from Lawyers USA
Computers will not replace lawyers; they have, in fact, made our jobs much easier. The time savings, efficiency and commoditization of routine tasks and services from using computers and software offer freedom to focus on the creative, problem-solving aspects of law. But technology expenses can be daunting. Surveys indicate that, while the majority of large law firms upgrade their computers and software every two to three years, many small firms and sole practitioners go six years or longer between upgrades. They cite cost, time to learn and implement the new technology, and doubt that new technology will increase efficiency and work quality.
Such thinking exposes a firm to allegations that outdated technology contributes to incompetent representation. Firms that are not using up-to-date hardware and software effectively for trial support, case management and the like may be perceived as willfully less competent than their competitors, a definition of malpractice. Equally dangerous is failing to use the latest tools to back up all electronic files and keep them secure. Lawyers have an ethical responsibility to keep client files safe, and failure to invest in the technology to do this for computer files is an ethical lapse. Then there is the fact that lawyers who want to sell their practices will find that the price will be diminished if a new lawyer has to invest in modernizing the IT to current standards.
ROI and Acceptance
So, technology expenditures must be made, but such investments must provide a return to the firm. A 10-percent return is usually considered too low to make the purchase (investment) unless there are other factors involved, such as new services the firm can offer or greater efficiency the firm receives from new technology. There is no one right or correct rate of return. The return selected or expected is a function of available alternatives, and available resources for investment. Because there are invariably a number of technology expenditures competing for priority, use ROI to rank them in the order of financial preference. Then, depending on the budget and resources available, the most productive or profitable investment can be made first.
Don’t assume that a new computer or software will increase lawyer or staff productivity and profitability. Consider an attorney who decided to increase staff productivity by purchasing software specific to the firm’s practice. Cost of the new system and training would be $15,000, but staff productivity would theoretically double, allowing for more work, fewer people and greater cash flow. The calculated net increase in savings and in profitability would amount to $30,000 in the first twelve months alone: an ROI of 200 percent in the first year, with a payback period (recouping the initial investment) of six months. The decision seemed easy and the purchase was made, but the ROI was thwarted by human considerations: the staff was resistant to the change, afraid of the new system, and had no emotional investment in its use. The software languished until it became obsolete, with little of the expected savings or profits.
Lack of acceptance can also be an insidious ROI drain on trendy client relationship management (CRM) or knowledge management (KM) systems. With the former, lawyers may jealously guard their client and prospect contact information rather than share it, leaving big gaps that make CRM a wasted investment with little useful return. With the latter, no matter how sophisticated the database, the process only works when all knowledge is shared in a way that all lawyers can access it. Failure to invest the time needed to update and maintain CRM or KM databases weaken them, and holdouts diminish the value for colleagues and clients alike.
Financing and Value
Such a result will be particularly uncomfortable if you financed the technology purchase. Manufacturer financing can include software and implementation costs that are usually not covered in equipment lease packages, and may be for as short a period of time as two years. But such programs still are a loan, with an organization often not as flexible as a bank. Bank financing for technology purchases may be through a line of credit, equipment loan or term loan. The cost of such loans varies (factors include the firm’s bank balance, other services purchased, and credit rating). However, banks know that the minute computers or software are purchased their obsolescence is assured. If they are willing to make a loan at all, an even more important question in today’s financial environment, they will be less than generous. The prospective borrower must provide as much safety to the bank as possible, especially by contributing both capital and collateral to the overall financing package.
In addition to up-front cost, then, technology ROI is affected by the time needed to learn and implement the new technologies, uncertainty that new technology will increase efficiency, and difficulty integrating new technology into the life of the firm. Electronic technology is essential in any firm today. But without a clear alignment between technology and a firm’s goals and culture, technology can be a cost drain and not a source of value.
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