Is Outsourcing the Future for Law Firms?

March 2010

“I really get this but my partners would never accept it”

FD Top 15 firm

“Even billing is personal – it couldn’t be outsourced”

Partner Top 20 firm

“We don’t do outsourcing here!”

Partner, Top 25 firm

“Interesting idea but it only makes sense for large businesses”

Managing Partner of Top 50 firm

The Macro view – a bold assertion

The Micro view – why, how, who and what

Bold Assertion for SMEs

“10 years from now it will make no more sense for

SMEs to run their own back offices than to set up

their own banks.”

“Do you have a desk with a

little more resonance when I

thump it?”

Recognise this?

4

5

Could earn higher fees

Earns

no fees!

You tell me!

What if you could turn the way you

run your business on its head?

6

The outsourcing value proposition

Administration

Transactions

PerformanceEnhancement

Strategy

40%

30%

25%

5% •Efficiency

•Process

•Governance

•Consolidation

•Technology

•Standardisation

•Flexibility

Today Transformation Future

From now……..

Highly transactional, tactically focused

Innovation constrained

Capacity limited

Cost saving potential capped

Hard to transfer risk

Responsive rather than proactive

Multiple providers to manage

………to Efficient Organization

Able to focus on strategy, not tactics

More capable of creating new value

Trained resources on demand

Reduced, predictable cost to serve

Enhanced risk management capacity

Forward looking

One stop shop business partner

Protecting and maximizing your margin

Powerful Aggregation: Full Service capabilities for Legal Services

SALARIES

Partners @

Information Systems

Human Resources

Finance

Admin

Marketing

Information

Services

Risk & Compliance

Customers

SuppliersExternal Prof Services

H RFee Earners

IT Services• Outsourcing Solutions• Enterprise Solutions• Technology Solutions

1

IT Infrastructure• Infrastructure Outsourcing • Network Integration • Hardware Support and

Installation• Infrastructure Management• Database Services

2Quality Assurance• Compliance• Security

3

4

5

Business Process Outsourcing•KPO•HRO & Payroll•Analytics•F&A

Asset Based Solutions• IT Products• Product Based Services

Practice Management• Client Opportunity Management• Matter Management• Time & Expense Capture• Billing • WIP Management

• Finance• Credit Control• Compliance, Reporting• HR and Talent Mgmt• Client Self Services

Legal Process OutsourcingParalegal Services• Legal Support• Corporate Law & Practice• Intellectual Property Services• Conveyancing• Patent Services

6

What could law firms outsource today?

Back office

• Finance and accounting

• Reconciliations

• Payroll

• Management reporting and analytics

• IT

• General office

• Facilities

Front office

• Document generation and secretarial

support

• Document Review for Disclosure

• Due diligence

• Legal research

• Contract management

• IPR management

Middle office

• HR processes and analytics

• Information support and analysis

• Training programme management

• Sales, marketing and event planning

• CRM

Illustration – two Law Firms

63

100

1.5

2.4

6.0

9.6

2412030Firm B

40

63

2.4

3.8

9.5

15.2

6019060Firm A

Savings

per EP (£K)

Potential

savings

from BPO

(25%)

(£M)

Support

costs

(£50k to

£80k per

lawyer)

(£M)

No. of

Equity

partnersNo. of

lawyers

T/o (£M)

What will push the legal sector

towards Outsourcing?

Prof. Richard Susskind’s Evolutionary chart for Legal Services

Bespoke Standardised Systemised Packaged Commoditised

Push Drivers in the Legal Sector

Too early to tell

Too early to tell

Too early to tell

Recession – double dip?

Impact of coming public sector cuts

Impact of coming changes to FS

regulation etc

Uncertain workflows

•RBS recently calling for its panel firms to

set up Mexican wave arrangements

•Calls for less FE gearing

•Evershed’s LPO

•Irwin Mitchell’s interest in Commercial

Property

•Evidence everywhere

Client buying power and sophistication

Commoditisation

Alternative billing arrangements

Falling prices

Anecdotal evidenceReasonDriver

Pull Drivers in the Legal Sector – improving quality of Vendors and Services

TCS/CVDFK

Others?

Global BPOs with SME offerings

Many firms are carrying out reviews

PWC law firm survey report 2009

Growing understanding and interest

amongst law firms

Integreon

CPA Legal

Exigent

Eversheds?

