White paper

Changing the mid-sized law firm’s leadership mindset to accelerate cloud adoption

Five years ago, if you asked mid-sized law firm leaders to discuss emerging legal technologies, many would say their firm would not now—or in the future—buy any cloud-based legal solutions. They would have voiced concerns of potential security risks and the perceived cost of transitioning to the cloud.

Fast forward to today and many of these same firms have changed course, migrating their IT to the cloud. Several factors caused this shift in mindset:

  • The types of innovative cloud software applications that only exist in the cloud
  • The large cloud providers spending more than $1B respectively on cybersecurity
  • The desire for mid-sized firms to modernize their IT platforms to resemble those of larger firms
  • Client pressure to move to the cloud for more transparent and collaborative legal service delivery

To do their jobs, lawyers and financial professionals working remotely need more than web conferences and email. They need access to matter plans, online financial reports, and data analytics. They need the ability to answer client questions, such as:

  • “What is the status on the matter?”
  • “What are the next tasks?”
  • “Where are we on budget-to-actuals?”
  • “What is the work-in-progress (WIP) amount?”

What’s more, modern lawyers need this information at their fingertips, and not only while at their desks. Be it client demands, work-life balance, or a global pandemic, legal professionals at mid-size law firms require remote access to their office tools and data regardless of their physical location. These needs aren’t merely evolutionary or cultural. They represent a business opportunity for law firms.

During the 2008 recession, many corporate law departments were under directives to save up to 10% of the law department budget. Some corporate law departments, through discount requests, cut legal fees with their major law firms or reduced/delayed payment. This was a short-term solution. 

Other corporate law departments sought a long-term fix, directing new work towards mid-sized firms that had more attractive rates and modernized legal IT solutions to efficiently deliver legal services.  They sought firms that delivered legal services in a more efficient manner through legal project management, budget-to-actuals management, and use of enabling legal technology.

Corporate law departments were looking for mid-sized firms proficient in both the practice and business of law. Now is the time for mid-sized firms to maintain that momentum and continue to accelerate their progress towards cloud solutions. Doing so will help them acquire a distinct advantage over their mid-sized peers, and some large law firms as well.

Understanding cloud-based technology

Before identifying some of the benefits of cloud-based technologies and how they’re used among mid-size law firms, it’s important to understand some fundamental definitions. Successfully articulating these terms, their applications, and their advantages is often necessary to shift the leadership mindset toward cloud software. 

Cloud definitions

Cloud computing – Cloud computing refers to accessing data and software programs over the web instead of through a firm’s internally hosted hardware systems or personal computers. Putting data in the cloud means hosting it on servers that are connected to the internet. With a working internet connection and the proper security credentials, users gain remote access to cloud software applications and data from anywhere, including (for example) outside of a law firm’s offices.

Cloud computing isn’t limited to storing individual files. There is a full menu of IT resources that can be managed and enhanced by cloud technology, including computing, data storage, operating system and application software, backup/recovery, and high-availability services. Current cloud computing models are designed to share resources with the objectives of achieving operational and software coherence as well as cost management through economies of scale.

The technological infrastructure and investment needed to support a cloud computing environment can be significant. Many small businesses and enterprise-scale corporations rely on the four leading providers: Amazon Web Services (AWS), Microsoft Azure, Google Cloud, and IBM Cloud to supply that infrastructure.

Public cloud – Cloud providers serve a vast swath of businesses. Amazon’s AWS, for example, owns ⅓ of the global cloud market. These cloud environments are public, in that many different businesses use the infrastructure and the environments are connected to the public internet. The data itself is kept separate and secure. The shared cloud computing infrastructure can be accessed by anyone with permissions.   

Private cloud – When a business uses a private cloud, the technology infrastructure is not shared publicly as it is held by a single party. Private clouds can be hosted by consumers or businesses on site or in data centers owned by third-party service providers.

On premises  In contrast to the cloud, on-premises represents IT infrastructure that is hosted and managed locally. Law firms that have and maintain their own servers and data which can only be accessed via local network are using on-premises systems. On-premises systems existed before the internet and the cloud were invented and are defined by their lack of remote accessibility.

