Offshoring and outsourcing have been hot topics in the legal industry for several years but, until recently, law firms were more likely to advise their clients on the subject than restructure themselves.
In the reality of the post-credit-crunch legal industry this has all changed. Cost cutting is now a top priority for managers within law firms and for their corporate clients, which has led to an increased focus on legal services outsourcing (LSO) and a marked shift of firms’ resources into low-cost, overseas centres.
Calm before the storm
In January 2009, before the reality of the credit crunch had really hit home, OMC Partners surveyed more than 100 managers at law firms and legal departments in the UK and the US. The results were instructive. While there was a hunger for reduced costs, with over 90% of respondents looking to cut jobs, fees and support costs, there was less clarity about where these cuts were going to fall.
Outsourcing was accepted as a solution to reducing overheads, and it seemed that support services were the prime candidates for this, with secretarial work, IT, human resources and knowledge management being considered by the majority of respondents. When it came to actual legal work however, there was still a resistance to any sort of outsourced or offshored solution, particularly within law firms, with more than three-quarters claiming this would never happen in their firm.
It seemed that while law firms were ready to accept that non-core support services could be managed overseas, the ‘crown jewels’ of their work – legal services – were inviolable. Managers simply were not ready to admit that a change in their core business model might be desirable or even necessary. However, just a few short months later, the reality is somewhat different, as LSO has emerged as a major trend.
The real development has been the increased uptake of LSO by corporations; they in turn are putting pressure on their external counsel to follow suit. Examples include the Tyco Electronics Corporation agreement with Eversheds LLP, and Rio Tinto’s move to cut its legal overheads by 20% by using CPA Global’s LSO services. Financial giants HSBC and Deutsche Bank have also publicly moved from ‘piloting’ LSO to building it into an integral part of their operating models.
These high-profile examples (and a host of less-publicised moves) have forced a radical response from major law firms. In recent months, Allen & Overy, Clifford Chance LLP, Pinsent Masons LLP and Simmons & Simmons have all announced new or extended LPO initiatives.
And so they should. LSO is no different from any other alternative sourcing model. The key is simply to identify the parts of your workload where you truly ‘add value’, as opposed to the ‘routine but necessary’. It’s the former that you should keep in-house, while the latter can often be better served by specialist providers. From an in-house perspective, our experience shows that within the past six months, the scope of what is acceptable for general counsel to outsource has become significantly wider. With that recognition in place, there is now a real opportunity for firms to generate short-term competitive advantage and long-term, sustainable business benefits from using LSO services.
This article first appeared in Legal Strategy Review, Issue 5
Jack Diggle is a partner at OMC Partners, a London-based management consultancy that provides advice to professional services companies
