Legal Technology Journal

Despite Nicholas G Carr’s argument that the days of IT as a business strategy are over, the future looks bright for legal technologists. May 2003 saw the publication of a leading and very well-considered, if controversial, Harvard Business Review article, ‘IT doesn’t matter’, by editor-at-large Nicholas G Carr. It made some astute points. The primary assumption put forward was that ‘as information technology’s power and ubiquity have grown, its strategic importance has diminished’.

The legal IT world has perhaps proceeded on different assumptions. Firms have modelled themselves on having technology as a distinguishing factor, and investment in it has been huge, at 5% to 7% of turnover. They have been selling themselves on their ability to embrace technology to deliver ‘eye-popping service’ for a fraction of the cost of their competitors.

Given the thrust of Carr’s article, is this approach misconceived? Should every legal technologist accept that they are now mere plumbers and mothball any delusions of aspiring to achieve a greater impact for their firms? Should they face reality and accept that a seat on the strategic board or management committee will never be theirs?

I will attempt to consider some of the thinking in Carr’s article from the perspective of the legal technology market and law firm management, having spent the past few years of my life working in just these areas.

The ‘vanishing advantage’

The point made in the article is multifaceted, but well thought through. The following quotations are helpful. Carr argues that IT innovation and business advantage can be short-lived and are often overestimated:

‘As long as they remain protected, proprietary technologies can be the foundations for long-term strategic advantages, enabling companies to reap higher profits than their rivals.’

‘Companies can also steal a march on their competitors by having superior insight into the use of a new technology.’

‘The trap that executives often fall into, however, is assuming that opportunities for advantage will be available indefinitely. In actuality, the window for gaining advantage from an infrastructural technology is open only briefly.’

Is this the complete picture in the legal market, though? One only has to look at the Legal Technology Insider website (www.legaltechnology.com) to see a chart of systems used by the top 250 law firms (by number of fee-earners): there is huge similarity in the systems used. As such, it’s questionable how much law firms really engage in technology for competitive advantage.

However, law firm performance in this area varies hugely: as the article says, the skill and difference is all too often in how systems are integrated, configured and used. I really do think advantages can be sustained in legal IT in this manner. After all, replication and erosion of competitive advantage can only happen where there is some form of visibility, so other firms know what they are copying. Although they may use the same software, it is hard to ‘touch and feel’ what other firms do in terms of usage as generally it is hidden from public view.

It is also below the waves from a user perspective. Someone might say a car drives fantastically but has no idea why. The same is true of the design of legal IT systems. For one law firm to copy another’s skills in this area would require whole teams to be headhunted.

Another reason why I find Carr’s statements a little difficult relates to the motives of law firms investing in technology. Often, changes in technology are driven by the needs of the business or the requirement to upgrade, which is pushed by other products. I don’t think firms normally approach a technology upgrade with a view to transforming markets or achieving some mystical competitive advantage. They do it because they have to and there is normally a range of compelling reasons.

Law firms can also invest in leveraging technology in their practice areas, but do not have the resources to replicate every development in the market. Their judgement and respective investment strategies will split the field.

These quotations also raise the significant matter of the power of a law firm’s brand and speed to market. I think the article is right in that benefits arising directly from IT investments can be short-lived but, I would question how large an impact that has on actual competitive advantage. If a law firm implements an outstanding technology project for clients, totally transforming one area, it is true that a competitor can attempt to replicate it and do the same. While this is going on, however, clients will continue to look and listen to the first firm. If the first firm can now provide them with genuine benefits, its brand will be enhanced forever – it may be instructed and relationships will be formed that will be hard to break. Clients will be all too aware that it costs to change and that, besides, ‘champions’ tend to have a habit of repeating their victories, and so may stay. When the competing firms have achieved replication, it is simply too late.

One might summarise this point by considering whether the iPod is the best MP3 player in the world. When looking at competitive advantage, this is probably irrelevant: it is easily replicable technology, but Apple ‘got it right’ before everyone else and it will be very difficult for others to catch up, even with superior technology. Whether it is easy technology to replicate is probably irrelevant to the competitive advantage it enjoys.

The commoditisation of IT

‘IT has all the hallmarks of an infrastructural technology. Each stage in that progression has involved greater standardization of the technology… For most business applications today, the benefits of customization would be overwhelmed by the costs of isolation.’

