Monday, September 24, 2007

Hey…. Let’s get together sometime soon….

No matter whom you are or acting on behalf of, that phrase brings on some type of relationship. It is the basic human need to fill a void that drives people into a relationship; we are simply not whole on our own. Relationships are multi-faceted beyond the human mind’s comprehension. Relationships can be as simple as helping the neighbor move furniture or as deep as it brings about another life. Relationships also have their place in the business world. Depending on your location, they can be the life blood of who you are, as is the case of the Japanese Keiretsu, while some corporate relationships are simply meant to achieve a small task.

In today’s legal market place we are seeing a remake of the late 1980’s where firms are in ‘merger’ talks. Hardly a day goes by that I don’t read about firms are in ‘talks’. I often wonder if the mergers of today results in the boutiques we saw form and flourish of the 1990’s. The corporate world as flourished on M&A activity. I recall some of my readings a decade ago about the rampant failures associated with M&A activities. As it turns out, what seems great on paper fails because cultures simply cannot meld together.

In the last year the M&A activity with law firms has really picked up momentum. As the talks continue, some groups disband while some actually gel into a new practice. With all of this activity in the marketplace I don’t feel that the basis for these talks is reasonable. I believe that often these firms who are talking M&A are really setting themselves up for failure. The best situation is where each side recognizes they need the other to become better. However, from I have been made privy to, this often isn’t the case. My favorite basis for a merger came out when two firms were in ‘talk’ the basis for the merger, one firm’s profit per partner was $10,000 higher than the other firm. It was felt that together, they could have a larger market presence and thereby get their profit per partner up for the ailing firm.

Anyone sporting an MBA shingle will immediately attest to that fact that M&As have a very high probability of failure. Some immediate ones that come to mind, which were all over the news: Daimler Benz and BMW. In 1994, BMW bought the Rover Group on the basis of entering the SUV and off-road vehicle market. Then after 6 years and millions of dollars, MG Rover was spun off. BMW made the public state “we’re going it alone”. Then in 1998, Daimler Benz got the idea to enter the low end market through their purchase of Chrysler. Now less than 10 years later, Chrysler becomes the Benz Frisbee – spun off to a venture capital firm. I could spend a huge amount of time looking at all of these deals that become curve balls into space. But the result is clear, the basis for M&As often don’t take into account the most critical factor – the human element. Oh it is easy to merge any company, move some PCs, get a few new servers, hook up a new network and done. Profits should flow! However, what companies don’t realize, is that it isn’t the hardware that makes a company, it is the culture. It is the attempt to meld cultures that end with internal tensions and a disbanding of the venture.

I feel that today’s firm should take a serious look at themselves and determine how best to grow their practice. For the most part, M&As is not the route to go. I sometimes wonder why firms don’t opt for organic growth. Could it be that they simply don’t have the culture that lends itself to organic growth or there isn’t a zealot who can envision what ‘what ifs’? If we can’t grow organically, what is the next step…..M& A.? In last week’s edition of Legal Week, Helen Mooney discussed how US firms are ‘merger-minded’ with Western European firms. Sadly, some of these firms are bullish in that regard. Sad in the sense that they have not looked at the human side of mergers.

In my career, I have seen M&As come and go. Mergers are severe cultural shocks even when it happens with an organization in the same geographical region; it is millions of times worst when it happens over time zones and oceans. I have seen these firms form and suffer tremendous internal turmoil, so much so that the sum of the firms is less than they were separately. Then there are those occasions where, partner groups spin off into boutique practices or the firm becomes a train wreck.

Well given the fact that M&As have a high probability of failure and most firms hit the glass ceiling on attempting organic growth. What’s left? The thing that is left is a new mind set, an external motivation. The corporate world knows this all to well. The growth by way of capital markets; selling stock in your legal practice! The concept of legal practices going public has been bantered around internationally for as long as I can remember. This approach, I feel, has the greatest probability for success in a growth oriented law firm. However, to achieve this, the firm must undertake a radical shift in how they operate. Law firms need to begin to run like a real business!

