The in-house law firm – the future of corporate law departments?

20 07 2011

I’m a big fan of Tom Peters. Not just because he genuinely interacts with his followers on Twitter, not just because he’s passionate about what he writes about, and not just because he presents (presentations, books) in some pretty cool ways. I’m a fan because he has some great ideas.

Corporate counsel Sedgwick took his boss' advice to "be a rock star" seriously as he began to address the board meeting

If you look back to his book “Re-imagine, business excellence in a disruptive age”, which was written nearly a decade ago, so much of it remains fresh and inspiring (and you should buy a copy if you’ve not seen it – it was required reading by my General Counsel when I was an in-house lawyer!).

But there’s one concept, right at the heart of the book, that seems more appropriate than ever in the legal marketplace right now. Tom describes the principle as “From cost centre to stardom – the professional service firm (PSF) transformation”.

Let me outline some of the detail behind this principle, and then I’ll tell you why I think it’s SO relevant right now.

Tom starts by ranting (his words!) that aiming to improve departmental efficiency and effectiveness is no longer enough. Heard about effectiveness and efficiency in the context of corporate law departments recently? It’s the opening paragraph of pretty much every report about General Counsel these days. Hell, I’ve written about it myself!

He goes on to assert that working 50 hour weeks in a cost centre is not sustainable – rote work will be outsourced  and the core that remains will be the traditional domain of the PSF – the accumulation and application of creative intellectual capital. With the amount of publicity the legal process outsourcing business is getting these days, this shouldn’t seem far fetched for General Counsel either.

So what’s the solution? Tom breaks it down into the following four key parts, to which I’ve added a law department spin.

  1. Outsource it – if the work can’t be done economically or the law department isn’t demonstrably great at it, outsource it.
  2. Now in a legal department this might be “volume work” which can be systemised and done off-shore cheaply, or it might be more complex but the legal team doesn’t have the skills in-house to do a great job, in which case the work might be passed to a retained law firm (or even another internal department).
  3. Productise it – if the work can be done in-house, break it into a “product” that someone will pay for. Now for lawyers care needs to be taken here as while there are certainly plenty of tasks that internal clients will pay for (doing deals, litigating etc), there are some jobs where the key beneficiaries may be the shareholders who won’t have a notional budget to cross-charge. The key point to me however is that the work creates real, demonstrable value for the organisation.
  4. Web-ify it – Tom challenges us to put everything (policies, procedures, contracts) on the web. Now many lawyers will no doubt be holding up their hands in horror here, but the reality is that this concept is already starting to take hold in the more progressive corporate legal departments. Use up a lot of bandwidth drafting standard sales contracts for the business? Take instructions, do a first draft, internal client reviews and makes changes, lawyer reviews changes, lawyer clarifies, lawyer redrafts, internal client reviews….. you get the picture. How much time has that taken? What’s the internal client satisfaction score looking like? Never mind that of the lawyer or the external client. By contrast, how about this – automate the document, internal client follows online guidance and prepares good quality first draft, lawyer reviews and amends, internal client sends document out.
  5. If it’s great, celebrate it. This to me has two important themes. The first is about communicating value to the business. There are plenty of legal departments that are really good at this, and are highly valued by their business colleagues. But there are plenty who don’t communicate success and value, and in my view they need to start. The second theme Tom mentions is more interesting – if an in-house legal team can become genuinely world class, could they start to provide services outside their company?
This is the idea that got me starting thinking about this topic.
With the Legal Services Act allowing non-lawyer ownership of law firms, is it conceivable that some in-house teams might think of converting to a law firm?
At a recent conference for in-house lawyers, the very progressive GC of a company with a global brand indicated that he was thinking using this type of framework to provide legal services to the company franchisees. Another GC joined the debate and floated the idea of pooling compliance resources with other companies in the industry – sharing the overhead for work that was mandatory but provided the company with little competitive advantage.
This is a time when radical thinking is possible. Sure, there are undoubtedly regulatory questions to answer, and professional ethics issues to resolve, but what is clear is that the future can look very different.
The obvious question is how this might it affect your legal team? Tom talks about “Exciting [legal] departments selling their creative services far beyond the company’s border”.
The more interesting question is how might it affect law firms? Will they find themselves competing with their clients? What about collaboration opportunities.

