Technology Challenges in Law Firm Mergers

10 Critical Factors for Growing Profits and Cementing Client Relationships
By Edward Poll
Reprinted from the Solo and Small Firm Practitioner Vol. 7, No. 1, published by the State Bar of California Solo and Small Firm Section, 08/01/2005
When law firms merge with one another, one of the more significant front-line issues is "Which firm's technology will survive?" When there is a merger (buy-out) by a large firm of a much smaller law firm, the answer seems obvious. But, when there is a merger of equals, or of larger firms, even if not equal in size, the answer is not so clear. And, where there is a merger of small firms, things get murkier still.

What may be worse is that frequently, the question is not even considered before it is too late to make a smooth transition.

There are 10 critical factors that the leaders and management of law firms should consider during the discussion and transition phases to assure a successful passage and profitable picture after the merger.

  1. Look at the firm culture. How involved is the technology department with the management committee? If the technology department is well-connected with the managing partner, with the management committee, or with the goal-setters and directors of the firm, the technology department will help the merger succeed.

  2. Have the firms prepare white papers. Even before the creation of a combined technology team (see below), both law firms to the merger should create technology teams for the transition if they don't already have them. Each team should create a "white paper" for its respective firm that details the existing technology employed by the firm, the technology that is "on order" but not received, the technology that was being considered seriously for near-term purchase, the future vision of the department if the firms had remained separate, and their respective visions of the combined department in the new, enlarged firm.

  3. Create a team to develop and implement a technology plan. There will be many tasks to accomplish in a merger of technology departments including the evaluation of both systems, determination of which approach more nearly will meet the needs of the combined firm, purchase of equipment necessary to bring both firms into parity in the use of technology to serve client needs, combining accounting systems, and many more. No one person can accomplish all this. Therefore, the creation of a team with specific assignments will be necessary. A basic business principle--delegation--will come into play because successfully merging the technologies of two firms, even small firms, is no easy undertaking. And it will be better to begin the thought process sooner rather than later.
  4. Create a "client" survey. Most marketing experts suggest that client surveys are critical to knowing what clients want and to developing strategies to meet their needs or desires. The same can be said about the merger of technology platforms. To help the merger succeed, create a customer or client survey where the client is the lawyers of the merged firm. They are the customers of the new technology department, and the new technology team needs to know what the combined firm's lawyers need. Also, consider taking this survey to the clients of the combined firm to find out what they want in the way of technology services. These two surveys will guide future technology efforts.

  5. Place all purchase decisions on hold until after the merger takes place, otherwise there will be duplication of expenditures and of equipment. Since, at least in a merger of equals, no one really knows at the early stage which technology system is going to survive the merger, avoid the purchase of everything but absolutely necessary hardware and software. Failure to put a "hold" on new purchases will likely result in conflicts with the ultimate system to be created by the merged entity. Only in a merger of greatly different-sized organizations will the surviving technology be obvious. The larger firm tends to think that "... if it's not invented here, we don't need it." Even if the smaller firm has better technology, it's not likely to be used.

  6. Think about how you are going to merge your accounting policies. Depending on what those policies are, this can be a significant challenge. Merging the billing systems is clearly a very important element since that is what the clients will see first. Thus, this is the area the technology department should tackle first.

  7. Integrate the financial data of the acquired firm into the new system. Most lawyers do not really know how much it costs them to perform their services. But if the firm is to move away from hourly billing to a new system (as many people believe will happen regardless of how it may be defined), then costing information becomes critical. Without this information, it is impossible to create a fee projection for the client. The financial data of the acquired organization must be merged into the financial data of the acquirer.

  8. Carefully review the compensation issue. The pay schedules in the two organizations must be reconciled, and one way to do that is to take into consideration the varying living standards in different cities or at the respective branch offices. However, that will only take you so far. Compensation equity must be reviewed and confirmed at the conscious level. Various firms have differing policies toward compensating their technology personnel. Some look to local standards and the cost of living in each area; others have a standard compensation policy and pay scale, irrespective of office location or cost-of-living differences. Which path the combined firm takes will depend on the firm culture and its previous experience in such mergers. But, whatever the approach, it must be conscious and deliberate.

  9. Consider the importance of training and education. In today's environment of higher billable hours and increasing demands on everyone's time, too few firms pay attention to the idea of educating and training both their attorneys and their staffs. This is particularly true when new technology is introduced into a merged environment.

  10. Focus on knowledge management. This is one area that will set apart the OK merger from the wildly successful merger. One of the characteristics that differentiates lawyers is their ability to coordinate knowledge, information, and data, and then to use those to the benefit of the clients. In most firms, the concept of knowledge management is only given lip service without real implementation. There is even a different term for the underlying concept I am raising: "knowledge sharing." That is what we are really talking about: sharing the knowledge that one lawyer has for the benefit of others in the firm and for the firm's clients. When two firms merge, there is a very dynamic opportunity to implement that philosophy of sharing knowledge among the various offices, and among all the lawyers within the firm and in the different practice groups.

[CONCLUSION] The ultimate goal of the above suggestions is a seamless integration of the merging firms' technology capabilities along with the expanded use of technology to better serve their clients. Not as a toy or as an end unto itself, but as a tool to help the new firm grow its profits and cement its client relationships.

This Article is listed under the following categories: