Survival Strategy in the IT Age

November 1, 2000

The history of the application of the technology to problems hasonly one lesson to teach: apply technology to a process and the product pricefalls. Don’t believe me? Think about the car industry, travel, electronics,clothing … you name it. Improvedefficiencies in a process through improved technology hands lower prices to theconsumer and the Internet will accelerate this process.

I have heard on many occasions the view espoused that ‘byinvesting in this or that IT we’ll make an extra profit of xx’. The onlyproblem is that these profits don’t seem to be made. This isn’t reallysurprising. Do you think that your competitors will lie back and allow you toachieve a significant competitive advantage? Fat chance! They’ll match you allthe way and the price mechanism will force the selling price down. You don’tbuy IT to win, but to survive. This article will help you be a survivor, not acasualty.

Now IT hardware and software costs themselves have fallenradically and the impending developments in high-speed data transfer willaccelerate the decrease in the price your customer/client is prepared to pay. Iftoday’s price for a confidentiality agreement over the Internet is under £20(and it is – see,for how long will you be able to charge significantly more? Certainly not tenyears, as the buyers of such agreements then will be the now technologicallyadept under 40s. This hard fact should be top of the agenda at every strategymeeting – its implications are absolutely fundamental for practisingprofessional firms, affecting everything from the way and place you do businessto partnership governance and finance. This raises two short-term big issues askeys to your success.

Skills, and Finding Them

The first is to ensure you have the appropriate skill basewithin your practice. The key word here is ‘appropriate’. Many firms havelooked at their IT investment as somehow divorced from their overall strategyand, in particular, in terms of cost cutting. Typically, these firms boast ofhaving high fee-earner to support staff ratios. It would be unkind to suggestthat this approach is without merit but it seems to me short-sighted. Thealternative is to use the technology in a different way, to allow the fee-earnerto use more of his/her time applying their talents to client matters anddelegating simpler tasks to subordinates. In practice this will mean thatcurrent support staff will need to receive appropriate training in theproduction of basic legal documentation and (probably) client contact andmanagement skills and the ‘fee earners’ will need to learn supervisory,management and time management skills: They will have to know how to manage aproductive process carried out by others.

In my own experience, the firms that follow this approachrapidly become more profitable than those who follow the first. The reasons areobvious. The first approach allows (only) a cost saving. Elimination of asecretary will reduce a fee earner’s cost base by (say) £15,000 per annum butimposes much higher training costs (and probably lost chargeable time) for feeearners. The alternative method may free up a hundred or so hours net ofmanagement time (say £10,000) and also enable the secretary to charge 500 hoursat £20 per hour ( also £10,000) – a better economic result, leaving asidethe profoundly better effect it has on morale and other areas. The only area inwhich this analysis does not hold is if you are very big or very small(‘virtual office’ or ‘home office’) but that is another story. The mainproblem with this approach is that the necessary skills need to be learned andpractised – they are not inborn – and the problem is that they are hard tofind. Find them. IT skills are easy. There are many good, interactive CD-ROMs.Rather than spend £300 per day on training, buy all your staff an old 486 pcfor £150, send them home with it and a £10 CD-ROM and they’ll trainthemselves. Yes they will. They know 20-year-olds already have these skills. Theknowledge base within the practice will explode and a beneficial side-effectwill be a lessening of the stranglehold many firms’ IT departments hold overthe firm.

Management skills are harder to find. They have nottraditionally been taught to professionals in practice (who previously didn’tneed them) and the larger training organisations in the training market makeonly a token effort. In general, the offerings from academic institutions arelong on theory and short on hands-on practicality. I would suggest somethingmore radical. Get management training from a supplier to industry or the retailtrades. In particular, if you decide an MBA is the way forward, do a general MBA,not one designed for your industry. You will receive training from people inindustries with a much deeper ‘management culture’ and, in addition, youwill learn to view situations from the clients’ point of view (invaluable) andwill mix with potential clients rather than competitors. Your pay back on yourinvestment should be much faster.

IT Strategy is Strategic

The second big issue is to ensure that the IT strategy is partof the overall strategy so that the most effective IT strategy is adopted. Thereal nub of the problem here is that the people who actually decide strategy inprofessional firms are generally neither experienced strategists nor terriblyIT-literate. The result tends to be an application of IT either on a ‘becauseit’s there’ basis or driven by IT ‘boffins’. In the former case an ITsolution is adopted because it was available, affordable and well sold!Presumably the theory here is that IT must be more efficient because it is IT!In the latter case IT solutions are adopted because the ‘techies’ like it,notwithstanding the lack of contribution to the business process. I have seenboth of these happen several times and believe it is why there is a commonmisconception that IT investment never pays!