In principle I agree with this statement, but would question its relevance to the legal IT market. As mentioned above, bespoke development is relatively rare, since legal technologists are very aware of the cost and resource advantages of integrated best-of-breed systems. But should we avoid ever developing a bespoke system of any sort? Sometimes applications simply don’t exist. At the moment I think this is particularly true in relation to some aspects of risk management. What should we do?

Letting our businesses and clients suffer in silence is simply not an option. Equally, what if a significant client wants a system (free of charge) from us and has a very clear requirement in relation to the look and feel or functionality. Do we do some one-off bespoke development and retain the client or do we turn them away? A legal IT function has to support the firm, and from time to time this may involve compromises.

We also have to ask some strategic questions about suppliers. I am increasingly hearing mutterings about firms wanting to break away more from being locked into particular suppliers. This can be due to increased dominance or cost. Suppliers equally will want to improve their margins. At some point it is possible that firms might want to break away, which might mean engaging in some bespoke development.

Linux and the open source route are increasingly being mentioned. In certain circumstances, it may be exactly the thing to do to achieve competitive advantage.

The arrival of the Internet

‘The arrival of the Internet has accelerated the commoditization of IT by providing a perfect delivery channel for generic applications. More and more, companies will fulfil their IT requirements simply by purchasing fee-based "Web services" from third parties…’

As was discussed at the recent Global Legal IT Forum, the application service-provider model is gaining some real momentum. The potential growth of technological superpowers such as China can only add to this.

We have to question why this has not happened to date. How happy will law firms and their insurance providers be with this approach? Is the legal IT market big enough to justify a supplier making the requisite investment in this area? Law firms don’t just need systems, they need systems focused on their businesses. By this I mean every aspect; most firms are multidisciplinary and the specific IT needs can vary enormously across a practice.

I think we may get to this position one day, but I suspect it will not be a universal approach nor one that will happen quickly.

Price deflation

‘IT is subject to rapid price deflation. The rapidly increasing affordability of IT functionality has not only democratized the computer revolution, it has destroyed one of the most important potential barriers to competitors. Even the most cutting-edge IT capabilities quickly become available to all.’

This is true but I suspect it is more of a reflection of many world markets than IT or legal IT alone. We live in an economy where every year the bar is raised.

In the world of legal IT, though, this is probably an oversimplification. Hardware costs are indeed falling, but software costs remain high. Technological complexity and breadth is increasing dramatically. Take a family home. Compared with ten years ago we now have PCs, home cinema, Broadband, PCs, WiFi access, DVD players, satellite and Freeview boxes, to mention a few. What will we have in another ten years?

Law firms are the same. We have an increasing number of systems to meet all our needs and when something new is added, such as a document automation or risk management system, the others don’t disappear. They just continue to be upgraded. Increased complexity requires greater numbers of people, more extensive document retention capability and more maintenance, which all impact on cost.

From offence to defence

‘When a resource becomes essential to competition but inconsequential to strategy, the risks it creates become more important than the advantages it provides… few companies have done a thorough job of identifying and tempering their vulnerabilities.’

For reasons mentioned above, I think it is rash to assume that IT is inconsequential to strategy, but let’s stand back from that for the moment. Legal technology goes to the heart of a law firm. It is the oxygen that law firms breathe and if service is not delivered, firms would simply suffocate. Legal IT is here to stay and given that humans are only 100 times cleverer than PCs (according to BT’s chief futurologist) computers are likely to become even more important to law firms.

There are risks and vulnerabilities but I believe that they are decreasing and are certainly not being neglected. Suppliers are getting bigger and stronger, and the last few years have seen real increases in the levels of professionalism in all areas of the market.

Huge investments in helpdesk, support, hardware, disaster recovery, security, processes, project management, change management and data centres have also helped resilience. In reality, legal technologists are not doing their jobs unless they adopt a holistic approach incorporating all these areas.

The risk of overspending and hardware roll-outs

‘In the long run, though, the greatest IT risk facing most companies is more prosaic than a catastrophe. It is simply, overspending. What’s important – and this holds true for any commodity input – is to be able to separate essential investments from ones that are discretionary, unnecessary or even counterproductive.’

If there ever was a period during which firms were able to spend carelessly on IT, it is certainly over. In my experience, legal IT functions deal with a high volume and wide range of projects and decisions, and all have strict budgets to which they operate. To survive they have had to put in place clear processes and corporate governance. The decision-making, filtering and spend management processes are very much part of this.

