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Ron Friedmann on December 30th, 2008 at 3:05 pm :
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As support staff layoffs continue at firms, attorneys learn to share resources (National Law Journal, 15 Dec 2008) reports on cutbacks in many firms. One of the points it makes is that many firms are striving to reach a lawyer to secretary ratio of 3 to 1.
That is certainly doable but not all 3:1 situations are the same. Some firms allocate lawyers and secretaries based on a systematic assessment of lawyers’ support needs. Some have even developed new approaches to support, for example, teams or secretarial support centers. When firms increase ratios based on careful analysis and re-defining roles and structures, they can decrease cost while improving support.
Other firms, however, just cut secretaries. Reducing the secretarial ranks - whether by attrition or increasingly by lay-offs - “improves” the secretarial ratio. That’s just simple arithmetic. But that does not mean lawyer needs are being met.
If a secretary serves one senior partner and two junior associates, how much support do the latter get? You might think, “well, those junior associates don’t need all that much support.” That may be true but they do need some and they may not be getting it. And the support they need may be rather document intensive and that may well be a relative weakness for a secretary focused on managing a senior lawyer’s practice.
Not all secretarial shares are created equally. Integreon assists law firms in analyzing support needs and improving how firms support attorneys. This can include streamlining workflows and deploying more or better technology. It can also mean outsourcing legal word processing.
By outsourcing legal word processing, firms can free up secretaries to work on higher value tasks. This supports increasing the secretarial ratio without diminishing support for lawyers. Part of what we do is help make sure the “time slice” each lawyer receives from a secretary is the right size and consists of the right skills.
Support in shares is typically uneven. In the “old days” lawyers had their own secretary or shared roughly equal halves. With the move to 3:1, the shares became much more variable. Sharing between two partners and one associate, the associate would get little; with one partner, each of two associates typically get smaller slices. Extrapolating these same uneven proportions to a 4:1 or 5:1 scenario means some lawyers get very thin slices. At some point, a “time slice” is so thin, delegation no longer is effective.
3:1 Ratios May Not Provide the Support All Lawyers Need
Theory v Reality: support in 3:1 is not evenly distributed. It’s true that junior lawyers often need less – but they often receive even less than they need. As illustrated below, a real one-sixth of a secretary in a team setting may be more support than many lawyers receive in actual 3:1 settings. This can work well for junior lawyers. And it can help law firms reduce operating costs.
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Filed under Legal Economics, Legal Outsourcing (LPO)
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Ron Friedmann on December 8th, 2008 at 7:45 pm :
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A just-released survey suggests that US law departments will, by 2013, spend $2 billion on legal outsourcing.
The Change Agenda: Looking Ahead (American Lawyer Magazine, Dec 2008) reports on a survey by law department consultant Rees Morrison and American Lawyer editor Aric Press, conducted on the professional social network, Legal Onramp (LOR). One survey question asks
“Between 2008 and 2013, ___% of our law department’s spending will move to lower cost offshore service providers, whether directly or as a subcontractor to our in-country law firms.”
Based on the answers to this question and some conservative assumptions, we estimate that U.S. corporate law departments will spend about 3% of their budget on legal outsourcing. This translates to US legal process outsourcing (LPO) spending in 2013 of almost $2 billion. To be completely transparent, we spell out how we make this estimate; following that are some caveats and comments.
* * * *
Estimate Step 1: Percent of Inhouse Counsel Spending that Will Shift to Outsourcing
The answers to the question above about shifting spending to LPO by 66 law department respondents at companies with more than $1 billion in revenue are as follows:
|
Respondents |
Percent |
| >10% of total spending |
10 |
15% |
| 6-10% of total spending |
11 |
17% |
| 1-6% of total spending |
11 |
17% |
| Decrease, we are moving more onshore |
2 |
3% |
| No change |
32 |
48% |
To determine the percent of spending that will shift, we need to calculate a weighted average:
| % Spending Shifted to Outsourcing |
Weight |
Weighted |
| 11% |
15% |
1.7% |
| 8% |
17% |
1.3% |
| 3.50% |
17% |
0.6% |
|
|
3.6% |
For “% Spending Shifted to Outsourcing”, we assume for those answering answering “greater than 10%”, an 11% value, which is a conservative approach. For those answering 6-10% or 1-6%, we use the midpoint of each range, which is the typical convention in the absence of other information. The “Weight” column simply copies the percent each answer represents of the total number of responses. The “Weighted” column multiples the Spending Shifted by its Weight.
