Outsourcing is in

The long-awaited changes are upon us. Provoked into action by the new entrants to the marketplace, with their big brands, big budgets and sophisticated approach to client experience, high street firms are finally on the move. If they want to keep their own brand, identity and independence, they must be able to compete more effectively not just with other lawyers but commercially aware, customercentric, street-smart businesses.

The challenge is no longer just about innovation. The market is full of ideas, some now backed by venture capitalists: from outsourcing, Epoq and LexisNexis’ online offerings, through shared service arrangements and franchising, such as Face2Face, right through to strategic mergers. The challenge now is to choose the right idea and implement it well. Smaller firms may be more agile, but, like all small businesses, owners of law firms are usually short of the two commodities they need most to improve their businesses – time and money. The one solution that promises to free up both and improve customer satisfaction is outsourcing. It is very tempting for a small business owner to do everything himself, to keep the costs down and profits up. However, there are several reasons to resist this temptation.

If you charge clients £190 per hour, every hour that you spend between 8am and 8pm not with clients or doing client work is a lost opportunity. Just one hour per day spent doing administrative tasks instead of client work is £45,600 pa in lost revenue. Good outsourcing means that you have the right expertise available when you need it, without taking on payroll overheads.

Outsourcing offers the opportunity to have a job done better than you could do it, for less than it would have cost you to do it yourself. Small firms simply do not have the numbers or depth of staff to manage work in the same way that large firms do. It is, to use a football analogy, the difference between the Championship and the Premier League. Sickness or a transfer can expose weaknesses. Outsourcing businesses, however, can resolve that simply because they have the staff to cope.

According to a survey conducted by Connect2Law, over 75 per cent of firms believe that outsourcing their back office will help them to compete with new entrants to the UK market. Yet, only half have done so, and then only a tentative toe dipping, such as payroll, typing or IT. Charles Layfield, head of Connect2Law, says: “Outsourcing business functions will be the key to survival for many firms in the new legal landscape and the dynamic ones recognise the huge advantages it offers – mainly reducing their cost base enabling their business to grow.” According to the survey, the most popular areas for future outsourcing from law firms are marketing (43.2 per cent), IT (33.2 per cent) and HR (26.3 per cent).?

From idea to action

Given that solicitors are intelligent people, why have they not moved from idea to action? After all, the larger firms have already taken advantage of the opportunities. In 2010, CMS Cameron MCKenna’s deal with Integreon was predicted to save the firm £59m over ten years in a deal worth a total of £583m. It is too early to say whether those savings will indeed be released but the sheer size of the deal made many firms look again. Although there are no reliable figures for the total value of contracts in the UK, the number of firms prepared to enter into outsourcing contracts is growing. In the South West alone, Osborne Clarke, Beachcroft, TLT, Bevan Brittan, Morgan Cole and Thomas Eggar have all announced back office outsourcing deals.

Chris Bull of legal strategy consultants Edge International was formerly global business solutions head at Integreon. He believes that the still embryonic market for legal outsourcing is undergoing something of a transition: “All the attention in the market was, typically, focused on big sounding deals with the big law firms and corporations. What was not getting talked about was the opportunity for the small to mid-sized firms to use outsourcing smartly and selectively to help them compete with much bigger rivals. That is changing as smaller firms realise that third-party specialists can help them deliver service at a standard they could never achieve under their own steam and for an affordable price. They have to be prepared to accept a good degree of standardisation and be willing to take a share in resources rather than control them outright but the results – already evident in areas like web development, IT and switchboard – bear comparison to much larger firms.”

There are examples of firms that have managed to outsource their back office and the results are impressive. Niche commercial law firm Roxburgh Milkins is a five-partner practice operating on a slimmed down management model. Charles van der Lande says: “We are pretty entrepreneurial and outsource as much of the back office administration as possible so that we can concentrate on doing what we do best – providing our clients with a quality and responsive service that competes on a par with much larger firms. We’ve also found that by outsourcing we often get better results – our credit control has definitely improved since we stopped doing it ourselves.”

For others, the prospect of outsourcing work done by secretaries who have worked, in the same way, for over ten years, may seem daunting. Some partners, especially those in small towns and cities, also feel that they have an obligation to protect and support staff in difficult economic times. The need to cut costs to increase or maintain profitability is imperative when livelihoods are at stake.

While laudable, it is questionable whether this is really a long-term sustainable solution, when consumers now have so much choice.
Chris Marston, head of professional practices at Lloyds Bank, explains: “In the new competitive environment, law firms need to consider a variety of ways to remain competitive. Outsourcing certain functions is now within the financial reach of smaller firms, and can offer cost savings with high levels of service. I particularly like the notion of outsourcing work to clients, by using online document preparation providers.” As for the attitude of the banks to supporting firms that want to invest in outsourcing, Marston says: “Banks will always look positively upon a viable business taking steps to make itself even more viable.”

Which brings us neatly to the point that it is no longer just a financial imperative, but a regulatory imperative to manage the business properly. The new SRA handbook leaves room for manoeuvre but this in itself is a source of stress.

Charles Metherell is managing partner of the Corre Partnership and believes that cost savings are just part of the benefit of outsourcing: “In addition to all the usual burdens of running an SME, our clients also have to contend with a new and uncertain regulatory regime. They come to us because we offer peace of mind. Firms worry about not doing the right thing, either because they are not aware of the requirements or that the goal posts have changed. Our offering enables them to be assured that they are doing the right things to satisfy their regulatory requirements which is good news for them, their regulator, potentially their insurance premium and, of course, ultimately the consumer.”

Customer satisfaction

Will the consumer care whether the person who types up their document, or prepares the bill or writes the newsletter is actually employed by the law firm that drafted his will? Almost certainly, the consumer will not even think about it, any more than they think about whether Toyota makes all the bits of their shiny new car (they don’t).

They will notice that the service is more accessible, and, perhaps, cheaper and that their lawyer seems to have more time to see them. New entrants and top 100 firms are already taking advantage of the commercial opportunities offered by outsourcing. Smaller firms that wish to remain competitive in the new marketplace can take comfort from the fact that this is a well-trodden path, but one that leads, if not to a land of milk and honey, certainly to a more productive future.

Outsourcing options

Smart and selective

Unless they combine forces with other local practices, high street firms are unlikely to be able to offload their entire back office due to scale and the probable return. So, instead, they need to look for an option that allows them to outsource those services or tasks that make a difference to: revenue (keeping in touch with clients through newsletters); productivity (overnight typing); profitability (credit control); or being able to develop new services or sources of revenue (having the telephone answered 24/7 to support an online wills service, for example).

Standard

The standard of support accepted by high street firms is not what the firms themselves aspire to, but is what they can afford. By plugging into an outsourcer and setting service delivery standards, firms can benefit from an increase – rather than decrease – in the level and quality of support that they receive. However, this is set off by a less personal relationship and approach. Outsourced PAs are unlikely to include collecting dry cleaning as standard, for instance. On the other hand, there will be no reduction in service for holidays or maternity leave.

Share

For firms that believe they deliver a personal service that cannot be replicated, the concept of sharing staff such as telephonists, bookkeepers and secretaries may feel uncomfortable. Until you point out that they themselves run an ‘outsourcing’ business and act for many clients quite happily. However, it is true that firms will lose control over how (rather than what) service is delivered. For many this will be a relief – the day-to-day management of the staff can be a major distraction – but for some it is the most interesting part of the day.