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Matthew Banks on January 11th, 2010 at 4:05 pm :
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by Matthew Banks
Boston based consulting firm Vantage Partners has published a White Paper, aimed at law firms, entitled Easy Mistakes to Make When Making Decisions About LPO. The Paper contains several pertinent market observations and useful recommendations for law firms, both at a practical and strategic level. I have selected a handful for comment (text copied from the Paper is in italics):
- In-house law departments are leading the way in the exploration and experimentation with LPO. And even where law firms are getting involved… Most law firm experience is centered around serving a particular client who has insisted in the use of a lower cost resource for some of the work. This is indeed true for most, but not all law firms. We are seeing more law firms folding LPO into their offerings and into their model. Recent examples include the Allen & Overy offshore document review option and the move by Simmons & Simmons to set up a core team in India. Most of this activity is from U.K. based firms. In addition, a number of US AmLaw 200 firms have set up either formal or informal LPO “investigatory committees”, as they conduct a due diligence process aimed at selecting one or more preferred LPO providers.
- The LPO industry is still relatively immature, populated by many small providers who may not have significant staying power and who do not, in fact, offer the usual outsourcing benefits in terms of scale, technology investments, or process expertise. An industry that in its formative years was characterized by the emergence of numerous, boutique providers, is now beginning to scale up and consolidate in order to meet the increasing sophistication of AmLaw 200, U.K. Top 50 and Global 2000 procurement. Although the market is still comparatively nascent, a handful of leading providers has pulled away from the rest of the pack in terms of their experience, scalability and infrastructure. Maturing providers combined with increased market activity and acceptability make now a great time for many law firms, used to following not leading, to examine LPO.
- Lawyers will generally be unable to shed responsibility for the quality of the work carried out by the LPO provider, even when the client has selected the provider and foisted it on the law firm. The structure for contractual relations and liability can vary. In some cases, the client will contract directly with the LPO even where a law firm is involved. In other cases, the law firm will be the aggregator who subcontracts to (partners with) with the LPO. In the latter scenario, the laws firm will have contractual recoverability from the LPO subject to any agreed limits on liability. We find that “risk” (reputational and financial) is a major part of any dialogue with law firms and should not be shied away from, but rather addressed and resolved head on. Quantifying risk (or lack of it) is very important, from the selection of suitable tasks for outsourcing through to transparency into the workflow process and quality regime. A robust documented and defensible process provides visibility into exactly what is being done, how and by whom, which means that the risk can be mitigated and managed. Risk management is something that Vantage has highlighted in their Paper.
The Paper goes on to list typical mistakes that law firms might make when they consider LPO:
- Failing to understand what your clients are really asking for. Be prepared to address a client desire for strategic transformational change. Procurement departments of major corporations and banks are getting involved in purchasing legal services. We see this in more and more RFPs. It’s not just the delivery of services that is changing but the way they are procured.
- Grudgingly accepting LPO when a client forces it upon you. It is easier to obtain quality outputs from an LPO provider if you enter into the relationship in a collaborative fashion rather than as the result of being coerced by your mutual client. It is even easier to do a quality job and get some credit for being responsive and innovative if, when asked by a client about LPO, you can identify some providers with whom you have already established a relationship and perhaps even have run some successful pilots. One hopes that all providers prioritize the best commercial and legal interests of the clients! Fortunately we experience highly collaborative working relationships with law firms. We also ensure that our documented process (which is approved by the client and law firm prior to project start) includes a pre-agreed communication and collaboration regime with outside counsel so this joint effort is not left to chance.
- Thinking you have to “own it”. There are “best friends” relationships or networks that can serve as good alternatives and don’t require a large capital investment. There are providers who can leverage economies of scale and process expertise to deliver a reliable and more flexible managed service and do so under fairly stringent service level agreements. At any scale, there are challenges with the captive model. Ownership and control are not the same thing. The unwinding of captives in the financial services sector is a warning indicator. See blogs at http://www.integreon.com/blog/cat/captive-v-3rd-party.
