Out of sight?

Offshoring legal work overseas at a lower cost requires even more stringent management, but the savings seen could prove increasingly persuasive as the legal landscape continues to shift.

By Richard Brent

The fact that mining giant Rio Tinto’s recent decision to outsource a significant proportion of its legal work made international headlines in June 2009 may well have been the most notable aspect of that story. Outsourcing is nothing all that new for the business or corporate worlds, but organisations from all walks can often be reluctant to speak about such arrangements in detail. The very word can all too easily conjure negative impressions of ‘call centre’ operations in far flung locations, where lower costs are achieved at the expense of a poorer service for the end user. Extremely brand sensitive, large international and corporate businesses are understandably alert to the power of association − however distorted or dated those impressions may be.

In the case of legal process outsourcing (LPO), moreover − sending routine legal groundwork offsite or overseas − the issue may be more sensitive still. Service quality is the key benchmark for differentiation between firms and reputation is paramount. Any perceived loss of control, or client confidentiality, involved in a decision to outsource any services − let alone the lawyering itself − could well be imagined to see a certain paranoia-prone breed of partners start to panic.

Naturally, in a well-managed arrangement with clearly defined parameters and processes, information security can be safeguarded, but the past year’s recession has clearly made many a law firm’s marketing brains more jittery. Profit slumps and multiple rounds of redundancies do not paint a picture of a happy practice. The suggestion that a law firm then looks to lower its costs by outsourcing more legal work abroad − when many have shed some ten per cent or more of their own workforce − may also be a tricky one to pitch. However desperate the times, no law firm would want to be seen to be pursuing desperate measures.

Under pressure

There is now an extra dimension to the debate over the merits of outsourcing, however. As budgets
in all business departments come under increased pressure, managers have a clear interest in keeping costs down. Everyone wants to be seen to be doing their bit for overall efficiency, and getting creative in this battle could get you noticed. Law firms can also capitalise. Just as reporting impressive profits in 2009 might cause struggling key clients to raise a quizzical eyebrow (as law firms surely realise), instigating a dialogue about alternative working arrangements to enhance ‘value’ shows a firm is serious about helping its clients survive the recent recession.

“Offering a few secondees, and giving a fixed price, just isn’t going to be enough,” says Andrew Loach, vice president of legal services at CPA Global. “Law firms haven’t been creative enough, and in some cases that’s driving general counsel to force their hand a bit. A year ago in-house counsel were aware of LPO but many couldn’t quite work out how to leverage it. At that time it seemed a very high hurdle, but that’s no longer the case.”

Leah Cooper, managing attorney at Rio Tinto, is a case in point. She approached CPA Global directly, having previously failed to win over the law firms with that very message. “They didn’t come back with anything,” Loach says. Cooper then came to CPA’s office in India to spend time with its lawyers in the course of her due diligence, and after analysing and segmenting workflow through what CPA calls its ‘Legal Heatmap’, calculated she could shave 20 per cent off her overall costs by sending some of that legal work overseas.

“Rio Tinto wanted to send a message out to the market,” Loach explains. “We’re changing the way we’re buying legal services. If you’re a law firm working with us, please take note.”

A small world, after all

This is not to say that no law firms are actively exploring offshoring or other outsourcing opportunities themselves. Recognising it as the potential differentiator identified, Loach says that a few firms have even approached CPA to enquire about the possibility of joint pitching for places on client panels. Documentation for pitches increasingly includes questions in this area. Meanwhile, another key trend in the industry is that all outsourcing arrangements are becoming increasingly sophisticated, frequently encompassing a much broader range of business functions, and in the case of LPO extending that deal to an increasing amount of high-volume research and standardised legal work Pinsent Masons is one firm that has recently begun to offer clients the option of LPO. The firm has long outsourced some of its document processing to be completed in South African capital Cape Town, and litigation partner Nigel Kissack explains that early-stage, volume litigation work occurred to him as a natural extension.

“It’s just an option. Clients can choose. That’s what being a service business is all about,” he says. “I have had a series of cases in the past year where it has become increasingly obvious that some work could have been done a lot more efficiently. The volume and cost of evidence that needs to be searched for and analysed has grown significantly. It really has the potential to price London out of the litigation market if we don’t manage it differently.”

Kissack is not conservative about the potential of his idea. He estimates that the client cost of some work could be cut by as much as 50 per cent using provider Exigent’s infrastructure and the pool of non-permanent paralegals the pair have assembled.

“First and foremost we’re reducing costs for our clients and placing them at the heart of our work, but in doing that we should attract more of that work,” Kissack says. “That’s a fantastic side effect, and if the numbers are right we will generate some significant revenue from it ourselves.” The firm has also spoken to some smaller law firms interested in sub-contracting Pinsents to perform similar work of their own, albeit at the lower volumes flowing through their own litigation pipelines.

