Embracing AFAs? - By Reda Bennani, Consultant
We all agree that most major change initiatives—whether intended to boost quality, improve culture, or reverse a corporate death spiral—generate half-hearted results. While the use of Alternative Fee Arrangements (AFA's) is rapidly growing, with variations likely to become as common as hourly rate billing, there are ongoing debates about their implementation based on law firms’ needs, their changing business model and their willing to track budgets and deliver a world-class service.
We all agree that most major change initiatives—whether intended to boost quality, improve culture, or reverse a corporate death spiral—generate half-hearted results. While the use of Alternative Fee Arrangements (AFA's) is rapidly growing, with variations likely to become as common as hourly rate billing, there are ongoing debates about their implementation based on law firms’ needs, their changing business model and their willing to track budgets and deliver a world-class service.
Clients have been “pushing” law firms into joining them
in adopting better business practices and reduction of their historically high
profit margins. These same clients have
been embracing the innovative realm of AFA’s that have been bringing value
“SAVING MONEY” and delivering results with “NO FUSS”.
While there are numerous AFAs types, processes have not
been established on how to implement these new billing models by the vendors.
Law firms, often limit their willingness for changing their billing methods to
a short-term basis where they can satisfy bottom line goals.
Clients are asking for financial predictability combined
with well-approached legal results. For
the law firm, alternative fee arrangements must ultimately be profitable,
suited to its core business philosophy, and the desired reputation in the legal
market. Accounting systems, a big part of this equation, have to go alongside
with the intended changes AFAs want to bring to the practice of law, and
require that cost control not to be established as an afterthought trailing
behind recurring and efficient revenue generation systems.
AFAs are here to stay; law firms need to anticipate the
benefits within this new billing model to achieve strategic advantage without
sacrificing profitability. AFAs require cultural change in most law firms and
managers need to architect and understand the stages of change—and the pitfalls
unique to each stage- using this model, smart law firm leaderships will grasp
disruptive processes and technologies in an efficient manner thus leaving
rivals far behind. Law firms will need to embrace gradually and fearlessly this
model to build long-lasting business relationships with clients, based on an
innovative billing approach that suits all parties. Firms at this stage need no
longer fear the outcome, but can profit from the RESULTS.