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Ron Baker - 01/10/2012
Nearly ten articles have been published on Holland & Knight’s Lobby Division saying bye-bye to the billable hour.
Actually, they are saying bye-bye to timesheets, as most of the revenue from H&K’s lobbying group was already on a fixed-price basis.
The first article was in Politico on December 13th. It quoted Rich Gold, head of H&K’s public policy and regulation group:
I think if you look out 10 years, this will be a very large trend...and we could either lead or follow.
Our favorite line from this article is from Ivan Adler, a headhunter with the McCormick Group:
This has the potential to be a real game breaker in law firm recruiting because it opens up a new vein of talented folks who have previously shunned law firms like a fruitcake at a Christmas buffet because of the billable hour.
Another telling fact from the article is:
Several former aides-turned-lobbyists said they opted for consulting firms and lobby shops over law firms for two reasons: Nonlawyers are treated like second-class citizens at firms, and they didn’t want to have to keep track of their time.
One of the issues that must be addressed when moving away from timesheets is how will the firm allocate revenue per person going forward if there are no timesheets.
Another article, dated December 14th, from The Washington Post explains how H&K will account for revenue:
Now, instead of billing hours to a matter, Holland & Knight will allocate upfront a portion of the monthly or yearly retainer to each individual working on the matter, based on estimates of how much they’ve charged in the past.
Ed Kless and I were privileged to be involved with H&K’s transition, working with Rich, Friedrich Blase, and several other partners from the PPRG group.
The group innovated the “Client Value Share” KPI. Since the price to the customer is already fixed, this KPI is a way to allocate, prospectively, that value amongst the team members who will work on the matter.
The beauty of this KPI is it forces the team to collaborate, upfront, on who will handle what, and decide what the value contribution will be from each person.
Someone may bring incredible value to the engagement but have relatively low billable hours. The CVS KPI will now account for that discrepancy.
And since the CVS is decided upfront, there will be less conflict regarding write-downs and allocations that are a normal part of the timesheet culture.
If someone on the team doesn’t pull her weight, the CVS can be adjusted, and reasonable people should be able to agree on that process.
This is a momentous change within the culture of H&K, and we applaud the vision, leadership, and courage of Rich, Friedrich, and the other partners, who understand what an enormous competitive advantage this will bring to the firm’s ability to attract top talent, while providing a better level of service to its customers.
It is one more data point that the naysayers, who believe it’s not possible for a law firm to eliminate timesheets, will have to contend with.
Ron Baker - 01/04/2012
Our good friend Mark J. Koziel, CPA, and Vice President—Firm Services & Global Alliances, at the AICPA, has written a response to Richard Muscio’s blog post on the CPA Horizons 2025 Report.
Mark has also agreed to hold a conference call on January 19th, at 12pm (PST). If you are interested in attending, please email me at: .
Here is Mark’s reply:
Dear Richard,
I would like to thank you for highlighting the AICPA’s Horizon’s 2025 project. I wanted to respond to some of your statements regarding the result of the report and further elaborate on the report’s outcome and potential use to you and others within the profession.
As Tom Hood stated in a previous comment, this process was designed to get CPAs thinking about the future and looking at trends that affect our profession and what the profession, as a whole might look like.
The intent of the Horizon’s project is for each individual CPA to read the report and determine what affect it may have on their career. We are a diverse profession and this report is intended for all CPAs, not just those in public practice.
Your first observation stated the report concluded that “the services that CPAs provide have become so varied and diverse that the concept of core services is no longer representative of the profession.” This quote is not the ultimate summary of the report but just one of the findings based on updating the original Vision Project.
In the U.S. there are 15,000 publicly traded companies, 29 million small businesses, as well as not-for-profits and governments on the local state and federal level and they all utilize CPAs in different ways. The same way the core services of an FBI agent who is a CPA differ from those of an M&A consultant—no two clients are the same.
The key point is this: Because of their foundation in the core services of the profession, CPAs have been able to broaden their offerings, targeting areas of need for their clients and employers. I am a good example: of my 4 key job areas, only two would fit in the five core services listed in the Vision Project. Like me, many CPAs are expanding their services beyond any type of core financial position. The Core Values and Core Competencies help drive that.