As Tom would say – to improve is not enough, now is the time to transform.

So you’re an equity partner – big deal!

22 06 2011

Last week I was given a business card by a lawyer I was talking to. On the card, underneath their name, was written “Equity Partner” in a fairly bold, not-to-be-missed font.

Tony showed the proof of his "Legal Jedi Master" card to the managing partner more in hope than expectation

It struck me, that were I ever to hit those heights in a law firm (I bailed out of private practice before putting those magic words in my email signature) I’d probably be pretty pleased with myself. And rightly so. It’s a position many people strive for and certainly for those in the upper tiers of the legal world, can be very lucrative and rewarding.

The title marks you out as an owner of the business and as a result conveys a certain status within the firm which undoubtedly provides very practical assistance in getting things done quickly through the firm’s support infrastructure.

But, the question that troubled me was the message that the title communicates to someone outside the firm.
I posed the question on Twitter, and got some fascinating comments back.

adds pomposity and confuses clients

I think it’s wrong. Many clients don’t know what it means, in the real world.”

It’s a badge of seniority but non-lawyer clients might not know what it means. Also = unlikely to do much of your actual work.”

” It would make me think, “Ah, so you’re the reason for my large bill”

The theme that stood out strongly for me was the internally-focused nature of the title.

Of course for fellow lawyers in private practice, and for in-house lawyers, the title and connotations will be understood. However, aside from the fact that there a huge number of purchasers and influencers who may not know what it really means, I wonder if there is an opportunity lost in not using a job title that is more aligned with the lawyer’s actual role.

There are a number of ways that could be approached. For a start, as I’ve discussed before, a market strategy that is structured around a client’s vertical industry sector is quite common. Would reference to specialism in a vertical sector as well as a practice area (or even instead of…) make sense? What about an alternative based on a description of the relationship with the client, so for example separating out relationship managers (I know the “s” word is maybe a step too far), technical specialists, project leads etc. For large scale project work this delineation of responsibility could also add credibility to the project management ethos espoused by many of the top firms.

Another driver that could force to revisit job titles is the changing career structures that have been emerging over the past five years or so. Many firms now have a senior designation for those lawyers who want to stay with the firm long term, but do not want the additional commitments (time, financial or management) that go with partnership. As the next generation of lawyers move through the ranks with their different cultural approach to work, life and career, will the old hierarchical, largely tenure-based titles still prove effective?

Perhaps the biggest opportunity for fresh thinking in this area (at least here in the UK) comes from the influx of new competitors into the market when the winds of deregulation blow through the profession over the coming months. Much has been written about the potential impact on law firms serving consumers, but make no mistake change is afoot in the world of commercial law too.

Aside from further consolidation, which I believe will be driven globally as well as in response to our own market conditions, the emergence of the LPO model and flexible resourcing models such as those from Axiom or BLP‘s lawyers on demand, will challenge incumbent firms to revisit their business models. This will invariably have implications for resources and career paths, and presents the perfect opportunity to revisit job titles.

While it may seem trivial, job titles do usually matter both to the holder, and in some contexts, to clients and prospects. A new entry to the law firm market will have the chance to think about this afresh, not restricted by history or tradition.
My sense is that these organisations will not default to titles like “Assistant”, “Associate” or “Equity Partner” and in using something a bit bolder and more relevant, will be able to send a signal to the market, both to potential clients and potential employees!

Outsourcing Armageddon!!!

13 02 2011

There’s no escaping the “o” word in the legal profession at the moment, and for the past 18 months, the stories in the UK legal press have just kept on coming. Lots of words, but what’s really happening? What’s going to happen?

A suitably shocking image was required for a discussion of the "O" word...

Does outsourcing spell armageddon for the legal profession? Will all the jobs be swept up and done offshore? Will process and technology decimate the practice of law? Or will the hype die down and the business model be exposed as simply not working for the legal profession? The outsourcers might find small niches, but not penetrate the mainstream?

