Our colleague Kevin Goosman’s article on Law Firm IT spend https://baskervilledrummond.com/law-firm-it-spend-getting-it-right/ was most timely, with a new budgeting cycle approaching. Getting the most out of your budget and controlling costs is fundamental, but given increasing pressure from your clients – and from partners alerted to the potential of “innovation” to use technology to enhance legal services or reduce the costs of delivering legal services – getting the basics right may not be enough.
In Kevin’s article we suggested that between 4 and 5% of annual turnover is a reasonable spend for a law firm IT budget but that will cover, at best, keeping the lights on and some incremental enhancements. It will almost certainly not cover the cost required for investment in a major system swap-out, or a significant infrastructure refresh. How do you square the circle, and persuade the partnership to make a significant investment?
It is also essential to bear in mind that an estimated 40 to 45% of Law firms are still relying on legacy systems and are faced with the imperative of a major system swap-out in the next 2 to 3 years.
There is no simple answer, but a logical, structured approach has a good chance of leading to the optimum outcomes. You may already be some way along the journey, but a few tips rooted in our own long experience may help.
Get close to the business and the lawyers
Technology in itself is irrelevant, it is only there to support the business of the firm.
- Make sure you understand the Firm’s business plan – is it focussed on organic growth, or on mergers or acquisitions? Is the firm content to focus on existing sectors, or does it plan to branch out into different sectors? Is there an office move in prospect, or does the Firm plan to open new offices?
- What are clients’ views of the Firm, and what do they expect? Analysing the formal business plan of the Firm is only a first step. Engaging with the BD/ Marketing team, Finance and the lawyers themselves will give you a far better overview of the role IT can play in supporting the Firm’s objectives and service offering.
- Are there existing inefficiencies, which hamper productivity? Eliminating these can drive profitability up significantly.
- Are the existing solutions supporting the business as expected? Are end-users getting the envisaged benefits or do they see IT systems as a barrier to doing business?
Perform a gap analysis
It is often best to start the budget cycle by assessing what you currently have in place -do your current systems support the Firm’s strategic goals? Often, it may be sufficient to develop an existing system, purchase a new module from an existing vendor to enhance functionality,provide additional training or bolt on a new technology. But the gap analysis may well lead you to conclude that this approach will not be sufficient.
Build a structured and detailed IT strategy
It goes without saying that the IT budget is intrinsically linked to the IT strategy. At times, depending on the firm’s investment cycle, budget pressure may drive strategy and at other times strategy may drive the budget. To convince the partnership to make significant investments, this needs to be reasoned and based on fact. It cannot be a “wish list”: it needs to contain specific proposals, priorities, at least ball-park costings, details of the additional resources required and most importantly, the business benefit which will be derived from the investment. At this stage it is important to reference the Firm’s business goals and align the IT strategy closely with those goals.
Assess the market
Often, law firms operate in isolation, and are inward looking. This is often understandable – lawyers are focussed on client work while the IT team is focussed on keeping the lights on and the users happy. In a time of rapidly evolving technology and changing client demands, this approach will not suffice. Talk to your peers – find out what they are doing – talk to consultants, talk to vendors and attend events.
“right size” your technology
What may be an ideal strategy or solution fora top 50 law firm will probably not be appropriate for a mid-sized firm. There may well be a tendency to “buy IBM”, but is it appropriate for your Firm, given your specific requirements and available resources? Particularly in recent years, the technology offerings specific to the mid-market have developed significantly, and may well be appropriate for your Firm’s short and long term requirements.
Consider the nature of the investment/expenditure:
Different types of investment require different approaches.
- Cost of Business – e.g. Infrastructure, software licencing, telephone/communication are a commodity cost and focus should be on cost reduction.
- Security – It is never going to be possible to do everything and this alone could be a never-ending cost. Firms should view this investment as they would an insurance policy.
- Business Applications – These are the solutions which can bring efficiencies and competitive advantage.
- Client Requirements “cost to obtain business” – These are solutions which you must have in place to gain the business. It is very often the case these fall into the IT budget, but is that appropriate?
Devil is in the detail:
When looking at new solutions approach the purchase on a very cautious basis. For example, solutions are increasingly available as Software as a Service, on a subscription basis. Where an outright licence purchase is still required, attractive cost reductions may be available. However, bear in mind the cost of implementing new solutions, which may well equal or exceed the actual cost of the software – for example, major projects may well require additional IT staff – project managers, business analysts and/ or trainers. You must also consider the on-going costs so it is useful to consider the various options from a 5 or 10 year cost of ownership perspective, factoring in support and maintenance, additional development costs and additional IT headcount.
Work closely with your FD
Reconciling significant Capital Expenditure with the Operational IT budget can be challenging. The Finance Director should be closely involved to assist with assessing the options. Often, the initial investment can be absorbed into the Operational IT budget – for example, instead of a massive infrastructure refresh, moving to an Infrastructure as a Service Solution or the Public Cloud will result in a monthly, quarterly or annual cost rather than an up-front investment. There may even be significant savings to be made, which can be offset against the increased operational cost (e.g. reduced spend on Business Continuity and Disaster Recovery)
Planning and justifying a structured and persuasive IT strategy and the resultant IT budget expenditure takes time and care – and the more you invest in it from the start, the more likely it is to benefit the Firm, both in the short and long term. Whether you are a partner with responsibility for IT, a Finance or an IT Director, the long-term future and profitability of the Firm will depend on the decisions you make now.