Tuesday, March 29, 2011

The Strategic Impact of LPO: A New Book to Prove It

"A firm’s client strategy should be under constant review in order to ensure that the emerging needs of the client and the firm’s competitive capabilities remain aligned.”

Andrew Hedley, a widely respected thought-leader, advisor on legal strategy and author recently published a book, Client Strategy in a Changing Legal Market which “provides a route map for the [law firm] leadership team, enabling them to navigate these choppy economic waters and arrive at strategies which are both well founded and resilient.”

Hedley aptly notes the importance of legal outsourcing, onshoring and legal service disaggregation as key emerging areas of client strategy.

We’ve seen from our leading global law firm clients that these decisions have far-reaching strategic implications and should be made with careful consideration (avoiding a reactive, ad hoc approach to work with outside vendors).

Increasingly, firms find themselves asking:

What exactly is the difference in legal ‘process’ outsourcing vs. how we deliver services internally? How does LPO impact our firm? How could/should we integrate LPO capabilities into our practice? Should we pursue a captive vs. traditional third-party vendor model? Or create a hybrid between the two? Finally, how do we manage the risk of these new engagements and offer these services to our clients?

Hedley kindly offered me the opportunity to contribute to the “Expert Commentary” section. I explored the direct strategic implications for legal outsourcing and outside legal service providers.

During my ''expert" commentary I outline the four drivers of the LPO movement:
• Cost savings and efficiencies;
• Capacity management;
• Access to talent and expertise; and
• Strategic and client-driven initiatives.

“The emergence of legal outsourcing as a strategic priority is driven by a number of factors including the client-facing aspect of LPO for law firms, the continuing expansive adoption by law firms and corporates alike and, finally, the innovation spurred by LPOs as they join process and technology into the delivery of legal services. Despite the growing knowledge base for LPO, many senior leaders find themselves coming back to core questions of what exactly is LPO, how can we use it and what are the implications for our firm?”

After outlining the ‘what’s’, ‘why’s’ and ‘how’s’ of LPO, I illustrate the concepts with several real case studies. Two organizations featured are Pinsent Masons (including commentary from Nigel Kissack, head of their disputes team) and ISS (with remarks from Richard Reade UK general counsel.)

Throughout the book, Hedley does a great job of combining both theoretical insights and real case studies with firms such as CMS Cameron McKenna, Carillion and Epoq.

Client Strategy in a Changing Legal Market also highlights a number of client strategic areas such as:
• The frameworks of strategy and client strategy;
• The forces of growing change in the legal profession;
• Client segmentation and selection; and
• The combination of all data points to create a compelling client strategy.

Having just picked up the book last week, I have yet to finish it cover-to-cover, but everything I’ve read so far has been quite insightful and well-written.

After authoring a similar publication on legal outsourcing myself, I certainly appreciate the thought and effort that went into Hedley’s publication. I would highly recommend reading the book to ensure your client strategy does not stagnate in a "changing legal market."

More details on Client Strategy in a Changing Legal Market, you can find the table of contents available here.

Thursday, March 24, 2011

Howrey: The King is Dead, Long Live the King

The recent dissolution of the major US law firm Howrey has many law firm partners scratching their heads. What happened? Despite the warning signs, how could this unwind so quickly? And most importantly, how can we keep this from happening to [insert law firm name here]?

In an interview with a Wall Street Journal reporter, Howrey, (now former) CEO Robert Ruyak, provided limited insights into what eventually became the demise of the prestigious DC-based firm. He specifically outlined the firm’s challenge to generate consistent revenue due to its precarious reliance on litigation work – particularly litigious matters based on alternative billing and contingency fees.

The final, and most interesting remark made by Ruyak, involved the growing significance of third-party specialists.

“Another challenge was the rise of third-party document-discovery specialists that could provide litigation support services at substantially lower rates, he said. Howrey, a law firm with many offices in big cities, and thus, higher costs and couldn’t compete, he added.”

Without jumping to too many conclusions, domestic and international legal outsourcing (LPO) seems to fit comfortably into this bucket of ‘third-party document-discovery specialists.’ So, how does this impact other similar law firms and what are they doing in response to the growing third-party vendor adoption?

The typical law firm response usually falls into a blend of the following responses:

1) Ignoring and distancing themselves from the matters carried out by outside vendors.

