This five-part series is an expanded version of an article I published last week on AmericanLawyer.com entitled "Teaching Lawyers How to Manage: Can It Improve the Bottom Line?"
When I interviewed AmLaw 100 chairmen, senior partners and C-level executives for a recent survey of alternative fees, many predicted dramatic changes in the legal profession. The prediction that surprised me the most was a move to adapt project management techniques from other businesses. As the CFO of a firm with more than 1,000 lawyers succinctly put it, "If we teach our people to manage, we can make more money."
Project management techniques can reduce costs and increase profitability for any type of legal billing arrangement. The results are easiest to see with fixed fees. When a law firm agrees to handle a certain matter for a flat rate, it must find a way to meet legal needs within a limited budget. The less the firm spends, the more money it will make. But, as that CFO went on to explain:
A large number of lawyers do not know how to manage. [In the past], the more hours that got charged, the more money [they] made. And so they've never really had to manage [costs].
Similarly, a senior partner at a 500-lawyer firm said that:
For alternative billing to be successful for both the client and law firm, the partners have to re-think their approach and try to decide the most efficient way to approach matters. For example, instead of sending an associate off to research 50 issues that could come up in a litigation case, you might focus strictly on the small number of issues that are likely to be most important.
The executive director of a third large firm said:
Lawyers are not known for being the greatest project management folks in the world. If they are going to try alternative billing methods, they have to be able to deliver what they are offering. This is a fundamental change in the industry, and lawyers will have to improve their project management skills in order to succeed in this area.
The pressure to reduce costs.
Of course, much of the momentum in the alternative fees movement is coming from clients' needs to cut legal costs. This pressure started long before the Great Recession, with companies like Dupont, Cisco, FMC Technologies, and Pfizer in the lead. According to a recent survey from the Association of Corporate Counsel, 81% of in-house counsel are trying to reduce their legal spend. The BTI Consulting Group has reported in its Premium Practices Forecast 2010 that spending on outside counsel dropped 10.8% last year. They also predicted that it will decline another 4.3% in 2010.
But it is hard for lawyers to imagine doing more with less. For their entire careers, they have been trained to leave no stone unturned in protecting clients' interests. If it happened to take a large number of hours to turn over some of those stones, the client would be better off and the firm would make more money. As the American Bar Association's Commission on Billable Hours summed it up in their 2002 final report (p. 8), "Hourly billing allows, indeed may encourage, profligate work habits. A cost-plus contract can degenerate into disregard for basic market discipline."
To read more, visit the Legal Business Development Blog.