Operating models

Two outsourcing operating models are becoming progressively evident in the global legal industry. They are Business Process Outsourcing (BPO), which entails using third parties to deliver back office support services such as finance, payroll, etc and Legal Process Outsourcing (LPO), where a law firm uses third parties to deliver billable client work, often in a commoditised style. BPO is often where the first forays into outsourcing take place as firms can test the waters without affecting fee earner operations. 80–90% of this activity can take place in isolation – the works requires checks to be in place but no analysis of output.

Knowledge services

In a wider sense it is BPO which involves us as information professionals, however knowledge outsourcing has given rise to yet another acronym – KPO or Knowledge Process Outsourcing.

At the outset knowledge services were not included in the business support services that were outsourced – which consisted primarily of document processing, IT, finance, etc. However the UK has seen a recent trend resulting in several law firms outsourcing their entire information functions. This started with some smaller law firms, but 2011 saw some startling developments with larger law firms too.

The general line is that outsourcing arises from the need of firms to manage knowledge better or to have the burden of managing the knowledge services taken by others. The cynic in me is inclined to think that financial incentives also play a big part. KPO involves more intensive processes than some of the other outsourcing mentioned. It is more bespoke per practice group or lawyer, needs more engagement and is therefore less standard than some of the other tasks.

Outsourcing

This started in the UK in 2009 with the outsourcing of services at Osborne Clarke, a medium sized firm based in the west of England. They chose Integreon – a provider of integrated research, legal and professional business solutions – which delivers outsourcing services to top firms in the US and the UK. Integreon used the firm to establish a UK base in Bristol with the aim of expanding. There are also plans to open further bases across Europe as the business recruits new clients, so this is effectively an ‘onshore shared service centre’.

Two more regional firms followed shortly and whilst library staff were retained in the head offices, all the employment contracts were transferred to Integreon – albeit with only a small number of job losses at the time – and a gradual alignment of services took place.

Detailed planning inevitably needs to take place when migrating an information service, not least the fact that whilst a member of the outsourced library staff may be working for a number of firms at any one time, they are only ever allowed to use the databases to which the specific firm for whom they are doing a particular enquiry subscribes. There are various other ethical issues which come to mind and need to be addressed and the Solicitors Regulatory Authority (the SRA, which is the regulatory arm of the Law Society) has recently published a new Code of Conduct in which it asserts that it should be given access to law firms' outsourcing contracts and files, as well as potentially to outsourcers' premises for regulatory checks. This would affect all legal and business process outsourcing arrangements the SRA deems critical to the firm's activities. These guidelines came into effect in October 2011. The watchdog wants to see evidence that firms are reviewing contracts to ensure compliance.

Perhaps the most high-profile example of BPO is demonstrated by CMS Cameron McKenna, a large law firm based in London. The firm has signed an agreement with Integreon. In early 2009, the firm carried out a strategic review that included identifying the best way to model their business service operations such as learning and development, knowledge & information services, marketing, etc. The firm used the following objectives to shape its business model for the future:

• • deliver enhanced ‘best-in-class’ service;

• • improve competitiveness and service flexibility;

• • create an innovative, scaleable business services platform (capable of serving multiple clients, offices and countries);

• • offer a stimulating new working environment and enhanced career opportunities where support staff become front-line professionals;

• • operate at the most efficient cost.

As part of the strategic review, the firm carried out a detailed assessment of various models on a spectrum which at one end included developing their own ‘captive’ shared services model supplying all the CMS offices, and on the other a pure “lift and shift” outsourcing model. In the middle were a combination of strategic partnerships; from those based on private equity funding to others that offered more by way of (law firm) outsourcing experience and existing infrastructure. The evaluation criteria for each of the models broke into the following headings: differentiation and innovation, delivery confidence, cultural fit, contractual, growth potential, risk, financial, time and implementation approach.

The deal was the largest outsourcing model of its type at the time. The staff maintained a presence within the office and continued to provide a service to the firm, but, if other firms follow their lead, the library staff who once worked for one law firm could potentially find themselves working for other law firms too.

Subsequently another firm to go down the outsourcing route in London was Freshfields Bruckhaus Deringer who use Evalueserve to run their information operation. However, I gather that the difference here is that this is an exclusive arrangement between the two parties and that there are no plans to roll the service out to other law firms by pooling staff and resources. Within certain magic circle firms, Evalueserve have taken responsibility for running information services such as the library, legal research, business research, business development support, Client Relationship Management (CRM) support, etc. In other words, value added services in-house that can't easily be located offshore.

There would be various benefits to this, and not all would involve decreased costs:

• • cut costs where there is an existing service;

• • to offer new services or develop an existing service to expand capabilities;

• • help drive efficiencies in delivering services;

• • or indeed a mixture of any of these.

Evalueserve take a consultative approach with their outsourcing. They:

• • focus on improving processes and delivering services from the most effective locations;

• • use a hybrid model of mixing offsite and onsite services.

All outsourcers see their relationships with law firms as long term partnerships and are therefore prepared to invest a lot of resources in getting to know each firm and understanding their business drivers.

Near-shoring

Allen & Overy, a UK ‘magic circle’ firm recently announced a new restructuring involving outshoring many of its back office staff to a new fully owned venture – so, still Allen & Overy but, in this instance, to Northern Ireland, which whilst part of the U.K. is an island off the coast – hence the term ‘near-shoring’. Northern Ireland offers a well educated labour pool in a region in which the firm will be a prominent employer and where costs are significantly lower. In addition, the deal has been sweetened for the firm by a £2.5m grant from a development agency for creating 300 new jobs in the area. This included certain information operations and as a result some information staff positions have been created in Belfast. This is, of course, a bonus for the relocation areas although not necessarily for anybody who loses their job on the mainland. Another law firm, Herbert Smith, has announced that they too will be using Northern Ireland as their location of choice for outsourcing.

Insourcing/offshoring

This is, of course, very different from firms who have set up insourcing operations. The ‘insourcing’ arrangement is a combination of outsourcing, offshoring and shared services, but with one key difference. It is delivered through employees hired at carefully chosen locations. Examples of these firms would be Clifford Chance and Baker & McKenzie who have operations in India and Manila respectively, although I am not sure to what extent information work has been transferred there.

Food for thought

Something I find thought provoking is that, in my opinion, the services offered by the outsourcing companies could equally be offered by the information services within the firms if they were given the opportunity.

We are all aware that information is a critical part of what lawyers do, and researching and seeking information forms a proportion of how they spend their time. By improving fee earner skill sets, you could make them more efficient researchers whilst freeing up information staff time and, therefore, potentially cut back further on hard copy resources. As a result money and people resources could be diverted to more strategic areas.

Librarians want to make a difference but can find it difficult to get their voices heard. One of the advantages of outsourcers is that they can potentially allow the information service to reposition itself and offer information workers other opportunities, such as the challenge of different types of work and being able to work for more than one client.

Pros and cons

It is too early yet to comment on how successful these models for outsourcing knowledge functions might be and, in spite of the many media headlines, apparently only 3% of the law firms in the UK and US are utilising outsourcing to any large extent. However, conditions continue to be challenging for the legal sector and all firms, regardless of size, are looking at their operations to find new ways of delivering efficiency and increasing value to clients. There are many ways that firms can look to achieve this and the market dictates that each must be one step ahead of its competitors. The use of the various outsourcing models is definitely innovative and I am sure that alternative means of delivering knowledge services in the legal sector will continue to be explored.