Firms Can Increase Profitability Without Resorting to Mergers

In today’s business environment, law firms are under constant pressure to increase profitability — which, for individual partners, typically translates to a mandate to increase profits per partner. Many firms, accordingly, are turning to mergers to bolster their revenues and profits. Indeed, in the tri-state office of Deloitte & Touche, where I work, we have received more requests for merger assistance relating to the legal profession in the first half of 1999 than in the previous three years combined. But effecting a merger, however prevalent this practice may be these days, should not be considered a panacea for all that ails a firm. Rather than a stopgap measure to boost profits, a merger should be part of a law firm’s well-thought-out, long-term plan for its evolution.

Although a well-planned and successful merger may eventually be in the cards for your firm, I suggest that, before looking externally for merger candidates, you first look internally for ways to improve your productivity and profitability. Take a cold, hard look at what your firm wishes to achieve, and whether you have the means to accomplish your objectives. This self-analysis will not only bolster your firm’s profits in the short term, but will also help you clarify your mid- and long-range goals. You should have a carefully conceived business development program that is integrally linked to your firm’s strategic objectives. Such a program, supported by the firm’s administration and culture, and reinforced by the firm’s partner compensation system, can achieve just as large an impact on a firm’s profitability as a well-executed merger. Furthermore, the development and execution of such a program better positions a firm for a future merger, if that alternative makes sense. A successful law firm’s business development program has four key components: [bullet] A clear and focused firm vision. [bullet] Departmental (or practice group) business development plans that support the firm vision. [bullet] Business development plans for individual partners. [bullet] A performance review program that rewards achievement through the firm’s partner compensation program. Each of these aspects represents a different tier of operations on which your firm can increase its profitability. By exploring and analyzing and even simply discussing each of these subjects, you’ll begin to identify ways in which you can improve your firm’s profits.