A Decade of Legal Services Outsourcing

By Ganesh Natarajan | The National Law Journal | March 12, 2012

Legal process outsourcing, also known as legal services outsourcing, has been in existence for the past 10 years. In the early years, clients who used these services were mainly general counsel who were intrinsically adventurous or who were faced with the immediate need of cutting costs. Legal services outsourcing was used on an ad hoc basis without any thinking around how best to maximize a corporation’s strategic goals. Around 2005, this began to change, and more corporations and law firms started to evince interest on how outsourcing can fit into overall organizational strategy as well as meet immediate needs.

The Great Recession has fundamentally and structurally changed the law business. This in turn has brought legal services outsourcing to the forefront as another arrow in the corporation’s or law firm’s quiver to deploy to achieve strategic results.

The underlying forces accelerating this change are the twin factors of globalization and technology. Technology is the great enabler of globalization, making far-flung locations merely a click away. What follows are several notable developments.

• Structural changes in the law businessOne the one hand, it is very clear that corporations are unwilling and unlikely to pay historic law firm rates for certain kinds of work involving junior lawyers or paralegals. On the other, particularly in litigation, the dramatic proliferation of electronic data means that law firms do not have the personnel or skills to manage such volumes. This means that the entire ecosystem of the law business is undergoing significant changes. There are numerous players vying for a piece of the pie. Law firms are not the only recipients of outsourced legal services.

• The rise of strategic sourcingStrategic sourcing groups within corporations are increasingly involved in the sourcing/outsourcing of legal services. There is now much greater scrutiny of legal spending. The result is not only the development of ways of cutting such spending but also the rationalization of the goals and activities of law departments, thereby affecting the entire supply chain of legal services. E.I. du Pont de Nemours & Co. was the pioneer in the convergence model years ago. Today, strategic sourcing has continued DuPont’s pioneering activity by integrating a corporation’s strategic goals with tactical activities related to its legal function and, by extension, all of the legal services providers, including legal services outsourcing companies.

• The nature of the dealIn the past 10 years, legal services outsourcing companies have built up long-term relationships with legal departments and law firms. There is general acceptance that outsourcing is an important piece of the legal services delivery model encompassing law firms at the top end and many other service providers along the supply chain. Most of the mature companies are seeing longer-term contracts. These companies are also participating in many initiatives to develop new service lines as well as to become better integrated with their client organizations. The outsourcing companies are partnering with law firms and other providers to offer meaningful strategic and tactical services to the ultimate corporate client.

• Consultants, arise! Similar to what had occurred with respect to information-technology outsourcing and business process outsourcing, credible consultants are assisting sourcing groups, general counsel and law firms in taking a holistic view of their businesses and developing a game plan to deliver legal services very differently than in the past. The rise of the consultants has resulted in the legal ­services outsourcing business moving from a project-based business to a relationship-based business whereby the outsourcing company becomes an extension of its clients, whether corporations or law firms.

• Here come the law firmsMany law firms have taken the prudent view that they need to play in this evolving playing field rather than face the risk of being sidelined and losing revenue. Law firms are setting up legal services provider groups by partnering with electronic-discovery companies and outsourcing companies to offer fully integrated services to their corporate clients. Particularly in litigation, law firms cannot abrogate their ethical duties, nor can they make the argument that life will continue as it was in the past. Therefore, law firms are offering approaches to discovery in conjunction with outsourcing companies and others that are nimble and flexible in meeting the client requirements.

• Here or there? In order to be flexible to meet client requirements, the established legal services outsourcing companies have opened domestic delivery centers in the United States. This is not so much an issue of a dichotomy between onshore and offshore. Rather it is an issue of the companies moving from a geographic-location model to a capabilities model. In other words, the goal is to perform work where it can be best performed. If there is significant expertise or specific legal substantive skills required, it might be best to do this work in the United States. On the other hand offshore service delivery offers substantial cost advantages. In short, the outsourcing companies are moving to a “best shore” model reflecting the maturity of the industry and the growth of deeper client relationships.

The inexorable march of the forces of globalization and technology will continue to affect and change all aspects of our lives. In the business world, the law ­business was hitherto relatively untouched by these forces. Not anymore. The delivery of legal services will change in ways we have not anticipated, and the entities delivering legal services, whether law firms or outsourcing companies, will also be different in very fundamental ways. Fasten your seat belts for an exciting ride.

Ganesh Natarajan is president of Mindcrest Inc., a legal process outsourcing company. Prior to Mindcrest, Natarajan was a partner and spearheaded the India practice at McGuireWoods. He has addressed many industry forums, bar associations and law schools on legal process outsourcing.

Article originally appeared in The National Law Journal.

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