Update on Alternative Billing (ILTA09)

Writing Alternative Billing Alternatives gave me an excuse to contact my friend, Jeff Rovner, for some background detail on the superb session he, Jeffrey Brandt,Thomas Gaines, and Eugene Stein presented at ILTA09. In our e-mail exchange today, he provided the following additional insights:

  • In his original example, he proposed a 10% discount in rates for discussion purposes.  However, in our conversation he told me that a 15% discount is becoming increasingly common in the market.  If that’s the case, the consequences are even more striking.  To prove this, let’s rerun his example using the new discount:
    • Assume a law firm profit margin of 40%
    • Apply a 15% discount on rates
    • This results in a 38% decline in profits
  • It’s ill-advised to view ad hoc discounts as a reasonable short-term fix.  Even if current economic conditions last for only a couple of years, the impact of a 38% decline in profits in each of those years could be very damaging to a firm unless competing firms are similarly affected.
  • While a firm may successfully reduce the fees it offers clients by implementing alternative billing arrangements, if that firm continues to perform its legal work exactly as it did in the days of the billable hour, it will not be able to off-set lower fees with lower expenses.  The result is a “disguised discount,” with the resulting hit to profits.
  • In the panel’s view, the best approach is for a firm to lower its internal costs of delivering client service, and then pass all or part of those savings on to its client through alternative billing arrangements.  By doing so, the client reduces its legal spend and the firm’s profitability is not impaired.

There’s clearly much more than should be discussed about these issues.  I do hope this ILTA session sparks further useful analysis and conversation.

[Photo Credit:  twenty questions]


Alternative Billing Alternatives (ILTA09)

Thinking creatively about alternative billing structures is something increasing numbers of lawyers and law firms are grappling with. To help with this, Thomas Gaines, Jeffrey Brandt, Jeffrey Rovner and Eugene Stein gave a terrific presentation at ILTA09 regarding how technology might assist with alternative billing arrangements.  They started by exploding some common alternative billing myths, chief among which is that it is safe to defer consideration of new cost and billing structures by using discounts.  To illustrate the problem with discounts, Jeff Rovner offered the following numbers:

  • Assume that a law firm’s profit margin is 40%
  • Apply a 10% discount on rates
  • This results in a 25% decline in rates, which is a huge hit to Profits Per Partner

Jeff’s conclusion from these numbers was stark:  even though discounting is popular with clients and may seem like the simplest ad hoc solution to implement, it could well be disastrous for the financial health of the firm.  So, if you’re interested in the long-term viability of your firm, you’ve got to find another way to meet your client’s expectations about billing.

Next, a firm might consider offering “alternative billing” options such as fixed fee, blended fee or success fee arrangements.  However, since these simply shift the cost of legal services from clients to firm, they are in essence “disguised discounts.”  As such, they have a negative impact on Profits Per Partner.  Further, it was the panel’s view that these alternative billing options alone would be insufficient to meet client goals regarding cost reductions.

To find smarter alternatives to bare discounts, the panel took us back to the drawing board by pointing out that while clients are determined to reduce their legal spend  — in fact, they cited a press report that Pfizer intended to reduce its legal costs by 15-20% — clients don’t care how this reduction is achieved as long as the quality of legal services is not impaired.  However, law firms with reduced fees are going to need to find a way to off-set the substantial hit to Profits Per Partner that results from discounting.  The best way to do this is to reduce the costs of delivering legal services.    Put another way, the impact of an alternative billing arrangement is to place the burden of cost overruns on the shoulders of the firm.   If the firm can find a way to contain or reduce costs, the firm can avoid those cost overruns and their deleterious effect on profits.

How does this work in practice?  Eugene Stein discussed how his firm has approached alternative fee structures.  Having agreed to lower their price (but not their quality) of service, they then felt that they could ask the client to give them more work.  Their client, pleased with the service provided and the cost charged,  agreed.  So here we have reduced fees off-set by both lower costs of production and higher volume.  The net result is a better outcome for the firm’s profitability.

