Legal Commentary

From the June issue of Law Technology News:

By David Baker

It's all over the news. Stock market declines, subprime mortgage mess, oil prices, decline in earnings.

An uncertain time, causing uneasy speculation in the inner circles of most law firms ? how will this affect us?

Will deal work slow down? Will litigation caseloads grow or decline? Does our bankruptcy practice have enough talent? Should we slow down recruiting? What about that unprofitable office in a promising region? How can we retain our important clients? Is there elasticity in our rates?

Such questions show good business judgment in responding to market conditions and anticipating their impact on the business and practice of law.

But in some firms, the smart discussion quickly devolves. Round two might go something like this: Our costs are way too high. Can we drive profit by tinkering with the P&L's expense side? This of course leads to more destructive thinking: IT is consistently 6% of gross revenue year after year. They keep growing their headcount, and project X was over budget. It's a bottomless pit, so we're going to stop the bleeding. Cut 20% of your cost, we don't care how you do it. And investigate IT outsourcing.

Unfortunately, when it comes to examining IT, few firms ask the right questions. Alternatively, here are better queries to start a healthy, more productive, conversation:

1. How do we compare to our peer firms, who likely face the same issues?

Inevitably, senior management circles like the idea of holding their firms "up to the light" with other firms that compete for business and talent. While such comparisons are imperfect (what firm doesn't have a couple of skeletons in its IT closet!), they help place into perspective your firm's current trajectory with respect to IT programs, spending, staffing and other resources. This is especially useful when there's talk of random IT reductions absent the context of the firm's technology-related goals, priorities and service delivery mechanisms.

Typical areas of quantification in such a benchmarking exercise include the comparison of capital and operating spending, and IT headcount as a ratio of firm revenue, total user and attorney headcounts, profit per partner, etc.

As important as the above comparisons may seem, they are only useful in the context of the quality and success of the IT operation compared to others. The gold standard for comparison is the family of IT Infrastructure Library/IT Service Management measurements (www.en.wikipedia.org/wiki/ITIL) that many firms are beginning to adopt. Rating your firm against such standards and comparing the results to those of other firms completes the comparison process.

2. Which new IT programs should be kept on track and which might be deferred?

This can be a difficult conversation with senior management if they have no prior participation or stake in setting priorities for IT spending and resources. IT efforts must align with the firm's business and practice strategies ? that's what IT governance is all about. Surprisingly, many CIOs do not engage up the food chain until it's too late to accomplish much more than educating for the purpose of defending programs in the face of potential cuts.

To protect IT from panic-based decisions, formalize your IT portfolio management. (Examples of IT portfolios would be existing and planned projects, and ongoing IT services, such as application support.)

Portfolios not only help firm leaders understand current programs and priorities, but they help reinforce the need for reinvestment cycles and periodic upgrades. And they can be especially useful to prepare leaders for unplanned expenditures ? such as technology consolidation resulting from a merger. Finally, they have the effect of providing CIOs a "seat at the table," by including IT functions when firm leaders are considering firmwide strategy alternatives.

3. Should we outsource to avoid a "death of a thousand cuts" in times of economic uncertainty?

Outsourcing is very easy to say, but difficult (though not impossible) to do. The concept appears frighteningly simple in the eyes of senior management: sign a contract, hand over the keys and watch cost go down while quality of service goes up (or at least remains the same). Moreover, the need to pay attention to technology goes away.

While some aspects of IT operation ? such as data center hosting, litigation support data storage hosting, or help desk tasks ? can be considered for outsourcing, don't assume they will immediately reduce costs. At best, you can aim for a contractually bound service level agreement.

What about SaaS ? Software as a Service ? where vendors host software outside the firm? SaaS is becoming increasingly prevalent, where the firm gets the lastest version of software, but perhaps at a lower initial operating cost and with no capital cost. But be careful that you aren't robbing Peter to pay Paul. The cost over the life of the arrangement will likely be more expensive than the in-house variant. In any event, do your homework before you make a quick decision.

So which firm is yours? Do you have a strong IT governance model and a management-driven IT portfolio, that helps leaders make intelligent business decisions in both good and challenging times? Or does your firm manage IT as a necessary evil, subject to scrutiny when the going gets tough? The latter is clearly challenging, but even the former has its moments.

The world isn't perfect ? there will be occasions when cost reduction is a realistic requirement. Well prepared firms can intelligently assess potential cost reductions with a full understanding of the tradeoffs and implications to the firm's business and practice. Savvy firms will prepare A, B and C budgets, with financial performance triggers that dictate adjustments to IT spending in tough times, but with fully vetted tradeoffs.

After all, as the Chinese proverb says, "Crisis is danger ? and opportunity." Take advantage of the opportunity to present a solid plan to your management team, rather than be handed an edict from above to start pulling out the knives. In both the long-term and short, it can be a win-win for the firm, and for your career.

Chicago-based David Baker is chair of Baker Robbins & Co. E-mail: dbaker@brco.com.



Law Technology News June 2008