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Practice Innovations - Managing in a changing legal environment
Gray Rule
October 2011 | VOLUME 12, NUMBER 4spacer
Gray Rule
Outsourcing, Offshoring, and Right Sourcing for the Future
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IN THIS ISSUE:
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»The Role of the Alternative Fee Manager
»LEEDing Law Firms: The Business Case for Sustainability
»A New Approach to Leadership: How Women Are Influencing Leadership Values
»Improving Associate Morale Through Career Coaching
»Outsourcing, Offshoring, and Right Sourcing for the Future
»Untangling the Tangled World of Government Compliance
»Book Review: Total Recall: How the E-Memory Revolution Will Change Everything
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Elaine M. Egan, Consultant, New York, NY
Outsourcing, Offshoring, and Right Sourcing for the Future
Changes in market conditions are driving law firms to rethink outsourcing and offshoring legal and business support services ....

As in all professional service firms, law firms require a myriad of processes and functions to support the core competencies of the business. Since law firms have become increasingly geographically dispersed, they have begun to form a functional matrix model. Ideally, this model is to have teams share information and resources more readily across task boundaries. But commonly employees in a matrix organization may become frustrated and confused, have conflicting loyalties, be regionally focused, and lack a strong mandate for leading cross-functional teams.

It remains to be seen if the last decade of global law firm mergers and exponential growth will be successful. But surveys indicate it is still a buyers' market for legal services and this trend will transform the historical business model. These market conditions increase the need for efficiency, require the elimination of duplication, and unfortunately do not necessarily reduce anticipated long run average cost. What has emerged is a laborious and expensive predicament. This predicament is just as relevant to the American Lawyer list of the top 100 firms in the world (four of which are members of the five Magic Circle firms in the U.K.) as it is to the small to midsize law firm. In each of these legal markets it is increasingly difficult to dedicate non-income-generating resources to operational function and infrastructure such as information technology, client development, litigation support, online research services, document review, and document production.

This may be an oversimplified introduction to the topic of outsourcing and offshoring and the various combinations such as inshoring and insourcing, but it is one we all understand in an extraordinarily competitive environment. After all, outsourcing has been around for centuries; even Roman tax collectors were outsourced, just as law firms and professional service firms are today.

Outsourcing is essentially when a company contracts with a third party to perform a function on behalf of the company either on a project basis or as a longer entrenched component of the operating infrastructure. Outsourcing can include knowledge process outsourcing (KPO), legal process outsourcing (LPO), and business process outsourcing (BPO). Offshoring and inshoring can be outsourced but are slightly different in scope and value centralization and in exploiting economies of scale. Offshoring is taking a function out of your country and performing it in a lower cost center. Inshoring, which can be combined with insourcing, is a centralization initiative characterized by delegating a function to another business unit or building a remote team in another domestic city where volume functions can be performed at a lower cost. Examples include document production, IT, help desk, accounting, client billing, and other supporting functions within human resources, marketing, library and research services, and records management centers. Several high-profile firms have committed to this strategy. In 2000, Orrick Herrington & Sutcliffe opened its Global Operations Center in Wheeling, W.Va. More recently, WilmerHale in Dayton, Ohio, and DLA Piper in Baltimore, Md., announced similar moves, and Allen & Overy announced the opening of its dedicated Support Services Center this fall in Belfast, Northern Ireland.

Despite Baker & McKenzie's surprising dismissal of its entire Chicago library staff in 1997, replacing them with an outsourced team, and a somewhat similar decision in 1999 by San Francisco's Pillsbury Madison & Sutro (now Pillsbury Winthrop Shaw Pittman LLP), law libraries have been outsourcing supporting functions for decades. By outsourcing looseleaf filing, cataloguing, indexing, document retrieval, technical services, legislative history compilations, subscription management, and interlibrary loan, an information professional is free to perform highly skilled core business needs.

The market for outsourced services is growing. From a CEO, CAO, or COO perspective, what drives the decision, such as the one by CMS Cameron McKenna in the U.K., to outsource multiple support functions? CMS Cameron McKenna outsourced non-billable "middle office duties," identified as accounting, human resources, marketing, training, and information technology, to Integreon. One would think these decisions are not simply quick cost-cutting measures, head count ratio, or a reaction to competitive behavior. One would hope it also isn't a problem or a "mess" that a firm or administrator wants to be rid of. Having a grasp on the function and process helps direct improvement and the value proposition for the firm, clients, and employees. The best cases for outsourcing are those that have a strategic broad view of the firm's core business, vision, mission, and culture.

Decisions for BPO, LPO, or KPO should take into account exponential firm growth, regional diversity, client needs, rapid technology change, and the ability to add supporting value for the firm and clients. A firm and business unit leader should take the wheel and drive the strategic outsourcing path by identifying the scope of work and defining the service level agreement that allow specific governance and best practices to continue. You don't wash your hands of an outsourced team but rather manage the team and function in a more strategic fashion. Firms may also devise blended solutions by retaining a director, manager, or supervisor employee of the firm to address concerns about risk management, communication, and continuity. The success of an outsourced, offshore, and inshore team's performance requires a combination of collaborative leadership, communication skill, and management support.

