Ticket to ride

The opportunities for law firms to outsource functions, both legal and support services, have been around for years. However, law firms did not feel the same pressures to increase profits and margins in the boom years (when the demand for legal services seemed to grow year on year and, with it, profits) as in more recent years, when most law firms will have seen a fall in profits per partner.

Bootleg beatles

As with a number of novel concepts, law firms will have found their own reasons to not do something, rather than recognise that the benefits of doing something may well outweigh the disadvantages of doing it and the advantages of not doing it. But coming up with reasons for not doing something does not justify not doing it if the right business decision is to do it. By deciding to not sign The Beatles in 1962, Decca had their reasons (they thought The Beatles had “no future in show business”) but it did not take them long to realise it was the wrong business decision.

Quite rightly, when considering whether outsourcing is an option, firms should question whether outsourcing will result in a lowering of standards or raise confidentiality issues, but they would be wrong to come up with their own answers without addressing the issues with the same attention clients expect of them when dealing with client matters.

The simple business question for law firms considering whether or not to outsource should be whether or not they and their clients will benefit from it; in the case of many functions, the answer is yes.

With the introduction of ABS, there will be an increase in external investors in law firms that are looking for and expecting to get a rate of return on their investment in a way partners in law firms do not in respect of their own investment. To achieve the return they are looking for, external investors will look at ways to reduce inefficiencies; this will include looking at costs and seeing if and how they can be reduced without affecting quality of service. Will external investors care if the same piece of work or task can be carried out overseas for half the cost of the same piece of work being carried out in London? Of course they won’t. And the law firm in which they have invested will have to have some pretty convincing reasons to explain why more costs are being incurred than is necessary if they do not take advantage of these opportunities.

Those law firms that do not provide the same value to clients, because they have to charge at higher rates to cover higher costs (and preserve partners’ profit shares), will cease to be as competitive as ABSs that can pass on the benefit of lower costs to clients.

To boldly go

So what should law firms be doing to protect themselves from this threat to their businesses? The first thing they should do is ask themselves what internal support services and what legal services offered to clients can be carried out remotely. For example, how important is it to employ an overnight typing pool when the same typing can be carried out in the same timeframe in another part of the world for a significantly lower cost? How important is it that the contents of an electronic data room are reviewed by lawyers on UK salaries when overseas lawyers on lower salaries with the same expertise can do the same work?

Assuming law firms are bold enough to recognise that, for most clients, it matters little where certain functions, both legal and non-legal, are carried out, the next key issue for law firms to consider is whether those functions that it has identified as being capable of being carried out remotely will be carried out to the same (or at least an acceptable) standard. Law firms should, quite rightly, expect that any functions that are outsourced are carried out seamlessly with no diminution in the quality of service provided. It is therefore vital that the law firm that is prepared to outsource any of its functions is also able to find the right outsourcing partner to outsource them to.

Once this has been achieved, there are several other issues that need to be considered and addressed to ensure outsourcing is a viable option. Clearly security and confidentiality are critical – the law firms will need every reassurance that confidentiality is maintained in the same way as if the outsourced functions were carried out internally; equally, those providing outsourcing services to law firms recognise the importance of this and take every possible step to ensure it, as well as satisfy the law firm that the steps they take are more than sufficient to preserve confidentiality.

The same issues that ABSs will be considering when deciding whether or not to outsource (and, if so, to whom) apply to law firms. However, ABSs may be more willing to outsource functions because the pressure on them to produce a certain level of return on the external investment in them will force them to make these decisions. For law firms that are largely only answerable to their partners, there is unlikely to be the same pressures. But law firms will only really protect themselves against the challenges of ABSs if they match what they are doing and run their firms as a business, therefore making the same decisions as if they were an ABS.

Striking out

As I have touched on above, some law firms will be only too ready to come up with the reasons why to not outsource functions and one reason may well be that they have already invested in the resources that can carry out the functions that could otherwise be outsourced. They may also believe that they need their own resources to carry out such functions, particularly legal functions, to allow their resources to develop in a way that will best protect their business in the future. However, such answers assume that the current law firm model will not change (and any law firm that believes this has not taken on board the likely consequences to the profession arising from external investment in law firms). Such answers also suggest that law firms use their resources because they have invested in them rather than because they actually need them – retaining a resource because it is an investment rather than because it is needed will almost inevitably mean that the resources invested in have excess capacity, which in turn will mean costs are not being managed as efficiently as they could be.

Those law firms that do not recognise the impact ABSs, with external investment, are likely to have on the way law firms are run, or do not change the way they run their own law firms will lose a competitive edge. It will not happen overnight, but it will do over time. To protect against this, law firms must be more businesslike in the way ABSs will be and look at more efficient ways in which their services, both internal and external, can be carried out more cost effectively. Outsourcing is one of a number of solutions that will provide law firms with the opportunity to continue to be competitive; it is also one which, with the right outsourcing partner, will benefit not only the law firms but their clients as well. n

James Holder is the chairman of ?Global BPO