chargeable hours reflect the quality of work produced or client satisfaction? Nope
  • Do chargeable hours demonstrate profitable work or good financial management? Afraid not.
  • Do chargeable hours promote effective delegation and encourage senior lawyers to mentor train junior lawyers? Absolutely. Sorry, only joking.

I’m not necessarily suggesting the total abandonment of time recoirding. Indeed Peter Drucker, one of my favourite authors, talks about the importance of understanding where you spend your time in his brilliant book “The effective executive” which is one of the reasons I spent over three months as an inhouse lawyer recording my time. Also, capturing time utilised on client projects is important for calculating cost and determining profitability, and can also highlight development needs (if for example one lawyer takes 30% longer on a task than his or her peers).

But for as long as hourly rate billing and chargeable hours as the key metric continue staggering round like a zombie that just won’t die, I’ll continue wielding my personal chainsaw to send them to the grave!

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Inside out lawyers?

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An inside out lawyer would be messy, no question. I’m not sure exactly what lawyers are made of, but I bet the middle is pretty gooey, and you certainly wouldn’t want that stuff on your carpet. But law firms are different, in fact I think they are usually inside out…..

Angie's attempt to turn herself outside in to help with product development ended in disaster

Over the past few years I’ve spoken with a number of people in the profession  about product development, and have met varying responses, ranging from “we sell services, not products, and legal services don’t change so we don’t need any development”, to “how do we do that?” and finally “it’s a great product with a strong value proposition, you should meet the product manager”. Ok, so I exaggerated the last one, but not by much.

I’ve written about the need for innovation in law firms a number of times, but here my message is different.  One of the challenges law firms have in the way they approach the market, is they think “inside out” i.e. what capabilities do we have that we can sell (never mind if anyone wants to buy them or not).  I’ve often wondered about the reason for this, and when I was hammering through the reading for my MBA dissertation on law firm strategy, I came across some suggestions that this may be because lawyers have traditionally prided themselves on the quality of their work, viewing this as the critical success factor in the profession as well as a source of intellectual pride, and as result were disproportionately internally focussed.

However, it wasn’t until I read Tuned in (by Craig Stull, Phil Myers and David Meerman Scott) that I realised this phenomenon was just as common (or at least nearly as common!) in plenty of other businesses.  The book (which is a good read) explains that good product development starts with “outside in” thinking, which in legal terms means with the client. This makes absolute sense to me; if you are developing a product, it’s surely best to develop one that meets a market need.

Let me give you an example; I can remember being in-house just before the credit crunch really took effect. Many large companies were looking at restructuring and were going to need employment law advice. The in-house lawyers knew they could pick up the phone and get the advice they needed from their regular employment law advisors (no doubt at a competitive hourly rate), but how many times did the phone ring with a law firm pro-actively offering a nicely packaged restructuring service?

I’m talking about a service that gave me the advice I wanted, nicely presented, with a clear defined price. A service that the person calling could concisely and effectively explain the benefits and crucially, how it was different from other advice I might get on the subject.

Needless to say the phone didn’t ring much. Or indeed at all.

Now I don’t pretend this is easy: it’s not. You have to be close to clients and understand their industry to spot the market need. You have to be prepared to fail: it maybe you have a great product, but don’t get to market quickly enough. Maybe you get the product right but the price wrong. But to quote a cognitive hypnotherapist I met last week “there is no failure, only feedback”.

The ever changing nature of the law can be a blessing in that new market needs arise frequently. Why not turn yourself from inside out to outside in, and see if you can spot one?