Key to all of this is reducing the costs of production.  I’ll dig into that issue more deeply in my next post.  Stay tuned.

**UPDATE (30 September 2009):

After I published this post, I had an opportunity to discuss its main points with Jeff Rovner.  I’ve published the gist of our conversation in a follow-up post, Update on Alternative Billing.

[Photo Credit:  deltaMike]


Defining Ourselves

One of the thorniest problems we’ve faced in knowledge management has been how to explain what we do. Ray Sims set out to determine if there was a definition of knowledge management that could help with this. What he discovered was not one or two, but rather 62 definitions of KM. That’s more than one for every week of the year!

Into this murky mess steps Dave Snowden. Although he has nothing to prove, his recent post, Defining KM, demonstrated yet again why he is considered one of the foremost KM experts in the world. Here’s how he defines KM:

The purpose of knowledge management is to provide support for improved decision making and innovation throughout the organization. This is achieved through the effective management of human intuition and experience augmented by the provision of information, processes and technology together with training and mentoring programmes.

The following guiding principles will be applied

  • All projects will be clearly linked to operational and strategic goals
  • As far as possible the approach adopted will be to stimulate local activity rather than impose central solutions
  • Co-ordination and distribution of learning will focus on allowing adaptation of good practice to the local context
  • Management of the KM function will be based on a small centralized core, with a wider distributed network

There’s a lot to chew on in this definition.  I heartily agree with his assertion that the point of KM is to support “improved decision making and innovation.” If this isn’t why you’re involved in KM, what are you doing?  It also raises an interesting question for people engaged in KM 1.0.  What proof do you have for your operating premise that larger document repositories improve decision making and innovation?

For those who are KM empire builders, his guiding principles will give pause.  He is clearly favoring local, grassroots solutions rather than centralized, large-scale solutions.  This will require placing people close to the frontline who are knowledgeable enough about KM to provide some light guidance to the knowledge workers who have the most immediate need of KM systems.  Better still, to my mind it encourages every knowledge worker to be an effective knowledge manager.  In this context, a global KM Czar is going to be superfluous and unwelcome.

In separate correspondence with Dave Snowden, I’ve asked if he can elaborate on his notion of “effective management of human intuition and experience.”  It’s not clear to me exactly how one manages either intuition or experience.  It will be interesting to what additional guidance he can provide.

In the meantime, stayed tuned.  By offering this definition, he’s given us an opportunity to define ourselves and our work again.  Let’s see how far we get this time.

[Photo Credit:  jovike]


A Season for Sales

It used to be so simple, so predictable. Just as night follows day, we followed a well-worn retail pattern: September back-to-school sales, then Columbus Day sales, then Halloween Sales, a pause for Thanksgiving, and then (finally!) Christmas and after Christmas sales. You always knew what kind of discount you could expect to find depending on where you were in the retail calendar. So how do you handle the news that some retailers have been offering Christmas discounts since the first week of September?  Does it strike you as downright unnatural or have you decided not to look this particular gift horse in the mouth?

Setting your holiday shopping plans to the side, have you also noticed that more and more law firms are now offering discounts — regardless of the season?  According to a recent report, London’s  “Magic Circle” firms have reduced their rates by a third as they discount in response to intensified competition.  Not surprisingly, the clients quoted in the article seem pleased with this outcome.  But is it a sustainable path for any business?

Steve McKee writes in BusinessWeek that unless the discounting is done extremely carefully, it almost always will have a deleterious effect.  Here’s how he describes the impact of discounts:

Discounting destroys brand equity, hamstrings investment in innovation, and zaps profitability for companies and their stakeholders.

For companies determined to discount, McKee suggests that they take the following measures:

  1. Discount briefly.
  2. Discount wisely.
  3. Discount creatively.

McKee ends with the following tough advice for businesses contemplating long-term discounts:

The bottom line: In your customers’ eyes, your product is either worth regular price or it’s not. In tough times like these that may be a more difficult case to make, but if you’re not winning the value equation in their eyes you should focus on finding a way to meet their needs without reflexively taking a percentage off the top. If you do choose to incorporate discounting into your strategy, it must appear sensible and smart, not irrational or a result of panic.

