Legal process Outsourcing (LPO) or Legal Services Outsourcing (LSO) as it is now called has been in existence for the last ten years. In the early years, clients who used LSO services were mainly General Counsels who were intrinsically adventurous or were in faced with the immediate need of cutting costs. LSO services were used in an ad hoc basis without any thinking around how best to maximize a corporation’s strategic goals. Around 2005, this began to change and more corporations and law firms started to evince interest on how LSO can fit into over organizational strategy as well as meet immediate needs in the organization.
The Great Recession has fundamentally and structurally changed the law business. This in turn has brought LSO to the forefront as another arrow in the corporation or law firm’s quiver to deploy in order to achieve strategic results.
The underlying forces accelerating this change are the twin factors or globalization and technology. If there is a culprit, it is technology as the great enabler of globalization making far flung locations merely a click away.
Structural changes in the law business
One the one hand, it is very clear that corporations are unwilling and unlikely to pay historic law firm rates for certain kinds of work involving junior lawyers or paralegals. On the other hand, particularly in litigation, the exponential proliferation of electronic data means that law firms do not have the manpower or skill set to manage such volumes. This means that the entire ecosystem of the law business is undergoing significant changes. There are numerous players vying for a piece of the pie. Law firms are not the only recipients of outsourced legal services.
The rise of strategic sourcing
Strategic sourcing groups within corporations are increasingly involved in the sourcing/outsourcing of legal services. There is now much greater scrutiny on legal spending resulting in not only ways of cutting such spending but rationalizing the goals and activities of law departments thereby affecting the entire supply chain of legal services. DuPont was the pioneer in the convergence model years ago. Today, strategic sourcing has continued DuPont’s pioneering activity by integrating a corporation’s strategic goals with very tactical activities related to its legal function and by extension all of the legal service providers, including LSOs.
The nature of the deal
In the last ten years, LSO companies have proved the credibility of their business model and there is general acceptance that LSO is an important piece of the legal services delivery model encompassing law firms at the top end and many other service providers along the supply chain. The advent of strategic thinking is now resulting in longer and deeper relationship with LSO companies. Most of the mature LSO companies are seeing longer term contracts. LSO companies are also participating in many initiatives in working their clients to develop new service lines as well as to become better integrated with the client organizations. LSO companies are partnering with law firms and other legal services providers to offer meaningful strategic and tactical solutions to the ultimate corporate client.
Similar to what had occurred with respect to IT outsourcing and BPO, credible consultants are assisting sourcing groups, General Counsels and law firms in taking a holistic view of their businesses and developing a game plan to deliver legal services very differently than in the past. The rise of the consultants has resulted in the LSO business moving from a project based business to a relationship based business where the LSO becomes an extension of its client whether corporations or law firms.
Here come the law firms
Many law firms have taken the prudent view that they need to play in this evolving playing field rather than face the risk of being sidelined and losing revenue. Law firms are setting up legal services provider groups by partnering with ediscovery companies and LSOs to offer fully integrated services to their corporate clients. Particularly in litigation, law firms cannot abrogate their ethical duties, nor can they make the argument that life will continue as it was in the past. Therefore, law firms are offering best of breed solutions in conjunction with LSO companies and others that are also very nimble and flexible in meeting the client requirements.
Here or there?
In order to be flexible to meet client requirements, the established LSOs have opened domestic delivery centers in the United States. This is not so much an issue of a dichotomy between onshore and offshore. Rather it is an issue of LSOs moving from a geographic location model to a capabilities model. In other words, the goal is the perform work where it can be best performed. If there is significant expertise or specific legal substantive skills required, it might be best to do this work in the United States. On the other hand offshore service delivery offers substantial cost advantages. In short, the LSOs are moving to a “best shore” model reflecting the maturity of the industry and the growth of deeper client relationships.
The inexorable march of the forces of globalization and technology will continue to affect and change all aspects of our lives. In the business world, the law business was hitherto relatively untouched by these forces. Not anymore. The delivery of legal services will change in ways we have not anticipated as yet and the entities delivering legal services whether law firms or LSOs will also be different in very fundamental ways. Fasten your seat belts for an exciting ride.