Purchasing puzzle: Get the best return on investment from legal technology

Managing Partner's recent legal technology survey showed that most law firms will be investing in IT in the coming year and that many will be increasing their investment.¹ This news comes at a time when the cost of technology is being driven down. The legal IT industry is sizable in its own right and a lot of money goes from law firms to software, hardware and solutions vendors. Making the right decisions about technology purchases is critical in order to extract the best return for your investment, but how do firms do this, how can they modify their processes and behaviour, and what are some of the crucial points to consider?

Law firms come in a range of sizes and styles, and so do the vendors that serve them. As a consequence, there is no single prescriptive process or scientific theory that will always get the best results. In the course of writing this article, I interviewed a number of senior IT figures from a range of firms to get both their take on the purchasing process and their perspective on the issues that need to be addressed.

There were two particularly interesting findings. Firstly, some firms adopt a project management approach (and, specifically in one case, Prince2), to run their purchasing process. Secondly, whilst it is generally true that, the bigger the firm, the more process oriented it is, at least one very large firm flexes its processes to extremes in order to adapt to its growth needs.

When I use the term 'technology purchasing' for the purposes of this article, I specifically mean non-commoditised items. As one IT director stated, "there is no point in over-engineering a process to buy a bunch of monitors".

In other words, commoditised purchases - most hardware, some pre-packaged software and the like - can be handled by a purchasing department using a standard process. Beyond this, law firms make a sizable number of technology purchases that are not only complex in their nature but can have a far-reaching effect on the efficiency of the business and its ability to achieve its strategic goals.

Many software or service purchases have elongated lifespans in the business. A good example is a practice management system, which may be in situ for ten years or more. That single piece of technology, albeit a fairly complex one, is likely to cost the firm two to five times its purchase price over this period and will be a key driver of improved workflows, business processes and management information. It will be critical for financial data, billing and many other functions. A mistake in the purchasing of this kind of critical system can have a major negative impact on a firm.

There are many horror stories of system installations going wrong, with attendant costs, the biggest of which is generally thought to be the NHS and its national computer system scheme. Some commentators put the cost of this disaster at close to £20bn. That's not a misprint, and the system will never go live. Irrespective of what you read, and where the blame is pointed politically, the purchasing process was deeply flawed. It was expensive at this level, but the reality is that, even in the smallest law firms, a process-driven approach to purchasing can make a significant difference.

However, it is not always the case that law firms pursue a process-driven approach. This can be for a number of reasons, varying from too much individual involvement from senior partners to no involvement at all. In a decision which was neither in line with the firm's technology strategy nor had any form of process applied to the decision, one managing partner handed out iPads to all of his partners. Needless to say, they were not used for any practical business purpose.

Build a process

"A process prevents a second guess," commented an IT director at a large US firm.

So, how should law firms build a process that reduces the risks associated with purchasing, whilst avoiding becoming so process oriented that decisions cannot be made? The first step is to adopt project management techniques. Prince2 is the global standard for project management and it provides a framework that is flexible and almost universally applicable.

Prince2 advocates three people as the axis for any project - supplier; senior user; and senior executive. For these purposes, I propose that the senior executive is the managing partner or a board member.
The senior user is the head of a department who is likely to instigate a purchase at some point (e.g. finance) and the senior supplier is the head of IT, in the sense that this department will more often than not deliver the end solution.

Next, consider the key elements of a process-driven approach to purchasing. These vary, but there is a rough core that seems to pervade (see Figure 1). Then, decide on a protocol for signing off the process once it has been devised. Finally, build in a method of feedback and periodic review in order to make necessary changes as time elapses and circumstances change.

1. Initiation

The initiation of a purchase can come from just about anywhere or anyone, but the purchase should always be in relation to a deliverable that is aligned with the firm's strategy. Too often in law firms, we see enthusiastic individuals admiring technology to the extent that they then try and find a reason for needing it.

As my colleague Nigel Stock often says, people attending an initiation discussion should not come armed with solutions. That's not to say you should deter people from having ideas - it's just that you need to draw a line between enthusiasm and franchising.

