the rise of legal services outsourcing

The Rise of Legal Services Outsourcing Dr. Mary Lacity, Curators’ Professor, University of Missouri-St. Louis

Dr. Leslie Willcocks, Professor, London School of Economics and Political Science

www.IAOP.org

Legal Services Outsourcing

Legal Services Outsourcing (LSO) is the practice of procuring legal services from an external provider. (Too often the “LPO” nomenclature is used narrowly to refer to the tactical offshoring of low level legal work.)

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Why Study LSO?

It’s the next frontier of disruptions in services…

by Clayton M. Christensen, Dina Wang, and Derek van Bever, HBR, 2013

Research Method

Detailed data on 27 LSO providers including prices, skills, headcount, team location, team composition, turnover, self-assess capabilities on 22 LSO services Six case studies of enterprise legal functions engaging LSO providers (client & provider key informant interviews) Interviews with various LSO experts—authors, advisors, clients, providers


Six Case Studies

Overview of the LSO Relationships LSO

Relationship Contract

Start Date

LSO provider headcount dedicated

to the client

LSO Delivery Center(s) Serving

Client Main LSO Service(s)

Alpha 2010 About 18 lawyers India

Broad set of services including compliance reporting, contract drafting, and contract database support.

Beta 2009 12 to 18 lawyers Primarily India; Some United States

Procurement support; Research, document review, discovery, drafting, and compliance reporting

Gamma 2010 5 lawyers Northern Ireland Services procurement contract support

Delta 2010

Varies widely from 24 to 120 lawyers depending on size of legal matter

Primarily India; Some United States

Document review for e-discovery

Epsilon 2011 5 lawyers Primarily India Contract management Zeta 2011 3-5 lawyers South Africa Broad set of services 5 Copyright © Lacity, Willcocks, Burgess

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Forces Shaping Enterprise Legal Services

Enterprise Legal

Functions

PRESSURE TO REDUCE COSTS

Globalization of skills Emergence of capable Providers Technology enablement Deregulation


Source: (2011), Comparative Location Survey for Legal Services Delivery, OMC Partners

Globalization of Skills

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Capable Providers

Pure-play LPO/LSO Global ITO and BPO providers with LSO offerings

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Technology Enablement

Disruptive Legal Technologies: Automated Document Assembly Workflow & Project Management Technologies Interactive, online legal guidance Contract Management Systems E-Discovery systems Virtual Data Rooms Data Analytics



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Deregulation

American Bar Association agreed that offshore LSO was a salutary practice for a globalized economy in 2008. In the UK, the Legal Services Act of 2007 opened the dialog for alternative business structures like LSO.

Lin, A. (2008), “ABA Gives Thumbs Up to Legal Outsourcing,” New York Law Journal, August 27.



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What Might a New Age Law Firm Look Like?

Alex Hamilton Jason McQuillen

In October 2013 radiant.law won the Financial Times Innovative Lawyers Legal Industry Pioneer 2013 award


What Might a New Age Law Firm Look Like?


2. New Age Law Firm sells end-to-end legal services at a fixed price to clients

Technology LSOs/Captive centers/ IT labor

Process Standardization

3. Leverage automation

5. Build playbooks to transfer knowledge, to embed new learning and to protect against turnover

6. As LSO relationships mature, they can be part of an integrated seamless service to clients

4. Leverage cheaper, globalized labor

1. New Age Law Firm

High-end, experienced legal team located close to client

Client A Client C Client B



Client Case Study

Kunoor Chopra VP Strategic Accounts

• Previously Founder, President & CEO of LawScribe – founded 2004

• SVP of Global Legal Services at UnitedLex, which acquired LawScribe in 2010

• Previously an attorney at Nossaman and at Fulbright & Jaworski in Los Angeles


‘Legal Ecosystem’

Law Firms

General Counsel

Legal Operations

Procurement

Legal Technology Providers

Corporations

Consultants

Gov’t / Regulators

Standards Groups

Banks / Corp Finance

Legal Service

Providers


Case Study: NetApp

Support day-to-day tasks for GC

Advise on legal technology strategy

Help manage Outside Counsel relationships and spend

Provide managed services for: • Contract review • Electronic Discovery • Document review • Legal Project Management • Due diligence • Research


Case Study: NetApp

2013 Legal Department of the Year Technology category

2013 Value Champion

2013 ‘IC-10’ Top 10 most innovative legal departments

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LSO Value Proposition

Lower Costs

Focus In-house

lawyers on strategic

work

Increase Delivery Speed

Scalability Spur Competition

Improve Service Quality

Utility Pricing

Access Innovation

Process Transformation

Commer- cialization

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Labor Arbitrage ǂ Total Cost Savings

Total cost calculations must include:

Salary Payroll Taxes Lost Productivity during transition Coordination Costs Transaction Costs Communication Costs Transportation Costs Cultural Costs Time Zone Costs

Based on our case studies, the clients reported total cost savings of 30% to 50%.


