Thoughts on the Legal Market in Belfast

The first time I visited Belfast, over 20 years ago, the Troubles were still at full tilt and my over-riding feelings were of a friendly, but particularly edgy, city. On my recent return, I found that the city has been transformed into a commercial centre that, whilst a tiny proportion of the edginess still exists, the friendliness is now over-whelming. This is despite the city being caught up in the worst recession in a generation, but which is now partly responsible for driving a new market for ‘near shore’ legal services.

It is to gauge the credibility and capability of this new legal services market that I was impelled to visit the city last week. (My trip was hosted by Invest Northern Ireland, and, although they set up and organised the meetings, I was free to drive my own agenda with the interviews). There have been a couple of headline moves in the last few years, notably Allen & Overy and Herbert Smith, two London-based law firms who have set up legal, and technology, service centres in the city. Talking to a wide range of people, these can only be seen as successes for the region, but I was keen to understand what was beyond those deals: what did the next few years hold for Belfast’s legal services market?

First, let me tell you what Belfast has going for it, when you consider it as a near-shore legal services location, and particularly when compared to the Indian outsource providers:

  • A well-educated work force: around 500 law graduates a year come out of the two universities, Queens and Ulster;
  • Salary costs significantly lower (up to 40%) than the rest of the UK, particularly in the legal sector;
  • A strong familiarity with English Law (many lawyers are dual certified);
  • Same currency, same time zone and same native language as mainland UK, and;
  • Availability of a number of grants and subsidies to invest in the region (that’ll be the folks at Invest NI).

And, when you combine the hunger for business borne out of recession with an inherent warmth and openness of its population, then the proposition starts looking pretty attractive. My first meeting was a discussion with Anna Moss, Managing Director and General Counsel at Citi Belfast, and the person who set up, and is now managing, their legal shared services team in Belfast, so I asked her whether, if it is that attractive, will the region simply run out of good people once the word is out? Her answer, which was reflected in similar responses throughout the day, was that this was not a problem now and wouldn’t be for the near future. There are, essentially, four sources of staff available to Anna and her peers: new graduates from the two universities who tend to be Northern Irish and are keen to stay in the region; ‘under-employed’ lawyers who do not wish to leave the region; lawyers who form part of Northern Ireland’s returning diaspora, and; those with non-law qualifications that can be trained to carry out legal processes or even to be lawyers themselves (this latter option is the one that best suits Anna’s operation). This theme of a population that hardly leaves, and always returns, home is one that is repeated throughout my trip. It would seem that the region is a long way from running out of good people.

My next meetings were ones of contrast between the ‘old’ and the ‘new’. I sat with Norville Connolly, President of the Law Society of Northern Ireland – the surprise here being that someone who runs such a venerable institution should have such forward-thinking ideas, particularly when it comes to getting the most out of the region’s legal resources. Then it was lunch with Conor Houston, Chairman of the Northern Ireland Young Solicitors Association – a man who is able to personify the future of Northern Ireland’s lawyers with so much energy and passion. Between these two organisations there is a definite intent to do the right thing for the regions lawyers, even if they do come at it from different angles.

That shared ambition may not be so obvious when you compare the city’s law firms and the new-kid-on-the-block, Axiom. I met partners from two of the largest firms in Northern Ireland as well as representatives from Axiom. Whilst there was a genuine openness from the law firms, there was also that insularity that I have seen afflict firms in London as well. A&O and Herbies are generally welcomed and seen as good for the region, but that’s because they are only processing transactions from non-NI clients. ‘Northern Irish people like to buy from Northern Irish firms’ I was told on more than one occasion, but this is bound to change as the market opens up. Pinsent Masons’ residency in the city causes more worry as they bring the backing of a London firm to the practice of NI law in the region.

And then there is Axiom. I was actually quite surprised about how little was known about this legal services provider in the region. Axiom presents a potential problem (by wanting to recruit from the same pool of people) for Citi and the law firms – Axiom plan to grow to over a hundred people in their Belfast delivery centre by 2014. Whilst all competition is good, this will shake up the dynamics of the labour market quite dramatically. And then there is always the possibility of another provider moving in to compete with Axiom.