We could conclude that by 2013, 3.6% of inhouse counsel spending will shift to legal outsourcing. We are not comfortable doing so, however, because of possible sample bias. This survey was conducted on Legal Onramp, a social network targeted at corporate law departments. The current LOR members are “early adopters” of social networking and, by extension, could be LPO early adopters. Adjusting for this is, by necessity, arbitrary but we think adjusting downard by 20% is appropriate. Applying this adjustment factor, by 2013, 2.9% of inhouse counsel spending will shift to legal outsourcing.
[There is insufficient data to be able to account for the two respondents decreasing outsourcing. Given the conservative estimates here and in subsequent assumptions, we feel comfortable not adjusting for this.]
Estimate Step 2: Determine Total Law Department Spending
To what dollar spending do we apply this percent? We need to know the total US law department spend. Most AmLaw 200 revenue is from corporate law departments but some is from deal-makers, small businesses, and individuals. We believe that a conservative approach is to assume 80% of the AmLaw 200 total revenue is from corporate law departments.
The AmLaw 200 total revenue for 2008 was $81.5 billion. Applying our 80% adjustment brings it to $65 billion. (American Lawyer Magazine articles report on 2008 total revenues: Amlaw 100 for 2008 and Amlaw 200 for 2008.)
Something is missing, however, from this estimate. The survey question asks about total legal department spending. Prior survey questions refer to outside counsel spending. Consequently, we should add to the $65 billion an estimate of law department spending for their own lawyers and operations. Rather than apply other survey data that might allow an estimate, we exclude this big chunk to keep the estimate conservative.
Estimate Step 3: Multiply for The Answer
Applying the 2.9% shift in spending to $65 billion yields $1.9 billion of US legal outsourcing by 2013.
* * * *
Comments and Caveats
Estimate Does Not Consider Legal Market Growth. In the vein of conservative estimates, we are not adjusting for revenue growth; were we to assume a conservative 4% growth through 2013, the number would be about $2.25 billion.
UK Legal Outsourcing Would Probably Add Another $1 Billion. The estimate above is just for the US market. UK firms are ahead of US firms in outsourcing and currently account for a disproportionate share of legal outsourcing. In 2007, the top 100 UK firms generated a bit over 12 billion GBP (see links to the 2007 revenue tables at UK 200 in TheLawyer). Applying an exchange rate of 1.8 USD per GBP, UK top 100 firms generate about $22 billion. Given that UK firms outsource more, it is reasonable to apply 5% rather than 3% by 2013. If so, that would add $1.1 billion to the total legal outsourcing market.
Comparison to Other Estimates. We think that most LPO observers would likely agree that $2 billion for US legal outsourcing represents significant growth from where we are today. As a point of reference, a widely-cited ValueNotes study from 2007 predicted an India-only LPO market of $640 million, growing from a base of $146 million in 2006. The National Law Journal today, in India work grows, with glitches, cites another widely study by Forrester, which predicts a legal outsourcing market of $4 billion by 2015. When considering the different years of each forecast, rapid LPO growth, and the different countries covered by the forecast, the estimates are not that far apart.
The Impact of Postivie Market Dyamics. The estimate here is static; it does not account for market dynamics. As more law departments outsource and discuss their findings, this will affect the decisions of other general counsels. We are optimistic that this “feedback loop” will increase the spending shift to legal outsourcing.
* * * *
Update 23 Dec 2008: The Law Society Gazette, in In-house counsel survey on offshoring (11 Dec 2008), reports on a legal outsourcing survey it conducted. Applying the same weighted average method as above, this survey finds that in the next two years, inhouse counsel will offshore 2.3% of their work. Considering the above is a five-year estimate, the Law Gazette findings are reasonably consistent.
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Filed under Knowledge Outsourcing (KPO), Legal Economics, Legal Outsourcing (LPO)
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Lokendra Tomar on November 25th, 2008 at 11:19 am :
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How should knowledge process outsourcers (KPOs), their clients, and their employees respond to current crisis in financial markets?