Hybrid cloud – A hybrid cloud is an infrastructure that includes links between a private and public cloud. Although the public and private portions of the hybrid cloud appear as a single environment to users, the component entities remain separate and distinct. Some firms maintain their on-premises systems for certain core functions (accounting and financial systems, for example) and have modular software-as-a-service solutions with those same applications (like web-based time capture) in the cloud.

Software as a service (SaaS) – Law firms utilize SaaS solutions when they subscribe to or rent software, a service, for a monthly or annual fee. The software runs on a cloud network and is delivered over the web. Third-party companies with SaaS solutions host their data in the cloud and maintain its performance, security, and regular updates. A common example of SaaS is Microsoft Office365.

Single-tenant SaaS  A single-tenant SaaS is a single instance of software and supporting infrastructure serving just one customer. With single tenancy, each firm has its own independent database and instance of the software.

Multi-tenancy SaaS – A public cloud is considered multi-tenancy when multiple firms use it and each firm’s data is secure, private, and housed separately. Most firms utilize a public cloud that is a multi-tenancy SaaS. The benefits of a multi-tenant SaaS solution include:

  • Lower cost compared to single tenancy
  • Easier and more standardized installation
  • Standardized upgrade schedules
  • Configurations instead of customizations
  • Inherited, best-in-class cybersecurity

Infrastructure as a service (IaaS) – In the IaaS model, third-party service providers host hardware equipment, operating systems and other software, servers, storage systems, and various other IT components for customers in a highly automated delivery model. IaaS providers may handle tasks such as ongoing systems maintenance, data backup, and business continuity.

Mid-sized law firms’ cloud migration

Mid-sized firms are transitioning to the cloud, but not necessarily swiftly or all at once. Many firms adopt an agile, modular approach, primarily due to budget and resource constraints. A slow move allows them to control costs while balancing the process against the firm’s overall appetite for change, and a menu that may or may not reflect their needs.

Law firms with existing on-premises solutions often have a significant amount of time, money, and training invested into a customized system. Those customizations can be hard to part with, especially for firms who cannot find a “perfect fit” replacement.

For those firms that have moved ahead, many began by subscribing to a human resource management system or contract management solution. Some firms wanted to eliminate tedious manual paper processes, have tighter security, or were motivated by a client’s request. These third-party hosted subscription solutions were attractive because of their added security, instant accessibility, and automation of routine, manual processes.

This also led some mid-sized firms to explore other business-critical systems and, at the same time, manual processes or workflows that could be moved to the cloud. For instance, many firms adopted SaaS solutions that automated select financial processes and practice management solutions.

What varies amongst mid-sized firms is the speed towards cloud migration. While some mid-sized firms are faster on the cloud-adoption continuum, law firms of all sizes are solidly embracing the cloud.

The International Legal Technology Association (ILTA) 2019 Technology Survey Results shows that there has been a steady increase in firms’ adoption of the cloud-based solutions: 72% of the participants predict their firm will increase its adoption of cloud-based solutions. That percentage increased 10% over the past 3 years.  

Shift in leadership mindset towards cloud solutions

What increases the speed of adoption is typically a shift in the leadership mindset. The cloud-adoption decision makers vary from firm to firm. Leaders for cloud adoption are usually a combination of a business/practice leader and the CIO/IT Director, the CFO-COO team with the IT Director, or the CMO and CIO. Because of this variability, each firm has developed a certain cloud leadership mindset that evolves over time.

Sometimes a shift in the cloud leadership mindset occurs due to a specific need of the firm or client. When addressing that need, there is often a choice between an on-premises installation or a cloud solution—at least for now.

The benefits of the cloud (easier software updates, security patches, data-driven AI capabilities) mean legal product vendors are likely to create cloud modules of their on-premises offerings and eventually present their best and brightest products exclusively via the cloud. If not today, then in the future, even the most reluctant law firms may find that client needs leave them no choice but to move towards cloud-based tools. 

However, the move to cloud doesn’t need to be viewed as an inevitable, forced change. A shift among law firm leadership to a forward-thinking mindset involves understanding the differences and accepting the movement from:    

To accelerate your firm’s IT modernization and thus cloud adoption, it would be helpful to look deeper into some of the major benefits and differences in detail. Understanding what each IT strategy offers illuminates why transitioning to the cloud is so appealing.

