Originally published on April 19, 2010 in our free SmallLaw newsletter. Instead of reading SmallLaw here after the fact, sign up now to receive future issues in realtime.
When two or more individual lawyers, or two small law firms, join forces, the combination typically is driven by a desire to expand, better serve existing clients, and attract new clients. Joining forces should enhance economies of scale and collaboration for greater service quality, which in turn should mean more revenue.
This outcome can only occur if a cultural fit exists among the lawyers — common values and goals that facilitate the exchange of ideas, the education of one lawyer by another, positive social interaction, and a feeling of bonding with others in the firm. Ideally, the lawyers or law firms should have complementary practice areas that enable cross-selling thanks to the expansion of legal services the new firm can offer.
The lawyers in the combined firms typically concentrate on the "tinsel and glitter" of integration — deciding the new firm name, the location and configuration of office space, management responsibilities, and staff allocation. But too often an important element for economies of scale and service collaboration is neglected or even forgotten — technology.
The Key Technologies to Discuss During Due Diligence
Assessing the current state of technology used by the lawyers or firms, including the age of the hardware and software and their replacement cycle, should be — but rarely is — central to the merger due diligence.
For example, a law firm with up-to-date document processing and practice management software tools and a database of 4,000 contacts suggests that it has made an adequate investment in technology. Similarly, if a practice's technology has not been kept up to speed, the likelihood of realizing more value from the merger diminishes.
If the technology of the merger partners is up to date, it will make their combined practices more efficient. The time savings, efficiency, and commoditization of routine tasks and services afforded by electronic technology mean that legal services can be provided at a lower price with higher volume, which tends to produce higher revenues and profits.
But such benefits cannot be realized without adequate planning to integrate these technology aspects. Before you sign the dotted line, discuss the technologies below during due diligence.
1. Client Relationship Management Software (CRM)
For CRM to be effective, the merged practices must give up the "my client" mentality in favor of an "our client" approach — a task easier stated than accomplished. And even if lawyers are willing to share information, plenty of other issues remain regarding what data is entered, who enters it, and who verifies accuracy. The lawyers must create a standard classification system for each item in client or prospect records. Otherwise, CRM becomes a wasted investment with little useful return.
2. Knowledge Management Systems (KM)
The KM challenge mirrors the CRM challenge — creating a standard classification system for each lawyer's work product. If the document management systems of the merged practices are not integrated completely from the start, the result will be haphazard, after-the-fact efforts that doom KM efforts to failure. Not investing the time needed to update the knowledge management database weakens it — and holdouts diminish the value for colleagues and clients alike. A good KM system cannot ensure success, but it certainly tips the balance and makes it much more likely.
3. Finance and Accounting Software
Most law firms use some form of accounting technology (the days of the green eyeshade and paper ledgers are long gone). Some systems can produce extremely detailed assessments of performance to benchmarks, with far more data than the typical attorney can assimilate intelligently. A growing number of systems take an integrated time, billing, and accounting approach, while others are little more than electronic worksheets.
Whatever technology you use, unless the members of the new firm agree which financial benchmarks are most important and how to track and reward financial performance, the software system will never be an adequate management tool, no matter how sophisticated.
4. Communication Tools
The issues here are as varied as the tools themselves. For example, many firms and individual lawyers avidly pursue blogs as a business development activity. However, effective blogging requires dozens or even hundreds of billable hours per year. If all lawyers don't agree on the need for this expense, it can detract from other marketing activities or even from the practice itself.
Another example is email policy. If one lawyer or firm has been scrupulous about entering as billable all time used to send email to clients, while their counterparts have been lax about it, the new firm could lose much billable revenue. As in a marriage, small points of contention like this can drive newly merged lawyers or firms apart.
It's Common Sense, Not Rocket Science
Taking the time to assess and integrate technology concerns like those discussed above is essential to a healthy and growing law firm. A step-by-step process is the only way to ensure that technology will increase efficiency and quality of work in the life of the new firm. There is no one right way to combine technology systems and approaches, but there are clearly wrong ways. Paying due attention to the integration process will clear a path for harmony and profitability.
Written by law firm coach Edward Poll of LawBiz.
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