Client Perspective
Choose your vendor carefully - If there was ever any doubt, the current turmoil shows that that service quality and price should not be the only factors customers consider . Long term vendor financial stability is critical as well. Vendors with only a few hundred employers who depend on a handful of clients may find it difficult to survive even a single client loss. Depending on how much business they lose and their financial backing, a key client loss can put at risk continuity of service to remaining clients. Buyers should seek vendors with scale, good financial backing, and a broad customer base.
Outsourcing as a survival tool - Outsourcing is not just about cost savings - it can be a company’s lifeline too. Unless you remain competitive, you may not survive as a business. You may be able to save more jobs (and create new ones) by outsourcing if done smartly and with the right vendor. Choosing the right vendor will help you improve business economics, achieve flexibility, innovation, and help create growth (jobs). The downturn could last quite some time so it is important to consider both your cost basis and operating efficiency, even as your deal with what may be emergency circumstances.
Vendor Perspective
Reduce client concentration - While it’s always good to get more business from existing clients, look to balance the client mix. Otherwise, if your biggest client accounts for 40% of revenues and suddenly disappears (which seems to happen very often these days), you may not be able to survive the impact. Diversify into more verticals and geographies. Winning new business in this economy may be hard, but point your sales team in the right direction now.
Enhance capital - Clients will start asking more probing questions about the financial stability of your business and access to capital. Cover your financial bases. Work towards moving to profitability and get an investor who can be there to support you on your long term business plan/strategy
Leverage opportunities to consolidate /buy cheap assets - A major economic downturn is a time to be simultaneously conservative and bold. Be conservative in managing operating costs but be bold in buying good assets (companies, people), especially when many outstanding properties are available at the lowest price in years. Tight operations coupled with strategic acquisitions will pay handsome dividends when the economy eventually turns around.
Employee Perspective (for India-based personnel)
A downturn is not the end of the world. It’s not first time it’s going to happen. The economy will recover and KPOs will grow again at a rapid clip. This is perhaps first time that global events have had a direct impact in India, specifically immediate job losses. Previously, these types of incidents were limited in scope and barely would even be covered in the press. Now, however, the impact has been pronounced, both in captives and third party vendors. KPOs are not the only ones affected by the global turmoil; many other sectors have shared in the turmoil (e.g., consider what has happened with domestic Indian airlines). The pervasive impact of the Western downturn on the Indian job market shows that the Indian economy is now more tightly integrated into a US/global environment. So it is natural that Indian jobs in many industries will rise or fall based on events in US/global markets.
But, there is hope among this bad news. Outsourcing is expected to pick up even more strongly in the months to come and that should drive new job creation.
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Filed under Business Process Outsourcing (BPO), Economic Trends, India Business and Economy, Knowledge Outsourcing (KPO), Legal Outsourcing (LPO), Outsourcing Industry News
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Ron Friedmann on November 20th, 2008 at 2:02 pm :
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“You can’t save your way to growth” is a frequently heard refrain. In the current economic turmoil, however, when growing revenue is hard, the focus must be on cost control. A recent report, article, and conference session drive home this point.
Hildebrandt is a leading legal market consultancy. The Hildebrandt Special Client Advisory: Fall 2008 notes that
“the current downturn has not yet been significantly offset by increases in other traditionally “counter-cyclical” practices…. the current year will represent a significant downturn for the legal industry… we are unlikely to see any significant turnaround until late 2009, at the earliest… firms [will be] forced to lay off legal and non-legal staff, slow down the hiring of new attorneys, restructure operations, and weed out unprofitable practices.”
The Advisory suggests steps to deal with the downturn, including focus on collections, negotiate credit agreements, examine expenses closely, consider layoffs, deal with performance issues, and adjust practice areas. Longer term, Hildebrandt says we may see more fundamental changes such as new lawyer compensation systems, alternative billing, and more legal process outsourcing.
Driving home many of these points is the new article Partners at UK’s ten biggest law firms take home £1.1m in profits (TimesOnline, 19 Nov 2008). It reports on profits at top UK law firms, citing an annual law firm survey published by PriceWaterhouse Coopers:
“[T]he gap between the top ten and the rest of the market is set to widen as lawyers begin to feel the impact of the financial crisis… the biggest firms had tightened their hold on the market through an increased focus on efficient management. ‘Larger firms have been looking long and hard at their cost base and how much can be outsourced,’ Mr Rose said [head of the Professional Partnerships Advisory Group at PWC ]…. managing partners [are] switching focus from revenue growth to reducing staff costs.”
