The evolving role of technology in law firms

Happy returns on investments

In the drive to reduce costs and conserve cash balances, where does investment in technology feature and has the focus changed due to the economic climate? To a large extent that depends on whether IT is seen primarily as a cost overhead or as an investment that can deliver results. The balance for forward-looking firms is to reduce costs where possible and invest wisely where competitive edge can be gained.

On an operational level, there is a substantial cost to just ‘keeping the lights on’ when it comes to technology – software licensing and maintenance, hardware replacement and maintenance, communications costs and so on. Before looking at further investment, firms are rightly looking to ensure they are making the best use of the considerable investments they have already made, through offering additional training, fine tuning existing systems, examining licensing positions and looking at areas to reduce expenditure.

The majority of people use only a fraction of the available functionality in any IT application, so with lower utilisation rates, now is a good time to make sure staff are getting best value from the tools at their disposal through extra training. IT departments with reduced budgets should be optimising existing systems and doing all the housekeeping they have not had time for when there was a constant stream of new projects in the pipeline. Heads of IT should be examining their licensing position, particularly if they have seen headcount reductions, and should also be looking at maintenance contracts and ensuring there are no areas of overspend. Telecommunications costs are an area where tariffs and packages change frequently, so examining phone and data line charges may highlight areas to make savings.

Desktop hardware assets that were traditionally replaced on a three-year cycle are being sweated for longer in these straitened times. The life of computers can be extended by adding extra memory and holding off implementing more resource-hungry newer software. However, the running costs of a five-year-old machine may be twice that of newer energy-efficient models, so aging kit can impact the firm’s energy bills as well as its environmental credentials. Firms will be looking at how much longer they can hold off upgrading software (for example, to Microsoft’s latest operating system, Windows 7 or Office 2010), as existing versions may not be supported for too much longer and they may need better hardware to run on. Leasing rather than buying new hardware can be a better way to manage the hardware refresh cycle in a recession, with the cost spread over several years and an option to refresh at the end of the period, rather than a lump-sum capital expense. Through taking these various measures, the IT function should emerge from the recession leaner and ready for the upturn.

Managing risk

There are increasing regulatory and risk management demands on law firms that cannot be avoided, but they can be addressed by technology. For example, ensuring information security compliance, whether to ISO standards or to levels prescribed by clients, is simply part of the cost of doing business today. Clients are more wary of high-profile data losses and the media are keenly reporting every instance of a missing laptop, CD or USB memory stick containing sensitive data. Clients are therefore putting pressure on their suppliers – in some cases by carrying out an audit — to demonstrate they have systems and processes in place to manage such risks. The return on investment (ROI) on this sort of protective investment is often hard to prove, as it is a preventative measure, but the cost of doing nothing could be huge in terms of reputational damage, potential fines from the Information Commissioner, hikes in insurance premiums and loss of existing or new business.

As an example, technology to force the encryption of data, whether at rest (for example, in inboxes, on servers) or in transit (via email or removable media such as CD/DVD/USB stick), is becoming a requirement from larger clients. Unfortunately, in some cases, these measures can also make it more difficult for lawyers to work, by adding additional layers of security checking. Users of technology expect it to make things faster and easier, but protecting against risk can have the opposite effect.

Strategic technology

Aside from keeping the ship afloat, now more than ever firms should be considering the strategic importance of investment in technology. With less work around and ever more discerning clients, firms who can add value to the client through use of innovative systems stand a better chance of attracting new work and retaining good clients. Technology can often provide a delivery mechanism for the strategic plans of the business, but, to do this, technologists need to be working in close partnership with their colleagues so that they understand the challenges and can advise on solutions. Technology can not only be supportive, it can be disruptive, opening up new opportunities and enabling new streams of delivery. However, lawyers often don’t know what they don’t know when it comes to technology, so it is the responsibility of the IT leadership to advocate, promote and evangelise its appropriate use. Tenders are increasingly featuring questions regarding technology, and, in some cases, partners are taking the IT director to meet clients to discuss what they can offer. As technology becomes more embedded and opens up opportunities, this trend is likely to continue.

