Saturday, June 29, 2002

Technology gap between large and small firms grows

The technology gap between small and large law firms continues to grow.

 25-99 Lawyers501+ Lawyers
Percent of Equity Partners to Lawyers49%28%
Number of Users to IT Staff53:129:1
Percent of Revenue for IT Capital Expense1%2.2%
Percent of Revenue for IT Operating Expense2%5%

This is just one of the many insights imparted by Hildebrandt’s Third Annual Process & Technology Survey. The survey covers technology costs, staffing and how effectively technology is being used in law firms. … To purchase the survey and receive your trial subscription to X-Spot, contact Jan E. Reddington at [Hildebrandt Headlines]

I subscribe to Hildebrandt Headlines, and each week I hear about a merger I didn’t know about, who moved where, or tidbits like those above. It’s free – if you’re interested in this kind of thing, it’s a great resource.

Here’s a more interesting statistic: according to Meta Group, IT spending as a percentage of revenue for the Fortune 1000 was 10% (FY 2000). In other words, the Fortune 1000 is investing in technology far heavier than the largest law firms are. One could argue that this investment is a result of increased complexity – the larger the firm, the harder the problems and consequently the more expensive the software.

I think that’s a cop-out. The larger a firm gets, the more likely it is to be strategically run. And the more strategic an organization, the more likely they are to see IT as a critical component of their strategy. So where are the law firms spending 10% of revenues on IT? (I’m not aware of any today. But if they’re out there, please tell me!)

Try this on for size: what the largest law firms would spend on IT if they were a Fortune 1000 company (source data from AmLaw 100 survey, July 2001):

  • Skadden Arps: $110 million

  • Baker & McKenzie: $94 million

  • Jones Day: $67.5 million

  • Latham & Watkins: $64 million

  • Shearman & Sterling: $59 million

  • Mayer Brown: $53 million

  • Davis Polk: $52.5 million

  • Sullivan & Cromwell: $51.6 million

  • Morgan Lewis: $51.5 million

  • Weil Gotschal: $50.5 million

Cumulatively, that’s $653.6 million to spend. Across just 10 firms. Take it to the top 50 and you’re well over $1 billion.Now that kind of dough isn’t being thrown around in the legal market today. Not by a long shot. But give it a few years, and suddenly it starts to look awfully attractive.

And a final note: if you’re a small firm, how can you possibly hope to compete with the bigger guys if they’re outspending you in critical infrastructure areas (not in real dollars, but as a percentage of revenue)?

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