Filed under Captive v. 3rd Party, Knowledge Outsourcing (KPO), Legal Economics, Legal Outsourcing (LPO), Onshore v. offshore, Outsourcing Tips
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Matthew Banks on January 4th, 2010 at 3:34 pm :
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by Matthew Banks, Ron Friedmann, and Mark Ross
Integreon’s LPO experts, Matthew Banks, Ron Friedmann and Mark Ross take a look at what to expect in the LPO world in 2010.
Someone once said that less happens in a year than you might think but more happens in a decade than you might think. That’s the way we feel about the legal profession and LPO. So rather than offer a list of dramatic and sweeping 2010 predictions; we tender below some likely developments consistent with broader trends that will continue to play out over 2010 and beyond, bringing significant growth to the LPO industry. We also break with traditional year-end predictions because our list exceeds the customary ten items.
LPO is part of the bigger picture of evolution of legal services. Legal organizations are now, more than ever, actively trying many new and related approaches: technology, back office restructuring, process improvement, LPO, alternative fee arrangements, and better knowledge management, among others. So, in that context, here is what we think 2010 will see:
1. More organizations will outsource more work to more LPO providers.
2. The third party provider model will dominate. We don’t expect to see many captives in the legal market; it’s too difficult and they fail.
3. In the U.S., expect the ABA to provide more detailed guidance on how to outsource legal services ethically. While in the U.K., the Law Society, to date silent on the subject, will publically comment for the first time.
4. There will be lots of talk about alternative offshore locations to India but none will yet emerge of such scale. Onshore and near shore will be the main alternative and could grow as quickly as offshore.
5. LPOs, which are already good at what they do, will get even better. More experience brings better service.
6. LPOs will expand what they do — more capabilities and services inching a little higher up the value chain but still based around the core services available today: discovery, contracts, compliance, research, and IP. In addition to moving higher up the value chain, LPOs will also expand into consumer related and high volume legal services such as conveyancing, personal injury, wills and probate.
7. Document review however, will retain its #1 spot as the service most often outsourced, at greatest volume, and by far the greatest revenue generator for the LPO industry.
8. Organizations will start to develop multi-functional teams on an FTE basis, rather than single function transactional work. For example, corporations will engage core teams to handle a variety of legal dept work such as contract management, compliance, etc. The underlying economics of a dedicated team is better both for customers and providers.
9. LPO pricing will be stable.
10. Revenue growth for the LPO market will be rapid and some providers could double in size over the next year or two.
11. The biggest LPOs will reach 500+ lawyers working on document review, contract management, and due diligence projects. While concurrently, some smaller providers will exit the market altogether.
12. We will see more Rio Tinto type publicity, but less than you might expect because law departments have no vested interest in making public their private outsourcing arrangements with third party providers. Law firms, in contrast, are more likely to publicize outsourcing because, as service providers in a competitive market, they may see it as a competitive advantage.
13. Generally, law firm activity will be reactively driven by clients. Although a number of major firms will cement “preferred LPO provider” relationships. However, many or most top law firms will have had exposure to LPO one way or the other by end of 2010. That said, the first few firms to do something new are always long in coming; once a handful have acted, the market can tip quite suddenly.
14. U.K. law firms will continue to be more active in offshore outsourcing than US law firms. US law firm activity will more likely be a mix of offshore, near shore or onshore.
15. Recent blog posts have debated whether process is the future of law. In part, yes, but there will be a polarization between what clients are prepared to pay premium rates for and what the market will force into new models. Not all law will be process driven but LPO will help to increase the scope of what can be process driven.
16. Procurement will drive more law department purchase decisions. Their drive to efficiency will push more work to LPO; their drive to systematize purchasing may slow down sales cycles.
17. The biggest LPO single client contract value will exceed $10M annually.
Filed under Captive v. 3rd Party, India Business and Economy, Legal Economics, Legal Outsourcing (LPO), Onshore v. offshore, Outsourcing Tips
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Matthew Banks on November 19th, 2009 at 4:49 pm :
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In a move that reflects long time practices in the US legal market, interest is apparently growing amongst UK law firms for use of temporary project based staff. Leading City firms in talks to bring in teams of contract lawyers (LegalWeek, 29 Oct 2009) prompts us to consider the differences between the legal process outsourcing (LPO) and local temp staffing models.
