Last
year,
I
wrote
an
article
about
whether
AI
signals
the
end
of
the
billable
hour. In
that
article,
I
asked
what
Generative
AI
will
do
to
the
billable
hour.
-
Rates
will
go
up. -
Rates
will
go
down. -
Work
will
shift
to
alternative
fee
arrangements. -
Work
will
go
in-house. -
All
of
the
above.
My
answer
was
“all
of
the
above.”
I
am
now
qualifying
my
answer.
AI
will
have
less
impact
in
the
near
term
on
the
shift
toward
alternative
fee
arrangements,
including
fixed
fees.
The
billable
hour
is
more
embedded,
especially
in
Biglaw,
than
most
realize.
Three
things
must
change
for
the
billable
hour
to
give
way
to
fixed-fee
arrangements.
Law
firms
must
have
a
change
in
mindset,
culture,
and
infrastructure.
That
is
easier
said
than
done.
In
the
long
term,
competition
and
client
demands
will
force
the
change. AI
will
have
an
indirect
impact.
Mindset
Most
firms
bill
by
the
hour
and
don’t
benefit
from
efficiency
when
billable
hours
are
reduced. Generative
AI
will
drive
efficiencies,
but
it
will
not
change
the
mindset
of
marking
up
billable
hours.
It
is
still
easier
to
raise
rates
when
work
becomes
more
efficient.
If
10
hours
become
five
hours
of
work,
clients
should
expect
an
hourly
fee
at
a
higher
rate.
Why
is
this?
Law
firms
must
be
100%
owned
by
lawyers,
and
the
most
expedient
way
to
accomplish
this
is
through
partnerships. The
partnership
business
model
encourages
the
distribution
of
profits
every
year
to
its
lawyer
owners.
Law
firms
rely
on
billable
hours
as
a
straightforward
measure
of
work
and
attorney
contribution.
Profit
comes
from
marking
up
hours,
and
that
is
very
different
than
a
business
model
where
capital
is
retained
and
where
the
revenue
model
allows
for
a
focus
on
efficiency.
Conrad
Everhard,
founding
partner
at
Flatiron
Partners
law
firm,
which
provides
fixed-fee
services
for
mergers
and
acquisitions,
and
other
transactions,
says,
“Biglaw
is
like
an
ocean
liner. Because
of
longstanding
culture,
staffing
models,
and
compensation,
they
are
locked
into
a
cycle
where
efficiency
doesn’t
help
the
bottom
line. It
is
a
mindset
that
makes
it
very
hard
for
Biglaw
to
pivot. But
Biglaw
is
at
an
inflection
point.
Efficiency
is
being
forced
on
it
by
technological
innovation
and
AI.”
Culture
Mindset
informs
culture.
Recently,
another
Biglaw
firm
just
mandated
associates
to
work
four
days
a
week
in
the
office. In-office
policy
helps
partners
feel
more
comfortable
about
the
work
(billable
hours)
being
done
by
associates,
and
it
provides
a
more
familiar
way
for
associates
to
learn
and
be
mentored
(at
least
that’s
from
a
partner’s
perspective).
Gen
Z
is
more
digitally
adept
than
prior
generations.
Their
default
learning
and
communication
styles
are
through
technology.
How
many
firms
are
evolving
their
models
to
recognize
that
the
next
generation
of
attorneys
and
clients
will
prefer
a
better
work-life
balance
and
more
virtual
meetings?
How
many
firms
realize
they
will
desire
to
interact
via
text
or
Zoom,
and
that
they
are
more
likely
to
spar
with
an
AI
mentor
and
reserve
human
interaction
to
those
times
when
it’s
truly
needed?
The
point
is,
there
are
new
models
and
new
approaches
like
online
learning,
virtual
meetings,
and
hoteling. A
firm’s
economics
and
a
firm’s
cohesiveness
need
to
be
balanced,
but
right
now,
I’d
argue
that
Biglaw
is
generally
leaning
toward
familiar
legacy
practices
as
opposed
to
evolving
those
practices
toward
those
that
are
likely
to
be
valued
in
a
future
state. It’s
not
a
criticism,
but
it
is
reality.
