Integreon

What Law Firms Think about Legal Outsourcing

by Ron Friedmann on June 25th, 2009 at 1:16 pm : Comments 000

By Liam Brown, Matthew Banks, and Ron Friedmann

Introduction

A ValueNotes May 2009 report, Legal Services Outsourcing: What Do Law Firms Think?, provides insight into what large US and UK law firms think about offshoring and outsourcing.  ValueNotes (“VN”) is a respected analyst firm that has followed legal outsourcing for several years.  Many VN findings match our own market assessment, our customer feedback and recent broader trends we see in the LPO industry.  We do, however, have differing views on some of the VN findings.  This post highlights key report findings and shares our perspective on them.

Integreon is making available a free copy of this $US 395 report.  Click here if you would like to request a copy.  This offer is limited to the first 50 law firm owners or employees who complete the registration form with the required contact information, including an e-mail address with a law firm domain name, and who agree to subscribe to the Integreon blog.

How ValueNotes Conducted the Survey

VN conducted online and telephone surveys of both firms that offshore and those that do not.  In all, about 100 lawyers responded with about 30 from firms with over 1000 lawyers, 50 from firms with between 300 and 1000 lawyers, and 20 from firms with fewer than 300 lawyers.

ValueNotes Findings and Integreon Comments

LPO Penetration is Low.  VN found that offshoring still has fairly low penetration among law firms; less than 3% of firms in a random sample had tried offshoring.  On the one hand, low penetration is not surprising given that the LPO industry is still nascent.  On the other hand, 3% seems very low to us.  We wonder whether this finding is an artifact of asking individual lawyers rather than institutions.  Already four years ago, The American Lawyer reported that 6% of AmLaw 200 firms offshored work (see Law Firm Leaders: Conservatively Optimistic, Dec 2005). While it is understandable that only 3% of lawyers offshore, based purely on Integreon’s own customers, we know that many US and UK law firms do offshore.

Onshore Outsourcing is More Common.  Though the volume of offshoring VN found is lower than reported in other surveys and than many may have expected, the report notes that total outsourcing volume is higher because onshore outsourcing is more common (especially if one considers use of contract lawyers as outsourcing, which seems sensible to us).  We think onshore outsourcing is a key point.  Take document review for example, where outsourcing is well established onshore. Integreon currently has as many onshore review projects running as we have running offshore.

Our view is that LPO is a global phenomenon. Customers consider project complexity, availability of talent, business continuity, degree of real time communication, cost, and scalability in deciding on location.  In our experience, only a small portion of the market is dogmatic about location; the vast majority let business requirements drive the location decision.

Cost Savings is the Main Driver. For those firms that do offshore work, VN found that cost savings is the main driver, followed by client pressure.  VN notes that these two factors are, by and large, the same.  Our experience is that pressure from corporate law departments has historically been the overwhelming driver for law firms. Until now, the typical law firm response has been to react to a request from a client.   Some progressive law firms, however, are now proactively assessing and engaging LPOs so that that they can present alternative delivery and cost models to their clients.

We also see that many of our customers, both law firms and law departments, focus on more than just cost savings.  VN also found that firms that do offshore recognize offshoring benefits beyond cost savings, including satisfying client pressure and improving turnaround time.

What Customers Seek in an LPO.  VN found that customers of offshore services seek a provider with deep management and domain expertise, good references, end-to-end services, the ability to scale, and onshore / global delivery capability.  These findings are consistent with our own experiences.

We think it is also important to note that legal outsourcing works best when it is not about “lifting and shifting” a function from a high cost location to a lower cost location.  That is, the benefits are not merely labor cost arbitrage.  A mature LPO operates based on established processes that provide a consistent, repeatable framework for quality and workflow, performance measurement and continuous improvement.  Lawyers are, in our opinion, too quick to overlook or discount the “process” component of “legal process outsourcing”.  Clearly not all legal work is suited to a process orientation.  Much is, however, and we find lawyers tend to under-rate the value of process engineers, Six Sigma Black Belts and technology experts that are integral to mature an LPO offering – until they’ve worked with us.