The article reports that major UK law firms may consider using temporary lawyers for more of their routine legal tasks. After the significant lay-offs over the last year and the change in the economic landscape, law firms are naturally apprehensive about venturing back into the full time recruitment market, at least until there is a sustained upturn in the volume of legal work (and even when that happens, many analysts feel that firms will not return to those old recruiting methods).
Beyond market conditions, clients demand greater efficiency. Sound familiar? Temp staffing in the UK is another example, along with LPO, of alternative models for delivering certain legal tasks. For perspective on the LPO approach, see our post earlier this week, LPO - No Longer a Case of ‘If’ but ‘When’.
Providers of project based staffing used to be called “temp agencies”; now they are labeled as “virtual law firms”. Same service, new name? No doubt they take away the strain of sourcing and vetting, take permanent staff off book, improve utilization numbers and no doubt they are capable attorneys who are offered quickly and locally…… but that is where the benefits stop. Relative to legal process outsourcing, temps lack several important benefits, some of which can truly transform the strategic approach of law departments and firms:
- Even if a provider is sourcing and vetting the lawyers, the team must still be project managed by the purchasing law firm.
- The purchasing law firm still carries the cost of infrastructure (facilities and IT).
- Lacking in this approach are any inherent process efficiencies (and improvements), metrics, continuous improvement methods, documented procedures, or quality control systems. This is contract staffing, not the offering of a methodology or a best practice operation.
- Integrated technology is not part of the offering.
- The temp lawyers are not dedicated full time staff. With the advent of LPO, purchasers can retain a core dedicated team on a full time basis at such savings who bring continuity of knowledge and staff, which in turn brings repeatability and scalability. That team can be ramped/flexed up and down.
I see the benefit in some cases of embedded, local teams. That is why we and other outsourcing companies provide onsite services, embedded into clients’ teams but managed and part of the LPO best practice process.
In short, my perception is that the LPO is a service and temp staffing is temp staffing. I’m sure there’s room for both but LPO likely will have the bigger long term impact on making law practice more cost-effective.
Filed under Legal Economics, Legal Outsourcing (LPO), Outsourcing Industry News, Outsourcing Tips
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Matthew Banks on October 28th, 2009 at 11:45 am :
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The news of Rio Tinto’s Legal Process Outsourcing (LPO) initiative has been widely reported. For a detailed report, I recommend Richard Susskind’s interview with Leah Cooper, the Rio Tinto General Counsel behind the initiative.
The number of major outsourcing arrangements between leading LPOs and blue chip global law firms, banks and corporations has increased but the topic is rarely discussed publicly. The Rio Tinto arrangement is one of the very few widely publicized.
Cooper’s approach to her challenges (as well as her messages to the industry) will resonate with GCs around the globe, who face similar pressures of increased workload but constrained budgets. LPO enables law departments to meet rising workloads whilst reducing costs. It opens up a “new way of working” where quality can be achieved at reasonable cost by reallocating legal tasks to partner providers.
Indeed, as I listened to this interview I kept coming back to Cooper’s notion of “a new way of working”. Whilst I do largely agree with her comments, I have a slightly different take on how GC should think about legal outsourcing.
The “P” in LPO: Process is Not a Dirty Word
Cooper doesn’t like the “P”. She sees her LPO team as a genuine extension of her in house team, contributing to the overall workload and undertaking tasks that a junior lawyer within the in house team might otherwise undertake. She rightly points out that the “P” downplays or downgrades the importance and nature of the work.
I agree that LPO is not about administrative form filling. Nor is it restricted to organizations with massive volumes of standardized documentation. Process, however, is integral to LPO: it is core to the how LPO lawyers perform tasks, even complex ones. Moreover, process should be core to lawyers everywhere but typically is not. The legal market finally seems to be waking up to the importance of this. Law Firms Look at Process Management in The Legal Intelligencer (20 Oct 2009) discusses project management and process, including law firms that are now adopting Six Sigma, a tool some LPOs, Integreon included, have used for some time.