2) Embracing LPO in varying degrees (despite the fact that we haven’t heard any major LPO pronouncements by any major US law firms.)

3) Establishing “value options” through captive delivery centers in low cost jurisdictions domestically.

While LPO vendors based internationally typically bear the brunt of similar frustration expressed by Ruyak, the growing number of domestically-based shops such as Axiom Law seem to be gaining adoption to unprecedented degree.

Often, many law firms attempt to position themselves out of the lower-level “commodity” work performed by third-party vendors. For example, a recent article in Bar & Bench featured comments from, Glenn Gerstel, Managing Partner of the Washington DC office of Milbank, Tweed, Hadley & McCloy.

In the very same city where Howrey failed less than week before in part due to growing pressure from “third-party document-discovery specialists,” Gerstel said,

“I think LPO is certainly very efficient for certain kinds of legal practices. For Milbank, we have not engaged in it mostly because the kind of work we do tends to be very customized and specific, which is highly negotiated projects or cross border litigations where there are relatively few opportunities to cut cost efficiencies associated with outsourcing. There are other practices where it makes sense but for Milbank we have not found the opportunity.”

Granted, for a very high-end law practice such as Milbanks, perhaps this is true. But, the end-all test is whether clients continue buy this line of thinking – and the fee structure behind it. Based on the comments made by Howrey CEO Robert Ruyak, apparently clients weren’t buying this for Howrey. It’s doubtful that we’ve seen the last of major law firms attributing (publically or privately) lost revenues to third-party vendors.

***Disclaimer: There are certainly ways around this dilemma of all or none. We at Fronterion don’t subscribe to the belief that the relationship between law firms and outside vendors as a zero-sum relationship. In fact, from our experiences working with similar firms we see quite the opposite is the case. Firms should not dismiss the impact of new players in the ‘legal supply chain’ to the significant detriment of their practice (as seen by Howrey).

For more information on the growing onshore movement, email forefront@fronterion.com for the most recent copy of our monthly newsletter covering issues related to domestic legal outsourcing trends. A number of these trends are also included in our annual legal outsourcing trending report available here.

Tuesday, March 22, 2011

Fronterion Newsletter Release: Is onshore the new offshore?

This month the focus of the Fronterion Forefront newsletter includes a number of recent developments in the onshore legal outsourcing segment. This includes third-party vendors expanding their domestic footprint or law firms establishing their own centers.

“When legal process outsourcing (LPO) exploded onto the scene a few years ago, its success was built on the efforts of hard-working attorneys in India, South Africa and the Philippines, who were willing to do the same tasks for less.

But LPO, just like the legal profession it serves, is evolving.

Now, those attorneys could just as well be in Ohio or Belfast, working in so-called ‘onshore’ outsourcing centers, which are low-cost but closer to clients and often run by law firms themselves rather than external providers.”

Given these developments, an interesting question is raised: What is the role of traditional LPOs if a growing segment of law firms adopt the best practices of the LPO industry and, thus, feel they are better positioned to establish their own centers domestically?

The newsletter provides some interesting commentary and quotes on this continuing debate. For more details on the growing onshore debate, email forefront@fronterion.com for the most recent copy.

In response, a number of LPO vendors are ramping up their onshore delivery capabilities. A visible growth trajectory of an onshore third-party LPO was recently released by UnitedLex. UnitexLex plans to triple its personnel ‘on-the-ground’ in the greater Kansas City area from 85 to approximately 250 over the next several years. This represents a growing proportion of domestic legal professionals part of the 650 UnitedLex employees based largely in Gurgaon, India.

A number of the trends on the topic of onshore and growing jurisdictional reach are also included in our annual legal outsourcing trending report available here.

Monday, March 21, 2011

The Future of the Legal Profession: Georgetown Ground Zero

This earlier this month I had the pleasure of attending Georgetown’s annual conference. This year’s event, Welcome to the Future: Trends in the Delivery of Corporate Legal Services, was held on March 9th.

In a welcome change of pace, I didn’t have any formal speaking obligations so I was free to take notes and enjoy the range of very impressive speakers from major US law firms, in-house legal teams and innovative legal support vendors.

