The spiralling cost of legal services is prompting some leading general counsel (GCs) to consider a “production line” approach to handling legal work, with more companies looking to go offshore or in-house, according to new research from an Oxford professor.
Mari Sako, a professor at the University of Oxford’s Saïd Business School, found that clients are increasingly looking towards the commoditisation of law.
She interviewed 52 general counsel in the US and the UK from a range of major businesses – such as Tesco, Barclays, Yahoo, Goldman Sachs, Shell, HSBC and Sony Ericsson – about their views on outside counsel and non-traditional legal-service providers.
“The corporate cost pressure to do more for less has led many GCs in this study to consider (and in some cases implement) a production line approach to legal service delivery,” she wrote. “This approach requires three steps: not just disaggregation and standardisation but also process management and project management.”
However, Professor Sako said the majority of GCs were finding reasons to delay or reject wholesale adoption of this, such as lack of scale, expense and lawyers’ mentality, and instead focusing on specific areas of gain, such as automating particular tasks.
The research found that companies are reviewing external advisers more closely and often turning to more cost-effective solutions, such as legal process outsourcers. Professor Sako added that “multi-sourcing”, the idea of deploying different legal service providers on different elements of a legal matter, will also increase.
She argued that whilst law firm relations will continue to be important, corporations now have a diverse set of options. These include offshoring a captive in-house legal department, relying on law firms to set up a captive low-cost centre, sourcing from contract lawyers on a project-by-project basis and going direct to new legal services providers that have a global presence.
“Once legal work is disaggregated into constituent tasks, the in-house legal department must consider the most efficient and effect way of sourcing each task,” she continued. “In the last several years the portfolio of possible sources of legal service has expanded – hence the notion of multi-sourcing – as new providers and new locations have become available.”
However, the extent to which “the contour of global value chains in legal services” will change depends on a number of factors, including whether GCs see themselves as “the chief ‘legal architect’ whose task is to add value to the core business of the corporation or financial institutions, by embedding process and project management in the implementation of a legal strategy”.
By contrast, those GCs “with a power base in corporate managerial hierarchy may not necessarily regard efficient legal service delivery on a strategic par with legal risk management. If such GCs dominate the in-house legal function, power does not equate to an appetite for change. It is therefore equally possible that we are heading for a supply side revolution with new entrants – legal services providers – driving discrete and disruptive changes in the way legal services are delivered”.