The topic of growing revenue versus controlling cost was central in an October panel discussion at the Law Firm Leaders Forum. In a session called “Running Your Firm as a Business - A Closer Look at the Middle Office”, my co-panelists Ed Poll of LawBiz and Ron Yano, CFO, Loeb & Loeb and I debated that question. Mr. Yano and I shared the view that cost control could increase profits by 1.5 to 2.0 profit points, which is significant in tough times.
Mr. Poll focused more on growing revenue but. In his follow-up blog post, Law firm overhead - Can we cut?, he writes “focusing your energy on producing revenue will produce greater benefits than focusing your energy on reducing overhead”. He points out, however, that that increases in the right costs can increase revenues.
Integreon can help law firms control costs by outsourcing (onshore or offshore) and process improvement. We can also help on spending wisely to increase revenue, for example, by providing cost-effective business and industry research can help win new business.
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Filed under Integreon Conference Presentations, Legal Economics, Legal Outsourcing (LPO)
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Ron Friedmann on November 10th, 2008 at 2:24 pm :
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Richard Susskind, the well-known legal market thinker and futurist, has published his newest book, The End of Lawyers. The Times Online previewed the The End of Lawyers last year and included excellent commentary related to it. At Integreon, we do not see the end of lawyers anytime soon, if ever. But Susskind is a deep and provocative thinker and lawyers and law firms will benefit by understanding his views.
Today, in AmLaw Daily, Paul Lippe, founder of the legal community and social networking site, Legal Onramp (itself a likely player in re-shaping law practice), interviews Susskind in Welcome to the Future: An Interview With The Futurist.
Agree or not, Susskind’s predictions provoke thought. He hedges on the timing of some changes, but not on legal process outsourcing (LPO):
“[L]ook out for two major growth areas in the next two years. The first is legal process outsourcing. The Big Four tax firms have already shown how complex professional work can be outsourced to India and other low cost centers. Lawyers will and should follow suit.”
We’d love to hear from readers on your views of Susskind’s vision generally and the role of LPO specifically.
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Ron Friedmann on October 19th, 2008 at 11:20 am :
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The Financial Times (London) has published its annual “Innovative Lawyers” edition (17 October 2008), based on extensive research which finds that legal process outsourcing is a leading legal market trend.
Thought Leaders is the lead article in a collection around the innovation theme:
“[T]he trend that is having the most impact on the thinking of the partners at top law firms, according to the research for this report, is the impact of globalisation and its intersection with people and technology… Outsourcing to India was the theme of many top-ranked submissions both from company legal departments and private practice… LPO may have a huge growth spurt as top corporate clients in the US and Europe cut costs.” [emphasis added]
The article cites corporate example of Deutsche Bank and BT and law firms Clifford Chance and Baker & McKenzie for their offshoring initiatives.
Two related articles discuss specific outsourcing examples. Use IT or lose it cites Baker & McKenzie for its “combined outsourcing and offshoring” which creates an “insourcing” hybrid in Manila, where the firm’s “Global Services Manila, accounts for about 5 per cent of the firm’s total staff and is linked to the rest of the firm by technology, culture and reporting lines.” Structural engineering cites Clifford Chance for taking “two vital but relatively routinised support functions ‘information technology and finance’ and centralis[ing] them in one place: India.”
Innovative Lawyers is a collection of articles reporting on the full range of FT’s research. For highlights of other articles, please see my personal blog post at FT.com Innovative Law Firms.
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Chris Egan on October 11th, 2008 at 12:30 am :
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Finding the Right Five Questions for EDD Vendors (Law Technology News, 6 Oct 2008) asks e-discovery experts to answer the question “What are the five most important questions that any organization should ask of vendors before signing the contract?” Most of the experts’ questions focus on EDD hosting and processing capabilities rather than the end-to-end discovery process, including document review. In our experience, companies spend far more on the lawyers who review documents than on the (albeit often daunting) mechanics of e-discovery.