In addition to running like a real business on the financial management side, firms would need to have a vision of what they are trying to achieve and where they want to go. That means that all partners must see the vision and their role in achieving the vision. Often in a legal practice there aren’t any visionaries, as partners we are in it for ourselves. Sadly enough so many firms are run like a collection of small firms (partners) each running in their own direction; somewhat like herding cats. It completely baffles me how these organizations continue, when they could achieve so much more. Without the foundation of vision, these firms will be in their current holding pattern forever.

For firms who can articulate their vision and are willing to relinquish their ego driven control, the capital markets hold tremendous potential. With the capital injection, the firm vision can come to its fruition, without the disruption of cultures and the like. Hard to believe? No! Chris Mondics of Philly News wrote Buy Stock in a law Firm? As it turns out, the Australian firm of Slater & Gordon decided that going public was the only way it could grow with its vision while keeping its culture in tact. The firm went public in April 2007 and the stock is currently trading at 70% above its initial offering price! Here is a firm that had a vision, and recognized the pitfalls in different methods of its achievement.

History is filled with the spin-offs of M&A failures, why become a statistic. If it is your vision to grow, you cannot annihilate the people who grew the practice. There are more than one way to achieve your goals, but first you must have a vision, then an evangelist to emblazon the vision in the minds of everyone. After that, all that is needed is capital… and that is easy to find. Your firm’s destiny is only a vision away. Are you working towards it, or simply herding cats?

Saturday, September 15, 2007

Work Less, Make More

What an amazing philosophy to adopt! Basically I will put in less effort and make more of what I want. I will bet to this point you thought more represented more money. Well it could it could also mean more free time. However you choose to fill in the blank it is up to you. At the end of the day, you can make more by working less. The secret is in how you choose to work. Anyone who works with me learns the secret very quickly. Throughout my dealings with my colleagues I may ask ‘working hard?’ They realize very quickly that the correct answer is not ‘yes’ the correct answer is ‘no’. With today’s level of technology, people should not work hard, people should work smart. We should learn to leverage the resources we have available to us to work less and make more.

The need to ‘make more’ has driven the corporations of the Western World to new heights in financial achievements. In these pursuits, many people have benefited, not only financially but also with new technologies that make life a bit easier. Making more is a good thing, as human kind directly or indirectly derives the benefit. It is when the ‘make more’ mantra becomes the all encompassing end. Following the Enron meltdown, it seemed everyone with a keyboard and internet access had something to say as to the reason why Enron failed. It was one author that I thought took a very fresh perspective; he said “Enron’s failure was the direct result of shareholders wanting too much”. In his well thought out argument, he made it clear that the shareholders pushed management into their wrongdoings.

Today’s legal practice is no different than any other business. There is a need to make more, whether it is for growth, expansion, modernization, or simply bonuses. The motivator to make more is there. Unlike commercial entities that are driven by profits and ROI, professional services establish their own yardstick of success and are probably the reason that they aren’t as profitable as they could be. (Law firm profitability and destiny is a topic I will address in the coming weeks) I believe that today’s professional service firm has so much pent up value that it is scary. These organizations need only change one thing and they will unlock hidden profits!

In an earlier writing I addressed the potential profitability hidden in outsourcing some functions. I know several firms who have exploited regional price differences to generate cost savings. I believe that each firm is currently sitting on at least 100 processes that, if examined and refined, will add value straight to the bottom line. One such cost saving caught my attention as I was reading the October 2007 issue of Litigation Support Today. The article in question was: The Off shoring of Litigation Support Functions.

Litigation support is a time consuming, labor intensive process which requires the greatest adherence to detail. Some of the processes include bibliographic coding, e-discovery, and document review. When these activities are undertaken in today’s firm, it requires people; probably the highest cost of any firm. However, what has become increasingly more popular – outsourcing the function. Not to a firm down the road, but to countries like India, and China where just the exchange rates brings the costs down to 1/30 of what it takes to do in North America.

