Outcomes and Hours
The more law firms use AI, the less like law firms they’ll become?
If the integration of AI adoption challenges the traditional law firm models of “billable hours on repetitive tasks”,
argues that AI integration may herald new legal business models, emphasizing outcomes over hours. Yet, the notion raises the question: aren't law firms already outcome-focused in their billing practices?Enhancing Productivity with AI
The ability of AI to enhance productivity by accomplishing more with less is well documented. The day before Furlong wrote about the metamorphosis of the law firm, Prof Ethan Mollick’s AI experiments demonstrated the potential of AI tools to streamline marketing tasks. It’s worth thinking about billable hours while watching the video of Ethan Mollick’s 59-second AI experiment last week, in which Mollick launches a new product, writes a market research report, creates on-trend designs for a kitchen, makes an entire PowerPoint, and crafts a course syllabus. All at the same time, in 59 seconds.
Does this efficiency challenge a business model predicated on time spent?
Augmenting Creativity and its Implications
AI's capability to elevate creativity offers another dimension to this discussion. The rapid enablement of junior associates to match the creativity levels of seasoned lawyers hints at a future where creativity is paramount. However, Furlong argues that the current legal billing model seldom rewards creativity directly, with the creative insights of senior lawyers often undervalued in the grand scheme of billable hours:
Senior lawyers and experienced advisors use their creativity more often, but their minute of creative insight is worth 1/60th of their hour of travelling to a deposition.
Challenges and Opportunities of AI Integration
Furlong claims that when measuring time is impossible we will see “a sector-wide organizational metamorphosis” in the legal industry. He writes:
[T]here’s a bigger problem here for law firms. By integrating into their business a new technology that improves both efficiency and creativity, they are playing against their own strengths. Law firms don’t make money by being efficient — no business that sells its work and compensates its workers on the basis of time and effort has any interest in efficiency. Law firms make money by having lawyers perform legal tasks thoroughly and painstakingly, rewarding those lawyers for volume of work completed rather than the quality or impact of results.
What’s the Value in an Hour?
Contrary to Furlong's view of an impending "sector-wide organizational metamorphosis," my experience suggests that the essence of legal billing will remain unchanged.
Demand for legal services, rather than the measurability of time or effort, has always dictated lawyer rates.
Demand for the value of a law firm's output is deeply considered even at the point of invoicing. How many times, before an invoice goes to a client, has a partner cut a double-digit percentage from the bill? Simply because the value received doesn’t feel quite right, or the new associate ran into a research thicket too tough for their skills, or the client is being battered by an unforgiving counterparty.
While the billable hour is on the invoice, the raw value of a law firm’s service is always deep in the mind of the invoicing firm. And it’s the only reason clients ever retain a lawyer.
What Will AI-powered Law Be Worth?
It’s the unpredictability of legal work, rather than the value of time or effort, that has always prevented moving to fixed rates. We’ve always been able to wink at the superficial story surrounding the hourly math because the truth is that we often don’t know how much value our work will provide when we agree to provide it.
The advent of AI may or may not necessitate a new fig leaf that allows law firms to charge what the market will support for the value we provide. But the demand for quality and outcomes, far from being a new business model, has always been a basis for billing practices. AI, while introducing new efficiencies, does not alter this underlying principle.
> How many times, before an invoice goes to a client, has a partner cut a double-digit percentage from the bill?
Incredible. I mean, of course this happens, but as a non-lawyer this is the first time I've thought about how the market incentives influence billing for legal services. So effectively legal service prices correlate with perceived output value, and the hourly rate serves as a sort of anchor point to manage customer/client expectations.
Using a toy scenario just to feel out order-of-magnitude effects, how do you feel pricing would be effected if AI tooling were to cut billable hours by 2x? What about 10% vs 10x? For small perturbations, I would guess that quoted hourly rates and/or our calibration discounts could move to absorb the difference; however, an industry-wide 2x price hike over a short period seems very unlikely, so what would give?