It’s clear that there is plenty of potential in the region, and enough advantages to put Belfast on any UK firm’s short-list of near-shore destinations. It’s also clear that this is just the beginning of the story. The law firms in Belfast will start to feel real pressure from the likes of Axiom and Pinsents, and cost pressures will (eventually) have them looking to their own shared or outsourced services. Axiom seem to have their act together with regard to recruitment, but it won’t take much (such as expansion by one of the existing residents or the appearance of a competitor) to make that a whole lot more interesting. But for Belfast, being part of a transforming market and creating healthy competition can only help the cause. Rather than a region obsessed with it’s past, it exciting to see it looking eagerly to the future.

Innovation vs. the Lawyer

More often than not, to a lawyer, innovation is seen as a risky, and even dangerous, aspect of business. The world usually progresses (quite nicely, thank you) through a series of considered and incremental steps. There is rarely any place for bold moves and transformational change.

But there is a sea-change happening in the market. Innovation is creeping in, often driven by disruptive forces such as the Legal Services Act or the arrival of LPO providers, but it is being emboldened by its own success and the differentiation that these changes bring to the firm or law department.

In our work in the legal sector, we are constantly encouraged when we meet partners and GCs who simply ‘get’ innovation. Theirs is a world beyond the (not very) simple practice of law – where different challenges await, and where competition and transformation are a way of life. Just as, over a decade ago, CIOs stepped up to the plate and became partners to their business rather than just senior technicians, the innovative lawyers are learning to become businessmen and women, servicing their clients and businesses in relevant and valuable ways. That is why we are very proud to be able to sponsor the Client Services Award for the FT’s Innovative Lawyer program.

The program itself seeks to recognise market leaders in the legal industry by measuring and rewarding uniqueness and value delivered to clients – rather than more conventional metrics such as size, revenue and profit. If done right, of course, the former will naturally lead to the latter. We chose to sponsor this particular award because it focuses directly on the value that firms have been able to deliver to their clients. We also understand that innovation is rarely a one-sided equation, and that the clients have usually had as much to do with the innovation as the firms themselves.

Orbys revels in identifying and helping deliver innovation to our clients – we also love the challenge of convincing the more reticent ones of the benefits of innovation. We are very much looking forward to seeing the breadth and depth of entries to this years competition. It’s been a challenging year for many firms and we suspect that the ones that have risen to that challenge could be the ones collecting the awards…

Where’s the LPO Tipping Point?

LPO tipping pointEveryone is well aware that the LPO market is a nascent one, but in recent times there has been a lot of noise made about the fact that it had finally reached its ‘tipping point’ – that is, that it had finally matured enough to be accepted into the frequent-flyer lounge of the outsourcing industry. This stance was backed up with plenty of well-publicised examples from law firms and GCs who were actively using LPO providers across a range of tasks. Even from my own experience, and particularly from visiting the Indian delivery centres of some of the leading LPO firms, it is clear that there now exists a credible and workable solution to the requirement of wanting to outsource transactional legal work to low cost centres. So, surely that means the LPO tipping point has been reached? Well, no (in my humble opinion). What has happened over the last 6 months or so is that it is the question has changed.

Or, to put it more accurately, the market is changing. The tipping point that everyone is actively chasing is actually moving further away as the dynamics of how organisations use LPO are changing. This is reflected in a wider trend within outsourcing generally where ‘outsourcing’ itself is no longer a stand-alone activity but is more-often-than-not part of a larger transformation program or strategic imperative. So when GCs are thinking about how they can respond to the increased workload, fewer resources and shorter timescales, they do not immediately think “I need to outsource”: they think about how they can transform their departments using a variety of different tools and approaches, one of which might be outsourcing.

This means the problem is approached from a different perspective, and the usual way that LPO vendors engage with their prospective clients (“What process would you like us to carry out for you?”) is no longer valid. With the power more firmly on the client side (because they have taken the time to understand their strategy and map their processes) it is the GCs who are asking questions like: “I have all these processes, why should I outsource them to you?”.