People understand that prices are a market mechanism. If you start playing the discount card too much, you’re sending a signal that you don’t believe your product or service is worth it. And if you don’t believe it, who will?

[Hat tip to Nancy Myrland for pointing out this article by Steve McKee.]

[Photo Credit:  rcolonna]


Pretentious KM?

Navel gazing is a distressingly popular activity among knowledge managers. (To be honest, even I have indulged in it from time to time.) I’m not sure exactly what drives this tendency, although I expect it may have something to do with the fact that we aren’t always able to explain succinctly what it is we do for a living and why we do it.

In the meantime, we expend a great deal of energy discussing the lofty goals of knowledge management and worrying about the difficulties of proving the ROI of KM activities.

In light of this, I found it refreshing to read Infovark’s post, The Promise of Information Management.  The post begins by asking what information management tools and technology are really designed for and answers the question with the Maslow-like diagram below that shows the hierarchy of IM needs:

Risk mitigation, compliance and security; cost savings and efficiency; improved knowledge and innovation.  Those sound like worthy — and rather familiar — goals.  But isn’t that what Knowledge Management (or at least KM 1.0) claims for itself as well?

So, would someone please tell me:  If the information managers have all of this well in hand, what exactly does knowledge management accomplish?  Does KM add anything?  Is it a distinct discipline or just information management with a fancy title?

[Photo Credit:  Vasta]


Twitter’s Noisy Followers

Is there such a word as Twitternut? Twitterphile? If so, that’s me.  I’ve found Twitter to be a game changer. I’ve loved the ability to connect and converse with a diverse range of interesting folks around the world. They regularly provoke me to laughter and always make me think a little harder about the topic du jour. Best of all, since Twitter is an ever-flowing stream, I can just dip in and out of it when my schedule permits.  It doesn’t interrupt.  Rather, it invites.

That’s key — I do it when I want to.  Unlike e-mail, which tends to interrupt me at the whim of the sender, there is no expectation on Twitter that you will immediately read and respond.  I’ve discovered that there’s great freedom in that mode of communication.

All of that changes on Thursday, September 17, when folks can start phoning people in their Twitterverse for free courtesy of the Jajah@call program offered by Jajah, a VOIP company.  According to The Next Web, here’s how it works:

You’ll be able to make phone calls via Twitter free of charge to anyone in the world, so long as they follow you back and have JAJAH accounts.

@calls are made without revealing your number and without needing to know the number of the person you wish to call – all you need is their Twitter username.

The beauty of JAJAH is that it uses the Internet to connect two standard phones, thus implementing both the advantage of the Internet as a low-cost service and the comfort of using a regular telephone device.

Suddenly, all those folks you followed back just to be nice can start phoning you.  24/7.  For free.  Are you ready?  If you’ve been playing any of those foolish games to pump up your follower numbers, you’re about to win the booby prize.

It’ll be interesting to see if the advent of free Twitter calls changes the way people approach the whole issue of following/followers.  Will the net result be a shrinking of each participant’s Twitterverse?  I’m reserving judgment on this until I see how it plays out.  However, I’m not sure I’ll be rushing out to facilitate phone calls just yet.  Will you?

[Photo Credit:  jiruan]


The Value of a Post Office Box

Sometimes those small things we routinely take for granted give us cause to remember how valuable they are in their ordinariness.  This fact was driven home to me last night when I mailed off my biennial registration to the New York State Office of Court Administration.  In New York, each practicing lawyer must register with the State every two years, just after his or her birthday.  This process involves confirming one’s contact details, assuring the authorities that one has complied with particular ethical and educational requirements, and submitting a registration fee.  As I completed the form, sealed the envelope and dropped it in the mail, I was reminded how these simple acts were much more challenging eight years ago.

