From August 13th to the 29th, I had the great good fortune of touring Australia with my colleague, VeraSage supporter, lawyer, and legal consultant John Chisholm.
It was an amazing journey. I met several incredibly interesting and gracious people, went to an Aussie Rules football game, drank way too much OZ wine (all excellent!); got my butt kicked on the golf course by John; flew several non-United airlines (a reminder how valuable 1K status truly is); did sixteen speaking engagements over 11 days and 5 cities—Gold Coast, Sydney, Brisbane, Melbourne, and Geelong—including the ALPMA Summit, 11 law firms, a Young Lawyers group, ACLA members (General Counsel association), and a meeting with government officials.
As you can imagine, it’s hard to summarize such a tour, but here are some of the interesting insights I came away with:
- The Young Lawyers I spoke with were blown away with the concept of a “knowledge worker.” Essentially I told them that all the talk about Baby Boomers, Gen X, Gen Y, etc., was nonsense on stilts. The real change in the economy is the transition from industrial/service to intellectual capital, and the knowledge worker theory is far more robust and predictive of what the workforce is undergoing. Gen X, Y, etc., is as useful as reading your Horoscope—it’s absurd to stereotype people based on the year they were born.
- I believe law firms in Australia are further behind the accounting firms in implementing and experimenting with Value Pricing. I think both sectors are far behind the USA in pricing generally. That said, there is the same level of interest among both countries, as firm leaders sense that the billable hour’s days are numbered.
- The general counsel group and individuals I spoke with are very interested in the Value Pricing message. All expressed a desire to have a “value dialogue” with their law firms, to help them understand value. All would willingly pay a premium for certainty in price. Law firms, are you listening to this?
Liz Harris, a consultant and friend of VeraSage whom I had the pleasure of meeting for the first time and spending time discussing our Quest, taught me that the GCs in Australia are far more concentrated than in the States, and thus could definitely exert more influence in getting law firms to change pricing strategies.
This runs counter to my strong opinion that sellers change pricing strategies and business models, not buyers. However, I concede she makes a compelling point, and I would be all for buyers helping force law firms to change. I remain totally unconvinced, however, that buyers have the economic power—or incentive—to accomplish this.
To support my contention, I issued the GCs the following challenge: Stop issuing tenders (RFPs) asking for hourly rates. Simply insist on your law firms quoting fixed prices for a fixed scope of work. Period. If they continue to give firms the option, out of pure inertia firms will default to hourly rates.
Of course, some GCs are as mired in the billable hour mentality as are law firms, so this is not as easy as it sounds. I hope proponents such as Liz and John can get in front of more GCs to explain the benefits of Value Pricing for both sides.
- The Global Financial Crisis (GFC) was milder in Australia than America, and the leading indicators point to them already coming out of a shallower downturn. This lessens the pressure on firms to change pricing strategies. The news of Pfizer forcing its outside counsel into fixed prices—and less profit—did send ripples of fear over law firms, as well as procurement beginning to get involved in negotiating law firm pricing. Whether or not this forces widespread change remains to be seen.
- John and I met with government attorneys who understand the need for change. Like the general counsel we met, they, too, left the practice of law firms because of the timesheet and billable hour treadmill. How do their employers know if they are producing without timesheets? The question seems sort of silly, doesn’t it? After all, the private sector doesn’t use timesheets.
- Several law firms have sprung up that offer alternative pricing, such as Optim Legal, Advent Lawyers, and Marque Lawyers. I had the pleasure of meeting the directors of the first two, and I applaud their efforts to offer innovative pricing alternatives to hourly billing. However, I do not understand why they are using a “penetration” pricing strategy. I believe they should be using a “neutral” or better yet, a “skim” pricing strategy.
- Michael Stewart from Integrity Financial Solutions, a VeraSage Trailblazer firm, hosted a seminar I gave to a mixed audience of professionals. I also met the CEO of APS, a large software firm that is working on a project management and pricing module for accounting firms. If more software firms begin to offer alternatives to their time and billing programs—literally the buggy whip of the knowledge economy—that would certainly validate the concept of Value Pricing, the uselessness of timesheets, and would help diffuse the ideas faster.
