Originally recorded on the Pricing Matters Podcast by Digitory Legal. Digitory Legal is now part of BigHand. Learn more here.

Aurelia Spivey, Marketing Consultant with BigHand, chats with Frederick J. Esposito, Jr, MBA, CLM, Chief Operating Officer of the regional law firm Rivkin Radler LLP. Fred has more than 25 years of law and accounting firm experience and has been a Certified Legal Manager (CLM)SM since 2006. Fred specializes in financial and organizational management and has managed and worked in a consulting capacity with several law firms, both international and domestic. Fred brings considerable “real world” experience to his role as a speaker and educator. Also, he is a senior member of the faculty and a consultant for the Legal Lean Sigma Institute LLC. In May 2018, Fred earned a Yellow Belt Certification in Legal Lean Sigma® and Project Management and is working toward his Green Belt Certification.

With more than 25 years of law and accounting firm experience, Fred is a thought leader, frequent speaker, and author of articles on a wide range of topics and best practices. He has been published on topics such as billing and collections, profitability, attorney compensation systems, alternative fee arrangements, process improvement, project management, and strategic planning by Thomson Reuters Legal Executive Institute blog, Law Practice Magazine, Law Practice Today and Attorney at Work, among others. Fred is a highly-rated, frequent author and speaker for the ABA, ALA, BNA/Bloomberg, Lexis/Nexis, and Thomson Reuters. In the Fall of 2016, he became a Faculty Advisor and Presenter for the Nassau County Bar Association Academy of Law and in June 2013, he was inducted into the National Speakers Association.

In 2012 he received the Association of Legal Administrator’s Outstanding Association Volunteer Award for his service as a leader and national speaker and was also named CFO of the Year by Long Island Business News. Fred was the first CLM on Long Island and from May 2013 – May 2016, was the Chair of ALA’s Certification Committee.

Top three takeaways from this episode

• Legal Lean Sigma. Employing the principles adds a whole new dimension to achieving efficiency, client focus and value.

• Telling the story with data. Identifying the obstacles and constraints in your process will help you understand what data you need to use to support your business case.

• 2020 will bring a renewed focus on alternative fees that go beyond rates. Firms that focus on process improvement and project management will differentiate themselves in the next decade.

You cannot be in a position to discuss pricing of any mechanism unless you understand the economics of your law firm.

Podcast Transcript:

Frederick Esposito  
That gives law firms an opportunity to take a look at how their profit, how they're doing legal services, and how they're performing legal services. How can you make lawyers more efficient? How can you improve your leveraging models? How can you position your law firm in such a way that you can come up with a pricing strategy that's not only efficient and the client perceives the value of what they're getting. But it's also you can come up with a pricing mechanism that the firm can still make money and at the same time, the client is satisfied.

Aurelia Spivey 
Welcome to Pricing Matters, a podcast by Digitory Legal. Digitory is a data analytics and cost management platform and service, bringing data-driven pricing and cost prediction to law. My name is Aurelia Spivey, and I will be your host as we speak to leaders who are making an impact in legal pricing, discuss market trends, and find out from them why pricing matters. 

Good morning and welcome to the Pricing Matters podcast. Our guest this morning is Fred Esposito. Fred is the Chief Operating Officer at Rivkin Radler. Welcome, Fred.

Frederick Esposito  
Thank you very much. It's a pleasure to be here.

Aurelia Spivey 
Thanks for joining us. I think we always like to start with your background. It's always very helpful for our listeners to hear about your journey. So tell us a little bit about your journey to the COO at Rivkin Radler.

Frederick Esposito  
Well, I mean, if you really want to shake things up, I can begin by saying that I started out as a science major. I was a chemistry major, I was actually going to work in organic chemistry. In fact, I taught organic chemistry for three semesters after college. But what ended up happening was going to grad school and getting more involved in management. I came into the professional services arena, probably back in the late 80s. Starting with public accounting firms, I was with public accounting firms for the first several years of my career, working in audit, and then moved into the legal profession in 1995. So I've been in legal since then and interestingly enough, my roles have been predominantly management in general with a strong finance background. 

