Aligning businesses: Tips for systems and process integration in law firm mergers

We were recently surprised to learn from a quite prominent law firm that was merging with another that they had no plans for a formal project to integrate their business or practice management systems across the combined firm. Why was that surprising? The reason is simple. Much of a merged law firm’s future business performance is locked in by the decisions that are made about the integration of processes and systems, well before the firms are actually combined. Electing not to develop a systematic and comprehensive approach to this is a serious mistake.

A law firm merger needs to take full and detailed account of how key business and practice processes will operate collectively in the combined firm. These processes are both back and front office, ranging from how matters will be managed, to how business development will be conducted, to how know-how will be collated and shared, to how accounts payable will be handled.

Law firms are generally not the most process-aware of businesses. The needs of the combined firm will be different to those of the two merging firms individually. IT systems are a major part of this, but the IT application portfolio is intended to drive and support processes; it is not, of itself, the sum of those processes. It follows that the processes individually and also their interrelationships need to be properly considered well before decisions are made about IT infrastructure, if business performance is to be optimised.

A law firm’s business and practice systems and processes are also inseparable from its culture and philosophy of governance. Here, too, the merging firms will be different from the combined firm that results. Well conceived and implemented processes make it easier for lawyers to service their clients well. Poorly conceived processes can actively hinder that. Good processes and systems are a powerful driver of collaboration and other ‘one-firm’ behaviour across practices, offices and functions. Their impact on the firm’s economic performance, either positive or negative, is all-pervasive.

Make or break

Business schools routinely teach that between half and three quarters of business mergers generally fail to deliver the shareholder value that was anticipated. Is the same true for the legal sector?

Success or failure in law firm mergers may be more difficult to assess than in other kinds of business, where shareholder value can be better quantified. However, one measure of success would be whether the combined firm achieves an increase in revenues and market share over what the legacy firms had; better still is if their combined profitability also improves.

Another measure would obviously be the retention of key talent, taking account of the reality that client conflict, cultural misalignment and performance issues will inevitably lead to some departures.

A third important measure would be the positive reaction of the combined firm’s most important clients, reflected in a deeper commercial relationship. If clients see the combination as being to their advantage and reward the combined firm with more instructions, that would clearly indicate success. Indifference or, worse still, moving business to other law firms would obviously represent failure.

By these measures, it is clear that many recent law firm mergers are failing to produce the results intended. The blame for this can frequently be traced to systems and process integration not being properly addressed as a fundamental part of merger negotiations and the unfortunate compromises that this causes later.

Both business and practice management processes in a modern law firm are heavily driven by technology, yet the IT department is seldom involved in a law firm merger. Technology issues should, at the very least, be a key component of the due diligence process. This should go far further than the usual approach of simply compiling an inventory of systems and IT applications in place in each firm and noting the most obvious redundancies and other issues.

Examples of some of the deeper questions that need to be answered, some of which can make or break a merger, include:

• Which processes and systems are required to best drive the combined firm’s strategy?

• How can the application portfolios of the two firms best be aligned?

• Which systems are duplicates or otherwise redundant and can be discarded?

• What conflicts exist between the merging firms’ systems and how can they be resolved?

• What opportunities exist for improvements, for instance in increasing operational efficiencies and adopting emerging best practices, such as cloud technology?

• What information is required for effective integration and how should that be sourced?

• Which issues could emerge that could cause disruption while integration is taking place?

• How should corporate security and data protection policies be applied during integration?

Integration approaches

At a macro level, there are essentially four ways of approaching process and systems integration in a law firm merger. They can be summarised as follows.

1. Parallel running

Keeping two sets of systems running in parallel may, at first pass, appear to be the least risky option. This option may sometimes be selected because of exit costs associated with service contracts already in place. Or, it may be because of disagreement about which systems, in which firm, to discard. Strategically, neither of these are good reasons.

Where the merger is more of a co-branding exercise than the true combination of businesses into a single entity, parallel running may indeed be a feasible option, at least in the short term. In most cases, though, this approach leads to compromises that sacrifice business efficiency and performance. At worst, they may even threaten the core rationale for the merger.

2. Clean slate

This approach involves designing, ?building and implementing a completely new IT infrastructure and applications portfolio for the combined firm. Firms should almost always choose systems from the existing portfolios of the two merging firms rather than seek to build ?a third portfolio from scratch.

That said, mergers offer a major opportunity to transform processes both in the practice and in business services, perhaps radically. It may be that neither merging firm has systems in place that are adequate for the business needs of the combined firm – perhaps because they are outdated. The merger itself may then provide the perfect opportunity to tackle this.

