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TECHNOLOGY COSTS SPINNING OUT OF CONTROL?

Tech Experts' Tips for Cutting Back
(and What No Lawyer Should Do Without)

April/May 2006 Issue | Volume 32 Number 3 | Page 36
Features

Technology Roundtable

Most lawyers have come to realize that technology can help them get a leg up on the competition, particularly if they practice in smaller firms. But in terms of what and when to buy, whether and how to pay for maintenance and training, and how to approach all the other related issues, the head starts to whirl and, all too often, the budget looks like it will explode. It seems like you’re wrestling an 800-pound gorilla when you simply want to run your practice more effectively. How can you best the beast known as legal technology? To guide you, here is topflight advice from a very knowledgeable group, gathered together by ABA TECHSHOW® Chair Sharon Nelson especially for this mission.

 

Sharon Nelson: A lot of lawyers think their technology costs are spinning out of control. What do you tell lawyers who feel vexed that technology is an ever-increasing budget line item?

John Simek: Perhaps the reason awyers believe that the technology budget is increasing is because it was never properly sized to begin with. The cost of technology is actually going down. Prices for processing power, memory capacity, software costs are all going down as the capabilities go up. In other words, we’re getting a bigger “bang for the buck.” However, in the “old days” there was a limited number of computers. These days, everyone has a machine and perhaps multiple ones. Servers are increasingly a required piece of hardware for any size law firm. Security products such as firewalls, encryption software, antivirus software and anti-spyware software are also requirements for a law practice. High-speed Internet access is also a must-have.

With all of that in mind, lawyers should plan a budget and do an annual review. A good rule of thumb is to provide an annual dollar value that is one-third of the total technology cost. This includes such items as hardware, software (upgrades if needed), maintenance and support, subscription renewals, communications expenses and any third-party-provided service such as e-mail or anti-spam filtration.

Dennis Kennedy: Lawyers need to ask the hard questions, understand why the technology budget is increasing, and then determine if it really needs to be increasing in the way that it is. As John said, many technology costs are actually going down. Although no one likes the terms “technology audits” and “strategic plans,” the fact is that if you do not understand where your dollars are and will be spent, your odds of throwing away the dollars go up dramatically.

You want to do some quantification, measurement and application of financial and business analysis, even in the smallest firm. In part, you want to have a better understanding of all the options that you may have these days. In addition, you want to have a hardheaded approach to how technology can reduce costs. For example, when buying printers, not enough firms look at the costs per page over the printers’ life cycles. That can make a huge difference. Lastly, you really want to determine whether you are making technology investments that help your profitability. In other words, it pays to do some thinking and investigation before you write your next check.

Craig Ball: Amen to the “more bang for the buck.” Much more. So, if computing power and storage cost so much less, why are we spending so much more? One reason is we’re deploying systems wider and deeper than before. The partner who had a computer on the credenza but bragged that he never turned it on is largely gone. Now he wants a laptop, a PDA and Wi-Fi. You’re seeing a lot of that investment recovered through record profits—as 24-7 availability means 24-7 billing.

Another cost issue is that you can’t realize all possible savings until you cut redundancy. If automation enables downsizing, you have to let people go or re-task them. You have to release the square footage from your leases. Computers permit me to do without a secretary, library, postage machine, courier, file clerk, law clerk, file room, travel agent and bond letterhead. My fax machine is almost a relic. If I’d kept all those things and faced a rising IT budget, I’d be whining, too.

Jim Calloway: The majority of a lawyer’s tasks relate to the managing, processing, distributing and analyzing of information. So it is not surprising we would be spending a lot on information management tools. But the planning and budgeting of IT needs is too important to be left to the IT department. There are many stakeholders with differing priorities. The IT staff will focus on network stability and security because those are their core functions. Data-entry processors want speed. Many lawyers want the latest and greatest so they can brag to others about their cutting-edge gadgets. Litigators want to be able to take everything into the courtroom. There needs to be a process to coordinate everyone’s needs and desires and then establish a list of firm priorities. Sometimes it is less politically sensitive just to buy everything that everyone says they need. But it is too expensive to buy every new tool that looks interesting.

If your five-lawyer firm is too small to have full-time IT staff, someone has to be appointed head of the technology committee, even if they are the only member of the committee.

Ross Kodner: This may sound a bit sanctimonious but I’ll say it anyway—until the economic wake-up calls of the past couple of years, most firms simply were “fat and happy.” Technology is still viewed by many firms as a necessary evil—an expense that drains the bottom line. And with the general lack of business education that plagues most of us, that attitude is hardly surprising. So instead of looking at technology tool sets and strategies as another way to leverage dollars expended into high-profit-margin additional revenue, most firms have viewed tech costs with much of the same glee as Dracula would have viewed a roasted garlic tapenade.

