An Empirical Study in the Use of IT by Small and Large Legal Firms in the UK
 

Gurmak Singh
Subject Leader
Wolverhampton Business School
University of Wolverhampton

John O'Donoghue
Deputy Director -
Head of Pedagogic Research
National Research Centre for ICT in Education, Training and Employment
University of Wolverhampton
j.odonoghue@wlv.ac.uk

Karen Broome
Wolverhampton Business School
University of Wolverhampton, UK

Abstract

Recent studies suggest that investment in IT is now causing a divide between small and large firms. This paper reports on the findings of an empirical survey of legal firms in the UK. The findings from this study suggest that the divide between the large and small legal firms is wide. The main reason for this is that the large firms are inevitably able to compete more strategically as they are more able to develop their existing systems because they are in a more favourable position financially. Further investigation indicated that funding was an issue to over a quarter of the small firms surveyed, but the main problem being experienced by the smaller firms was a lack of understanding and although correlation analysis shows that there is a strong relationship between this issue and a lack of IT qualified personnel, this does not appear to be attributable to funding. Whilst, a lower percentage of larger firms felt that cost was not a problem, the lack of understanding of IT opportunities may be related to lack of funding available for training. The main problem however that was experienced by the larger firms was conflicting cultural and traditional views and this had a strong relationship with a staff resistance to technology. Although small firms did not experience these problems, further examination revealed that if the staff increased in the smaller firms, they did have the same problems as the larger firms in this respect.

This is a Refereed article published on 22 March 2002.

Citation: Singh G et al, 'An Empirical Study in the Use of IT by Small and Large Legal Firms in the UK', Refereed article, The Journal of Information, Law and Technology (JILT) 2002 (1), <http://elj.warwick.ac.uk/jilt/02-1/singh.html>.
New citation as at 1/1/04: <http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/2002_1/singh/>.

1. Introduction

Since the early 1990s the competitive environment within the legal profession has resulted in lawyers competing against each other for business with the introduction of fixed costs as opposed to an hourly rate. For this reason clients are now searching for value for money rather than personal service (Gormley, 1997). This is confirmed by Onwusah (1997, p.4):

Consequently, legal practice has now become a volatile industry that can no longer rely on the loyalty of the client alone, but is instead developing into a profession that now offers value added service to the client in the form of lowering charges. Therefore, perhaps not surprisingly, legal practices are now investigating alternative ways to provide a cost efficient service to their clients. One such way that this is being achieved is with the introduction of IT systems (Booth, 1998).

1.1 The Use of IT Within Legal Practices

The legal profession was once very much known to be a predominately manual paper-based industry and heavily dependent upon the physical carriage of information from one party to another (Booth, 1998, Wall, 1998).

The increasing pressure from the client for lower charges: is perhaps the main driver for investment in information technology to automate tasks and thus benefit from better profit margins. Whilst many lawyers may be in a better position to compete with regard to costs, they are now experiencing further demands from powerful corporate and commercial clients who are influencing them with regard to other IT issues such as electronic communication.

1.2 Corporate and Commercial Clients Being a Major Change Driver

The legal profession is experiencing severe pressure from their most affluent clients who generate vast amounts of revenue for the firm to conform to standards that they require. The demands of the clients is has resulted in legal firms to consider two issues; to lower legal fees and to have systems that meet clients' needs. In this context Widdison (2000, p.7) suggests that clients are customising their very own law firm by moulding it to their way of working:

A survey by Wall (1998) found that clients now have high expectations with regard to what can be achieved by IT-driven methods. With these expectations comes the need for electronic communication which is becoming particularly apparent in the dotcom era. Recent evidence (Mickey, 2000), suggests that corporate clients are now quite sophisticated with their demands and expectations of IT systems. Commercial clients are computer literate and keen to communicate with their solicitors electronically, forcing legal firms to make heavy investments in telecommunications.

1.3 The Need for Integration with the Justice System

Lord Woolf's Report (Smith et al, 1998) was aimed at improving the justice system as a whole and a large part of this would be attributable to the introduction of IT and in particular case management systems to fully integrate litigation procedures. This however would, in the main, only affect practices that dealt with civil litigation issues. Saville (1998) reiterates this point by suggesting that Lord Woolf's Report and the Bowman Report on the Court Appeal have driven the UK government to support the use of management systems in the justice system, particularly in the case of civil litigation. Lord Woolf's report provided the lawyers the impetus to introduce case management systems into their business to achieve better efficiency and reduction in costs.

