{"id":2290,"date":"2018-02-01T10:43:33","date_gmt":"2018-02-01T15:43:33","guid":{"rendered":"https:\/\/gutenberg-atl.staging.breakingmedia.com\/legal-innovation-center\/?p=2290"},"modified":"2018-02-01T10:43:33","modified_gmt":"2018-02-01T15:43:33","slug":"changing-attitudes-to-technology-starts-with-incentives","status":"publish","type":"post","link":"https:\/\/abovethelaw.com\/legal-innovation-center\/2018\/02\/01\/changing-attitudes-to-technology-starts-with-incentives\/","title":{"rendered":"Changing Attitudes to Technology Starts with Incentives"},"content":{"rendered":"

\"\"Technologists seem mystified that lawyers don\u2019t embrace efficiency-enhancing innovations. Despite our reluctance to face it, as lawyers, we need look no further than our rewards structure to see why. Billable hours reward inefficiency. And that rewards structure has remained in place with the help of ethical fading<\/a>. We think that we\u2019re simply using the existing business model for our benefit. We use our history and familiarity with the billable hour framework to ignore that our goals and our clients’ goals are at cross-purposes.<\/p>\n

Most analysis of the stymying effects and unintended consequences of the billable hour leads to the conclusion that we should eventually extinguish it and move on to alternative fee arrangements. Still, the billable hour model is ingrained in our culture and our business. What if we didn\u2019t have to change everything? What if we only shifted something<\/em>?<\/p>\n

Consider shifting our focus to realization rates\u2014a metric that most firms already calculate\u2014instead. I posit that tying realization rates to compensation would align lawyer goals with client goals. Ultimately, it would encourage efficiency. This suggestion seems indirect and attenuated, but it’s non-threatening, and it just might work. It\u2019s certainly worth investigating. And this change would open the door to a culture that values change.<\/p>\n

Realization Rates and the Downward Trend<\/h2>\n

Realization rates are a key performance indicator for firms. They matter because, unlike billable hours, which reflect hours of effort regardless of value, realization rates reflect actual income to the firm. Currently, realization rates are falling<\/a>.<\/p>\n

According to the Dynamic Law Firms Study<\/a>, some dynamic firms are bucking the downward trend in realization rates. These firms are doing two things differently: they\u2019re embracing technology to improve workflows and they\u2019re investing in improving client relationships.<\/p>\n

Realization Rates Can Create an Efficiency-Driven Culture<\/h2>\n

The connection between embracing technology, improving client relationships, and increasing income is not an obvious one and should be explored. It\u2019s easy to simply assume that using technology would reduce billable hours, and therefore reduce the pool of possible hours that could be paid by the client. However, the reason people think that way is the nature of compensation.<\/p>\n

Compensation that rewards billable hours discourages efficiency. And so long as hours realized are seen as merely a subset of hours billed, change will be thwarted. Realigning our rewards system to link compensation to realization rates\u2014not just billable hours\u2014would facilitate change.<\/p>\n

Here\u2019s how it’s all connected:<\/p>\n