Explaining Onshore Legal Outsourcing Growth

Legal process outsourcing (LPO) has long meant “India” to many lawyers.  We have often written that LPO is about working smarter, not where the work is done.  A New York Times article last week drives home this point.  And an American Lawyer op-ed explains the “news behind the news” in the Times.

Legal Outsourcing Firms Creating Jobs for American Lawyers, a June 3, 2011 front-of-the-business-section NY Times article, describes how LPOs such as Integreon and Pangea3 are creating jobs for American lawyers in low-cost US locations. It contrasts the growth of LPO, both onshore and offshore, with the challenges US law firms face, noting that “[t]op American firms have cut hiring or moved to a lower-tier pay system for many new associates.”

American Lawyer Editor-in-Chief Aric Press’ June 2011 commentary explains both LPO growth and U.S. BigLaw challenges. In  The Am Law 200: A Chasm with Consequences, he reports “a $1.1 million gap between the average profits per partner of the top 23 firms on The Am Law 200, as ranked by PPP, and the average of the next 27 firms.”

This gap, Press suggests, stems from how the market now segments legal work, with bet-the-farm matters on top and commodity work at bottom.  The highly profitable 23 firms get the lion’s share of less price-sensitive premium work; the rest face increasing price pressure to win non-premium work. Addressing the question of whether this gap will continue, Press offers two “safe” observations:

1. Price pressure likely will continue when the economy rebounds.
2. “[W]hat’s striking about the behavior of many law firms over the past two years is that they managed their way to profitability by shedding colleagues who did not have enough work, not by examining how the work itself is done.” (Emphasis added.)

We think the phrase “not by examining how the work itself is done” links the Times and American Lawyer pieces.  We talk to many firms and law departments that now do examine how they practice.  Most conclude that old ways of working must improve.  They realize that large swaths of legal work must be industrialized with standard practices, appropriate technology, and cost-effective human resources.  Many turn to LPOs to accomplish this.  As more and more lawyers examine the process, we expect to see LPO growth continue, both onshore and off.

Tweet