22 April 2013 | By Matt Byrne
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Access to sophisticated business intelligence is critical in a fast-changing market, but at many firms the technology is not up to the job
It’s April, which means that for most firms it’s also financial year-end time - which also means that the eyes of the UK legal market will once again be focused on the financial performance of the UK largest firms as they begin to report their 2012/13 results.
But while activity among management teams across the land is at a high, the focus on key metrics across the year more generally has never been higher. The rapid pace of change in the UK legal market, notably with new pricing models and the increasing automation of some legal services, is making the provision of up-to-the-second business intelligence (BI) vital. It is also creating unprecedented challenges for firms in terms of practice management.
“The firms that get this right, and with the right quality, will jump ahead,” says Osborne Clarke partner and head of technology Mark Webber.
Webber’s colleague at Osborne Clarke, IT director Nathan Hayes, echoes this when he argues it is more important now than ever for senior management in law firms to have up-to-date BI.
“The fact is that margins are getting squeezed for lawyers,” says Hayes. “The more laissez-faire attitude of the past won’t cut it. We have to be more savvy. And the only way to do that is through better business intelligence.”
Crawford Hawley-Groat, director of IT at Maclay Murray & Spens, agrees. “The days of being able to wait for the market to change are gone,” he says. “Firms need to be able to react to changes in demand more quickly and redeploy resource quickly. Business models are changing and in that context key data such as accurate time-recording is vital. In fact, time-recording needs to sharpen up. Clients are demanding more access to more raw data. They want to see what’s on the clock and be able to do that at 3am if necessary.”
Former Simmons & Simmons director of business transformation Abby Ewen knows as well as anybody in the market the importance of adaptability. Ewen was one of the key drivers behind Simmons’ launch in Bristol, an office set up by the City firm to facilitate the handling of work at lower rates by providing back-office support. The move is underpinned by the use of the latest technology and BI. Ewen recently left the firm to join Berrymans Lace Mawer, a firm that is heavily reliant on technology to help it maintain profit margins in practice areas where clients are demanding cost-efficiencies.
As Ewen confirms, practice management systems (PMS) and the data they produce are always topics high on the agenda at firms.
“The quality and amount of management information reported out of these things is key,” confirms Ewen. “Data management and BI are also becoming key, because this is what clients expect. They want transparency, they want to know how much a job is costing and what the spend is.”
Janet Day, director of IT at Berwin Leighton Paisner(BLP), echoes the consensus that it is now critical for firms to have the best possible BI, adding the caveat that this critical data should not be the sole preserve of top management.
“Where the spotlight is on identifying not just workflow but the profitability of that workflow, everyone involved in understanding the pricing of client-facing work should be aware of the detail,” confirms Day.
So there is little doubt that the number one priority for those involved in practice management is getting hold of the best available data. In this context then, it is concerning that most of the IT directors quizzed for this article said they believed the current approach to practice management in many firms, specifically the provision of BI, is not up to scratch. Indeed, some went as far as to state that the present generation of systems and the information they produce is not fit for purpose in a legal market that is changing rapidly.
Clearly the leading vendors (including Thomson Reuters, Aderant and Lexis Nexis) are well-aware their products need to adapt and evolve if they are to keep pace with the requirements of an industry undergoing unprecedented change.
But there is a feeling among many users in the market that the systems their firms and management use, and the approach to practice management they engender, is lagging behind what is required.
One of the fundamental problems appears to be that historically in legal IT terms a practice management system simply means a time-recording and billing system. And as DLA Piper’s director of business infrastructure Daniel Pollick puts it, much of the financial information provided to firms has an hours-worked element “hard-wired in”, directly linking the PMS to the increasingly outdated billable hour.
“The historical building block of law firm practice management systems is a unit of time,” adds Pollick. “Maybe over the next few years that will change more quickly than we have seen up to now. We need to see things that support the changing pricing and charging models which are becoming more and more prevalent. Something that points towards the new legal economy is what’s required.”
In other words, many of the major metrics in law firms, such as billings per partner, utilisation per lawyer, the number of hours worked and so on, are the metrics of 30 years ago.
Hayes agrees with Pollick that moving from measuring time to measuring contribution is the way to go.
“But it’s not easy,” adds Hayes. “We need to know as much as possible about our people’s activity and how well our business is functioning. Tools to achieve that would be most welcome.”
Time and motion
Hawley-Groat believes the use of time-recording data in itself is not the issue.
