Legal Process Outsourcing in the new legal services landscape
In less than 5 months the Legal Services Act (LSA) comes into full effect with the official introduction of Alternative Business Structures (ABSs). Since March 31, 2009, law firms in the UK have been able to become licensed as Legal Disciplinary Practices (LDPs). An LDP can only engage in the provision of legal services, but may have up to 25% non lawyer managers. However from October 6, 2011, full blown ABSs will come into being. Under the LSA, alternative business structures are defined as entities that have lawyer and non-lawyer management and/or ownership and that provide only legal services or legal services in combination with non-legal services. The ownership structure of an ABS can be in part, or wholly, by non-lawyers. Potential external investors who will own a 10% or greater interest in an ABS must pass a “fit to own” test.
While commentators agree that the LSA could transform the legal services market, there has been little discussion to date about the interrelationship between ABSs, law firms and LPO providers in this rapidly changing legal landscape. How will the changes brought about by the LSA transform the legal process outsourcing marketplace? As law firms examine their own operating models, LPO providers continue to grow and ABSs become a reality, who competes with whom, and for what? Should traditional law firms view these changes as a threat or an opportunity?
There is little doubt that deregulation and ABSs will act as further catalysts to the growth of LPO. In the near future we will see law firms of all shapes and sizes not only embracing LPO on a matter-by-matter basis to gain a competitive edge but also integrating LPO as an integral weapon in the armoury of legal solutions that enable them to both survive and thrive in the ‘new normal’. What I term LPO 2.0 will involve extremely close collaboration between law firm and LPO provider wherein LPO solutions are so closely integrated into the firm’s overall value proposition that they are simply viewed as part of the suite of solutions an innovative firm provides to its clients.
While it is right and proper to examine the interrelationship between LPO and law firm, it is equally valid to question the competitive nature of a legal landscape with a variety of new players, including ABSs. Will LPOs apply to become ABSs? Will they seek to buy or invest in law firms? While I can’t speak for all LPOs, in terms of my own employer, Integreon, the answer is no. It is conceivable that some might go down this path in the future but it is more likely you’ll see extremely close collaboration between LPO providers and law firms and the emergence of innovative partnership models. I have no doubt that within 24 months a number of leading law firms will have embraced closer collaborative models of engagement, ranging from multi-solution dedicated delivery centres and captive operations to joint ventures. While I do not foresee outright LPO investment into the traditional law firm structure, I can certainly envisage law firms hiving off their volume practice areas to LPO providers or, if not LPO providers, ABSs looking to expand their reach into the high-volume consumer legal market. I also anticipate law firms, of their own volition, creating their own LPO captives which will be distinct and separate from the firm, with their own branding, yet they will still be affiliated to the firm.
Who competes with whom in this brave new world is another question worth asking. Many LPO providers – in an ill advised attempt, in my opinion, to appear capable of or desirous of handling more complex, substantive level legal work – have routinely predicted “moving up the value chain”. Irrespective of the obvious ethical and legislative concerns (unauthorised practice of law in the US and undertaking of reserved activities in the UK), I cannot under any circumstances envisage LPOs or ABSs supplanting law firms as the “go-to” resource for obtaining premium, high-quality legal advice and assistance.
The question whether LPOs and ABSs will become competitors to law firms for the provision of premium-quality legal advice and assistance should in reality be asked in reverse: i.e. will law firms become competitors to LPOs and ABSs in the marketplace within which these new entities operate? As law firms contemplate both becoming ABSs and embracing relationships with LPOs across a wide spectrum of operating models (traditional third-party, build-operate-transfer, captives, dedicated delivery centres, joint ventures), will this whet the appetite for greater hands-on control on the part of the law firms? Will law firms seek to reinvent their own delivery model so as to compete in the commoditised legal services marketplace?
The prevalence of an increasing array of captive operating models is evidence of the continuing evolving nature of the “how to outsource” discussion within law firms. One such example is the captive LPO initiative from leading Anglo-German law firm Taylor Wessing. Here the firm created a division based in Cambridge to handle standardised legal tasks. On the other side of the Atlantic, in April last year, AmLaw 100 giant Wilmer Hale announced that it would open a new business services centre in Dayton. Services to be provided from the new centre also include LPO. In addition to Wilmer, other large law firms, including Orrick, White & Case, Baker & McKenzie and Clifford Chance have all opened captive support centres in low-cost locations.
What is clear is that the LPO mantra of unbundling legal services will soon become the norm rather than the exception. Once unbundled, more work will move to lawyers in lower-cost locations. Whether these lawyers work for a law firm, law department, ABS, outsourcing provider, or some collaborative entity, the point is that lawyers must engage in a disaggregation process. Legal work can and must be broken down into discrete units and analysed to determine the most cost-efficient provider of each required resource. That provider may or may not be outside the organisation. In the ‘new normal’ of the legal market, value is the name of the game. That means unbundling and disaggregating. Whether firms choose a captive or third party, one can be sure that an increasing volume of legal support work will be undertaken by lawyers located in lower cost delivery centres, both onshore and offshore.