The benefits of process include consistency, predictability, quality, productivity and defensibility – these benefits apply across many legal tasks of varying complexity, not just tasks which by their nature are substantively straightforward, standardized and routine. For example, one of our current projects involves a multi-national corporation with a suite of 20 “medium complexity contracts” used regularly in its business. The company has different attorneys around the world following different processes using different templates in different locations, accepting different edits with different results. The LPO process brings a method which is common, documented, repeatable and scalable. Beyond labor cost savings, working with an LPO helps the company reduce work volume plus improve consistency and therefore decrease risk.
Smart buyers of LPO services are not simply looking for Day 1 cost savings – they demand long term transformation and improvements. A key value add of LPO is creating these longer term productivity and efficiency improvements by combining process expertise with legal know-how. It’s the same core task but delivered in a more modeled and structured fashion. Richard Susskind discusses this in detail in his recent book, The End of Lawyers?
“Process” captures implementation and transition planning, workflow, performance metrics capture and tracking, communication, and reporting. All of these are not ends in themselves – they are genuine tools for improving performance.
So if you don’t like the word “process” then call it “method” or “systemization”. Whatever we call it though, it’s an essential ingredient to delivering and managing legal services – whether from an LPO, law firm, or law department.
The “O” in LPO: “O” Means Outsource, not Offshore
“O” is for Outsourcing, not Offshoring. Outsourcing is about an approach, not a location. The offshore element of the Rio Tinto deal is what grabbed the headlines, but Cooper explains that quite a few projects have actually been performed onshore in the US, and are still achieving cost savings when benchmarked against the cost of the law firm model.
LPO is not exclusive to India, nor those tasks which are suitable for offshoring. The “new way of working” is broader than that. We believe that outsourcing is a global phenomenon and LPO should be no exception. Outsourcing could be onsite at the customer’s office; it could be onshore, multi-shore or offshore.
Offshoring to India is highly successful and can be a great way to reduce cost and create efficiencies, but it’s not the only way. Organizations want the right fit for their requirements, not a one dimensional solution. Different locations offer different attributes and mature LPOs offer law departments and law firms an explanation of the differences and a choice. One size does not fit all; one shore does not fit all.
So What about the “L” You Ask?
The “L” of course is for Legal, which should not be confused with traditional business outsourcing, such as commonly associated with offshore technical support or call centers. Legal outsourcing requires domain expertise. So for example, Integreon’s legal outsourcing services are supported by our staff of full time, licensed lawyers, who can work on-site at client or law firm offices or at any of our secure facilities located onshore, including in such familiar places as midtown Manhattan and London, or in equally secure and lower cost offshore locations.
“Legal Process Outsourcing” therefore implies professional, experienced legal staff delivering quality, cost effective services from the client’s choice of locations.
Filed under Business Process Outsourcing (BPO), Knowledge Outsourcing (KPO), Legal Outsourcing (LPO), Onshore v. offshore, Outsourcing Industry News
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Matthew Banks on August 13th, 2009 at 2:18 pm :
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O’Melveny & Myers LLP, a global law firm, and H5, an information retrieval services firm, announced on 3 August an alliance that will provide O’Melveny clients with an alternative to traditional search methods for document discovery, review and analysis. Under the alliance, O’Melveny and H5 will work collaboratively with O’Melveny clients to consider possible applications of H5’s search functionality. The aim is to reduce cost and increase efficiency.
As my colleague Ron Friedmann suggested in his personal blog post, A BigLaw Watershed: O’Melveny Partners with H5 for EDD, this may be the first such public announcement from a BigLaw firm. The trend towards new approaches to cost-effective discovery, however, especially incorporating advanced technology, is clear. “Our clients face rapidly increasing litigation costs fueled in part by the mounting expense of document review,” said Richard Goetz, Chair of O’Melveny’s Class Actions practice group (see press release). He succinctly captures the central issue driving law firm thinking.
An increasing number of major law firms are reacting to the budget constraints faced by their corporate clients. They recognize the increasing competition among law firms in this down market and that the traditional delivery model, with its enormous costs, is unsustainable. Innovative firms are exploring methodologies available from specialist EDD providers.