I’ve been connected with the outsourcing industry for about twelve years. In practice I spent six years as a technology and outsourcing lawyer, and then spent four years in a global outsourcer as corporate counsel. I moved into the business for the same company and after I left, I spent a year leading the onshore team for the legal processing division of another global outsourcer. So now, with the news full of A&O’s support centre in Belfast, and the continuing story of Cameron’s large scale deal with Integreon, it seemed like the right time to offer my thoughts on the topic, particularly as lots of the comments flying around seem to me to be made by people who’ve never seen an outsourced operation, let alone have any understanding of the underlying business models.

So buckle up, here we go…. (my blogging guide did suggest being controversial – how am I doing?)

Let’s start with the observation that the fundamental principle of contracting with a third party to provide services that are non-core to your business is pretty well established. Whether it’s finance and accounting, payroll, logistics, manufacturing or customer services, many of the largest companies in the world have outsourcing well established as a critical part of their business model. It’s been going on a long time, and the long-term success of the big global outsourcing providers suggests that this approach does work.

With providers leveraging both lower costs from economies of scale and labour arbitrage and providing the service using highly specialised staff, best practice process and technology the business case can be compelling. On the other hand of course concerns about data privacy, potential loss of control, cultural differences, brand damage and the political and social implications of outsourcing jobs appear to make the decision less clear cut.

So while the underlying business model clearly has pros and cons, with the profession having been hit hard by the recession, with traditionally high labour and property cost-base, and incumbent providers of legal services potentially facing a new wave of competition as a result of deregulation, it’s surely no surprise that outsourcing has finally become a reality.

Where I think the most interesting questions lie, are not around the question of whether outsourcing will succeed, but what types of work are most suitable for outsourcing and will provide the biggest benefits for law firms.

To investigate this, a bit of clarity is required about what actually constitutes legal process outsourcing (or LPO). I wrote in an article for Managing Partner magazine last year that one of the problems with the hype surrounding outsourcing in the legal profession is that any outsourcing gets labelled as LPO, when in fact, many deals don’t actually include the outsourcing of legal work.

A helpful place to start is to think of the firm in terms of back, middle and front office, terms that are often used in the financial services industry. The term “back office” means those parts of the law firm that run the business, but are largely invisible to the client – accounts, human resources etc. By contrast the meaning of “middle office” is a little more fuzzy, but I think of that as those support functions which either directly support the provision of legal advice (such as legal research, knowledge management) or are in other ways visible to clients (business development etc), but are not the actual service that the client pays for. Front office work is much clearer – the actual provision of legal advice.

So, with a sprinkle of added clarity (that if a law firm outsources some of its finance function, it’s not LPO in my book), what do I think are the prospects for outsourcing in the profession?

If we start with the back office, this at first glance would seem the obvious place to start. Generally speaking, it’s non-core and won’t provide much in the way of competitive advantage (in fact, by contrast there are plenty of firms that have challenges with billing) for law firms. The challenge is however, that for all but the largest firms, the scale of the accounting function is not large enough for the economics to make sense on a dedicated outsourcing project.

The answer of course would be a shared service, that law firms could simply plug in to. The difficulty here is that law firm IT systems are incredibly diverse, and a lot of them have been customised and patched together over the years, so simply moving to a new (outsourced) platform will not be easy.  I’m sure this conundrum will be cracked, but am not sure whether anyone is there at the moment.

Looking then at the middle office, the raft of deals among UK firms at the moment suggests there is appetite for outsourcing here, and looking at parallel operations in other sectors, there’s no question the model can work. At the BPO provider where I was working last year, their research and analytics function had over 1,500 employees, 70% of whom had advanced degrees (MBAs, PhDs etc). The quality of their output was excellent, and they provided comparable services (pitch support, business intelligence, research etc) for blue chip corporates, investment banks and management consultancies. The team was led by someone who set up McKinsey‘s knowledge management centre in India, and I certainly felt confident that a lot of that team’s expertise was transferrable.

The final area is of course the legal work itself, and this is perhaps the most emotive area for lawyers. There is a huge split of opinion here with, on one side, service providers who are selling, keen to make the most of their credentials, and confidently talking of their ability to “move up the value chain” (by which they mean demonstrating they are capable of taking more and more complex work). On the other side, are many lawyers who, having spent many years working hard to join and progress in the profession, do not believe their work can be done by less qualified personnel, especially those outside the jurisdiction.

