General versus Specific Measures of Performance
Posted By Rob Millard - 1 Comments -
The crux of the billable hour debate really seems to lie primarily in one very basic conundrum. That is: how else to accurately and sensibly value the output for a wide diversity of legal services, other than "by the hour," with anything like the same ease of applicability. It seems almost sacrilegious to ask the question .... but this by no means the first time that the dilemma has arisen about sensible metrics to measure performance in the production of diverse products or services.
In the erstwhile Soviet Union, where factories were state controlled and performance was measured in terms of output rather than profitability, similar problems emerged. When the product was simple and homogeneous (tons of iron refined; kilowatt-hours of electricity produced, for instance,) the issue was relatively straightforward. When a wide range of products or services were involved, though, output either had to be defined in very specific terms for each and every item individually, or it had to be defined in general terms. In professional services, where the nature and range of the service being delivered cannot really be accurately defined until it is actually delivered, the availability of the former option often falls away. Defining output in general terms in the case of professional services, on the other hand, is well known. This is precisely what "billing by the hour" constitutes. The problem is: it was precisely where a general and often somewhat arbitrary measure of value was used that problems emerged for the Soviets, much as they do in law firms today.
“Whenever orders are given in units of weight, managers find it easiest to fulfill their output plan by making goods unnecessarily heavy. Thus, writing paper or roofing materials become too thick, screws and bolts are manufactured predominantly in larger sizes. The Soviet humor magazine Krokodil once carried a cartoon, showing a nail factory which had fulfilled its output plan by producing one single nail, the size of the plant, suspended from the ceiling. To give the orders in square meters of writing paper or in millions of nails would have the opposite, equally undesirable, effect, as paper would then be too thin or nails available in smaller sizes only."
Shaffer, Harry G. 1963. "A New Incentive for Soviet Managers." Russian
I wonder if the current wave of enthusiasm for alternative fee arrangements and value pricing (which I enthusiastically endorse and with which I join) is going to achieve what the Soviets could not, and come out with usable measures of value for all of the wide range of diverse services that law firms deliver to their clients, in ways that make economic sense for both buyer and seller and are easy to apply. Hopefully it will ....
http://www.robmillard.com/admin/trackback/179836
Excellent post, Rob!
