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Offshoring and Outsourcing. Report from ILTA Session

This post summarizes the Offshoring and Outsourcing session at the International Legal Technology Association annual conference. The session took place on Monday, 22 August 2011. The panelists were were Toby Brown, Vinson & Elkins, Kevin Colangelo, Pangea3, and Jordan Furlong, Edge International. [I originally posted this as a real time blog entry at the Integreon blog.

Session Agenda:

  • Have you analyzed your business?
  • Where should you focus your energy?
  • What do LPOs bring to the table
  • What does this mean for you and your firm?

Jordan: We should start the discussion by looking at what clients want. Clients no longer just think all legal work is the same – they view it as stratified: At the top of a pyramid is “mission critical.” In the middle is the “ordinary course of business“. At the bottom is “commodity.” The amount of mission critical work is fairly small. Clients will pay top dollar for this work. The volume of ordinary course work is fairly high volume but it does not matter much which lawyer does the work. Commodity work occurs in very high volume. Most law firms say they do not do commodity work Clients are now asking if they even need a law firm for commodity work. LPO, for example, is an option.

Jordan: Most firms say they want the mission critical work. But the volume available will not sustain that many law firms. What does this mean for law firms? Jeff Jarvis says “do what you do best and outsource the rest”. Jarvis is in the newspaper business. His view is that there is not point in 50 reporters each covering the same news. Journalists need to focus on topics on which they have a unique perspective. Jordan applies this thinking to lawyers. [Editor’s note: see Jordan’s blog post The Rise of the Super-Boutique for more details of this thinking.]

Toby: Distinguish between “core v. context” This is from Dealing with Darwin by Geoffrey Moore. Core is what clients hire you for. It is any activity which creates sustainable differentiation in a target market. Context is all other activity required to support the delivery of core activities. Until recently, law firms did not have to think about business and practice in this way. At one time, law firms thought that copying was the only non-core activity. Today, many activities may not be core, for example, e-discovery. Toby is now “Director of Pricing”. In this capacity, he needs to think through the different elements of work and price them appropriately.

Kevin: “Current market drivers for law firm use of LPO are primarily reactive, while evolving market drivers focus on proactively growing the business and deepening client relationships.” Cites Michael Porter’s work on competitive forces, saying that until recently law firms have not had to think about competition deeply. Today, it is not just other big law firms that are competitors, but various alternative providers. In early days of LPO, it was law departments that sought the service because of cost control. Today, law firms talk to LPOs as well. Talks to law firms about “weaponize”, meaning using LPO to improve competitive positioning. There may be 20 firms that do not have to worry about pricing and competition. There are also firms are actively talking to LPO about competing more effectively. The vast number of firms in the middle have to figure out what they will do to compete.

Discussion and Audience Questions:

1. For Toby: how, as a firm works on the different elements of a matter, should it consider outsourcing? Toby uses patent work as an example. Patent work falls into three tiers, from easiest / lowest value to hardest / highest value. To succceed at each tier, firms must figure out (A) what work to do and what can be skipped altogether and (B) of the work that must be done, who should do it. The who may be different levels in the firm or outsourced providers.

2. How should firms split out work on a single matter (to different resources or an LPO)? Kevin: law firms have different thinking about this. Discusses the issue of onshore v offshore resources, time zones, and the need for both the right technology and communication protocols to coordinate work. It’s easist for an LPO to “bolt in” to litigation because the process is well-defined. But thinks LPO is not at the “plug and play” stage yet. Many legal organizations are not yet ready for integrating their operations to work seamlessly with external providers.

3. Recently HP acquired Autonomy. How do acquisitions play out in legal and LPO? Jordan says that many big companies have ‘outsourced’ R&D by buying small companies with new technology. He thinks that is what Thomson Reuters did in acquiring Pangea3.

4. How should firms think about outsourcing multiple functions? Kevin says that what is hard to think about in legal market is commonplace in most industries. Most industries have outsourced a range of functions for a long time. In terms of job security, the real issue is that many law firms are still over-staffed in many areas. Individuals have to work hard to make sure they focus on work that is strategic to their law firm. Outsourcing may force everyone constantly to make sure they are keeping up their skills. Toby: most in law firms are not worried enough about the job they do. Many jobs and roles are at risk because of the underlying economic pressures. Uses himself as example: worked at a firm where he transitioned from KM to AFA because firm saw more value in latter.

5. What percent of work is tactical and what percent is strategic? How will this look in 3 years. Kevin says 1/3 strategic and 2/3 tactical. It will be a slow march. Lawyers take time to develop comfort using alternate providers, whether it is an Axiom or an LPO.

6. In UK, we see firms setting up their own near-shore centers. Is that happening in US? Jordan cites Dayton [WilmerHale], Wheeling [Orrick\, and Carrollton [Pangea3].