2. The Divide Between Small and Large Firms

According to Waterlow's Directory of Solicitors firms there are presently 12, 990 law firms in the UK, comprising of 7668 small firms (1-4 partners) and 421 large firms (10 or more partners), the remainder being classed as medium-sized firms. A survey undertaken by the PwC professional services firm shows that the gap between the medium to large sized lawyers firms and the smaller firms is widening (Eaglesham, 2000a). This gap is particularly prevalent with regard to profitability (Onwusah, 1997). The current trend appears to be that large firms are making large profits and small firms are having great difficulty keeping afloat. This could eventually result in the inevitable closure of these smaller firms. This is, particularly worrying as the majority of firms within the UK, some 59%, are described as small firms. One of the underlying reasons that Onwusah believes is attributable to this element is the differing IT systems that are in place.

The success of a law firm will no longer be determined by the size or volume of deals that it undertakes, but instead on whether it is technologically able to adapt to the changing business world (Hamilton, 2000). The large companies - being led by the top 30 law firms - are advanced in their understanding of the IT issues (Onwusah, 1997), and are therefore in a position to compete strategically. Whereas research undertaken by the Warwick Business School indicates that smaller firms are experiencing great difficulties in implementing IT. This in turn could be one of the reasons responsible for the legal practice being somewhat slow in the deployment of IT (Onwusah, 1997). Onwusah also reports that this is the view of lawyers shown in a Report undertaken by the Law Society in 1995, with particular relevance being given to those firms that had fully integrated systems and those that did not.

Not surprisingly the larger practices have more resources giving them a better chance to have more advanced systems. Whereas smaller practices have limited resources and are unable to compete in the same way. This is resulting in a 'no win' situation for small law firms who, due to a lack of funding, are unable to develop their systems and are thus unable to compete and increase profitability. Susskind (1996) and Widdison (2000) challenge this perspective by proposing that small firms are in a better position to introduce IT as systems for these firms need not be complex, time consuming or costly as that of large firms. Furthermore, the introduction of IT into the smaller firms will enable them to behave like the major players within the industry.

2.1 The World Wide Web and Electronic Communication

The use of new technologies such as the Internet also shows differences between large and small firms. A survey undertaken by the Society for Computers and Law (SCL) found that electronic communication, in small firms (1-5 partners), over half of them did not use email at all (Underwood, 1999). Whereas, in large firms (over 25 partners), 64% of them used email for both internal and external communications. Similar results were reported by Eaglesham (2000b), where large firms (84%) having online facilities.

The issue is not necessarily how many firms have IT systems, but more importantly whether they are being used to the full potential. Study by PwC professional services firm indicated that this form of medium was not being used to the advantage of lawyers, with only 5% of firms generating any income during the financial year in respect of on-line services (Eaglesham, 2000b). Similarly, Eaglesham (2000a) refers to a survey of the top 1400 lawyers firms. This showed that commercial business was being lost due to technological innovation and in particular the web pages that these firms had were nothing more than 'on-line' brochures. Fully interactive on-line services are rare and the same applies to a virtual legal service.

The Internet is a far more powerful tool than just another way of marketing the firm, or another form of automating the way in which the office is run. Interestingly, Boateng (1996) suggests that the introduction of the Internet will not only automate the office but may also 'automate the lawyer'. For instance, Darby (2000) contends that due to the fact that lawyers are deal-brokers and clients now want their deal brokered on the Internet, there is movement towards virtual deal rooms. Solicitors are reinventing their business through the Internet and with these services being offered by the big corporate players, clients will come to demand these services. This point is evidenced by Eaglesham (2000a) who points to the introduction of Virtual Deal Rooms on the Internet by the City of London firms in response to pressures by clients.

3. Statement of the Problem

Generally it has been reported that the legal profession has proved to be very slow at embracing the information age. However, over the last decade the lawyer's office has changed quite significantly from a manual paper based office to a more computerised practice. One of the main factors underpinning this change is the changing nature of the client from highly loyal to seeking more value added service. This pressure to change is primarily originates from powerful corporate and commercial clients who are pushing the legal profession to communicate electronically with them and this has resulted in lawyers moving another step forward in developing their technology further with the introduction of external communications systems.