“Recruitment of the right supervisors was essential,” Kissack continues, but otherwise the process was very simple. Having worked with Exigent for five years previously, much of his effort is effectively “piggybacking” on that existing infrastructure, including IT systems, licenses and the provider’s own performance-management programme, he explains. Pinsent even had some secondees already on the ground in South Africa. Two permanent supervisors were then jointly recruited by the two businesses, while one associate from the department currently flies over to Cape Town to brief the team on each case and put it in context. At the same time, videoconferencing and a dedicated intranet page for workflow ensures real-times access to work from the UK. “It really is a small world,” Kissack says.

Changing gear

Even though South Africa has a ready paralegal market, the future challenge for Kissack and his team will be correctly gearing this structure up for multiple cases of varying complexities, he admits. Naturally, other LPO arrangements can involve larger permanent teams more ready to respond to such change.

Exigent also has an office in Perth, Australia, where some data may be transferred for dealing with overnight, but Loach explains that one of CPA Global’s main advantages in the offshoring game is its truly global coverage. “We’re offering multi-shore options. All roads don’t lead to India, and a
lot of the US-based work is actually performed in the US. In order to leverage those big savings, Rio Tinto took a truly global view of what work could be passed on. A lot of the law firms they work with tend to be regional.” Scalability is another advantage. Loach recalls one instance where CPA
was asked whether it could assemble a team of 55 suitably briefed and trained lawyers within three days to service a case. The fact it said that it could persuaded a client firm to pitch for a job that it was unlikely to have been in the running for otherwise.

While CPA isn’t looking to replace law firms, Loach says it is also increasingly positioning itself to “look like” a law firm to meet its own clients’ increasing levels of interest.

“We’re just viewed as an extension of the in-house legal team − the Rio Tinto team in India,” he says.

Caring and sharing

With offices in the UK, US and Europe, Osborne Clarke (OC) is another large law firm that has increased its reliance on outsourcing significantly in 2009. It entered into a new £50m, seven-year deal with LPO provider Integreon in February.

This has been a new model for the UK market, the firm says − the Bristol-based ‘shared services centre’ involving notably close collaboration between the two businesses, with some 75 of OC’s employees even transferring to work for the centre. Perhaps the pinnacle of the partnering mentality, erstwhile OC chief operating officer (COO) Chris Bull has also opted to join Integreon as a full-time European COO.

“As a management team we had carried out a major review of where we thought Osborne Clarke should be five years hence,” Bull says. “We had already done some very niche service outsourcing, but decided we could use it quite a bit more than we had done, and that it would probably lead to a better service.

“We went out into the market at the end of 2008 and Integreon was selected.”

As at Pinsent Masons, the views and needs of clients were also key to the decision. Speaking at the start of the contract, managing partner Simon Beswick commented: “The aim is to ensure the delivery of a competitive, high quality and flexible service for clients. Our clients exist in a tough commercial environment and expect their lawyers to be as focused and cost efficient as they are. For OC, sourcing non-legal expertise from one expert supplier enables a clear focus on our legal activities, with the security of flexible business-service support and cost stability.”

Although that deal is focused on so-called ‘middle office’ functions rather than legal services, Bull explains that the centre is configured to service LPO arrangements as well, while the scope of support services being provided ranges from reception and document production to IT helpdesk, knowledge management, training and even business intelligence. “We worked through a number of middle office areas and decided we didn’t think they were that sensitive after all. We’re increasingly alert to the fact that a lot of these processes can be unbundled into component parts. A number of elements don’t need to be done by a qualified UK law firm,” Bull explains, citing the drawing up of a company profile as a good example of such a job. The Integreon workforce will offer a mixture of dedicated and shared services depending on the sensitivity of particular tasks, while new employees join the imported ex-OC staff on the shared services side. “It gives us a lot more flexibility and a specialist pool of labour to draw on,” Bull says.

People positives

The blueprint for Bristol was Integreon’s US shared-services centre in Fargo, North Dakota. This already provides services to some 18 law firms, while at the Bristol hub Bull says OC is now about to be joined by a further four UK firms. The company also has onshore capability in New York and Los Angeles, as well as offshore centres in Mumbai and Delhi in India, and in The Philippines − another offshore favourite.

John Croft, Integreon’s head of global sales and marketing, says “the UK was the last missing piece in the puzzle”. As at CPA Global, the international spread is important to the business. “The vision was always to provide services onshore and offshore. It’s for the law firm or its clients to decide where the best place will be. If cost is paramount, that will likely mean offshore.”

In 2007, for example, Integreon teamed up with magic-circle law firm Clifford Chance to establish the Delhi facility and generate annual operating savings upwards of US$18m. One of the biggest undertakings of its kind, as in the OC deal employees and managers from both businesses worked together onsite in India. This is important to Croft, who says the business also far prefers to have people with real “domain expertise” − such as Bull − onboard. Integreon also has a former chief information officer from a US law firm on the payroll. Bull was finance director and COO of OC for a total 12 years, which brings valuable credibility, Croft explains. “Clearly this can seem like a huge leap for some, and his presence helps to reassure others.”

