Richard Susskind likes to be provocative. And, he’s good at it. After hearing his talk at Harvard’s Berkman Center for Internet & Society, I found my mind churning with ideas of what it might be like if his vision became our reality. However, I soon felt stymied by the enormity of the challenge of changing our profession’s approach to work and compensation. And I’m not the only one. Most law firms have yet to find a comfortable way to determine an alternative billing structure or adopt alternative methods of lawyering. Thankfully, Susskind proposes a solution: break legal services down into bite-size pieces, analyze them, and then reassemble them in a way that permits alternative lawyering and alternative billing. Central to this solution is his analysis of legal services, which run the gamut from “bespoke” (i.e., customized, tailor made) to commodity. Here are the five levels he sees:
- Bespoke/Customized
- Standardized
- Systematized
- Packaged
- Commoditized
Most of our firms are awfully good at doing customized work. Some of our firms have even standardized their work through the creation of checklists and model documents. A few have attempted systematization through document assembly and automated decision trees. Even fewer are actually providing packaged online legal services (e.g., Wilson Sonsini’s term sheet generator). And then, there are the firms that freely admit that their work product is a commodity and act (and bill) accordingly.
Naturally, our billing follows our style of work: hourly billing is used for bespoke and standardized work, while fixed fee (or alternative) billing is possible with systematized, packaged and commoditized work. For Susskind, the key is to break down legal services into their component parts and bill each of those parts accordingly. For example, you may be advising on the world’s most complicated merger, but chances are you won’t be generating a due diligence request list or closing schedule from scratch. So, what would happen if you billed the parts of the transaction relating to due diligence and closing preparations as if they were systematized, while billing the process of negotiating and drafting the critical sections of the merger agreement as if they were customized? Suddenly, you’ve expanded the scope of alternative billing and reduced the need (and attendant client relationship risks) of hourly billing.
Now, what if you took each of the components of your transaction, broke them into discrete tasks, and made sure the right people (e.g., legal or lay, working in the office or remotely, employees or subcontractors, etc.) were handling each task using the right tools? What if, with respect to each component, you searched diligently for ways to provide higher quality work product more efficiently and cheaply by using collaboration and technology? These steps should result in a cost structure that is substantially reduced and predictable, thereby facilitating alternative billing.
Law firm knowledge managers with practice experience can play an important role in this process. They can help identify the component tasks, and then find ways to standardize, systematize, package or commoditize as many of those tasks as possible. They can bring to bear their knowledge of available technology, they can help draft, they can help automate. Law firm knowledge managers may be the key to solving the alternative billing, alternative lawyering puzzle. Are you using them?
[Photo Credit: hto2008]
Above and Beyond KM 
This is a very interesting issue from a KM point of view: clearly one of the benefits of good KM is making the right information available to the right people, and so increasing the productivity of the company – a particular task can be done more quickly, or done better in a given amount of time. It's only fair that the firm gets some of the benefits of their farsighted and well-organised knowledge management activities 🙂 They may of course also want to pass these benefits on to their customers to gain competitive advantage. But this is tricky if everything is billed by the hour: spending fewer hours on the task may not instantly be seen as a good thing.No doubt I am oversimplifying – but how does this work in practice in typical law firms? How can the benefits of KM in terms of improving productivity be translated into improved margins and so quantified as a return on the investment?
Mary -First, maybe its time to drop the “alternative billing” label. I think there is hourly billing and non-hourly billing. (Someday, hourly billing will be the alternative.)Second, it is hard to get an ROI with hourly billing. KM results in producing better work product more efficiently. Logically, that leads to fewer hours spent on a task, which leads to a lower bill. Good things for the client, but hard to measure the benefit to the law firms. That gets turned on its head when you move away from hourly billing.I think the KM movement should embrace Susskind's message.
Bill and Doug – Thanks for your comments. You should meet each other! If KM is done correctly, it should result in improved quality and productivity. However, that won't be seen as truly valuable within an hourly billing structure unless there is a surfeit of work. In which case, KM helps deal with the problem of opportunity cost. The value of this approach can be appreciated best when there is less work to be done and clients are demanding lower costs. Better quality work at lower cost is a value proposition most clients would embrace. From the firm's perspective, however, it's important to follow the Susskind approach so that you have a fighting chance of actually documenting the improvements in quality and decline in cost. It's in that analysis that you find ROI. Anything else is wishful thinking.- Mary
Hi MaryAs you say, it must ultimately make business sense for lawyers in a firm to collaborate with each other and 'productize' standard offerings in order to do things more efficiently. They just need to find new ways of charging for their work to reflect this. But fixed price packaged or standardized services could be very profitable. If something takes 100 hours to do the first time, but only takes 10 hours to do by re-using standard stuff that's been built up over many previous assignments, then you might be able to sell it for the equivalent of 50 hours and still be providing good value to the clients. I'd be interested to hear to what extent this kind of approach is starting to be used by law firms.
This is a very interesting issue from a KM point of view: clearly one of the benefits of good KM is making the right information available to the right people, and so increasing the productivity of the company – a particular task can be done more quickly, or done better in a given amount of time. It's only fair that the firm gets some of the benefits of their farsighted and well-organised knowledge management activities 🙂 They may of course also want to pass these benefits on to their customers to gain competitive advantage. But this is tricky if everything is billed by the hour: spending fewer hours on the task may not instantly be seen as a good thing.No doubt I am oversimplifying – but how does this work in practice in typical law firms? How can the benefits of KM in terms of improving productivity be translated into improved margins and so quantified as a return on the investment?
Mary -First, maybe its time to drop the “alternative billing” label. I think there is hourly billing and non-hourly billing. (Someday, hourly billing will be the alternative.)Second, it is hard to get an ROI with hourly billing. KM results in producing better work product more efficiently. Logically, that leads to fewer hours spent on a task, which leads to a lower bill. Good things for the client, but hard to measure the benefit to the law firms. That gets turned on its head when you move away from hourly billing.I think the KM movement should embrace Susskind's message.
Bill and Doug – Thanks for your comments. You should meet each other! If KM is done correctly, it should result in improved quality and productivity. However, that won't be seen as truly valuable within an hourly billing structure unless there is a surfeit of work. In which case, KM helps deal with the problem of opportunity cost. The value of the approach described in my post can be appreciated best when there is less work to be done and clients are demanding lower costs. Better quality work at lower cost is a value proposition most clients would embrace. From the firm's perspective, however, it's important to follow the Susskind approach so that you have a fighting chance of actually documenting the improvements in quality and decline in cost. It's in that analysis that you find ROI. Anything else is wishful thinking.- Mary
Hi MaryAs you say, it must ultimately make business sense for lawyers in a firm to collaborate with each other and 'productize' standard offerings in order to do things more efficiently. They just need to find new ways of charging for their work to reflect this. But fixed price packaged or standardized services could be very profitable. If something takes 100 hours to do the first time, but only takes 10 hours to do by re-using standard stuff that's been built up over many previous assignments, then you might be able to sell it for the equivalent of 50 hours and still be providing good value to the clients. I'd be interested to hear to what extent this kind of approach is starting to be used by law firms.