AI, Meet the Billable Hour Business Model

On December 4, 2025, I published a short article in the Wall Street Journal entitled “Say Goodbye to the Billable Hour, Thanks to AI.” Who knew I’d be kicking up such a hornet’s nest! The responses have been all over the map. Some folks felt the billable hour couldn’t disappear fast enough. Others thought that a world without it is unthinkable. Some commentators thought I was brilliant. Others, just a clueless business school professor. In any case, the conversation has been lively.

A choice selection of remarks follows.

The hour is a poor surrogate for value

From my colleague Jean-Pierre Colin (from LinkedIn): “I was in a meeting with dozens of lawyers charging thousands by the hour for advice on a mining property title in a dictatorship far away in another part of the galaxy. The client was annoyed at the mounting hourly fees. Over 6 hours without any successful outcome. It was obvious that only the dictator could grant any proper title, so we called in Jean Chrétien (former prime minister of Canada who now works in this law firm). He only had 5 minutes so we asked him to please get the dictator on the phone to see how far we could get to. Jean obliged, instantly reached former President of the USA, Bill Clinton, his friend, asked Bill to contact the dictator which Bill did in 10 minutes, and we then got title right away. Jean was in the room for less than 5 minutes. What should Chrétien’s hourly fee be? How much would Ai charge?”

My response:

Wow, what an amazing story Jean-Pierre Colin! It reminds me of the story of Charles Proteus Steinmetz, the so-called “Wizard of Schenectady.” As recounted in Smithsonian Magazine, “Jack B. Scott wrote in to tell of his father’s encounter with the Wizard of Schenectady at Henry Ford’s River Rouge plant in Dearborn, Michigan. Ford, whose electrical engineers couldn’t solve some problems they were having with a gigantic generator, called Steinmetz in to the plant. Upon arriving, Steinmetz rejected all assistance and asked only for a notebook, pencil and cot. According to Scott, Steinmetz listened to the generator and scribbled computations on the notepad for two straight days and nights. On the second night, he asked for a ladder, climbed up the generator and made a chalk mark on its side. Then he told Ford’s skeptical engineers to remove a plate at the mark and replace sixteen windings from the field coil. They did, and the generator performed to perfection.

Henry Ford was thrilled until he got an invoice from General Electric in the amount of $10,000. Ford acknowledged Steinmetz’s success but balked at the figure. He asked for an itemized bill. Steinmetz, Scott wrote, responded personally to Ford’s request with the following:

Making chalk mark on generator $1.

Knowing where to make mark $9,999.

Ford paid the bill.

Good riddance to the billable hour

From a correspondent: “I never liked the billable hour. I used to joke that the legal profession was the only business that got paid for inefficiency. I gave a number of talks over the years attacking the billable hour and would joke that the only two professions I knew of that got paid for their time were lawyers and taxi cab drivers. Anyway, it looks like AI may achieve what I and others were not able to. That’s a good thing and I hope you keep your eye on it.”

Joe Tiano and Nancy Rapaport have written a number of articles on the slow demise of the billable hour, quite recently one entitled “Fighting the Hypothetical: Why Law Firms Should Rethink the Billable Hour in the Generative AI Era.” Theirs is not a counsel of despair, however. They suggest that those firms that hone in on what clients really want and cleverly deploy AI to get to those results more quickly have a fantastic opportunity. Rather than being threatened by AI, law firms should reimagine work that is currently siloed. You can read their recommendations in the paper at this link.

Making space for new employment formats and models

From Tamar Cohen, another LinkedIn connection.

“Love this, and agree 100%. What’s interesting with this is that it aligns with the idea that overall Organizational Design is moving towards a program-based employment model that can include AI agents, fractional or skill based consultants and full time employees. Timing and billable hours doesn’t work in this more blended model, as you point out, and rethinking work is absolutely necessary from organizations, to agencies and consulting companies.”

Trapped by the procurement system!

From Peter Whealy, a LinkedIn contact.

“Perfect timing to raise this topic Rita McGrath. After 11 years at a big 4, I completely agree that their model is fundamentally flawed. Since becoming independent, I have moved to outcome / value based payments, but many companies are slow to accept this because ironically, their PO and approval systems rely on certainty! It’s time for everything to change...”

Have we reached peak lawyer?

This is actually a topic I’ve written about before – namely that it is easy to see how the legal profession might be disrupted. I wrote this after several thankless years spent trying to teach a program on strategy to law firm leaders. Thankless because many partners didn’t see the need for strategy at all. If they did, they wanted it made by committees of senior partners in such a way that nobody’s turf was invaded. It’s impossible to make tough tradeoffs in that context! Law firm structures are also changing, in response to disruption.

The Billable Hour isn’t going anywhere and you are an idiot. AI is more likely to replace you than me!

From a correspondent: “The end of the billable hour is nowhere near upon us and AI is extremely far from reaching correct legal or accounting conclusions, even the programs currently designed with those specific uses in mind. It’s unfortunate that readers see articles such as this one because it leads to false impressions that many of us are fighting to combat with clients.

Hopefully you are not planning to rely on AI for legal or accounting advice, and hopefully the professionals you trust with these responsibilities are not either. However, if you are or know others who are, I would like you to save my contact information because it’s highly likely you’ll require the assistance of a tax litigator in the future and I would love to be of service.

My response: As a professional services provider myself, I certainly don’t think AI is a substitute for expertise.  The large language models are also not the only game in town – there are small language models that can provide traceability to where their conclusions came from (such as those being developed by Professor Jha at Princeton).  At any rate, I appreciate your providing your contact details which I shall preserve in case of future need.

