In light of the downturn in the economy and the on-going War on Terrorism, 2002 is shaping up as a year of fiscal caution for law firms. Many firms are looking much more closely at their technology spending, seeking to cut costs and ensure that they achieve maximum value from the investments they do make. This article will highlight some areas you may want to consider as you tackle this important challenge.

Negotiate Contracts Aggressively
The lion's share of the technology budget in most firms is allocated to two important categories of spending. The first is "core expenses" which include the basic services needed to keep IT running operationally: wide area network costs, replenishing media for backups, and salaries for essential service providers. The second category is "non-discretionary enhancements." These represent spending that is forced on you by organic business growth, such as putting workstations and telephones on desktops in a new branch office. According to the Gartner Group, these two categories combined should represent about 75% of a "healthy" IT budget.

These areas of spending are not very glamorous, and it may seem that you have little opportunity to influence them. The reality is that you can have a significant impact on these expenses through assertive contract negotiations. In the case of both new contracts and contracts that are up for renewal, you should consider adopting an aggressive negotiating posture to achieve the best deal possible.

Many vendors are hungry now, almost a year into the downturn. Some may be ready to discuss creative pricing arrangements. Others may hold fast on pricing but offer flexibility on "soft" elements like extending maintenance periods or including a related service offering, such as providing engineers to support installation. In many cases, the long term benefits to your firm of negotiating favorable terms in the soft areas can be just as valuable, if not more so, than initial price discounts.

If you are considering an assertive negotiating posture, we recommend that you think carefully about one important issue: be careful not to damage important vendor relationships. To be successful, you need to maintain effective working relationships with your key vendors. As you consider your negotiating posture, you may want to consciously decide not to negotiate so aggressively that you "break" an important relationship. If you have wrung every last dollar of vendor profit out of your immediate pricing agreement, the vendor may be less well positioned to offer resources to help you out of a future crisis. One of the key lessons New York law firms learned in the wake of September 11th was the high value of strong vendor relationships that mobilized vendors to provide equipment and people quickly.

Consider Leasing
Now is a good time to consider leasing desktop equipment instead of buying. Leasing, in certain circumstances, transforms the acquisition cost from a capital expense into an operating cost -- which may be advantageous to some firms in the current economic climate. In any event, leasing spreads the payments out over the useful life of the equipment instead of lumping them into a single year. And, as noted above, you may find that you can negotiate more favorable pricing on leases than was available in the past.

The decision to lease or buy is ultimately a financial one that you should explore with your firm's CFO or Controller. There are certainly operational downsides to leasing, including the complexities of lease termination activities, that should be balanced against any financial advantage. In addition, if you decide to pursue leasing, you should review your contract terms carefully to ensure that you minimize the risks in the event your firm decides to downsize during the lease term.

Use What You Have, Better
An interesting maxim in the business world is the following: "The fastest way to improve the bottom line is to apply what you already have." This philosophy applies to technology. This is not to say that you shouldn't be renewing and replacing your systems regularly, but the benefits of a new system will be achieved only at some time in the future. The best way to achieve maximum benefit now is to use what you already have more effectively.

This maxim is at odds with another factor that we all know. Law firms, like other businesses, use only a small portion of the features available in the systems they have in place. So, the important question to ask this year is, "How can I help my firm use the technology it already has more effectively?" There are several ways, some of which you may have been suggesting for years. Now is the time to revisit and renew the business case for these initiatives.

• Training. Getting lawyers and staff to focus time and attention on technology training has been difficult for years -- especially with the frenetic work volume of the 90's. For most firms the volume of work has slowed. Assuming you create an effective training curriculum, you may find yourself more successful in your efforts to get existing lawyers and staff back into remedial training and to allow more training time for new hires. We all know that this investment will pay off in the long run by creating more knowledgeable users. If we design the training correctly, these users will be better positioned to absorb new technology in the future -- an important on-going benefit.
  
• New applications for process improvement. Law firms have historically been more willing to invest in hardware and software products than in the applications that leverage those products to their maximum potential. They may buy Crystal Reports, but they hesitate to invest the lawyer time necessary to develop management reports that the partnership will find most effective in supporting their business decisions.
  
  Now, when the push to spend on new products is abating, is a good time to circle back and look carefully for important business processes that could be improved by developing applications that extend the technology you already have. For some firms, this could be as simple as creating a template in Excel for expense reporting and using e-mail to submit the completed forms. For other firms, this could be as complex as extending an existing workflow application to encompass the new matter intake process. Many of these projects may not be technically complex. The real challenge and long-term benefit lie in creating successful working models where IT works in partnership with lawyers and administrative staff to create new systems that improve a business process.
  
  If you are interested in pursuing this opportunity, it will be very important to pick your target projects strategically. You will want to focus on the business case, making sure the improvements you achieve offset the costs you incur, both out-of-pocket and investments of lawyer and staff time. You will also want to design applications that will fit gracefully into your next major uplift, ones that are designed and developed from the start with the uplift in mind.

Invest in Collaboration Tools
While firms are understandably cautious about investing in new technology this year, there are a handful of areas that they should consider carefully in order to take advantage of the current environment. One important area is collaboration tools, including videoconferencing.

2001 saw a dramatic reduction in travel, both as a result of the economy and the events of September 11th. This sparked a dramatic new interest in technologies that help people meet and conduct business "virtually" without getting together physically. These technologies include video conferencing and real-time electronic meeting tools, including WebEx, Microsoft's NetMeeting, and IBM Lotus' SameTime. They also include electronic team rooms, such as eRoom, that allow teams to share information asynchronously.

The cost of entry into many of these technologies is surprisingly low. Thanks to leasing options, subscription pricing models, and ASP providers, firms can "dabble" in these technologies by trying services from a variety of providers. You can try different approaches until you find the services and solutions that work best for you and for your clients. While some firms may eventually decide to buy a technology and bring it in house, others may continue to rely on outsourced approaches and still achieve significant advantage.

The important thing to recognize is that a client today is much more likely to value a law firm that can offer these services to accommodate the client's decreased willingness and ability to travel. The real challenge for most firms is not in mastering the technology, but in teaching their lawyers about the potential benefits of these technologies so the lawyers can sell them to clients, and teaching lawyers to use them effectively once they are in place. However, once lawyers recognize that clients value this service offering, these challenges are overcome relatively easily.

A Golden Opportunity . . .
Finally, the current constraints on IT spending may represent another hidden opportunity. Most IT leaders know that their firms are coming due for a significant technology uplift within the next year or two. For many, the last major technology platform transformation was completed in 1998 or 1999, driven by Y2K. This platform is now three or four years old. In the interim, Microsoft has delivered major new products in the form of Windows 2000, WindowsXP, and OfficeXP. Document management systems have transformed their offerings into collaborative content engines. Web technologies have become more pervasive and viable portal technologies are emerging. Firms will want, and need, to take advantage of these new tools.

The next major platform move for most firms will be dramatic. It will require significant pre-planning to define requirements, select products, and develop deployment plans, and to estimate the resources and funding needed. If the current slowdown in technology spending at your firm also provides you with the luxury of time and resources to focus on this pre-planning effort, you are well advised to seize the opportunity. You will find yourself better positioned to move forward quickly when the economy improves and the next boom cycle begins.

Abour our author...

Sally R. Gonzalez is a Technology Management Consultant with Hildebrandt TechGroup, a division of Hildebrandt International, focused on aligning technology with law firm practice. She can be reached at (202) 471-4005 or via e-mail at srgonzalez@hildebrandt.com.