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Are you getting a meaningful return on your investment in technology, particularly as the rate of that investment escalates? Many of our contacts and clients are increasingly concerned about the perceived disparity between their information technology investment and the return to their business. Accordingly, Hildebrandt International recently undertook the third annual IT/Business Process Improvement Survey to help assess the depth and breadth of this challenge. Many firms today spend between 4 percent and 6 percent of their annual revenues on IT. Unfortunately, many of them plan significant changes to their IT infrastructure without changing (or even considering changing) their organizational structures, their work processes, their portfolio of services or their pricing models. This level of spending without some positive — and noticeable — impact often exacerbates economic, operational and cultural issues within the firm. More than 14 percent of the top firms in the nation participated in this year’s survey (and responses are still trickling in). Domestically, the respondents were concentrated (approximately 67 percent) in the Northeast and the Midwest; international firms made up 20 percent of the respondents. In terms of firm size (as measured by number of lawyers), participants followed the market, with the largest number of responses (36 percent) coming from smaller firms (less than 100 lawyers) but with significant coverage in the other size ranges (100 to 250; 251 to 500; and 501-plus). Following are some of the more salient points we uncovered. FIRM ORGANIZATION Survey responses indicate that IT consumes, on the average, about 5.79 percent of a firm’s gross revenues, a slight decrease from the average of 6.66 percent from last year’s survey, as well as a decrease from the year before. This trend is consistent with many predictions (including our own) of a flat 2002 budget — or a slight decrease with the downturn in the economy (especially among U.S. firms). Nonetheless, this is a significant percent of the budget. The survey examined the staffing in the firm, including paralegals, secretaries and IT personnel, in relation to the number of lawyers. Below are some key findings: Equity partner to total attorney ratios: Generally speaking, as the number of equity partners rises, the capital available for investing back into the firm increases. Without allocating increasing amounts of capital to upgrade, expand or maintain their infrastructure, firms will find it increasingly difficult to maintain their competitive edge in the marketplace. Two years ago, firms with 250 to 500 lawyers and 500 to 750 lawyers had an equity partner representation averaging between 30 percent and 32 percent. Last year, the averages were more divergent, as firms with 250 to 500 lawyers increased their averages from 30 percent to 39 percent, and firms with 500 or more lawyers decreased their averages from 32 percent to 28 percent. This year the average for firms with 251 to 500 lawyers was 34 percent. For firms with more than 501 lawyers, the average was down to 26 percent. In 2000, our survey reflected equity partner percentages for firms in the 40-to-99 and 100-to-250 lawyer range that were noticeably higher than their bigger brethren — the average for the former was 51 percent, while the latter averaged 43 percent. In 2001, the averages for those two size categories went down slightly, to 49 percent and 41 percent, respectively. In 2002, firms with 40 to 99 lawyers had an average of 49 percent. For firms with 100 to 250 attorneys, the average was 41 percent. Attorney to secretary ratios: Two years ago, firms averaged 1.7 lawyers to every one secretary. This year and last year, the ratio worked out to be slightly higher at 1.9, still a much lower ratio than we generally see at our client firms (which typically range between 2:1 and 2.3:1). Interestingly, in 2001, the largest and smallest firms in our sample averaged a 2:1 ratio while the midsize and large firms reported a lower ratio, at 1.8 to 1.9 for every one secretary. For a firm of 100 lawyers, the difference between the reported 1.9:1 ratio and a benchmark ratio of 2.2:1 is about seven secretaries, with all the commensurate salaries, benefits, floor space, PCs, software and network resources. Attorney to total administrative staff ratios: These ratios vary significantly among firm sizes. If ratios fall much below 1:1, which has traditionally been our benchmark, lawyers tend to take up the slack and take on a fair amount of nonlegal work. While they still bill for their time, this practice tends to raise the cost of their legal services and lower the lawyers’ quality of life. Last year, firms with fewer than 100 attorneys reported 1.17 attorneys to every one administrative staff member — very lean for support staff. They did better this year, at 1.12 attorneys to one administrative staff. Administrative staff incorporates all nonfee earners. Last year, firms between 100 and 250 lawyers reported 0.9 lawyers to every one administrative staff member, which is quite close to the 1:1 benchmark. This year, they hit the benchmark, reporting one lawyer to one administrative staff. Last year, firms with more than 500 attorneys reported 1.08 attorneys per every one administrative staff member, a lean ratio that might be offset by some centralization and economies of scale. In the current downturned economy, they slimmed down to 0.91 lawyers to one administrative staff. End users to IT personnel ratios: Ratios of end users to IT personnel vary widely. Our benchmark ratios range between 22 and 32 users for each IT person, depending upon the role of IT in the firm. Some firms have ratios of less than 22:1, but we frequently find that these IT staff are closely integrated with the practice groups and bill their time to client matters. Last year, firms with 40 to 99 lawyers had an average ratio of 37 users to every one IT person, which was an increase of 10 users from the previous year. With technology becoming ever more pervasive, these firms continued to add IT staff, reporting 19.6 users to one IT person in 2002. Last year, there were 26 users to every one IT person for firms with 500 to 750 lawyers — up nine users from the previous year. In 2002, the firms reported a further increase of 3.5 users, for a total of 29.5 users to one IT person. Outsourcing: With the talent crunch becoming ever more prevalent, there seems to be an increasing amount of outsourcing among the surveyed firms. Outsourced services generally do not reduce expenses, but they do tend to raise service levels and get things done expeditiously, especially