Law firms are set to step up their investment in new technology in 2004, the third annual PA/Legal Week survey has found. But how can they ensure they make an adequate return on their investment? Elliot Rose reports
Law firms are planning major investments in client relationship management (CRM) and online collaborations in the next year, according to the third annual PA/Legal Week survey.
Such systems would need to be supported by a more complete view of client and matter profitability. The research reveals internal issues are still seen to be the major barrier to the full exploitation of these IT investments — we need to be sure that the barriers that still prevent success with knowledge management (KM), do not prevent success with CRM.
The good news for the IT market is that firms plan to increase IT spending. The survey identified that firms are planning to increase their investment in IT in 2004 and that the average spend on IT as a percentage of turnover is projected to be 6% (up from 5% the previous year). Some 86% of firms are planning to sustain or increase their level of IT investment compared with last year.
For 2004 CRM has replaced KM as the single most important priority, followed closely by online collaboration. This is in response to increasing client demands. Evidence from the survey confirms that 92% of managing partners expect customers to demand more from CRM and 100% believe that it is critical to the success of the firm. In addition, the implementation of CRM can also support the 83% of managing partners who want to increase collaboration between the firms’ practice areas.
The survey also identified that managing partners anticipate clients to be even more demanding in 2004, expecting firms to not only improve their core service offerings, but also to commit to increasing amounts of fixed fee and value-based work. More than 80% of managing partners expect there to be an increased demand from clients for fixed fee work in 2004, and there is a growing expectation that work from commercial arrangements of this type will soon represent more than half a firm’s workload.
There is considerable evidence to suggest that, although firms aspire to understanding the full implications of fixed fee work (67% considered this to be extremely important), there is some way to go before firms have access through their existing systems to the quality of financial and commercial information they believe they need to manage profitability.
Almost 30% of managing partners felt that their firm did not know the true profitability of their work for clients — a view endorsed by almost 50% of IT directors.
More than 80% of managing partners stated that their IT systems failed to provide access to the commercial information required by the business — again a view endorsed by more than 60% of IT directors.
In response to this new environment, financial systems that provide the right information to manage the profitability of matters will be vital.
These systems will need to support the use of CRM to ensure that fee earners have access to accurate and timely financial information in the management of client relationships.
Crucially, the survey found that many firms are still frustrated by the level of benefit from IT and see cultural issues as a major barrier to change.
Almost all IT directors (over 90%) in law firms want to generate a greater business return on IT investment. The majority of managing partners (64%) are unhappy with the return from IT and think that more value can be created from their IT investment. This research indicates that the problem is not with technology, which has reached a state of maturity in its application within firms, but with the barriers to change within the business.
Firms view the internal cultural issues as a greater threat than the competition. Over one-quarter of managing partners identified internal issues as the biggest threat to implementing change and 36% of managing partners (62% of IT directors) believe that the attitude of the firms’ staff is the biggest barrier to implementing change.
Law firms should look back at previous IT investments within the firm and be honest about why value may not have been fully delivered. For example, how many firms can claim to have fully realised the full business value they targeted from investing in KM? Evidence from PA’s study suggests that the vast majority of law firms (86%) feel that more benefits should have been delivered. Despite almost all firms agreeing that KM is fundamental to the success of the firm, and two thirds of law firms having made a significant investment in KM, there is still a significant way to go before KM can be considered a success.
KM is perceived as failing to deliver the fundamental benefits that usually underpin the case for investment, for example making knowledge more accessible to business users.
Almost 30% of managing partners reported that knowledge was still not easily made available, even after investing in KM. This view was also endorsed by 45% of IT directors.
This theme has also been translated into high levels of dissatisfaction with the benefits and return on investing in KM technology. More than 75% of both managing partners and IT directors stated that their KM investment had only partially delivered the benefits they had targeted.
Without a new approach, there is a significant danger that a PA survey in 2004 will report that law firms’ investment in CRM has suffered the same fate as KM.
The implementation of CRM, even more so than other technology, will require cultural issues to be overcome to provide the return on investment that firms expect. CRM requires a fundamental change in cultural mindset, with fee earners prepared to share their clients’ contacts with others in the firm.
Given the reward structures of some firms, such contacts are often closely protected by those fee earners who regard themselves as personally owning the client relationship.
So, what must law firms do differently to ensure that technology such as financial systems, collaboration and CRM, delivers the expected business benefits and creates lasting business value?
IT systems must be delivered as part of an integrated change programme that is led by the business. The change programme must include the people and process dimensions of change, which are often ignored, and focus on:
- Making technology essential to business success — by taking time to develop a compelling rationale to underpin the commitment, and only investing in technology where its alignment and contribution to the strategic direction of the firm can be demonstrated. The rationale must then be translated into a future vision, expressed in clear business terms, of what the fully operational technology will be like for clients and staff, and supported by a definition of what success will mean in terms of business outcomes for the firm. The vision must be communicated and the corporate and personal dimensions of the business outcomes shared with all members of the firm.
- Making the business ready for the technology, and the technology ready for the business — by ensuring senior partners lead the change and operate strong governance to break down the internal barriers that hinder the adoption of technology by the business. The business will also be better prepared for change where key business stakeholders have been actively engaged to ensure they commit and actively contribute to the change. In summary, the firm must own the change, driving the adoption of the technology, using a clear route map for business transformation, with the role of IT confined to designing a solution that will deliver what is important to the business.
- Making change happen with the firm — by making business and IT resources collaborate on designing and managing a change programme that accurately reflects the starting position from which the firm is attempting to implement the technology enabled change. The programme needs to take an approach that recognises the need for change, ability to change, willingness to change and most importantly the emotional/personal cost of change. The emotional/personal cost is one of the major barriers to change in many firms. This is a legacy of the way in which some firms are managed and there may need to be changes in the way that individuals or groups are rewarded in order to ensure the successful adoption of change.
A comparison against a simple change checklist can help identify the areas to be exploited/ re-enforced:
- Have we identified and managed the factors critical to successful change?
- Do we have clarity of vision for the change and has this been widely communicated?
- Have we allocated adequate resources in the correct areas?
- Are we undertaking a level of parallel change that fits with our management capabilities?
- Have we convinced staff that the benefits in the personal dimensions of change outweigh the costs?
- Are we preventing, anticipating and mitigating risks that will hinder the change?
- Making change stick within the firm — by formally reviewing the case for change to ensure that the targeted benefits have been achieved and actively measuring the scale of success delivered. These results then need to be communicated to all stakeholders to re-enforce the new behaviours that have directly led to the success and to engage stakeholders to continue to adopt the new behaviours.
Law firms will only see the full benefits of their investment in IT if both managing partners and IT directors can translate their common recognition of a need to do so, into an approach that is led by the business and enabled by the technology.