The deadline for submitting the registration materials is one month after one’s birthday.  Since my birthday falls in the middle of August, I have until the middle of September to complete the task.  However, on September 12, 2001, as we were beginning to understand the scope of the wreckage of 9/11, I learned that the post office box and postal station to which I normally would have sent my registration materials were casualties of the 9/11 catastrophe.  Suddenly, even if I wanted to comply with the rules, I couldn’t.

Last night,  as I looked at the address printed on the registration envelope, I found myself grateful for the existence of a post office box.  And, I was reminded that even something as simple as that post office box can represent the blessing of a relatively peaceful life.  After 9/11, I’m glad for the reminder.

[Photo Credit:  mhawkins]


How to Ruin a Knowledge Management Program

Paul Sloane has written a fantastic piece called How to Ruin a Brainstorming Session. If you take a closer look, you’ll realize that many of the elements that are fatal for brainstorming are also fatal for a knowledge management program.

Here are some of the practices Paul Sloane believes are deadly:

  1. You have no clear objectives.
  2. The group involved is too homogeneous.
  3. Your boss is autocratic and doesn’t trust the creativity of his or her team.
  4. You allow early criticism to smother creativity.
  5. You settle for just a few ideas.
  6. Your process lacks closure or follow through.

How many of these “worst practices” are present in your KM program?  What are you going to do about it?

[Photo Credit:  Jacob Botter]


For an interesting view of the brainstorming process, see the following charts from Rick | Crinid:


Are You Having Fun?

Are you having fun? That’s the question that once stopped me dead in my tracks. I was an earnest first-year associate at the time and the person asking the question was a very senior lawyer. Given current economic conditions, you may be tempted to say that a question like that should be reserved for a bull market. However, that senior lawyer thought the question was important enough that he raised the issue during a significant economic downturn.

I’ve never forgotten that lawyer and I’ve never forgotten his question. Consequently, I was interested to read today “How to Make Knowledge Work Fun” by Larry Stybel.  In it he describes the four modes of being of knowledge workers:

  • Insanity: If you are serving people you don’t like to be with and are not getting paid, that is insanity.
  • Give-Back: If you are serving people you enjoy being with but are not getting paid, that is give-back.
  • Work: If you are serving people you don’t like to be with but are getting paid, that is work.
  • Fun: If you are serving people you enjoy being with and are getting paid, that is fun.

The key to having a great professional life is to stop merely working and start operating in the Fun Mode.   To do this, Larry Stybel recommends the following steps:

  • First, find people you enjoy serving. This means finding people whose values you share, people you like to spend time with.
  • Next, find problems you enjoy solving. Find out what those people need and which of those needs you want to address.
  • Third, position yourself. Assess your skills and experience. Do you have what it takes to meet those needs? If not, what additional training or experience do you need to be the solution for your preferred clients?

One challenge for law firm knowledge management is that far too often we are serving people we don’t know terribly well.  Our lives may intersect briefly from time to time, but we don’t always have relationships with our internal clients.  As a result, we lack the luxury of time to discover that we enjoy being with them.  In addition, I have on occasion been at meetings of knowledge managers where the conversation has taken on a faint whiff of “us versus them” or “the knowledge management staff versus the lawyers.”  Alternatively, I’ve heard vaguely condescending remarks about “the lawyers” and “how little they understand” about KM (and, possibly, about life).  If you feel strongly about this, perhaps you’re working in the wrong industry.

If you are in the right industry, are you working on the right set of problems?  (Or as a friend once remarked:  right church, wrong pew.)  If the needs of your constituency are not ones you’re interested in serving, something has to change.  Odds are, it will have to be you.

If you are in the right industry and working on the right set of problems, do you have the wherewithal to provide a solution?  If this isn’t within the realm of possibility for you given some elbow grease or training, you’re going to have to find another place where you can have a positive impact.  Otherwise, I guarantee you won’t be having any fun at work.

