Legal Process Outsourcing (LPO) Prospects in a Tough Economy
Earlier this month I wrote a post Taking the LPO Temperature: Warm, Getting Hot, But Doubts. A new article in Corporate Counsel about legal process outsourcing deserves its own discussion.
Will Tough Economy Push Companies to Outsource Legal Work? (Corporate Counsel, 22 Dec 2008) by David Hechler is a detailed, well-written article that provides a balanced view of legal outsourcing. Rather than summarizing it, I will call out and comment on a few points that I find most interesting.
The Pot Calling the Kettle Black? I was glad to see in print a point I often make. Quoting Susan Hackett, ACC’s general counsel, ” ‘For me,’ she says, ‘offshoring is just another kind of outsourcing.’ And after all, sending work to outside firms is outsourcing.” In my experience, many BigLaw lawyers fail to recognize that their firms are outsourcing service providers. The irony of protesting outsourcing appears lost on them.
The Chefs Have Not Visited Their Own Kitchens Lately BigLaw partners express concern about the quality and process of working offshore. So I was glad to read: “It would be interesting, Rowe [of Huron Consulting] responds, to take the processes the Indian companies use and apply them to U.S. firms. It isn’t outsourcing that’s costing legal jobs in the U.S., adds his fellow Huron exec, Shahzad Bashir. ‘Poor business models are losing jobs.’ ” In my experience, the processes, especially quality control (QC), of reputable LPOs are better than in US law firms. I wonder if US lawyers who question LPOs have ever spent time in the trenches of a big onshore document review.
Low Cost Ingredients are More Flavorful. Microsoft moved patent application work to India. It has saved money and improved quality. The savings can be as high as 90% compared to the US and are never less than 60%. The article also reports, however, that Intel tried offshoring patent work and stopped because it could not get the quality it wanted.
There’s More than One Way to Slice This This article addresses some important legal outsourcing points I’ve rarely seen covered in the legal press:
- Offshore services can be provided by “captives” or third-parties. A captive is an offshore operation owned and operated by an onshore company. The article notes that captives are more expensive than third party operations and that many are being sold by their corporate owners.
- Dual- or multi-shore services are important: “more ambitious vendors have looked to provide services onshore and off because that’s what their clients want”
Don’t Look behind the Refrigerator – You Might be Disgusted Some law firms may get themselves in trouble when it comes to outsourcing. The article relates a story about a BigLaw visit by an LPO executive. BigLaw firm
“thought offshoring was a terrible idea, until Reed [a United Lex executive] mentioned that his company also does accounting — and can reduce a company’s costs by 30 percent to 50 percent. Suddenly, Reed says, the lawyer was very interested in outsourcing.”
If I were a general counsel reading this, it would confirm my worst fears about outside counsel. This puts BigLaw in the light of wanting to reduce its own, non-billable expenses but dead-set against lowering client charges by using more cost-effective resources.
Update (21 Dec 2008) || Who’s Ordering these Meals and How Much Do They Really Cost? Just came across ANALYSIS: Legal Process Outsourcing: just hot air? (ALB, 18 Dec 2008). Author Joshua Scott questions whether law firms will purchase much LPO services. He suggests multi-nationals will be the buyers. He also questions the savings, citing the added cost of managing the provider. Personally, I believe that argument is weak: lawyers do have to manage LPO services. The real problem and “added” cost is that many do NOT manage their own internal processes.
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