That change in approach is driving different models, or ‘eco-systems’, that are being built around the in-house team. Some organisations are building their LPO relationships through their law firms, some are building Centres Of Excellence around technology solutions, whilst others are building internal Shared Service Centres with integrated LPO capability.

As the client approaches shift and mature, it means that the proverbial tipping point moves further out, at least until there is some stability in the eco-systems that are being adopted and the supplier base has adjusted their own models accordingly. That will inevitably see some big changes to the current crop of suppliers, with the BPO players likely to be the long term winners (assuming that there are some acquisitions on the cards) and the small litigation-focused suppliers doing less well. It’s an exciting time for the market, but don’t expect it to reach that tipping point too soon.

Managing Relationships Between In-House Counsel, Law Firms and LPO Providers

This article is drawn from a presentation made by Andrew Burgess at the ‘Legal, Regulatory and Compliance Outsourcing Conference’ in London on the 25th April 2012.

The influencers of change

Orbys advise on outsourcing across all its different flavours, and usually, with respect to relationships, there are just the two parties involved; the client and the supplier. But within the legal sector there are often three players:

  1. The In-House Counsel
  2. The Law Firms
  3. The LPO providers

This can fundamentally change the dynamics of the relationships and means that they need to approached differently if there is going to be a win:win (or win:win:win) situation.

As we all know, the model for law firms has developed from an ad-hoc approach where there were typically 10s to 100s of law firms per client to a panel-based approach. Done well, law firm panels have delivered service improvements and significant cost savings, typically around 20%. Done badly, it simply adds another layer of bureaucracy onto an already complex process. Because this approach took away some of the personal relationships that existed previously, compliance has not always been 100%. From a law firm perspective, the panels mean increased competition and rate pressures; in particular, the more savvy buyers no longer want to pay premium rates for work done by junior lawyers or paralegals.

In the early days of LPO, by far the majority of the work was done on a project basis, usually around specific litigation cases. This led to short-term relationships with many suppliers, none of which tended to last above a couple of projects. As the suppliers have matured, the relationships have started to mature as well, however there is still a long way to go before they reach the relationship levels of IT outsourcing suppliers.

But, when you add in the confluence of the in-house counsel’s changing needs, then you start to see the beginnings of a perfect storm. In-house counsels have, to a large extent, managed to avoid many of the cost pressures that have fallen on other back-office functions such as IT, Finance and HR. But that spotlight is slowly moving round to shine brightly on the legal function. Being asked to do ‘more for less’ is the common cry heard from GCs around the world. And, generally, there is more to do – litigation activity is on the increase, IP protection is needed more than ever and ever-increasing regulatory and compliance requirements means that more and more contractual work is being demanded. And it all has to be done for less money.

So, what is starting to happen now is an alignment of the seemingly conflicting needs of these three parties into some sort of tri-partite devil’s handshake. Not many organisations have got there so far, Du Pont is a prime example of where this model has worked successfully, and different organisations are approaching it in different ways, depending on their legacy or their particular business demands. But there is a definite movement toward a more strategic approach to these relationships.

A more strategic approach

There are a four key elements that are coming together to create this new legal model.

1. The first amongst these is the ‘platforming’ of services, where common processes and functions are standardized, globalized, templated and, where possible, automated. This can be a painful process in a legal department because everyone does things differently and everyone is ‘special’. However, the benefits of platforming are significant, not least because it enables many of the important changes to be made in the organization structure and third party suppliers.

2. But, before we come to those two aspects, there are the fundamental departmental capabilities that need to be put in place. These are generic to any business function but are often missing, especially in legal departments. These are things like performance management, demand management, knowledge management and vendor management:

As any consultant will tell you, if you can’t measure it, you can’t manage it, and that doesn’t mean using the metrics to hit suppliers over the head with. It means using metrics to manage the whole business, including telling your suppliers where they, or you, need to improve.

Being able to forecast demand has always seemed rather a futile exercise to lawyers – work comes in, work goes out, with usually more work coming in than can be done. But managing demand can be a godsend to the business and to your suppliers, allowing expectations to be set and resources to be allocated appropriately.

