All killer and no filler?

Written by Charles Christian  | 12 October 2008

Although we’ve been living with the credit crunch in the UK and a faltering economy in the US for getting on for over a year now, the sentiment within the legal market has remained consistently positive. OK, perhaps not deliriously happy but (with the notable exception of residential conveyancing departments) a long way short of wrist-slashingly miserable. This has even been evident on my own particular turf – the legal tech scene. For example, as recently as June this year, when ILTA (the US-based International Legal Technology Association) was conducting its annual IT purchasing survey, the sentiments being expressed were still along the lines of ‘IT belts were being tightened’ but ‘a budget freeze was not apparent.’

However since then, the subsequent deterioration in global financial markets now makes those remarks seem unduly optimistic. For example, during the last week, The Lawyer magazine has reported that over 660 redundancies, among lawyers and other fee earners, have already been announced among top 200 law firms since summer. To put those figures into context, that’s the equivalent of a firm like Slaughter & May ceasing to exist overnight. And, Legal Week magazine has reported the widescale introduction of cost saving measures – ranging from introducing travel restrictions and the cancelling of staff Christmas bonuses.

And now, this is hurt is starting to be passed on into the legal IT world. Vendors I’ve spoken to say they fear Q3 and Q4 will be some of the bleakest on record. One vendor said orders “had fallen off a cliff” – as firms start to cut budgets and either defer or put IT plans on hold.

Three factors are cited for this change of heart.

This first, and most obvious, is the continuing uncertainty about the state of the economy – particularly forecasts that it could be four more years before we start to see a sustained upturn. Or, to put it bluntly, firms that are worried they may not be here next year (and this is a very real concern among High Street and smaller firms, who have also got the threat of ‘Tesco Law’ following the imminent introduction of the legal services reforms to contend with) are not going to be spending what money they still have left on technology.

The second factor is the increasing difficulty to securing credit to fund any new IT projects.

And, finally, there is an understandable reluctance among law firms to be seen spending money on technology projects at a time when they are having to lay off staff – or cancel Christmas parties. (I don’t think this is proof that deep within the booted and suited chests of partners their beat warm human hearts – but rather that they have become a lot more media-savvy and realize this is not good PR.)

It is probably also fair to say that some IT vendors are guilty of having been over-optimistic, and having misread trends earlier this year, in that the orders coming in then were for projects that had already been approved and budgeted for in the previous financial year.

So, is it the end of the legal IT world as we know it? Well I suspect some vendors will go to the wall but the majority will weather it, as they weathered the recession of the late 1980s/early 1990s. More to the point, just as there are people out there who are buying and selling houses – because they have to. So there will continue to be some new business coming in because there are firms out there who must still invest in new technology.

Reasons vary. The need to buy systems to fill emerging needs. The need to replace legacy systems that are no longer capable of delivering the goods –although in some instances it appears the real culprits are actually floundering legacy suppliers. And, more important than ever, the emergence of newer technologies that can help realize cost savings and workplace efficiencies through improvements in business processes.

It may not be sexy technology – but it is necessary technology.