It Started With A Tweet
It is amazing the power of Twitter, even as I only use it to 1% of its potential.
I’d been reading through the day’s LPO news, working out what to blog about next, and out jumped a story about Cameron McKenna and Osborne Clarke and their outsource provider Integreon. The headlines certainly were all “doom and gloom” for the LPO industry.
Ever since the release of my favourite headline by The Sun – relating to a dispute between Queen Elizabeth II and her errant daughter in law, under the heading “Queen Sticks Knife Into Fergie”, I have followed the gap between the implication of the headline and the facts of the story.
Sure enough, when reading into the detail of the articles, the headline was certainly putting a very negative spin on what seemed to me as a “business as usual” event in the outsourcing world. So, I put out a tweet, leading to my blog, stating that:
- Changes in outsourcing scope is very normal in any industry
- The deals in question were certainly not bringing all of the work back in house
- Largely it was non-legal services that were being affected, and
- With one of the deals in particular, the firm was explicitly expanding the scope of their legal outsourcing services.
Within a few hours I’d been contacted by Integreon, wondering if I wanted to do an interview with Bob Gogel, their CEO to dig deeper into the story. So, here’s what we discussed.
Along the way Bob was frank about his thoughts on the coverage of Legal news in the UK, and:
- the realities that await any law firm when they engage in the outsourcing of back office services,
- why back office outsourcing can be a “kop out” to more fundamental changes in the business
- why outsourcing works, even when specific deals may seem to collapse,
- the critical importance of senior partners to driving adoption of innovative practices within their firms,
- and how the overall legal profession is poised to change even more in the coming years.
The Story Behind the Story: Truth Revealed
Bob expressed frustration over how the story was handled by the news media. ”We sat down with editors and explained the details of what was happening. Having taken the time to do this, we were surprised at how the resulting coverage seemed to skew the full nature of the events taking place. Only if someone took the time to read through the entire articles did the broader story of the realignment of services come out.”
Bob felt the articles in question had not merely misconstrued or buried the facts of the story, but had crossed an ethical line largely by their use of grossly distorted headlines. As I stated earlier, I would have to agree that certain headlines did seem to place an emphasis on dramatic effect (sensationalism) rather than an accurate and balanced reporting of the news.
He continued, “the real story is that we went to our clients and recommended consideration of different specialist suppliers in certain functional areas such as Facilities Management. Because we run Procurement for these clients, we were then responsible for going to the market to select replacement services in the areas we identified”.
“The fact that CMS was actually expanding their use of LPO services was largely ignored or buried within the news reports and the role that Integreon played in driving the change was not even mentioned”.
Personally I’d always been a bit confused by any organisation whose core business was Outsourced Legal services and yet they would offer non-legal or even non-KPO services such as HR, Finance, Facilities Management, etc. To me, this seemed contrary to the concept of outsourcing as a specialisation within key service areas.
So we started on that point with Bob explaining Integreon’s go-to-market service lines.
“We’ve got four main service areas. The first is core LPO services, in which we include e-discovery. Second is Research Services, including work for corporations, investment banks, law firms or any organisation who really needs to capture and understand core data and insights about a market. As an example, to prepare for recent shareholder and investor presentations, we used our own services to perform the background investigation and analysis work”.
“Third in the list is Document Services. In the old days this would have been called “secretarial services” but now it covers a significantly wider range of offerings”.
“Fourth is Business or BPO services. What is interesting is that law firms are actually asking us to be their single supplier for outsourced services”.
This last point certainly has helped me, as an advisor in this space, to see why there are not many specialist outsourcers in the “Law Firm BPO space”. There are many reasons why the likes of Accenture or IBM don’t really target the legal market, not least of which is the fact that these are relatively small deals compared to those available in the corporate market and, also, the fact that law firms are generally regarded as slow, conservative targets from a sales standpoint. Understanding the client-demand angle was certainly an education for me.
Offering Too Many Services?
My challenge to Bob was that the breadth of services that Integreon offered was very wide, and that I imagined it must be hard for any organisation of that size (or, in fact, any size) to be a specialist in all those areas.
“What we found was that law firms were approaching us and asking us to take over a range of services. We were following what they wanted. They really liked the idea of having a single supplier/partner to work with. And as I said earlier, when we realised there were better providers of some outsourced services, we led the initiative to find them for our clients”.
Where the conversation went next was much more controversial, in terms of why outsourcing non-legal business services is actually a kop-out, in my opinion, by law firms.
Bob explained to me, “for senior partners, a few years out from retirement, BPO [business process outsourcing] seems an attractive option. Either they see it is a good starting point, or that it is an excuse for delaying deeper, more fundamental changes in the business. This type of senior partner is actually kicking out any real decision about true LPO”.
While being wholly consistent with issues I have seen in the market, it was refreshing to hear a senior player in this space be so blunt. The political environment of most law firms makes controversial decisions difficult by younger ambitious partners and senior partners alike.
As outsiders to the law firm structure and mentality, we also have to bear in mind that LPO or general outsourcing is not the single thing that managing partners wake up thinking about; most have bigger issues.
