Legal Process Outsourcing is one of the new non-IT related outsourcing offerings on the market, at least in ‘case law ruled countries’. Will this specific service as we see it now be obsolete in the very near future? And: will the latest “new kids on the block” follow the same patterns and repeat mistakes that have already been made by others 5 to 10 years ago?

1. Legal Process Outsourcing – new offering spiralling to a crash landing?
This article is based on the White Paper “Outsourcing in Turmoil”, written by Neil
Farmer who is a director at both Informal Networks Ltd and Outsource Reality Ltd in
cooperation with Carola Copland, Ass.iur. (Germany) who is director of Rara Avis
Partners Ltd.
Legal Process Outsourcing is one of the new non-IT related outsourcing offerings on
the market, at least in ‘case law ruled countries’. Similar services to meet the needs
of ‘Roman law based countries’ (such as in Europe, parts of Middle East, Africa and
Japan) are lagging behind. A full range of offerings would really be of interest for
globally operating law firms and there are rumours that outsource suppliers are
planning future outsource services with global coverage.
Legal Process Outsourcing is the provision of legal support services through
standardised activities that produce a specific service or outcome for particular
customers. Today Outsourced Legal Processes generally include:
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Contract drafting
Document review and management
Compliance assistance
E discovery
Litigation and IP support
Sometimes these capabilities are used to buy in additional legal capacity in shortterm high volume and sensitive work, such as Due Diligence projects within Mergers
and Acquisitions. Legal-specific outsourced services are sometimes combined with
traditional ‘non- core business’ activities, such as IT, HR, Finance and Accounting.
What makes LPO so special and ‘new’?
LPO covers a niche in the non-IT related outsourcing business. For legal firms it
seems to be special and new mainly because the Legal profession has lagged behind
other businesses in embracing innovation – services that have been available on the
market for decades are finally arriving in this nice and cosy legal corner .
Besides the fact that there are a range of specifics to consider, related to the Law
profession, we might be looking at the same predictable issues experienced with

2. services like IT or IT-related Business Processes: standardised and high-volume work
at a lower cost in only a minority of cases, based onshore or offshore with no value
add.
Looking at LPO we need to ask two questions: will each specific service as we see it
now be obsolete in the very near future? And: will the latest “new kids on the block”
follow the same patterns and repeat mistakes that have already been made by
others 5 to 10 years ago?
What outsourcing looked like five years ago
Five years ago, some of the early ‘no brainer’ assumptions in the outsourcing
industry were beginning to be challenged. In late 2008, Neil wrote:
“If we take the published ‘evidence’ at face value, white-collar outsourcing is
currently:
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Failing to deliver best practice/quality/innovation in many cases, as vendors
become complacent once contracts are in place.
Failing in many cases to provide access to high-calibre skills due to the hiring
model and high vendor staff turnover (particularly offshore) and a growing
realisation by client organisations that the knowledge base they have paid for
was fleeting.
Failing to deliver flexibility/capacity/scalability because contracts are binding
and (by nature) inflexible.
Failing to focus on non-core business activities, with more than a quarter of all
outsourcing contracts transgressing the non-core criteria.
Failing to effectively transfer risks to the vendor, since vendors are unable to
fully absorb the costs of business losses, often leaving the organisation
responsible to pay the bill.
Experiencing high levels of ‘in sourcing’ as organisations bring in-house many
of their failing or inflexible outsourcing arrangements.”
So, five years ago we were waking up from the early naive wishful thinking about
IT and business process outsourcing (in particular): more importantly, we were
aware of some of the fundamentals of the underlying financial model for
outsourcing.

3. The words from 2008 still resonate today:
“Outsourcing is failing to deliver significant financial benefits in most cases, due
to the inherently high costs of the outsourcing model – 10% negotiation/contract
costs, plus contract management costs, plus 15% profit margins, plus staff TUPE
costs, etc, etc. In many cases, outsource vendors need to increase efficiency by
40% plus before they make any profit.”
What outsourcing looks like today
We are just emerging from five years of financial crisis and recession. The most
noticeable impact on the outsourcing market has been that potential client
organisations have largely ‘battened down the hatches’. Uncertainty has led to
inaction. However rather than going for the mass redundancies that have
characterised previous recessions, many businesses have instead been ‘selective’
about their labour downsizing and overall this has resulted in significant falls in
productivity.
So, is the scene set for another surge in outsourcing: both on-shoring and off
shoring?
The answer overall is probably ‘yes’, but the smart businesses will be heading for a
set of very different business models. For example:
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Basic, non-customer facing service provision and commodity manufacturing
will largely remain outsourced.
A ‘race to the bottom’ will emerge as wages progressively rise in established
production centres, and businesses continually seek new lower-cost countries
with low cost, low-skill workforces.
Mid-level production and services will experience a greater degree of onshoring and in sourcing as the delays due to language, culture and geography
fail to match rapidly changing demand patterns.
Some services will progressively be in sourced or replaced as technology
advances: Natural Language Processing software and Artificial Intelligence
(IBM Watson) lead to cost effective alternatives to outsourcing.
Core business activities (particularly those that interface with customers
directly through contact, shared services and delivery centres) have been

