What's the point of investment in technology?

First, the good news. The opportunities for profitable investment in IT systems have never been better for law firms.

In the past, the market for legal IT suffered from its small size in relation to the whole IT market and was dominated by a limited number of specialist products. Now that domination is challenged by powerful and sophisticated generic products that are much closer to the cutting edge of IT development.

At the same time, the UK market is becoming part of the global market for legal IT and new suppliers are coming in, bringing fresh ideas. Both these developments are to the great benefit of the consumer. And it is noticeable that those law firms that are succeeding in today's marketplace are typically the ones taking advantage of these developments.

Now, the warning. The risk of making the wrong investment decision is greater than ever. Even worse, the financial implications of getting it wrong, in a highly competitive market and an environment where dependence on systems is growing, can be catastrophic.

The wrong decision can be made for a variety of reasons. Most are covered in one of the following catagories:

The leap of faith

The most recent, most powerful hardware and the most fashionable software are bought for their own sakes.

Peer pressure

Other firms are investing in IT, it must be the right thing to do.

The in-house expert

A single partner or IT professional, with a vision of what IT can achieve for the firm, drives the decision to invest and nobody has the influence or the technical know-how to challenge his judgement.

On the other hand, there is one key element in making the right decision. Quite simply, this is an absolute insistence that the investment reflects the firm's objectives. This may sound obvious, but it is worth considering in detail. Most firms have a quality, value for money service to clients as their objective and see up-to-the-minute computer systems as a way of achieving this.

At a broad level, this is probably true. But what are the specific objectives? And where does the emphasis lie in client service – on value for money, on quality, or elsewhere?

This has implications for the investment in IT, because different objectives demand different investment strategies. For example, if the objective is to provide good value and to compete effectively on price, IT investment might be focused on the following areas:

case management systems to improve fee earner productivity;

fee earner computing to enable fee earner document revision and reduce secretarial headcount;

practice management systems to provide the information necessary for effective cost control.

But if the firm's objective is to achieve profitability by providing a better (as opposed simply to cheaper) service, then IT investment might be focused on the following areas:

expert information systems to improve quality of service;

email to increase the speed of response to clients and to speed up internal communications;

case management systems to improve the standard of reporting to the client;

precedent databases to reduce levels of risk to the client.

These are just a few examples and there are others.

Potential IT applications are increasingly varied. IT is no longer just a tool for automating the back office. It can be applied in the front office to support day-to-day legal work.

Some types of investment may simply involve installing a new generation of computer equipment or software in an area where electronic information systems are already used. But this type of investment is increasingly just good housekeeping and may not offer any new benefits. To gain a substantial increase in payback, a more widespread, possibly radical, approach is required.

Whatever a firm's goals, the important thing is for the objectives to drive the investment, not the other way round. Only if the firm has a clear idea of its objectives can it have a clear set of criteria for assessing whether it should invest in IT.

How should the investment be measured against the now-established investment criteria? The appraisal must fit the problem. Therefore, there is a difference between appraising an IT investment designed to reduce costs and one designed to improve quality of service.

If the purpose of the investment is to cut costs, the financial implications of a systems purchase are relatively easy to measure. The costs of the investment – not only hardware and software, but also conversion of existing data, support staff costs, user training and ongoing maintenance – can be quantified. They can then be compared with projected benefits – lower staff costs, reduced headcount, lower overtime work, less need for outsourcing and lower maintenance costs. The accountant's armoury of appraisal techniques such as payback period and net present value, can compare the costs and benefits.

But if the purpose of the investment is to improve quality, numbers cannot be attached to the benefits. It is more important simply to establish that the benefits will be there; for example, a pilot project or client survey to determine whether an email address is really needed. And after the system has gone live, client and staff surveys should be carried out to gain feedback on the implications, financial and non-financial.

It is also worth benchmarking the investment along a number of dimensions – total spend versus fee income, projected support staff needs versus total staff numbers, estimated timing of payback.

So, investment in systems offers terrific opportunities to law firms but only if they understand what they are trying to do with the investment and assess the financial implications accordingly.