The huge cost pressure represents a threat and opportunity for law firms in the competitive landscape. An array of processes and technologies to reduce cost are readily available. If firms ignore these tools, their corporate clients will adopt them directly or turn to providers who offer them. O’Melveny appears to recognize this, has publicly stated so, and is taking advantage of the opportunity.
In our experience, however, technology is only part of the answer. Irrespective of the review tool a litigation team chooses, they will be left with a sizable number of documents that require human review. General counsels need to consider carefully the most appropriate resource to conduct reviews. Options include law firm associates or staff attorneys, contract or temp lawyers that they or their outside counsel retain and manage, or offshore review teams (often working with onshore teams). With offshore review now well established and validated, an increasing number of corporations are using offshore review teams to further contain cost. And law firms are starting to respond in kind, also offering an offshore review alternative in some cases.
We see the law firm thinking evolving, with more and more offering offshore or multi shore document review and deploying data analytics or a more holistic integrated approach to discovery. But the common trend is clear: manage cost (i.e. reduce cost and make cost more predictable) by managing the volume of data that funnels into review and delivering review at a lower cost while ensuring a defensible production. Clearly, the greatest savings come from leveraging both technology and global managed review options.
Filed under E-Discovery (EDD), Legal Economics, Legal Outsourcing (LPO)
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Matthew Banks on August 27th, 2008 at 1:28 pm :
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This is a follow-up to our post yesterday about the release by the ABA of an ethics opinion on legal outsourcing.
The American Bar Association ethics opinion, Formal Opinion 08-451 - Lawyer’s Obligations When Outsourcing Legal and Nonlegal Support Services (PDF), dated 5 August 2008 and publicly announced 25 August 2008 does not tell us anything substantively new, only that the ABA agrees with clients and professionals alike that legal outsourcing is ethical so long as lawyers comply with the Model Rules and engage suitable providers.
It is thus a welcome addition to the growing body of persuasive opinion about the ethics of legal process outsourcing. It aligns offshore with onshore outsourcing; usefully consolidates a range of ethical issues into one Opinion; recognizes the global nature of legal services; and acknowledges the professional and economic benefits of outsourcing.
Purchasers of outsourced legal services, law firms and corporations alike, however, have long conducted their own ethics assessments and concluded that ethical rules have never precluded outsourcing so long as certain conditions were met. Even without this opinion, there has been no reasonable doubt about the valid ethical nature of such activities by well managed and reputable providers.
Sweeping as the Opinion is, it is not carte blanche to outsource nor is it an endorsement of every outsourcing provider. The purchaser of outsourced services must adhere to relevant professional obligations and the provider should conform to the staffing, training, physical and network security and expertise requirements set forth in the Opinion. Professional and reputable outsourcing providers welcome these due diligence requirements.
The salient and self explanatory points from the Opinion are below. I have added headers in bold below that are not in the opinion but otherwise quote relevant sections, though with liberal use of ellipses. Readers seeking legal guidance should be sure to read the opinion in its entirety.
- Outsourcing and Offshoring is Ethical: “There is nothing unethical about a lawyer outsourcing legal and nonlegal services, provided the outsourcing lawyer renders legal services to the client with the ‘legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation,’ as required by Rule 1.1.”
- Direct Control Not Required: “[A lawyer] may decide to outsource tasks to independent service providers that are not within their direct control. Rule 1.1..…requires only that the lawyer who is responsible to the client satisfies her obligation to render legal services competently.”
- Adequate Supervision is Essential: “Rules 5.1 and 5.3 impose additional obligations on lawyers who have ‘direct supervisory authority” over other lawyers and nonlawyers…. The challenge for an outsourcing lawyer is, therefore, to ensure that tasks are delegated to individuals who are competent to perform them, and then to oversee the execution of the project adequately and appropriately.”
