Legal Technology Journal

Enterprise resource planning is, in theory, a great idea, but it remains largely unfavourable to law firms. Do the cons outweigh the pros? One of the current ‘big ideas’ in legal technology circles is whether, for their next generation of practice management systems, larger law firms will eschew ‘conventional’ solutions from ‘traditional’ legal software suppliers, in favour of enterprise resource planning (ERP) systems.

What’s so good about it?

The argument in favour of ERP runs something along the lines of: the conventional practice management system (PMS) is essentially just a glorified accounts system, whereas to run a modern law firm you now need a lot more people-oriented applications – such as HR and CRM systems – plus better management and financial reporting tools, with inbuilt workflow processes to pull the whole thing together.

Next, runs the pro-ERP argument, although all this additional functionality can be obtained by firms going down the conventional route by buying in additional applications and third-party solutions (otherwise known as a best-of-breed approach), it does create a burden in terms of: (a) integration – so unless you have access to a large in-house IT department or a budget for consultants (in reality, probably both) you may have difficulty achieving it; and (b) outlay in terms of not just the integration but all the extra software licences, training and roll-out costs.

In fact – and this is probably the killer argument by the pro-ERP lobby – if you add together the true cost of best-of-breed PMS solutions, they actually cost – it is claimed – more than buying an all-encompassing ERP solution, where you get all this functionality built into the one system. How much? Prices are notoriously difficult to pin down, as law firms inevitably inflate or deflate the cost they are prepared to publish for their IT systems (depending upon whether they want to impress or depress the competition) but some consultants suggest (and this figure is hotly contested) that a 100-user ERP system could cost as little as £1,500 a seat.

Where’s the catch?

In the UK to date the only users are: Linklaters, with an SAP system – but Linklaters has always been atypical in its choice of IT; Clifford Chance, with what is effectively an ERP system based on Oracle Financials and Aderant Keystone software; and Holman Fenwick & Willan, which recently invested in an SAP system with an Intalec for Legal front end. There are rumours that another top 50 firm will go the SAP plus Intalec route later this year, but that is it. Even on a global basis ERP solutions have singularly failed to set the world alight, prompting one UK ‘top ten’ IT director to describe ERP-using law firms as ‘wacko iconoclasts’.

So why haven’t ERP systems taken off? One reason is the hotly contested issue of cost, particularly the cost of the management consultancy associated with changing a law firm’s internal business processes so it can take full advantage of the system. For example, Linklaters is reported to have spent £35m on implementing its SAP system, but only £7m of this was for the software, the remainder went on change management and BPR (business process re-engineering) – and it is worth noting that the firm’s management says this was money well spent. Nevertheless, in the words of another IT director, ‘that’s an awful lot of money to spend just to make life easier for the accountants’.

Who needs it?

This is really the nub of the debate: ERP may be good, but do law firms actually need all this additional functionality? And, the problem is not just restricted to law firms. A survey conducted by the Butler Consulting Group earlier this year among large commercial organisations found that, on average, they were only using 50% of the functionality of their ERP systems – in other words, they were spending a lot of money on functions they never use. This survey echoes the finding of an earlier study by AMR Research last year, which suggested that 46% of ERP licences were unused, leaving organisations with significant unnecessary support and maintenance bills.

One firm that did consider these issues in great detail was DLA Piper, when it was planning to consolidate its global IT operations on one practice management platform. In theory, this should have been a sure thing for ERP, as the firm was a global organisation with the need for a powerful integrated management systems infrastructure. But, when it came to picking a solution, although it came down to a two-horse race between Thomson Elite, a traditional PMS supplier, and SAP, the order was ultimately won by Elite.

DLA Piper’s head of IT, Daniel Pollick, admits there were two very important practical considerations that swayed the firm’s ultimate decision. One was that, at the time DLA Piper was in the market, SAP did not have a suitable legal product offering (this has now been remedied with the Intalec solution) so the firm would have been pioneering a new system. (There was never any suggestion that DLA Piper would try to replicate the Linklaters SAP implementation.)

The second was that as the American half of the firm (Piper Rudnick Gray Cary) already used Elite, there would have to be some very strong reasons for migrating the whole firm to a new platform.

An added factor here was that while an ERP system might ultimately provide an ideal solution, Elite already had a very widely used proven product, with an extensive pedigree and a successor product waiting in the wings, so the risk element associated with that option was far less than with SAP. (In terms of Machiavellian politics, it is also worth noting that the DLA Piper order was Elite’s biggest order to date, so, in the words of Pollick, ‘Elite could not afford to let the project fail’, whereas compared with some of the commercial and industrial users of SAP, law firms are still relatively small fry.)

Despite these considerations, Pollick admits that the firm was initially impressed with the ERP concept and did investigate the option very carefully, but ultimately rejected it on the grounds that the needs of law firms were still best met by practice management systems. According to Pollick, ERP may undoubtedly be a great solution when it comes to managing the complex integrated supply chains encountered in, for example, manufacturing organisations, but, by comparison, law firms – even large law firms with £300m-plus turnovers – are still relatively simple businesses.

Pollick says that if you carefully analyse what law firms need, although the lawyer/secretary front end may seem highly specialised, essentially it is time recording, billing, collections and accounting management systems. Some of these functions are not available in an ERP system and others represent only a small part of the overall ERP solution, leading the DLA Piper team to conclude that what they actually needed was not ERP but a good PMS that would help maximise billable time.

Stay focused

Pollick also says that getting caught up in the mystique of ERP systems can distract law firms from focusing on the sort of IT that can deliver real benefits. He suggests these include: how law firms put documents together (document assembly, document management, the use of word processing etc); how they communicate internally on a global basis (e-mail, intranets etc), how they share knowledge internally; and how they ensure they cross-sell their services to their client base – all technology applications not found within an ERP system.

As Pollick puts it: ‘The story here is to be careful not to let the size myth and the ERP myth colour your decisions. You must get away from the hype and ask what are the