Advantages of cloud versus on-premises solutions

1) Security

When the cloud was in its infancy, security was a significant concern. The cloud was new and having someone else host and manage your data with the firm’s IT oversight seemed like a frightening concept. The perception of the cloud and its security has changed as evidenced by the high cloud-adoption rate and the amount spent safeguarding security.

The global cloud computing market is expected to reach $623.3 billion by 2023 with about ⅓ of companies’ IT budgets going towards cloud services. Meanwhile, Microsoft reportedly allocates more than $1 billion a year just for cybersecurity.

In a broad sense these dollars address application security, monitoring, identity and access management (two-factor authentication, third-party authentication), data encryption in use, transit and rest, governance, network security, host and storage security, and an army of best-in-class security experts.

For example, Microsoft’s Azure has 3,500 cybersecurity experts working around the clock, 365 days a year, proactively identifying security threats. Within this group, there are 200 security experts working against one another. One group is focused on compromising their own system while the other works to defend it against their peers.

In contrast, few law firms have even one internal security expert to identify emerging security risks, let alone a team. Even among those firms actively involved in their own data security, many choose to outsource the security responsibility to a third-party security consulting firm.

The need for professional support stems, in part, from the inherent challenges of a locally hosted solution. Many on-premises systems do not have the latest security patches and updated software. Some of these systems are so customized that any update takes careful planning.

Another risk is that many firms do not have automatic data backup. Some firms still store a significant amount of data in physical files on site or on individual hard drives that can easily be lost, stolen, or damaged.

On the other hand, storing data in a SaaS solution typically entails automatic backup, security updates, and a team of cloud security professionals identifying and protecting against the latest security threats. This is because the threat of cybersecurity breaches within the cloud are a significant concern among customers, including law firms.

Security breaches
The vast majority of law firm security breaches involve ransomware attacks with on-premises systems. Many cybersecurity attacks are phishing emails designed to trick lawyers and legal professionals into opening malicious email attachments.

In February 2020, 5 law firms were victim to a ransomware attack with 3 of them targeted in just 72 hours. Very few ransomware attacks are reported, so we do not know the full extent of this significant risk. In 2019, it was reported that over 100 law firms, some of them global firms, were victims of ransomware attacks.

These attacks illustrate that the weakest area of cloud security remains with the end user. Even the smartest lawyers and support staff can be manipulated into sharing sensitive or revealing data that creates an opening in an otherwise secure system. Preventative training for lawyers and staff on the dangers of ransomware—especially email phishing attempts and malicious attachments or webpages—is needed whether your systems are on-premises or in the cloud.

If security breaches do occur, having your data in a secure cloud with automatic backups in various geographical locations helps mitigate issues like infected laptops and compromised programs. The end result is a law firm that gets back on its feet faster than their on-premises counterparts.

Client cloud resistance
Understandably, there will always be a few clients that do not want their law firms to put their data in the cloud. This need not be a barrier towards cloud adoption within the law firm, however. Some SaaS solutions allow the firm to bifurcate its data. Many firms have a hybrid solution where they utilize a private cloud system with a public cloud option depending on the requirements of each client.

2) Cost

One perceived barrier of a SaaS solution is the anticipated cost. Indeed, there are 3 types of costs to consider when exploring cloud-based legal technology: hard (or fixed), variable, and opportunity cost.

Hard costs
From a financial accounting perspective, on-premises systems involve an allocation of capital expenditures, whereas having a cloud solution is an operating expense.

For on-premises systems, a firm must invest in numerous hard costs: 

  • Initial servers to host the data, along with maintenance, performance monitoring, and backup
  • Additional servers as the data grows and for storage and backup
  • Network bandwidth and administrative costs
  • Real estate costs, including utilities like climate controls or security for dedicated server space
  • Security experts or third-party security consultants

One on-premises cost issue for law firms is that as your data and firm grows, a firm ends up buying more IT infrastructure resources including servers, storage, cabling, routers/switches, and operating system and application software. If there is not enough hardware, computing, or storage resources to meet the demand, the firm receives errors, performance issues, or lockouts.