That said, we were surprised by a recent survey finding. Law firm Fulbright & Jaworksi L.L.P. conducts an annual survey of litigation trends. In its 2008 Fulbright’s Litigation Trends Survey, of the 253 U.S. respondents who answered a privilege review cost question:
“30% estimated that privilege reviews comprised 6% to 10% of their litigation costs, while 16% estimated the figure as high as 30% to 50%. Most of the latter figure consisted of the mid-sized and the largest companies participating… When asked for the largest amount spent on preproduction privilege review in a single matter or collection of related matters… Two percent of all the respondents spent between $1 million and $2 million, and 2% were in the $3 million to $5 million range. Five percent of the largest companies spent $3 million to $5 million for privilege review on a single matter or group of related matters.”
We’ve often heard it said that 60% of the cost of litigation is discovery and 60% of that is document review. If true, about 35% of the total litigation cost is doc review. So reading that one-third of responding companies spend less than 10% on priv review surprised us. We wonder if both the perception of and the actual total cost of privilege review is skewed upward by the 4% that spend over $1 million on at least one big case.
Irrespective of how much privilege review costs, we increasingly see inhouse counsel seek a single point of contact and fixed price per document for all of e-discovery. They want to minimize the headache, reduce cost, and offer predictability.
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Filed under E-Discovery (EDD), Legal Economics, Legal Outsourcing (LPO)
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Ron Friedmann on September 26th, 2008 at 3:55 pm :
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The September-October 2008 issues of the Association of Legal Administrators’s Legal Management magazine published Dealing with Documents: The Pros and Cons of Outsourcing (PDF), an article by Ron Friedmann and Renay Rutter (respectively, Integreon SVP Marketing and VP Legal Sales).
Renay and Ron examine how outsourcing document processing can slash payroll and facilities costs, reduce turnaround times, and boost in-house secretarial careers. They also explain the pivotal role of law firm administrators in assessing outsourcing options and planning the transition to outsourced services.
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Ron Friedmann on September 10th, 2008 at 1:04 pm :
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The TimesOnline has published a very good article about legal process outsourcing by Allen & Overy partner Stephen Denyer.
Legal outsourcing remains high on the agenda (TimesOnline, 9 Sep 2008) provides a cogent and balanced discussion of legal outsourcing. This is the first article I’ve seen by a large law firm lawyer that discusses both administrative and legal outsourcing. It examines the significant benefits of outsourcing: cost savings, client service, and avoiding some recruiting / retention problems. It also discusses potential risks and liability issues.
Mr. Denyer make many excellent points so choosing just one is hard but here goes:
“To outsource effectively, a firm must analyse and separate out all the processes that lawyers perform on a transaction or case. The firm can then work out which processes lend themselves to outsourcing and which do not. Many clients are now looking for law firms to offer a smart combination of outsourced and bespoke services under a single wrapper. “
The overall tone is markedly different than what I have observed from many BigLaw partners quoted in the legal trade press, who often cite the proverbial “parade of horrors.” In contrast, Mr. Denyer systematically analyzes the business drivers, the benefits, and the potential risks.
If I were the General Counsel of a company, I would read this and think “Here’s a firm that’s looking out for my interests.”
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Ron Friedmann on September 2nd, 2008 at 2:24 pm :
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Two US publications published articles published September issue articles, one by an Integreon executive, the other interviewing an Integreon executive.
The Datum Legal - Integreon Merger: The Whole Is Greater Than The Sum Of Its Parts, published in Metropolitan Corporate Counsel, is an interview of Chris Egan by the MCC editor. Chris is Integreon’s SVP for Discovery Solutions, and an e-discovery expert. In the interview, Chris explains the benefits to lawyers of an end-to-end integrated discovery solution at a fixed price. (For more information on Integreon’s specific solution, read about Doctane.)
Why and What Lawyers Should Consider Outsourcing, published in LLRX.com, is by Ron Friedmann, Integreon SVP, Marketing and a legal domain expert. Ron provides an overview of legal process outsourcing, from document review to word processing. The article explains the benefits of legal outsourcing, the range of services lawyers should consider outsourcing, and the potential cost savings using legal document processing as an example of how to analyze costs and benefits. (Learn about Integreon outsourced legal services).
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Filed under Integreon Articles, Legal Outsourcing (LPO)
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