The Lawyer reported last Friday, in Osborne Clarke’s PEP rises on flat turnover figure, that Integreon middle office outsourcing client Osborne Clarke reported significantly increased profit per equity partner despite almost flat revenue.  The article notes one of the reasons: “The firm has also saved money through its continuing relationship with legal process outsourcer Integreon. The £50m deal struck last year saw around 75 support staff transfer to the outsourcing provider (2 February 2009).”

We are certainly pleased – but not surprised – that we are helping our client improve profitability.  Back in November 2008, when it was just becoming apparent how bad the downturn was for law firms, I wrote here Controlling Cost to Increase Profits.  In that post, I argued that the old adage ‘the only way to improve law firm profit is to grow revenue’ was no longer true.

That reducing overhead cost can move the profit dial should not be a surprise.  In the US, the median overhead per AmLaw 100 lawyer in 2009 was $206,000.  Compare that to almost any other business, including other high end professional services, and it seems clear that savings are not just possible but easy.  (See my May 2009 personal blog post Cost Control as Part of AmLaw 200 Turnaround Strategies for my assumptions to calculate median overhead.)

Of course, by definition, one-half of firms are above the median.  Firms that could bring their overhead down to the median could increase profits by anywhere from a couple percent to over 20%.   That conclusion is admittedly weak because it mixes high-cost NYC firms with lower-cost-base Midwestern and Southern firms.  Yet the point still stands: reducing overhead can make a big difference.

As firms consider how to reduce overhead, they need to keep in mind that legal outsourcing is not just about lower cost labor.  While ‘labor cost arbitrage’ can indeed save, the process improvements are as, if not more, important.

Successful organizations know that being the best is very much determined by who they hire and how they integrate and develop those employees once on board. At Integreon, we pride ourselves on identifying and attracting top talent, and integrating that talent into our workforce to help us deliver high-quality professional services that enable our clients to be more productive.

It is with this in mind that I warmly welcome Bill McClements to Integreon. Bill is a seasoned executive who will serve as our Chief Human Resources Officer as we continue to build our team globally.

Our people are dedicated, enthusiastic, and highly successful professionals who work collaboratively with our clients to impact their businesses. Bill embodies this. In his new role and as part of our senior management team, Bill will have the resources and the mandate to continue our commitment to world class talent management and reinforce our market leadership.

Our success as a company is closely tied to the culture that we create here – a culture of talented and valued people who provide quality client services of which I am very proud. I can say without reservation that the individuals we welcome into our organization are of the highest caliber. Please join me in welcoming Bill to the team. I know he has the expertise to succeed and provide us with the guidance to maintain a world-class workforce – and to ensure that all of us here at Integreon can continue to say that we simply work with the best.

On Tuesday I read with interest Jordan Furlong’s blog post The evolution of outsourcing.  He opens by noting that though LPO is “in its relative infancy, legal process outsourcing has already had a huge impact on the legal services marketplace”.  Furlong focuses on two effects outsourcing has on the legal market:

“The first affects LPOs themselves: they now need to move their value proposition beyond cost savings in a market they helped to make more sophisticated. The second affects everyone: the legal profession’s response to LPO is having an unexpected effect on how legal work is distributed and how legal resources are allocated.”

We agree.  As a provider, we know that simply offering lower labor cost is not enough.  We therefore work hard to improve processes, introduce technology, increase efficiency, reduce cost, and achieve better outcomes for the lawyers whom we support.  Personally, “I’ve put my money where my mouth is”:  I recently turned over global marketing to colleagues so I could work in Integreon’s legal operations consulting group to help do exactly that.

Furlong was perhaps even more prophetic than he realized when he wrote that “a surprising number of law firms are adopting — and adapting — the outsourcing model themselves.”  On Thursday, Legal Week published Taylor Wessing set to create arm in Cambridge for standardised work.

The article reports that the Anglo-German law firm will set up “an affiliated corporate services business to offer clients standardised work.”  Their goal is to offer lower-cost options for routine work such as corporate due diligence.  Eventually “it is likely that the firm will offer the service to third parties, including other law firms.”  The firm may also partner with an IT outfit to streamline work.

“Adopting the outsourcing model” as Furlong suggests is exactly right.  From the limited information we have, it sounds like the firm’s Cambridge unit will be a captive LPO.

We think this development is good news for the legal market.  It further validates that law firms must respond to corporate pressure for (1) options, (2) lower cost, and (3) process improvements.   Of course, we also view it as an explicit endorsement of the LPO approach.

Until recently, the corporate law market was served almost exclusively by inhouse lawyers and large law firms.  Today, however, clients can choose from among boutiques, regional law firms, LPOs, and now, law firms as LPOs.  This choice and competition foster innovation and drive costs down – good news for clients.  Firms like Taylor Wessing that innovate benefit.   And LPOs benefit because in a diverse world of providers, we believe LPOs have the skills, experience, know-how, technology, and global platform to win a good share of the work to support lawyers.