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Legal Process Outsourcing: has it reached a tipping point?

Legal Process Outsourcing: has it reached a tipping point?
Mark Ross
  • On May 9, 2012
  • http://www.integreon.com

Most independent observers are in consensus that LPO is on the rise. However, greater insight beyond this overly simplistic soundbite is difficult to come by. One of the challenges in gauging the rate of uptake for LPO has been reluctance, at least until relatively recently, on the part of many law firms and legal departments to publicly acknowledge their LPO relationships. This, together with the irrefutable reality that all major LPOs are all still privately held, makes it more difficult to verify LPO adoption, industry revenue and headcount figures. Despite these constraints, there is increasing momentum for a body of evidence that demonstrates growth of this industry and the transformational impact it is having on the legal profession.

As the legal profession continues to evolve, LPO continues to expand. Over six years ago The American Lawyer reported that six per cent of AmLaw 200 firms had offshored work (see ‘Law Firm Leaders: Conservatively Optimistic’, Dec 2005). In 2009 ValueNotes reported that the revenue generated by the LPO industry in India was expected to reach $440m by the end of 2010 but that offshoring still had fairly low penetration among law firms; less than three per cent of firms had tried offshoring (see ‘Legal Process Outsourcing: Crisis Creates New Opportunities for LPOs’ and ‘Legal Services Outsourcing: What Do Law Firms Think?’).

It is interesting that these earlier reports focused on India and offshoring, which was then seen as synonymous with LPO. Over the last three years, LPO has itself globalised and this has been reflected in the available market growth data. The 2011 Altman Weil Law Firms in Transition Survey, which polled managing partners and chairs at 805 US firms having 50 or more lawyers, found that eight per cent of large US firms used LPO in 2010 and 11 per cent expected to do so in 2011. On the other side of the Atlantic, in May 2011, UK journal Legal Week published ‘No LPO Rush Despite Cost Pressure’, an in-depth look at the UK LPO market. The survey found that LPO penetration in law firms was up substantially from prior reports with 15 per cent of UK firms using LPO.  Furthermore, over half of respondents believed that law firm use of LPO services would grow over 2012.

One persuasive indicator of increased LPO uptake by law firms is Legal Week’s insight that using LPO is not considered to be a risk to law firm brands. In the past some law firms worried that using an LPO might send clients the wrong signal. The survey shows this fear is unfounded. A vast majority, about 75 per cent, of both in-house and law firm lawyers believe that using an LPO “does not diminish the brand.” The article also notes that some of the largest and best-known law firms use LPO and observes: “If the leading firms are using LPO, it is difficult to see LPO as a sign of weakness.”  Evidence of this is the growing number of major law firms that have announced LPO initiatives. On review of the dates of these public pronouncements, it is readily apparent that the pace of these declarations is picking up. Over the course of the last three years the law firm market has witnessed Simmons & Simmons, Allen & Overy, Pillsbury Winthrop Shaw & Pittman, Nixon Peabody, Pinsent Masons, Linklaters, King & Wood Mallesons, Corrs Chambers and Blake Dawson all publicly acknowledge relationships with LPO providers.

For corporate legal departments, such change seems to be coming even more swiftly, as Australia’s Lawyers Weekly recently reported in its coverage of Deloitte’s 2012 Corporate Counsel Survey, ‘Embracing a changing world’. The survey results showed that 96 per cent of respondents indicated they outsource at least a portion of their routine legal work and that 58 per cent outsource even some of their more complex tasks, including for litigation, mergers and acquisitions, and contract management. Moreover, the survey showed a general level of satisfaction with LPO by in-house counsel, including 63 per cent of respondents that reported they were “moderately satisfied” and 30 per cent reporting being “highly satisfied”. Evidence is mounting that corporate legal departments are indeed embracing LPO and likewise asking their outside counsel to do the same. On this last point, a recent article published in the Australasian Legal Business magazine quotes Brian Salter, the General Counsel of AMP, a leading Australian financial services company, as stating that if a law firm does not have an LPO offering they will “not be eligible” to run litigation for the corporation.

What this means for law firms brings to mind an op-ed piece I read a few years ago on TheLawyer.com.  In ‘Law firms need to take advantage of tough conditions’, Tony Williams, a former Clifford Chance managing partner, highlighted the example of a firm with a 25 per cent profit margin with a fee income that fell just 20 per cent; entirely plausible in the recent financial climate. This firm would witness its profit fall by 80 per cent in the short term as costs simply could not be adjusted quickly enough to offset the revenue reduction. In order to survive in today’s economy, and thrive in the future, law firms must actively re-think their business models and develop strategies to remain profitable. This re-think must include an embracing of LPO.

Perhaps 2012 will be viewed as the tipping point year, when a clear majority of law firms free themselves from the shackles of reticence and acknowledge that their public embracing of LPO is viewed by clients as indicative of being forward-thinking, innovative law firms of the future.

