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:
- The In-House Counsel
- The Law Firms
- 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.