What I've always found interesting, throughout my career, I've only had four law firm positions and my entire career, which spans almost over 30 years, but I have really just aspired to inspire folks on the education piece of management, of practice management in the law firms, and in particular, in the areas of financial health, and crisis management, if you will. What I have found has happened, I think this comes back to my teaching days back in the 80s, was, I think there's an important need for folks not only to go with what the trends are, but to understand and know what those trends actually are, and to educate law firms and law firm partners on the importance of these economic trends. I think that education is the key to success and I have applied that mantra throughout most of my career. I think that that has brought me to where I am today, not only as a chief operating officer for a regional law firm in the northeast, but also for a lot of the consulting work that I've done over the years and teaching and presenting over the last 15-20 years in this profession, especially in the areas of law, firm economics, and changing dynamics. 

And now most recently, in the last year to two years, I've become even more involved with Legal Lean Sigma, which is a trademark of the Legal Lean Sigma Institute, which I know you're familiar with and many of your listeners may be with as well. It adds a whole new dimension to the whole idea of pricing and also working more efficiently. I think now more than ever, with the economy the way it is now, the way the profession is right now, I think in short term, I think we are looking at financial instability in the latter part of 2020. I think all the signals are there. My colleagues may disagree but I do believe that the law firms now, the profession has to be on alert because what happened 12 years ago, I think it's coming back, but I think what's going to be different about it is it's going to be all the same ingredients, but I think there are some new and ingredients that are going to be hitting the mix. And I think a lot of that's going to have to do with a more concerted focus on process improvement and project management. 

Now, project management was always a byproduct of what happened 12 years ago, but I think you're going to see now it works differently, in the sense that it is now going to work hand in hand with process improvement, to help improve efficiency so that law firms can price more efficiently and more profitably. I think it's funny, I think this also falls under the category of innovation. I think innovation is now a key buzzword that we're hearing a lot of now in the profession and I think it's going to take us even further. Now that there's this resurgence again, where I think the pricing is becoming more and more prevalent in the law firms, I mean, you look at the list of job ads in different law firms now and you see all these firms are hiring project managers, and they're hiring pricing strategists, and chief pricing officers, and you name it there's a different nomenclature for no matter how you want to categorize it, but at the end of the day, law firms are responding and they're reactive. 

What is interesting, and I will note that I think it's very important to note that all of the surveys that have been out recently, more recently the Law Firms in Transition survey that's produced by Altman Weil. I find it interesting that four or five years ago, the legal profession was characterized as being probably 33%, proactive in the areas of alternative fee arrangements or pricing strategies, which means the other 67% were more reactive. What has been interesting to see is that in the most recent survey, maybe four years later, you see the same numbers, and you'll see that the ratio is now going from 28% and 72%. So you don't see as many law firms being as proactive as they should be in this arena and I think they are learning the hard, I think they're learning the lessons the hard way. They're jumping in and I think that the biggest issue for law firms today, and I go back to the education component, is you cannot be in a position to discuss the pricing of any mechanism unless you understand the economics of your law firm. 

One of the things that's interesting is, I do a lot of speaking in this area and I have audiences of maybe 60 to 100 folks in the audience and I always ask the same question, how many of you can tell me what it costs your firm to produce a billable hour for each attorney? And if so, can tell me what that billable hour rate, and cost rate are by practice area? On average, out of 60 to 100 people, and these are people presumably finance people and for the most part attorneys, CFOs, CEOs, whatever, maybe five or six hands go up. And it's really kind of a bone-chilling thought when you think about it, that law firms are not as intuned with their own economic structures as they should be. I really think that that's the basis for what's coming down the pike and I think firms, I think the message that'll resonate through this discussion is, firms that are willing to differentiate themselves among their competition are going to succeed in this arena. And I think that's where the ticket comes in and that's where you open the door stage left and say welcome into innovation, and all the things that go with innovation. So that is really where I think we are today, a moment of opportunity for law firms. I think it is a fresh arena because I think firms that are proactive, are going to be the successful firms in this in this game. I just think there needs to be more discussion about not only the economic factors, but the efficiencies to create the climate, to create those economic factors that are successful, and to generate profit for law firms. 

