In yesterday’s edition of Law360.com, former McKesson in house lawyer Jill Dessalines wrote an excellent piece on the Corporate Demand for Value from outside law firms. In the article, entitled, “Adapt Or Die: Law Firms In Tomorrow’s Economy,” Dessalines says that while the billable hour is still here, “it is gasping for breath and failing fast.”
Dessalines writes about the truth many old-line outside firms try to ignore about the billable hour:
“The problem is not just that it encourages inefficiency — like paying a kid to pull weeds in your yard by the hour rather than by the job. The problem is not just that it rewards quantity over quality. No, the essential problem… is that it is disconnected from the value of services rendered. For the corporate client, who by definition measures success and failure based on the value delivered to its bottom line, this disconnect is unfathomable.“
Unfathomable. That is pretty strong language from a lawyer who has had to purchase the services of outside firms and at the same time remain accountable to her corporate client. Unfathomable. For outside firms to ignore that disconnect any longer is to ignore the need to adapt or die.
Dessalines points out that historically, the billable hour was a function of recapturing an outside firms overhead plus a profit. But the market now recognizes that the costs of services as determined by the seller is a proposition completely divorced from the value of services as perceived by the buyer. And the latter is the only thing the buyer really cares about in the end.
“Why should a client pay for a firm’s marketing costs, or phone bill or taste in art, or for any overhead cost? What correlation is there between the firm’s overhead and the value of the services delivered? There is none. And corporate clients know it.”
Alternative fee arrangements, and sophisticated means of measuring value are now commonplace. To compete, outside law firms must offer value and predictability to their corporate clients, including insurance companies, which remain a major purchaser of outside legal services. Value pricing, Dessalines observes, is gaining traction. And in the face of the economic realities of today’s legal marketplace, how could it not be?
A new economic model for the pricing and delivery of legal services requires alternative fee arrangements. Reach me for more information on how to deliver or purchase outside legal services more efficiently.