Last week, we had the final session in our Business of Law Series, on the topic of contract lawyers and outsourcing. This time, Tim Corcoran brought in a co-presenter, Kevin Colangelo of Yuson & Irvine.
Tim began with a few minutes to recap some of the topics we’d discussed in the first two webinars, so that the audience could understand the main drivers behind these changes. For those full recaps, please take a look at Legal Project Management Part I and Part II and Alternative Fee Arrangements Part I and Part II.
Outsourcing – Love it or Hate it?
Following this, he jumped into a discussion with Kevin about outsourcing. He began by saying that outsourcing is not a popular topic with law firms, but from a corporation standpoint, they already outsource their legal needs to their legal departments, who, in turn, outsource it to their law firm, so they’re very comfortable with it.
Kevin agreed that there is resistance, and said that there are a number of reasons for this. The bottom line is that the term itself carries a lot of baggage, sometimes justifiably and sometimes not. The notion that you’re going to "lift and shift" non-core activities outside of the firm’s walls is not offensive – it’s the right thing to do for your company, shareholders ad employees.
The history of outsourcing has always been found in the "back" or "middle office." In the 80’s and 90’s, manufacturers would outsource their IT functions to the experts. Inherent in this is that the company handling the work could often to it at a lower price point going in, and doing it in a way that they can measure, improve upon and is more core to them.
Kevin commented that there are two sides to outsourcing – labor/arbitrage is the first, and this is the one we know about, and where some of the stigma comes in, particularly when we’re talking about offshore. But more compelling, and the piece that Kevin spends the most of his time on, is the process-improvement piece. It speaks to a lot of what Tim mentioned, in terms of the three phases that law firms are in. It’s not just about cost-cutting, but using outsourcing as an evolutionary measure in the way you’re delivering services. Kevin talked about "weaponizing" LPOs (Legal Process Outsourcing) to help address client pressures. He added that so many general counsel thing that firms are not doing anything innovative on the delivery of legal services, and many firms have the mindset that outsourcing is a slippery slope when in reality, it can be a tremendous asset to any sized firm.
Outsourcing – the Definitions
Tim asked Kevin to define some of the terms, to give the audience a sense of what outsourcing means. Kevin showed a slide that gave some examples of the types of work included in the various types of outsourcing:
- Back office: billing, time sheet, IT, HR, word processing, data entry, indexing.
- Middle office: marketing, client/matter intake, business development, conflict management, business intelligence, pitch support, trademark support.
- Front office: legal tasks performed by fee earners, such as document review/privilege log, compliance, legal research, contract drafting and management, due diligence, IP.
In his earlier career, there were many deals to outsource IT, and many law offices did that. As time went on, they started talking about moving up the chain a little bit. In many circles, "middle office" work is still regarded as back office, but because it’s closer to the line of core than non-core, Kevin calls it "middle office." This is not as widely outsourced as some of the purely back office work, but there’s a lot of work being done in the middle office that is done by talented third parties, and no one refers to them as LPOs.
Kevin noted that the largest firms have actually be some of the earliest adopters, because of their structures. Tim said that his global law firm had had that same challenge, and chosen to have their own IT department, but to outsource all of their conflict checking. He said it helped them to learn a number of lessons from the challenges that they faced, such as having to carry people to work different shifts or have expertise on varying levels. These things would be even more challenging for a mid-sized firm.
In terms of outsourcing, Kevin said that a lot of what they talk about is very logical. There are different challenges based on a firm’s size, its practice groups and even different management styles. Looking at the AmLaw200 only scratches the surface of the legal activity that’s going on. Historically, the outsourcing of non-core activities takes a unique flavor of management.
Further, every client will be different. A lot of the vendors take a skeptical eye when they think about law firms, because they’re used to doing huge deals, which is not necessarily the case with law firms. So vendors are learning, and as outsourcing moves towards the front office, the vendors are taking this into account. Kevin spoke about commoditized front office work, which many attorneys will argue is core-work. However, he pointed out that everyone has to do doc review – everyone with litigation, energy, or even M&A work has to have a methodology for reviewing large quantities of documents. Every partner, every department, every case has its own pace and way of getting things done.
So on the vendor side, there’s the realization up front that while a lot of things can leverage technology to put this to good process, the trick is to make every engagement feel very custom. Once that challenge has been solved, and ones that particular approach has been brought to clients, the true value of such an engagement can emerge.
Tomorrow, we’ll continue our outsourcing discussions!