The legal market landscape is changing. In Law Firms Feel Pressure From New Breed of Competitors (The Legal Intelligencer, October 26, 2010), Gina Passarella writes that the legal market is fragmenting, making room for a “broadening array of law firms,” legal process outsourcers [LPO] ,and other providers. That assessment is sound but we disagree with her statement that “LPOs have been created in direct competition to law firms.”
In our July blog post, LPO as a Driver of Law Firm Innovation, we wrote that a flat legal market and general counsel demand for better value are forces that “push legal work toward standardization and systemization.” Because LPO services are optimized for routine work, the client drive for value does favor LPOs.
That does not mean, however, that LPOs compete with law firms. As we wrote in July, “work once done only by associates will flow to new and more efficient operating models offered by alternative sources such as LPOs, contract attorneys, virtual law firms, online legal resource providers, and still-to-be-invented providers.” LPOs are simply a beneficiary of underlying legal economics. Also, though LPOs can provide important legal support, they cannot practice law and must operate under the supervision of a licensed lawyer.
Rather than view LPOs as competitors, firms can partner with them. For example, in the US, Pillsbury partners with Integreon on e-discovery and document review services (see Pillsbury Launches Pearl to Contain Companies’ Litigation Costs and Improve Results). In the UK, Simmons & Simmons uses Integreon for a range of LPO services (see International Law Firm Simmons & Simmons Signs Agreement with Integreon for Legal Process Outsourcing (LPO) Services).
Firms have other options as well. For example, Passarella quotes K&L Gates chairman Peter Kalis: “If you, within your platform as a law firm, can localize a lot of back office services and more routine-type services for clients in low-cost venues, you can achieve the same sort of outcome” as LPOs. Kalis contrasts his firm, with lawyers and staff in some low cost locations, with major New York and London law firms that have ‘grotesquely swollen’ overhead because of the high cost of those cities.
The UK’s Berwin Leighton Paisner (BLP) offers another example of how a firm can adapt to the new economics: it has a “legal services division” for high volume work. (See IT and telecoms firm Colt hands BLP outsourcing arm its second deal, Legal Week, 20 September 2010).
What BLP is doing, however, is unusual and may be hard for most firms to manage. As I note in my personal blog post, Can Law Factory and Bet the Farm Co-Exist Under One Roof?, managing high-end (bet the farm) and low-end (law factory) work under one roof presents challenges.
Until recently, the “corporate legal ecosystem” lacked diversity. Big companies hired big firms; medium companies hired medium or large law firms. Diversity is a key element of a healthy ecosystem. As a result of economic trauma, we now see a more diverse – and I would argue – healthier legal ecosystem. Firms, even BigLaw, are differentiating; virtual firms pop up regularly; and alternatives such as Axiom are gaining new traction. I expect that LPOs will indeed thrive in the new legal ecosystem but despite all this, I also expect law firms will continue to dominate the market.