People, technology, location: where should law firms’ money go?

Experimental archaeology is a favourite way for TV documentaries to bring the past to life for the casual viewer. The BBC is currently showing a new series looking at the construction of a 13th century castle, together with various other related mediaeval activities. In last night’s episode, the team made a crossbow and its bolt using only techniques and materials available in the 1200s. In the commentary, they kept returning to the fact that a crossbow allowed armies to be effective with much less training (one presenter gleefully told how Richard I had been killed in 1199 by a crossbow fired by a mere boy).

Horse and cattle trough in SmithfieldBy concentrating on the saving on training that the crossbow brought, above the longbow, the programme missed an opportunity to make a wider point about the impact of technology on warfare — it changes the way money is spent.

If your army depends on archers wielding longbows, you need to invest heavily in training (and in the peripheral expenses to maintain archers in training). However, a longbow was probably slightly cheaper to produce than a crossbow, which needed components wrought from iron (not a cheap resource by comparison with wood at the time). So, as crossbows become more widely used, it is likely that the budget for archers would shift from supporting training to the new technology.

This is part of a pattern over hundreds of years. The wars of the twentieth century were probably the last in which the size of an army or navy played a part in determining the outcome (directly or indirectly). Modern warfare is waged with small numbers of people and huge amounts of costly technology. (Sadly, the impact on humanity is just as devastating — possibly more so, as civilians become harder to distinguish from combatants.)

Longbows and crossbows are still capable of causing death and serious injury. Nothing has made them less deadly, but their power is meaningless in the context of modern warfare.

Law firms are in a similar position today.

For the past few centuries, the primary cost for a firm has been lawyers and their training and upkeep. In more recent times, larger firms have also spent large sums on acquiring and maintaining high-quality offices in expensive business locations. As salaries and rents increase, clients have ultimately had to bear the cost in higher fees.

Technologies that are now readily available (or in development) are starting to eat away at the traditional model. They cost more than the basic IT tools already in use (typically email and document processing and management). It is a reasonable assumption that a firm of the future will spend a much higher proportion of its budget on technology than it did in the past, and a lower proportion on people (some of their functions being done automatically) and offices (as people work much more flexibly, using mobile devices and in non-firm locations).

So it is interesting to read in the Legal Support Network’s Legal IT Landscapes 2015 report that the top 100 UK firms are not investing hugely on their IT:

Our results show that top 100 firms spend on average 4.1% of revenue on IT (there were some that spent 8-10%, so you can imagine the other numbers). Though this metric isn’t one I’d use alone, and it puts law firms squarely alongside other professional services businesses (according to Gartner), many would say that legal businesses should be spending more, to innovate and build competitiveness. Let me put that 4.1% figure in context, too: education, media and entertainment, and banking and financial services all spend more – banking’s spend on IT as a percentage of revenue is 6.3%.

The top 100 firms are facing competition from a range of new entrants. Some are offering technology directly to legal consumers. Some have created businesses based on a different model — different in terms of office use, people employed, and technology developed. They are almost certainly all spending significantly more than 4.1% of revenue on technology — some may surpass 10%.

The future of law will involve more technology. There is no doubt about that. Some artisan law firms will continue to exist, but the bulk of legal work will be done in businesses founded on technology platforms that go beyond word processing and email. Interestingly, many firms are working alongside the new entrants in the development of new ways of working. As Simon Wardley points out in a post describing the commoditisation of part of the entertainment media, doing so betrays a completely inadequate strategy.

Such a deliberate move by a commissioning company – the chess equivalent of Fool’s mate – should never work but it does, in industry after industry. Yes, I am saying that companies often support the commoditisation of an underlying component or constraint without realising this will reduce barriers of entry into their field and ultimately commoditise them. Companies seem to act thinking of the short term with no understanding of the impacts to themselves.

Most of the problem appears to be that companies cannot see the environment (i.e. they have no map) and aren’t used to any actual form of strategic play. To be honest, this is like stealing candy from a baby except the candy is worth millions or billions. What is really frightening, is it takes a couple of hours to map out and work out such a play. There is no way on earth you should be able to get away with this and I’m afraid it gets worse.

So, incumbent law firms should be investing more in technology, but they should also do so more strategically — armed with a really good understanding of the terrain they are fighting on. If they don’t, they become as useful as the water-trough pictured at the top of this post — fit only for decoration.

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