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State of the US Legal Market 2024 analysis: Future-proofing productivity

Bryce Engelland  Industry Analyst / 黑料大湿Posts

· 7 minute read

Bryce Engelland  Industry Analyst / 黑料大湿Posts

· 7 minute read

If the legal industry鈥檚 current measure of productivity is on borrowed time, the question immediately arises: What do we replace it with?

In our previous analysis regarding the 2024 State of the US Legal Market, we argued that the industry鈥檚 current measurement of productivity in terms of hours-worked per lawyer is not merely flawed, but because of advances in legal technology, is soon likely to see diminishing importance.

As generative artificial intelligence (Gen AI) decouples the value of legal work product from the time required to produce it, firms and lawyers will find the old method of measuring hours-worked per lawyer to be not merely inadequate, but outright nonsensical.

Our prior analysis concluded that more work needs to be done to identify new metrics to assume the role played by the current productivity metric. Metric-based decision making is essential to law firm operations, as it provides an objective basis for assessing lawyer performance and ensuring that decisions regarding promotions, bonuses, and workload distribution are fair and merit based. Further, such metrics aid in benchmarking a firm’s performance against competitors, enabling strategic decision-making to maintain a competitive edge in a highly demanding industry.

With that in mind, there are some identifiable potential options for future measures of productivity. This list is by no means exhaustive or exclusive but can help to spark the conversation around what law firms can and should be measuring going forward.

Option #1: Number of matters completed

Our previous analysis suggested that hours per lawyer is not an indicator of the value that the lawyer produces, but rather the time investment made to achieve it. When firms can no longer charge by the hour 鈥 a bell that has been rung for a long time but never sounded so clear as now 鈥 then the amount of time a lawyer spends on a case becomes irrelevant if not downright adverse.

Given that, should law firms evaluate lawyer performance based on the number of matters lawyers finish? After all, more than half (54%) of corporate general counsels said they expect alternative fee arrangements to be a part of their cost control strategies going forward, according to the 2024 State of the US Legal Market report. If that comes to pass, then the number of finished matters would be a reasonable estimate of a lawyer鈥檚 profit-making potential.

It would also be a more accurate measure of performance in an industry that鈥檚 experiencing a maturing use of Gen AI, as lawyers more skilled in using the technology would be expected to see a relative increase in their completed casework. Moreover, the number of matters finished is an easily obtainable metric, available to firms of any size.

That being said, using completed matters as a measure of productivity has numerous potential pitfalls. To begin with, this measure does not consider the different levels of complexity and time needed for different legal matters. Lawyers would therefore have an incentive to pick easier, quicker cases over more complex, potentially more lucrative ones to boost their matter number. It鈥檚 also very hard to standardize, as different practices and office locations would not be comparable 鈥 for example, comparing a litigation lawyer in New York who works on one complex matter to a real estate lawyer in Houston who works on a dozen simpler cases?

In short, while completed matter totals can be useful and instructive, alone they are insufficient to fill the needed metric gap.

Option #2: Fees-billed benchmarking

A better alternative may emerge from addressing the biggest drawback of using matters completed. Firms could use the amount of fees-billed per lawyer as the main productivity measure. Fees-billed 鈥 a measure of the actual amount of fees worked by the lawyer and billed to the client for a given matter 鈥 offers a more comprehensive and financially relevant view, and one that also is easy for law firms to access.

This metric inherently captures the economic value of the work done and reflects the complexity and importance of the cases handled directly. Fees-billed per lawyer recognizes that different legal challenges require different levels of effort and skill, unlike just counting matters completed, and it aligns better with the firm鈥檚 financial health and market value of services.

Moreover, it encourages lawyers to take on more substantial, high-value work, while measuring from the billed fees stage encourages a culture of quality and efficiency that may not be captured if pre-bill fees (also known as fees-worked) are used. Further, unlike measuring hours worked, fees-billed could easily capture the productive power of AI in its billing arrangement.

Still, this measure does have some problems. Primarily, its numbers can depend a lot on market conditions, which might not show how well or how hard an individual lawyer worked. For example, what if inflation surges by 20% in a country in which an office is located? Does that mean the lawyers have become 20% more productive just because the firm raised its rates to match the surge? The issue also extends to situations in which comparisons are made between the productivity of lawyers in different practice areas. A relatively average M&A attorney could easily be rated higher than an excellent patent lawyer, not because the M&A attorney is more productive, but because the firm鈥檚 M&A practice charges higher rates than the intellectual property practice does.

Finding a new metric for a new era

With the disadvantage of these previous two options exposed and as the legal industry enters a new era of innovation, competition, and client demands, it might be time to explore the possibility of creating a completely new metric that captures the value and impact of individual attorneys more accurately and fairly. As that goal is pursued, we already see that the previously dominant metric of hours per lawyer as well as the alternatives of numbers of matters completed and fees-billed all share some notable traits.

For example, all these metrics fail to recognize the varied nature of legal work across different practice areas, segments, or locations. This lack of differentiation renders them an inaccurate reflection of productivity and value, as they don’t control for the unique demands and outcomes of each legal specialty. Also, all these metrics are significantly influenced by external market conditions, which can vary widely and unpredictably. This market sensitivity means that they may not accurately reflect a lawyer’s true performance or effort, as they are prone to distortion by factors beyond an individual lawyer’s control.

With these issues in mind, we would have to ask what a theoretical new metric would look like? Well for starters, it would need to measure something not based on hours, but rather on the fees and revenue that an individual lawyers鈥 work actually brings into the firms. Second, it needs to find some way of accounting for the fact that not all practices, offices, or segments are the same, yet nevertheless enable the comparability of lawyers across all of these factors. Finally, it needs to be sensitive to shifts in the global market, adjusting for economic conditions in an increasingly unstable world.

The implications of adopting a new metric for lawyer productivity are significant and far-reaching. A new metric would not only change how lawyers are evaluated, compensated, and promoted, but also how they work, learn, and interact with each other and their clients. It would also have an impact on the culture, structure, and strategy of law firms, as well as on the broader legal profession and our overall society. As such, the selection of a new metric for productivity will be a difficult task for law firm management, but also one of great necessity.

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