Aurelia Spivey 
I think that leads me very nicely into what I also wanted to dig into. You mentioned earlier that you are working with the Legal Lean Sigma Institute. So I'd like to take a step back and talk about how you became involved in the institute and what our listeners should know about the work that you and your team are doing there. I think that it's going to tie very nicely into our discussion on economics and also on process improvement.

Frederick Esposito  
Well, it's interesting. A lot of folks may know the Legal Lean Sigma Institute is a trademark, and the founder and CEO is Catherine Alman MacDonah. A lot of folks probably know Catherine, she's been around a while she's, she's very active in the LMA, but she's also so active in all of the legal professional organizations. And she has really been, in my view, a real pioneer in this arena. What was interesting was probably about two years ago, I had an opportunity to, after having read about Lean Sigma, for years and also applying it, it was interesting to see that I was starting to see articles in the profession about how these concepts could be applied to the legal profession. And I thought to myself, from a common sense standpoint is that you know, that's very interesting because I think while this works in a manufacturing environment, I think it can also work in a professional services environment, but we would need to tailor it to the profession and how can we do that? 

So I had an opportunity, through the Association of Legal Administrators, I happen to be speaking at a conference a couple of years ago, and I happened to notice that they were offering a Yellow Belt certification course, in Legal Lean Sigma and it was being conducted by Catherine Alman MacDonah and also another colleague who works with the Institute, Timothy Corcoran, who I think some people know. And basically, I sat through two days of that, and I was blown away, I was literally blown away by it. It was a real, detailed, methodical, step-by-step. One of the things that I thought was the most interesting was it was a major paradigm shift in the way people who manage their law firms or manage the financial side of things or the strategic side of things, take a look at how things work in their firms. You're basically sitting there and you're taking everything apart that you do. For example, a simple basic example, which is one that I found the most as one of the biggest takeaways from the two days, we had a situation where somebody would be blindfolded per se, and would have to explain to somebody in the room, how to make a peanut butter and jelly sandwich, okay. It seems pretty straightforward, you get the bread, but you learn by this example how much is left out in the details, like taking the cap off the jar of peanut butter, putting your knife in the peanut butter, taking the knife out, putting it, and applying it. These are all these little details that we just take for granted and we don't factor into when we're looking at processes. It's the minutiae and it's those little things that really make the difference and produce the result you're looking for and then manage those processes to get from A to B. 

The whole idea of Legal Lean Sigma is there's a concept, which marries the concepts of process improvement and also project management, and it's an acronym called DMAIC. Which is defining a problem, measuring, analyzing, improving, and controlling. So in other words, you're going to define your problems in your law firm, let's say it's your client intake, maybe it's your pricing, your rates, you're going to measure, you're going to collect current data to see how things currently work, make the business case for how they should change to be better, how it can be better for the firm, in a practical sense. You analyze the data, you come up with improvements to the process, to minimize and do away with as many of the defects, if you will, as you possibly can, and then come up with a mechanism to control the process. So that the legal work that's being done or the way a procedure or process is being handled in your firm is being managed in such a way that you're going to get the right result, every time, each time, every time. So that's basically just a summary view or an aerial view of process improvement is basically getting down into the details and I found that fascinating from an economic standpoint, because that gives law firms an opportunity to take a look at how their profit, how they're doing legal services, how they're performing legal services. How can you make lawyers more efficient? How can you improve your leveraging models? How can you position your law firm in such a way that you can come up with a pricing strategy that's not only efficient and the client perceives the value of what they're getting. But it's also you can come up with a pricing mechanism that the firm can still make money and at the same time, the client is satisfied. And it's really an amalgamation of all these different things and I found that fascinating. 

When talking to Catherine, and because Catherine and I both run in similar circles, we had opportunities to talk afterward and to really dive into some of these processes and it got to the point where we decided, you know, why don't we just work together. So it's been a really exciting venture but for me, I think that's where the innovation stands out. Because my firm right now, I am actually going for my Green Belt certification with process improvement and with project management, and I'm actually, my law firm is actually handling, I'm handling a project right now, where we are completely revamping a client intake process, as I alluded to before, from start to finish. It affects 200 lawyers, almost 400 personnel in total, and over five offices. This is designed to capture lost revenues, make us more efficient, and also puts us in a better position to price our legal services. And that's just one area that we're looking at. There are always other areas in your law firm that you can sit and look at, and that you can improve.