It's not always easy in a partnership to prevent individual enthusiasm from hijacking a process-driven approach, particularly with law firms tending to be fairly politically-charged internally. Strong management from the top and a commitment to the firm's strategy are good starting points for eliciting control here.

2. Team selection

Try to obtain representation from across the board for a purchasing project. Enthusiasm from team members is a useful asset, as are experience and common sense. Teams should be a manageable size and have a clear understanding of their remit.

As an IT director at a medium sized firm said: "There is no such thing as a perfect committee. I like a variety of perspectives."

3. Business case

It's important to set out a clear and preferably-concise business case for major purchases. Concise reports get read. The more interested parties who read the report, the better the process will work. In situations where a new system purchase is the result of a legal or compliance change or enforced by a client, the business case should still be developed. Business cases should define success criteria that can be measured, and this should include the mechanism for measuring success.

The notion of measuring success can cause some headaches though. While it is relatively straightforward to assess time and cost, quality can be much more difficult to measure as there is scope for both objective and subjective assessments.

Wherever possible, measures should be quantitative, even those that may appear to be subjective. If there is a question of style or taste, appoint a subcommittee to assess the results and produce guidelines on what will and will not be acceptable. The more quantitative measures that can be applied, the easier it is to assess products, build a business case and measure the success (or otherwise). It also makes it more difficult for internal politics or external influences to undermine the process.

The business case should outline
how the proposed purchase fits in with the firm's overall strategy. If there is no link here, you really do need to question the need for the purchase. Application of this criterion
can stop any number of individually-driven instant solutions.

Finally, make sure you analyse the risks and plan accordingly for what you perceive could affect the process.

As the IT director at a large firm wryly remarked: "We built something that was too successful, and we didn't risk plan for that".

4. Requirements and scope

The requirements analysis stage of any purchasing decision is the point at which success or failure all-too-often rotate. Whilst is sounds glib to say that an inadequate specification will always hamstring a purchase, it still surprises me how often it is done badly or not at all.

Building a robust requirements framework gives you the best set of tools with which to attack the situation. Requirements need to include not just the functions and facilities desired, but should also incorporate technical specifications and people considerations.

For those replacing systems, it is not nearly enough to produce a list of the issues and failings of the current system. It is imperative that the things which do work in the current environment are also included as, generally speaking, there will be a lot more of these than there will be failings and
other issues.

When building requirements lists, try to assess each within the categories of 'must have', 'desirable' and 'nice to have'.

5. Tender process

The tender process is essentially one in which all potential vendors or solutions are found, or are invited to pitch their wares. It can be tiresome, but if you have prepared properly to this point, it should be a relatively straightforward event.

6. Vendor selection and appointment

Measuring potential suppliers against the requirements outline sounds simple
enough but, in reality, is often not. At
this stage, behavioural issues can creep
in and processes can be skewed by
shrewd vendors.

A selection process for an enterprise resource planning (ERP) system I worked on was very nearly hijacked by a phenomenally slick and professional presentation by one supplier. In the end, the diligence that had gone into the requirements framework eliminated that supplier from the process.

This experience highlighted not only the importance of the requirements to work, but also the order in which you undertake tasks. If you beauty-parade vendors before you develop your project scope, you could end up with a shiny pink elephant.

7. Running the project

This is a topic in its own right but, in a nutshell, you will need to develop a process for managing projects and then use it. Something modelled around (but not necessarily slavishly devoted to) Prince2 is likely to reap rewards.

8. Post-project review

Any major purchase will throw up lessons and these should be recorded, warts and all. A measure of success should be included, with a nod to the return on investment or whichever yardstick you want to employ. Try not to overwork this. Again, concise reports get read.

Things to consider

1. Constraints

Purchases generally have three main constraints: cost, quality and time, each of which has a tendency to work in opposite directions to each other (see Figure 2). If you want it quickly, then you are likely to have to compromise on quality or pay a premium. And, because it is easy to measure cost and time, quantitative targets and variances can be applied. Quality can be measured where the constituent parts are components or fitness for purpose, but less easily determined when considering look and feel.