Whilst the legal profession had to invest in IT systems to remain competitive, this investment ultimately contributed to the divide between the large and small firms widening, the main factor here being the lack of resources available to the small firms. In turn, this has resulted in small firms finding it increasingly difficult to compete against the larger players, and it is predicted that many of these small firms could eventually face closure. However, it is also argued that if small firms take full advantage of what can be achieved by IT rather than using it purely as a means of automating procedures, but instead using it as a business development tool, they could in fact become more of a threat to the large firms.

Studies suggest that there is a divide between the large and small companies in developing and using IT. This will only be accentuated, as larger firms will inevitably generate extra profits consequently giving them extra resources to develop further. However, funding is an issue that faces any firm when deciding to develop further and these resources are all relative to the size of the firm. In other words, small firms may experience funding problems, but a larger firm would have larger funding problems, but would also face other issues such as complexity. Therefore, although the research undertaken refers to a lack of funding, it does not evaluate what other factors must be attributable in this respect.

The contention by IT developers is that the divide between large and small firms can be overcome by using the WWW to full capacity and like any other industry, it will allow for small practices to become large players. However, in practice this is questionable (Eaglesham, 2000a), although most firms now have web pages very little of them generate any business from them and in real terms they are nothing more than on-line brochures.

3.1 Context of this Study

There are four aims of this study. First there is a need to establish what problems individual firms encounter when considering IT investment. Even though external influences have been partly responsible for these changes now taking place, it is necessary to evaluate whether both large and small firms are experiencing the same change drivers. These areas are of particular concern as it is intended that they will give some indication as to the future of information technology and the legal practice.

Second, whilst investment into IT appears to be attributing to the divide between large and small firms widening, this study investigates what other factors apart from cost are responsible for this divide. With small firms having the ability to compete with the large firms at comparatively low cost, with little disruption and less complications than that would be experienced by the large firms, it means that there must be other areas of concern.

Third, electronic communication and the WWW are revolutionising the way in which business is done and it is argued that it can certainly help any small firm act as a large player. If this is the case, then small firms could become a serious contender within the competition stakes and large players will no longer prove to be such a threat. It is therefore necessary to distinguish whether the large and small firms have different systems in place with regard to these issues and furthermore, what perceptions they have of IT and what they feel they could gain from it.

Finally, it is predicted that with the introduction of the WWW the virtual lawyer is in fact on the horizon. This is an area that is already quite common in other sectors such as retail and banking and it cannot therefore be ignored. With this in mind, evaluation needs to be made to see where lawyers are currently positioned with respect to being able to adapt their current working environment to deal with these eventualities.

3.2 Profile of Respondents

As the size of law firms is of particular relevance in this study, the sample was generated from the Waterlow's directory of Solicitors law firms in the UK at <http://www.connectinglegal.com>, which gave the facility to select certain-sized firms. This sample consisted of 300 firms in total, made up of 150 small firms with 1-4 partners and 150 large firms with over 10 partners. Every effort was taken to ensure that the sample covered a wide area of the UK in order that the figures would not be biased with regard to city practices and rural practices. A survey questionnaire was developed and forwarded to all 300 firms. A favourable response of 97 firms was encountered, which equates to a 32% success rate (42 small firms (28%) and 55 large firms (37%). Although steps were taken to ensure that a biased response was not received, it still resulted in a fragmented response from all over the UK. The majority of responses from large firms came from the South East of England. This was probably due to the fact that the larger firms are (inevitably) based around the City of London.

3.3 Research Design

The questionnaire surveys were forwarded to all participants with an accompanying letter and prepaid envelope. Liaison was made with the Science Park in Wolverhampton and it was agreed that their address could be used on the return label as it was felt that this would assist in enabling a more favourable response rate. A period of four weeks was allowed for response to the questionnaires before analysis was undertaken.