Aurelia Spivey 
So, I'd love to dig in a little bit more about the project in terms of advice that you have for people embarking on a project like that and using six sigma.

Frederick Esposito  
Really one of the things that have helped me considerably is, I mean I don't have a handicap in the sense that I come in with some pricing experience already, so I'm basically coming into, I have my law firm looking at this as a change management initiative. I think no matter how you look at it, it's a major paradigm shift for a law firm and law firms are not always ones to embrace change. So as many of us know, there has to be a business case for it. 

One of the things I did when discussing this with Catherine and saying, you know, I'm going to work with my firm, and I'm gonna sell it to my firm. We are one of the few law firms in this area, if any, who've even explored this whole concept and methodology for process improvement. What I basically did was, I formulated a project team here in the office, made up of various stakeholders, people who are involved with these processes on a daily basis, I've included many of my administrative management team, such as the Director of Finance, Director of IT, a billing manager, or marketing director, a couple of partners, a couple of equities, a couple of non-equity partners, and actually a legal assistant, and then an associate. All of these folks are part of the project team for this initiative of looking at our client intake process and one of the things that came out of this, when we sat for our first define meeting discussion, is we identified all of the problems, all of the concerns, all of the issues, we identified the problems, but we also came up with opportunity statements. And we made an attempt to justify our taking this project on and we actually worked with real metrics, we worked with an effective billing rate, we work with the frequency in which people have problems during the client intake process, where things slow down, where things bottleneck, looking at all the constraints. We looked at all these different areas, and we actually came up with a conservative estimate, in terms of how much revenue the firm could be losing as a result of some of this waste and what we could do, as part of our charter, to improve these areas. 

Now, we have reached the conceptual point where we put a charter together, but now our next phase is we're going to actually look at data. And I mean data that talks about all the different areas that we defined in our first meetings. We are going to come up with, we are going to quantify, as much as we possibly can, what the lost dollars are and what the business case would be for us if we were to continue with this project, how the firm would benefit by this in the long run. It has been eye-opening for the firm. I mean, I had partners who are on what we call a steering committee, we selected three partners who would oversee the project from their perspective as the business owners, and what we did was we presented after two days of meetings, we presented our case to the steering committee and presented our business case for why we felt this project should move forward. All three partners, who were on this committee, said go, run with it, but what was interesting to them was when we started to sit down and really identify all that detail, all those issues that people take for granted. In terms of people use the expression leaking time, where time is being wasted, and if you multiply a half hour by say just conservatively 100 attorneys and you have an effective billing rate, that can be a considerable amount of money that the firm is losing out on, because attorneys are bogged down by defects in a process on how the firm is working with something. 

What is nice about this was it really sold the project to the firm. And while we've also been dealing with, to my experience with the firm, dealing with pricing mechanisms, different alternative arrangements, and a combination of hybrid arrangements with billable hours, and with other different things we've been working with, this has been more or less the icing on the cake, because it is creating a framework for us. Once we get through this process, which we anticipate we will finish this initiative by some time by the beginning of June, we will have a new protocol in place for how we do our client intake and it will be done in a much more efficient manner. But one of the things I like about this whole process is that it opens the door for us to look at other areas of the firm, to create more efficiencies. Folks have to be prepared to listen, not just hear, but listen to what is being identified. As we get through this process further down the road, in the next few months, it's going to be a learning process for all of us. This is my first time taking on a project as a project leader, for a Green Belt certification initiative. We have a team of like 12 people, and I'm really excited, and I think the firm is going to benefit from this in the end. I think it's going to be a great story for someone down the road, but it's creating a new platform for us to be innovative.

Aurelia Spivey 
What I'm hearing from this story really is that you have to get the business case and, we would love to say here at Digitory, the data, to help you move the project forward and get that buy-in. So I think that, and obviously having your tools in terms of your six sigma to be able to run the process is the second element, that's really important from what I'm hearing.

