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Law firm merger – making 1 + 1 > 2

October 13th, 2016

Merger Dictionary Definition Word Combine Companies Businesses

 

Merger – the theory

Merger is an increasingly popular option for law firms seeking a transformational solution to the increasing challenges in the legal market. A merger will create a firm with increased services scope, geographic coverage and depth of resources. It will be attractive to major international clients seeking a legal partner capable of covering their requirements in the key commercial, real estate, employment and litigation areas. Merger will allow the new firm to benefit from economies of scale in negotiation with suppliers and in its support services. The merger will provide the magic of ‘synergies’ that will enable the sum to be truly greater than its parts (i.e. 1+1 is much greater than 2…)

 

Merger – the reality

Cut the sunshine and the smell of roses and cue fog and the sound of shouting and clashing swords. Back to the reality of merger. Because it’s tough to do well. Especially in a knowledge-intensive people-based business – like a law firm.

Getting the most out of a merger demands a bold vision for the new firm, a structured approach to achieve it and a clear picture of capabilities in each of the merging firms. There are very few cases of effective post-merger integration and optimisation in law firms. Many firms seem content to settle just for the larger scale that merger provides. Why is this?

An obvious reason is that making the most of a merger requires significant change and that is challenging in most law firms. The partnership model is very effective at resisting centrally-driven ‘mandated’ changes. Firms also do not typically operate or like ‘process thinking’ and typically resist standardisation of working. I’m using a thick brush to paint a crude picture here – but it is a recognisable one for most law firms – and it makes effective mergers a challenge. On top of this basic challenge is the fact that firms don’t typically have a vision or a programme for ‘post-merger optimisation’.

 

Post-merger optimisation needs process-thinking

The focus of most firms on merging is to adequately integrate the two organisations, working methods and IT and establish a new management structure. Indeed this is the necessary ‘phase one’ in getting a working business. But to make the most of the merger, a ‘phase two’ is required. This phase will optimise the joint capabilities of the merged firms to realise the potential synergies from the merger – to yield higher value to clients and improved efficiency for the firm. This requires a clear vision, process thinking and a structured approach, for example:

Before the first step: What’s the vision?

A challenging vision for the new firm that provides an improved level of competitiveness based on exploiting the potential synergies in the merged firms should be the starting point.

Step 1: Let’s see what we’ve got

A key first step is to objectively assess the services and processes in the merged firm to identify best practices and performance (i.e. where is the ‘one best way’ in each service/process element).

Step 2: Commonalisation and Rationalisation

The next step is to establish common processes and services, based on existing best practices (i.e. the ‘one best way’) that are standardised across the firm. This work can be part funded by the savings from realising the economies of scale in support and in the purchasing of products and services.

Step 3: Optimisation

For further optimisation the firm should consider the application of formal services management to establish a more systematic approach to delivery and innovation of services. Major automation of key common internal processes – using integrated enterprise software such as SAP – is now worth contemplating now that there are defined and optimised processes in place. Unfortunately too many firms seek to automate existing processes (without first improving them) and face the ‘pig in lipstick’ outcome…

 

Systems thinking is needed

The appetite of major law firms over the last few years to merge and create major – often global – law firms has created major national and international operations, some with yearly turnover well in excess of £1 billion. These mergers provide clients with increased support and a range and depth of legal capabilities – and thus increase the firms’ potential competitive position.

However such mergers also further challenge the existing operational methods within these firms for effective and efficient service delivery and the optimisation of support processes. Law firms typically lack the systematic approaches of services and process management and innovation. This is a weakness that will need to be addressed if these firms are to operate profitably in a services market that is increasingly global and digitally-enabled.

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