Capital expenditures are often large, and almost always increase. Even when demand for on-premises services decreases, the firm still has the fixed capital expenditure of hardware, computing, and storage—resources that go under-leveraged, or possibly even unused.

Cloud solutions carry their own cost considerations, many of which are beneficial to the firm:

  • Reduced IT costs for setup, maintenance, and backup of the system.
  • Flexible costs allowing firms to purchase only the amount of subscriptions needed, and to adjust according to planned—and unplanned—needs.
  • Eliminated hardware purchases due to obsolescence.
  • Training expenses when onboarding staff to new SaaS solutions.

One of the most attractive features of a SaaS solution is the scalability. As the firm and data needs grow or recede, the firm can alter its subscriptions. SaaS providers track usage analytics which can be used to predict or anticipate changes in need—either by your law firm or your SaaS provider.

This pay-as-you-go approach helps insulate law firms from the risk of overbuying or (in the case of an on-premises solution) paying for technology that isn’t being used. In effect, your firm is renting the solution for its current needs.

Studies from as far back as 2016 show the Total Cost of Ownership (TCO) of the cloud is less than continuing with on-premises. Some cloud companies, like Microsoft, have online cost calculator tools as do some of the SaaS solution providers.

Variable costs: On-premises
Variable costs are, by nature, difficult to generalize, with each law firm and service provider having their own needs or solutions. That said, some of the variable costs associated with on-premises solutions include continual server maintenance along with the additional hardware purchases for storage, server backup/redundancy.

Calculating comparison costs for cloud offerings is a bit trickier still. The costs depend upon the type and volume of systems a firm wants to move towards the cloud. Also in play are the price of subscriptions, whether legacy systems can be eliminated, and whether any costly manual processes can now be automated.

Shut down/migration costs
Independent of the ongoing expenses of both on- and off-premises solutions are the costs to transition your data to or from the cloud, and the various financial implications of shutting down your previous environment. These can vary from firm to firm but are something that must be accounted for in addition to the forward-looking expenses listed in this paper.

Opportunity cost
This is analyzed in 2 ways. First, there is looking at how a solution investment will return value over time. When a firm reaffirms its commitment to its existing on-premises solution, the firm has committed significant dollars for a 5- to 10-year period.

This is a capital expense for an asset that will depreciate over time. Firms need to ask if the choice to keep the existing on-premises environment is a long-term strategic solution, or a short-term tactic. How long will this purchase last before another upgrade is needed? How long until the services the firm needs are cloud-based anyway?

Second, there is the potential cost of not having some of the most innovative legal SaaS solutions that exist. What new opportunities could a firm miss out on by sticking with what they already have?

3) Performance

Some firms believe the performance of the cloud SaaS will not be as good as the on-premises system. The answer depends upon the SaaS solution and the provider the firm chooses. In the last 5 years, an abundance of companies with new cloud-based legal solutions have emerged.

Choosing between these vendors requires firms to consider:

  • Is it a reputable company, one that has been in business for many years and one you can trust to survive in a bad economy?
  • Is there a detailed Service Level Agreement (SLA) indicating levels of performance metrics and tracking?
  • Is this SaaS software solution part of an integrated portfolio set or platform?

To really understand performance, let’s look at some other aspects of a software product.

SaaS products have a much quicker, less costly implementation with configurable settings rather than fully customized ones. Configurable settings are options a firm can choose that are built into the standardized code of the application.

Customization means a programmer works outside the application to add novel code, which takes extra time and makes future support more difficult. In addition, the SaaS vendors should have training materials, onboarding experience, and existing customers that can provide you with best practices during implementation.

With SaaS solutions, the updates are periodic, regular, and often seamless. Many SaaS updates are small, intuitive software modifications on the backend of the program, so users do not see them. In contrast, on-premises system updates are often disruptive as they can contain numerous, large updates.

Many times, these updates need to be scheduled far in advance, especially when the application is highly customized, as the customizations could result in update errors. Some on-premises system updates might need to be made on individual computers as well.

Many SaaS products have their own application programming interfaces (APIs) that enable flexible connections to numerous legal applications or platforms. APIs provide a set of definitions and protocols for building and integrating application software.

