The quarterly publication of the International Legal Technology Association
Issue link: https://epubs.iltanet.org/i/34686
“We realized that we were not in the hours business, but in the matter business.” Norm: How do you draw a distinction between the “hours business” and the “matter business”? Natalie: Let’s take a step back and understand why law firms bill by the hour. In the 1960s, firms routinely tendered simplified bills for “services rendered.” Sometimes, these were nothing more than an approximate assessment of value provided and a request that clients kindly remit payment at their earliest convenience. Clients put pressure on law firms to provide better documentation, and the easiest way to do this was to track the time spent and then bill at a negotiated rate. But that approach has always left many clients feeling like incentives were misaligned, and it put law firms in the business of selling hours and maximizing the effort expended on any particular task. The growth of alternative fee arrangements was one response to realigning incentives under an outcomes-focused — rather than a cost of services and inputs-focused — business model. It’s even trickier in today’s environment where clients place value on work avoidance as well as fixed-fee matter execution. Consider the value of advice which avoids a lawsuit rather than defends one. The recognition that we’re in the matter business is the natural extension of this. It meant further aligning our organization to focus on delivering value in a form most acceptable to clients. And that required changes to our business model and investment priorities, along with significant effort to redirect institutional inertia. But it was an effort that has been well-rewarded. Norm: This leads us next to the “I” in LISTEN. Can you explain, Regina? Regina: Certainly. Our first response was to become experts in fixed-fee pricing. This fit well into what we were doing on 112 www.iltanet.org Peer to Peer the project management side of things and leveraged our time-capture technology. Hiring outside pricing and project management specialists really paid off. In fact, our strategy worked a little too well for some, at first. With greater efficiency, we found ourselves with increased capacity and a need to focus on refilling that capacity with profitable work. So we took a step back to consider how we could take the new services and capabilities we had developed in order to drive revenue and profitability. One example of this was our efforts to review internal knowledge management sources, identify key elements of our intellectual property and experiment with ways of packaging these elements commercially. Norm: That’s our segue to “S,” Scalability. Michael: Exactly. We had the model in place; if we were going to make any real money, we needed to grow. That meant creating the right infrastructure, which Natalie can go into in greater detail, but I would point out that this all required a significant investment. And that meant we needed buy-in at the board level. Change management was also critical; we had to modify the long-standing model. Norm: Meaning leverage? Michael: Right, at least as constituted by the traditional pyramid model of two to three associates per partner or shareholder, plus paralegals and staff. Instead, we turned Leverage into a four-letter word — risk — and emphasized the scalability of delivering our lawyer’s legal expertise efficiently to as many customers as possible. We also had to build a sales and marketing machine to enhance our differentiation and ramp up customer acquisition.