2. Sign-off limits

Sign-off limits are important for helping to separate operational from strategic decisions. One firm I spoke with had a lower limit which the head of IT could sign off to (up to £100,000), a medium limit that required board approval (£100,000 to £1m), and an upper limit that required partnership sign-off (over £1m).

Using this kind of approach ensures that smaller purchases do not clog up the system. It also means that smaller purchases and more commoditised items can be dealt with by a purchasing department (if it exists).

Build a robust process control, but try not to over-process controls - you need to find a balance between getting it right and getting it done.

As the head of IT at large multinational firm said: "We try to avoid becoming paralysed by analysis."

3. Contracts

You are a law firm, so make sure your contracts are properly considered by lawyers. It is remarkable how often this does not happen. It should be embedded in the process. For the avoidance of internal quibbling, time credits should be given for those lawyers undertaking the work.

One IT director told us that his firm has developed its own standard terms and conditions which suppliers must build into their contracts. This is a useful tool for making the process consistent and should help to make it more efficient.

4. Whole-life costs

The complexity, longevity and adaptability of some purchases are such that the purchase price bears little resemblance to the whole-life cost. It's important to budget as accurately and wholly as possible for financial reasons, but the whole-life cost should also be determined as part of the selection process, rather than fixating on the initial cost. This of course tends to suggest that buying something purely on the ticket price is not always going to garner a saving or give value.

5. Reciprocation rule

Some firms adopt a rule where they are not allowed to purchase from clients. It can cause contention, but it helps to weed out a range of problems.

6. Due diligence of vendors

Along with contract scrutiny, major purchases should also involve a degree of vendor due diligence. This is especially true of cloud computing solutions, where you need to understand not only the physical factors, but also ensure these products and services comply with the policies, procedures and requirements of your firm, your clients and your regulators.

Cloud computing also tends to involve vendor chains, so due diligence needs to extend down the chain. The financial stability of a vendor's partners in cloud computing is a particularly important item to include, as failures tend to be financial rather than physical. When a cloud firm goes into administration, it is both time consuming and expensive to regain control of your data.

7. Vendor buy-in

Richard Hodkinson wrote an excellent article on vendor management in the June 2015 issue of Managing Partner, so have a read of that.² Try to find suppliers that will work with you as a partner, rather than at arm's length.

Also, try not to choose suppliers or products just because other law firms have done so. Each firm requires something different, so choose supplies on the basis of your needs and the likely relationship you will have with that supplier rather than following the herd.

8. Behavioural aspects

When we interviewed people for this article, we asked how they viewed the purchasing process in terms of the mix of scientific and behavioural aspects. The results were mixed, but most believe that a good process provides a scientific underpinning for the majority of the purchase cycle and that some behavioural aspects creep in around the edges.

That's not to say behavioural elements are not important. One thing that we try to get project leaders to consider is how to get people on board with a potential purchase when they are not necessarily on the same wavelength. After all, the process may be correct, but does not always make people feel good.

Inclusivity, mixed with influence and persuasion, can to help align team members. Attitudes towards a project can heavily influence its success or failure. Paying attention to this area can help to grease the wheels and keep it moving.

9. Senior executive support

Senior executives do not necessarily need to be part of the purchasing process, but their support most definitely does. All processes related to purchasing should have an executive sponsor.

The final word

The amount of money that law firms spend on technology should mean it merits a methodological approach to purchasing. Think about how to build and refine a process to suit the firm. Devolve responsibilities where appropriate, but try to retain visibility through support and enthusiasm. Great leaders don't go shopping for systems, but they should understand and support the people and
the processes that do.

Damian Blackburn is founder of Legal IT consultancy SLFtech (www.slftech.com) and was the IT director at a London law firm for 11 years

References

1. See 'Legal innovators', Manju Manglani, Managing Partner, Vol. 17 Issue 6, March 2015

2. See 'Managing suppliers', Richard Hodkinson, Managing Partner, Vol. 17 Issue 9, June 2015