So what’s the truth?

Well, I think the starting point is to establish that in the world of volume legal services (think conveyancing, remortgages, personal injury litigation etc) legal work has been successfully outsourced and off-shored for sometime. Undoubtedly if you had asked the question ten years ago whether this would have been possible, the majority of the profession would have shaken their heads and exchanged knowing glances.

These days, my experience is that talking to lawyers, many now see how an outsourcing model could work for certain types of legal work, “but mine is too complex/specialised/personal”!

My view is that their is a spectrum of complexity for legal work, and at the very bottom end (low complexity) more of this can and will be automated – seeing some of the latest document assembly tools is a good reminder of progress here.

At the next layer of complexity, there is a huge scope for the application of process to make the legal work more efficient. Having done some process mapping engagements for law firms, I can confidently state that when you get a process standardised and down on paper, the opportunities to improve it are many.

Improving process is not of course synonymous with outsourcing, and I expect in the next few months there will continue to be a huge rise in process re-engineering engagements at law firms (and in in-house departments) without perhaps those firms being ready to outsource.

This work will ultimately be capable of being outsourced (mapping and documenting a process makes outsourcing much easier), but whether or not this happens will depend very much on the individual firms, their cultures, their business models and their financial situations as well as the sales reach and delivery capacity of the service providers.

At the top level, there is of course highly specialised work that does not lend itself to process standardisation or outsourcing. With the blurring of the boundaries between the professions, the opportunities for top-end lawyers to provide advice that is strategic in nature, but perhaps not technically legal advice, will grow.

Finally, as one of the people leaving comments on the Legal Week article on Susskind’s appointment to Integreon’s client board noted, all outsourcing deals have to go through transition before they then stabilise and start delivering to service levels and providing the expected value. Even at this stage, it takes time to realise the full benefits and so expect a raft of noise in the media if some of the deals experience a few wobbles to begin with.

Personally speaking, having had the privilege of having been to several offshore outsourcing centres in Asia (as well as UK operations) and seen them in action, I would have a lot of confidence that long term, back and middle office services could be delivered effectively by the top outsourcing providers. For the front office work, I suspect success will depend much more on the type of work being outsourced and the provider’s experience.

To wrap up, I’m not saying that outsourcing is the right or wrong choice for any firm. I do believe that the business model has been proven in other industries and that certain functions in a law firm are sufficiently similar to other industries that there’s no reason why the profession should be any different. In one flavour or another, outsourcing is here to stay – watch this space to see how it evolves.

The Profession’s Top Model?

23 11 2010

There have been a couple of interesting news items over the last few days that have got me thinking about business models in the legal profession. First, an article in the Law Society Gazette about client experience with the network of solicitors called “Quality Solicitors”, an attempt by a range of smaller law firms to pre-empt new market entrants when the market more fully deregulates in the UK next year.

The business model pondered the firm's business model

The article is here and the comments are perhaps more intriguing than the article itself.

The second development of note was the acquisition of Pangea3 by Thomson Reuters, of which there is an interesting discussion here:

To my mind, the second represents a far more fundamental challenge to the classic legal business model than the first, but I think the really interesting point is that it shows how no part of the profession is immune from the winds of change that are now blowing harder and harder through the market place.

For smaller firms in the High Street, there is no shortage of debate around whether “Tesco Law” will see the corporate behemoths enter the market for personal legal services, and clean up with a combination of powerful, trusted brands, efficient process, scale and automation.

Similarly, looking at the higher end, while the market for LPO services remains a relatively tiny proportion of the overall market for legal spend, few would doubt that there is a category of commercial legal work that can and will be commoditised, and that a significant chunk of this is likely to go to the LPOs.

So how to respond?

Well, there are of course many ways to approach this question, and the most appropriate will depend on a number of factors such as a firm’s size, service offerings, current market position, capitalisation and cash flow and the aims and aspirations of the partners and staff.

However, what I want to do today is get people thinking about their underlying business model. Many of the new market entrants will have a blank sheet of paper, and can design an organisation free of the history, politics, structure and financial constraints that burden many law firms.