Frederick Esposito  
Well, I think those tools complement, any experienced legal management professional's experiences. I think the fact that if you come into this and you have the background for strategic planning and so on, I think that's only complementing your ability to accept a Legal Lean Sigma premise. I think that that has been very helpful for me, it basically was another step in a new direction, which takes the firm to a whole new light. W. Edward Deming, is like the father of the total quality movement and he was a statistician, he was many things, but one of the things he used to say was, without data you're just another person with an opinion. I think there's a lot of truth to that because data is what supports a business case. Law firms produce so much data, I cannot tell you how much my firm produces, I've worked in a consulting capacity with other firms that have produced so much data, and they have so much data, they don't even know what data to use to tell a story, because there's so much of it. The key is, you got to be able to look at all the data and determine what is going on, what is really happening, because as Deming said, If you don't have the data, you're just talking, you have an opinion. Whether we're looking at client intake or we're looking at pricing mechanisms as a whole, or we're creating a new business model that is that goes away from the firm's centric and becomes more client-oriented, it is going to involve a considerable amount of data in order to get us from A to B to Z.

Aurelia Spivey 
On that point, if you had a few top tips, as you said, we all know there is so much data. What are your top tips for finding the right data in that mass of data that you're firm have?

Frederick Esposito  
It's more conceptual than anything else. What I do is I use the old-fashioned fish diagrams. What I do is I go from where I am to where I want to be and then in between, I do all my little branch-offs with all of my little obstacles or all of my problems that are going to come up, that is going to keep me from getting there and what I need to look at. I find that when I go through that kind of a methodical process, it's a tool that helps me see where my bottlenecks are, and where are my problems. If I see where my problems are, I know what I got to look at. I have an idea of what data I want to look at.

For example, I may want to see all of the time, every law firm has a bucket where time goes before files are opened, and the question I would look at and say, Okay, well, I want to make a business case here, how much of this time that sitting in this bucket actually gets moved out and moved to a billable file, once the file is actually opened. Because if it's not moved, then that time is sitting in that bucket, it never gets built and that time you end up writing it off because you can't build it, because by the time somebody realizes it's not there, it's too late and you can't build a client, you write it off. So I would look at something like that and say, Okay, that's a constraint. Why do I have that problem, I would start looking at reports, I would run-time reports, and show me the age of that time that's sitting in that bucket, that's been there, that nobody ever moved out, and move it to a billable file, so we could build a client. That's meaningful because that tells us where we've fallen short. So that is just an example of one area to look at. 

I also like to look at billing realization, because billing realization tells me a story, it tells me how much waste we have, and how much time is being written off. Are we managing our time well? Are we training our people well? Are they learning when we bring new attorneys on, are we orienting them properly with how we want things to work, and how they're to approach legal services, depending on who they're working with? These open Pandora's boxes, to all sorts of different questions, unfortunately, you're going to open a door and you're not going to have an answer to a question, you're just going to have more questions. What it does is it creates that synergy, where you start looking for answers, and that's when you start going into this whole data collection drive. Because you really want to see what's going on, you really want to understand how things are working. So I would want to see data that supports what's going on in my firm. How are we distributing the work? Do our partners hoard the work? Keeping work for themselves and not pushing it down to other people, which in turn impacts profitability. 

So these are the types of questions you start asking when you go down this, this whole Lean and Six Sigma concept and applying it to the law firm. It doesn't just affect the economic standing, it also impacts how you deliver the services. I think that's one of the eye-opening things I'm picking up on as I work with process improvement and project management and law firms at the institute. When we work with different clients and different groups, it's interesting to see what kind of, as I hate to say this, Pandora's boxes we are opening. But it's very good that we're opening them, and we're airing them out and we're looking at what's in them because I think that once you open those doors and you are able to qualify and quantify these areas, you are creating an atmosphere of and climate for change, and positive change, and for more efficiency. In doing so creates more value for not only your folks doing the work but also for your clients and all the other stakeholders.