Data analytics
SaaS options tend to offer better data analytics because they can draw information from multiple databases and analyze them in a unified system, no matter where they originated from. With on-premises solutions, many times the firms are limited to the system they are stored in.

Disaster recovery/continuity
For SaaS products, if there is a computer failure or natural disaster, team members can get back up and running on a new computer as quickly as you can provide internet access to it. The leading cloud service providers operate from geographically distributed data centers protected with backup generators and equipment providing redundancy and high availability.

This reduces the need for classic backup and disaster recovery/business continuity functions. With on-premises, some mid-sized firms lack an off-site backup that can protect their data in the case of an emergency.

4) Accessibility

Many would argue accessibility is the number one reason why law firms are increasing their investments in cloud solutions. The jobs of lawyers and legal professionals are no longer confined to a physical office. They need to be able to work anywhere: in court, before a client, in another city, at home, at a café. They want to work with their laptop, tablet, or smartphone in any location that has a working internet connection.

Lawyers want the convenience of sharing documents and status reports with their clients or other lawyers remotely. In contrast, with on-premises solutions, the lawyer or legal professional is limited to working only within the law firm’s office.

5) Innovation

Cloud adoption acceleration has been helped along by the innovative cloud software alternatives that work better than existing on-premises solutions. Most companies creating legal products are migrating their existing on-premises solutions to the cloud and developing new solutions as SaaS-only products.

It is much more difficult to innovate with on-premises systems unless you have a strong IT development team and the budget to customize the system however you may need.

Additionally, many on-premises systems were developed for different segments, with some capabilities remaining out of reach for mid-sized firms. Cloud-based systems democratize legal technology and close the innovation gap between mid-sized and large firms. By sharing the same features and functions, cloud solutions level the playing field for previously outmatched firms.

Becoming a client-focused law firm

After the 2008 recession, corporate law departments changed the way they viewed “value.” Some asked for deep discounts on existing matters and rate slashing on future matters. Others cut back on rates, set role permissions for certain tasks, and created lists of activities that could not be billed.

At the time, many corporate law departments did not have detailed, robust budget management and monitoring systems in place that could determine if the discounts resulted in an actual savings or just a rebalancing towards additional hours billed.

Given that many engagement letters and contracts between the law firm and corporate law department memorialize matter budgets and that most larger litigation matters have budgets, budget management processes, and even legal project managers in place, corporate law departments may leave existing matter handling agreements alone.

Now, corporate law departments will be analyzing outside counsel expenses and making data cross-comparisons between law firms and lawyers for future legal work. Corporate law departments will ask the pivotal question, “Do we have the right firms handling the right type of legal work in the most efficient matter?”

They will also analyze whether the firms are client-focused in their legal delivery model. Being client-focused entails, in part, using the best technology to create the most productive legal service delivery model possible and passing these efficiencies on to your clients.

Clients are accustomed to conducting global business online, collaborating with remote colleagues, and having real-time data through tech portals. They notice the firms whose lawyers consistently reply, “I’ll have to get back to you on that after I check in with Finance or the senior associate.” Clients are impressed with lawyers that can immediately answer questions of when a hearing is, what the next major matter task is, and where they are with budget-to-actuals.

These accurate, timely answers come from law firms that employ collaborative and transparent cloud solutions. Corporate law departments are willing to shift new work from large law firms to mid-sized firms. But in order to do so, they must be confident that a mid-sized firm has the same legal technologies as its larger counterparts. Now is the time for mid-sized firms to increase their adoption of the cloud and modernize the way they deliver legal services.

About the author

Colleen Scimeca

Colleen Scimeca is a legal industry thought leader and strategic legal operations expert specializing in the business of practicing law. Colleen has worked in the legal industry for over two decades, including working at various Big4 firms as a consultant to over 60 corporate law departments and law firms. She’s worked on transformative programs aimed at driving improvements through legal department/law firm operations strategy and technology, streamlining processes, and cost optimization. She currently works as a senior product strategist at Thomson Reuters.

Get started with 3E Cloud

Ready to learn more about 3E? Contact our sales team for a free demo.