While not disregarding those challenges, thinking afresh about a firm’s business model can open up new possibilities and avenues for competing effectively in the future.

A great, great read on this subject is a book called “Business Model Generation” by Osterwalder and Pigneur. The book gives readers a visual template for assessing and re-engineering business models.

A good place to start is key suppliers and partners. What are the key inputs into the business? These could be anything from recruitment agents who help identify and supply talent, to IT suppliers. Are these suppliers sufficient? How could the relationships be strengthened? If you were building a firm from scratch, would these be the suppliers you would select?

Next are key resources and activities. Resources covers physical,  human, financial and intellectual. How does the firm stack up in these areas? Are the premises fit for purpose? Do changing working patterns change the need for space? Do you have the right people in terms of quality and numbers? If not, what can you do about it? Do you have enough working capital? Is the business financed in the most efficient way?

Looking at activities, knowledge management remains a key question for law firms, and one that I’m not sure many firms have really cracked. What about training and supervision? Quality control? How is service delivery managed? Client care? Compliance? There are so many day to day activities that just continue ad infinitum, simply because “that’s the way we’ve always done it”. The turbulent environment facing law firms can provide the perfect opportunity to revisit them.

Looking then at the outward facing parts of the business model, what are the key client segments and what is the value proposition that the firm offers to them? Do you know which are the most profitable clients? Are target clients clearly identified? Can all lawyers articulate their team’s value proposition to those clients and prospects? is the source of competitive advantage clear?

What about channels to market? Do you have any? Strategic partnerships with businesses selling complimentary services? What is the future of these in the world of Alternative Business Structures? Referral relationships? Are these working? Who are the partners you would select if you were starting afresh?

There are so many questions and also so many opportunities to do things differently and better.

Much of the debate in the UK at the moment centres around whether the deregulation offers a threat or an opportunity to the profession.  Ultimately I believe that question is academic – the market “is what it is” – it is for firms to choose how they respond, and the strategic challenge is to use the market changes to your advantage.

The return of the hooded claw

29 03 2010

At an LPO conference last week, a fairly routine question came from the audience about data security concerns. What was more interesting was the reply from the LPO provider. The speaker was a former partner at a major US firm, and went on a (good natured) rant about how secure the offshore operations were when compared to the extremely lax information security regime in his former law firm, and how to compare the two was laughable.

Client data: where is it safest?

Thinking about this, one of the fundamental differences between the way the two organisations (a law firm and an outsourcing provider) deal with security seems to me to be the extremely high level of trust within the law firm environment. In many firms there are very limited physical and logical controls on access to client information, especially when compared to the much more rigorous environments in offshore data and process centres. Most lawyers can dip onto the system and pull up documents on the firm’s clients without any questions being raised. There are no checks to see what staff are taking home in their bags in the evening, and pretty limited controls on what can be accessed and copied in the office. While law firms are often paranoid about data security in terms of third parties getting in to their network, internal controls are not implemented to the same levels. In the information security world, the model could be described as “crunchy on the outside, soft in the middle”.

The interesting thing about this, is that by and large, the model has worked pretty well to date. Security breaches are few and far between, and much of this can be attributed to the integrity and professionalism of the lawyers. Precedent documents often follow lawyers from firm to firm, the odd email goes astray and perhaps conversations are overheard on a train, but nothing major has hit the headlines. That said, I do still believe that information security is an issue law firms need to take seriously, and while the lawyers may resist more stringent internal controls, the inconvenience these processes may cause far outweighs the damage a serious information security breach could cause.

During my time in private practice, information security was an area of particular interest. As part of my practice, I qualified as a BS7799 (now ISO 27001) information security auditor. Afterwards I went through a campaign educating my colleagues on the importance of information security by sending emails from their unattended PCs to my email account, with some spurious content (for example, “Mark, I promise to make you a cup of tea every morning for the next month”) , and signed by “the hooded claw”. As the weeks rolled by, my “education campaign” began to wane, but my colleagues were much more careful about locking their screens when away from their desk.

So, beware the hooded claw. If you are thinking of sending data offshore, rigorous due diligence on security is absolutely critical, but it might also be worth considering how secure your data is onshore too.