Nothing New About Legal Outsourcing

Firms have always sent some work outside the company (even offshore). Altman Weil jumps into the fray.

Free Webinar on Legal Process Outsourcing

I've written in the past about the importance of learning about legal process outsourcing. Lawyers need to understand the changing dynamics of delivering legal services in a world economy.

I just learned about a free webinar on the the subject. For more info, click here.

Better Learn to Oursource

If you want to succeed in the practice of law, you better learn how to outsource certain functions. Clients are not going to pay full freight for tasks that can easily be completed off shore at a much lower price point but at the same level of quality. But there are risks involved. My latest article on The Complete Lawyer website.

Jobs in India for US Lawyers?

The growth of LPO in India may provide one source of jobs for American lawyers who are looking for adventure!

Large Firms Beginning to See Value in LPO?

When legal work began to be outsourced to India, it was presumed that corporate counsel would be the most willing to employ the strategy to control legal expenses. Small firms were presumed to also be interested because LPO provides a ready and scalable workforce that is not on the regular payroll (i.e. small firms would be interested because it gives them a way to staff up temporarily for larger matters).

But one LPO asserts that large firms are beginning to use LPO as a way to pitch business to corporate counsel. By offering corporate clients high quality services at better rates, a few large firms now see LPO as a way to differentiate themselves from the competition.

A Hint About My Next Moves

My most recent article in MLW gives a preview of what I will be doing next. More to follow.

Off the Beaten Track at a Trade Show

LegalTech New York is history. As I have already indicated, the show was a nice antidote to our economic malaise. It was a reminder for me that getting out of the office to learn something new is a good way to recharge. It was also fun to talk with professionals who are trying to figure out ways that legal services can be delivered faster, better and cheaper.

I'm still following up with the contacts I made and I am still processing the mountain of information that was presented to me. I am also trying to meet my commitment to blog about some of the sessions I attended. So here goes:

Most of the conference seemed to focus on using technology to manage large amounts of corporate data and to streamline discovery. I attended one session on data privacy issues that was eye opening (many EU countries are much stricter about keeping personal data secure). There was also a lot of buzz about the social networking site Twitter. In addition, I attended a number of very good sessions on how lawyers and law firms can use social networking more effectively (i.e. use tools like blogging, Twitter, Facebook, LinkedIn, etc. more effectively.)

But the best session I attended at the conference was a workshop on Legal Process Outsourcing (LPO) sponsored by the ClutchGroup. The panel featured two representatives from the ClutchGroup, two law firm attorneys who have used outside vendors to manage large document projects, corporate counsel from a large public company and a former GC who has a lot of experience in reigning in legal expenses.

For the most part, LPO was really a peripheral topic at the conference. LPO relies heavily on technology and there will continue to be technological developments that improve the effectiveness of LPO. But LPO itself is not technology.

Nonetheless, I'm glad I stumbled on the session because in many ways, LPO itself offers a more radical departure from the traditional practice of law than many of the solutions offered by technology vendors who were at the show.

My take away from this panel was that LPO is not going to replace domestic lawyering any time soon; rather it simply provides lawyers with a way to further leverage their time with a large supply of cheap well educated labor. But in order for it to work well, it is critical that LPO vendors provide outstanding project managers to serve as the link between the lawyers in the U.S. and the lawyers in India.

It was also interesting to hear what Lynee Gore of the ClutchGroup had to say about LPO jobs in India. According to Gore, because only a small percentage of Indian law school graduates have the opportunity to work in a private law firm, LPO jobs are considered very desirable. This is in sharp contrast to the way many American law school graduates feel about doing work as a contract lawyer.

Cost Cutting at Law Firms

The National Law Journal cites some interesting statistics about law firm expenses. Here are a few:

• A firm cuts costs by an average of $250,000 for each attorney let go. For each legal assistant or other staffer laid off, a law firm saves about $100,000
• For most big law firms, about 85% of their budget goes to rent and personnel costs
• Paying severance can be costly. Every $10 million saved in compensation is offset by $7 million paid in severance
• If 30% of a firm's expenses are going to associate salaries, layoffs that trim 5% of associate costs are the equivalent of just 1.5% of revenue
• Clients are demanding price cuts. The chairman of a major U.S. firm said
  "There's less diplomacy in the discussion [with clients] about discounts". "They're not inviting you to a discussion. They're saying 'it's 10 or 15%, and if you can't help us out, maybe we'll go somewhere else.' "

In addition, the article suggests that firms have increased cash availability by "deferring partner profit distributions, reducing partner draws, making cash calls to equity partners or asking nonequity partners to provide capital".

My takeaway is that all signs point to a drop in law firm profitability in the next few years. It is very hard to cut costs in a law firm. In addition, partners and senior associates who lack portable business are in the greatest danger of losing their jobs (since they cost the most to keep in place).

While none of this bodes well for large law firms, small to mid-sized firms will probably be the winners. Large firms that find ways to deliver legal services in a more cost effective manner will also prevail. Some will adopt more creative billing strategies. Others will employ technology to do what they do "faster, better and cheaper" (at LegalTech this year, it seemed clear that e-discovery is a key area ripe for cost savings). One other area where large firms may be able to cut costs is through effective use of outsourcing (using contract lawyers and working with LPO companies).

Terror in Mumbai

It is ironic that that just as I was blogging about the coming wave of legal process outsourcing in India, Mumbai was hit with a horrible wave of terror. These attacks are a painful reminder that wherever opportunity exists, it is accompanied by risk.

Of course in business, we usually think about more mundane risks (will the marketplace buy my service, will I be able to finance my expansion, etc.) The threat of terrorism is not usually high on the list of things to factor in when considering doing business with India. Will that now change?

Undoubtedly, business in India has been disrupted by the events of last week. But I deliberately waited a few days before commenting on the attacks because I wanted to see how the ordeal would unfold. While I'm sure that all over India, there is a heightened sense of vulnerability that did not exist prior to November 26th, I'm confident that LPO will continue to grow and thrive. Maybe companies will be revisiting issues like data security and the physical security of employees; but November 26th does not fundamentally alter the strong economic forces that are fueling this trend.

A Passage to India

If the frequency of media reports is any indication, then outsourcing legal work to India is starting to reach a tipping point. The latest article appeared in today's Wall Street Journal. Last week, I did a post on the growth of patent outsourcing.

The ABA just addressed the issue this past summer with an ethics opinion that seems to open the door for an increase in work being sent to India (and other less expensive jurisdictions). And clearly the market conditions are ripe for cutting legal expenses at corporations.

I must confess that when I first learned about this idea several years ago, I found it somewhat upsetting to think that good white collar jobs were no longer safe from the fate that has befallen manufacturing jobs in this country. As I have gotten used to the concept and now realize that it is simply another manifestation of globalization, I am starting to see how the trend may actually be a big help to smaller law firms that want to keep a low overhead but still have an ability to handle document intensive work. While it is quaint to think that the law is a profession that is immune from global forces, that is unrealistic. Firms that understand this and learn how to take advantage of the opportunities presented by outsourcing, will only thrive.

Patent Services Outsourcing to India Hits $46 Million

This is only the latest in a long series of articles that I have seen in the NLJ over the past several years. Clearly this presents a threat to U.S. law firms and patent lawyers. But it also represents a tremendous opportunity.