Whilst an attorney in major legal markets such as the USA may charge from $150 to $350 per hour when performing services, LSO providers may charge between $25 and $50 per hour, depending on the skill level.


Lessons Learned: Similar to ITO & BPO

LSO Strategy

LSO Provider Selection

Contractual governance

Stakeholder Buy-in

Manage Provider Turnover

Relational governance

Transition &

Coord-ination of

Work

LSO OUTCOMES




LSO Strategy

LSO OUTCOMES

LSO Strategy: 1. Conceive of LSO in the broader context of legal transformation 2. Learn to disaggregate work 3. Seek more value than just cost savings

“We are transitioning our own legal team from bedside doctors to people who are trying to get the process to move as fast as it possibly can.” – General Counsel, Gamma Client


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LSO Provider Selection

LSO OUTCOMES

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LSO Provider Selection: 4. Consider provider capabilities (not just price) 5. Test provider capabilities with a controlled experiment

“We selected our provider because of their flexibility and their willingness to do what is right for us.” – Director, Delta Client




Stakeholder Buy-in

LSO OUTCOMES

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Stakeholder Buy-In: 6. Communicate Early; Involve in-house lawyers 7. Prove the concept 8. Use KPIs to incent adopt 9. Invest in face-to-face meetings

“Lawyers think they are important, but it’s just another service” – General Counsel, Gamma Client

“We are part of the mystical craft of specialists. We’re professionals, and you can’t commoditize us” said one GC

“The main concern was that the LPO provider would not be capable of doing the work,” said another client.




Contractual governance

LSO OUTCOMES

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Contractual Governance: 10. FTE pricing for cost predictability, simplicity & administration ease 11. Unit pricing for high-volume, standardized work 12. Mandate productivity improvement 13. Dedicate time to drive innovation 14. Gainshare on innovation projects

One GC said, “We haven’t linked price at any specific volume criteria at this point.” Another GC said, “I think one of the challenges of unit pricing is finding enough volume to get to that kind of model. Legal services have much less volume altogether.”

Advanced Practice, not widely adopted yet




Transition &

Coord-ination of

Work

LSO OUTCOMES

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Transition & Coordination of Work: 15. Assign a high-level point person to manage provider relationship 16. For large projects, use an onshore engagement manager 17. Build a playbook to specify requirements 18. Build a portal to request and route work 19. Direct in-house lawyers to nurture LSO provider employees 20. Joint & frequent communication among client, LSO provider, law firm & technology provider

“If you think you can just throw the work over the fence and expect to get something back exactly as you like without any other investment, chances are they will not be that successful on their own.” – Chief Counsel, Beta Client




Relational governance

LSO OUTCOMES

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Relational Governance: 24. Treat the LSO Provider as a partner, not a vendor 25. Resolve issues and conflicts together

“I think treating them truly as a partner on the team, a team member versus a vendor that we are trying to beat up on price every time we are talking to them.” –Director, Delta Client




Manage Provider Turnover

LSO OUTCOMES

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Manage Risk of Provider Turnover: 22. Have LSO provider overstaff the project 23. Keep playbooks up to date

“Turnover has been very, very low. It has been absolutely no impact at all to me.” – one LSO client “The turnover has been high within the dedicated team.” – another LSO client




How is LSO Different?

LSO is more challenging than ITO & BPO: Three parties, not two (client, law firm, LSO) Jurisdictional requirements Qualification requirements Heightened risk averseness Limitations from partnership consensus management

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Attributes of the Legal Profession



LSO is more challenging than ITO & BPO: Three parties, not two (client, law firm, LSO) Jurisdictional requirements Qualification requirements Heightened risk averseness Limitations from partnership consensus management Provider market structure Predominantly an offshore model Continual market development and maturing Relatively small provider base Specialist technologies

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Emerging LSO Provider Landscape




LSO is more challenging than ITO & BPO: Three parties, not two (client, law firm, LSO) Jurisdictional requirements Qualification requirements Heightened risk averseness Limitations from partnership consensus management Provider market structure Predominantly an offshore model Continual market development and maturing Relatively small provider base Specialist technologies Lack of process maturity Focus on cost reduction Tactical projects Lack of data and experience

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Emerging LSO Provider Landscape

Immature Client outsourcing capabilities




Eight Trends

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1. The shape of enterprise legal functions will increasingly move from “pyramids” to “diamonds”

2. Enterprise legal functions will conduct more panel reviews, reduce the number of law firm partners and increase bundled legal services

3. Law firms will respond 4. LSO providers will move up the value chain 5. New engagement models will emerge 6. Significant M&A and strategic alliance activity will fuel

provider growth and capabilities 7. New locations will become competitive 8. Technology will play an increasing role in the provision of

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the rise of legal services outsourcing

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