“Law firms are selling knowledge and skill, so time is the core unit of production,” says Hawley-Groat. “It’s how that time is used that causes the problem. Where lawyers and partners are given incentives to put time on the clock and convert that to fees it doesn’t promote efficient working. Bonus structures make things worse as work is done at too high a level so it costs clients more than it should. Time should be an internal measure of available capacity and utilisation.”
That said, there is a feeling among leading technology specialists that work needs to be done on making systems for recording lawyers’ activity keep pace with the seismic changes in the market.
“In an ideal world you’d think that PMS services would develop to accommodate the changed charging and costs models - things like fixed prices, alternative fee arrangements, multiparty acting transactions and so on,” says BLP’s Day. “Combine that with the client billing regimes and you can see why most PMSs are supplemented by what I call a lot of string and sealing wax.”
As Day adds, this is partially driven by the supply of systems and partially by inertia around PMS replacement.
“It’s always the longest-lived piece of software,” continues Day, “so there’s lack of imagination on the buyers’ part and probably low investment on a slow-burn product on the suppliers’ part. The question remains - if we remove the chargeable hours element, how do we deal with resource management? It’s a tricky model.”
Allen & Overy (A&O) chief information officer Gareth Ash is one high-profile user who takes at least a partially contrary view. Ash says that if he had been asked a few years ago whether the current approach to practice management was fit for purpose he would have said ‘no’.
“The new breed of PMS and specifically the one we use [Thomson Reuters’ Elite 3E] is an enterprise-class system to run a global legal business,” adds Ash. “Of course, as the industry evolves, systems will need enhancements and new features, but that is normal product development and progression. Provided the solution is built on a flexible architecture that should not be a problem.”
However, even the satisfied customer that is Ash can spot challenges ahead. Ash sees three main challenges facing PMS vendors.
“The big one is keeping up with the changing legal landscape, not just in terms of what is happening at, and needed by, traditional law firms, but also the new entrants and new models coming into the market,” he says. “Vendors are going to need to service very different customers in the same way car manufacturers do.
“Second, BI capability is patchy and bolt-on products and in-house developed software fixes are still being used to supplement vendors’ offerings. Third is the ability to provide an acceptable user interface across a multitude of devices - PCs, tablets, smartphones and so on - to a variety of users. This may be too much of a challenge and it could be better to uncouple the user interface from the underlying data and business logic so it is easy for third-party developers to write bespoke user interfaces.”
Likewise, Ash disagrees that the more sophisticated PMS solutions on the market have an hours-worked element hard-wired into them, but does agree they have time and rate at their core.
“But they’re flexible enough, so we’re able to manipulate things to deal with alternative fee arrangements,” says Ash, adding his belief that “the roadmap of vendors is aligned with the changing legal landscape so future software releases are going to make this manipulation and reporting easier”.
Ash also believes it is, as he puts it, “worth pausing for a moment on the metrics”.
“I wouldn’t necessarily agree that all these metrics are out-of-date - not yet, anyway,” he says. “After all, we’re in a knowledge and people industry, and the basis of that, regardless of how we charge, is some form of time element.”
That said, Ash can see that in the context of the increasing automation of legal services the systems A&O and other firms use are going to evolve to make it easier to price work from a variety of sources.
“For example, a deal may involve a specialist element using the traditional billable hour, volume document review handled by an LPO and an online aspect,” says Ash. “We work like this now. In future systems will, by default, handle this more easily in terms of price modelling and reporting. At the moment it requires manual intervention.”
‘No one has got it right yet’
What is clear is that while the legal market is in an accelerated state of change, the technology it relies on is in a similar state of flux. And you can add to this the fact that there is always an element of horses for courses in a market that features firms ranging from A&O to the smallest boutique.
“Much depends on the type of law firm as to whether the systems are fit for purpose,” says Osborne Clarke’s Hayes. “If it’s a heavily transactions-focused firm with tight margins, those metrics have always been in play within the CMS they tend to use, so it’s less of an issue. It’s more of an issue for firms operating a trusted adviser strategy where it’s much more about their advisory capacity and capability. They’re operating in an area where activity hasn’t really been measured in the past, generally the medium-to-large firms. Vendors are developing systems to help us manage our matters in a more appropriate way, but they need further development to truly meet our needs.”
As Hayes adds, “No one has got it right yet.”
And, as always, there’s probably less time than you think.