White Paper: “The Unavoidable Reality” & How Inefficiency Hurts Law Firms

Topics: Billing & Pricing, Client Relations, Corporate Legal, Data Analytics, Efficiency, Law Firms, Thomson Reuters, White Papers

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In a new white paper, The Unavoidable Reality: Inefficiency Can Have a Significant Economic Impact on Law Firms, author William Josten, a Senior Legal Industry Analyst at Thomson Reuters’ Legal Executive Institute, makes the case that inefficiency is not only slowing productivity at many law firms, it’s hurting the bottom line as well.

Ralph Baxter, a Senior Advisor at Thomson Reuters Legal and Chairman of the Advisory Board of the Thomson Reuters’ Legal Executive Institute, writes that Josten’s white paper “makes a simple and important point: the revenues that law firms believe would be lost if they became more efficient are illusory.”

Baxter continues on to explain that Peer Monitor research shows that, in actual practice, a combination of concessions results in firms not being paid for unproductive lawyer time. “These concessions include up-front rate discounts, billable time written off before bills are issued, time not recorded by the working lawyers, and further, post-bill cuts demanded by the client. It is axiomatic that these concessions occur most commonly and deeply when lawyer time is inefficiently deployed,” he explains.

Baxter, who has blogged before on these themes, adds that “firms would be better off adopting more efficient service models, devoting fewer hours, but actually getting paid for the hours devoted. Revenues would remain constant, profits might well increase, and lawyers and clients would be more confident that the whole process made sense.”

Excerpt of The Unavoidable Reality:

When law firms seek to reduce the price they charge without undertaking simultaneous steps to control the actual costs incurred by the firm in representing the client, the firm runs a strong risk of sacrificing profit for the sake of protecting revenue.

Thomson Reuters' Bill Josten

Thomson Reuters’ Bill Josten

The Thomson Reuters Legal Executive Institute conducted a survey in September and October of 2015 to attempt to qualitatively assess law firm approaches and attitudes towards various client billing strategies and to quantitatively analyze the potential economic impact of these various approaches. The findings of the survey strongly suggest that many of the price control methods used by law firms leave firm leadership largely blind to the potentially damaging economic impact of simply “making the bill work” rather than managing the process and effort involved in a matter to deliver value and predictability, while minimizing waste.

The survey focused on price management at a few key stages of the matter:

  • Up-front discounts off standard hourly rates, often used to secure the client’s business;
  • Time that is spent on a matter but never reported;
  • Review of the proposed client invoices wherein the partners make adjustments to the bill, what we term for the purposes of this paper as a pre-bill write-down; and
  • Challenges by the client to the cost of the bill resulting in additional reduction, what we term for the purposes of this paper as a post-bill write-off.

You can download a copy of The Unavoidable Reality, and a copy of the of the full survey results on which the paper was based.