From another correspondent:

“There are two obvious holes in your reasoning, Rita:

1. AI Is No Better than One’s Form Files: AI is not very reliable as a drafting mechanism; I’ve seen it and tried it, and it doesn’t “tailor” to the needs of the client. To the extent that it saves any time, a good form, such as most lawyers and law firms have for documents they regularly draft, performs the same function. There are many legitimate complaints against the hourly rate system, and certainly against training associates on the client’s nickel. But the advent of AI isn’t one of them. If a lawyer were wholly unfamiliar with a type of contract, then AI might give him a useful starting point – but someone unfamiliar with a contract shouldn’t be drafting it in the first place!

2. Payment for Closed Deals Provides a Perverse Incentive: Sometimes the best advice is not to take a deal, but what lawyer will want to give that advice if it means he won’t be paid?

You would do the public a service by raising these issues as a counterpoint, at the very least.

From me: Consider it done.

From another correspondent: Rita your column on AI and its premise are jejune. Have you ever been on the inside of a complex civil litigation matter and in the courtroom for a multi day or multi week trial, have you ever been on the inside of a complex labour law or other administrative proceeding for multiple hearing days - do you think AI will be doing that? Have you ever watched a AI narrated YouTube or other video? Would you want that representing you in a significant matter in your life? Will you be going to an AI doctor or having your taxes done by an AI accountant? I can only assume you are glomming on to a popular theory without having thought about it much. Were you under a deadline crunch?

In my experience, no journalist has ever responded to an email like this. You will likely continue the string. There’s a much greater likelihood that AI will replace you than me.

This was my response: “Let me first say that I was absolutely delighted that you used the word “jejune” in an email. I don’t think the entire population of Gen Z folks would even know that that word means.

Since I’m not a lawyer, I haven’t been in any of the complex and demanding situations you describe. Since I am an advisor to major companies making big strategic decisions, I have been in tense situations with boards and “C” suite leaders making decisions involving sometimes billions of dollars around M&A activities, investments in technology, big innovation bets, and competitive countermoves. I’ve never been paid by the hour for any of that activity, which suggests that there are alternatives.

In no way did I suggest that AI is going to substitute for wisdom, expert judgment, or human insight. I’m hopeful that will continue to be the case. What I did argue is that AI is going to make what a lot of companies charge for in terms of time irrelevant. Clients are paying attention.

I’m so sorry that your comments to journalists have been met with stony silence. Perhaps this note will break the pattern.

Well, maybe you aren’t an idiot but you are badly misinformed

From another correspondent: I jumped to my computer the second I saw your piece come through on the end of the billable hour. Perhaps I’m just hoping to protect my livelihood, but as a practicing attorney, I believe AI will likely make lawyers more expensive, not less. Here is why:

1. The Regulatory Straitjacket (The “Subscription” Myth) You mentioned business model innovation, but the Bar Rules in many states explicitly fight this. We must tie flat fees to specific, descriptive tasks and milestones. If a client pays a monthly fee but I don’t perform a specific “task” that month, the fee is unearned.

2. Brandolini’s law. AI has reduced the friction of creating legal documents to near zero. We are already seeing pro se litigants prompting LLMs to write 100-page complaints (always remembering to throw in Intentional Infliction of Emotional Distress!) regardless of the facts. It takes 10 seconds to generate a hallucinated motion, but it takes hours to read, research, and refute it. The LLM takes a kernel of truth and spins it into a “plausible” but legally baseless claim. No rational attorney will take a defense case on a flat fee when the opposing counsel is an unhinged AI with infinite stamina.

We are moving toward a world where lawsuits are easier to file but much messier to litigate. In that environment, the billable hour is the only way to manage risk.

This was my response: I enjoyed your response to the article and agree that we are in a brave new world indeed.

It is an issue about which there are passionate opinions on both sides of the “billable hours are dumb and dead” or “billable hours are the only way to control risk” discussion.  I’ve been enjoying the correspondence.

I’m not an expert in the regulations imposed by the state Bar Associations, so thank you for bringing that to my attention.  What I would say is that as the institutional framework changes, regulations often shift – hourly billing was partially prompted by lawsuits striking down earlier state Bar pricing requirements.  When they got started, one could argue that both Uber and Airbnb were criminal enterprises and now we just take them for granted – the regulatory regime adjusted.

As to AI slop increasing the costs of engaging in cases, I totally hear you.  It hits me with all the junk books I get asked to review or endorse – same problem.  I don’t have a great answer for that, but I don’t know how people will pay high fees for an expert to sort through junk documents – eventually that will become unaffordable. 

In any case, an AI inflection point seems likely

Like plastic in the world of cheap energy and plentiful materials that Carlota Perez has described so eloquently, AI is likely to begin creeping into every nook and cranny that it can. It won’t be overnight, for sure. And some of the results will be unexpected – for instance, back in 2023, ChatGPT aced the bar exam, doing as well as some 70% of test-takers who sit for the exam. My analogy to the digital revolution and to AI specifically is that it is a lot like electricity. While electricity was capable of driving enormous and fundamental productivity gains, it took something like 40 years of rewiring factories and equipment to achieve those gains. We’re at the very early stages.

By the way, it isn’t just lawyers. No less than Julie Sweet, the CEO of consulting behemoth Accenture has publicly said that despite the misconception that AI will make consulting obsolete, the field is actually ripe for reinvention…the firms that will thrive are those that deliver tangible results.

Let me know what you think, brilliance, idiocity and everything in between in the comments.