4. significantly on-shored and in sourced over the last five years: remedying
many early outsourcing mistakes.
The trend to in sourcing will accelerate in the future as even the mass-market
businesses recognise that increasingly modest cost reductions do not justify mass
customer dissatisfaction levels.
The tipping point
In particular, Business Process Outsourcing (BPO) has reached an important tipping
point: whole rafts of negative factors are now combining to make the outsourcing
and off shoring option increasingly unattractive to smart businesses:
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Staff turnover has now reached prohibitive levels; with some of the
turnover rates for key IT, BPO and centre skills reaching 80% per annum.
Year on year for the last five years and more, wage inflation (particularly
in India) has been running at an average 15% or more. Gradually this has
eroded the underlying cost benefit case for outsourcing.
A limited number of high profile cases of dishonest employees selling
customer data, participating in fraud and bribery or blasting customer
relationships on purpose have raised questions about the risk levels in
many offshore locations.
There are a growing number of cases where offshore vendors have ‘pulled
the plug with no warning’ when notice of termination has been given.
Of course, many of these situations are a breach of the outsourcing contract
or even qualify as court case but ‘things are just done differently over here!’
Looking ahead
Remember the 2008 research finding that:
“In many cases, outsource vendors need to increase efficiency by 40% plus before
they make any profit”
In reality, despite some economies of scale, there were only ever two ways that cost
efficiencies on this scale could be achieved: by transforming operational efficiency or
by outsourcing and off shoring to low wage cost countries.

5. As we have seen (above), the off shoring option for labour cost reduction is fading
fast. This leaves the transformation option: onshore transformation by outsource
vendors, in sourcing with transformation and/or transforming existing in-house
capability.
So what is the future of outsourcing? Given all of the problems described above,
why should organisations outsource their non-core activities?
A key part of the answer is that outsource suppliers are often more innovative than
their customers in creating effective transformation. Their motivation is very strong:
after all, as mentioned above, they often need almost a 40% increase in efficiency
before they start making a profit.
There are some fundamental requirements that need to be addressed for a
successful outsourcing within the Law profession:
1. Cost reductions, service improvement and efficiency must be
sustainable over the long term. A successful approach includes looking to
resolve a problem first in-house instead of transferring this to a provider.
High-volume work, such as document review, eDiscovery, even paralegal
work within Litigation, IP support and Due Diligence can be done today using
technology such as Watson. So what would be the advantage using people
with their tendency to make mistakes? Particularly when maturing
technology provides Artificial Intelligence (AI) and the capacity to process
immense amount of data much faster, more precisely, cheaper, and more
efficiently than any human could?
2. Service objectives and measurements must be clearly thought
through. For example, where is the service primarily targeted at: the
organisation that is outsourcing or the customer of this organisation? If
customer relationships and satisfaction with the service degrades over time,
the end results may be an ultimate loss for all concerned parties.
3. Be smart in building flexibility and change capability into contracts.
For example, ensure that the service provided and skills of people increase
continually, whilst the attrition rate stays low. This is an area that
traditionally been very badly dealt with in contracts and has often been "a
license for the outsource provider to print money".

6. 4. Make innovation real. We are in a changing world: can your outsourcer
really add innovation to your profession or are they business as normal until
business as normal ceases to exist?
Outsource providers have well trained, professional sales teams and go through
many sales situations every year. Customers, in the main, don't have really
professional and specialist experts in outsourcing procurement and only rarely make
an outsourcing purchase.
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The odds are not evenly balanced - take every bit of high-quality, independent help
that you can get!
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please do not hesitate to call us today on +44 161 278 2699 or email us on
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significant advantage over your competition.
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