Yet another large law firm has opened a low cost service center. Is this old news that firms can simply note – or a call to action?
Last week Pillsbury announced that it will open a low cost service center in Nashville, TN. Let’s start with a review of which other firms have already opened such centers.
Several firms now operate centralized service centers in low cost locations. Among US-based firms, Orrick has a center Wheeling, WilmerHale in Dayton, Reed Smith in Pittsburgh, Baker McKenzie in Manila, and White & Case in Manila. Among UK-based firms, Clifford Chance has a center in India, Allen & Overy in Belfast, Herbert Smith in Belfast, and Linklaters in Colchester. Separately, many firms in both countries have outsourced one or more business functions to companies that operate low-cost, centralized facilities.
A service center outside a high-cost city offers two obvious benefits. First is lower cost. Moving jobs from DC to Dayton, London to Belfast, or LA to Nashville reduces compensation and rent. The second is improved efficiency and effectiveness. Consolidating and centralizing a function offers several benefits: more flexibility to adjust staffing to meet peaks and troughs in demand; staff can develop specialized skills; easier to offer 24×7 service; and better potential (relative to dispersed support) to streamline and automate processes.
Now that a half-dozen US firms have opened low cost centers, will the market tip? Do other large firms risk suffering a cost and operational disadvantage if they do not have one? Yes, but the message is less “open a low cost center” and more “figure out how best to centralize support and reduce cost”.
Firms with offices in lower cost cities can centralize support in one of those cities (as Reed Smith did.) Those that operate in high-cost cities may need to open low-cost owned and operated centers or outsource.
Firms that do so should take full advantage of the opportunity. The transition can be costly, financially and psychically. Management should therefor take the opportunity to take a deep look at how they provide support overall. As I suggested in 2009 in Law Firm Staffing Reference Model, the “theory of law firm support” is not well developed. Benchmarking goes only so far. It can instill false comfort since many firms, despite lay-offs, are over-staffed or “wrong-staffed”. Smart law firm managers thus need to ask what support areas are weak or strong, what lawyers really need (and not just want), what training / experience is required to provide the support, and where those staff should sit. Answering these questions thoughtfully will make any centralization that much more valuable.
Firms that do not assess support needs and reduce costs may eventually need to lay-off staff. If the lay-offs in 2008 are any guide, the best they do is cut costs. Without careful planning and analysis to re-tool support, lay-offs are just a short term fix. Whether motivated by fear of future lay-offs or needing to remain competitive, I expect to see more firms open low cost centers or outsource.