Striving for fun at work may seem frivolous in these difficult economic times.  However, life is too short and the work day too long not to try to have fun at work.

[Photo Credit:  alobos online]


Do Generational Differences Matter? (ILTA09)

Jason Ryan Dorsey has mastered the art of “edutainment.” Over the course of a rollicking keynote address and subsequent 90-minute presentation he shook us out of our complacency about the impact of generational differences in the workplace. (A cautionary note: As I was tweeting his 90-minute session, several readers asked what data he had to back up his assertions. I’ve cited some resources below, but encourage all of you to satisfy yourselves by doing further research.)

While there has been lots of conversation about the impact of new Gen Y employees in the workplace, Dorsey believes that the biggest challenge most companies are facing is the enormous span between the oldest and youngest workers.  In many offices, you can find members of the following demographic groups attempting to work together:

  • Matures/Traditionalists – Born before 1946; while some have retired, finances have forced others back into the workplace
  • Baby Boomers – Born between 1946 – 1964; while they should be on  the verge of retiring, finances are keeping them on the job
  • Generation X – Born between 1965 – 1976; they should be moving into upper management, but are stymied by Boomers who won’t leave
  • Generation Y/Millennials – Born between 1977-1995; they have perfected “adult-olescence” and value lifestyle and relationships over work

As Dorsey pointed out, each of these groups was shaped by distinctly different experiences and, as a result, has a distinctly different outlook on life.  For example, Gen Y (which, according to Dorsey,  was raised by their parents to prize personal fulfillment over duty) seeks instant gratification while the Matures (formed by the Great Depression and World War II) have confidence in their ability to survive and thrive, and believe strongly in delayed gratification. Or contrast Baby Boomers whose approach to work is defined by paying one’s dues a certain number of hours per week  (hello face time!) with Gen Y, which prizes time flexibility and whose approach to work is to blur the lines between work time and personal time.

Perhaps the starkest difference among the groups was summarized by Dorsey as follows:  Boomers define themselves by what they accomplish at work.  Gen X and Gen Y define themselves by what they do after work. According to Dorsey’s calculations, Gen X and Gen Y combined now exceed 50% of the workforce and will redefine how we think about work.

Because of these conflicting approaches to work, Dorsey believes it take a skillful manager to find a way to engage each generation effectively based on their workplace preferences and priorities.    Here are some strategies he recommends to managers:

  • Generation Y: Since this group often lacks work experience and key workplace skills, they cannot always interpret your instructions properly.  Therefore, provide explicit examples of the performance you expect — don’t just state goals.  This group needs to feel that they are in touch with you, so deliver continuous feedback in short bursts rather than waiting for the annual review to let them know how they are doing.  Give Gen Y a wide range of challenges with clear outcomes and then when they succeed reward them with time.   This group values recognition, so provide reviews and rewards that they can show their family and friends.
  • Generation X: This group is inherently skeptical and wants you to prove what you’re saying.  Therefore, be prepared to explain why you have chosen  a particular strategy and what your backup plan is.  This group values reliability (they don’t like to be surprised) so be sure to keep the promises you make with them or give them plenty of warning if things aren’t going to work out as expected.
  • Baby Boomers: Acknowledge their contributions and how hard they work (they really want to know that you have noticed).  Because of their time focus, try to accommodate their schedules by arriving early and leaving on time.
  • Matures/Traditionalists: Show respect by listening to them and asking questions based on their experience.  They are unlikely to brag (or to respect braggarts) and prefer to fit in rather than stand out.  Therefore, find ways to assure them that they are part of the group.

Generational differences are going to push managers to the limit over the next few years as they find ways to identify and deploy the skills of each group in a constructive way.  Failure to meet this challenge could well result in miscommunication, underperformance and conflict at the office.  As far as Jason Ryan Dorsey is concerned, you’ve now been warned.


If you’re interested in indulging your skeptical inner Gen Xer and checking Jason Dorsey’s facts and assertions, you might start with the following resources:

[Photo Credit: Brian Fitzpatrick]