The conference centered on the trends impacting the future of the legal profession and included lively discussions and debates on key issues such as the relationship between law firms and in-house legal departments, characterizing and defining value, the impact of legal brands and innovation in the legal services supply chain.

The conference’s self-described focus follows: “There is much talk in the air of a revolution in the delivery of corporate legal services – but what’s actually happening on the ground? This intensive one-day conference is designed to provide concrete insights into how corporate legal departments and outside service providers can collaborate to provide valuable and cost-effective legal services.’

Some key takeaways for me included:

Six Sigma and Pixy Dust
Part of the long-standing debate is whether law firms will act more like LPOs or if LPOs will act more like law firms (also recently discussed on an ABA podcast here.

The conference featured a visible example of a law firm acting like LPO. On a very interesting panel, representatives from Seyfarth Shaw and Wolverine Worldwide outlined their approach to a more known productive relationship using enhanced productivity approaches. What is titled ‘Seyfarth Lean’ is the application of Six Sigma lean and Seyfarth “pixy dust.” While there are continuing challenges with adoption internally and issues with compensation systems, the application of Six Sigma is certainly a step toward ‘law firms acting like LPOs’

More details on this arrangement are available in a previous ACC post.

Legal Supply Chain
As firms continue to embrace multi-source, multi-shore legal outsourcing, the mocker “LPO” may take on a new form as the ‘legal supply chain.’ The legal supply chain concept embraces work that is delivered in the most cost effective manner from a variety of sources. (The overall ‘supply chain’ orchestrator is either the law firm or the in-house legal team.) In addition to traditional LPOs, the supply chain also incorporates the likes of Axiom whose founder Mark Harris also spoke on the ‘legal supply chain’ panel at the Georgetown event.

As the closing speaker for the ‘legal supply chain’ panel, Pangea3 Co-CEO David Perla spoke on various LPO topics including:
• The findings from a survey conducted by Thomson Reuters as they were exploring LPOs to acquire. The exercise surveyed why law firms and in-house legal departments worked with LPOs, (Hint: the primary reason was not cost.)
• The three components of quality (people, processes and technology) and how these specifically relate to LPO service delivery.
• How LPOs are not competitors with law firms because the overall pyramid of available legal work is always expanding due to the growing complexity of legal matters and an increasingly regulated business environment.

One of the interesting undertones of the Georgetown event was the dissolution of DC-based Howrey. Partners voted on dissolution Wednesday of Georgetown event. More details and implications on this shortly.

Monday, March 7, 2011

Australian: Different Flushes, Same Legal Pressures

While the debate over ethical issues arising from the use of domestic and international legal outsourcing continues to mature, recent statements by an Australian justice suggest that a growing number of jurisdictions are taking on LPO ethical issues as adoption increases.

Despite flip-flopped seasons and toilets flushing in opposite directions, it appears Australian legal professionals are subject to some of the same pressures as their US and UK counterparts.

Recently, Chief Justice of New South Wales Jim Spigelman issued some provocative comments. He said, “Those responsible for purchasing legal services in commercial corporations are subject to pressure to reduce costs, in the same way as those responsible for any other cost centre… Outsourcing through the use of Indian-based support services, such as digital dictation transcription and document management for discovery and due diligence, is an available way of containing such costs… However, overseas legal services are not limited to administrative matters of this kind."

The expansion of LPO adoption beyond US and UK clientele is something we projected in our annual trending report – Ten for 2011: Top Ten Trends for Legal Outsourcing.

#4 Expanding Client Geographic/Jurisdictional Reach
In 2011, LPO services will be increasingly adopted in expanded areas domestically within the US and UK, as well as international destinations… Buyers of LPO services are likely to expand into other geographic destinations around the world such as Australia, South Africa and major business hubs in the Asia-Pacific region.

More details on the free report here.

The Australian markets are a growing area of focus lately with lots of movement in the industry. Firms Down Under continue seeking to address the changing needs of their international clients. Major UK firms like Clifford Chance and Norton Rose jockeying for an Australian partner. Advent continues to take strides forward as a leading LPO-integrated law firm. And fallout from the Rio Tinto deal, which seems so long ago, continues. Add the mix the recent comments made by Chief Justice Spigleman, and it’s no surprise perspectives are changing in the world below.

For additional details on the continuing LPO ethics debate and regulatory updates, check out our online resource; www.LPOethics.com