Thursday, October 10, 2013

Has Legal Process Outsouricng Peaked?: New ALM Study Reports Waning GC Interest

This week ALM Legal Intelligence released : Diving In… Or Baby Steps – Legal Process Outsourcing in Corporate Legal Departments.

The survey which was conducted in the Summer of 2013 surveyed corporate legal departments regarding their views on legal outsourcing.. The survey defined outsourcing as sending work to a non-law firm entity either in the US or abroad. They also included work outsourced by the outside counsel on behalf of the client. The survey suggests that legal process outsourcing may not be on the explosive growth trajectory that has been  repeatedly predicted. The report cites a Datamonitor study which had predicted that legal outsourcing revenue would grow from $400M in 2010 to $2.4 billion in 2012. In fact the 2012 revenues were 1.1 billion. The slower growth is corroborated by the ALM study. LPO represents a small percentage of all legal spending. The majority 64% spend less than 10% of their budget on LPO. GC’s don’t seem to be interested in expanding their use of LPOs. 68%  of GC believe that the savings will not be worth the trouble.The study also implies that law firms are not all that threatened by LPOs since they are encouraging and facilitating the use of LPOs  by clients, for work that they apparently have no interest in taking on themselves.

Here are some of the key findings


  • The main motivations for outsourcing are cost savings and to improve speed of delivery not to improve quality
  • Only 21% of GCs outsource in order to improve quality.
  • More than 48% cited lack of quality or lack of familiarly with clients business as an obstacle to outsourcing.
  • 45% of GCs said they were encouraged to outsource by their outside counsel.
  • In house counsel didn’t cite LPO as the most important way to rein in costs. ( Bringing more work in-house was the top strategy).
  • The cost savings derived from outsourcing are shrinking ( rising labor costs)
  • 90%  of responding GC’s  who had not yet outsourced didn’t have any interest in trying outsourcing in the next 3 years.
  • One third of the respondents indicated the more than half of the outsourced work was work that was previously sent to law firms.
  • Document review and ediscovery are the most common functions outsourced
  • Most work is outsourced in the US not abroad.( 65%)
  • For every dollar spent on outsourcing law firms lost fifty cents.
  • Law firms have decided on their own that they don’t want to perform certain kinds of repetitive work and are encouraging clients to outsource certain work.

The Tidal Wave That Wasn’t
The most surprising "take-away" from reading  this study is the evidence that legal process outsourcing may not be the growth industry which  legal management consultants have been predicting.  GC’s  report that their interest in LPC is waining not growing because perceived disincentives are expanding.. Security and quality concerns are slowing and possibly reversing the growth . Many GC appear to believe that outsourcing is simply not worth the effort and the complications won't justify the cost. For GCs who want to cut costs, the LPO option is way down the list of priorities.

1 comment:

  1. "waning not growing" not "warming not growing" - but absolutely interesting information, thanks for synopsizing it.

    ReplyDelete