We confess: Interpreting the results of this year’s survey of law firm technology departments–our fifteenth–was a somewhat maddening task. On one hand, it was easy to take a glass-half-full view of the results: Capital budgets are ticking back up, not quite to predownturn levels, but more than half of responding firms reported increases over last year. Collaborative technologies like videoconferencing are booming. And the lawyers themselves, spurred on by all the innovative, largely consumer-centric devices hitting the market (think iPhones and Droids), have finally become the tech-friendly users that chief information officers have long been waiting for.

But then the glass-half-empty side kicks in. IT operating budgets haven’t quite seen the recovery that capital spending has: Sixty-two percent of responding firms report that outlays are flat, or even down, from 2009. In survey comments and follow-up interviews, technology chiefs reported that pressure to control costs continues, with staffing and salaries in particular taking a hit. And even when the purse strings are loosened, it’s largely for technologies like videoconferencing and Microsoft Corporation’s SharePoint that cut costs elsewhere, like the travel budget, or boost the productivity of a shrunken workforce. (CIOs from 86 Am Law 200 firms participated in this year’s survey.)

“It’s no secret that the law firms have laid off a lot of people over the last two years, and the people left are often overwhelmed,” says the CIO at an East Coast firm, who asked not to be identified. “So if you can go into a budget meeting and say, ‘Here’s a project that will save operating expenses’–which can’t be spread out over three to five years like capital costs–and help people do their work, that’s a project you’re going to get through.”

Yet not every technology has paid off as hoped. Case in point: cloud computing. While 80 percent of respondents are using these services, which run remotely on a vendor’s infrastructure, instead of a firm’s, few are using them for critical tasks. And only 29 percent of firms say cloud applications lower costs. “Vendors will tell you it saves money, but the reality is, that’s a claim no one should be making,” says Daniel Gasparro, executive director of firm operations and CIO at Howrey.

Even the newly tech-savvy lawyers are a mixed blessing, say CIOs. Sure, it’s great to see users take a proactive view toward their gadgets and gear. But the more products they want, the more headaches they create for IT. Not every device can be safely, or seamlessly, integrated onto a business network–particularly in a business where security and confidentiality are paramount concerns. Looking back at all those years they tried to engage lawyers with technology, more than one CIO is now thinking: Be careful what you wish for.

Still, the big concern for CIOs continues to be money. Economic recovery or not, technology departments are still feeling the impact of the recent global crisis. Nearly four out of five firms–79 percent–say IT department staffing levels have been adversely impacted by budget cuts, and almost three out of five–56 percent–report salary cuts for remaining staffers. While technology chiefs say they feel that the worst is behind them, the glory days may be behind them, too. “Firms that laid off three people may start to hire one person,” says one CIO.

Nearly half of responding firms reported fewer or less-elaborate equipment upgrades (46 percent) or smaller or postponed projects (49 percent), but overall, the picture for capital spending is improving. At an average of $4.41 million, 2010 budgets reported by this year’s respondents were higher than the $3.26 million reported by 2009′s respondents, though they lagged behind the $5.31 million average reported by 2008′s. (The set of firms that chooses to respond to the survey changes from year to year.)

“In my experience, anywhere from 3 to 5.5 percent of a firm’s overall revenue is spent on tech budgets,” says a CIO who has worked at several law firms. “Over the past couple of years, it was down to 3 [percent]” and would have been lower, he says, if firms could live without “ dial tones and Microsoft.” Now things are getting better, he says, “but it will probably be your 2012 budget year before you start funding things like [you did in] 2008 and 2007.”

Still, the economic crisis has paid some dividends: Sixty-two percent of firms say that their wireless providers have been more flexible with pricing than in previous years, even agreeing to contract provisions that better protect firms should layoffs resume. “If you’re buying $15,000 a month of service, and you have an office close, you can get rid of the $2,000 you were spending there,” says a CIO. “Because of the downturn, you can negotiate stuff like that.”

When it comes to do-more-with-less technologies, it would seem hard to find a bigger winner than cloud computing. By moving applications from firm-operated hardware to a vendor’s own equipment—wherever that equipment may be—support and maintenance hassles can be handed off too. Firms can eliminate the big infrastructure investments often needed to run these apps and don’t have to worry about patches or upgrades. What’s not to love?

Nothing, at first glance: Most firms said they use cloud applications, and 79 percent report an overall positive experience. But a closer look reveals a more nuanced picture. While 60 percent of firms use cloud-based services for e-discovery or litigation support features, and many use it for important (but not bread-and-butter) tasks like benefits or expense management, just 5 percent use cloud services for document management, and 6 percent for storage. That latter figure is particularly surprising, because in written comments to survey questions, storage capacity emerged as one of the biggest challenges at firms.

