Friday, September 25, 2009

Worst Is Over According to PWC

While some heralded the recent economic challenges in the US and UK as a basis for growth in the legal outsourcing industry, the actual outcome has been less than expected. Many vendors in growth positions have not been immune from challenging economic times, either.

When litigation and transactional work dries up, domestic legal firms work to keep their own staff busy before using an outside vendor either domestically or abroad. General counsel who have the same or even increased legal requirements in economically challenging times are often forced to delay or forgo legal services due to internal capacity and budget restraints. While client pressure on their legal counsel can have a positive impact on outsourcing, many times firms don’t even have time to consider augmenting their staff with an outside vendor during arduous periods.

What is often lost is that what is good for domestic US and UK legal professionals is also good for legal outsourcing industry. And vice versa.

A well-structured legal outsourcing engagement helps firms proactively manage risks previously uneconomical to pursue. It helps firms direct and allocate internal resources and provides better support to internal personnel. In short, legal outsourcing is not a zero-sum game. This is true for both the buyers and providers of outsourced legal services.

Recent economic volatility has highlighted many benefits of working with outside vendors. In addition to cost savings, outsourcing enables firms to manage variability better, improve client servicing, and initiate transformational change without expenditures among others. Current increased client cost sensitivity is another positive outcome in favor of outsourced legal services.

As organizations see a pick-up in their work dockets and more stable financial conditions (as noted by PWC), law firms and corporate counsels are now able to focus on more proactive organizational initiatives such as a new or expanded outsourcing engagement to better support their staff. We are looking forward to it as well now that the worst is behind us.

Wednesday, September 16, 2009

Opinion: Outsourcing the core

In an opinion piece featured in Managing Partner magazine entitled, Outsourcing the Core, Andrew Hedley discusses some of the dynamics and challenges facing legal professionals in the UK – particularly as they relate to outsourced legal services.

The points that I enjoyed most were his thoughts on the factors which impact market penetration for outsourcing legal services.

1. Technology: Technically speaking, it might be argued that a couple of factors have constrained development in the past for all but the most straightforward of work. These are shortcomings in communications technology, and a paucity of the advanced project-management skills needed to disaggregate a legal service, have the constituent parts handled independently, and then reconstitute the service at the point of delivery to provide a seamless client experience. Such technical and management challenges can now be overcome.

2. Perceptual: What remains is the emotional barrier of managing so much of the legal process at arms length within a profession in which many partners have been reticent to let work leave their own desks, let alone firm, country or continent. At an organisational level there are also issues of trust, confidence and client confidentiality that will need to be overcome. At what point will economic imperatives overcome these social and management impediments?

Too many times firms concentrate on overcoming the former challenge while in many ways disregarding the latter. Equal, and in some situations greater, emphasis should be placed on ensuring the internal buy-in and managing expectations for changes within the organization.

As Hedley concluded, “I believe these changes are inevitable. How far-reaching they will be, and over what timescale, are the key issues law firm leaders will need to consider when deciding on the best approach for their individual organisations.”

Monday, September 14, 2009

Conversation with Doug Hubbard

Quality is a big point of differentiation between outsourcing vendors. But how can law firms and corporate counsels determine that their prospective vendor can deliver on quality? Moreover, how can contracting firms manage quality of their outsourcing vendor even if the processes are not performed under their direct supervision.

The key for managing quality is measuring quality. To measure quality, it needs to be explicitly defined. More succinctly: Defining Quality => Measuring Quality => Managing Quality

This past week I had the pleasure of speaking with Doug Hubbard regarding his thoughts on measuring and defining quality. Doug is the author of the very insightful book, How to Measure Anything. Below are some of his thoughts from our conversation.

“When measuring quality, the most important thing is recognizing that quality is not ‘intangible’. Rather, quality is quite tangible and has observable consequences. If it didn’t have observable consequences, why would we care so much about it?”

Hubbard believes that lawyers should excel at defining quality: “At its core, the practice of law is defining legal issues. For example, it is the lawyers’ job to explicitly define each clause in a client contract,” he stated. “It’s all about avoiding ambiguity. The same principles and skills can be used to define quality.”

Defining quality invariably requires defining errors so they can be avoided. “To define quality requires defining what an error means and the appropriate scope of that error,” Hubbard explained. “Events defined as errors can’t be so rare that the error rate is consistently zero. This is misleading about the underlying risk of error. By measuring lower consequence-higher frequency errors, one can use these findings to make more accurate assessments of quality, as the low consequence errors are often indicative of high consequence-low frequency errors. For example, in space travel, if one were only to measure the loss of a crew member as an error, for the first Space Shuttle missions the risk of error would appear to be zero. But if one were to measure the number of high frequency-low consequence errors such as the number of times an O-ring burned through or when foam fell off the external tank, this error rate would be much more indicative of the actual risks.”

Following the same principles outlined by Hubbard, lawyers cannot define errors purely by high-consequence-low-frequency errors, such as avoiding a malpractice lawsuit or sidestepping a default judgment. These events occur infrequently and often do not directly correlate to quality. Rather, when creating a quality management system, legal professionals must use as a barometer high frequency-low consequence errors such as a typographical error or missed redaction.

*These above quotes and others also appear in our upcoming publication, Implementing a Successful Legal Outsourcing Engagement. More details on the book to follow.

Friday, September 4, 2009

A Broken Business Model?

While I do not think that the law firm is fundamentally “broken” nor do I profess the end of lawyers, below are some interesting points from an article published in the National Law journal titled “A Broken Business Model," by Joel Henning.

There is a lot of talk about moving away from billable hours, but alternative fee arrangements are neither new nor making much headway. Greater use of contract lawyers, offshoring, fewer equity partners, a cutback in associate salaries and more differentiation in associate pay and promotions — are all being discussed and even modestly implemented. But all of this has been around for at least a decade, and none of it has so far done much to make clients happier either about their legal bills or the quality of the services they pay for.

The concluding statements of Henning’s article note that law firms need to be run from more of a business perspective.

I particularly enjoyed the article since it emphasizes that outsourcing or other cost saving measures are not the solution in and of themselves. Rather outsourced legal and legal support services are component of a multipronged approach so for legal firms to better serve their clients.