Lack of Awareness is Biggest Reason Not to Offshore.  The biggest reason law firms cite for not offshoring – 85% of firms – is lack of awareness of offshoring or no perceived need to do so.  We find that hard to believe.  LPO has been around for 5 years and there’s been plenty of hype (including many articles about LPO in both the legal trade press and mainstream media).  The economic dynamic started to change a year ago and major corporate clients have been banging the drum for efficiencies for a considerable time.  That said, it can be dangerous to assume lawyers are informed because of the volume of articles.  For example, even today many US litigators remain under-informed about modern e-discovery rules and practice, a widely reported topic.

Security Concerns.  Other reasons for not offshoring include satisfaction with onshore outsourcing and prior unsatisfactory experience with offshoring.  Also, about 8% of firms cite data security and confidentiality concerns for not offshoring.  In our view, firms can easily allay these concerns by assessing a provider’s facilities, security, and procedures.  VN notes that firms with more extensive offshoring experience say that “client confidentiality and client conflict are not major concerns.”  The recent ABA Opinion Formal Opinion 08-451 [see our blog post ABA: Legal Outsourcing is Salutary and Ethically Allowable] bears this out. VN notes that firms with more extensive offshoring experience say that “client confidentiality and client conflict are not major concerns.”

Separately, Integreon, along with other reputable LPOs, meet stringent ISO information security standards.   Many LPOs (well over 100) have sprung up over the last few years since barriers to entry are low.  Only a few, however, have the process expertise, management systems and security infrastructure to support demanding legal work.  So it is no small wonder that law firms that may not have conducted careful provider due diligence would have had a bad experience.

Quality Concerns.  Some firms that tried offshoring were not satisfied with the quality.  We suspect that most of these instances were ad hoc, projects that were not properly planned or executed. Deep domain expertise is a critical component of most successful outsourcing, wherever the location. Most of the major activity in the LPO market is a result of long-term strategic decision making; these customers recognize the investment to be made and value to be extracted from proper and thorough documentation of workflow, quality testing, implementation and transitioning, to set the strongest foundation for success.  [For example, one of our multi-year agreements with a client supports multiple litigations with as many as 100 offshore lawyers working on their matters at any one time]

In our opinion, the “quality issue” is a perception not grounded in fact.  Quality should, of course, be at the top of every diligence check list. Saving 50% on cost is false economy if the quality is not right. A reputable LPO should be able to demonstrate understanding of the components of quality.  And not just with a blanket statement about “US or UK lawyers checking the work” but with a commitment to quality and a culture of quality from recruitment to process to audit to management, etc.

Customer due diligence should reveal whether it’s real. There are many ways to test quality – thorough diligence, references, tests (pre-pilots), and pilots to name a few. And a reputable LPO should be able to demonstrate that it has auditable, defensible documented processes and a performance metrics system which accurately monitors and ensures quality.  It’s also important to remember that quality is a moving target; for that reason, we have a formal Six Sigma process.   We note that every LPO pilot we have run met the pre-established quality standards.

Document Review Dominates Offshore Work.  For firms that do offshore, VN found that document review is the most popular function to send offshore.  This is consistent with our experience.  We continue to see document review driving LPO - offshore, onshore and dual shore - from both law firms and corporations. Many major law firms have experienced offshore document review, not as direct customers but at the insistence of their corporate clients. Many have seen it first hand and have become convinced of its efficacy because of what they see in their own layer of quality control.  Some of our law department customers have directly compared our reviews with their outside law firm on a blind basis and found ours  superior.  Obviously it’s not because we have better lawyers offshore than the law firms do onshore, but because we have a proven, repeatable, measured industrial process to recruiting, training, performing and auditing the work, including implementing technologies, which assist or automate the work.

The Conclusions We Draw

We find the ValueNotes report to be very useful.  While we take issue with some of the specific findings, the report certainly raises many of the issues lawyers should consider in offshoring.

And any quibbles notwithstanding, it is certainly true that many lawyers are skeptical about both offshoring and outsourcing.   We think this will change.  Our management team has decades of experience managing within large law firms and corporate legal departments and know that in the legal market, any new way of working takes years to penetrate.  Firms take time to gain comfort with new ways of working; indeed, it takes time to use those ways effectively and achieve the desired quality.   For example, for many years in the 1990s, a majority of lawyers and firms either did not understand why e-mail might be useful or actively thought it was not required.