Spend control is part of the legal technologist’s job, and consequently they should not forget the ‘dark side’ of their work. Often, this work is perceived as a science and thus straightforward. However, in reality, it is not – it is an art that often requires a sixth sense. The pace at which technology changes is fast: it is easy to make a wrong and expensive decision.

Legal technologists need to spend hours looking, listening and using their judgement on where suppliers or systems will end up. The price point at which they can buy into a product often depends on the success it has enjoyed in being adopted in the marketplace. Their ability to manage costs can depend on their skill and willingness to make a judgement call or take a calculated risk.

Sloppy use of IT

‘In addition to being passive in their purchasing, companies have been sloppy in their use of IT. That’s particularly true with data storage, which has come to account for more than half of many companies’ IT expenditures.’

Aspects of this are covered above, but the statement causes me to ponder. Is the legal technology market the problem or the solution? I really do wonder. The world’s demands in this area have increased exponentially. It’s fair to say that the legal IT market has created some of these problems by deploying technologies like e-mail before ensuring that there were solutions to manage it effectively. That being said, given the demands of clients, would legal technologists have been in a position to say no?

I don’t think that it is storage costs (which are decreasing anyway) or sloppiness that are problems, but rather pace and lack of clarity on compliance aspects. The legal IT market has had to cope with a tidal wave of demand to store data in circumstances where the regulatory and risk framework has been subject to constant change. Should we be more gracious about what has been achieved or harder about what has not?

IT and profitability

‘Some managers may worry that being stingy with IT dollars will damage their competitive positions. But studies of corporate IT spending consistently show that greater expenditures rarely translate into superior financial results. In fact, the opposite is usually true.’

I agree with this as a statement to an extent, but wonder if it is so easy to speak with certainty in this area for law firms. When a law firm achieves huge increases in profitability, there are normally several factors responsible, although clearly IT plays its part. The winning strategy has to involve moderation and sensible levels of spending.

On the one hand, experience has shown me that, sometimes, IT projects can be a distraction and take up fee-earner time. On the other, it is interesting to note that a number of the firms in the recent Lawyer Rising 50 were heavily technologically driven as well as very profitable (eg Silverbeck Rymer & Golds). I think, ultimately, the outcome of IT spend lies in the skills of the people involved rather than any industry-wide trends.

Conclusion

‘IT management should, frankly, become boring.’

As Richard Susskind OBE has observed, the pace of change with technology is increasing. As long as major players like Microsoft spend money on R&D and we are in a competitive, evolving marketplace, things will change. When things change, legal technologists are kept busy and even staying still is hard work.

I am confident we will not be bored and, with the increase in deregulation of markets under Clementi and altered structures of law firms, I suspect I am where IT will really matter. 

Derek Southall is head of strategic development at Wragge & Co LLP.

Other opinions

Carr’s article was the subject of much discussion throughout the IT industry. Here are some alternative, non-legal IT views:

‘Unlike Carr, I don’t think IT has to dissolve into an entity that is strictly focused on maintenance, risk avoidance and cost-cutting… Carr advocates taking a more defensive posture toward IT investments. But sometimes the best defense is a good offense.’

– Patricia Keefe, senior managing editor, InformationWeek.com, writing in Computerworld (www.computerworld.com/managementtopics/management/story/0,10801,81094,00.html)

‘Where the article should have gone, I think, is outside the realm of embedded infrastructure and applications and into some attempts to look at what the future might look like. Instead, it assumes that the futures that befell railroads and steam engines will, inexorably and inevitably, be the future of IT. And I think that’s astonishingly shortsighted.’

– Bob Evans, editorial director, Information Week (www.informationweek.com/story/showArticle.jhtml?articleID=9800088)

‘Carr is right and IT staff should take heed. But I think a deeper look at the larger IT environment suggests that although the nuts and bolts of IT don’t matter in and of themselves – the servers, the network, the databases – business is not out of the IT woods just yet.’

– Chad Dickerson, Yahoo! Research, writing as CTO, InfoWorld (www.infoworld.com/article/03/05/30/22OPconnection_1.html)

‘… contrary to the idea that we’re entering a "post-technological era", I believe that taking software to the next level will be one of the biggest sources of value creation for customers.’

– Steve Ballmer, CEO, Microsoft, as reported by David Becker on CNET News.com