Have a Coke and a Smile…
June 11, 2009
I ran across an interesting article while traveling recently. It has to do with service firms that operate based upon retainers or billable hours. In my world, I affectionately refer to such arrangements as the Vortex*.
What I read is not new to us smaller firms…but a giant company has taken the lead to compensate service suppliers based on results instead of retainers and billable hours.
The Coca-Cola Company has implemented a “value-based” compensation system for their advertisers that handle over 400 brands. Coke is no longer just paying for hours “worked”–Coke will pay for results achieved. Imagine that!
Let me digress for a moment…the reason I put “worked” in quotations is based upon experiences we have had with law firms. In one particular situation, given the time frame of certain events compared to the bill we received from one particular regulatory Law Firm, I ran some numbers. Based on there submission, every attorney in this firm would have to have worked on our project well over 60 hours each … let’s just say once we shared the math (read: logic) with them, the bill dropped by 60%. I am sure this was a remote incident, an “error”, a “miscommunication”… After all, lawyers are sworn Officers of the Court and of the highest integrity and ethics.
Back on point – Coca-Cola. Under the new “value-based” model, Coke will cover agencies’ actual costs, plus a bonus up to 30%. The bonus depends on a set of metrics which include sales and market share results. Procter & Gamble has also moved to value-based compensation over hourly fees with a focus on profits results. Coke and P&G believe this is the direction service-based businesses are heading.
This trend is also starting to show up in accounting, consulting and law firms – driven by clients.
Hey, God knows there are more than enough lawyers, accountants and consultants out there – just find the firms willing to work based upon results. We (AFS) have done this in several instances. You just need to have the capacity to say “no” to the legacy hourly billing model. The general idea to me is that service firms do not sell time, they sell ideas, and should be compensated for being the best for having those ideas tied to results. Your business should not be some type of economic, creative or legal experiment where you take all the risk.
We are in a results based world economy.
I wonder if Government Motors will seek value-based contracts going forward … somehow, I doubt it.
Imagine if elected officials were only paid upon results – like GDP growth, currency value, global market share, Return on Tax Dollar spent (i.e. Social Services, Healthcare, Social security), crime data, etc. … I am getting crazy now!
If you have any thoughts on this or experiences – please feel free to comment.
*Vortex: When 2 or more competing lawyers on billable hour compensation argue over insignificant points in a contract, deal, litigation matter, etc. The more they argue with each other, the more billable hours they create for themselves –the billable circulating Vortex just gets bigger and bigger. A Vortex is a continuous circle that just sucks your cash into it with no end in sight.
Stay out of the Vortex!
Written by Dave Rusin - Telecom Executive
Posted by wbrache | Filed Under Corruption in America, Dave's Corner, Telecom USA, Telecom expense management
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I like that article. This would definitely encourage law firms from taking a case with doubtful merits…if they were going to be paid by results rather than churning out, and turning out, everyone to research, copy, travel and take needless interminable depositions.
Their most valuable advice would be to tell the client to fold the hand.
As well, if a wealthy man is accused of a crime that would put him away for a long time and/or cause him to lose his professional license, a good defense lawyer should start with a fee based on “the value to the client”, wouldn’t you agree?