Law Technology Today From the ABA Legal Technology Resource Center
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In today’s competitive legal market, all law firms are under growing pressure from clients to increase efficiency and innovation while keeping costs low. While there have been plenty of discussions on the evolution of the legal market, more often than not they revolve around either very large firms or small boutique firms. Even though they make up a substantial portion of the legal market, mid-size firms are frequently neglected and overlooked in these important discussions.
Mid-size firms face different pressures than their larger counterparts. Big firms tend to have big clients, while mid-size firms are typically more diversified, with a mix of large and small clients. Mid-size firms also often see their clients opting to take work in-house or turning to alternative service providers. While even the largest of firms are feeling the pressure of market changes, that pressure is only intensified in the middle and smaller tiers, to the point where a legitimate question begins to arise as to whether they’ll be able to survive.
A major factor often lacking in mid-size firms lack is the access to capital. With the inability to continue increasing rates, will they have the capital necessary to grow and remain profitable? The answer to that question lies in what mid-size firms are doing not just in the practice of law, but also the business of law—namely with operational costs and efficiencies. Smaller firms need to have a clear picture of their overall profitability and the details of what it costs to operate the firm, from technology and real estate to paralegal and back-office costs. When you’re dealing with smaller overall numbers, every expenditure adds up to huge impacts on profitability. The ability of a mid-size firm to absorb shock is far less than that of a large firm. One of the greatest areas where mid-size firms can make a real impact on profitability is technology infrastructure.
How to Right-Size Technology Infrastructure in Mid-Size Firms
When you analyze your firm’s technology infrastructure, you need to be thinking about your people, processes, and tools. Ask key questions, such as what are the real operating costs of your technology platform, what’s your return on investment, is your headcount right for your present needs, and is your platform the right size for your firm? Once you start addressing those questions, you can determine whether there are any efficiencies to be gained.
The first step in right-sizing is benchmarking your technology operating costs and comparing them to what a firm of your size should be spending in those areas. It’s not simply a matter of choosing certain products to outsource from the outset. Benchmarking allows you to develop different models and scenarios to determine whether it makes sense to implement changes like shifting to cloud technologies and migrating to an as-a-service, or SaaS, model.
If your analysis shows that your firm is already right-sized, then you might only have to make minor adjustments, if any. For most mid-sized firms, however, there are many efficiencies to be gained. Examining your last few years of capital expenditures can help shed light on the important decision of whether to invest in your own technology infrastructure or look instead to a cloud-based SaaS model, where the outlay of capital expenditures is much smaller. The bottom line is that you need to have cash on hand to invest in the practice of law. Often for mid-size firms, that means there’s not much left to spend on things like hardware, software, and data services.
It’s crucial to have an objective advisor assess your firm’s financial situation and give sound, unbiased advice. You shouldn’t be seeking advice from an outsider who’s looking to sell you on certain vendors or products. Instead, you need a neutral expert consultant who can present you with viable options wherein moving to a SaaS model can save you significant money going forward.
The Ideal Future Model for the Mid-Size Firm
To remain competitive in the face of the pressures in today’s legal market, mid-size firms need to be working with a wide range of SaaS vendors for most of the firm’s technology needs. By smart-sourcing technology rather than investing in building it all in-house, you’ll have more money to invest in building your practice areas and serving your clients.
That isn’t to say that the firm should entirely outsource its technological functions. Every firm should retain some technology leadership, identifying critical leaders who work with and manage several vendors to handle everything from applications to security. By keeping internal governance while partnering with the right SaaS providers, you’ll not only increase your efficiency, you’ll also have access to more talent to produce the level of work that will keep your firm competitive.
Right-sizing your technology infrastructure and adopting an as-a-service approach makes you more nimble and agile, which, in turn, will increase your profitability. SaaS is based on variables like headcount and assets. As those variables change, you can go to your providers and adjust your services accordingly. By investing in services rather than purchasing infrastructure, you gain newfound leverage to pare back your costs if your business shrinks. In fact, the SaaS model is the only scenario where the consumer has the upper hand.
Partnering with an experienced consultant will help you analyze your spending, and this approach offers you a range of possible scenarios for right-sizing, ensuring that you end up with systems that foster efficiency and innovation. As-a-service is where the legal market is headed. If you want to stay competitive amidst growing market pressures, it’s where your firm needs to be headed as well.
The old ways of building your technology infrastructure are no longer sufficient. Growth is likely to remain sluggish across the market, and mid-size firms are certainly no exception. Perhaps more than any other segment of the market, this often forgotten hollow market needs to rely on smart-sourcing, or risk being surpassed by the competition.
