An Obituary for the Billable Hour - A qualitative investigation of the barriers to implementing value-based pricing in the legal industry and the necessary capabilities to facilitate the transition.

Abstract: Due to intensifying competition and client expectations, law firms worldwide are starting to transition from the conventional billable hour model to value-based pricing (VBP) models. While promising significant efficiency gains, this transition entails fundamental challenges for all stakeholders and necessitates changes in firms' capabilities. Research on VBP's barriers and required capabilities is still nascent, particularly in a legal context. Thus, our study aims to identify said research gaps. We interview lawyers at business law firms using a qualitative and exploratory research method, contributing to both academia and practice. First, we contribute to VBP and existing literature by applying and enriching established theories such as the Capabilities Theory. We find novel barriers and capabilities relevant to the VBP shift compared to research in other industry contexts and uncover legal-industry-specific factors, including the traditional billable hour, lawyers' personality characteristics, deficient pricing and business acumen, and client and case uniqueness. Second, we contribute to pricing transformation research by illustrating VBP's individual, organizational, external, and industry-specific barriers as exemplary transformational shifts and suggesting key capabilities to overcome these. Lastly, our findings raise awareness among practitioners and contribute to an empirical understanding of VBP, presenting insights transferable to several other professional service industries undergoing similar shifts.