A Prudent Approach to Legal Technology Spending in a Slowing Economy – Article

[Note: This is another in the series of my previously-published articles that I’m reposting on my blog. An earlier version of this article appeared in the April 16, 2001 issue of LLRX.com and I’ve left in some references that are historical – anyone remember that Y2K thing? This article sets out two important themes in my writing about legal technology that still carry through my writing. First, there is a notion of “prudence” that should be applied to technology investments. Second, the elements of portfolio theory play an important role in making technology decisions and are part of my notion of prudence.]
A Prudent Approach to Legal Technology Spending in a Slowing Economy
An interesting new survey of 300 IT and business executives from Information Week magazine reveals that, for the first time in the four-year history of the survey, more than half of the respondents say that their technology budgets are either flat or declining. Just three months ago, that percentage was only 28%. Since law firms tend to be more conservative than businesses in general when it comes to technology spending, expect flat or declining technology budgets at many law firms in the current slowing economy.
The Information Week survey indicated that cuts are coming in custom software development and large-scale PC rollouts. Investment is continuing to flow into intranets, extranets and enterprise projects.
Whether from a recession or simply as a result of concerns about a recession, we are likely to see a pronounced tendency toward retrenchment in technology in the legal profession. Firms that have recently sunk large sums into network and hardware upgrades and Y2K-motivated projects are, frankly, looking for a breather.
Some effects are easy to predict: delays in moving to Windows 2000 (or XP), fewer hardware upgrades and a general willingness to push “enterprise” projects such as overhaul of document management systems off to a later date. There will also be a more hard-headed approach to requiring projects to be justified in terms of investment.
Does it make sense to buck the trend and invest in technology now to take advantage of some unique opportunities rather than to focus only on retrenchment?
In slow economic times, there are deals that can be made. Hardware and software vendors are more willing to bargain. The best consulting firms have more time available for new projects. Lots of talent is becoming available as dot-coms burn out.
There are extraordinary technologies now available that will revolutionize the practice of law over time. Investing in a few of them now could have dramatic payoff in the future. Taking advantage of the current market can help a law firm or individual lawyer get positioned for a “21st century practice” and be ready when the economy takes off again or help cope with an extended slow-down.
A Portfolio Approach
The key: being willing to think of technology in terms of investment. I like to think of technology investing as a form of portfolio investing. Much as we rebalance our investment portfolios in changing economic conditions, the same principles apply to technology investment.
If we learned anything at all in 2000, it is the importance of having a diversified investment portfolio that is line with our notions of appropriate risk. We tend to find a mix of low-risk, medium-risk and high-risk investments that fit our personalities and risk-tolerance levels. The best investment portfolios, over time, must include elements from each category. The interesting conclusion in modern portfolio theory is that the most prudent approach, over the long term, includes a reasonable proportion of high-risk, high-return investments, regardless of the investment climate. In a slow economy, sticking with a diversified approach is mandatory.
Investing in technology requires a similar portfolio approach.
The more technology options you can consider, the better. Gather a list of potential technology projects. Do a little brainstorming and include projects that are innovative and “push the envelope.” Then sort them into categories based on the risk and potential return you assign to them. Focus on what makes sense for you, not on what “everybody” is doing.
You or your firm can decide on a conservative or an aggressive approach based on your personality or tolerance of risk, but the portfolio of projects you decide on must be diversified and contain some higher risk projects if you are to be prudent – an interesting paradox. A more conservative firm might try only a few high-risk technology projects and concentrate on “safe” projects. A more aggressive firm might decide that “safe” projects in this environment are the most dangerous of all and adopt a much higher-risk approach.
Here are six areas to think hard about when developing your technology portfolio:
1. Technology That Cuts Costs
If the economy slows, cost cutting is an important strategy. Does a Palm device or a Blackberry e-mail pager make more sense than a new notebook computer? Does scanning documents rather than storing them in your Class A office space make good economic sense? Will intranets save you printing, paper and copying costs? Will extranets save you long distance, Fedex and copying costs? More important, will offering an extranet save your clients on those costs?
Here’s a simple example: my brother-in-law, a solo in California, invested in a high-end notebook computer and speech recognition software with the hope that it would help him enough at the start of his practice that he would not have to hire a secretary for a least a few months. The $4,000 invested in that approach saved him six months of a secretary’s salary and benefits and played a key role in getting his practice off the ground.
2. Technology That Makes You Indispensable to Your Clients
You will want to hang on to your best clients. Look for technologies that help you do that by providing better service and saving your clients money. Extranets are the obvious approach to take, but web sites, e-mail newsletters, wireless technologies and contact management software offer significant opportunities.
3. Technology That Helps You Get New Clients
What does your web page look like? Is it working for you? Frankly, it had better be. A great web page works for you 24 hours a day, seven days a week. A bad web page works against you 24 hours a day, seven days a week. The choice is yours.
Contact management software and better use of e-mail programs also fit into this category.
4. Technology That Helps You Move into New Practice Areas
Every law firm or law practice has a treasure trove of useful information, forms and the like that can help you move into new practice areas or find productive niches. In general, the technology category that helps you exploit this information can be called “knowledge management.”
Whether you use case management programs, databases or other software tools, you need to learn what you do best, what you have done before and whether you can reposition yourself to take advantage of that internal knowledge to target new markets or to establish yourself firmly in the best part of an existing practice. Even simple document assembly applications will help you mine your expertise. Web pages, obviously, play a key role in establishing new practice areas and strengthening your position in existing niches.
5. Technology That Helps You Recruit and Retain Great People
Talented people want great technology. Here’s a hypothetical: Imagine that you are a bright young attorney. At firm A, a team of lawyers using CaseMap to develop trial strategy and put together cases. At Firm B, you get all the legal pads you want. What firm do you choose?
Law students don’t like to find that they are taking a step backwards in technology when they join a firm. Lawyers who grow to use technology don’t like to fight every step of the way to get basic tools. Look for ways to use technology to attract and keep good people.
6. Technology That Makes You Saner
Two words: remote computing. Do you want to shovel your car out after a snowstorm or do you want to stay home and telecommute by modem? Do you want to have to cart around boxes of documents or do you want to carry scanned images of all those documents on one CD-ROM? Do you want a case management program that shows you what you need to get done, gives you information you really need and also puts that information on a Palm device for you?
Identify sources of real aggravation and deal with them. If you are overwhelmed by e-mail, learn to use the management features of your e-mail program. If you can’t convert documents you routinely receive because you have an old version of Word or WordPerfect, step up to the plate and get the new version. Efficiency and productivity are great goals, but the best technology makes your life simpler and easier.
Concluding Thoughts
In a slow economy, you need to make smart choices about technology. Focusing hard on return on investment is important, but not if you are using that as an excuse to shut down technology investment. A better approach is to get a lot of options on the table and consider their likely risk and potential return. Then prudently pick a diverse portfolio of technology investment projects and step boldly forward. Not all of them may work, but the diversification will, and you’ll find yourself well positioned for the changes to come, both in the economy and the practice of law.
[Originally posted on DennisKennedy.Blog (http://www.denniskennedy.com/blog/)]
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