Is the era of ERP for law firms finally here? Absolutely, says Martin Telfer, EMEA chief of Fulcrum Global Technologies, and here are the trends in the legal industry and wider corporate world that drive that conclusion.
Clients continue to globalise and merge at a rapid pace. Microsoft/LinkedIn, St Jude/Abbott, Bayer/Monsanto?, Heinz/Kraft, AT&T/Time Warner, Amazon/Whole Foods… the list goes on and on and shows no signs of abating. These new entities will inevitably consolidate their suppliers, and will be seeking to reduce the number of law firms they use to drive costs down, while seeking global coverage aligned with their own footprint.
The natural response to client globalisation is, of course, law firm mergers. Get big or get niche has never been more appropriate, and surely we are now seeing the legal industry following in the path of the accountants, who are, increasingly and perhaps worryingly, competitors (more on this later). Just recently we have seen an unprecedented (?) four-way law firm merger – CMS/Nabarro/Olswang, and Hunton and Williams. This will create a “new” 300 partner/£1.35bn international law firm. Law firms of this scale need systems that can support them globally and cover the wide range of jurisdictions in which they operate using a single instance/database to ensure timely, flexible billing and reporting.
Legal Services falling under “Procurement”
This is not a new issue for many firms, but increasingly the use of legal services by organizations is falling under their standard procurement processes. This means that law firms are part of a tender process – which is so much more than the old “beauty parades” in front of the GC – to gain or retain a share of the new, larger, legal spend “wallet”. Larger organizations require more resources, in more locations, with more flexibility, and at a lower cost. These factors are mostly good news IF the law firm can deliver everything the new clients want – including flexible billing in whichever location the organization might want to optimise, for instance, it’s taxes. The game is on!
Buyers’ market – CLOC
Clients are calling the shots. The Corporate Legal Operations Consortium (CLOC) is a rapidly growing group of “COOs” who run ever-larger in house legal departments and are working together to get better value from their law firms. Rates are under pressure, volume discounts are everywhere (even if they don’t make sense in a “labor” market), AFAs abound and secondments, a huge opportunity cost for law firms, are on the rise. This puts firms under pressure on profitability, because costs are still rising. Visibility into the business is now more critical than ever for law firms, and quality analytics are a hallmark of ERP solutions.
Clients are driving new pricing arrangements and demanding ever more detailed, accurate, and real-time reporting on matters. The former can put stress on the firm’s systems if solutions have to be bolted on instead of being part of the core capabilities, and the latter can result in the need for third party systems, with all the attendant interfacing issues. For ERP, this is bread and butter functionality – after all, they routinely deal with complex retail organizations and real-time supply chain issues.
Increasingly, firms are under pressure from clients, especially in financial services, to comply with ever more onerous information security requirements. Many of these focus on infrastructure, and firms are looking to outside providers to help deal with these issues in a hosted, or cloud environment. Recent successes from NetDocuments, as well as the Tikit partnership, are indicators of this trend. While there will always be concerns over client confidentiality, in most cases a reputable cloud environment is likely to be more secure, and more up to date, than a comparable on-premise law firm environment. ERP is mature in the cloud, offering capable and comprehensive solutions.
In its infancy, perhaps, but as law firms are run more and more like businesses, big data may provide some insights into better ways to drive all-important client service and profitability. Could big data help with better Pricing? Better resource allocation? Surely it can, and that means having access to all relevant data quickly and easily, and having the power to run real-time, complex analyses. ERP is very comfortable in this area, with an established in-memory database at its core.
As approaches like Lean Six Sigma start to be used by law firms, we can see the increasing importance of processes. Unlike transaction based systems, ERP is process based, and those processes are based on best practices from decades of experience across many industries. Install ERP and there is no need to worry about Accounts Payable, Procurement, or Bank Statement Reconciliation. Just go ahead and benefit from those best practices. They work well.
Replacing a PMS is a big deal. It costs money, it takes time, and it requires change. ERP vendors invest millions, sometimes billions, in providing a smooth upgrade path to their new versions. And, of course, they have been around for a long time, and you can expect them to be around for the foreseeable future. It’s what they do – not a sideline, or bolt-on from an acquisition.
While many law firms are concerned about competitors – mostly other law firms or “startup” providers – perhaps the real threat will come from the Big 4. They all have invested heavily in processes and technology and are well positioned to take a significant part of the legal services market. And guess what? They all run their businesses on ERP.
It’s time for law firms to operate more like other businesses. It’s time for ERP.
Martin is SVP and EMEA Chief of management consulting and software company Fulcrum GT, provider of an enterprise practice management system built on SAP HANA. He was previously global director, financial systems at Baker & McKenzie.