Sarah Fahy and I had an opportunity to speak about this very issue. Sarah's leadership at Allen & Overy has transformed this Magic Circle firm's research and library business unit. Sarah has engaged a blended partnership with Integreon to produce business development reports. Relying on scalable models to support business development needs allows Allen & Overy's research team to create bespoke standards of research, business intelligence analysis, and deeper core legal research while working with an outsourced team. The ability to draw upon outsourced professionals who support non-billable, nonconfidential projects while freeing dedicated professional staff to work on client research is an example of operating with a broad-spectrum strategic view of the business. Sarah shared that having a strong communication strategy so that people understand the goals of the firm is pivotal to success in blending outsourcing with traditional firm models. In addition, Allen & Overy is opening its A&O Support Services Center in Belfast. Sarah has designated an A&O library operating team to be located in this centralized office who will work along with support from Integreon. This office achieves Allen & Overy's business goal of centralization, and for the library, it optimizes the best value in blended outsourcing.

In her blog, Dewey B Strategic, Jean O'Grady writes, "One key strategy for liberating knowledge professionals to support client work is reducing the volume of administrative work which they must perform or oversee." Jean adds that she "continue[s] to be amazed at the number of large law firms that remain largely decentralized and which mandate a decentralized library system in which each library is accountable to the local office manager and not aligned to a firm wide information strategy for expanding access to resources at the lowest cost."1 During my conversation with Jean, she noted that consolidation of vendor accounts reduces the local office segmentation, improving and streamlining work process that supports centralization. Jean's focus on correcting inefficient work flow has had a far-reaching effect on delivering core business research expertise and may actually reduce the need to consider outsourcing.

Aside from centralizing noncore functions, what about outsourcing? Are we hung up on the concept of outsourcing that has been maligned in the press and viewed as causing job loss and producing lower quality work? Is it really a threat to law librarians or is it an opportunity to elevate our position and influence knowledge strategies by representing the firm's commitment to knowledge excellence, translating into a competitive advantage?

The 2011 Ark Conference, "Best Practices and Management Strategies for Law Firm Libraries and Information Service Centers," featured Jean O'Grady and Ron Friedmann, Senior Vice President of Consulting with Integreon, who presented their views and a dynamic discussion on outsourcing. In her blog, Jean subsequently noted her co-presenter's comment that there has been "an upward trend in professional services firms choosing to outsource 'non-core' functions."2 Prior to the conference, Jean had conducted a survey of attendees to help identify what functions or services provided by their library were core to the law firm. For the purposes of the survey, a "core business activity" was defined as one that supports the strategic value of the service or product delivered to the market or a client. Based on the survey results, the response group viewed research and research-related activities as core to the business. It came as no surprise that many functions that were rated noncore for the most part had already been outsourced fully or in part.

So does this leave us with the status quo? With a broad-spectrum strategic view of knowledge, do you simply match talent with opportunity regardless of where it is sourced? Esther Dyson's provocative keynote statement during the 2011 AALL conference may in some ways support this assertion. Dyson suggested that "if law firms don't recognize how the strategic insights and knowledge competencies of Library Executives are core function to the firm's competitive advantage, we should all just go work for Legal Processing Outsourcers who clearly do recognize our talents as core to their business model." Even with the current climate of systemizing and commoditizing legal services as a business transformation model, clients still consider their legal counsel a unique relationship, an adviser, an advocate, and a loyal counsel. The same holds true for knowledge professionals who support this core relationship.

I was fortunate enough to have a conversation with Ron Friedmann of Integreon, which is considered the leader in integrated legal, research, and business support solutions for corporations and law firms. Interestingly, he shared that since 2008 there has been a shift in the perception of outsourcing and offshoring. According to Ron, changes in market conditions are driving law departments and law firms to rethink the strategy of outsourcing and offshoring legal and business support services. Firms are asking themselves: what is the best way to centralize volume work that can be performed in a lower cost center?

Integreon's scalability model is one of shared management and IT. This gives Integreon the ability to scale up or down by drawing upon a pool of skilled people. Process reengineering and continual improvement are also part of the value proposition that Integreon provides. Institutional clients of Integreon are assigned an account executive who aligns with internal resources on each service and delivery line along with their central managers, thus providing depth and predictable outcomes. Integreon's expansive geographic reach and critical mass allow its staff to develop high levels of specialization in functions like document services and of course deep research provided through Grail Research, which the company acquired from the Monitor Group in 2009. As Ron points out, firms are beginning to understand that ownership of a resource or process doesn't lessen the output or service.

Clearly, universal market challenges and global law firm growth are requiring law firm leaders to align "right sourcing" as either an "owned" function that is core to the business or view certain high-volume tasks as noncore and hence an opportunity to delegate. From a library and research center point of view, presenting a case for reallocating resources through centralization, process improvement, or outsourcing a noncore function will ultimately make knowledge and research services the knowledge strategy and value proposition that create a competitive advantage for the firm.


Sources

1. Jean O'Grady, Centralization as a Value Strategy, Dewey B Strategic, Mar. 15, 2011, http://deweybstrategic.blogspot.com/search?q=centralization.

2. Jean O'Grady, Outsourcing, Outrage or Opportunity? What Is Core?, Dewey B Strategic, Feb. 25, 2011, http://deweybstrategic.blogspot.com/search?q=core+business+functions.

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