A small but growing number of firms, however, have either developed or found their “inner businessperson” and come to several realizations: (1) that certain well-selected, well-implemented technologies can generate far more in financial return than they cost; and (2) that continuing to think that law practice bottlenecks and operational issues can be resolved by continuing to accumulate “new stuff” is nonsensical, rather than that more return and better result can be had from better using the tools already in place. So blend all this with a strong client push for lawyer economic accountability—meaning more pressure to contain legal costs for corporate clients and similar competitive pressure for consumer work—and what you end up with is what should have always been the case—an interest in technology from a law practice business advancement (and sometimes survival) perspective. A long-overdue attitude shift, but better late than never.

 

SN: What specific pointers do you have for curbing the technology costs?

JS: Spend your money wisely and avoid throwaway solutions. All lawyers need to do a cost-benefit analysis and prioritize their expenditures. Invest in quality products and vendors. A well-designed plan will allow for building the technology infrastructure in an

incremental way. That approach can help most small firms avoid a huge capital outlay in year one.

DK: Measure, measure, measure. Make some “back of the envelope” calculations of return on investment and “total cost of ownership.” Eliminate programs that you don’t use but are still paying annual maintenance for. Look into volume software license discounts. Routinely shop the Internet for bargains. Take advantage of bundling software with hardware. You can also look hard at leasing and hosted software services as ways to turn technology costs into reasonable monthly “utility” costs rather than large capital costs. Again, the technology audit idea is important here. If you cut out costs that you don’t need to be paying, you’ll find dollars to invest in projects that will help you.

CB: Buy only what you need and commit to using it effectively—that means budgeting time and money for training. Keep it simple. Continuously analyze work flow to see where the bottlenecks lie. Something as simple as forcing everyone to really learn how Word styles work can save enormous hours wasted reinventing the wheel and making format changes manually. Get rid of paper and snail-mail, especially in multiparty litigation, where vast sums are flushed away on certified mail and copying.

JC: Craig is dead-on here. Curb costs by making sure both lawyers and staff are actually using the technology the firm already owns to maximum advantage. The firm may be considering an expensive upgrade or new application when its existing software may do much of what the firm wants if its people only understood how. Training everyone to get the most from their systems is critical.

It is very difficult to get lawyers to commit otherwise billable time to training, but it has to be done if the firm wants to maximize the return on its technology investment. Daylong training sessions are hard to carve out of either staff or lawyer’s schedules, so try more bite-sized pieces like lunch-and-learns, one-hour in-house training sessions, or tips of the week sent out by e-mail or placed on the firm’s extranet. Keyboard shortcuts, for example, make great tips and increase productivity. (This may sound silly, but when I watch lawyers work, I am surprised how many take their hands off the keyboard and use a mouse to click a toolbar pull-down menu when a keystroke combination or right-click of the mouse is much faster.) A firm should also have in-house experts designated for each application the firm runs who get advanced training and are able to help others.

RK: While cost containment is always good business practice, it’s a backward way to think. Instead, why not look first and foremost at revenue maximization and increasing profit margins, while simultaneously focusing on the age-old industrial concept of quality control and client satisfaction? Isn’t it better to focus first on increasing revenues, rather than the essentially negative view of just spending less? This is about the return on the legal technology investment. I advocate calculating the realistic return on every dollar spent on technology in defined periods of time (which I call the “ROLTI Factor”). So if it is credibly provable that a firm contemplating a project like practice management can expect $4 back from every $1 spent in a three-year period, the investment becomes an economic no-brainer that even those of us with liberal arts undergrad backgrounds can understand.

 

SN: What’s out there today that no lawyer should be without?

JS: Case management! It still amazes me that a large number of law firms, including solos, are practicing law without a case management system. A case management system will help to organize all of the vast amounts of information and provide rapid access to all of it. Automatic linkages to e-mail messages, documents and the like greatly improve efficiencies.

DK: A notebook computer or tablet PC with Wi-Fi capabilities and a large hard drive. Carry your office and files with you. Work from anywhere. Connect to the Internet. Visit your clients in their offices. There’s no need to be chained to your desk anymore, especially if you’re a litigator.

CB: Clients. Seriously, if you can get the business, you can always hire the expertise. Use technology to compete and to market your practice. A reliable backup system is pretty important, too. Lesson number one from Katrina: Storing mission-critical data across town may not be far enough.

