Middle Office Support for Law Firms – Captives v Outsourcing
Many large US law firms own and operate low cost service centers. These “captives” provide a range of “middle office” support such as IT, finance, word processing, and business research. Since 2012, five US firms announced or opened captives: Pillsbury (Nashville), Bingham (Lexington), Kaye Scholer (Tallahassee), K&L Gates (Pittsburgh), and Sedgwick (Kansas City). That’s on top of at least one-half dozen that opened pre-2012.
While about a dozen firms operate captives, none outsources a full suite of middle office services. That’s surprising given the prevalence of outsourcing in other industries. Many firms do, however, outsource selected services such as eDiscovery and legal word processing.
In what may reflect a chicken-and-egg problem, a large law firm wanting to outsource its middle office would find limited provider options. So I was intrigued when I recently learned that DTI Global now offers a mixed model of outsourcing and support for law firm captives. I thought of DTI as an eDiscovery vendor so took note when it announced it would provide legal word processing to Bingham’s Lexington captive. Blending captive and outsourced models is interesting.
So in March I spoke with DTI executives Christopher Aronson and Jason Brennan. Chris is President , Knowledge Solutions, Jason is COO, Knowledge Solutions. Both joined DTI in 2011 and have experience at OfficeTiger, one of the first legal outsourcing companies.
They observed that many companies use 3rd-party services, even for mission critical support, attracted by lower cost, shared resources, and deeper expertise. Law firms, they noted, outsource much less. With more and more firms facing client fee pressure, however, they think firms may outsource more.
To meet existing and emerging law firm needs, DTI offers middle office outsourcing from its own facilities, support for captives via staffing onsite and offsite overflow, and consulting to improve support operations. Their goal is to help firms evolve at whatever their comfort level is. To do so, the company has built infrastructure. For example, it hired Yvette Thomson to run the company’s word processing business. Plus it acquired Providus, a document review and legal staffing business, which enhanced DTI’s ability to recruit skilled administrative staff for both outsourcing services and to provide directly to law firms.
Chris noted that law firm captives sometimes have trouble finding the right skilled people in local markets and that DTI can fill such gaps. Furthermore, firms struggle to meet peak demand; DTI teams in DTI centers meet overflow needs. The company also offers library and research services, KM support, conflicts checking, and CRM support. (See DTI Knowledge Solutions for more information.)
Hearing about these services, I asked Chris and Jason the question of build versus buy generally and the fact that firms had built so many captives. They think it is a big leap for law firms to embrace outsourced support. But they view captives as an interim step, part of transformation that may lead to turning over more services to providers. (Financial services followed that path; it now outsources a great deal).
We also discussed whether savings to date reflect labor cost reductions or also efficiencies from re-engineering. Chris and Jason see more room for the latter in middle office support over time. They expect firms to move from simply measuring utilization to measuring outputs. That, in my view, is essential and worth the hard work it takes. When I worked for a legal outsourcing company, law firms expressed concern about quality and productivity yet few measured either for their in-house support.
Firms clearly continue to feel pressure to control cost. Since the beginning of 2013, about every other week, I’ve read about an Am Law 100 or 200 lay-off. Making many more cuts may be hard. So firms likely will look for other avenues to save. This could mean more captives – or it could mean more outsourcing.
In writing about DTI, I have not evaluated its services nor have I surveyed the market for competing services. I merely found it interesting that an established legal provider is moving into middle office support and doing so in a way that offers firms multiple options.
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