Aware of potential unease, the litigation team at Pinsent certainly spent a significant amount of time communicating its plans in respect of South Africa. Internal meetings were held in both London and Leeds to test the water, Kissack says, while a number of lawyers responded positively to a ‘postcard from South Africa’ that was e-mailed around the firm to explain what had started happening. Admittedly, others raised concerns that would need addressing − including the very sensitive question of whether the African employees could be said to be being exploited by the arrangement.

The reality, according to senior associate Mark Surguy (in South Africa to start the ball rolling), is that the Exigent paralegals are “brought on quicker by being able to upstream their activity” and their careers only benefit from that. “They will also learn project management skills,” he adds. Kissack explains that it may not be too long before the scope branches out into some non-contentious work as well − some legal research and contract review tasks, for example.

Since the initial visit Rio Tinto has now asked CPA Global to do even more of the day-to-day work that an in-house lawyer would normally do, freeing Cooper’s own team up somewhat. Loach says: “In-house legal teams are often just firefighting, but this means they have the space to be more proactive. It can help law firms with their staff development too.”

“We recruit qualified lawyers to do work on the understanding that this is their career,” explains Croft. “We’re delivering robust, service level agreement-monitored work, which frees professionals up to bill higher billable hours and add more value for their clients.”

“Opening e-mails is not why our people trained to be good lawyers,” Kissack concurs. “Nor is it what the traditional law firm model is designed to do efficiently.”

“There certainly won’t be any going back,” concludes Loach. “Once a client is used to working in a tripartite partnership they will never go back to paying at the same levels. The law firms now seem to be playing ball. They recognise there’s an inevitability about what we’re doing.”

Although studies vary hugely, CPA’s estimate is that the global LPO market will continue to grow at between 30 and 40 per cent each year − and even faster in the UK. Precise figures are hard to pinpoint, Loach explains, because the definition of what is included in the LPO bracket can
also vary.

However, as that traditional legal model comes under increasing pressure − from clients and new competition alike − firms will all need to be proactive in considering what they could benefit from doing differently. It is unlikely to lead everyone offshore, but their appetite for innovation − engaging directly with their clients on the subject of costs − could still prove to be the differentiator they are all so focused on finding.

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Ahead in the Cloud

While the cost savings associated with outsourcing may seem immediately appealing, however, this is not quite the whole story. Deals naturally involve lengthy sales cycles and payback periods can seem very long too. While the long-term savings may swing this for the likes of a top-20 firm, for smaller firms struggling through a recession the short-term cost could deter them from the required commitment.

This is certainly the conclusion drawn by ex Eversheds IT head Malcolm Simms, who has just launched new venture K-Cloud.

In late 2008, and having played a key role in Eversheds’ 2007 decision to outsource datacentre hosting and IT desk support to ComputaCenter Services, Simms and a colleague launched managed-services business Konetica. Simms and Konetica were to use their practical legal technology expertise to set up and support optimised contracts with an array of vendors for their clients, thereby freeing IT directors themselves to focus on more strategic matters. The advantage of the equation was upheld by research commissioned from Cranfield School of Management, where Professor Joe Peppard, holder of the chair in information systems, said that the legal sector still “trails behind” other businesses in its approach to outsourcing. CIOs are consequently “frustrated as they have been forced to focus on IT operations”.

Although this theory may still hold up, Simms has since modified the practicalities of his proposition somewhat. “We spoke to numerous law firms of varying sizes, but many perceived that the potential disruption involved in moving from where they were to an outsourced situation would outweigh any savings they might achieve in the mid-term. They just weren’t buying IT outsourcing per se,” he says.

Now Simms has joined forces with large IT services business 2e2 to launch K-Cloud, which will offer IT services, based on internet-accessed ‘Cloud Computing’, on an even more flexible monthly basis. A suite of well-known products such as Mimecast (e-mail management), BigHand (digital dictation) and Microsoft’s Outlook and Exchange are being pre-built onto the 2e2 platform, which users will then be able to access in various combinations over the internet.

“Law firms will be able to buy any of their IT from us to support any number of users. They could buy all of their IT for all of their people, but equally they could take a selection of systems on day one, and then add to them as they get more confident in the effectiveness,” Simms explains.

Importantly, however, there will not be the upfront and transformation costs associated with outsourcing. He continues: “If a client buys a three-year contract, for example, we would look to spread all the costs over 36 monthly instalments, which is clearly better for those with little or no capital budget to fund the projects from. Smaller and mid-sized firms will be able to access systems of a quality they couldn’t afford to integrate and update on their own.”

First client into the K-Cloud will be London-based legal-aid practice Scott-Moncrieff, Harbour & Sinclair.

“Law firms really want to buy the end result, which is why LPO is also particularly appealing. I think they’re struggling to see that with the traditional outsourcing model,” Simms concludes.