Infrastructure
Real
estate
is
an
example
of
infrastructure
tied
to
a
traditional
mindset.
How
often
do
clients
come
to
the
office
these
days
relative
to
the
past?
There
are
times
when
in-person
meetings
are
required
or
when
a
“war
room”
environment
needs
to
be
set
up. Real
estate
is
just
the
tip
of
the
iceberg.
The
entire
back
office
of
a
firm
is
organized
around
the
billable
hour. It’s
the
basis
for
partner
compensation,
measuring
the
profitability
of
engagements,
and
for
measuring
the
performance
of
associates.
Even
if
a
large
firm
wanted
to
move
away
from
the
billable
hour,
it
would
have
to
rethink
incentives,
retrain
staff,
change
process,
and
retool
infrastructure. To
do
that
requires
setting
aside
nonbillable
time
for
planning
and
retraining. It
requires
a
rewrite
of
major
systems,
and
that
requires
capital.
Can
Biglaw
move
away
from
the
billable
hour?
The
Catch-22
of
retooling
infrastructure
is
that
the
partnership
model
and
incentives
are
tilted
toward
the
disbursement
of
profits
to
partners. Nonbillable
time
and
capital
investment
are
the
enemies
of
disbursing
profits.
Like
their
corporate
counterparts,
law
firms
require
retooling
to
operate
differently. But
firms
have
a
bigger
challenge
because
the
steps
required
are
counter
to
the
mindset.
When
the
familiar
model
of
the
billable
hour
starts
to
break
down,
we’ll
see
more
change. For
now,
many
clients
still
ask
for
work
by
the
hour. Firms
can
make
the
move,
but
the
move
won’t
be
easy. The
catalyst
will
be
competition
and
changing
expectations
from
clients.
AI
will
be
a
behind-the-scenes
driver.
For
now,
AI
is
not
yet
incompatible
with
the
primary,
legacy
model
of
the
billable
hour.
Everhard
adds,
“I
think
there
will
be
an
evolution
of
the
pricing
model
over
time. But
like
in
other
industries,
the
catalyst
for
change
will
come
from
outside. New
market
entrants,
AI,
and
tech
will
force
law
firms
to
rethink
the
old
playbook.
That
will
drive
the
change. That
is
what
we
did
at
Flatiron. We
got
outside
the
traditional
firm
model
and
changed
everything. We
deploy
labor
differently. And
we
heavily
leverage
AI
and
technology,
especially
our
own
‘deal
operating
system’
that
enables
us
to
handle
complex
transactions
with
a
lot
less
labor
and
time,
with
better
results.”
Firms
will
continue
to
be
profitable
using
the
billable
hour
in
the
near
term.
Competition
from
new
firms
that
operate
more
cost-effectively
will
eventually
come.
They
will
embrace
technology
and
have
a
mindset
to
deliver
value
with
improved
efficiency.
This
will
raise
awareness
with
clients
and
put
pressure
on
firms
to
shift
their
model.
The
big
question
is,
how
long
will
it
take
for
Biglaw
to
feel
the
pressure?
Ken
Crutchfield
has
over
forty
years
of
experience
in
legal,
tax,
and
other
industries.
Throughout
his
career,
he
has
focused
on
growth,
innovation,
and
business
transformation. His
consulting
practice
advises
investors,
legal
tech
startups
and
others.
As
a
strategic
thinker
who
understands
markets
and
creating
products
to
meet
customer
needs,
he
has
worked
in
start-ups
and
large
enterprises.
He
has
served
in
General
Management
capacities
in
six
businesses.
Ken
has
a
pulse
on
the
trends
affecting
the
market.
Whether
it
was
the
Internet
in
the
1980s
or
Generative
AI,
he
understands
technology
and
how
it
can
impact
business.
Crutchfield
started
his
career
as
an
intern
with
LexisNexis
and
has
worked
at
Thomson
Reuters,
Bloomberg,
Dun
&
Bradstreet,
and
Wolters
Kluwer.
Ken
has
an
MBA
and
holds
a
B.S.
in
Electrical
Engineering
from
The
Ohio
State
University.