You do bring up a great point that CPAs need to ask their customers what they want and what they are looking for, beyond just what they need. We encourage this of members through our client advisory board toolkit available to AICPA member firms who are part of the Private Companies Practice Section (PCPS). The Horizons 2025 report also touches on this concept in each of these four sections:
- Trusted Advisor
- Market Permissions
- Marketplace
- Value Proposition
The key is to look at each of those areas, along with all of the sections to see how they will impact your practice in the future. We provide firms who are members of PCPS with a Horizon’s Facilitator’s Guide to help firms take the information in this report and make it relevant to their organization.
We are doing this with some of our AICPA committees to drill down and see how the results of the report will affect each of their areas differently.
In your post, you state there were three conclusions. All three conclusions appear to be from the conclusion to the Technology Insight section. Your post focused primarily on technology, but the Horizons 2025 report covers many other areas.
You are correct that technology cannot replace face-to-face meetings but technology can enhance those meetings. While some in the profession may be wary of social media, we should not block our young professionals from developing online relationships and networking with their peers.
I would look forward to discussing any of these items in person and I’ve asked Ron to set up a web call with the Verasage community to discuss this report. Again, I thank you for your interest.
Ron Baker - 12/29/2011
I was happy to be interviewed by Tony Powell, my old editor from CCH.
He’s writing a three-part series on ethics, and interviewed me for the first installment on “The Origin of Ethics.”
The interview was published in the November 2011 issue of CPA Practice Management Forum.
You can read the entire article here.
Ron Baker - 12/20/2011
Richard Muscio is long-time friend of VeraSage.
He recently read the AICPA’s ”CPA Horizons 2025” report, and was inspired to write this post.
Since we here at VeraSage love a great debate, we’d love to hear your opinions with respect to this report, and Richard’s comments on it.
From Richard:
I just finished reading the recent report titled “CPA Horizons 2025,” which was put forth by the American Institute of Certified Public Accountants to describe both the current state as well as the future of the CPA profession.
Please allow me a couple of minutes to stretch my 6’2” frame, because to be able to read this report, I had to cram myself into a very small box.
The CPA Horizons 2025 report concluded that “the services that CPAs provide have become so varied and diverse that the concept of core services is no longer representative of the profession.”
This conclusion was reached based on interviews with approximately 5,600 CPAs.
To test the veracity of this conclusion, I emailed 17 customers, and asked them: Excluding me, since I am special (well, at least according to my mother...), what services to you think of when you think about what CPAs do? I received 14 responses.
13 customers said, in effect, that CPAs prepare income tax returns and financial statements. One customer said CPAs help their business customers to sleep better at night.
I like this last answer, but this particular customer never follows instructions, so I will disregard it in context of my specific question. I am glad, however, that this customer sleeps better since we started working together.
So the next question: if the AICPA-interviewed CPAs say that core services (preparing tax returns and financial statements) is no longer representative of the profession, then why do customers of CPAs not seem to know that? Let’s look for answers by reviewing the conclusions in CPA Horizons2025.
The first conclusion: the world is now driven by technology, and CPAs need to change how they do business to accommodate this fact. Really, the AICPA needed to interview 5,600 CPAs to conclude that?
The second conclusion: the CPA profession must find solutions to offer investors and stakeholders up-to-date, real-time financial information, because of how fast the business world now moves due to technology.
Okay, I’ll give the AICPA credit for pointing out that having financial statements that are current as of yesterday is an improvement over having financial statements that are only current as of last month of last quarter.
However, in both cases, both of these results are the recitation of history. Whether you are looking at last month’s bank reconciliation or yesterday’s bank reconciliation, in both cases you are looking at the past.
How about CPAs helping their business customers to predict how much cash the business will have in the bank at the end of next week, next month, or at September 30, 2012?
All of the technology in the world does not matter if CPAs cannot start to help their customers by looking through the front windshield of their car while they are driving, as opposed to trying to drive the car by looking through the rear-view mirror.
Objects in the mirror are closer than they appear: could that object be the irrelevance of the CPA profession in the economy of the future?
If CPAs cannot help customers to peer intelligently into the future, then irrelevance of the CPA profession will certainly be the result.
An additional benefit should result, that is to say, fewer accidents will happen. And for those of you who have forgotten Enron and Qwest, I offer you the recent explosion called MF Global.
The third conclusion: CPAs must embrace mobile technologies and social media to modernize and enhance interaction and collaboration with clients (AICPA’s word, not mine) and colleagues.
I flat out disagree, because my customers want consistent and repetitive face-to-face interaction, which includes ideas for value creation. The technology is merely how we transmit certain information.
