Features – Investing In Technology, Part II

John Hokkanen consults as a Business and Technology Strategist. He has worked as a Senior VP of Business Development and Technology, Chief Knowledge Officer, Lawyer, and Software Engineer. He resides in Austin, Texas, but accepts engagements all over the United States and abroad.

Investing in Technology, Part I, Published January 3, 2000

1. First Things First: Assess your Past, Present, and Future Market Focus

Law firms have complex value networks comprised of fee-earners with deep skill sets, efficient staff, and a myriad of external relationships. These are clearly understood in the focused law firms that have a distinct specialty. Where such skills warrant high fees, the firm is likely to have excellent profitability. These are the firms where their external relationships and market branding may make technology investment nearly irrelevant.

In more general practice firms, the value networks of different practice groups may be independent of one another. Such law firms may have little clarity or unity about who they want their clients to be, what work they want to do for them, and the value that such work is worth. Individual lawyers in particular practice areas may have clear goals, but the firm’s goals are likely to be little more than platitudes about being at the top of the legal industry in terms of service, profitability, or client base. In the corporate world, such leadership would be deemed “unfocused,” and the company’s valuation would suffer. Unfortunately, the partnership structure encourages such lack of focus, with large law firms having multiple value networks within their broad umbrellas, yielding the observation that law firms are the aggregation of individual practices.

The value network analysis has immense importance to technology investment. In the first instance, lawyers often hope that technology can do what their best personal efforts cannot – bring the firm together in a large virtual umbrella where cross-marketing of services can be accomplished effectively. A shared knowledge of client contacts can certainly help keep a firm from tripping over its own feet. But the basic observation remains that an organization cannot do resource allocation – whether technology, marketing, or personnel – without clarity about its market goals.

In some firms, the platitudes for the firm similarly devolve to platitudes for the staff departments. In the case of the IT department, the goal becomes to “support the firm and its fee-earners” or “to avoid the Rolls-Royce when a Ford will suffice.” Such mottos are meaningless because they provide no direction. Conversely, advising the IT department that the firm wishes to expand the healthcare, technology litigation, or environmental practices allows IT personnel to investigate the specific needs of these future revenue centers and to allocate the resources to support them. Such a strategy recognizes that technology investment is political and ruled by the fact that some and not all practice areas comprise the firm’s future. With the firm’s business strategy set out in clear, unequivocal terms, the staff directors can implement measures to bring their departments into alignment with that strategy. Correspondingly, where firm is fractured and effective leadership is paralyzed, there can be no technology investment strategy because there is no business strategy.

2. Hire a CIO Whose Sole Focus is Technology Strategy Alignment

CIOs have become much more common among law firms for powerfully important reasons. The CIO needs to understand the firm’s business strategy and to align the technology, consulting services, and research services to that strategy. Consequently, the CIO may be the most important staff position in the firm other than the marketing director. This position requires a classic blending of skills: visioning, forecasting, and managing. A detailed understanding of what lawyers do, how they work, and the business world they live in is imperative.

The foregoing says almost nothing about technology, because the technology component of the CIO is secondary, and he/she can probably learn what needs to be learned about technology implementation. It is clear that this person is not an IT director and should not be focused on technical bits and bytes. Instead, this person ensures that the department’s course is headed in the right direction from a business point of view, that the technology people (who have a notorious reputation for being non-customer oriented) place customer service as a high priority, and that the technology services enhance the firm’s relationships with clients.

If the firm can afford it, taking a partner out of his/her practice to become the CIO probably brings the best mix of internal knowledge, respect, and buy-in from the firm at large. However, a part-time partner is probably a misfire in a medium or large firm because these non-billable tasks will be sacrificed routinely for billable ones. If a current partner is not possible, then the firm needs to find someone at a partner-type level and then to implement policies of inclusion to make certain this person is able to exercise the expertise and judgment that he/she brings to the firm. Firms should be very concerned about the techie lawyer that volunteers for the job; this is not a job for a gadget guy, and putting a gadget guy in the position means that bits and bytes discussions will take priority over business issues. However, having found the person who can balance politics with budgets, marketing and practice issues, the firm establishes a solid foundation from which to implement technology decisions.

3. Stop Following the Lead of Other Law firms

Once the firms’ technology focus is aligned with the firms’ value networks, the measure of success will be if the technology investment adds any value. Such assessment requires brutally clear thinking and evaluation. For example, what did your document management “solution” cost, including hardware, software, technical administration, and training time? How much did it really improve lawyers’ ability to share and reuse work product? If the firm spent a half million dollars on one, was it worth it? If the firm had no document management solution whatsoever, would it really have lost a half a million dollars worth of attorney time due to hard disk crashes? If email is a satisfactory means for sharing information and collaborating with your clients, would it have been satisfactory for your internal system as well? Such questions candidly raise issues about how technology adds to the value chain and what problems these “solutions” seek to solve.

The foregoing example arises from the anecdotal observation that many law firms simply follow the herd when it comes to technology. Technology committees often inventory what the other big firms have done, and do the same with little thought of their own. Bureaucratic forces may reinforce this kind of industry normalization because technology leadership may be penalized dramatically for making a non-standard decision that turns out poorly but not rewarded for innovative thinking that turns out well. By hiding behind the “all the major firms are doing it” rationale, true leadership gets shelved. Despite the realization that the legal industry lags behind many other industries in technology integration into business processes, law firms continue to use each other as models for behavior.

