Kulvinder Reyatt of RR Donnelly asks why the LPO market is booming and what impact this has on law firms. RR Donnelly is a Legal Futures Associate
In the current economic climate, it is rare to hear of an industry that is said to be booming. However, one sector that is continuously hitting the headlines with record-breaking deals at the moment is the legal process outsourcing (LPO) sector.
Perhaps the most talked-about success of the LPO industry was the recent announcement by Rio Tinto, the global mining giant, which is just one in a long line of companies that is starting to use LPO. So why is this boom occurring?
Value and efficiency
Increasing costs of legal services, combined with the economic downturn, has led the LPO industry to a significant point of expansion. It seems that all businesses are looking at cost-cutting opportunities to get better value and efficiencies. Legal firms are certainly no different in their aspirations. This is perhaps the main reason why they are increasingly looking to LPO, as it will both reduce their cost base and streamline their operations.
Companies are therefore now seeking to outsource where they had not done so previously. By reducing the size of in-house teams, law firms can be more focused on internal services, and on where an outsourcing partner will add value. This generally involves leveraging value from outsourcing partners in back office functions.
It is important to note that the LPO market is not just booming in the law firm sector, but also in large corporate organisations, which have their own in-house counsel and legal departments. These organisations are now looking to procure back-office services to support their internal operations. This is an important shift in the market, and demonstrates just how important it is for companies to review their people and processes, to identify areas where they might be able to outsource functions, in whole or in part, to ensure costs are reduced and process efficiencies are maximised.
But what does the trend towards legal process outsourcing mean for UK law firms? Notably the arrangement by Rio Tinto to access LPO is likely to save the company up to 20% of its annual legal costs. This is a significant saving, and an offer that most companies cannot afford to pass by in today’s tough economic climate.
The downturn in volumes has seen UK law firms dramatically reduce headcount in back-office and support functions; and although we are starting to see an upturn in the markets, firms are resistant to rehiring. Importantly, companies are now more focused on core activity, rather than wasting precious time and resources on research, documentation and other ancillary services.
By outsourcing non-core processes and functions, a company pitching to a prospect can rely more on the outsource partner, leaving fee-earning individuals in the company to fulfil their core responsibilities and budgets.
However, it should not be argued that LPO is coming into effect only due to the current economic climate; it is certainly more than this. Today people are becoming generally more aware of LPO services and their benefits. There are LPO companies out there who have great expertise in these processes and they are creating quite a reputation for themselves. LPO providers are not just hiring general administration staff to do this type of work. They are hiring paralegals and lawyers both locally and offshore who have extensive expertise in this area.
As a result law firms and in-house teams are seeing that the work is being done quickly and efficiently, and most importantly to a very high standard. For once businesses are looking past the mere necessity of outsourcing work, and are instead realising the real value and potential behind the outsourcing movement.
Here at RR Donnelley we are certainly seeing a trend of growth within our existing accounts, as well as significant new business opportunities. Companies are becoming more and more open to this type of work and realising the benefits of LPO. After all, if companies can get something done at a lower cost and to a high standard, then LPO can be a very appealing solution for all companies, both big and small.