Aurelia Spivey 
What I'd like to do is circle a little bit back now we were talking a little bit about predictions and trends and where the economy is going this year. You recently quoted in Aderant's 25+ Legal Tech and Business of Law Predictions for 2020 as saying, "Alternative fee arrangements and other pricing strategies will be brought back into a renewed focus coupled with a focus on process improvement and project management, employing lean and six sigma principles to providing efficient and cost-effective legal services.” I think that really is what we've talked about a lot today. So I'd love to dig in a little bit more on your views on alternative fees and other pricing strategies. Now, what trends do you foresee for 2020?

Frederick Esposito  
I'll preface it by saying I do not believe that the billable hour will ever die, not completely. I think it's had more deaths and rebirths than I care to talk about, but whenever anybody comes up with a new pricing strategy, it's like another harpoon into the billable hour. I also believe that the billable hour will also serve a purpose, as a valuable metric, because you have to have something to gauge how well you're doing. So I firmly believe that it will have a value, perhaps not the value that everyone thinks. I think one of the biggest things that have been one of the biggest challenges, I think alternative fee arrangements are going to come back into the picture with a renewed focus and I say that because they've been out there for a long time. Some firms are using them haphazardly, some firms have turned into, for lack of a better term pardon the acronym, AFA shops where they are doing nothing but fixed fee work. The problem is, I think, a lot of firms don't understand exactly what that is and I think that that's where the education becomes paramount. I think law firms understand the concepts, they know that it's being a lot of their clients are asking for it, but I think they're losing a lot of opportunities because they are not equipped to deal with it. They've heard a lot about it, they've read about it, they've heard people like me talk about it, they've seen people like me write about it, and they still don't get it, because they're trying to work off of the old firms centric model. 

I think what's happened today is, I think, you're going to see that law firms are going to jump back into that pool. I would like to think that law firms are going to do it this time with a little more education, and there's not going to be as many bloodbaths, as there was the first time around. I think a lot of firms dove in without understanding what it is they were trying to accomplish and they really miss stepped with respect to their, knowing their own economics, to the point where they could quote, and come up with alternative arrangements that worked well for their firms. 

I think the biggest thing you have to do is take a step back and if you're gonna go down this road, again, I think law firms need to be very careful about how they go about it. A lot of firms will say you can't use alternative fee arrangements with litigation, or other practice areas, you can only use it in specific practice groups. Well, that's really not accurate. I believe you can use an alternative fee arrangement and litigation. I think it's a combination of understanding not only your finances, but also having project management skills to be able to really monitor what people are doing because every firm has reports that generate data on task codes, and activity codes, so in other words, if you really wanted to dig into your data and understand how long does it take us to produce a memorandum of law, you have enough data in your law firm to determine how much time it should take someone to do that. Then you're talking about who do we give that work to. To keep the cost to us down? 

The real mantra and the change here is people think of alternative fee arrangements in terms of still rates. It's not about rates or even about the flat fee, per se, it's about how do you come up with a flat fee while taking into consideration what it costs your firm to produce that work. I think that's where firms get caught up, as they're still thinking in terms of a rate hierarchy. When in reality you have to come up with a mechanism to cost your work, so that it's being done efficiently and by the right people, where there's no waste and you can push that work down, so that you can generate profit and you can create a value proposition for the client and at the same time make money. I think that's the first step for firms to do and if you're going to do this, you want to cherry-pick the clients in your firm that you want to try this with. There are different mechanisms, there are different, you have maybe one-offs, but if you have clients who have multiple matters with your firm and different practice groups, you may want to cherry-pick a client and approach them and say, Listen, we're trying this, we want to try a couple of things with you, we want to work with you and get your feedback. I think, number one, it's a great client development tool. It's a great client relationship tool and I think at the end of the day, it could really be a good business development tool. Because if it works, then you have a framework that you can start applying to clients piece by piece.