I will in fact argue that the most valuable resource a CPA can create is a vast and talented and multi-disciplinary network of complementary professional (and other) services providers, that can assist customers with virtually any need that the customer may have, CPA service-centric or not.
This is not accomplished through spending one’s days typing emails and playing with the latest and greatest technology, it is accomplished through constant contact and face-to-face interaction.
I will further assert that tremendous improvement in technology has caused “reverse delegation” in the CPA industry, that is to say, multitudes of CPAs are now performing data-input based tasks because of the ease of use of technology, and given how much compliance work exists in the profession, many CPAs I know are so “busy” (man I hate that word...) that they have no time or energy to actually think about the future, whether their own future or their customers’ futures.
The thought occurs at this point whether perhaps the AICPA should have interviewed 5,600 customers (or in the AICPA’s words clients) of CPA firms instead, because it doesn’t sound like very many of the 5,600 CPAs who were interviewed asked their customers what they want (not “need") from the CPA profession.
But perhaps that would have been difficult, I suspect some of the answers may have been hard to listen to, let alone to meaningfully respond to.
All of these conclusions beg the same question for any individual CPA: what business am I really in?
If for example 90 % of your revenue comes from preparing income tax returns and financial statements, then you are not a CPA you are a historian.
The larger question becomes: how do I differentiate myself from my CPA competition? What is exactly at stake if I am unable to differentiate?
The fact is, most CPAs could not even sell cheeseburgers to the Donner party. I looked at 8 CPA firm brochures (yes on paper, not on the computer) and they all basically say the same thing: “we provide full-service income tax and financial statement preparation services that are of very high quality.”
They also all have a lot of pictures of men 55 and older wearing dark suits. No differentiation there.
How can consumers of CPA services know what CPAs are actually capable of when most CPAs cannot differentiate among themselves or away from traditional services? You are what you do (not say) every day, and consumers respond accordingly.
Next time, may I suggest to the AICPA that you interview 5,600 customers of CPAs? I’ll bet your conclusions would be different.
As the to relevancy of my profession in the economy of the future, if this report is the best that the AICPA can do, then I think I will call my stockbroker to buy short against my profession’s stock.
Ron Baker - 11/20/2011
Dan Morris and I will be conducting the Sole Proprietor’s Retreat this December 9-10 for the California CPA Education Foundation. This 1.5 day program was designed as a way to give sole props the opportunity to have a retreat with their peers, since they don’t have partners.
It was a predecessor program to the Firm of the Future Symposium, but designed specifically for sole props and all the issues they face.
Ric Payne has agreed to offer a 12-month membership to the Principa Alliance, which provides access to its Practice System (a $1,295 value).
If anyone is interested, don’t hesitate to contact me, or Dan. We always limit the participation to 7-12 to make the group more intimate.
Also, if you could help spread the word that would be much appreciated.
Ron Baker - 11/18/2011
Thanks to our senior fellow John Chisholm for sending along this article from the Brisbane Times.
Another example of how the billable hour creates a perverse incentive to do the wrong thing.
Ed Kless - 09/30/2011
Yesterday, I delivered a four-hour session on the Firm of the Future for IT industry media and analysts at the behest of Melody Chalaban on Sage North America’s media relations team. I want first to thank her for the opportunity and organization of the event.
Second, I want to thank Sage Partners and Firms of the Future, John Shaver from Aries Technology Group, creators of Bob’s Barbecue, Keith Greeno of Asyma Systems, and Peter Wolf from Azamba Consulting. (As you can see I am through the A’s with regard to flipping firms.) These three gentleman did an outstanding job of explaining how they have implemented the ideas that I only speak (some might say blather on) about.
Third, a shout out to Ron Baker whose books The Firm of the Future and Implementing Value Pricing are the basis for this material.
For your viewing pleasure here are the slides and for your listening pleasure a link to audio from the second half of the of the call. Unfortunately, the dog (i.e., my Windows PC) ate the first half of the audio.
ET HORA LIBELLUM DELENDA EST
Ron Baker - 09/15/2011
The following is from VeraSage Senior Fellow John Chisholm in Australia:
Slater & Gordon announced last week that they were rolling out fixed fees in their Family Law practice.
Slater is not, of course, the first law firm to offer fixed fees in Family Law and will not be the last. Many smaller firms have been offering fixed fees for years, both in Australia and in US, but Slater is the first high profile national Australian firm to publicly announce a move away from time-based billing—albeit at this stage at least in one area of their practice.
