Another Level

September 2004

1

Another level As the users of legal IT become ever more demanding, pressure is mounting on law firms to change the way they handle their technology requirements. Dave Cunningham looks at how the sector is developing and how managers stay ahead of the game The evolution of legal IT has followed a path similar to that of law firms themselves - both are increasingly adopting the business practices of mature companies. The implications for legal IT are important. Growing customer sophistication is a sign of this maturity. The increasing exposure of issues like electronic records management, cross-office client teams and profitability measurements are pushing law firms to consider more complex solutions like identity management, Chinese walls by default, matter-oriented storage and business intelligence systems. Mobility, enterprise searches, client relationship programmes and other projects meant to put useful information into the hands of lawyers require IT to be adaptable and executive minded. Ironically, lawyers want simple IT that delivers against highly complex requirements. Supplier consolidation and technology maturity are also symptoms of legal IT's stage of development. For example, legal document and records management suppliers have been acquired by corporate 'enterprise content' suppliers. Some of the legal financial system suppliers have also been acquired by companies with broader ambitions. The corporate, financial, HR, client relationship management and portal providers are now competing with the legal specialty systems. These horizontally broad suppliers realise that they increase their profits by leveraging the 80:20 rule, in which one solution fits as many industries as possible. As a result, IT processes and systems in law firms have become increasingly similar to those employed in other industries. This is also evident in leaders themselves - many law firm IT and financial directors were hired for their broad company experience rather than their knowledge of law firms. Some fear that this apparent commoditisation of legal IT diminishes its value. However, lessons from other industries reflect that this is a time when technology can have the highest impact on the business. The focus shifts from what you are providing to how you provide value for the investment - how cost-efficiently you can provide IT services, and how well you can apply IT to the shifting and often imprecisely-defined business needs. At a recent conference, managing partners agreed when they included the leveraging of technology among their top issues in leading firms - other issues included increasing efficiency without losing key assets, multi-office planning, the effects of a consolidating market, alliances, understanding outsourcing of legal or back-office services and other challenges that also affect technology. The diminishing uniqueness of some aspects of legal IT, combined with the growing complexity of IT requirements, means that law firms will consider external service providers to help the IT department be as effective and focused as possible. Law firms rely on vendors for many services today, although just a few firms have prepared to make changes in favour of long-term vendor services. Understanding the approach, terms and benchmarks related to outsourcing allows IT to make informed decisions, reflect its own value and even defend itself against outsourcing pressures if necessary.

Another Level

September 2004

2

The potential values of outsourcing are well documented. Few law firms have the scale to warrant the specialist skills, training and investment in methodologies that an outsourcer can provide. Outsourcers provide top end tools for monitoring, managing and changing networks from remote locations without capital investments by the firm. Outsourcers can host systems in shared Tier 3 facilities and charge for their actual use dynamically. In about half of all cases, companies report that they save money by moving to an outsourced arrangement. In other cases, firms are willing to pay a premium for the mitigation of risk, service guarantees and known payment schedules that the vendor provides. Even in these cases, most outsourcers will smooth payments so that the initial outsourced costs are lower than current costs and provide payments for assets that it acquires from the firm. Unsurprisingly, suppliers have taken the cue and are positioning themselves to provide outsourcing services for legal IT. Despite these positive concepts, many people believe that the reality of outsourcing is not so rosy. IT concerns include the risk of a big change to an outsourcer, the actual level of service for the quoted costs, and the effect on IT staff. Outsourcers are seeing that fewer firms are moving directly to a significant contract with a new supplier because of the first two concerns. In these cases, a company uses the selected supplier on smaller scale work and increases their trust and compatibility with them over time. These try-before-youbuy-longer-term situations help to ensure common expectations post-contract, although their shorter term and more limited scope lowers the potential benefits. IT staff can be affected by outsourcing in many ways. Despite popular corporate headlines, law firms will not be sending significant IT work to India. It would be most common for outsourcers to provide a service in addition to the firm's IT staff, take responsibility for training and managing IT staff or take on IT staff as their own - in that order. When IT staff do transfer from a company to an outsourcer, they often continue to work at the same location, at the same pay but with additional product-specific or procedural training. You can start to evaluate outsourcing by working through some basic analysis. First, objectively evaluate IT's strengths in the context of its changing responsibilities. Most law firm IT departments are being stretched into new areas - business needs analysis, executive communications, lawyer working practices, merger integration and real-time disaster preparedness, for example. It is likely that the strengths and priorities of the department have changed while the expertise of the department is still adapting. It is not unusual for more than 80% of IT's responsibilities to be focused on maintaining core systems - installing, supporting, upgrading and rolling out versions of hardware and software. For some firms, these are its areas of greatest value because it has the best knowledge of how the systems are used in-house. In other situations, the dayto-day work of maintaining systems slows the pace of important new projects. You should also perform an outsourcing assessment even if you do not plan to outsource. Most outsourcing suppliers use a combination of ITIL, ISO and their own practices to establish processes for supporting IT. You do not necessarily need to learn each of these areas of IT quality standards, but addressing a few key questions will help identify gaps: . How do I define, measure and monitor service levels?

Another Level

September 2004

3

. Where do I have risks that are not cost or time-effective to resolve (lack of appropriate disaster recovery and no back-up for key skills are common)? . Where am I about to make large capital purchases where a vendor might provide services on an asneeded basis for greater value (storage management, proactive network management and new data centres are big budget items where vendors already have excess capacity)? . What IT activities constrain the pace of my key projects? . Am I able to provide services equally to all offices? . Where are procedures too ad hoc, but too time-consuming to create in-house? . Where do I have trouble attracting the right skills and providing the right training? . Do IT areas require so much time and effort that other high priority IT work is delayed or ignored? . Are my best IT staff frustrated due to a lack of progress or resources? These questions are really about effectiveness and not just outsourcing. However, they help to focus on the option of third party services. These questions are relevant for all IT staff to ask, not just IT management. You should also gain experience with an outsourcing approach. At the Society for Computer & Law's Advanced Outsourcing Symposium, the IT lawyers' advice was never to let a supplier dictate a service level agreement. This means that you should not expect a supplier to sort out poor processes under contract, and that you should be familiar with defining the scope and terms of SLAs. While IT lawyers have a solid understanding of relevant law, many do not have much experience with technology itself, so IT should be prepared to play a qualified role in contracting with vendors. If you do not expect to outsource for the next few years, it would be most beneficial to begin using SLAs internally, to understand outsourcing terms and approaches and to be familiar with the types of services provided by third parties. As the pressure to consider outsourcing will likely increase, you can be prepared to evaluate it intelligently. A side effect could be that your due diligence allows you to be more prepared to avoid the need for outsourcing in the future. Evaluating outsourcing is a natural evolution of the business nature of IT. Avoiding the consideration altogether could mean that you will lack an under-standing of potential practices or solutions, whether or not you determine that outsourcing is right for you. Dave Cunningham is a consultant at Baker Robbins & Company.