- Lawyers Should Assess Provider Suitability: “At a minimum, a lawyer outsourcing services for ultimate provision to a client should consider conducting reference checks and investigating the background of the lawyer or nonlawyer providing the services…. The lawyer also might consider interviewing the principal lawyers…involved in the project…. When dealing with an intermediary, the lawyer may wish to inquire into its hiring practices to evaluate the quality and character of the employees likely to have access to client information…. [T]he lawyer should consider investigating the security of the provider’s premises, computer network…”
- Considerations in Working with Overseas Providers: “When engaging lawyers trained in a foreign country….the professional regulatory system should be evaluated to determine whether members of the nation’s legal profession have been inculcated with core ethical principles similar to those in the United States, and whether the nation’s disciplinary enforcement system is effective….”
- Disclosure to Client: “[A]t the outset, it may be necessary for the lawyer to provide information concerning the outsourcing relationship to the client, and perhaps to obtain the client’s informed consent to the engagement of lawyers or nonlawyers who are not directly associated with the lawyer or law firm that the client retained…. Thus, where the relationship between the firm and the individuals performing the services is attenuated, as in a typical outsourcing relationship, no information protected by Rule 1.6 may be revealed without the client’s informed consent. The implied authorization of Rule 1.6(a)…to share confidential information within a firm does not extend to outside entities or to individuals over whom the firm lacks effective supervision and control.
- Take Steps to Ensure Confidentiality and Avoid Conflicts: “Written confidentiality agreements are.. strongly advisable in outsourcing relationships. … [T]he outsourcing lawyer should verify that the outside service provider does not also do work for adversaries of their clients on the same or substantially related matters…
- Fee Levels: [T]he fees charged by the outsourcing lawyer must be reasonable and otherwise comply with the requirements of Rule 1.5…. [T]he lawyer is not obligated to inform the client how much the firm is paying a contract lawyer; the restraint is the overarching requirement that the fee charged for the services not be unreasonable. If the firm decides to pass those costs through to the client as a disbursement, however, no markup is permitted…. [I]f and to the extent that the outsourced work is performed off-site without the need for infrastructural support… the outsourced services should be billed at cost, plus a reasonable allocation of the cost of supervising those services if not otherwise covered by the fees being charged for legal services.”
- Unauthorized Practice of Law: “[T]he outsourcing lawyer must be mindful of the admonition of Rule 5.5(a) to avoid assisting others to ‘practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction….’ … Ordinarily, an individual who is not admitted to practice law in a particular jurisdiction may work for a lawyer who is so admitted, provided that the lawyer remains responsible for the work being performed and that the individual is not held out as being a duly admitted lawyer.”
Filed under Legal Outsourcing (LPO)
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Matthew Banks on February 22nd, 2008 at 8:42 am :
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Ron’s recent post covered three reports on outsourcing. The Deloitte report highlights the need for both the client and provider to invest sufficient time and energy in planning the outsourcing initiative prior to live delivery.
The implementation (or transition) phase, lodged between the sales and delivery phases, is often overlooked in the rush to a project without sufficient preparation. This is false economy. Time invested in the implementation phase prevents problems later and ensures predictable delivery against agreed expectations.
At Integreon, we are rigorous about this; we dedicate attorneys specifically to the implementation phase, to work with our clients to map out process, workflow and governance, not to mention framing the right training and user manuals where required.
The literature on this is legion but it’s a lesson that many customers learn the hard way. It does not have to be that way.
Filed under Outsourcing Tips
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Matthew Banks on February 11th, 2008 at 7:10 pm :
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Howrey have no doubt discovered that there are highly capable legal resources offshore and that it is possible to achieve quality and control through onshore and offshore supervision. I think the greater challenge for law firm captives (offshore centers owned and operated by the law firm) is the cost and time investment of establishing and managing an offshore operation. Third party providers such as Integreon offer law firms a key advantage: remove cost and hassle from onshore lawyers, not add to it.
Many of my law firm clients, particularly litigators and litigation support staff, complain that they already spend too much time managing onshore recruitment, training and staff turnover within large teams. Another concern I have for captives is scalability. Having a compact resource offshore is one thing, but the ability to scale up (and down) to meet project demands is another. For many law firms and companies, the real value of outsourcing comes with scale and/or resource flex.
Filed under Captive v. 3rd Party
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