The process of Litigation Process Outsourcing (LPO) isn’t new. It was actually pioneered by a Dallas firm in 1995. William Brewer III of Brickel & Brewer founded I&A International, a foreign company that undertook litigation support for US based firms. Today, there are close to 500 foreign litigation support service providers, all concentrated on the Asian continent. E-discovery alone is slated to become a 4.8 Billion dollar per year business by 2011 all of which will hit foreign markets! The author of the article, Sally Kane Esq., contends that firms could save between 30-90% by tapping into the vast, inexpensive and extremely experienced foreign markets. Recently I read an article where a firm, faced with a $450,000 estimated litigation support price tag, outsourced the process to India and added $410,000 to their bottom line.

Please keep in mind; I am not professing outsourcing as a solution to every firm. I think that each firm has to look at their multitudinous processes and recognize that there are hidden profits just waiting to be freed, with only a small change to current practices.

Saturday, September 08, 2007

AR Management in a Small World

Even after a decade it still amazes me how the world of professional services still manage receivables in isolation; isolation from the world around them. In today’s professional service practice we see the invoice as the means to an end, and that is as far as we see. We never see the world from our client’s perspective. It is in this failure to see beyond the client that impedes our true potential in making a major impact in the collections of outstanding receivables.

In today’s professional services world we are far too introspective, as we only look at what happens within our firm and to our firm. We fail to see that our firm is part of a network, a local, regional, national and even global network. We don’t see or don’t appreciate that it is stimuli that happens in all of these networks that have varying degrees of impact on our firm. These stimuli affect our staffing, billing, taxation and most importantly our ability to collect our outstanding receivables.

Unless you have spent the last 8 weeks on some intergalactic space adventure you would have heard about, if not been directly affected, by the financial meltdown in the US economy resulting from sub-prime lending. The effects of this economic jolt, isolated in the US, affected tens if not hundreds of thousands of people; here and all around the world. This economic stimulus is not unlike the Asian Financial Crisis of a few years ago or the Russian Petroleum Crisis. The one thing that all of these events share, they originated in a single sector or a country or region, and their impact is felt around the globe.

There is a tremendous amount of research available that directly addresses the interconnectedness of peoples and economies around the world. But somehow we aren’t sensitized enough to bring it into our collections efforts. Today’s Current Asset Managers, those managing WIP and AR, must get out the dark ages and use all of the tools available to understand the economy and how it affects their clients. It is only through this understanding can they make educated strategic decisions on the collections of outstanding receivables.

Today’s Current Asset Managers should understand the impact the sub-prime crisis will have on their firm. Just in the last 4 weeks, several sub-prime lenders declared bankruptcy, and the remainder of which undertook mass layoffs. Simply looking at the most prominent, Countrywide, they issued a statement that they will lay-off 20,000 employees nationwide. However, that wasn’t enough ‘to get air flowing’; they needed a cash injection from Bank of America of 2 Billion dollars. Bring that home now, what does that mean to my law firm that has Countrywide as a client, or add a degree of separation. What does that mean to my client who has their commercial real estate financed through Countrywide and who is already debt laden?

A few years ago I gave a presentation on becoming more strategic in AR management to mid-sized law firms in the mid western United States. This was at a time of pre-recession in the US economy, a time when the Canadian economy was starting to gain momentum. Of the firms present, a few had clients in the consumer products realm. The question I asked of those firms, a bulk of your clients use raw materials in the production of consumer products, much of those raw materials originated from outside of the USA. “Since the NAFTA Free Trade agreement was premised on the partner countries having a certain exchange rate with the USA, how do you think it will affect your client’s ability to manage their business now that those country exchange rates were increasing?” All that was heard was the buzz of the fluorescent lights, the blank stares were overwhelming. Here was a group of Current Asset Managers who simply never thought about how their clients would be affected. It was only from the following dialogue that they became aware of; how their client’s business did determine how the firm got paid.