There are reasons for the lukewarm embrace. Among firms that use cloud-based services, 67 percent noted the limited customization they offer; 39 percent cited the diminished control a firm has over data when it’s on a vendor’s equipment. Another 39 percent worried about security. And then there is the cost. Many of cloud computing’s savings are negated—and then some—by monthly subscription fees. Indeed, nearly a third of respondents (30 percent) said the savings from cloud computing haven’t been what they expected. “With some cloud offerings you can pay five to ten times the amount of money it takes to do it internally,” says one CIO, “especially with those vendors who have discontinued their traditional offerings and moved everything to the cloud, making it the only way to use them.”

Meanwhile, using the cloud for tasks requiring fast, real-time access to data, such as document management, may require hefty upgrades to a firm’s network to ensure that 500 or 1,000 lawyers can simultaneously access Web-based documents whenever they need them. And because monthly fees fall under the operating budget, not the capital budget, they can’t bev depreciated over several years. Finally, if a firm had previously invested in infrastructure to do the task in-house, what does it do with any depreciation that is still on the books? “Most of my [issues] are based on the balance sheet problems these services create,” says Gasparro.

Yet while it is clear that cloud computing is not the panacea that proponents claim, it can also work–and work well–in certain situations, especially those that don’t require immediate and constant access to data. Document management may be iffy, for instance, but disaster recovery is another matter. Brown Rudnick uses a cloud service to screen incoming e-mail for spam and make sure that outgoing e-mail conforms to the firm’s content policies. The service archives e-mail, which is stored on the vendor’s equipment, not Brown Rudnick’s. “In this instance, cloud computing has saved us money–[cutting] 50 percent of our e-mail management expense,” says firm CIO Jim Darsigny.

Worries about security and control, other CIOs say, can be mitigated through what one calls “boatloads of diligence.” Firms look for, and get, Pentagon-level encryption, nondisclosure agreements, and segmented data. “A good thing about working with a law firm is that there is always someone more paranoid than you,” says one tech chief.

Other technologies have been unmitigated successes–or nearly so. Microsoft SharePoint, a platform that lets users access many forms of content, from documents and e-mail to calendars and blog posts, via a single interface, has moved off the wish list and into the enterprise at many firms ["Juggling Act," October]. Eighty-six percent of respondents said they now use it.

Then there is videoconferencing. Long burdened with a reputation as a costly, disappointing technology (that is, if you didn’t like fuzzy, jerky images; akin to watching people through a fishbowl), it has finally come into its own. Ninety-nine percent of responding firms are using it–more than two-thirds with dedicated videoconferencing rooms.

And little wonder: Videoconferencing is a case where technical breakthroughs combined with economic pressures have driven the adoption of a technology. Faster networks and HD video mean razor-sharp images. IP–based standards, letting video traffic run over the firm’s existing network (albeit, often with some upgrades), mean that once you’ve got the equipment in place, many video calls have no incremental costs. (Complex calls requiring bridging services to pull together parties in various locations and companies can be another story, potentially costing hundreds, even thousands, of dollars per hour.)

With lifelike video calls, travel expenses can be decreased, so much so that even the most elaborate, expensive videoconference setups–so-called telepresence rooms that can cost $300,000 a pop—can quickly attain a positive return on investment. A technology director whose firm spent $1.8 million for six telepresence rooms says that the savings in travel costs and increased productivity run at least $1 million a year.

Other hot technologies have been spurred less by bottom-line consideration than by pressure from lawyers, who see new products like Apple Inc.’s iPhone and Motorola Inc.’s Droid and want to bring them to work. More and more, they’re getting their way. A couple of years ago, it was a safe bet that if a lawyer was using a mobile device, it was a BlackBerry. Not today: While every firm that answered our survey still uses BlackBerrys, more than 77 percent allow attorneys to use iPhones, up from 55 percent last year. Close to half—43 percent—allow devices based on Google Inc.’s Android operating system (up from 1 percent in 2009).

That’s not to say that every CIO happily embraces the newcomers. ” Tolerate is a better word than support ,” is how one tech chief put it. In written comments on the survey, several CIOs lamented the “consumerization” of law firm technology. They’re not being cranky: A new platform can pose problems, especially if it isn’t as secure or robust as the existing one. For a long time, that was the big stumbling block with the iPhones, until updates to its operating system along with third-party tools brought it close to, if not quite on par with, the BlackBerry’s level. “I don’t anticipate that we’ll ever provide [iPhones] as an alternative to BlackBerrys, but if people choose to use them, we can adequately protect the firm’s data,” says Don Jaycox, CIO for the Americas at DLA Piper.

Others argue that CIOs should quit complaining and welcome all this new interest in technology. “I think it’s great,” says David Michel, CIO at Birmingham’s Burr & Forman. “When [lawyers] have something they may be using at home, and they’re saying: ‘What else can this do for me’ . . . they’re starting [to think] outside the box.”

Okay, maybe that’s the glass-half-full view. But if it proves true, then perhaps the glass that counts most–the success, prosperity, and future of law firms–can be filled to the brim once again.


Alan Cohen is a freelance writer in New York. E-mail: alanc31@yahoo.com.

AM LAW TECH SURVEY 2010 – THE CHARTS

Software

Communications

Operations and Budget