Times change and eventually so do firms.  The economic reality today creates huge external and internal pressures for law firms.  Clients demand better value, which puts pressure on rates and revenues.  This squeezes profits, which puts the high overhead of law firms under the spotlight, perhaps in a way not seen previously.   Offshoring / outsourcing commoditized aspects of law practice is among the easier ways law firms have to improve their value proposition.  Similarly, outsourcing middle office operations is an effective method to reduce cost.

The legal market is slow to “tip” to a new way of working.  But when it does, it tips quickly.  We think in the current environment, the tipping point is upon us.

[ Update 29 June 2009: The PosseList blog also commented on this subject. PosseList is a thoughtful and insightful blog focusing on contract lawyers in the US and often comments on broader legal market trends. ]

Filed under Legal Outsourcing (LPO)

Legal Outsourcing Tipping Point?

by Ron Friedmann on June 21st, 2009 at 11:28 pm : Comments 001

Legal outsourcing has made mainstream and legal media news for years.  There are so many articles that we no longer blog about each one.   Two items in the Times Online last Thursday (18 June 2009) however, caught our eye.  A major multi-national has gone public about legal process outsourcing to slash its legal spend by 20%.

Rio Tinto’s legal switch puts pressure on London by Alex Spence reports on the facts. Rio Tinto deal heralds huge changes by well-known commentator and author Richard Susskind discusses the ramifications.

Spence reports that “Rio Tinto has hired a team of lawyers in India to try to reduce its annual £60 million legal bill by 20 per cent.” It is working with an LPO to recruit a team of 12 lawyers in India to “work for it on tasks such as reviewing documents and drafting contracts.” Rio expects to have 24 Indian lawyers within one year.

Susskind writes “the Rio Tinto deal suggests that imaginative pricing may not fully fix the more-for-less dilemma. Lawyers will need to go further and source their work differently, often by using less costly labour to do routine legal work…. People often assume that outsourcing and the options are applicable only to high-volume, low-value legal work. The Rio Tinto deal confirms this is wrong.”

The Rio deal adds to the list - literally - of corporations that offshore or outsource work.   At least 15 companies have publicly stated that they offshore work to outsourcers or to their own offshore operations (see Outsourced Legal Services list at Prism Legal, a personal site I maintain).

So Rio is just one more company offshoring. Or is it? Specifically, this deal is announced with the intent of significant cost cutting and that feels new. More generally, markets tip when the new and exotic become accepted and common. Geoffrey Moore’s Crossing the Chasm provides one framework for thinking about how markets adopt new approaches. Well before his work, however, economists modeled  adoption of new high tech products (e.g., Polaroid cameras or Xerox-brand copiers) with S-shaped curves: slow ramp up followed by sudden acceleration.

The continuous (smooth) S-curve may not be a good fit for legal. Instead, a discontinuous step-shaped function may apply. Consider legal market adoption of e-mail, document management, marketing, lateral partner moves, or mergers. For each, there seemed to be only a few firms doing it and then, quite suddenly, many or all were. The “step function” reflects law firm decision making: the first few adopters change slowly, gingerly, and quietly.  Firms want to follow.   Once a half-dozen to a dozen have led by adopting the new thing, “the coast is clear” and the rest rush in.

Unfortunately, like calling the bottom of a recession (or the top of the market), it’s much easier to recognize the tipping point after the fact.  Working for an LPO may distort my view but it feels like legal outsourcing is at a tipping point. Of course, we won’t know for some time. Whether the market tips this year or beyond though, I am confident that, as with e-mail, marketing, etc., we will look at outsourcing and offshoring and have forgotten what all the fuss was about.  Just like we did for so many other legal market changes.

[A variation of this post first appeared at the Strategic Legal Technology blog.]

