Law Firm Short-Termism - Bad For Law Firm Tech Long Term?
In opinion / By Charles Christian / 18 July 2017
I’ve been reading up recently on the growth of the Amazon business and was intrigued by founder Jeff Bezos’ constant refrain that Amazon is a long-term business – in fact he still describes the company as having a start-up mentality. His point is Amazon was never intended to be a get-rich-quick scheme that would yield immediate benefits but one that would develop over years (and decades) into an industry giant.
The company’s progress to-date definitely confirms this perspective… founded in 1994, it went public in 1997 with an IPO valuation of $438 million and is now valued at $461 billion. Or, to put it another way, if you invested $100 in the company in 1997, twenty years later that shareholding would be worth $64,000. That is long-termism.
So what has this got to do with law firms? The quick answer is nothing because long-termism is pretty much an anathema in most law firms, particularly when it comes to investments in technology. Why? Because the very structure of law firms with their rolling partnership structure means short-termism is the prevailing mentality.
This year’s partners want to make their money now. They don’t want to sacrifice their partnership drawings this year for the benefit of making the firm healthier in a decade’s time by which time they’ll be long gone and a fresh generation of partners will be reaping the benefits. It may sound selfish but that is the nature of partnerships: you take a long time struggling to the top of the heap and then you enjoy your brief moment in the sun before you are gone.
The trouble is this is counter-intuitive when it comes to longer-term capital investments because there is precious little incentive for incumbent partners to forego their earnings now and invest in the future. And unfortunately many technology investments must be viewed as longer term projects.
True, some tech investments can yield almost immediate short-term gains. For example if the network is creaking then an investment in additional servers and/or virtualisation will improve performance. Similarly an investment in new cybersecurity systems will address issues with spam, hacking, security, ransomware etcetera.
But, these are the exceptions rather than the rule. For example, what are the benefits of migrating from one version of the Windows operating system to another or upgrading to the latest release of Microsoft Office?
Now the techies among you will be able to suggest lots of good reasons but from the perspective of someone with their finger on the law firm’s financial pulse, this is a hard one to get partners to buy into. A new operating system is essentially an under-the-bonnet project and do the benefits really outweigh the cost, the time and effort associated with training, and the inevitable rollout disruption, including having to deal with both hardware and software applications that are no longer compatible?
Ditto Microsoft Office. A new version of Word does not mean secretarial staff are going to be able to create documents any faster but they will have even more functions at their fingertips they’ll never use. And, if the firm is really unlucky, the new version will also create documents in file formats that create compatibility issues with earlier documents.
All of which explains why so many law firms are still running Windows XP (first released in 2001) and older versions of Microsoft Office. However it is when it comes to the big infrastructure platforms – the financial/practice management and document/content management systems – that law firm short-termism really comes to the fore. In a larger firm, these systems are going to cost millions to buy and take years to implement – yet they are perceived by partners (rightly or wrongly) as merely back office systems that “make life easier for bean-counters and secretaries”.
Little wonder then that among large law firms the market leading PMS is still Elite Enterprise, a product that debuted in the early 1990s, and that the average life expectancy of a PMS (from purchase to replacement) is 15-to-20 years and rising.
“If it ain’t broke it don’t need fixing” and a fear of the disruption and chaos (and ruined careers) associated with problematic implementations (just ask the firms that have hit problems implementing SAP) are the guiding principles – and yet another reason why law firm managements will try to avoid taking decisions on long term tech investments and leave the problem (or poisoned chalice) for their successors to deal with.
That said, while you can appreciate why law firms approach tech investments the way they do, it remains worrying so many fall for the hype and believe they will reap short-term benefits from what are essentially long-term projects.
Twenty-to-15 years ago, the hype surrounded knowledge management systems with some firms spending hundreds of thousands on search engines to power their KM platforms but then being surprised there were no immediate returns on their investments.
Why? Because they hadn’t appreciated the technology would only deliver if they also invested in extensive hearts and minds training and the adoption of new business processes to support the project. We therefore saw the ludicrous spectacle in some firms of KM systems being swamped with new but irrelevant content at the end of each year as lawyers realized their contribution to the KM database was a factor being measured in their annual assessments.
Today, the focus of hype is on AI (artificial intelligence although most projects involve rather less sexy sounding machine learning or ML) with firms rushing to announce they have invested in some new AI project or another. But do the firms realise there are no short-term benefits to be had?
AI is strictly for the long term and even then there is no guarantee of success. For example, in the US one large healthcare group recently wrote off $60 million on a failed project involving the IBM Watson AI.
Yes, law firm short-termism is bad news when it comes to failing to invest in necessary longer-term IT infrastructure. But, it is equally disastrous to embark on projects in the mistaken belief there will be short-term benefits when in fact they will require a long-term investment commitment if they are ever to succeed.