In some respects it is not surprising a firm that first gave Australia “No Win—No Fees” and the world the first publicly listed law firm would take yet another radical step into moving away from time based billing.
Just as Slater & Gordon proved to all the sceptics who said “you cannot successfully float a law firm because...” totally wrong, they, together with a growing number of other law firms, will again show the conservative members of our profession who still say “you cannot fix legal fees because...” totally wrong as well.
Agreeing prices up front at least provides some certainty to clients in the often uncertain and foreboding world of law. It not only benefits their clients but as Slater will find out just like all the other firms who have made the move to non time-based pricing have discovered, it is a much better and more satisfying way of practicing law.
John and I have had the opportunity to discuss this transition with Ian Shann, Slater’s Family Law National Practice Group Leader. He is responsible for the pricing initiative, is an advocate for getting rid of timesheets, and implementing a ROWE.
Congratulations to Slater & Gordon on being a Trailblazer Down Under.
Here is more information on Slater & Gordon bold move.
Chris Merritt speaks with Slater and Gordon’s Ian Shann about a breakthrough in family law—fixed fees.
Herald Sun: ”Legal firm offers couples a fixed-price divorce”
The New Lawyer: ”Slater & Gordon launches fixed fee service”
Lawyers Weekly: ”Slater & Gordon launches fixed fee service
The Australian: ”Slater & Gordon to drop billable hours for family law”
Ron Baker - 09/09/2011
From the September 9-15, 2011 Pittsburgh Business Times comes this article quoting Stephan Liozu on the idea of appointing a Chief Value Officer.
I met Stephan at the Professional Pricing Society conference in Chicago last April. We are collaborating on a book chapter, dealing with the C-level position of CVO.
Ron Baker - 08/20/2011
An interesting article ran in Lawyers Weekly, May 7, 2010, by [star] reporter Angela Priestley: “Blasting Billable Units in the Top-Tier.”
Australian firm Freehills’ managing partner, Mark Rigotti, discusses his views on “alternative pricing strategies.”
But he’s not so sure the demands from clients are as intense as people think. Here’s an intriguing line:
Like all trends, it might be a little over-baked at the moment. I say that both from the client and law firm’s perspective. Hourly rates still feel like old slippers, they might be a little worn and a little ragged to look at, but they are still something that are comfortable.
This is similar to what King George III wrote in his diary on July 4, 1776:
Nothing of importance happened today.
Yet the firm has formed a pricing committee, while Rigotti admits:
Freehills needs to be at the vanguard on it and needs to be understanding and participating in it—instead of just waiting for it to happen.
One is left wondering why you’d want to be in the vanguard of an “over-baked” trend?
He cites an example of a client who refused an alternative pricing structure and stuck with the billable hour.
Sure, if you give them an option. But law firms—especially those in the top-tier—are going to have to learn that sellers change pricing strategies, not buyers.
If the only way to become a customer of Freehills is to accept its pricing strategies, then client’s reluctance will wane very fast.
Do you see sports fan revolting at teams adopting “dynamic pricing"—that is, charging different prices for different games, times, etc.?
At least Rigotti understands the big issue:
The debate about alternative billing is not about discounts, it’s about value. It’s not a threat, it’s an opportunity for both clients and for law firms.
If that’s true—and it is—then why say one thing and continue to do another?
Why the reluctance to throw away those ratty old slippers, Mr. Rigotti?
Lawyers_Weekly_Freehills.pdf
Ron Baker - 08/17/2011
David Vilensky, managing partner of BBV in Perth, Australia, is profiled in this article from the Australian Financial Review.
It’s an excellent explanation of the effects on collaboration, attitudes, and customers when you have professionals work in an environment that doesn’t track time.
Congratulations, again, David, and the entire Team at BBV.
BBV.pdf
Ron Baker - 08/07/2011
Steve Pipe, founder and head of research for AVN, an association of over 200 UK accountancy firms, has published a very inspiring book, The UK’s Best Accountancy Practices.
The book profiles 41 firms, all of them having implemented Value Pricing, some trashed timesheets, and one has started a ROWE.
It’s great to see these ideas diffuse in the UK, and this book will spread the word and provide the impetus leaders need to change the dying business model of “We sell time.”
My only (minor) quarrel with the book is it does not include our own Paul Kennedy—and his firm OBK—who I’m sure blazed the trail long before any of the firms profiled.