Filed under Legal Outsourcing (LPO)

One Bump in the US E-Discovery Market with a Happy Ending

by Eric Feistel on June 5th, 2009 at 12:38 pm : Comments 000

Although e-discovery in the US is still a growth market, the economic crisis has caused some turmoil. Some vendors have closed, others have been sold, and some experts have lost their jobs.  One of those experts, Babs Deacon, now works for Integreon as Director of Consulting, Data Analytics.  Babs tells the story of her recent job search in an article she wrote, EDD Staffing: Pink to Green, for the June 2009 edition of Law Technology News (and featured in LTN’s Daily Alert on June 2, 2009). For EDD professionals who are looking for work or thinking about a job change, this is recommended reading. Aside from good advice, it is an amusing story. 

In addition, LTN’s Monica Bay interviews Babs about her job hunting experiences in a Law Technology Now podcast, Greening Your Career: Surviving after a Layoff, available on Legal Talk Network.

For those attending the upcoming LegalTech West Coast conference in Los Angeles, Babs will be speaking on June 25, 2009 during the Greening Your Career networking breakfast. The breakfast will be hosted by Monica Bay and will feature a panel of experts in an upbeat discussion for members of the legal community who may be looking for jobs.

(Be sure to also visit Integreon at booth 208 during LegalTech West Coast to learn about our integrated discovery solutions.)

Filed under E-Discovery (EDD)

What Happens in St. Paul, Doesn’t Stay in St. Paul

by Babs Deacon on May 26th, 2009 at 3:28 pm : Comments 000

EDRM, the e-discovery industry’s “think tank”, started its 2009-2010 working year in St. Paul, Minn. with a much anticipated kick-off meeting held May 13-14th. Participants reconvened from the 2008-2009 season to report their progress and to plan the direction for the next twelve months. EDRM organizes its work into distinct project groups and the attendees spend most of the two days meeting with their project teams, organizing and drafting content. Before reporting on my own involvement in the Evergreen project, a few observations from the meeting overall…

EDRM added two new projects this year, Information Management and Jobs. Information Management as its own project was an obvious evolution. It had been part of the Evergreen group but the topic has grown enough to warrant its own focus. The Jobs project is a timely response to the current economic situation plus the addition of recruiters to the attendee mix certainly made for a more entertaining conference. I’m not saying that e-discovery “geeks” don’t like to party, but if I’m going to be in a bar in the Midwest, it’s more fun if Michael Potters and David Cowen are there. Michael for example is a real people magnet and I think he managed to get jobs for some folks staying at the St. Paul Hotel who weren’t even in e-discovery.

Eric Mandel, Director of E-Discovery and Litigation Support with Zelle, Hofmann, Voelbel & Mason LLP and the Chairman of the Model Code of Conduct Project, is back on the law firm side having completed a long stint in vendor-land. The MCOC project is immensely stimulating, having many “nooks and crannies”. The one-year-old group is finishing up their first round of content and has made a plea for comments and suggestions from the rest of EDRM and from the general public. The group’s goal is to develop aspirational voluntary ethical guidelines for electronic discovery providers and consumers that will be similar to those under which attorneys, court personnel and others in the legal space operate.

Eric offered this interesting take on being back on the procurement side, “No matter how much vendors may think they understand their law firm clients, there is no way they can fully empathize with the cost pressures law firms are facing now from their clients. I used to think when I was on the vendor side that if I could sell value, then I could get the law firm to leave price as an afterthought.”

Courtney Gray, VP/Technology/Partner with Nextpoint, “spent a fair amount of ‘cocktail party’ time with the Data Group at ERDM’s semi-annual conference, learning more about their unique challenges. I gained a much clearer understanding regarding securing a pristine data set — one which has not been processed, deduped and culled to the point of uselessness in testing.”

My role in the EDRM is co-Chair on The Evergreen Project, one of the longest standing projects, which has now refocused its efforts on making the current EDRM content more useable. Evergreen is primarily concerned with ensuring that the Electronic Discovery Reference Model remains current, practical and relevant; enhancing the content at each node of the Model; and educating about how to make effective use of the Model. Our efforts may include guides on how to apply the model in practice such as with examples of usage scenarios.

There will be a flurry of activity this spring to make sure all content makes its way to www.edrm.net. This will be followed by an all out assault on the “use-ability” of the site. The EDRM membership as a whole has acknowledged that it is very hard to find information on the website in its current incarnation and so the Evergreen project has taken on the job of redesigning, auditing, linking, standardizing, and testing each component from the non-EDRM member point of view. I’m sure our group is up to the challenge. Quoting Evergreen member Josh Byrne, “I have been impressed with the level of passion for the topic, and the number of members who participate from one year to the next.”