- I had the pleasure of finally meeting Matthew Tol and some of his team in Geelong. Matthew is a VeraSage Trailblazer firm that thoroughly understands that valuing knowledge by tracking time is the equivalent of plunging a ruler into your oven to determine its temperature—it’s simply the wrong measuring device.
- I also met some folks who truly don’t understand the concept of Value Pricing and are mired in the Old Practice Equation, with its obsessive focus on efficiency, realization and hourly rates. Some of these are employed in very large firms. I came away thinking large firm equals small brain; larger firm equals even smaller brain.
I asked this one question every time I encountered one of these proponents of The Firm of the Past: Do you really believe that the value of Jonas Salk’s polio vaccine is determined based on how long it took him to develop? To ask the question is to answer it—unless you lack intellectual curiosity, not to mention honesty.
- The billable hour has had an deleterious effect on the “trusted advisor” role of lawyers. It has created a zero-sum mentality between client and lawyer, with both focusing on how much the one gains at the other’s expense. It has allowed both sides to disregard the creation of value—the very reason law firms exist. Even Pfizer does not understand this, which is why I find the video of the GC so repugnant—specifically the idea that law firms will have to live with less profit (I totally agree with them, however, for forcing their law firms to change pricing strategies). Why can’t both sides create and capture more value?
- For two great articles on what’s happening in Australia, check out John’s “It’s time to get rid of those silly, unnecessary timesheets” and “Seeking a price model that will fit the bill” (which quotes Liz Harris). You will be hearing more from John in the future.
- I’m beginning to develop a “pincer claw” theory of change: there are several pincers squeezing the old “we sell time” business model—general counsel, government regulators, young attorneys who don’t want to be a prisoner to the timesheet, the competition for talent, the GFC, competition from upstarts such as Optim, Advent, Marque, among others, and partners themselves who intellectually understand that time does not equate to value but who are too risk-adverse to do anything about it. The confluence of these pincers, it seems to me, will bring about change one way or another. It’s just a matter of time. And, of course, progress will happen funeral by funeral. Sorry, but it’s true.
- I met and had dinner with the father of Hamish, of the famed OZ national radio program Hamish and Andy. The significance of this is that Hamish and Andy are responsible for the “Street Accountants” video clip that we’ve played for audiences around the world (first shown to me by Tom Hood of the Maryland Association of CPAs). One of the best clips ever made!
- John and his welcoming wife Karen showed me hospitality over and above the call of duty, allowing me to invade their home for a week and get to know some of their family. John also shared several fantastic bottles of wine, as did many of the firms I presented to. For more on Australian wines, subscribe to John’s newsletter where his lovely daughter Kate will introduce you to many boutique wineries that you will love.
- I’d like to know how Ozzie’s compute golf handicaps? John told me the entire trip he was a 20, then when we played 9 holes and he shot a 40, while I spent my time duffing around in every sand trap on the course. 20 my (Aussie) foot!
- OK, I’d be remiss not mentioning by far the highlight of the trip: I learned I would have been a great goat racer. Attorney John de Groot gave me a signed copy of his book, Memoirs of a Goat Racer and more, which I will always remember. You can learn more here.
All in all, this was a great trip and an incredible learning experience. John plans to visit the United States, and if you are interested in meeting him, please contact him or me directly.
The billable hour is on the defensive around the world. I’m still waiting for someone to defend it with an argument that VeraSage hasn’t nuked. Some are still trying, but I’ve yet to read or hear anything new in its favor in the 15 years I’ve been on this Quest.
It’s simply the wrong theory of value. And just like your high school algebra class, if you begin a long problem with the wrong first answer, it doesn’t matter how efficient you are in the rest of your work, it’s will still going to turn out wrong.
Let us hope law firm leaders in both the USA and Australia have the vision, fortitude and guts to put the billable hour where it belongs—its grave. R.I.P.