Survey suggests recession boosting interest in outsourcing
New research, published by legal outsourcing consultancy princeOMC (www.princeomc.com) earlier this afternoon, suggestsPressure within law firms to cut costs is driving a renewed interest in outsourcing some areas of business. Despite 91.7% of law firm managing partners declaring that the downturn is driving them to streamline their business processes, more than three quarters claim that they would never outsource any aspect of their specialist legal work. However the outsourcing of commoditised elements of legal service delivery (typically document review work and the assembly of standardised documents) is becoming more commonplace.
The research polled over 100 clients and inhouse counsel at FTSE100/DJIA30 businesses and law firm leaders in the UK and US. The news for the legal industry was resolutely grim, with 75% of inhouse lawyers saying they were facing budget reductions of, on average, 11% and one third planning to reduce the number of law firms they use. Within law firms the picture was similarly tough, with over 80% reducing or predicting a reduction in head-count and 78% expecting static or falling revenues in the next twelve months.
The impact of the downturn on law firm’s perceptions of outsourcing or offshoring parts of their business has been mixed. Whilst more than 50% of inhouse lawyers think that law firms should use offshoring to cut costs, more than 70% of law firm partners say they have no plans to offshore or outsource any of their legal processes.
However on closer analysis it seems that outsourcing of support services is increasingly in favour, with over 36% of law firms polled having already outsourced, or are currently actively considering outsourcing IT, over 43% wordprocessing and 30% knowledge management. Over 45% said they would be considering their finance function and a highly significant 61% said they would be finding new ways to source commoditised legal support.
Jack Diggle, a partner at princeOMC, said: “In a downturn you’d expect all areas of outsourcing to be of interest, but it seems that the industry’s long-standing resistance to offshoring elements of legal work is withstanding even these tough economic times. What we are seeing, however, is an increasing drive towards outsourcing support services and commoditised legal work. There’s pressure from clients to cut costs and also a need for greater internal efficiencies as headcounts fall. Moving some commodity aspects of the business to low-cost locations seems like a logical move in this market. It raises the question of how much do law firms really see themselves in the ‘specialist’ rather than ‘commodity’ end of legal service delivery.”
• princeOMC's findings also support (unfortunately for the market) the growing suspicion that we are in the 'dead cat bounce' phase of the recession and that there will be another 12 months of cut-backs and hard times before the legal sector starts to fully recover.