Congratulations to Steve Pipe and the AVN Network for advancing the posterity of the profession.
Ron Baker - 07/17/2011
David Vilensky, managing partner of BBV in Perth, Australia, wrote an article for the current issue of IFA magazine, which he generously shared with us.
David_Vilensky_article.pdf
Thanks, David, for such a cogent explanation of the salutary effects of fixed pricing.
Ron Baker - 07/01/2011
VeraSage Senior Fellow John Chisholm gives us and update on happenings Down Under with respect to Value Pricing:
This recent article from 23 June Western Australian Business News highlights that some progressive and innovative firms have “seen the light” and are slowly but surely “coming out” publicly in their move away from hourly billing.
BBV_OZ_ARTICLE.pdf
Bowen Buchbinder Vilensky (BBV) is one of the Perth firms leading the change.
David Vilensky, BBV’s Managing Partner, who is now a good friend of Ron and I and a zealot for non-time pricing would be first to admit than when he first heard me speak on the topic at a Law Australasia Conference 2-3 years ago he was far from converted. Both at that conference, and subsequently, we engaged in many discussions and debates on the topic.
However, David is not the sort of lawyer who simply closed his mind when someone didn’t agree with him, but rather thinks deeply and rationally about any topic he is discussing (well maybe not his football team West Coast Eagles).
Over time, as he engaged further in discussion and became more and more widely read on the topic (including buying Ron’s books), he decided moving away from hourly billing would be good for his firm.
After hearing Ron speak further on the topic, and as a sign of his and his firm’s commitment to the transition, last year David went to the trouble and expense of closing his firm down for a day and taking every single member of his firm to hear Ron and I address them on Value Pricing and Firm of the Future concepts.
After that, there was no turning back, as evidenced by his statements to the press, his passion when you speak to hi and when you look at BBV’s website explaining its pricing philosophy, the transition has been nothing short of amazing.
Whilst primarily because they are a bigger firm, and the pace of change is often slower, Lavan Legal, too, is committed to moving away from hourly billing ever since the late, great Paul O’Byrne and I met with them some years ago.
They too have had Ron and I involved in speaking to their partners and in my case their whole team over the last year or so and are well on the journey.
The other largest independent law firm in Perth, Jackson McDonald (who also had Paul and I address them on this topic 5-6 years ago) whilst I sense lagging somewhat behind BBV and Lavan Legal, have nevertheless set up a Pricing Council and are still grappling with the challenges of moving away from the time costing and time recording addiction.
There are other smaller firms in Perth that have or are making the transition and of course whilst still in the absolute minority they add to the growing number of professional firms in Australia that have publicly come out and are informing their clients and the public of their moves to non-time based pricing.
Their names are added to other Australian firms that proudly display their non- time based pricing options on their websites, including good friend and VeraSage Trailblazer Matthew Tol’s mta optima; Michael Bradley’s Sydney commercial firm Marque Lawyers; Melbourne and Geelong law firm Harwood Andrews; Canberra law firm Snedden Hall & Gallop; and accounting firm LBW, just to name a few.
Then of course there are those myriad of firms that whilst not so public about it (they see it as a competitive advantage and/or have not quite reached the tipping point in their firms yet) are nevertheless genuinely offering non-time based options to their clients in increasing frequency as they increase their competency and confidence in value-based pricing.
There are also an increasing number of customers of professional firms in Australia who now insist on fixed prices from their providers and thank goodness this shows no signs of abating as more and more clients and their firms experience the enormous mutual advantages. Some of these clients are more than ably assisted by Verasage friend and colleague Liz Harris of Allocatur Consulting.
A long way to go and it is literally one small step at a time and whilst we would all love to see these steps go from a walk to at least a jog given that most firms were either crawling or worse still heading in the opposite direction for the last 30 years, all indicators are that the steps are at least heading in the same direction.
Thanks John. I’m honored to have played a (very) small part in spreading the word Down Under, along with Paul O’Byrne, and Jay Shepherd.
But I think all of them would agree the credit goes to your indefatigable work and enthusiasm in spreading the message, and converting one mind at a time.
Ron Baker - 06/07/2011
The Institute of Chartered Accountants in Australia publishes a monthly audio program called “Business in Focus.”
I was honored to be interviewed for the March and April program.
”The Firm of the Future” was the March program, and is 7 minutes.
”Value Pricing and the Demise of the Billable Hour” was the April program, and is about 6.5 minutes.
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