Legal process outsourcing (LPO) has long meant “lower cost labor in India” to many lawyers. But LPO is fundamentally more about working smarter, not cheaper. A recent New York Times article drives home this point. And an American Lawyer op-ed explains the “news behind the news” in the Times.

Legal Outsourcing Firms Creating Jobs for American Lawyers, a June 3, 2011 front-of-the-business-section NY Times article, describes how LPOs such as Integreon and Pangea3 are creating jobs for American lawyers in low-cost US locations. It contrasts the growth of LPO, both onshore and offshore, with the challenges US law firms face, noting that “[t]op American firms have cut hiring or moved to a lower-tier pay system for many new associates.”

American Lawyer Editor-in-Chief Aric Press’ June 2011 commentary in the AmLaw Daily Blog explains both LPO growth and U.S. BigLaw challenges. In The Am Law 200: A Chasm with Consequences, he reports “a $1.1 million gap between the average profits per partner of the top 23 firms on The Am Law 200, as ranked by PPP, and the average of the next 27 firms.”

This gap, Press suggests, stems from how the market now segments legal work, with bet-the-farm matters on top and commodity work at bottom. The highly profitable 23 firms get the lion’s share of less price-sensitive premium work; the rest face increasing price pressure to win non-premium work. Addressing the question of whether this gap will continue, Press offers two “safe” observations:

  • Price pressure likely will continue when the economy rebounds.
  • “[W]hat’s striking about the behavior of many law firms over the past two years is that they managed their way to profitability by shedding colleagues who did not have enough work, not by examining how the work itself is done.” (Emphasis added.)

Aric Press’ complete comments in American Lawyer magazine expand on what he means by process. He observes that calling the number of hours lawyers bill “productivity” perverts the real meaning of the term. Real productivity mean more output per unit of input. To achieve that, he looks at two “disruptive forces”:

  • Knowledge management (KM), as instantiated by Kingsley Martin in his KIIAC system, which Press notes will “allow lawyers to reduce their costs of production”. (See my February 2009 post Measuring the Consistency of Legal Documents for more about how KIIAC helps standardize contracts.)
  • More disruptive than LPO’s lower cost labor is the process improvement. Press cites the process improvement work by Ray Bayley (of Novus Law), who has systematically decomposed the document review process. (See my 2008 posts describing the InnovAction award Novus won for this work.)

I am glad that the legal press and lawyers now are examining how they practice. Once the examination begins, that the process must improve is an inescapable conclusion. Large swaths of legal work must be run through what I call “Law Factory”, that is, industrialized with standard practices, appropriate technology, and cost-effective human resources. As more and more lawyers examine the process, I agree with Press’ implicit view that KM and LPO will grow.

[I first published a similar version of this post at, Explaining Onshore Legal Outsourcing Growth.]