Tuesday, April 08, 2008

How LPOs will Help Law Firms Weather the Economic Storm

By Liam Brown, President and CEO, Integreon

The Wall Street Journal recently ran a story with a rather downbeat headline: “Why Big Law is Bracing for a Leaner 2008.” Yes, the economic downturn is going to have a major impact on law firms, but these revenue pressures will likely lead to operational improvements in order to preserve profitability. The truth is that the legal profession has been slow to embrace the knowledge process outsourcing (KPO) trend that Wall Street began adopting nearly a decade ago. However, this financial environment provides an opportunity to introduce efficiencies, which might have otherwise received a chillier reception during better economic times, in order to make law firms more efficient and competitive.

To be sure, law firms have long outsourced back-office functions such as payroll, copy center, mailroom and travel and it has become recent common practice for law firms to outsource IT functions too. But today there are also many non-core or low value-add knowledge worker functions that no longer make economic sense for law firms to handle internally. Non-core administrative functions include word processing and transcription, presentation graphics and accounting. Low value-add legal functions include e-Discovery services, litigation document review, research and intellectual property support.

I used to hear that constraints to outsourcing domestically or offshore to countries like India and Philippines included fear of losing control of the quality of the work or of security of information. But these fears are unfounded, as evidenced by the judgment-based, market-sensitive work the major Wall Street firms, major corporations and some leading law firms now outsource to third parties or their own offshore captives. Indeed, major law firms that so far have resisted the outsourcing or offshoring trend will find it increasingly difficult to justify the cost of retaining these non-core functions in-house, particularly in the high cost cities in which they operate. Today more than ever before, their clients expect them to operate cost-effectively on their behalf. My personal Eureka moment, which was the catalyst for Integreon entering the legal process outsourcing (LPO) market, was when I received an invoice from a Big Law firm for $250 an hour for their associates to review my email during litigation. I was very happy with the value-added legal counsel that the partner at the firm provided (we prevailed), and thought “I am happy to pay the partner $500 per hour, but Integreon has knowledge workers offshore who can do this kind of review work for one tenth of the cost of the $250 per hour associate here in U.S… and I can afford lots more of them to do the work faster and with more rigorous quality checking”.

Leading outsourcing firms deliver services from low cost domestic cities, such as Fargo, ND, as well as from overseas countries such as Philippines and India. This allows law firms to adopt a ‘best-shore’ approach to their operations, keeping some functions in the U.S. or U.K., while moving other functions overseas. For example, work requiring extensive ongoing interaction with the firm’s lawyers might best be delivered from a low cost onshore location. Or work, which would be completed overnight in U.S. by more expensive night staff, might be performed much more cost effectively during the daytime in even lower cost India or Philippines, leveraging the time zone difference. Or delivering services from multiple locations for business continuity reasons.

Those firms who have already invested in moving operations to lower cost locations over the last few years have a meaningful cost advantage going into 2008. I was recently sitting with the COO and CIO of one of our Big Law firm clients who both appeared quite relaxed because, as one of them put it, “we need to take $5m out of our cost structure this year and we can do that because we did the heavy-lifting of launching our offshore center already and now we just need to accelerate the rollout”.

So in my view, today’s pressure on costs will lead to lasting changes that will make the legal industry decidedly more efficient tomorrow. And the beneficiaries will be the LPOs, the partners at the law firms and the law firm’s clients.

Liam Brown is President and CEO of Integreon, a global provider of knowledge support outsourcing services.