LPO warning to law firms as general counsel freeze them out

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7 September 2012

Global market: growing fast

The global legal process outsourcing (LPO) market will double in value by 2015 to more than £2bn but general counsel are increasingly freezing out law firms and buying outsourced services direct, according to new research.

The report by The LPO Program, a consultancy headed by outsourcing expert Edward Brooks, also anticipated “almost inevitable” further liberalisation in global legal markets and argued there are “multiple reasons” to believe the US would follow the UK “surprisingly soon”.

The 2012 legal outsourcing market global study, published this week, estimated the global LPO market had grown on average at a rate of 32% in each of the past three years and suppliers it consulted expected a similar rate of growth for the next three years.

It stated that the total LPO market, which currently employs nearly 9,000 people, equated to a mere 0.25% of the global legal services market, while anecdotal evidence suggests existing LPO users “have only outsourced about 5% of what they could potentially outsource”.

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Key future drivers for growth in the LPO industry were “continued budgetary pressure from general counsel” and “client pressure on law firms”, it said. A lesser driver for growth was alternative business structures.

The use of LPOs “has become a norm for many large companies” and “buying directly from LPOs will allow budgets to go a lot further”, it advised. Law firms that used LPO to provide part of its service to general counsel risked being side-stepped by general counsel buying directly from LPOs, unless they could “show that they add value by managing that spend with the LPO”.

Alarmingly for law firms who have lost large corporate clients, the report warned that “once a general counsel stops spending with a law firm, their buying behaviours are changed forever”, although it also suggested a majority had yet to take this step, giving “law firms time to take action”

The report found evidence that LPO suppliers had shifted their attention in the past three to four years from law firms to the general counsel market, in part due to a “lack of innovation by the law firms” and a growing receptiveness among general counsel to “the LPO message”. Leading businesses using LPO have been in the pharmaceutical, technology and financial services sectors. But public sectors have been slow to take up LPO.

Law firms had done little to “protect themselves against the changing buying pattern of general counsel”, the report suggested. “Inaction by law firms is one of the biggest threats. A law firm may be using LPO suppliers tactically but a tiny minority have adopted a strategic approach to legal outsourcing and realigned their delivery accordingly.

“Where law firms have brought in an LPO supplier to partner with, they need to show that they are adding value in the relationship, not just costs in what is effectively the sub-contracting of client work.”

The report argued that LPO suppliers are increasingly investing in “higher value, more advisory/consulting based activities”. This should “ring alarm bells in law firms”, it continued.

Further liberalisation in global legal markets would benefit LPO suppliers at the expense of law firms, it went on. “Concrete steps taken in the UK, and evolving debate within the US and even India, shows that it is almost inevitable that there will be further liberalisation… The legal profession globally has been insulated from much market competition – locally and internationally – but it is hard to see how this can continue.”

The report’s authors advised law firms to “have a clear LPO strategy that is based on some degree of honest, analytical, introspection. LPO arose because of a perception value gap between the law firms’ outputs and the costs they were charging for those costs. It is not too late to address that issue and propose market-leading alternatives to clients”.


Legal Futures Blog

Lawyers must now draw on the data and drive change

Chris Marston 2014

The results from this year’s legal services consumer tracker survey make for interesting reading. In its sixth year, the research finds that a firm’s reputation continues to grow in importance, holding its top slot as the number one factor influencing choice of lawyer, with price remaining a strong second, reflected in a shift towards higher numbers of fixed-fee transactions. Alongside, it reports that trust in lawyers has declined to 42%, from 47% in 2012. It’s useful information as far as it goes, but what is the sector going to do with it?

September 26th, 2016