Legal Outsourcing Still Poised to Shake Up the Law World

With seven years of experience to back us, we at SmithDehn INDIA (formerly SDD Global Solutions) know what we’re talking about when we insist that legal outsourcing is a game changer for both lawyers as well as their clients -- and in the best possible way.

A couple of years ago, in our "Law Without Borders" blog, our President, Russell Smith, wrote an article called "12 Ways Offshore Legal Outsourcing Could Shake Up the Law World in the Next Decade."

Re-reading the article, and considering recent developments, we still believe all 12 of the predictions. The Western legal industry, despite all kinds of warnings and economic slaps in the face, still has not fundamentally changed its inefficient and outmoded model. But increasingly, and recently, many experts are foretelling the demise of the law business as we know it. Quite a few are predicting a dramatic further increase in the quantity and quality of offshore legal outsourcing.

At a major academic-sponsored conference in March of this year, called "ReInvent Law," over 400 lawyers, professors, vendors, technologists, and others gathered in California (and will do so again in New York and London) to discuss "what everyone now accepts as conventional wisdom: 'There’s a storm brewing,' across the legal landscape." "Whatever their other ideas, speaker after speaker expressed certainty [that] clients were either unhappy or unserved.'" The academic organizers of the conference noted that "[t]echnology and legal process outsourcing companies are taking work away from traditional law firms," "[t]he legal market is ready for new providers who will look freshly at the problems," and “[w]e have a delivery-of-services challenge -- We’re still struggling to provide affordable and accessible services to this (vast) market.”

http://www.americanlawyer.com/PubArticleALD.jsp?id=1202591626075&thepage=1

In a report last September by the Outsourcing Unit of the London School of Economics, entitled "Legal Process Outsourcing: LPO Provider Landscape," in a section headed, "LPO Providers Will Move Up The Value Chain," two experts in the field concluded as follows:

"Like ITO (Information Technology Outsourcing) and BPO (Business Process Outsourcing), the initial driver of LPO (Legal Process Outsourcing) has been lower

costs available through labor arbitrage. Clients initially feel most comfortable sending discrete work with low complexity and low criticality offshore, the so-called 'white chip' work. (In poker, tradition has it that white chips are the least valuable, red chips are of medium value, and blue chips are most valuable.) If LPO follows a path similar to ITO and BPO growth, the LPO market will move up the value chain to include more red chip and even blue chip work."

Less than a couple of months ago, in Managing Partner magazine, two former members of mega-law-firm Linklaters wrote a provocative article with a correspondingly alarmist title: "Prize Fight: Get Ready To Face LPO Providers as Competitors." They made an interesting analogy between music downloading, on the one hand, which amounted to only one per cent of the music listening market before it almost destroyed the CD industry, and "LSO" or Legal Services Outsourcing, on the other hand, which has only a tiny share of the legal services market now, but easily could challenge the pre-eminence of law firms if the latter do not change fast enough:

"LSO [Legal Services Outsourcing] has become a billion-dollar business that is set to quadruple, some say, to $4bn per annum by about 2015. However, given that the total global market for external legal advice is today estimated at roughly $500bn per annum, a $1bn market share suggests that LSO providers currently occupy only about 0.2 per cent of the market. Even were this to quadruple, by that logic, more than 99 per cent of legal work would still go to ‘conventional’ law firms. All of this sounds immensely comforting until one realizes that, at one time, music streaming constituted only one per cent of a market dominated by CD manufacturers and, before that, similar imbalances existed between CDs and LP records. History is full of stories about leading businesses that could not transform themselves in response to changes in the market and whose pre-eminence was taken up by others.... There seems little doubt that we are witnessing a similar phenomenon in the legal profession."

Well, no one is taking anyone else’s job away. But looking at the situation by analogy, as if comparing a typewriter to a computer, LPOs are increasingly doing good work, and getting the job done faster and cheaper. All of this leads to happy clients, and we all know what that means – more work! And for the legal world, or at least those law firms and legal service companies willing to embrace change, this can only be a good thing.