Intelligence

Doing the work in the most efficient way will help to reduce costs and increase margin, but there is increasing pressure on pricing and alternative pricing structures. Pricing correctly and gauging the appropriate staffing mix used to be an ad hoc and instinctive business, but there are now powerful tools available to assist. There is a vast mine of data sitting in the practice management system (PMS), but it is usually difficult or time consuming to extract useful information. Business intelligence (BI) tools act as a layer above the PMS, mining the data into a separate ‘data warehouse’ that can then be reported on quickly and easily. By presenting information in digestible formats, such as dashboards with ‘traffic light’ warnings showing high-level stats, but with the ability to easily drill-down into the detail, these systems make the information more accessible and usable for partners. BI can also tell you how profitable work is for each client, and can help with pricing – optimising gearing to maximise profit on each job. These systems are not cheap, but in terms of financial management, firms cannot afford not to keep on top of their businesses, and BI can provide the information they need to make decisions and take action quickly.

While BI addresses productivity and profitability, there are many technologies available to help enhance the client relationship through additional services that differentiate the firm, such as access to knowhow through portals, e-bulletins, newsfeeds and blogs. There is a growing trend, in addition to traditional extranets, for offering key clients direct access to core knowhow from the firm’s KM system. However, it is not enough just to have an extranet, blog or any other client-facing system, they need to be used effectively and partners need to understand the value and know how to pitch the benefits to the client. Communications technology is also developing apace, and the ever-present BlackBerry is being turned into a laptop replacement for many journeying lawyers, with versions of time recording, digital dictation, CRM and DMS systems capable of running from that single device. Lawyers are being freed from their desks and enabled to work anywhere with a connection, wired or wireless, but again they need help from IT to make the most of these tools.

Efficiency

Clients want to see value for their legal spend and they are increasingly looking for alternative fee structures to the billable hour. The challenge for law firms is to offer high-quality legal advice at the right price, by making their processes and people as efficient as possible. The experience and knowledge of the lawyer is what the client pays for, but not every part of their work is bespoke. There are many routine tasks that could be done more efficiently by delegating appropriately to a more junior staff member, or allowing a computer to do the work. Rather than de-skilling the lawyer, as some may fear, case and matter management systems can automate the more routine work (generating standard letters, diarising reminders, outputting management information and so on), leaving the lawyer free to concentrate on where they add the most value.

There is some debate as to the extent of standardisation or commoditisation possible with legal work, but it is hard to argue that at least some parts of every lawyer’s work could not be made more efficient. Case/matter management, workflow, business process management – they all have the common goal of mapping out a process, streamlining it and reducing inefficiency. With changes to the structure of law firms due to the Legal Services Act 2007 in England and Wales (and similar reforms in Scotland), we also have the prospect of new entrants to the market or external investment in law firms. What impact this will have is hard to predict, but firms who are lean and have stripped out inefficiency across the organisation through targeted use of technology should be better placed to compete in a more competitive market.

Making the case for IT

How do the opportunities offered by technology square with pressure to keep down costs and safeguard profit? Clearly, any investment in the current climate needs a strong business case. Structured IT governance processes are essential to ensure that projects meet a valid need and are managed appropriately. No-one can afford to make an expensive mistake and there must be a quantifiable return for the lowest possible investment.

However, costs go beyond the capital investment – there are the opportunity costs, internal resource costs (legal and technical), consultancy, training and annual recurring costs for maintenance. But with suppliers also feeling the pinch, now is the time to get a good deal. Unlike hardware, which will generally track the cost of raw materials and the manufacturing process, software can be discounted more easily – the development work is a sunk cost, so vendors would rather sell cheaper licences and then benefit from recurring annual maintenance and additional consultancy. There is also an emerging trend for software to be supplied on an annual subscription basis or via the web as a service, reducing the upfront costs and spreading payment, with the option to walk away at the end of the contract period. So there are ways to avoid upfront capital expense but still benefit from the latest tools.

In summary

Technology can help to address the increasing pressure on businesses to do more with less. Law firms that grasp the nettle of making their processes leaner can benefit greatly from systems that improve efficiency. Management can benefit from systems that give faster access to more accurate and previously hidden information. Clients can benefit from better access to information and better communication with their lawyers.

There are many areas where IT can make a difference; but, to deliver results, the IT function needs to understand the business and the challenges faced and where technology can make a difference. In these cost-conscious times we can work to reduce the cost of keeping the lights on, but investment is required to prepare and position the firm for an eventual upturn. However, technology in itself cannot add value, it must be implemented in such a way that fits the firm’s requirements and culture.