Tuesday, October 16, 2012

Outsourcing Trends for Businesses in 2012

Outsourcing of IT work is increasing considerably in 2012, but that may be the only outsourcing that will increase by a substantial amount. The expansive outsourcing of legal work in the past may have come to a screeching halt, at least temporarily.

The Outsourcing Pace for Legal Work in 2012
Outsourcing of legal work is continuing at a slower pace in 2012, however, many experts believe that business conditions in the law business will prompt an increase. Last month a report from Citi Private Bank’s Law Firm Group said the following about the bottom line for law firms: “With weak demand growth and the continuation of expense growth, it is likely that expenses will continue to grow at a faster pace than revenue, squeezing margins and making it tricky to achieve even low single-digit profit growth.”

Large Law Firms are STILL Looking to Outsource
In light of the possible trouble that may lie ahead for large law firms, many are preparing for the worse. One way to prepare for a tough economic climate is to reduce one’s expenses.

It has been properly noted by David Lat on October 3, 2012 at www.abovethe law.com that the work that generates revenue for firms, still needs to get done. “One way of reducing expenses while still getting all the work done is to outsource certain functions to an outside service provider. This effectively gets job positions ‘off the books’ of the law firm, which no longer has to pay salaries or benefits for the lawyers or staffers in question; the law firm just has to pay the vendor.”

The Canadian Law Firms are Looking at the Reality of Outsourcing
In the September 26, 2012 Toronto Globe and Mail, it was reported that Christopher Sweeney, a co-founder of ZSA and the president of LexLocom, said the Canadian legal market “…has been reluctant to embrace outsourcing.” He says, however, “… the sector is growing, and a future of more outsourcing, and considerably fewer junior lawyers at the big firms, is inevitable.” “I don’t see any way around it,” Mr. Sweeney said. “It is the future.”

There is Still a Negative Outsourcing Growth in 2012
The negative outsourcing growth in 2012 is found in the US associate lateral hiring market in Asia for US and UK firms which are in a severe down cycle, at least when compared to the recent boom hiring periods (mid ’06 – mid ’08; mid ’10 to mid ’11), according to a report in Asian Chronicles published this week.

The Prospects for the Future
The remainder of 2012 will continue to see a slowdown in outsourcing, but the slowdown in revenue and the rise in expenses will ensure that outsourcing will rise again and perhaps to new highs.

Bio: Jacob Taylor, a finance writer for AnyLawsuits Settlement Loans, is an under-graduate writer who enjoys writing financial articles around business and personal finance.

Monday, October 01, 2012

Guest post: The State of Legal Outsourcing c. 2012

The state of the LPO market in mid/late 2012 is fascinating. The missing component is a credible reaction to the threat of LPO by US Law Firms in particular.

Here are 10 Key Facts that should wake up any Law Firm, wherever they are in the world.

1. 10%. This is the percentage of the AmLaw 100 that have taken strategic steps to address the threats posed by the arrival of LPO Suppliers. Those 10% have set up onshore, slightly lower cost options, which come at a price. (See Key Fact 2.)
2. $23 million. This is the cost of implementing an onshore, lower cost delivery centre. Post-Dewey, I’m surprised that any Law Firm sees the value of investing that level of resources in transactional, lower value legal services, but it is exactly the approach that Bingham McCutcheon announced recently.
3. 24 Months. This is the time it takes to establish your own LPO delivery service – 6 months to assess your firm’s options, 12 months to build it, and a further 6 months to get to anything like a stable operating environment.
4. 0. This is the chance that you will achieve the same price, service, and quality levels that the specialist LPO suppliers.
5. 0% This is the percentage of Law Firms who have a strategic offshore options across their firm. Tactically they can offer it via the LPOs they engage, but strategically, most Law Firms have limited options to discuss with their clients

6. 75%. Over 75% of all LPO business cases show saving of over 30%. In my experience 50-60% is not uncommon depending on scope. Regardless, the business case is a no-brainer.
7. 75% (again). This is the average amount of time that LPOs are spending on business development to General Counsel. This means that LPOs are spending three quarters of their time stealing work that would previously have gone to law firms automatically.
8. 32%. This is average annual growth of the LPO market in the last 3 years. This is not new legal work – this is legal work that was, but is no longer, going to Law Firms.
8a. 35% is the forecast annual growth of the LPO sector over the next three years, meaning that a growing drift of work from Law Firms to the LPOs.

9. (Close to) 0% (my estimate). This is the percentage of work that has already gone to the LPOs that will return to the Law Firms. There are always horror stories in outsourcing, but my experience in the market is that buyers are hooked on the concept (quality, service, speed) and pricing of LPO. So they take any bad experience and learn from it with another LPO supplier. They don’t take it back to their Law Firm

10. 100%. The number of General Counsel in medium-large corporations who will look at Legal Outsourcing in the next few years. Strangely, this is the glimmer of hope for forward thinking Law Firms. If they can create a compelling, strategic and flexible offering in this market then they can look sharp against the competition and win more business as a result.

Ed Brooks is the founder of The LPO Program, designed to give General Counsel and Law Firms all the tools and data to take strategic advantage of Legal Outsourcing. www.thelpoprogram.com

1.    Research by The LPO Program, not published
2.    Bingham press release
3.    My experience
4.    Based on general experience in 12 years on both sides of the outsourcing fence
5.    As with Point 1
6.    Our 2012 Global LPO Study
7.    Based on interviews with the LPO Suppliers (touched on slightly in the 2012 Study)
8.    And 8a Global LPO Study
9.    This is the hardest one to prove, but it is based on my experience, and I am open to being proven wrong
10.  A reasonably safe bet!