JC: I’ll have to second John’s observation about case management software. If you saw your business clients preparing all of their invoicing to customers manually with typewriters or word processing software, you’d advise them to join the 21st century and

automate that process. Use the software that has been designed specifically for lawyers. Microsoft Outlook has a decent calendar, but you cannot easily pull up a list of every scheduled upcoming date on one particular client matter or a list of the contact information for every person involved with a particular client matter. Sure, there’s a learning curve, but you cannot continue taking five or ten minutes to do tasks that other lawyers are now doing in five or ten seconds.

RK: Common sense—an attribute often put aside when it comes to making technology decisions in law practices. And by all means, read at least one of Stephen Covey’s “7 Habits”: “Begin with the end in mind.” In other words, when considering any technology or practice management issue, first decide where you want to end up—what you want your practice to look like, feel like, act like, appear like—after you’ve finished whatever project you’re considering. That way, you have a defined goal. You know what success should look like when you get there. So many firms start a tech project with blinders on—for example, deciding “we need new PC systems.” Okay. But why? What’s the point? What problems are you trying to solve? Don’t apply a special and limited set of decision-making approaches to technology. Think about it no differently than any other business or practice decision. Common sense is what it’s all about in the most successful, tech-savvy practices.

 

SN: What’s on tomorrow’s horizon in technology that lawyers should keep an eye on?

JS: The eventual death of the BlackBerry. Even though the recent settlement seems to have saved the BlackBerry network, competition is bearing down quickly. Lawyers need to assess their alternatives and investigate different technologies. There are “BlackBerry killers” out there now that don’t require the additional expense or complications of a BlackBerry server. Exchange 2003 and Windows Mobile 5 with the Messaging and Security Feature Pack can even remotely (over the air) wipe the phone, thereby removing all stored data, a great boon for lawyers.

DK: The relentless push of the Internet to change everything and the way our clients have come to use and rely on the Internet. I like to joke that most lawyers are at the awkward age where they know less about the Internet and how to use it than either their children or their parents. The Internet has created new expectations for the delivery of services, an increasingly informed client base, and a variety of new tools that are starting to become commonplace outside the practice of law. Those who do not keep tabs on what is happening on the Internet might learn the meaning of “disintermediation” in a practical way well before they expect it.

CB: Electronic discovery. Something we’ve been dodging for 30 years. The new federal e-discovery rules go into effect this December. Litigators need to be prepared to discuss metadata, formats, repositories, de-duplication, concept searches, review tools, forensics and a host of dauntingly unfamiliar notions. Digital is different, and much of what you know about paper-centric discovery is insufficient in a world where 95 percent of all information is born electronically and most of that never gets printed. There is no more important skill set you can acquire this year. You’ll secure an immediate advantage in your cases.

Information is the coin of the lawyers’ realm. How we share, manage and mine information is changing, fundamentally and fast. New York Times columnist Tom Friedman is on the money when he notes that “the world is flat.” If we can’t deliver our services as efficiently and effectively as Google delivers the ’Net—if we don’t adapt our practices to a wired world—then we shouldn’t be surprised when a lawyer in Delhi serves our clients at half the price.

JC: The decline of the billable hour. Certainly hourly billing is still an appropriate measure of both the cost and value of certain aspects of legal services, like days in court or face-to-face negotiating sessions. But the point of most information technology implementations is to do repetitive aspects of tasks more quickly or automatically. Billing clients by the hour and measuring associates’ performance solely by the hours they invest can reward slowness and inefficiency. Using technology to automate tasks where the firm only charges clients by the time and not the task will reduce revenues. You can only avoid these paradoxes by implementing task-based billing, at least for some projects and tasks.

RK: I’m sure I sound like a broken record, but I think the single most important thing on the horizon for all of us, especially the small firm lawyers, is the realization that technology in our practices is no longer really about technology. Rather, there has been a head-on train-wreck-kind of collision between conceptual technology knowledge and substantive law practice. In areas like discovery and regulatory compliance relating to HIPAA, Sarbanes-Oxley, Graham-Leach-Bliley, FACTA and the like, a deep conceptual understanding of technology is mandatory. Failure to accept and internalize this reality means malpractice and ethical violations are inevitable. Numerous lawyers may have committed “technology malpractice” already—it’s just a matter of time until they get caught. So what’s on the horizon? Accepting that smart use of technology is just smart business— something that no lawyer can fail to accept, understand or apply. To me, this is the key to everything—not whether BlackBerry will be around, whether Wi-Max becomes the metro-wireless standard or e-discovery techniques are further honed.

If you can’t deal with the fact that tech knowledge and tech investment are mandatory and an intrinsic part of substantive and procedural law practice today, you’re sunk. Those lawyers who can’t accept and embrace this new business-aware environment may want to rethink their career paths and take a look at executive MBA programs … or the fast-food industry.

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