Specialist providers – especially LPO and

KPO

Law Firm Outsourcing – PWC Law Firm Survey 2009

21372141Appetite for

outsourcing

11 / 26 3721 / 24 4513 / 13 2633 / 17 50Secretarial

0 / 0 00 / 17 170 / 0 00 / 33 33HR Processes

50 / 5 5544 / 19 6333 / 0 3333 /33 66Payroll

0 / 0 08 / 8 160 / 0 00 / 33 33Accounting processes

17 / 5 22

5 / 5 10

23 / 30 53

33 / 26 59

13 / 22 35

22 / 11 33

50 / 22 72

0 / 40 40

IT

-Infrastructure

-User Support

Doing/

Discussing % Total %

Doing/

Discussing % Total %

Doing/

Discussing % Total %

Doing/

Discussing % Total %

51 - 10025 - 5011 - 25Top 10

Disintegration of Law Firms

Back Office Middle Office Front Office

Partnership management

•Accounting

•IT

•Facilities

•HR

•Marketing

•Seminars

•Research & Training

•CRM

•Knowledge

•Advice

•Representation

•Client relationships

•Document review

•Due diligence

•Mexican Waves

BPO and ITO HRO and KPO LPO

SUPPORT TEAMS•Documents

•IT

•F&A

•HR

•Marketing

•Knowledge

•Facilities

DEPARTMENT

HEADS

PARTNERS

FEE EARNERS

Typically strength of revenue and support team would be similar, having a lean partner strength

and a heavy fee earners/ support team

Typical law firm structure

REVENUE TEAM

SUPPORT TEAM

Lega

l Pro

cess O

utsou

rcing

Leg

al

Pro

cess

Ou

tso

urc

ing

PARTNERS

FEE EARNERS

BPO

Lean-cost effective structure that benefits from outsourcing

New World ?

SUPPORT

IN HOUSE

BPO

DEPARTMENT

HEADS

PARTNERS

FEE EARNERS

Typically strength of Revenue and Support team would be similar,

lean Partner strength and heavy Fee Earners/ Support team

Typical law firm structure

REVENUE TEAM

SUPPORT TEAM

SUPPORT TEAM•Documents

•IT

•F&A

•HR

•Marketing

•Knowledge

•Facilities

New World ?

Lean-Cost effective structure that

benefits from Outsourcing

Lega

l Pro

cess O

utsou

rcing

Leg

al

Pro

cess

Ou

tso

urc

ing

PARTNERS

FEE EARNERS

BPO

SUPPORT

IN HOUSE

BPO

What will stop the legal sector from Outsourcing?

Assuming there is a business case : perceived risks mitigation

Perceived risk Description Mitigation

Performance • Will outsourcing deliver?

• What happens if it doesn’t?

• Benefits, confidentiality, internal

security, communications, language,

quality control and systems concerns

• Track record

• Thorough due diligence

• Customer references

• Six Sigma performers

• Staged, low risk implementations

Control • Will management lose control over key

business functions?

• Detailed SLAs

• Real time on-line performance

measurement and transparency

• Strong governance structures

• Collaborative approach

People • Effect on the “personal” and culture

• Ethics of off-shoring jobs and redundancy

• Lawyers distrust process

• Skills loss

• Businesses must be efficient

• Global marketplace & free trade

• Lawyers will experience the benefits

• UK economy needs real jobs

Transition • How difficult, time consuming and risky is

the transition? Is it worth the effort/risk?

• Experience and expertise

• Staged, low risk implementations

Done with, not done to!

The best outsourcing is a strategic partnership focussed on

continuous improvement

So how does it work?

23

Well, not like this…

Fixed Asset

Management

Travel &

Expenses Bank posting

Cashflow analysis

Low High

Low

High

Billing / Invoicing support

1

2

3

4

General Accounting / Ledger

Financial Planning & Analysis

Payroll and PAYE compliance

Tax Advisory & Planning

Direct / Indirect

Tax Services

Tax

Processing

Fee earner reporting

Finance and Accounting Process Outsourcing Roadmap

Co

mp

lex

ity

(Ris

k, D

om

ain

Skills

, L

ead

-Tim

e)

Benefits (Labor Cost & Quality)

SAR compliance

Payables /

Disbursements

Receivables / Collections

Budgeting & Forecasting

Bank & Account

Reconciliation

Statutory Reporting

Financial Reporting

Direct third party outsourcing model

• Arms length outsourcing

• SLA Based Operations Management

• Maximize right-shore leverage

Typical Outsourcing Model• Lift and shift• Outsourced FTEs• Wage Arbitrage & Process Excellence

Hybrid Outsourcing Model

• Leverage BPO expertise and process re-engineering

• Retained staff embedded in outsourced team

In-house model

• DIY

• Services to third parties?

• Potential to realise value

Joint Venture/Outsource model• Leverage Supplier strengths and reputation• Collaborative set up• Services to third parties?• Potential to realise value

Outsourcing options:

• All in-house

• All outsourced

• Hybrid

Captive/in-house model

• Customer retains ownership and

operational control

Potential to offer services to third parties

Outsourcing - Flexible Business Models

Shared Service Centre model

• Established and owned by customer

• Joint venture with other customers

• Operated independently for multi-users

• Complete end –to – end SSC design

• Bespoke Implementation

• Potential to realise value

So are you going to let this wash over you?

27

Uha, too difficult!

Thank You