And yet the value network thesis predicts that mature industries will focus on incremental change and sustaining technologies, not innovative disruptive technologies. Thus we see a classic conflict. On the one hand, many think that lawyers live in times when they ought not to use each other as role models, and yet the theory holds that mature players in a field are likely to do exactly that, marching in lock-step in capabilities and offerings. This conflict should be deep cause for concern. It suggests that a market shake-out is possible, if not likely. The mature suppliers, medium and large law firms, are in fierce competition with one another for the high-end revenues, fine tuning their processes. But, like any mature industry, cracks in the foundation — neglect of process change opportunities as opposed to incremental improvement — provide footholds for new entrants.

4. The Big Bang

The Internet is a key inflection point in our world society, a crucial event which triggers streams of other business, technology, and social events. The business innovation in the Internet space is driven by key tenets: 1) It’s only about the customer (hence innovate now); 2) Speed is everything; 3) Dominate your market; and 4) Servicize your products and productize your services (all offers are blended ones in the new economy). These tenets have necessary implications. The goals of innovation, speed, and market dominance mean the companies must pursue tight business focus, outsourcing, partnering, and substantial money investment. In short, tighten up what you do in order to do it as quick and as cheap as possible, and then bring as many players and as much resources to the table as you can stand in order to get as big as possible as fast as possible in order to avoid being Internet roadkill. Law firms contemplating their Internet play need to understand and follow the same rules, and that will require some innovative thinking. For example, if partnering means revenue sharing, then lawyers need to identify ways that this can be done legally. Lawyers often want to preserve their “brand” by locking up their content on their web site, but content syndication builds bridges and tremendous distribution. Law firms tend to distribute their resources and let their individual partners handle personal investments, but a web initiative may require diverting some substantial revenue for firm purposes and that is likely to require significant building of a business focus and consensus. Outsourcing may increase real costs paid for by partner revenues, but outsourcing may be the only effective way to bring speed and skills to a project. “Legal products” may be a dirty word in circles where “all of the firm’s work is custom work,” but the reality is that speed is not possible in a custom-only world and productization enables nimbleness.

5. Technology Outsourcing

Outsourcing admittedly has problems. The typical arguments against outsourcing include the following: 1) technology consulting firms may have uneven quality; 2) the technology people may not be sensitive to the specific needs of the legal environment; 3) outsourcing each job incurs transaction costs; and 4) outsourcing costs too much. Of course these are the same reasons why large corporations should decline to outsource their legal work, but law firms have found a way to add value and overcome the problems.

The bottom line is that most law firms have a very difficult time operating a high performance technology team. Among the high-flying, skilled technology people, working in a law firm is about the worst thing one could do to one’s career. Most tech workers do not get the respect in a law firm that they would get in a dot com or pure engineering company because those companies view the tech people as vital to the business proposition. In law firms the technology people quickly hit a ceiling (at least in terms of responsibility if not money), and, except in the very largest firms, they may not have even a single colleague who does the same work and, as a result, must seek collegiality elsewhere. Is it any surprise that great programmers at user group meetings will say the work for a “professional services firm” rather than a law firm?

Among the two functional areas of tech people, back-end administration and front-office knowledge systems, there is little reason not to outsource the former. There is no apparent reason why an email or network/systems administrator should know anything about a law firm. Certainly law firms take no significant steps to educate these people in this regard, and even if they did, it is hard to understand how there would be any benefit. With respect to the plumbing, having internal people is more likely driven out of a belief that it is cheaper; however, that is no longer an obvious conclusion when one accounts for training, turn-over, and employee dissatisfaction.

On the other hand, technical people who really understand the legal domain are another story. This is the category of lawyers-turned-technologists, tech-oriented librarians, and other knowledge service personnel. These people are virtually impossible to locate, which is a good reason not to lose one if the firm is lucky enough to hire or develop one. Their insight over numerous projects can add substantial value and experience that is unmatched, and they come to understand the specific knowledge and informational needs of the practice groups. It is clear that having them in-house yields long-term benefits.

The issue with having on-staff people, even in the knowledge services category, arises where a firm lacks clarity about its business goals. Unless these people account for their expense, having them on the payroll hides the cost of any particular project. All partners see them as a firm resource, and, since all projects are given, more or less, an equal weight, the allocation of tens of thousands of dollors of labor expense to a non-strategic goal can be easily hidden. In an outsourced situation, each practice group has to pay for the cost associated with a given technology system, and this means that the political allocation of resources will occur. Where internal labor is used, most firms probably spend a lot more than they know on their application development and maintenance, with little correlation to any specific value it brings to the firm. At times, the firm may become convinced that the answer is to account for and bill the technical people’s time, thus skewing the effort into client-funded work rather than strategically important internal work. This latter point is really more of an observation than a criticism, because the billing of engineering time at least yields the benefit of allowing the firm to do something with technology even if it’s not the most important thing.

6. Investing in Technology

Do the lawyers in your firm have a vague feeling that are probably not getting enough from the technology dollars that they spend? Does the firm have “a good enough technical platform in terms of PCs and networks” but the IT department just does not do enough in terms of integrating the technology into the practice of law? Many lawyers believe both to be the case, and if you feel the same, you are in a large group. However, though the technologists, project managers, and programmers can be tremendous assets in moving a technical project along, the real leadership, direction, and commitment must originate from the lawyers. The firm management must appreciate the opportunities that technology presents in facilitiating the firm’s future and its capacity to assist in the building of partner wealth. They must also empower and include their senior staff at the decision-making level, thus enabling these senior people to understand and implement a clearly defined mission. Finally, the firm must be willing to accommodate the realities of the technology workforce and commit itself to building a high-performance team. In the final analysis investing in technology is more a task of changing firm culture than it is in purchasing hardware or software. Some firm cultures will embrace technology, its enabling capacities, and the agents that can assist in actualizing those changes. Is your firm poised to compete with such firms?

First published in May 2000 issue of the Managing Partner Magazine.
© John Hokkanen, 2000.

Posted in: Features, Legal Technology