One of the highest notes during the conference was the acknowledgement of Jason Velasco’s continuing service to EDRM and particularly for his three years as the Chair of the Evergreen Project. Florinda Baldridge, Project Management leader, outdid herself by creating a mock Law Technology News Cover to honor Jason. It was presented during the Wednesday night dinner and everyone enjoyed it. Thank you again, Jason!

Babs Deacon is the Director of Consulting and Data Analytics with Integreon and a co-Chair of The EDRM Evergreen Project.

Filed under E-Discovery (EDD)

Integreon Goes Above and Beyond!

by Liam Brown on May 13th, 2009 at 7:41 pm : Comments 001

Our CFO, Richard Little, high on Everest recently..  showing the lengths to which Integreon will go to satisfy our customers!

Filed under Uncategorized

Choosing the Right Outsourcing Destination in Changing Times

by Liam Brown on May 12th, 2009 at 3:09 am : Comments 000

Outsourcing is back in the news. Come to think of it, when has it not been in the news?  Two US national mainstream media had important articles last week.

Filed under Business Process Outsourcing (BPO), Captive v. 3rd Party, Economic Trends, India Business and Economy, Onshore v. offshore, Outsourcing Industry News

Innovative Ideas for Law Firms

by Ron Friedmann on May 2nd, 2009 at 9:40 pm : Comments 000

In difficult times, law firms need to consider innovative ideas.  The April 2009 issue of Law Practice Management magazine (an ABA publication) published Signs of Innovative Life in the Practice of Law, a compendium of ideas by several authors.  Integreon’s Ron Friedmann wrote two of the pieces: On-site Staffing and Optimizing Virtual Collaboration.  Other authors tackle topics such as work-life balance, project management, and strategic planning.

Filed under Integreon Articles

GC: General Counsel, General Contractor, or Both?

by Ron Friedmann on May 1st, 2009 at 10:15 am : Comments 000

My colleagues and I were excited to see Incisive Legal Intelligence (formerly ALM Research) release a legal outsourcing study. We thought The Law Deparment Legal Outsourcing Study, 2008 would quantify the rapid growth of legal process outsourcing (LPO).

In fact, it focuses exclusively on law departments outsourcing legal work to law firms. Incisive found that general counsels (GC) outsourced 40% of legal spend in 2008, down from 46% in 2007. The study does not quantify other law department outsourcing such as e-discovery.

With GCs outsourcing so much, we wonder why some seem nervous about legal process outsourcing, that is using a company like Integreon for managed review service, e-discovery, contract review and management, or legal research.

Many lawyers conflate “outsource” with “offshore”. While we think offshore is a fine option, we and other LPOs offer onshore service as well. Perhaps GC misgivings are more about the type of resource than the location. Other than inertia, it’s hard to understand GC reluctance to expand the already broad scope of law department outsourcing by deploying more LPO services.

Law departments can reduce costs by explicitly acting as general contractors to solve company legal problems. Like any GC (general contractor that is, not general counsel), a law department should consider what resources it employs full time and what it sub-contracts. With this mindset, law departments would select a broader range of resources that better meet corporate objectives.

Law department management consultant Rees Morrison notes in Three reasons why legal departments are better positioned to negotiate arrangements with suppliers (15 April 2009) that (1) GC have more bargaining power than law firms, (2) GC are more motivated than firms to save money, and (3) GC can provide better direction to sub-contractors than can firms. Morrison’s blog post further supports the idea of GC = “general contractor” as well as “general counsel.”

In our own business, we do see GCs act as general contractors. Fortune 50 and FTSE 100 law departments use our managed litigation document review and contract review services. They know they must deliver the best solutions at the lowest cost so they assemble the right teams and resources, including our services. A general contractor approach to meeting corporate legal needs is one of the easiest and least painful way to get more bang for the buck.

