Make money out of IT

Some simple but essential rules to follow to ensure that investment in management information systems is not money wasted

The Journal, March 2004, page 38

Information technology is not an area that should be wasting your money. It should be making you money. But in law firms this goes wrong with depressing regularity, and typically with the same pattern.

Start with the killer question: do you really need a new system? A classic pitfall of IT purchases is unnecessary expenditure on state-of-the-art systems. Make certain that the old one cannot simply be used more intelligently, and the data inputted and extracted more cleverly. If you are not thinking sensibly about your IT needs, and why your IT is not delivering the value it might, you will spend money on a shiny new system that is beset by all the old problems, merely spinning them around faster. The key is not what you buy – it’s why you are buying it, and how you use it. Before committing to purchase, draw up a list of precisely what has gone wrong that is eminently fixable, and what really does require a new system.

Secondly, buy only the functionality you need. Have you ever let an architect friend run amok in your house? Fabulous state-of-the-art constructions, that you don’t need? The same applies to information systems. Think about what you really want the system to deliver. Resist the temptation for all those bells, whistles and customisations. It generally costs a fortune to customise – and if your people do not understand what the fancy gadgetry does, your money will again be largely wasted.

Thirdly, think about how the system is going to help you make money. What you need is a management information system – simply, a database – that delivers commercial value by allowing you to access the knowledge trapped within the firm, and by letting you focus your sales, customer service and marketing activities. And this is a key start point. The purpose of good management information is to tell you what to do to operate more profitably.

It starts with listening

It does this by letting you understand your client base. This means that you, and your staff, will need to listen – really listen – to your clients, note down the relevant information about their plans, preferences and activities, and then make intelligent use of this in the way you treat those clients. It is a theory that is as old as selling, and as effective as friendship. You may be doing much of this already, but informally and without much scrutiny of your people’s methods for gathering and holding information. You need to become much more professional here. Knowledge management problems tend to proliferate in the larger firms, but even smaller firms can have real difficulty in getting client and technical knowledge into a central storage system that allows the whole firm to reap the benefit. If you cannot persuade your senior practitioners to use the central IT system, you will never be more than the sum of your scattered parts.

The most commercially important technology needs to be able to handle simple data fields. That could well mean an Excel spreadsheet – or in bigger databases, Microsoft Access with some simple amends to suit your purposes. This is generally the simplest part of the process, not the most difficult – the reason being that most of the faults, mistakes and wasted time are to do (predictably) with how the system is used, and what data is put into it. From that point onwards, the role of the technology is to hold all this information in one place, enable you to look it up easily, cut it into different sections if that is what you need, and use it to build a simple contact programme to make timely, relevant contact with your more important clients.

Using data, looking for profit

A few simple tips for assembling effective client data. First, make sure that your client-facing people find out what the client likes, wants, needs – and does not want. Then load this into the system – and tell the client that you would like to bring their details up to date accordingly. Consider the patterns that emerge: which types of client are saying which sort of thing? What attracted them to your firm? Who is expanding their business activities – and is therefore in need of different kinds of support, based on what they have already told you about themselves? These clever but simple inferences are at the heart of effective data-and-selling. Finally, use the information properly. The most invaluable insights about clients can be destroyed by a clunky, ill-prepared sales pitch. Try to surprise clients with how carefully you have examined their data, and how much effort you have put into understanding their business. Their expectations are generally low: take advantage. Simple technology, and simple sales practices – but done with real care and subtlety. And simple savings from your IT budget.

All this is a start, but you will not function as a really efficient profit-maker unless you focus your efforts on the activities that will be consistently profitable for your firm. This means hard facts, and this is where law firms are bafflingly short of detail as regards their own activities. There is often not nearly enough information about the actual profitability of client work, and not enough use of profit data in deciding what activities the firm is going to become involved in, or the degree of investment that would be appropriate. It is vital that you know what is profitable and what is not.

Your simple database will tell you where to focus your activities. This is not simply an in-house accounting package – that only gives you bottom-line numbers, without telling you why the numbers are as they are. The software itself is not the key factor; as mentioned, any basic system that allows multiple entries and an element of analytical examination will suffice.

First, you must be able to determine the profitability of your client work. If this means that you need to get tougher on timesheet management as well, then do it: unless you know the cost per hour of each employee, you cannot possibly work out whether any given exercise actually makes you money. Secondly, you need a single data view of each client: all the separate activities you are working on, linked together, including the profitability of each.

You can now rank your own clients by profitability – which is guaranteed to produce a different view from your intuitive ranking by billings. What it will show, if your firm is similar to nearly all businesses, is that 80% of your profit will be coming from 20% of your work – and, just as importantly, 80% of your work is producing only 20% of your profit. You also need to be able to examine your client business for trends: sectors where you are growing (or not); clients whose business is growing (or not); particular jobs which are increasing in sale levels or profitability – or not. Finally, use this information to determine where you are going to focus, and what you are going to do differently. The answer will be right in front of you.

Ultimately, it is a people issue. No matter how good your data system, it is in the hands of your staff. And if they cannot input the right data, and do it correctly, you are back to burning money again. Sloppiness with data simply must not be tolerated. When data needs to be added into the system, it must be done, done straightaway, and done correctly first time. If not, it is a disciplinary issue. People need to know that data is vital, and that it is a mandatory part of their daily work. It is people that wreck IT investments, not systems. IT systems are very threatening: they may be impenetrable, or likely to reveal information that threatens individual staff members, or require people’s working practices to change. If views are not sought and listened to, if training is not comprehensive (and as much fun as possible), and if the IT is not positioned as a positive benefit in your firm’s working life, the system will expire quietly.

The client-facing person has the ability to terminate your IT investment simply through poor engagement with it. This is why the selection of IT, the populating of robust databases, and the production of valuable reports, is only half of the journey, and the expensive half to boot. The other half – the mobilisation of your data – is the one where you make money. IT installations are all about return on investment. If you are not tough on the way they are used, you will join the line of firms that have wasted their money.

Mungo Dunnett has worked in numerous business sectors, and now runs Mungo Dunnett Associates, a specialist consultancy for professional service firms. e: mungo@md-as.com