when service level expectations are specified in the outsourcing contracts. As in 2000, nearly 40 percent of surveyed firms outsourced some or all of the IT function in 2001. This year, it actually decreased, with 30 percent outsourcing all or some of their IT function. Last year, better than 50 percent of the respondents reported they outsourced some or all of their facilities upkeep and physical plant maintenance, which is up slightly from the year before. There was no significant change this year. TECHNOLOGY AND WORKFLOW Manual, paper-based processes remain prevalent despite major IT investments in networks, desktop PCs, and state-of-the-art financial management/accounting systems. However, our results show some improvements over last year’s figures. Here are some of the survey results: File opening: Last year, only about 40 percent of respondents (up from 33 percent the year before) had an automated file opening process in which the client matter or intake form is electronic or online. The percentages increased slightly in 2002 to 42.2 percent. Financial management and accounting systems: The way law firms send and pay their bills still remains labor-intensive, paper-based and people-bound. Although last year fewer than half the respondents passed billing information directly from their accounting systems into word processing systems, this year it increased to 52 percent. Fewer are re-keying information. A little more than half of our survey participants index and store electronic copies of the final bills in their document management systems. There was an increase in the number of respondents who send electronic bills to their clients; two years ago, 40 percent of the participants did e-billing. Last year, the number was 62 percent. This year, it increased to 66 percent. Practice management: Practice management processes are becoming more automated. Last year, approximately 56 percent of the respondents (up slightly from 2000) provided billing partners with online access to their work-in-process (WIP), accounts receivable (A/R), and fee earner utilization, the percent of time that the fee earner spends in a billable capacity. This year, it increased to 69 percent. Last year, about one-third of the respondents made standard practice management reports available online rather than distributing paper copies (up slightly from the year before last). This year it increased again to 41 percent online. Client and internal communications: Encouragingly, communication-related processes are beginning to improve, and firms are beginning to move out of the paper rut. Last year, about three-quarters of the respondents used an intranet to communicate information within the firm, as opposed to publishing or updating documents and physically distributing and storing them; this was up from half in 2000. In 2002, it increased again to 81 percent. In 2001, about 30 percent of the respondents established extranets for client communications. This year, it was up to 54 percent. In 2001, 40 percent of respondents (up from 26 percent in 2000), offered their clients “electronic subscriptions or alerts” on topical matters. This year, it was 86 percent. KNOWLEDGE MANAGEMENT This year, we included questions about knowledge management (KM), the process for creating, capturing and re-using knowledge within an organization to allow that knowledge to be transformed into competitive advantage. Some of the findings include: � Forty-five percent of the respondents indicated that they have a separate knowledge management system or a separate library in the document management system that stores work product precedents and forms documents to facilitate the development or research of work product. � Nineteen percent of the firms motivate and reward individuals for contributions to and participation in knowledge management initiatives. The survey also revealed that 82.4 percent motivate or reward the individuals by measures linked to an annual performance review process, while recognizing individuals publicly was close behind with 70.6 percent. RECOMMENDATIONS In conclusion, our 2002 survey seems to say that law firms are holding tight on spending but have done more with less given the notable increases in some areas. However, in general, the results seem to support our sense that IT expenses have only begun to change the way law offices work. Nevertheless, there have been positive developments since last year. As firms now have most of the basic technical components in place, they need to focus on applying them to strategic advantage. � Electronic workflow can enhance the movement of information and the quality of daily transaction processing. This should also help many firms to reallocate head count from clerical paper-pushers to higher-level practice support positions. Workflow and imaging both should help capture information digitally at its source, thereby making it available for use by a number of systems. � Knowledge management and portals can not only enhance individual lawyer work product but also add value to the right type of client and even provide an alternative revenue stream through subscription services. � Employing collaborative technology enables outside counsel, in-house counsel and other third parties to share a common work space where documents, calendars, contact lists and the like are centrally stored for use by all. This should continue to make the client and the transaction more efficient. And it should accelerate the transaction and make it less costly. � Adding specialized systems, notably knowledge management and client relationship management systems and the extension of financial management systems to encompass practice management activities and reports, supports and promotes practice management in firms. We feel that profitability and productivity at many firms are not as high as they could be. It appears that many firms are still deploying IT on a tactical level without a strategic commitment to positively affect either the revenue (practice) or expense (management) side of the ledger. Spending 5 percent to 6 percent of gross revenue without some noticeable — and positive — effect often compounds economic, operational and cultural problems within the firm. Our recommendation is to take a fraction of this spending and devote it to strategic planning in the firm which will make the kind of difference that you want — and need. Curt A. Canfield is director of the Hildebrandt TechGroup, a new division of law firm consultant Hildebrandt International. A report on the surveys discussed in this article is available for sale through Hildebrandt.

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