I think one of the biggest problems too is everybody says, oh boy, let's jump into the AFA pool. And they jump in, and they find out the waters freezing, and they don't know what to do. You know, hypothermia sets in, everything gets stagnant, and nobody does anything. We lose the client, we lose money, and everything's gone. The key here is to anticipate and then address. Anticipate the need, and talk to the client. I think it's funny, I spoke to a council GC at a law firm a few years back when I was doing a session on electronic billing, and one of the things I learned from that was they say law firms are very good at following the rules per se. They get the guidelines, and they try to follow them to the letter, but the one thing that law firms do not ask GC is what is it that they need. When you think about the question, it's not a very difficult question but GCs want fixed fees. They want cost savings, they want predictability, and how they spent. They don't want surprises. They don't want to get a bill for $50,000 when they've been getting bills for $5,000 every month. So the beauty of a fixed fee or an alternative arrangement, is that it affords the client the predictability, and the firm has to do its homework to come up with that fee that works for both the firm and for the client, and then it becomes a win-win. 

My suggestion to folks now is, if you're going to open this door, again, be proactive, don't be reactive. Don't be those folks, those 72% that are sitting back waiting for something to happen. Take the steps, learn about what has to happen, and in the first case, learn your economics. Know what it costs you to produce that billable hour because that is what's going to make or break you in the end. Once you put all of the people in place and you let the processes run, you're destined to provide a better performance, better productivity, and better profitability. It's not a guarantee, but you're definitely creating the framework in which to do that. 

I can't emphasize enough the need for methodical processing and looking at how you're producing your legal work. That is going to be the basis and if anything, it's going to be an education, on how you need to manage your work, in order to make the pricing work for the firm. 2020 if firms are looking for resolutions, now is the time to start revisiting the whole alternative fee arrangement concept. But let's add a little more innovation to it, it's almost like spicing it up. Let's add the components of process improvement and project management to the mix. Which I think is going to fine-tune it even further, but at the same time, not only is it going to improve pricing and law firms and make them more competitive, it's also going to improve the way the firm operates. Because you're going to make the firm more efficient, and you're going to streamline and eliminate waste and you're going to do things more methodically and more efficiently. So it's not about doing more with less exercise, it might be doing more with more, but it's still going to be efficient and that's the key here.

Aurelia Spivey 
What I want us to talk about is what do you think are the greatest challenges, that firms and the professionals bringing in the Lean Six Sigma principles are facing. And what advice would you give these professionals in terms of overcoming those challenges so that they can bring those process improvements into the firm?

Frederick Esposito  
I think it really is an exercise in change management at the end of the day because quite frankly, law firms are presented with changes all the time. In terms of how their service work, and how they handle their clients. I think no more proof of that is all of the new billing guidelines that are being thrown at law firms now, what they can and cannot do when dealing with clients' work. It opens up a whole Pandora's box. Law firms now are used to sending bills and getting checks, now they're getting checks or electronic payments with deductions to them because councils now hiring outside sources to review their bills and to cut those bills. So there's a real paradigm shift there where firms are now learning the hard way how to deal with that and it's a source of frustration. 

I think the challenge that comes with an introduction to Lean and Six Sigma is almost similar to that and that what's happening now is firms are going to be confronted again, with the fight for efficiency. You're going to see more and more commodity-type services coming out there. Any firm that really wants to really move ahead of it and move the dial has to at least be open to the idea of change with respect to how they operate, or how they price their work. It's really an economic necessity. And I guess this is one of those pills that goes down tough, but there are so many benefits that come with it. It's like taking a multivitamin as opposed to vitamin C, you're gonna get the vitamin C you want but you're also going to get so much more with it. I think that's some of the things you have to contend with. 

I think that one of the biggest challenges, that's still going to be out there, I think, is that as I've said before, law firms are still firms centric. Where there are old models of the way senior partners and firms have been managed for years and years. They have they've held on to that and what's really a paradox of sorts as while that is being labeled in some legal management guru's perception as being counterintuitive, or counterproductive. It is a mindset and a mantra that has survived several decades and it continues to on a whole new realm. So I think that as firms are getting more and more out there and there's more and more challenge for innovation because I think this is going to turn into a business development exercise. I think it's going to turn into who's going to get the client, because the one who is more efficient, the one who can price more effectively and can do it well, is going to get the business. I do believe that the biggest challenge is the fact that we have such a long-term firm-centric mentality out there, and people are resisting those changes. But those firms that have embraced those changes are doing very well and they're going to continue to do well because they're committed to the education. It's also a business necessity because if you want the business, you're gonna have to do this. Clients, again, are in the driver's seat, it's great to be a very prestigious old firm and everything else and no one can ever take that reputation away, but the times are changing. Firms are going to have to rise to those occasions and to embrace those changes or at least try to work with them or otherwise they're going to become, I hate to use the expression, they're going to end up extinct because nothing that remained stagnant is going to survive.