Most independent observers are in consensus that LPO is on the rise. However, greater insight beyond this overly simplistic soundbite is difficult to come by. One of the challenges in gauging the rate of uptake for LPO has been reluctance, at least until relatively recently, on the part of many law firms and legal departments to publicly acknowledge their LPO relationships. This, together with the irrefutable reality that all major LPOs are all still privately held, makes it more difficult to verify LPO adoption, industry revenue and headcount figures. Despite these constraints, there is increasing momentum for a body of evidence that demonstrates growth of this industry and the transformational impact it is having on the legal profession.

As the legal profession continues to evolve, LPO continues to expand. Over 6 years ago The American Lawyer reported that 6 per cent of AmLaw 200 firms had offshored work (see Law Firm Leaders: Conservatively Optimistic, Dec 2005). In 2009 ValueNotes  reported that the revenue generated by the LPO industry in India was expected to reach $440m by the end of 2010 but that offshoring still had fairly low penetration among law firms; less than 3 per cent of firms had tried offshoring (see Legal Process Outsourcing: Crisis Creates New Opportunities for LPOs and Legal Services Outsourcing: What Do Law Firms Think?).

It is interesting that these earlier reports focused on India and offshoring, which was then seen as synonymous with LPO. Over the last 3 years, LPO has itself globalized and this has been reflected in the available market growth data. The 2011 Altman Weil Law Firms in Transition Survey, which polled Managing Partners and Chairs at 805 US firms having 50 or more lawyers, found that 8 per cent of large US firms used LPO in 2010 and 11 per cent expected to do so in 2011. On the other side of the Atlantic, in May 2011, UK journal Legal Week published No LPO Rush Despite Cost Pressure, an in-depth look at the UK LPO market.  The survey found that LPO penetration in law firms was up substantially from prior reports with 15 per cent of UK firms using LPO.  Furthermore, over half of respondents believed that law firm use of LPO services would grow over 2012. 

One persuasive indicator of increased LPO uptake by law firms is Legal Week’s insight that using LPO is not considered to be a risk to law firm brands. In the past some law firms worried that using an LPO might send clients the wrong signal.  The survey shows this fear is unfounded.  A vast majority, about 75 per cent, of both in-house and law firm lawyers believe that using an LPO “does not diminish the brand.”   The article also notes that some of the largest and best-known law firms use LPO and observes,   “If the leading firms are using LPO, it is difficult to see LPO as a sign of weakness.”   Evidence of this is the growing number of major law firms that have announced LPO initiatives. On review of the dates of these public pronouncements, it is readily apparent that the pace of these declarations is picking up. Over the course of the last 3 years the law firm market has witnessed Simmons & Simmons, Allen & Overy, Pillsbury Winthrop Shaw & Pittman, Nixon Peabody, Pinsent Masons, Linklaters, King & Wood Mallesons, Corrs Chambers and Blake Dawson all publicly acknowledge relationships with LPO providers.

For corporate legal departments, such change seems to be coming even more swiftly, as Australia’s Lawyers Weekly recently reported in its coverage of Deloitte’s 2012 Corporate Counsel Survey, Embracing a changing world. The survey results showed that 96 per cent of respondents indicated they outsource at least a portion of their routine legal work and that 58 per cent outsource even some of their more complex tasks, including for litigation, mergers and acquisitions, and contract management. Moreover, the survey showed a general level of satisfaction with LPO by in-house counsel, including 63 per cent of respondents that reported they were “moderately satisfied” and 30 per cent reporting being “highly satisfied”. Evidence is mounting that corporate legal departments are indeed embracing LPO and likewise asking their outside counsel to do the same. On this last point, a recent article published in the Australasian Legal Business magazine, quotes Brian Salter, the General Counsel of AMP, a leading Australian financial services company, as stating, if a law firm does not have an LPO offering they will “not be eligible” to run litigation for the corporation.

What this means for law firms brings to mind an op-ed piece I read a few years ago in TheLawyer.com.  In Law firms need to take advantage of tough conditions, Tony Williams, a former Clifford Chance managing partner, highlighted the example of a firm with a 25 per cent profit margin with a fee income that fell just 20 per cent; entirely plausible in the recent financial climate. This firm would witness its profit fall by 80 per cent in the short term as costs simply could not be adjusted quickly enough to offset the revenue reduction. In order to survive in today’s economy, and thrive in the future, law firms must actively re-think their business models and develop strategies to remain profitable. This re-think must include an embracing of LPO.

Perhaps 2012 will be viewed as the tipping point year, when a clear majority of law firms free themselves from the shackles of reticence and acknowledge that their public embracing of LPO is viewed by clients as indicative of being forward thinking, innovative law firms of the future.



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