Why Invest In Technology In Uncertain Times

Reprinted from the April 2001 issue of "Lexpert, the business magazine for lawyers." Used with Permission

Why Invest In Technology In Uncertain Times
by Dan C. Felean | Printer Friendly Version

Leafing through a pile of newspapers after returning home from a recent business trip, it was unsettling to read page after page of growing economic gloom and uncertainty. High-tech companies that were recently everyone's favourites are now lowering forecasts, cutting expenses and cutting workers. Even companies that feed the high-tech sector are also facing serious slowdowns. Are we in for tougher times, or is this just a return to rationality for a few free-spending, over-inflated companies?

While we all might get a certain amount of satisfaction in watching several profitless dot.coms finally face reality, there is no denying that the withdrawal of their spendthrift ways is going to affect some businesses more than others. Technology stocks and technology companies were the first to feel the pain. It is still too early to predict if law firms will be seriously affected, but clearly some lawyers are concerned.

If indeed a slowdown is coming, law firms will have some difficult decisions to make. One crucial decision will test their commitment to technology as a strategic facilitator of business objectives. It would be a serious mistake to equate a downturn in Internet stocks with a diminution in the strategic value of Internet technologies. Cutting technology investment at this critical juncture could be exactly the wrong thing to do.

Is There a Way Back to Normal?
If your management or partners believe that tougher times lie ahead, it will be difficult to resist the conventional tendency to tighten the belt in non-practice areas, especially marketing and technology projects. With both, the opportunity seems harder to gauge, and the contribution to the bottom line seems much harder to measure. So, in uncertain times, it is not surprising that creative projects are the hardest to defend.

The reaction of some will be to call for "getting back to basics" and "returning to normal" by chopping or delaying all those "crazy" Web technology and knowledge management projects. Those new technology initiatives may be vulnerable, since they have the least historical precedent of success and most uncertainty of paying immediate dividends. Every well-publicized stumble by a public Internet-based company will test your resolve.

However, all signs indicate there is no way out but forward. The ways and means of practising law are still undergoing a transformation. There is never going to be a return to "normal," not in business, not in the practice of law. Internet technologies have permanently changed the flow and pace of business by radically changing the underlying expectations of clients and the ways that lawyers must respond to them. Perhaps the pace of growth will diminish, but not the pace of change.

Technology Has Already Arrived
After years of relegating technology to back-office production, mainstream corporate North America (and even most lawyers) have recognized that leveraging Internet technologies (Internet, Intranet, Extranet) can be vital to achieving strategic objectives. If you doubt it, consider these recent findings:

Total Recognition. As recently as 1998 only 55 per cent of CEOs believed technology decisions were an "integral part of the decision making process." Today, that number has climbed to 97, according to a worldwide survey by A.T. Kearney. You are not alone.

Accelerating Spending. The Gartner Group reports that the IT budgets in 2001 for some leading industries will range from 9.5 per cent of revenues (insurance) to 13.6 per cent of revenues (consulting). While the cross-industry average is currently less than 5 per cent, Gartner forecasts technology spending across all industries will rise to an average above 10 percent of revenues by 2005. True industry leaders will spend significantly more than that. Follow the money.

Canada In Gear. Canadian spending on data and Internet services is forecast to grow by 33 per cent over the next two years. The study by Convergence Consulting Group reports that the market is driven by corporate Canada's "desire to transmit more information with increasing speed and security." These are your clients talking.

Critical Mass Achieved. Internet technologies are undoubtedly the fastest adopted technology in history. USA. TODAY recently reported that more than half the US adult population (56 per cent) now use the Internet. The figure rises to 82 per cent in households earning $75,000 or more. Do you see a common denominator for business transactions here?

An Executive Standard. A recent survey by Burson-Marsteller of New York reports that 91 per cent of executives are now online. Is there anyone out there who still thinks this is a passing fad?

