If you were to ask me what single new development in the legal services marketplace will generate the most upheaval for lawyers and law firms in the near future, I’d have to go with legal process outsourcing (LPO). It’s a game-changer of the highest order, in ways many lawyers don’t yet realize.
Legal process outsourcing is often simply and wrongly described as “sending legal work to India.” In reality, LPO is our market’s version of business process outsourcing (BPO), the enterprise theory that revolutionized the corporate world decades ago by applying workflow and supply chain principles to the tasks that businesses undertake every day, with the goal of improving efficiency, enhancing quality, and lowering costs.
BPO can and does involve relocating some tasks to lower-cost jurisdictions — sometimes within national borders but often outside them, wherever competent performers can be found. That’s one way in which lawyers will be affected by LPO: our colleagues in India, for example, will do the work of entry-level associates for dimes on the dollar.
Consider that LPO provider CPA Global landed millions of dollars in legal work from mining giant Rio Tinto PLC because, among other reasons, it offered to do the work for 85 per cent less than what Rio’s Western law firms were charging. Today, every major legal file at Rio involves a CPA component. Canadian firms that have gotten used to billing out routine associate work at hundreds of dollars per hour should prepare to radically reduce those revenue expectations over the next five years.
But LPO’s challenges are more fundamental than that. The key word in legal process outsourcing is “process” — LPO providers examine a legal task, break that task down into its component parts, and look for ways in which those individual parts could be performed more efficiently. Their aim is to match each element of a legal task to the provider with the best combination of competence and cost-effectiveness, while managing the entire process against a set of budgets and timelines.
An LPO provider, for example, might examine a litigation file and determine that the e-discovery process could best be handled by a sophisticated software engine, document review could be carried out by a team of lawyers in the Philippines, and witness interviews could be conducted by professionals trained in disciplines like human resources, journalism or law enforcement. Law firms, by contrast, give the entire job to lawyers, whether or not they’re properly trained and best qualified for each element of the case.
LPO providers don’t want to remove lawyers from legal work — they know there are certain things, such as advocacy and judgment, that lawyers are irreplaceably good at. But they believe a legal file is no different from any other business task in one important respect: it’s receptive to project management that can improve the efficiency and cost-effectiveness of the final result. This is a fundamental challenge to the ways in which law firms handle work.
But even price and efficiency challenges pale in comparison to the third impact LPO will have on lawyers. Right now, investment funds in England and Wales are preparing for the opportunity, under the Legal Services Act, to buy equity stakes and controlling interests in legal enterprises. Most Canadian law firms ignore this development, on the grounds that English firms have no presence or interest in Canada, and anyway, non-lawyer investment in firms is forbidden here.
This misses the point, dangerously so. These private equity firms are preparing to invest in the legal marketplace — but they’re not looking at law firms, which they consider bloated, inefficient, and impossible to manage well. They’re looking at alternative providers of legal services, and they’re likely to start with LPOs. In January, CPA Global sold a 47 per cent stake in itself to the Intermediate Capital Group for £440 million ($673 million Cdn.).
LPO providers with that kind of capital won’t stay confined to the British Isles. They’ll go global in a hurry, acquiring the best talent from the best firms worldwide, investing in new systems and innovations that will reduce costs even more, and changing clients’ expectations about what a law firm can deliver. They will be law firms, in effect, and even if lawyers in a given jurisdiction somehow succeed in keeping them out, the landscape will have changed: clients will demand their lawyers compete on the same playing field.
If you’ve neglected or minimized the impact of LPO on your practice up until now, look again. You might well be looking at the future of law firms.
Jordan Furlong is a partner with Edge International who specializes in analyzing the extraordinary changes now underway in the legal profession worldwide. He is also a senior consultant with Stem Legal and head of its Media Strategy Service. He authors the award-winning blog Law21: Dispatches from a Legal Profession on the Brink at http://law21.ca.