It’s the first week of April which means for many sports fans, the excitement of opening day for the 2013 baseball season is upon us. There is something renewing about this yearly tradition. In a time of instant gratification, what is it that drives the millions to the ballparks every spring? A game noted for its plodding pace, elongated games, and never-ending season still remains popular and successful. I would argue that what keeps the game so relevant today is it has become a blend of timeless tradition with new forward thinking technology.
Sabermetrics is a term used to identify obscure baseball statistics through objective lenses to illustrate patterns in behavior. Specifically used for in-game activates, this newly developed system generates countless pages on a single player regarding tendencies in different situations and their successes. Sabermetrics stat glossary. Traditionally the stats used to evaluate players were limited and easily calculated.
The advantage Sabermetics provides has ushered in the most competitive play in the leagues history which dates back to 1869. This has allowed teams with very small payrolls to compete with large market teams with an unlimited bankroll.
With this new competitive advantage however, the sport still holds a tight grip on old tradition. An example from the previous season would be the results of the most valuable player in the American league. Mike Trout of the Anaheim Angels led every important category tabulated by Sabremetrics and was widely regarded as the best in baseball as a result. However Miguel Cabrera became the first player since 1967 to win the triple crown (led the league in Batting Average, Home Runs, and Runs Batted in). Despite Trout’s dominance, the MVP went to Cabrera due to his dominance of traditional stats.
So what’s the point? From a business perspective, owners can better maximize the value of their payroll. A team can be competitive in the league by investing in certain players that have a high WARP for cheap rather than signing a superstar most teams cannot afford to tender. The result is better completion on the field while resulting in more profit for the organizations.
So what does any of this have to do with the business of law? The legal industry is one of the world’s oldest professions with very little change over the course of human history. Only in recent years have law firms been forced to see things from a different perspective. Some of these changes have been due to the rapid rate of innovation in technology while other have been forced due to a stale economy.
The most significant change has come in the form of Alternative fee arrangements (AFAs). While the AFA is not new per se, firms have never been forced to use this tool until just recently. Gone are the days when a firm can just charge standard hours and be competitive in the marketplace. In fact, 72.8% percent of fees paid to outside counsel in 2009 were based on AFAs. Firms must be creative with their billing structures to not only lure new customers but retain existing work.
What are the benefit of AFAs? The reasons that most appear are:
A big fear in the past of the implementation of AFA is the risk of the unknown. Firms do not know what will be involved (effort/hours) with each matter. With this in mind, the billable hour approach has been the most popular method of billing for law firms in the past. By shrinking the unknown risk of AFAs without compromising customer value, firms will be more apt to implement them in their firm. Firms need to be able to estimate their costs before a matter begins. If a firm estimates incorrectly, the firm will either lose money or end up losing customer business altogether. There are products on the market that help with planning matters to maximize revenue and customer satisfaction.
AFAs have become a successful method if used correctly; however firms can be trapped by strategies not fully fleshed out by the marketplace. Among the plethora of other strategies out there are thoughts on either uniform or custom task based billing. While it would seem in theory that this could benefit firm and client, are there any firms out there that actually bill based on phase and task at the litigation level? Also, have firms found that clients find this type of data trustworthy? Perhaps it is the case that tracking by phase and task is the exception rather than the rule after initial role out.
Knowing when to employ which strategy is of the utmost importance. Not every client is interested in AFAs and may prefer a standard hour approach of even contingent work. Just like implementing Sabermetics in baseball, teams need to know which stats to value over other in certain situations. The blending of traditional methods along with new approaches and new technologies in the form of billing and planning software will truly maximize client satisfaction and profitability.