3 questions that shall define the legal outsourcing industry paradigm
Recently, in May 2010, CMS Cameron McKenna LLP announced a £580m 10 year deal, where the legal and tax services major would outsource all back office services to Integreon. While the size and scope of the deal is awe-worthy, there are questions that engage me about this deal.
1. With no legal or paralegal functions being part of this outsourcing deal, whether it should be heralded as a bellwether for LPO (Legal Process Outsourcing) industry?
The gamut of services being outsourced touches almost all back office functions including substantial portions of accounting and finance, human resources and training, marketing and communications, learning and development, library and information services, research, information technology, facilities and other non-billed services. It encompasses all non-billable activities, leaving only legal and paralegal billed activities for Cameron Mckenna to focus on.
New Understanding – LPO versus BPO
This deal enables us to create neat terminology to communicate to the legal industry, especially law firms. Outsourcing of billable activity by law firms constituting LPO, while outsourcing of non-billed activity being part as BPO. My take on this deal is that this deal is a path breaking deal for the BPO (Business Process Outsourcing) industry, but does little to advance the value proposition of the LPO industry.
While it may seem mere nomenclature, this new definition leads to my second question.
2. Will legal outsourcing industry (servicing outsourcing requirements of law firms and legal counsels) grow more in the LPO (billed activity outsourcing, as newly defined) or in the BPO (non-billed activity outsourcing) side of business?
While ‘BPO’ is easier to decide upon for law firms, the true billing rate leverage is maximum on the LPO side of outsourcing. Hence while this Cameron McKenna deal is a first in several ways, I would place my bets on the growth being very strong on the BPO side in the next 2 to 3 year horizon, but would eventually pitch for LPO (billable activity outsourcing) as the major value driver of the legal outsourcing in the medium term horizon of 3 to 6 years from today.
3. Will this herald a new “lean law firm” model, where everything that is billed is part of law firm, everything that is not is not?
I surmise a definite YES. We will see more of ‘lean law firms’, where only billed activity remains in-house and everything else gets outsourced. I project that by 2020, at least 20 of the top 100 global law firms would complete adopt this model. All in all, the Cameron-Integreon deal is a positive development and bellwether for several tectonic changes the legal industry will see this coming decade. Let’s wait and see it happen.