Advanced Performance Metrics Come to the Legal Profession
If anyone can play something called "Moneyball" it would be a lawyer.
Moneyball is the nickname for using advanced and relative statistics to find undervalued baseball players who are not necessarily widely considered the best at their position. It is also known as Sabermetrics, and it has been widely used in various professions since Billy Beane made it famous in the early 2000s, helping the Oakland A's reach the playoffs despite having one of the lowest payrolls in baseball. A 2011 movie, Moneyball, helped introduce the concept to other industries and professions. As advanced metrics have continued to dominate the front offices of Major League Baseball teams, one has proven particularly popular: wins over replacement. In other words, does a player win you games compared to an average player who could play that position?
A similar concept is now being introduced for law firms.
Relative Performance Metric vs. The Billable Hour
The Thomson Reuters Institute recently introduced its Relative Performance Measure (RPM). The billable hour has stubbornly remained the top performance metric at law firms. It makes sense: more billable hours means more fees. It means you're working hard and generating revenue, at least.
But problems with the billable hour are well-documented. While it certainly requires hard work, billable hours alone don't necessarily measure everything it takes to be an asset to a law firm. For example, what if you practice in an area of law that is experiencing a downturn in demand? While the legal industry is doing well currently, previous recent years saw a downturn in transactional work, as one example. And law firms have increasingly moved to fixed fee models, particularly when demand decreases. This is partially reflected by an overall decrease in lawyer productivity compared to just a decade ago.
Instead, RPM measures a timekeeper’s relative performance in generating fees and adjusts for the relative ability to collect those fees. As in baseball, it measures a lawyer's performance compared to their replacement level (i.e., how a similarly situated lawyer would perform).
Using RPM instead of the billable hour could help law firms identify strong performers even during economic downturns and without needing to convert fixed or contingent fees to the billable hour model. Instead of punishing lawyers who are doing well compared to peers for economic factors out of their control, it allows law firms to identify strong performers and keep them on for when the market changes.
Generative AI Playing a Role
In addition to factoring in macroeconomic factors, which may impact certain geographies or practices, RPM also helps "future proof" against increasing generative AI use. If a lawyer is able to complete research tasks quickly and accurately using generative AI, should they be punished? As the legal industry adopts AI, understanding how it can make certain tasks more efficient could provide a competitive edge.
Identifying Strong Performers
Regardless of the state of legal industry, law firms both large and small must be able to identify strong performers. While billable hour requirements are unlikely to go away any time soon, having alternative approaches to identifying strong performers is essential as the legal industry continues its seismic shift toward generative AI adoption.
Related Resources
- Why Title Changes for Associates May Help a Firm Retain Talent, Attract Clients
- 11th Circuit Experiment Holds Useful Lessons on the Use of Generative AI (FindLaw's Practice of Law)
- Transactional Work, Billing Rates, and Demand Driving Law Firm Growth (FindLaw's Practice of Law)