Outsourcing Exposes Significant Business Issues
One of the major issues that outsourcing faces is that Year 1 often exposes significant issues, or bad/sub-optimal practices in which internal processes are ill-defined and metrics non-existent, that have existed for years without anyone really being too concerned. So, just when you are going through a tough enough transition period into an outsourcing engagement, there are even more hard issues to raise with your client about how processes really need to work to be both efficient and effective.
Following on from the comments about “reticence” amongst lawyers to address change of their delivery model, Bob went on to say, “What we regularly find are bad billing practices that lead to bad business decisions”. As an example he referenced the practice of issuing invoices at one fee rate, then giving a discount further down the line or against a different project. As well as being a real cost to the firm – and outsourcing makes such practices very visible – the business issue is that measuring profitability accurately becomes very hard. And it all stems from partners being allowed to operate as they see fit, rather than in line with any standardised, benchmarked, best practice.
More Challenges To The Legal Profession?
While that Finance/Invoicing story can be repeated on many levels with legal examples, the conversation was already moving on to the general management of law firms.
A recurring message that Bob used was the “partner dining room”, referring to an out-dated hierarchy within traditional law firms. In fact, he saw the whole pyramid structure requiring change. Broadly speaking, if you can have a model in which the bottom layer of the work – the work historically carried out at Associate level – can be “supplemented” by a cheaper and better service, why would you not choose that model.
Bob asserted that, “Trainee and younger lawyers see the attraction of LPO – they can get on with the work they paid significant amounts to learn. They want to be lawyers, not project managers”.
I added my own view that you can see a day when law firms are actively recruiting 3rd year graduates who have gone into LPOs because they have a broader business and operational understanding – skills that most lawyers don’t get taught and that the profession does not emphasise.
This led Bob to point out, “It is great to work with leaders like Duncan Weston at CMS, because they understand business and see the value of qualifications like MBAs within a legal perspective”. The clear impression given was that he really believes that there are law firms out there that “get” the changes in the world around them, and, by implication, firms that really don’t seem to understand that.
The UK vs The US
When I raised what I saw as the difference between the US and the UK markets, he was forthright that, “the American law firms have been outsourcing for a lot longer than the UK firms. The larger law firms in the US will have been outsourcing back office areas [e.g. Payroll, Facilities Management, IT etc.] for the past 10 to 15 years. On the legal front they have wider LPO usage too, particularly for document review; the UK is just having a faster growth over a shorter period of time to catch up, due to urgent issues being faced by firms who were exposed to the Property and Financial sectors after the crash”.
“The US firms are a lot less likely to publicise their LPO arrangements due to political concerns”, in an environment where outsourcing generally has been elevated by Presidential candidates to almost being “un-American”, despite much outsourcing that now takes place on American soil and is performed by Americans.
Though I fully understand the US political scene, it has always puzzled me that the headline grabbing deals (CMS, Osborne Clarke, Mallesons) that put Integreon into the top tier of LPO suppliers have not been replicated in the US. “Those kinds of deals will come within the next couple of years”, was the response from Bob. “In fact, I don’t know of a firm that is not looking at Strategic Legal Outsourcing”, he added, though I refrained from suggesting a bet on exact timings.
LPO “Still An Arbitrage Game”
Contrary to some reports on the LPO sector, Bob’s view is that LPO is still largely about labour arbitrage, matching the task requiring to be performed with lower cost skilled labour. This hides the nuance that “labour arbitrage” usually triggers thoughts of overseas cost bases, but can in fact be achieved in-country and often within the same city. The fact is that most of the top LPOs have operational presence and capabilities in the most expensive cities in the world.
This is an area that we could have dwelt on in more detail, because I think the headline comment underplays the real value available from effective project management skills, standardised processes, strong metrics, and visible/effective service levels. But the conversation quickly moved on to the legal profession as a whole.
Challenges for LPO Sector
As you would expect from a CEO, he was robust in his defence of challenges facing his organisation and the LPO sector as a whole.
He stated clearly that some deals don’t work as they are expected to. So they are reshaped and some work comes back in house, while other elements are added to the outsourcer’s remit.
Bob used the analogy of the US car industry, “When the car industry has come back to the US from overseas, it is in new plants, with new processes, highly efficient operations, and the right cost base. None of that could be achieved in the old car factories. There had to be a clean break. So even those areas of work that do get brought back in-house are in a significantly more robust and effective state than they were before they were first outsourced”.
The arrival, in the UK at least, of the most unexpected kind of competitors under the Alternative Business Structure arrangements (the likes of BT/British Telecom and Admiral, a UK insurance company) did not raise any concerns either. In fact, to the contrary, our discussion closed off talking about opportunities to shake the market up further, with Bob looking forward to how a model along the lines of the SWIFT bank clearing model could automate and speed up significant areas of processing, cutting out work that would have fallen naturally into an LPO model.
Looking back on the conversation it was valuable to have a CEO sharing his, at times, very frank, views of the legal sector. There were a number of areas that I would have liked to drill deeper on – the real impact of labour arbitrage, what happens when deals start to fall apart, handling difficult client conversations, how to effectively challenge reticent managing partners. But it was never going to be the right forum for that.
As an experienced Outsourcer, Bob’s answers really showed that what the Legal profession is going through follows a pattern that hit IT, HR, Finance, etc. in exactly the same way. Lawyers may not feel comfortable with that comparison, but they should rise above it to learn the lessons in advance and harness the power of specialisation as a competitive advantage.