Friday, October 29, 2010

Alarmist Intelligencer

This week’s Legal Intelligencer features an interesting and insightful, albeit alarmist, article on the changing competitive pressure created by the rise of LPOs. Much of the piece is well-written and I fully subscribe to the statements about the bolstering prevalence of LPO vendors, the permanence of LPOs’ value proposition, and the increasing disaggregation of legal services, among others.

That said, I may raise a wry eyebrow about these things:

Alarmist projections: We’ve been around long enough to see a number of these pronouncements come and go. True, LPO is a very significant and growing trend. It has profound implications for the relationships between law firms and their clients, but I don’t project the “end of lawyers” or apocalyptical demise of the legal profession. The global legal market is estimated to be approximately $400 billion (roughly 60% of it is located in the US). While projections may vary, the global LPO market is currently pegged at $440 million. Total market penetration of LPO: ~0.1% of the entire global legal sector. These numbers may not fully reflect the impact of legal outsourcing and the shifts in client buying preferences, but it does provide some perspective.

Dramatic schisms between law firms and clients: We certainly don’t view LPO as a wedge between with law firms and clients any more than contract attorneys or e-discovery vendors harm those relationships. While some firms will poo-poo LPO, the majority of top US law firms are working with LPOs in various capacities, even if not stating their involvement publically (see study findings here).

Tidy market position statements: Does profiling the market approach of a single LPO vendor illustrate what’s going on in the entire market? Does the stance of a single law firm say everything about LPO relationships? Personally, I’ve never found neat and tidy statements accurately reflect the reality and complexity of market forces. Not all LPOs are created equal and there is not a homogenous approach to the market, as implied by the article. We have seen vendors evolve to different strategies and services as they support different corporations, and law firms. For a contrasting view of the strategic approach published in the article, see a counter-post by Ron Friedmann of Integreon. Friedmann raises an interesting point that LPOs create diversity in the legal sector and that, “diversity is a key element of a healthy ecosystem.”

Ironically, as Bruce MacEwen (fellow Adam Smith Esq. partner to Janet Stanton quoted in the Intelligencer article) noted in the foreword of my book, “I may disappoint you to report that what I believe is far more parochial: the adoption of outsourcing will be firm by firm, activity by activity, year by year. Like much of the march of progress, change will be less drastic in the short run than many imagine, and more revolutionary in the long run than most can foresee.”

In closing, LPO is an option that law firms can offer to their clients or an alternative resource available to corporate legal departments. In the short run, the legal profession isn’t “falling apart,” but in the long run is the rise of LPO domestically and around the global more revolutionary that most can foresee? I would say yes, but don’t take my word for it.