Ron Baker, a leading thinker and author on alternatives to the billable hour was a participant in LexThink, a program I attended in early April. His view is that the client should determine the value of the work that needs to be performed, and that value should drive price rather than price determining value. He identified the five C’s of value from the service provider’s prospective: comprehend, create, communicate, convince, capture. But more illustrative was his explanation for the cost structure of the Corvette. The car was designed and then built, the cost calculated, a profit added and then a price determined. When Lee Iaccoca drove the Corvette around, everyone he spoke with loved the car but hated the price. Ioaccoca always asked what price people would pay. Finally, he went to the Ford engineers and asked them to build a similar car at a specified price. The engineers took that number, backed the profit out, knew the cost and then designed a car that could be built for that cost. Ron relayed that in two years time, the Mustang generated profits of $1.1 billion, while over 13 years, the Corvette had generated profits of only$600 million.
What does all this have to do with value? Clients need to figure out what a solution to a problem is worth to them, and they can’t use billing rates x hours to do so. But maybe we lawyers need to play the Lee Iaccoca role and help them set the value. How many of us can say we’ve ever done that?