3.4 Questionnaire Design

The survey questionnaire was divided into four different areas:

3.5 Data Analysis

Once all the figures had been collected quantitative analysis was undertaken with the aid of SPSS version 10.0 software. Although this study is considering various issues, in the main these findings will concentrate on establishing the differing views of large and small firms. Due to the fact that the variables are of an ordinal nature, rank correlation using Spearman's rho has been applied. This particular method has been chosen as it is the most widely practised within research findings with variables that are of an ordinal nature and as such is easy to understand (Bryman and Cramer, 1999). The analysis concentrates on four main areas of concern: the limiting factors attributing to the slow development of IT systems within the legal profession; the identification of difference change drivers influencing both large and small firms; identification of the benefits that large and small firms believe that they can gain from IT and the impact that IT is having on the traditional lawyer's practice.

3.6 The Limiting Factors that are Attributing to the Slow Development of IT Systems Within the Legal Profession?

Although the slow development of IT systems within the legal profession is being associated with the client loyalty they once benefited from, the analysis undertaken has raised awareness in other areas. Essentially, funding is probably one of the first factors that any organisation has to consider when investing in IT and the legal profession is no exception. This is more a problem for the small firms and the analysis confirms this point with 27% of small firms believing that funding was a major obstacle. However, this figure is only 6% more than the larger firms. Instead, 38% of small firms perceived that a lack of understanding was far more prominent to them compared to only 25% of large firms. Consequently, correlation analysis was undertaken to establish whether this lack of understanding was contributory to a lack of funding, especially since a third of small firms surveyed said that their IT systems were maintained on an ad-hoc basis.

Table 1 shows that there is a strong positive relationship between lack of understanding and lack of IT-qualified personnel. Surprisingly, there was no relationship with lack of funding in this respect.

Table 1: Analysis of data

In contrast, although 6% fewer large firms experienced funding problems than their smaller counterparts, there is a moderate positive relationship between lack of funding and lack of understanding.

Another issue that has been recognised from the analysis is that 25% of large firms surveyed stated that they were experiencing difficulties with regard to conflicting cultural and traditional views as opposed to only 15% of smaller firms facing this problem. It could be argued that this would probably be the situation because the larger firms employ more staff, thus resulting in more problems. Furthermore, there is a low positive relationship between the number of partners and fee earners employed and 'conflicting cultural and traditional views'. This indicates that as the number of partners or fee earners increases, more cultural and traditional problems arise.

Analysis undertaken on small firms that there is a strong positive relationship between these two points which would confirm this point. Therefore, although this was less of a problem to the smaller firms, this analysis confirms these parameters could change as staff increases.

It was initially assumed that large and small firms may not have experienced the same change drivers with regard to IT and that in fact research may have been biased by looking at the top 30 lawyers firms. Table 2 presents the percentage of participant's responses for each of the six change drivers confirms that corporate clients are in fact the main change driver experienced by both sized firms. An overwhelming 94% of large firms believe this is their main change driver, compared to only 66% of small firms. The six change drivers that are referred to in Table 2 can be split into two groups, those that are perceived as being client driven and those that are perceived as being regulatory driven. This shows that whilst over half of the small firms were being driven by all client areas, the large firms did not seem to rate Legal Aid Board clients with the same sort of importance. It is argued that this could be due to the fact that they are the least lucrative in terms of fees. With regard to regulatory driven factors, a third of large firms felt that Lord Woolf's Report contributed to changes compared to only 16% of small firms. Almost certainly, in the main these figures indicate that both large and small firms put the client before regulatory issues.

¹ Client driven changes
² Regulatory driven changes

Table 2: Drivers Forcing Change with Respect to IT in the Legal Profession

3.7 Perceived Benefits of IT Systems by Large and Small Firms

One of the major differences that became apparent between the large and small firms from the questionnaires received was with regard to internal and external communications. For instance, although 100% of large firms had both internal and external email facilities already in place, only 91% of small firms had external email facilities and a mere 68% had internal email. Interestingly, 14% of small firms felt that they would never have this tool in the future. Two of the main reasons that a firm would have internal email is to communicate internally and share information with colleagues. Large firms do not place the same importance on communication.