Aurelia Spivey 
I think that's a very powerful message for this next decade and I totally agree. So I have one last question and we are on the pricing matters podcast, I always like to end with this question. So Fred, tell me, why does pricing matter to you?

Frederick Esposito
I think it all comes down to value. I think that firms need to understand the value that they propose to their clients. One of the things that I've seen and I know other people will hear this, and they will relate to it, they may not admit it, but they'll relate to it. You have some firms where attorneys cut their bills constantly. They get their pre-bills each month after all the time is in and then they give a standard 15 to 20% discount, every single month. And you say to them, Why are you doing that? And they'll say, Well, if I want to get more work, I have to do this. And I say to them, Well, do you think that little of your own work, that you feel you have to discount your rates on that average, to get more work, to the point where you might be losing money? And they think, Well, it's my cost of doing business. To me, when I hear that, I think to myself, you know, something, if I was good at what I do, and I know I am, and I know I can go out there and bill, let's say I'm an ERISA attorney, and I'm billing like, I'm going to throw a hypothetical out there, let's say I'm billing $750 an hour and I have a client who's telling me, after working with them, that I have to discount their bills 20% every month to get more work from them, just to keep them. Or, in the worst case, let's say that same client comes back to you five years later and says, you know, it's been a real tough economy for us, and we want you to take a 50% rate decrease, for us to consider doing the work. Now I can tell you right now, there are firms that would agree to that. Shame on them, because quite frankly, if you're good at what you do, you should be getting your rate. I know that economic constraints are in here, and they're all in here. That's why it's important to really clean up your house and to provide an efficient platform. So you know that what, even if you can give the client a little bit of a break, you know you're still valuable and your rate is valuable and you're making money at what you do, you're not giving the work away. 

I've also said to firms when coming to pricing and why it matters. It's okay to fire a client. It's more than okay to fire a client. I knew somebody who had a client for 23 years, they were a pension client, and this attorney was doing ERISA work for them. The client basically was a retainer client it wasn't anything jumping off the page, but it was a reduced rate client anyway, by the nature of the work, and basically, the client came to them and said, I want to cut your rates in half. This attorney came to me and said to me, you know, something, I'm an ERISA attorney and I don't feel I should have to take such a decrease, and said, You know, I can go in the city and I can charge x per hour, for special premium work. I don't need this client. And after 23 years, this attorney fired that client and said, No, I will not agree to your rate increase. I think it's decreased. I think it's best that we part ways and they did, and that attorney, it was the best thing they ever did. 

So I think that attorneys have to accept that there's a value proposition here and they're not giving their services away. While clients may control and may be in the driver's seat, I think law firms have a right to stand up for their own value and to charge what they believe is fair and for the market, for what services they're delivering. At some point, an attorney and a law firm has to make the decision, in terms of their own integrity, in terms of how much am I going to discount my work to keep a client. Sometimes I know there's a necessity there, sometimes there's a business case for it. But generally speaking, I would not discount my bills by 15% to 20% a month, just to keep a client, because to me, pricing is about value. It's about the value you deliver. If you've made a concerted effort with your law firm to promote value and to create an atmosphere of efficiency and focus, and value for your clients, there is no reason you should have to cut your rates or cut your fees. That's my view on pricing. 

Aurelia Spivey 
It is about value and working with firms and clients to deliver that. Thank you so much, it's been a really fantastic conversation.

Frederick Esposito  
Thank you very much. I enjoyed it greatly, and I hope to visit again.

Aurelia Spivey 
Thank you for listening to Pricing Matters, a podcast Digitory Legal. To find out more about our guests please visit our podcast page. If you have any feedback or guests that you think we should feature, please reach out to me. Thank you for listening, see you next time.