It think it is high time that asset managers stop the analysis paralysis, stop the mountains of reports, stop the highly reactionary year-end fiascos, stop behaving like we are in the dark ages! Today must be the day to shed the ‘ball and chains’ of your past! Recognize that you and your firm can add tremendous change to your bottom line by simply understanding your clients in light of what is going on in the world today. Whether it is toy recalls, sub-prime crisis or OTR cartage from Mexico, it is your duty to understand your clients and act in the best interest of your firm!

Whether you choose to believe it or not, it is a small world. The Milgram experiments of the late 1960’s demonstrated to a non-internet world that there are only 6 degrees of separation between any 2 people on the planet. That was over 40 years ago! It is a small world, listen to it and learn. Most of all bring that knowledge back to your firm and act on it, it’s your duty!

Monday, September 03, 2007

Global Competition, the Thief in the Night!

…“later than same day, they arrived at cheese station C. They had not been paying attention to the small changes that had been taking place each day, so they took it for granted that their cheese would be there. They were unprepared for what they found; no cheese!....”*

Isn’t it amazing how we take so much in life for granted? For the early part of our adult lives we are in a learning mode, and then we settle into a career and begin to take things for granted. We get into the mode of ‘it has always been done this way, therefore…’ The number of stories that touch on the concept of complacency, if stacked, would be miles high.

Innovation not complacency is the key to survival in the 21st century. With the rapid expansion of the internet and multi-media tools the communication gap locally, nationally and globally is shrinking by the day. No longer must we concern ourselves only with local competition we are now faced with competitors all over the globe. Organizations all over the globe are vying for our business. These companies are slowly providing our clients with better service at a better price. The key to success, beyond survival, is to see clients in a long term light.

In a recent article entitled “The Secrets to Toyota’s Success”, the author discusses Toyota’s current and planned success. “Toyota’s set an ambitious sales target (planning to trump GM’s 1978 record of 9.55 million vehicles sold) but according to analysts, the goal is attainable.” “What’s the secret to Toyota’s success?” “Some people say long-termism.”

I am saddened when I see so many professional services organizations managing their client relationships they way they did 10-15 years ago. What many of these firms fail to realize is that the clients are smarter today? They have more knowledge and more tools at their disposal than they did 10 years ago. Therefore the methods of managing the relationship must change. Clients need more information in a more expeditious manner. Unlucky is the firm who simply can’t meet the requirement.

Those firms who have not broken free of the bondage of old practices, allow clients to control their banks. These firms have become their client’s bankers, by extending credit terms with their slow paying antics. With all of this technology, how does this happen? The management of the client portfolio represents the tie to the past; it is the missing link that has separated the ‘profession’ from any other type of work! With everything good, there must be bad to balance the equilibrium. In my career I have witnessed almost 50 firms die a painful death; some of these firms were small. Others were huge global firms. In many cases, they were unable to free themselves from managing their client portfolio.

In this day of rapid technological advancement and unprecedented globalization, a firm’s competitive advantage must be gained on the back of technology, as nothing is moving and advancing as fast. Bill Gates, in his book ­Business at the Speed of Thought¸ captured the essence of what organizations have to do today and will have to do into the future for their survival. For survival will be based on how organizations can leverage technology to create their own competitive advantage.

Finding your organization’s competitive advantage is the key to survival. Leveraging on technology to accentuate that competitive advantage will mean the difference between success and failure in tomorrow’s global economy.

Will you wake up one day and wonder who moved my cheese (clients) or wow, look at all the cheese (clients)? The answer is in your grasp today, don’t let it slip away!

In the coming weeks, I will spend time looking at some of the market forces that are acting on the legal profession and some of the possible changes we will see in the coming decade.

*Johnson, Spencer, (1998), Who Moved my Cheese? G.P. Putnam’s sons publishing, New York, NY