Change is always disruptive but, during a merger, it is expected and more easily tolerated. The post-merger integration period can also be an excellent time to rethink old ways of doing business and, together, to create a clean sheet of business structures, cultures, operational processes, and resource and technology requirements.

3. Best of breed

This approach seeks to select the best systems for each purpose (such as time recording, knowledge management and financial accounting) from each of the merging firms and to integrate them into a new applications portfolio.

Theoretically, this leads to a portfolio of best practices. It can also appease political sensitivities should a firm whose systems would otherwise be discarded in their entirety be offended by that. The downside of this approach, however, is that it is more complex than the other options to plan and implement. It can consume a great deal more time that could be better employed elsewhere. It also creates more scope for unanticipated consequences.

If this approach is to be taken, the following two principles need to be applied to minimise the chances of the integration process becoming excessively time consuming and risky.

1. A transparent and objective application portfolio selection process. It is important that choices and decisions are considered from the perspective of the future merged firm, rather than from each of the individual firms.

2. A rigid deadline for portfolio selection in order to force decision-making. ?All too often, this becomes an exercise in politics rather than selecting the best solution for the combined ?firm’s future needs.

4. Adoption

In this approach, the suite of IT systems in one of the merging firms is selected (with minimal or no change) and those in the other firm are abandoned – even if it means that the most cutting-edge technological solution is not the one ?that is adopted in the combined firm ?(at least not immediately).

This option is frequently the quickest and easiest route to achieving an acceptable degree of systems integration, leaving the firm’s lawyers and business services staff able to focus on more ?client-centric aspects of post-merger integration and on improving other business efficiencies.

Content is migrated from systems being abandoned into those being retained. That can bring its own challenges, but these are seldom as formidable as those involved in picking and mixing systems in the ‘best of breed’ option or developing an entirely new suite in the ‘clean slate’ option.

Making a choice

In mergers where one firm is truly dominant, selecting the ‘adoption’ system model is usually straightforward.

In a merger of equals, however, the situation is frequently more complex. Managers from both firms would naturally like to have their own business processes and IT systems retained. They will be mindful of headcount reductions (in business services especially) that ?typically follow law firm mergers and ?the likelihood that the axe will probably ?fall heaviest on the team whose systems have been abandoned.

Compelling reasons may be produced by both sides as to why their systems should be adopted. The debate may be vigorous. Negotiating teams or the leadership of the newly combined firm (depending on where in the merger process these issues arise) may be ill equipped to identify the best options. Independent advice may help to ensure that the best decisions are made.

In most instances, though, the challenge is to achieve the right balance between the ‘best of breed’ and ‘adoption’ approaches. This requires a well-managed, transparent and time-constrained selection process. Organisational politics frequently gets in ?the way and decisions suffer as a result.

Executing the plan

Law firm mergers are not intended to create new IT infrastructure or applications portfolios. They are intended to enhance economic performance by creating a combined platform by, for instance, better aligning the business with key client needs, increasing the firm’s bench strength in growing areas of practice and penetrating new markets.

The task of both the partners and the business services leaders should be to steer the combined firm as quickly as possible to the achievement of its combined strategic objectives. An objective, economical approach towards process and system integration helps to prevent their attention from being unduly diverted from this.

Setting hard deadlines for decisions is particularly important. Without these, debates can drag on and important decisions can be delayed. This can subsequently result in greater risks in process and system integration, as well as in other strategic areas of the business. All too frequently, those managing the integration process itself simply don’t know how to make the necessary trade-offs between speed and careful planning. A properly-formulated process and systems integration plan, supported by the most senior levels of the firm, ?is an essential component of the ?overall merger plan.

Finally, successful integration also depends on properly resourcing the integration process itself. This means speedily identifying the key people to lead the combined firm’s key business processes and removing the people ?who are likely to block the process. ?The competencies required for developing and facilitating the execution of a process integration plan are fundamentally different to those ?required for managing a portfolio of processes, systems and IT applications already in place. Just because the firm’s managers are skilled and expert at the latter does not mean that they ?can adequately address the former, especially if it means dismantling ?systems that they themselves have ?been managing.

Tim Hanson, Rob Millard and ?Simon Thompson are partners in ?Venturis Consulting Group LLP ?(www.venturisconsulting.com). Tim ?and Rob were formerly members of Linklaters’ strategy team and Simon ?was formerly Linklaters’ global COO.