In speaking about outsourcing, Kevin commented that he feels like he’s overstating the point on a lot of these things, because he’s been involved in this arena for so long. He added that evaluating a company to handle outsourcing is like evaluating any business partner – think about the challenges of hiring a third party that you’ve never worked with before, to work on something that might end up in your clients’ hands.
Going back to the PR side, Kevin said there are firms out of the UK who are very involved in the legal outsourcing space, and they do it in two steps – they handle some work themselves, but they also help the client understand why that’s good for them. It’s more than just the cost, it’s connected to value and the client wanting to use them over and over again. So firms should do their due diligence, understand these points and be able to articulate them to your clients. You want to be able to say that it’s not that you want to be cheaper, but you’re outsourcing because it’s the right strategy for the client.
Tim commented that the firms in the ILN are the type that benefit when clients are choosy about their providers, and don’t simply look for the biggest.
He then asked Kevin to discuss some successful case studies for firms. Kevin offered a slide with data that is a couple of years old, noting that it’s likely improved. The data came from an experience with one of his clients in 2008. The goal of the LPO model is to tune and improve process. This particular case study involved an engagement where a company was doing contract drafting for a global consumer goods manufacturer, with data coming in from Switzerland. Their GC had a number of issues to address, and was getting a lot of pressure to do more with less.
But he also surveyed the attorneys and professionals in his department and realized that they felt like they needed to be more strategic, that they weren’t as happy as they thought they would be in a large global legal department. So they started to measure aspects of the relationship that could help them with the overall enjoyment of their jobs.
In the first graphic, we saw a comparison between an in-house attorney’s time to do a confidentiality agreement alone (90 minutes), versus being assisted by an offshore vendor (30 minutes). With this time savings, the in-house attorneys get more time in their day. These attorneys were then able to be redeployed to do things that were more appropriate for their skill sets – this was an eye opener to everyone involved. As a result, their job satisfaction was improved because they could go to their managers and work with them to become more strategic.
Another benefit of outsourcing was reducing costs. Kevin said that he understands this goes against the law firm market, but reminded the audience that if you could bring that value to their clients, they will want to continue to work with you and bring you the top of the pyramid work. This graphic showed that the estimated cost of a legal research project for an offshore attorney was $800 versus $3,500 for an AmLaw 200 junior attorney.
The last piece was perfect efficiencies – when you give work to a company that has this as their core profit-making service, they will get better over time. Your clients will see that, and you can bring that data to them – it’s pure business development. By necessity, your firm will become a data driven organization – corralling and weaponizing data can be a liberating experience. This graphic looked at client offshoring metrics – the volume of contracts offshored in the first year was 100, while in the second year, it was 136. The average vendor hours billed per contract in the first year was 10, versus 5.6 in the second year.
Tim wrapped up by saying that outsourcing fits with what he talked about in the previous two webinars, fora modern law firm looking to thrive where there is price pressure and demanding clients, the LPOs have paved the way. Whether or not a firm chooses to hire an LPO or just embrace the concepts, they have blazed the trail, finding ways to break down the work product that firms deliver. Will firms make less money? Not necessarily – firms might look at what clients paid in 2008 and worry that they’ll be making less than that, but clients aren’t going to pay that today anyway, so why not find a lower cost to deliver those services.
Questions & Answers
Tim said although they had incorporated a lot of questions they’d gotten prior to the webinar, he invited the attendees to ask any additional questions they had. The one question to come in asked the presenters to cite some examples of corporate legal departments or law firms that are engaging in outsourcing in a strategic way.
Kevin said that there are a lot of them. All of the investment banks, whether they’re public about it or not, are using outsourcing. Those that are public include Credit Suisse, JP Morgan, RBS, and UBS. There are also other companies using it, such as UPS, Rio Tinto, Wal-mart, Cysco, Nike, and The Gap. These are all large legal departments that have incorporated LPO either on their own, or through their outside counsel, as a strategy.
On the law firm side, Kevin could only speak to those firms that he’s dealt with, though he knows there are more. He said there is a greater incidence of adoption overseas in the UK – Allen & Overy, Eversheds, Clifford Chance, and Freshfields. In the US, there are a number of different flavors of the ways that big firms have strategically used LPO – mostly litigation or M&A due diligence work. These firms include Morrison & Foerster, Reed Smith, and Wilmer Hale – they’ve taken an interesting tack by being public about it, and the adoption rates are much higher than the media would indicate. LPO companies are pulling in $50-$150 million per year and with a cost structure that’s $25-$30 an hour, you can see that they’re getting a lot of work from a lot of sources.
Tim closed by saying that the lesson to be learned is that the firms who are a notch above the mid-sized firms are learning to find a lower cost way of delivering legal services. If we’re concerned about price pressure from our clients today, just imagine if the firms with the biggest brands begin to cost and price their services more in the range of what mid-sized firms offer – it’s only a matter of time before the price pressure gets greater.