Money isn't everything
25 February 1997
12 August 2013
12 November 2013
7 April 2014
Insolvency litigation briefing: insolvent company brings claim for breach of fiduciary duties and dishonest assistance; and more
2 July 2014
3 June 2014
One issue that I intend to cover in my keynote address at this ninth Information Systems for Lawyers Conference is, perhaps, the most fraught of all in the complex world of the management and introduction of IT. I refer to the development of what is often called a 'cost/benefit analysis'.
The underlying motivation here is both clear and sound - that any costs of investment in IT should be unambiguously identified and then considered critically in light of the anticipated benefits.
In practice, costing the expense of IT should be a relatively straightforward exercise, although seasoned practitioners will usually suggest a handsome increase on initial budgets to cover the realities of implementation and training. This will also take account of invisible overheads such as productivity losses and opportunity costs incurred during periods of change.
What is immeasurably more challenging, however, is assessing the likely benefits. The natural inclination of many harder-nosed managers is to demand a 'business case' which demonstrates, in quantitative terms, that the benefits palpably outweigh the costs.
In the public sector, for example, this is what the Treasury hankers after in relation to government systems. In the private sector, the same spirit prevails. In fact, this ethos is drawn from back-office automation, where savings through streamlining are the norm.
In law firms, where the costs of IT, as it is often said, come straight out of the back pockets of the partners, there is often fierce opposition to any spend unless the benefits are clear cut. The target benefit is, of course, invariably none other than an increase in profitability - and, in turn, in monthly drawings. Advantages which are seen as more remote or vague, such as increased market share, are harder to sell.
I have witnessed dozens of business cases. They generally make interesting reading, but are concocted on the strength of so many unwarranted assumptions that I treat many as fiction.
I do not blame the authors of such documents, because they know that unless they can show some impact on the bottom line, which is directly attributable to the technologies under scrutiny, then there is no chance of the investment being sanctioned. However, I do question the supposition of top management that all relevant future factors can be identified, put under the microscope and then quantified in monetary terms.
In our rapidly changing hi-tech society, I am amazed, for example, that the Treasury in the UK can accept and is appeased by, say, five to seven-year projections for breaking even on some proposed IT investments within government departments. More than this, experience does not support the optimistic projections of savings through office automation.
In the legal world, for example, it does not seem to be the case that administrative and first generation practice management systems have reduced costs, despite the original hopes of those who authorised the expenditure. As elsewhere in society, teams of filing clerks have been replaced by data entry staff and by analysts, with no major dip in headcount overall. Nor has wordprocessing generally reduced the paper bill. More often than not it has actually increased it, with more drafts than before, though the final product, it should be noted, is of higher quality.
Sadly, however, the traditional business case has had difficulty reflecting such qualita- tive improvements.
Electronic mail offers an even more pregnant illustration. The managers and bean counters who welcomed its advent as a way of reducing the costs of postal and courier services have been horrified to find a major increase in communication. Far from automating conventional methods of the past, email has changed the communication patterns of those organisations which have embraced it. They communicate more regularly, more widely and they respond more rapidly as well.
Here we find a major problem with the traditional business case. It is not just that it is unrealistic, but it can sometimes discourage innovation. Where there has been significant change in the underlying processes, as with email, the 'before and after' are simply not commensurable. They cannot be compared in purely quantitative terms.
Where the result is better and different rather than cheaper, we find the poverty of the traditional business case. It may discourage change and qualitative improvement through IT because fund-seekers will know that the prospects of gaining support are minimal if they cannot be expressed in the conventional parlance of a quantifiable cash benefit exceeding original costs.
It would be misleading to suggest all forms of change are discouraged, however, because some of the most fundamental shifts which have been anticipated over the years, such as the delivery of legal information services instead of advisory services, can quite comfortably be accommodated in the traditional model. So my favourite case study - of selling a legal document assembly system - is amenable to the traditional approach: the fixed fee for developing such a system can easily be balanced against the expense of the legal specialists and the technical staff involved.
From the client's perspective, however, this traditional approach may be quite clearly unacceptable, for it might fail to reflect the realisation of another benefit of IT - that of enabling the more effective management of legal risks. An in-house legal department which seeks to introduce IT as a mechanism for improved legal risk management across its organisation should surely not always be prevented from doing so because the cost of this would exceed the old, less adequate and riskier form of legal service.
A richer model of benefit analysis is required, therefore, not just in the legal context, but across the business world and in the public sector as well. I advocate an approach which examines any IT investment for commercial 'acceptability', a term I use advisedly because it can extend beyond the traditional tack which seeks purely quantifiable benefits. Acceptability in business should hinge on the achievement of one or more general categories of commercial benefit - beyond cost savings - including:
the enhancement of the performance of lawyers, in terms of the consistency, productivity, efficiency, quality and effectiveness of their work; or
the provision of new business opportunities or ways of delivering legal services; or
differentiation of a practice from others; or
assistance with the management of risk. Although these benefits might defy immediate financial quantification, other kinds of measurable objectives can be set with respect to each.
Take differentiation. Here it may be hoped to achieve competitive advantage on the strength of using technology in imaginative and relevant ways - applications which differ from others and establish unique positioning in the marketplace. Appropriate differentiation can itself justify expense on IT, but the results of the investment must be measurable.
For instance, a firm can set and monitor a specified level of media coverage relating to its use of IT, or it can require that a minimum amount of work won is attributable to the differentiating use of technology.
Law firms must beware of rejecting IT proposals too quickly just because no conventional business case has been brought forward. Instead, decision makers should feel able to support investments in IT which are commercially acceptable through broad measurable objectives, not immediately quantifiable in terms of cash.