The Cycle of Life for Law Firms, Technology

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Law firms, like the players in any other economic sector, have a life cycle.

There are law firm start-ups, as new lawyers hang out their shingles in a solo or small firm practice. There are law firm buyouts, as lawyers reach retirement age or simply decide to head for greener pastures, and use the flexibility afforded by Model Rule of Professional Conduct 1.17 to sell their practices to another qualified attorney or firm. And there are law firm mergers and acquisitions, typically driven by the idea that combining law firms to make them bigger will make them better through skill synergies and enhanced economies of scale.

However, what often is missed as firms progress through this life cycle is that technology is not just an add-on or an afterthought. Technology has become so integral to how law firms operate that taking the time to assess and integrate technology concerns is essential to a healthy and growing legal services organization.

The technology concerns at each stage of the life cycle continuum are different, and addressing them is essential for the financial and client service strengths of the firm as an effective, continuing business organization.

In a law firm start-up, the risk is that lawyers will be beguiled by more technology than they can afford. Particularly for start-up solo practices, substantial spending on new computer hardware and software may simply not be possible, particularly in light of the fact that it may take up to five years for a new practice to be profitable. Refurbished desktop or laptop computers, open source software, a free email management program, and online research using the library at the most convenient courthouse or law school are among the most practical options.

Ultimately a real investment in new technology will be necessary, but the firm must tailor the financing decision – cash, lease, loan – to its financial and business realities.

In a buyout situation, technology can cut both ways. If a small firm lawyer, facing financial pressure, resisted buying or updating technology because of the high up-front expense, they may have outdated software and hardware, may not be using case management or document assembly software, or may not be backing up and storing client electronic files at all.

Lawyers who do not use adequate technology diminish the value of their firm in negotiations if a potential purchaser sees that a substantial IT investment will be necessary.

When mid-sized or large law firms merge, assessing the current state of technology used by the lawyers or firms, including the age of the hardware and software and their replacement cycle, should be – but rarely is – central to the merger due diligence. If at least one of the parties to the combination uses up-to-date databases, hardware and document processing and practice management software tools, it can serve as the foundation to make the combined practices more efficient. But there must be adequate planning so that software for finance and accounting, client relationship management, knowledge management and case management is properly coordinated and integrated.

As in start-ups and buyouts, there is no one right way to approach these technology issues. But the wrong way is to ignore them and suffer the negative consequences.

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