Filed under Legal Economics, Legal Outsourcing (LPO)

Consider Taking Our New Outsourcing Survey

by Ron Dappen on April 9th, 2009 at 7:23 pm : Comments 000

In our constant effort to learn more about the market, we’ve just launched a survey co-sponsored by FreePint. In particular, we want to know more about how outsourcing is viewed by those who use or buy any of the following services:

• Research
• Document preparation (word processing, etc.)
• Legal support
• Pitch support (graphics, presentations, etc.)

If you fit the description above, please consider taking this survey. We will share the survey results with all participants.

To receive a copy of the report, just provide your email address at the end of the survey. The survey is completely anonymous. Your email address will not be associated with your responses in any way; it will only be used to send you the survey results.

To link directly to the survey, click here.

Filed under Business Process Outsourcing (BPO), Captive v. 3rd Party, Economic Trends, India Business and Economy, Knowledge Outsourcing (KPO), Legal Outsourcing (LPO)

How Law Firms Can Survive Transforming from a Pyramid to a Cylinder

by Ron Friedmann on April 6th, 2009 at 6:15 pm : Comments 000

Large law firms in the UK, US, Canada, and Australia are “pyramids.”  A few equity partners sit at the top, supported by non-equity partners, counsel, associates, and a huge staff.   Over the last decade, many large firms have increased their leverage - the number of fee-earners and staff who support the top.   The economics of firms has depended on maintaining this pyramid with its high leverage.

What if the legal market transforms and the pyramid no longer works?  What if the new shape of law firms is a cylinder instead?   In a cylinder, equity partners remain at the top but the number of fee-earners and staff supporting them is much less.

Two recent UK articles suggest a possible move to cylinders.  Focus, Law firm management: A year of living dangerously by Matt Byrne in The Lawyer (30 March 2009) is an excellent, in-depth analysis of the future of large law firms.  “The current financial crisis has been widely characterised as the most severe downturn since the Great Depression… Is it a cyclical downturn or does it represent a paradigm shift?… “  The article presents the varying views of managing partners of large US and UK firms on this question.

The Lawyer article reaches no definite conclusion.  In contrast, Redundancy in the City: painful lessons for the big beasts in Times Online (2 April 2009) interviews Linklaters managing partner Simon Davies and suggests we may see a paradigm shift:

“Simon Davies, the managing partner of Linklaters, spoke exclusively to The Times… Davies sees a very different model emerging for the future… ‘Partners are spending much more time executing transactions or giving advice and, in each case, working with smaller number of lawyers to ensure that quality is maintained.’ …  In this context it is inevitable that the firm should prioritise the very high-value work that needs the most experienced and creative skills while starting to slew off the lower value work that could be undertaken by more junior staff…  ‘We are now moving to the right size for the new realities in the legal marketplace.’  “

It’s not clear what the “right size” is.  Suppose, however, large law firms must adopt more cylindrical structures to succeed.  This would require major changes in how they operate.  The huge and costly infrastructure supporting partners and other lawyers would need to shrink.   For individual lawyers and staff, that surely would mean more pain than we have already seen.  For institutions, it would require a careful reconsideration of how they support high-end fee earners.

In such a transition, the question would be how much support partners need and how best to provide it.  We’re not unbiased of course, but we think that outsourcing is a natural answer for this potential new regime.  Large firms can do away with much of the expensive and hard-to-manage middle office services required to support armies of lawyers.  Instead, they can outsource support on a more flexible basis.  Even some of the support junior lawyers currently provide can likely be outsourced to legal support staff onshore or off.

One way to think about the potential de-leveraging is a big squeeze:  the traditional BigLaw pyramid must squish down to a cylinder.  No longer will there be armies to support a few generals.  In a cylinder, the size of support layers differ little from top to bottom.  If slabs of the pyramid must become smaller disks of a cylinder, firms need to consider whether the economics of operating all those layers on their own will still make sense.  As functions shrink in scale, the economics change - usually for the worse.  So moving services such as document product, finance and accounting, and business research to an outsourced, shared services model may become much more attractive in this new world.

Integreon is betting on this trend as illustrated by our recently announced middle office services for Osborne Clarke and opening a Bristol delivery centre.  What do readers think - will pyramids become cylinders and, if so, what does this mean for support?

Filed under Legal Economics, Legal Outsourcing (LPO)