Outsourcing Innovation is the cover story of the current issue of Business Week (March 21, 2005). It reports that major companies now outsource R&D, not just manufacturing. Does this have implications for the legal market? 

I think so. Not long ago, US companies viewed outsourcing as limited to manufacturing and low-end, commoditized work. Now, “the next step in outsourcing [is] innovation itself… the demarcation between mission-critical R&D and commodity work is sliding year by year.” If Dell, Motorola, and Philips buy complete designs of digital devices in Asia and if big pharma teams with Asian biotech companies and if P&G will generate 20% of its innovation ideas from outside, then why can’t large law firms outsource more of their activity to lower cost locations?

To some extent, large law firms already recognize that they can farm out work. I have previously written about the growing use of contract attorneys to review discovery documents and large UK firms delegating property and due diligence work to regional firms.

As corporate clients outsource ever higher links on the value chain, it seems reasonable to assume that they will eventually expect the same of their outside counsel. After all, if top-notch corporations can innovate, maintain quality, and lower costs by outsourcing non-commodity work, why can’t law firms do the same? At minimum, it seems to me that corporate CFOs and business people should be shocked to learn how much routine work their expensive outside firms really do.

Large firm CIOs may not be able to initiate outsourcing substantive legal work, but they will certainly be asked to support it. Whether it is collaborative extranets, workflow, databases, or document assembly, technology will be critical to supporting growth of outsourcing in the legal market.