Perhaps it could be argued that a small firm may not need to share information or communicate electronically with colleagues in the same way as the large firms as employees may all be close in proximity. Therefore, correlation analysis was undertaken on small firms to establish whether these priorities would change should the number of employees increase. Analysis of the data indicates that there is a moderate positive relationship between the number of fee earners employed and 'providing better communication internally'. Similarly with regard to the number of support staff and providing better communication internally, there is a moderate positive relationship . There are number of fee earners and support staff increases, the need for internal communications becomes more of a priority to the firm. A low positive relationship is apparent which would again indicate that it would become more of a priority to share information should the number of fee earners increase.

The WWW is playing a large part in the way in which business is done in general and there is speculation that certain continuing aspects of legal transactions will be replaced or modified.

The Civil Justice IT Strategy Development Group's new consultation paper civil.justice - resolving and avoiding disputes in the information age summarises the English civil justice system as an outdated circus involving large numbers of judges, court officials, lawyers and litigants wasting time and money adhering to procedural rituals that have long since ceased to make sense or have any practical relevance.

The paper's proposed IT-oriented remedies, which include the replacement of paper-based procedures with multimedia electronic files, greater use of courtroom automation and litigation support technologies, the introduction of case scheduling and management systems and the use of video conferences and online forums to create 'virtual hearings', also cannot be faulted, not least because many of the technologies mentioned are already in use in the offices of both law firms and their clients. The extension of such systems will only lead to enhancement of the legal delivery process and procedures.

With respect to this, assessment was needed to see what position lawyers currently stand with regard to on-line advice facilities. This showed that some 29% of large firms already had this facility in place, with 12% saying that they never planned to have it in place. On the other hand, only 14% of small firms already were offering this facility, with an outstanding 41% saying that they never planned to have this aspect.

There appear to be significant differences with regard to the views of small and large firms in this respect. Correlation analysis was again undertaken to distinguish whether these parameters would change as the number of partners or fee earners changes.

No correlation was found with the number of partners but there is a moderate negative relationship in respect of fee earners. This would indicate that the more fee earners that are employed, the less likely that firms would agree that clients will always require face to face contact.

4. Conclusion

The findings support the view of Susskind (1996) that large firms have financial leverage to develop their it systems to gain strategic advantage. Although lawyers have been slow to embrace the information age, they are now moving forward with regard to IT systems and it is suggested that this is because they are being forced to do so by many external factors, predominantly corporate clients. This argument was supported by the survey undertaken, even though it was suspected that large and small firms may experience different change drivers. However, it did also reveal that whilst over half of the small firms surveyed felt that they were being forced to change by all types of client, from the most lucrative ones to the least lucrative, the large firms did not rate legal aid clients with the same importance. This does not, however, necessarily mean that the small firms are more conscientious when considering clients, but moreover that they may not be able to be so particular with their client base and do, in fact, have to rely on all business areas in order that they can remain afloat. Further study needs to be undertaken to get a more thorough picture in this regard.

As funding does not appear to be the main reason that small firms do not have the same powerful systems as the larger firms, further study was done to try and evaluate if small and large firms had the same strategies with regards to what benefits their firms could gain from IT systems. The main difference that was apparent in this regard was with respect to internal communications. For instance, this was of great importance to the large firms and all those surveyed had this facility in place. However, this was not a major priority to the smaller firms with some saying that they never had any plans for this facility in the future and this could be due to there being no need as the firm may be considered as being too small. Further investigation confirmed this point by showing that as the number of employees increased within the small firms, internal communications and sharing information did in fact become more of a priority, so in real terms, it could be argued that the views would be the same as the larger firms.

Finally, with regard to the WWW and whether the virtual office will ever replace the traditional lawyers practice, firms are not particularly well placed at present in this regard and it is very much a long-term goal. Although it could prove an ideal situation for the smaller firms in that they could benefit from additional clients with little resources being required, they are very much against the idea and believe that clients will always require face-to-face contact. However, again, as employees increased within the small firms, the less they felt that clients would want this personal contact.

Although this study has confirmed that funding is a problem for small firms, it has shown that the large firms clearly have similar problems in this respect and that this cannot therefore be the sole reason that the gap exists between small and large firms. More importantly, it is more likely that a lack of understanding on the part of the small firms is the major factor for this divide.

This study has only touched on the issues with regard to internal and external communications within a firm and it would undoubtedly benefit from a more in depth case study or follow up interviews that could answer more complex questions. Additionally, a further study to establish the full extent to which IT systems are apparent within a law firm with regard to integration would be useful.

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