Knowledge Management is one of those areas that has clearly benefited from technology, and allows a department to be much more efficient and effective dealing with matters.

Vendor management is often neglected across all areas of business, mainly because it requires a curious mix of discipline and guile. As there becomes more dependence on third parties to carry out more of the work, vendor management is a capability that should not be forgotten.

3. The third aspect is how the department is organized. There are some simple things such as the extent to which paralegal resources are used (in Switzerland, for example, paralegals are still quite rare) but also more fundamental things such as the use of Shared Service Centres or Centres of Excellence. Shared Services only really works once you have been able to platform the services, and requires discipline and robust metrics to work effectively. The use of Centres of Excellence will depend on your business type, but they do require some degree of scale to make them viable.

4. The final aspect is the use of third parties to provide the some of the services. As I mentioned earlier, this has been done to a certain extent already, but the big difference now is how these different parties are working together for a common goal. This requires the legal department to look at their resourcing strategically, developing a long-term sourcing strategy based on realistic, agreed objectives. How these Law Firms and LPO suppliers work with each other and the in-house counsel is key to the success of the model. There’s a lot of hard work to do here; mapping all the processes, allocating responsibilities, pricing each process, as well as putting in place all those things I’ve just discussed such as vendor management, metrics and demand management. One of the most effective things to put in place is some sort of Project Management capability that is able to ‘triage’ work as it comes in and then expedite it through its full lifecycle, making sure that the work is done by the most appropriate, and efficient, party, whether that be in-house, the law firm or an LPO provider.

If you’ve planned it right, what you should ideally end up with is a smallish number of strategic suppliers, each committed to the same set of goals as you are. The tri-partite model can work in a number of ways, either with the law firms managing the LPO providers or the in-house counsel managing both external parties directly. There is no right or wrong answer here as long as everyone understands their roles.

How to get there

So, if you are already on this transformation journey, or are thinking about starting it, what are the key things to consider? From my experience and knowledge of the market, I think these are the important points to remember:

  • Treat this as a journey. Significant change doesn’t happen overnight, so plan how you are going to implement it and when you will expect to see the benefits come through. You may be constrained by existing relationships, so build these into your plan. Think evolutionary, rather than revolutionary.
  • Lawyers are not known for their willingness to accommodate change, so tread carefully with your team. As with any transformation program, stakeholder management is a critical success factor.
  • Define your objectives early and articulate these to your team and other stakeholders, including your third party suppliers. Having a common, agreed goal works wonders for aligning everyone’s interests. And this will not necessarily be driven by cost savings – I have a client at the moment whose key objective is being able to engage better with the business, and they are achieving this through platforming their transactional services, thus freeing up valuable lawyer time tat they can use to focus on value-add activities.
  • Don’t make technology the driver for change. I’ve hardly mentioned so far, because at the end of the day technology should simply be an enabler for everything else that you want to do.
  • There will be some dirty detail work to be done, especially around the mapping and optimization of processes across the different parties. But imagine the benefits of being able to map a process end-to-end, with each level of work identified (administrative, paralegal or legal) and who should be doing it (LPO providers, law firm, in-house counsel). And, by rating the work as, say, ‘Simple’, ‘Moderate’ and ‘Complex’ then you can start to introduce standardized and fixed pricing for work with your suppliers.
  • Finally, as part of this evolutionary journey, develop a sourcing strategy so that you end up with the best possible partners for your business. Think about what you want to happen externally, how many suppliers you want available to do it, and what sort of supplier they might be. Thik about the inter-relationships between the suppliers, particularly between the law firms and the LPO providers. AMP, an insurance firm in Australia, recently announced that any law firms that do not have an LPO arrangement in place will not be eligible for their litigation panel. They are even talking about favouring off-panel firms that can offer two or more LPO arrangements. With regard to LPO providers, think carefully about the type of supplier or suppliers you want; there are distinct flavours to go for, from the top 4 suppliers, through the major BPO providers to the niche but vulnerable vendors, and some may be more appropriate to you than others.

