Investing for success

Top law firms know it is vital to invest in IT but are divided on what systems will best help them combat new competition

Law firms face a host of pressures as we enter the third quarter of 2012. Increasing competition in the marketplace, new rules allowing non-traditional business models to enter the fray and client pressure on fees are just some of the difficulties that lie ahead. But The Lawyer in association with Avanade – a business technology solutions and managed services provider – has identified another potential challenge: are law firms making the right decisions when it comes to investment in technology.

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Daryn Edgar, senior director at Avanade UK, says: “One of the biggest challenges to come from the competition between traditional and non-traditional law firms is that new market entrants, such as retail brands, are historically much more consumer-orientated. At a time when many law firms are cutting costs, new competitors are investing in new and better IT systems that are both client focused and efficient, ensuring they are ahead of the current market players.”

To confirm whether the hypothesis is correct, Avanade teamed up with The Lawyer to conduct research into one simple question: do law firms see a connection between their business strategy and technology investments in the 21st century?

The research was conducted in May among senior IT operations staff and lawyers at the UK’s top 50 law firms, and included leading international players. Some 74 respondents answered a series of questions, the results of which highlight a gap between law firms’ business objectives and the technology strategies the firms employ to achieve and support them.

Threats and opportunities

Client pressure on fees and competition were highlighted as being among the biggest threats to  firms, with more than 25 per cent of respondents selecting the first of these as their main business risk. This is no surprise, given that recent entrants to the legal market have made some particularly unusual offers. Eddie Stobart lorries, for example, launched a legal service in May that promised to cut legal fees substantially by connecting clients with barristers without the help of a solicitor. One respondent noted that “changing buying patterns and the growth of in-house teams [is one of our biggest business threats]”.

So what are law firms doing about it? When asked which technologies they are investing in to compete effectively, nearly 67 per cent of respondents answered client and resource management, while 50 per cent said finance management and business development. Almost half said the reason for investing in new technology was to keep up with a fast-changing industry, while nearly 90 per cent said it was to remain competitive.

One respondent commented : “Why act like lawyers? The business world always invests in IT.”

The survey demonstrated that most respondents understood the significance of a long-term technology strategy, with 80 per cent saying that their firm’s strategy was well aligned with their own business goals.

“It’s a no brainer,” wrote a respondent. “Not to invest means we will be dead in the water.”

But another injected a note of realism: “In the past, investment has been low, so [it’s] causing some legacy problems now.”

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Bottom line

But how much are these firms really investing? The results of the study show an interesting disparity. While almost 33 per cent spend more than £1m a year on technology (with half of these spending more than £5m), this still leaves a substantial proportion of leading firms counting their investment in thousands of pounds rather than millions.

“We invest as much as we can afford to,” echoed other sentiments in the respondents’ comment boxes.

As much as a firm can afford, however, is seen as just enough. Despite some respondents admitting that there can always be more to invest, more than 60 per cent consider their firm has invested enough in technology to compete effectively. These opinions appear in sharp contrast to the investments that firms are actually considering. 

Sixty-six per cent of the firms responding told the researchers that the highest-priority investment they will make this year will be in outsourcing. The technologies that will best help firms deal with the real challenges to their businesses, such as customer and business-orientated systems, came much further down the list, with fewer than 20 per cent stating they were thinking of investing in enterprise resource planning (ERP), while fewer than 50 per cent stated customer relationship management (CRM).

Lawyers vs IT

There were also inconsistencies between IT staff and lawyers. Most of the lawyers (56.6 per cent) said their firm’s IT infrastructure was “average” in supporting their core business needs, compared with just 39 per cent of IT staff. Some 49 per cent of IT staff said their IT infrastructure was “good” but not “excellent”.

This compared with 26 per cent of lawyers who rated their firm’s IT infrastructure as “good at supporting their business needs”, while 13 per cent said it was “bad” – a view that, unsurprisingly, only 4.6 per cent of IT staff shared.

Summing up the study, Avanade UK’s Daryn Edgar says: “These results show a clear mis-alignment between IT and business. IT is integral to every law firm today and as such needs to be integrated into the business decision process from the outset to help deliver success in a competitive marketplace.”

Despite these survey results, it is IT staff who most think their firms need to invest more in technology; 40 per cent feel their organisation does not invest enough, compared with just 30 per cent of lawyers.

Maybe this 10 per cent difference is partially explained by the 7 per cent of surveyed IT staff who disclosed that their last significant IT upgrade had been more than five years ago, a fact the firms’ lawyers seemed unaware of – not one lawyer thought their firm’s IT systems were five years old or more).

The survey results suggest that, while 50 per cent of lawyers surveyed think their firm’s IT infrastructure is “average”, average is perceived as just enough to give the firm a competitive advantage – an opinion not wholly shared by their IT colleagues.

 “In the coming years technology is only going to grow in importance for the legal industry, and business leaders and IT managers will need serious buy-in from employees to push through new systems,” says Edgar.

“At the moment it would seem that lawyers are indifferent or only mildly positive about their IT infrastructure. This lukewarm reaction is not a strong foundation for tackling the challenges ahead. The most prosperous firms will be those who recognise a changing legal marketplace and marry solid but forward-thinking IT solutions with wise business strategies.”

Sponsor’s box

The shifting landscape in the legal industry, with its myriad changes in law and regulation, means it’s no time for UK law firms to be resting on their laurels. A new study from IT services company Avanade has highlighted a gap between what law firms want to achieve and what their strategy is – which could mean challenges ahead.
The 74 UK law firms surveyed cited client pressure on fees and competition as the biggest threats to their businesses. When asked which areas they believed they should be prioritising for technology investment, client & resource management, finance management and people came out on top. The reasons given were to better manage client demand and cope with a changing industry.
These opinions appear in sharp contrast to the investments firms are actually considering. Over two thirds of firms told the researchers that the highest priority investment they’ll make this year will be in outsourcing. The technologies that will best help firms deal with the real challenges to their businesses, such as customer and business orientated systems, came much further down the list with less than a fifth saying they were thinking of implementing Enterprise Resource Planning (ERP) and fewer than half said customer relationship management (CRM).
Avanade believes that law firms will fail to mitigate the biggest risks to their businesses if they do not do more to ensure their investments will improve their ability to manage fees for optimum profit against a background of slimmer client budgets, and market their services effectively against the competition. Practices which are too focused on cutting costs could see firms fall into a negative spiral that will render them unable to innovate and keep up with changes in an increasingly competitive market.
Daryn Edgar, Senior Director, Avanade

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