What is the Future of Price: Defining Value in Value Billing [live COLPM post, part 2]
This is a live post from the College of Law Practice Management Futures Conference. This session is What is the Future of Price: Defining Value in Value Billing, Part II.
[As with all my live posts I try to capture the highlights of what panelists discuss and report accurately. Any of my own editorial comments appear in square brackets preceded by my initials, RF.]
The Moderator: Ronald Staudt, IIT Chicago-Kent College of Law
The Panelists: Toby Brown, Vinson & Elkins; Lisa Damon, Seyfarth Shaw LLP; Paul Lippe, Legal OnRamp; Mark Ohringer, Jones Lang LaSalle Americas, Inc.; and Ellen Rosenthal, Pfizer
Lisa Damon, Seyfarth Shaw LLP
Seyfarth Lean Background: About 6 years ago, clients started asking for alternative fees. Lawyers just guessed and, more importantly, were pricing inefficient services. Management wanted to understand how lawyers did the work, re-engineer the process, become more efficient. This led to Lean Six Sigma. It was hard to absorb for lawyers. Ended up keeping parts of it and jettisoning parts. Project management was especially important.
Lean Six now pervades Seyfarth. “Hard to articulate the extent of the change at the firm.” Lean has allowed the firm think differently about how it practices. One element of Lean firm kept is “DMAIC”: Define, Measure, Analyze, Improve, Control. Especially important is to find and fix the root cause.
Applying root cause of law firm problem today is how firms compensate lawyers. This is not for today but illustrates how Lean will ultimately affect law firm management.
When applying Lean to clients, meet with clients, lawyers, and law firm staff. Lawyers will say what they do but then the staff say what the _really_ do. This shows where the waste in the process is. In law, firms are motivated to bill so much until the client fires the firm. Lean and DMAIC avoids this.
The firm has client-facing project managers (PMP certified). This helps matters stay on track.
Data is incredibly important to Lean and Seyfarth. A new matter starts with data analysis. Client comes with a problem; the firm starts with work value per matter, illustrating with a scatter gram comparing value and work. Another key tool is process mapping. Some clients are not interested in this but many are. The more sophisticated clients understand that the process mapping removes inefficiency at both the firm and the client.
Observes that in typical firm, partner only sees what work a lawyer did at the end of the month. At Seyfarth, time keeping is daily. Firm will share this will clients, though many don’t want it because they are on value billing. But this lets project managers and partners see what work is being done.
Firm is working on a scorecard that will eventually change the compensation system. It’s based on the ACC value challenge. Beginning to use this to change partner evaluation and compensation; will eventually cascade down to associates.
Toby Brown, Vinson & Elkins
Made a transition from knowledge management to alternative fee arrangements a few years ago. Has been involved in hundreds of AFA arrangements.
Frequently hears “the question”, meaning which AFA and how much? Tries to analyze past matters but the data are not very good. A varian on this question is “which one works?” Points out that there is no consistency. The success keys are trust and communication, not the specifics of the AFA structure.
The benefit of AFA is to become a trusted adviser in a long-term relationship.
Keys to making AFA work:
1. Define goals. Make sure to understand the client’s real need. For example, is it speed, precedent, stall, predictable costs?
2. Define scope. Doing a bid based on a complaint does not support defining scope.
3. Define the fee goal. Is it predictability or certainty, which are not the same: a client may want monthly predictability or certainty regarding total fee. Former may relate to cash flow, latter to budgets. Understand what drives the client and how GC is evaluated. It could be budget, outcomes, some type of audit for fair value.
Q: How does above discussion relate to small firms?
A: Clients are figuring out that smaller firms in lower cost locations often offer more value. Damon says Seyfarth now collaborates more with smaller law firms. Sees “walls coming down” so that small firms work more with large ones. Brown says his firm competes with small firms and boutiques.
Damon says that all these movements also create alternative delivery mechanisms, including LPO and lawyers working virtually, which firms of all size can use.
Q: How does this apply to consumer law or small business lawyer?
A: Lippe says the same trends apply to all practices. Technology will be key everywhere. Clients will focus on value. 95% of the issues will be the same across practices and firm sizes.
Q: How should firms respond to value billing – where should we squeeze overhead / costs to make up for this?
A: Value billing does not mean less profit. Discounts are not value billing; if you use flat fees or capped fees, you can re-think how you do the work and maintain profits. It’s less “squeeze” than “re-shape how you do the work”
Moderator: how do we keep this conversation going beyond the conference?
Toby: We need a Sedona Conference for value. [RF: Sedona is a leading non-profit that works on e-discovery issues]
Lisa: Lawyers and clients need to share success stories. That’s not happening now. A core change management principle is show success.
Paul: In so many words, “just act” – there are lots of management tools and measures in the market – try and adopt. One step: create inventory of law firm processes
Ellen: Work with other peers in other corporations so that when talking to law firms, the firms hear a more unified message about value. This will help change conversations in law firms.
Mark: Find ways to lower costs (e.g., put people in lower cost locations), use technology and use it well, adjust compensation to align incentives. Successful firms will figure out the right cost structures.
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