A recently released report by ValueNotes, a respected analyst firm, sheds light on what US and UK law firms think about legal outsourcing. 

Over at my employer’s blog, I co-authored a post, What Law Firms Think about Legal Outsourcing. It summarizes key findings of ValueNotes’ Legal Services Outsourcing: What Do Law Firms Think? and comments on them. Here is a summary of that post.

Many VN findings match the market assessment of Integreon as an LPO provider; there are some differences however from the supplier perspective…

LPO Penetration is Low. VN found that offshoring still has fairly low penetration among law firms; less than 3% of firms in a random sample had tried offshoring. Prior surveys and Integreon experience suggest it is much higher. VN surveyed lawyers, not firms, which may account for the lower finding.

Onshore Outsourcing is More Common. The total volume of outsourcing is higher if you take into account onshore outsourcing, which is more common than offshoring (especially in document review). In Integreon’s experience, only a small portion of the market is dogmatic about location; the vast majority let business requirements drive the location decision.

Cost Savings is the Main Driver. VN found that cost savings is the main driver but Integreon also sees that many customers, both law firms and law departments, also focus on satisfying client pressure and improving turnaround time. I know that other outsourcing providers share this view.

What Customers Seek in an LPO. VN found that customers of offshore services seek a provider with deep management and domain expertise, good references, end-to-end services, the ability to scale, and onshore/ global delivery capability. This is consistent with Integreon’s own experiences and what I hear from my peers in other LPOs.

Lack of Awareness is Biggest Reason Not to Offshore. The biggest reason law firms cite for not offshoring – 85% of firms – is lack of awareness of offshoring or no perceived need to do so. I was quite surprised since LPO has been around for 5 years and there’s been plenty of hype. Regular readers of this blog may recall I’ve been reporting on legal outsourcing since 2003!

Security Concerns. Firms cite security as a reason not to offshore. Firms can easily allay these concerns by assessing a provider’s facilities, security, and procedures. VN notes that firms with more extensive offshoring experience say that “client confidentiality and client conflict are not major concerns.” My own view is that the security I’ve seen at Integreon’s facilities exceeds that of any law firm’s I’ve seen.

Quality Concerns. Some firms that tried offshoring were not satisfied with the quality. These instances were likely ad hoc projects that were not properly planned or executed. A reputable LPO should be able to demonstrate understanding of the components of quality and a customer due diligence should reveal whether it’s real.

Document Review Dominates Offshore Work. For firms that do offshore, VN found that document review is the most popular function to send offshore. This is consistent with LPO industry experience.

Conclusions. It is certainly true that many lawyers are skeptical about both offshoring and outsourcing. We think this will change. My colleagues and I know that in the legal market, any new way of working takes years to penetrate. Firms take time to gain comfort with new ways of working; indeed, it takes time to use those ways effectively and achieve the desired quality. The legal market is slow to “tip” to a new way of working. But when it does, it tips quickly. We think in the current environment, the tipping point is upon us.

[Integreon has a free offer for the report – details at that blog post, What Law Firms Think about Legal Outsourcing. See where they agree and disagree with above observations.]

Update 26 June 2009 @ 830. The PosseList blog commented on above post. PosseList is a thoughtful and insightful blog focusing on contract lawyers in US and often comments on broader legal market trends.]