At heart, both of these approaches are avoidable if one adopts amore rigorous approach to analysing the business. Firstly, one must concentrateon where you are trying to go (‘Strategy’). Having decided that, look at theactual business processes you carry out. For example:

  • Where are the biggest inefficiencies?

  • What information has most value to the business?

  • What information costs the most to retrieve?

  • Where is the most time wasted?

  • How can clients be acquired/retained less expensively?

  • Where are the opportunities for more sales?

  • Where are the profits and losses really made?

With regard to this last point, it is very unlikely indeed thatyour accounting system actually tells you this – but that is another storytoo. Once you isolate those areas where the biggest improvements can be made, goback to the IT people specifying the required improvements and the maximum cost(tip – tell them 30% less than the real figure – IT projects always overrun)based on a cost-benefit analysis, then let them come up with their answer. Workfrom the biggest potential gains down. The question in IT investment should be‘is this the best investment we can make?’ Doing this is an essential partof the ‘how we’re going to get there’ part of strategy formation.

To make IT investments pay is hard. Many of the supposedbenefits (eg ‘better internal communication’) may be of nebulous value. Muchof the expense (depreciation and training costs especially) is often woefullyunderestimated. Our research suggests that the ‘real’ cost in year one of anIT investment is normally in the region of 80% of the capital cost in the firstyear, once these factors, lost productive time and financing costs are takeninto account. The moral of the story is that if you don’t make more than theinvestment costs in the first year, it may not be a good investment to make.

Reducing Software Costs

There are two main ways you can reduce these costs. Firstly,rather than build something from scratch, buy built software that works. A goodexample of this that I see frequently is firms having client managementdatabases built in MS Access – typically at a cost in the low to mid thousandsof pounds. There’s nothing wrong with Access, but with excellent, functional,easy-to-use packages such as Maximiser, Act! or Tracker available off the shelfat most office supply superstores and software dealers (for just a couple ofhundred pounds) why waste the time and money?

The other good idea is to avoid, whenever possible, packageswith very small user bases or written in ‘odd’ code. Common software willnot disappear, it is in fact being constantly developed and improved – and ifyou have a particular problem, a posting to a newsgroup on the Internet willprobably bring a fast, free answer. Lose an operator and you will find anotherone quickly, with low or nil training costs. (This is why Sage is such a goodbuy. As software it is not a world beater but, with 200,000 users …).You also won’t be dependent on the whims of your supplier for systemimprovements and support pricing. Why spend fifty grand on a system with a userbase of 200 (therefore all development costs borne by only 200 users) when youcan spend two grand on a system with ten thousand users and do your ‘fancybits’ with links into Excel or Lotus? Lastly, when buying systems with a heavyprocessing element do check to see how long activities actually take to perform.Among solicitors’ accounting systems, for example, some take more than twiceas long as others to post a purchase invoice. If you have a lot of purchaseinvoices (yes, you do!) this can mean having an unnecessarily highadministration cost for the firm. Success in competitive industries is built onsimple blocks.

Herein lies the good news for us over 40s! You do not have to bea nerd to participate in and benefit from the IT revolution. Put by two hours aweek for a year to learn, and you’ll crack it, especially if you augment thiswith a little reading – the For Dummies books are very good. It is likedriving a car to get from A to B – you need to know how to start it, how todrive it without crashing it and where you are going – not how it works. Leavethe heavy technical stuff to those who are interested. Concentrate on the jobyou are trying to get done by the IT investment. Concentrate on the costs andbenefits.

There is more hyperbole and general nonsense talked about IT(and the Internet especially) than anything else I can think of – don’t getsucked in. Don’t let your business sense be suspended: those that do willsurely fail.

One tip for assessing software is to get someone moderately ITliterate, but who understands the job it is meant to do, to ‘test drive’ itwithout the manual. If they can pick it up quickly from what they see on thescreen, great. If not, consider looking elsewhere. The best software isintuitive to use and training costs are low: I am a committed ‘non-techie’,but if I have to look at the manual to get a feel for the software, I won’tbuy it. This test is worth far more than any number of demonstrations at whichyou will be shown all of a product’s strengths and none of its weaknesses. Allof the packages I mentioned earlier can be used straight out of the box byanyone moderately IT literate (our 13-year-old daughter happily builds databasesin Act! and cannot write a line of code).

Joe Reevy MSc FCA MAE is Managing Director ofbestpracticeonline Limited. ( consultancy and training consortium dedicated to the application of betterbusiness practice in professional firms. He also works in legal practice andedits LawZone, a free, legal newswire ( can be contacted on: Tel: 01392 423607 Fax: 01392 214495