So, to conclude, to build win-win relationships with your suppliers, it’s time to start thinking about them strategically. The effort of mapping and platforming processes, developing a sourcing strategy and putting in place the necessary departmental capabilities will provide significant benefits for the in-house counsels, the law firms and the LPO providers alike.

LPO Quick Survey

The worst RFI response?

As part of a recent legal transformation project, Orbys issued an Request For Information (RFI) to a large number of LPO providers so that we could understand their capabilities in more detail. So far, so normal.

The range of responses was, as you would imagine, quite wide, but what we didn’t expect to see was the complete absence of quality exhibited by one particular firm (who will, of course, remain nameless). One of the core parts of this RFI was for the respondents to complete a ‘capability matrix’ where they scored themselves across the LPO processes that we had defined. This firm scored themselves as one of the best in almost all of the processes, so our expectations were riding high when we started tp read the full response.

I won’t bore you with all of the typos, grammatical errors and poor formatting, but just leave you with the following extract from the response. Needless to say, they didn’t make the cut…

LPO versus BPO: The Battle For Credibility

The supplier market for legal process services can be broadly segmented into three groups:

  • There are the (relatively) large pure-play LPO providers who have global customers and are building strategic relationships with their clients. In reality there are really only a handful of these companies.
  • Below them are a large number of smaller LPO suppliers who specialise in tactical, or project-based, work for their clients. Because the LPO market as a whole is fairly nascent, there is a lot of churn of suppliers in this group, with new ones being created just as quickly as others fail.
  • Then there are the Business Process Outsourcing suppliers who have moved into the LPO market. These tend to be large, global organisations with a legacy of Knowledge Process Outsourcing, Finance and Accounting Outsourcing and even IT Outsourcing. LPO is simply another service line to move into.

The question is; which of these groups will ultimately succeed in the marketplace?

In our work as outsourcing advisors, we have issued LPO-based Requests-For-Information to over 50 providers, and have personally visited the delivery centres of a number of these in India. Add in our own research, and this experience has given us an unparalleled insight into the suppliers, how they operate and how they might fare in the future. We’ll obviously reserve some of those views for our own clients, but the comparison we want to make in this article is between the LPOs (in particular that first group of larger, established players) and the BPOs who want to play in the LPO space.

Perhaps the first thing we should say is that there are very credible providers out there who we would have no issues including on anyone’s long-list; the market is mature enough now that there are some very satisfied customers extracting real value from their relationships with their LPO providers.

So, when putting those long-lists together, and bearing in mind that you might be entering a relationship that will run for many years, how should you approach the issue of selecting between the nimble-yet-immature LPO players or the large and stable BPO guys?
If you look at the situation right now, one of the key learnings from our recent India visit was the credibility gap that still exists between the LPO and BPO players. Whilst the LPOs could offer roomfuls of qualified, experienced lawyers, and client lists from some of the most respected companies in the world, the BPOs were still focusing on process and technology, with only a handful of LPO-ish projects, some of which were simply serving their parent organisation.

If you were to put your GC in front of one of each of these (which we did with one of our clients) then, today, it would be the LPOs who would win hands-down. Having lawyers involved in running the company as well as providing the services, and being able to demonstrate established and satisfied clients for services similar to the ones that you might use, are really the only two things that matter to them. Suppliers can talk about processes, methodologies and technologies all day, but unless they have those two things then they’ll fail to get the attention most likely deserve.

So, should the BPOs just give up now? Far from it. The bedrock of process and technology is an excellent place to start, and expensive and time-consuming to build if you don’t already have it. Getting the right people in place is what these firms do best, and getting some relevant clients is only a matter of time.

As a customer, it really depends on whether you want to be the one who takes that risk (as a ‘foundation client’) now, or you wait until they have some more experience under their belt. There are pros and cons to each, but it will be important to look at it in the context of your overall sourcing strategy, especially what that might look like in a few years time. But, one thing is clear, either through organic growth or acquisition, it surely is only a matter of time when the BPOs are competing credibly alongside the LPOs.