After bursting upon the legal scene in mid-2009, legal services outsourcing (LSO) has gone from strength to strength. So much so, that 2010 will go down as the year in which this innovative new approach to the delivery of legal services achieved mainstream acceptance - and signalled that it was definitely here to stay. That’s no small feat considering how conservative and resistant to change the legal industry has traditionally been.
Outsourcing lower-level legal work, such as document and contract review, transaction support, and legal research, was a hot topic for debate among legal professionals, in the media, and at industry conferences during 2010. Most tellingly, senior in-house counsel became increasingly open in discussing how partnering with an outsourcing provider could help reduce legal spend, increase efficiency and get their own lawyers back to practising law. With mounting pressure from their corporate clients to change the legal orthodoxy, many law firms who were previously sceptical about LSO were forced to look at how they would build outsourcing into their service delivery models. As a result, the concept of a three-way working relationship between corporate clients, law firms and legal services outsourcing providers has flourished and become a true symbol of change in the industry.
Changed perceptions
Perceptions of LSO and its place in the legal market also shifted dramatically in 2010. As little as two years ago, the concept of outsourcing legal work was met with scepticism across much of the legal industry. However, research that CPA Global undertook in conjunction with the Financial Times Innovative Lawyers Awards during August 2010 revealed that more than 43% of companies and 73% of law firms are now outsourcing or considering outsourcing legal work.
The type of work outsourced has changed too, with document review and transaction support (including mergers and acquisitions) identified in research as the biggest areas for outsourcing in 2010 – more so than intellectual property management, which has tended to dominate the legal outsourcing scene in the past. While cost savings are still the main driver for outsourcing legal work, market recognition of other benefits became more apparent during the year. In a CPA Global poll of UK-based in-house counsel at the Legal Week Corporate Counsel Forum in September, 25% of respondents identified making better use of their existing resources as the most important reason for outsourcing, while 17% highlighted scalability for large, unpredicted projects.
Attracting investment and talent
LSO has also caught the attention of outside investors, looking for companies with high growth prospects in the post recessionary period. In January 2010, Intermediate Capital Group (ICG), a leading independent investor and fund manager, acquired a significant minority stake in CPA Global, underlining the growing confidence in LSO amongst the financial community. For CPA Global’s part, the investment has ensured that we are even better positioned to take advantage of the significant market opportunities ahead.
As LSO has become more established and accepted in the legal mainstream, so has its credibility and prestige increased. This, in turn, has attracted more top legal talent to the sector - both onshore in the UK and US, as well as in offshore delivery centres – with LSO being seen as a viable alternative career for legal professionals. At CPA Global, for example, over the past year, we have recruited senior lawyers from leading corporations such as Virgin Media and Home Depot, as well as top law firms, including Baker & McKenzie, Allen & Overy and SJ Berwin. Our growing teams in the UK, US and India are working with some of the world’s best known corporations in the financial services, technology, telecommunications, pharmaceutical, healthcare, and FMCG industries.
2011: a year of growth for quality providers
Looking to 2011, we see LSO becoming more deeply embedded in the legal services industry as an increasing number of corporations and law firms see for themselves the benefits to be gained from the highly cost-efficient, three-way collaboration model that LSO is able to deliver. Law firms will increasingly recognise that LSO providers are not aiming to replace them – we never will, as we don’t practise law. On the contrary, by ensuring better use of resources and proper segmentation of work, we can ensure that law firms and in-house legal teams are able to spend much more of their time practising law, which is what they do best.
Already, there are many different types of company offering outsourced legal services of various descriptions; and, as LSO continues its rapid growth, more players can be expected to enter the market, perhaps leading to greater price competition for some of the more commoditised services.
However, as customers become more familiar with LSO and more discerning about the service they require, quality will increasingly be the key differentiator when selecting an outsourcing partner. In the Corporate Counsel Forum poll in September, 66% of respondents identified quality as the greatest concern when considering outsourcing. This is a challenge that LSO providers have to deal with head-on by proving that quality can be maintained and even improved through outsourcing. Only well resourced, established players in the market who recruit and train the best talent will be able to do this.
This focus on quality is likely to define the industry over the next 12 months. Providers who can deliver the high standards and performance demanded by leading corporations and law firms will enjoy significant growth; while those who compete on price alone will struggle to sustain their business in the longer term. This, in turn, could lead to greater consolidation in the industry, with just a few strong, well resourced and well run providers leading the market.