Law firms have yet to experience massive structural change and upheaval that have become a way of life for leading business sectors. Yet, within law firms, there is growing awareness that technology now plays an important role in recruitment and retention of good lawyers, customer relation management, rainmaking, practice management and client service. As a result, the level of ongoing commitment to technology will be a strong factor in determining long-term profitability and growth.

Prepare for Shifting Client Demands
If there is a sustained economic downturn, and no one is sure there will be, there are two important questions to answer: How does it affect your law business? and how do you make the best use of resources to survive and prosper?

The effect on your law business will depend on the scope of the slowdown and the scope of your practice. The fundamentals in many sectors are still quite good, and the business of law is much more resilient than most service industries. In fact, one school of thought posits that lawyers actually can make more money in bad times than in good. As speculative start-ups dwindle, more companies will concentrate on doing business wiser. They will need better operational and transactional advice, and more representation in new areas. New opportunities always arise for those who are prepared, whether to help clients grow or to assist them with partnering, restructuring or bankruptcy.

If the hottest practice areas are shifting, a successful law firm has to find ways to quickly shift gears and capitalize on new opportunities. Technology can play a vital role in helping a law firm build competence and deploy resources more quickly and efficiently. Investing in knowledge management systems, such as expertise finders, precedent databases and Intranet practice group collaboration will allow you to rapidly leverage existing competencies while building or expanding a practice team. Without the right technology leverage, your reaction may be too slow or too costly to keep pace with the market.

Doing More With Less
If clients start belt-tightening, they will have less money for traditional legal service arrangements and will exert even more pressure on law firms for cost reductions. Clients will be driven to seek greater cost efficiencies and more manageable, flexible relationships with their counsel. Corporations will feel pressure to reduce the number of legal service suppliers and expect more of them.

In good times or bad, competition for the best legal business will continue to intensify. The new, younger legal service buyers are less attached to your senior partners. They have no awareness of your past successes and place little value on the past relationship with your firm. These clients are looking for an ally who can give them the best representation at the best cost. If you are facing a client who needs help, you can either hold your ground or help them find a better way of doing business with you.

Web-based information technologies offer law firms an opportunity to help their clients in a time of need, and, in turn, solidify the relationship. For example, an Extranet that allows a law firm to deliver better information faster can cut distribution costs to almost zero. Intranets, Extranets, and research/resource databases allow law firms and clients to share and leverage intellectual assets, skills and resources. CRM (customer relationship management) systems allow firms to stay closer and more responsive to clients. Web meeting and work collaboration systems allow lawyers to efficiently work with others inside and outside of the firm.

In uncertain times, investment in technology raises value, because it lets you do more with less, the essence of business and knowledge leverage. Let us not forget that the reason those dot.com companies were so highly rated was their complete commitment to inexpensive, efficient technology at the core of their business. In the new economy of constantly advancing technologies, those businesses that prioritize investment in leverage will attain both the best results and the highest value.

So it's not just about spending on technology. It's about using technology to power business innovations - better practice, better work, better service, and stronger client relations. Technology just happens to be the most cost-efficient way to accomplish these objectives.

What Actions Will Result in Innovation and Growth?
What strategy will help you compete better for business? What strategy will differentiate you from your competitors? What strategy will best allow you to retain good clients, tap new efficiencies and attract new opportunities? In almost all cases, you will find that a technology decision based on increasing the value of the worker, the work and the client relationship will be a sound investment in both good times and bad.

Industry leaders like General Electric say that a downturn is the best time to increase spending on information technology. They believe they get a distinct competitive advantage by "throwing more money at information technology investment" during belt-tightening times. "It's good for us if our competition is not increasing spending," a GE spokeswoman was recently quoted as saying.

In uncertain times, investing in better information and service system will require a higher commitment of the law firm management to prioritize and champion the most effective technology initiatives. But the law firm that continues to invest in empowering itself in creative ways will be positioned to win business in tough times and dominate opportunities when the economy takes off.

Dan C. Felean a principal of PensEra Knowledge Technologies, a national consulting firm that specializes in knowledge management strategies and technologies for law firms and corporate law departments. See www.pensera.com.