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GCs bypassing firms for LPOs

GCs bypassing firms for LPOs

The drift from law firms to legal process outsourcing (LPO) suppliers for certain types of work is an irreversible trend that will see law firms that “do nothing” lose out, according to an LPO entrepreneur.

Liam Brown, the founder of Elevate and the founder and former president and CEO of Integreon, was the first speaker at the World Masters of Law Firm Management conference in Sydney yesterday (11 October).

Speaking on the conference theme, LPO – the real story, Brown said general counsels (GCs) were changing their buying practices and some law firms weren’t doing much about it.

“Once a GC is comfortable with buying and sourcing legal services differently then … the sort of natural entry point to win a new seat at the table to be the law firm provider for high-value legal work evaporates,” said Brown.

Already GCs make up the overwhelming majority (69%) of LPO customers, while law firms make up 31 per cent, according to the 2012 Legal Outsourcing Market Global Study.

LPO suppliers are actively targeting GCs and GCs are increasingly buying direct from them, cutting law firms out of the equation, according to the study.

“In the early days, the LPOs tried selling to the law firms as the gatekeepers of legal services, the trusted legal manager, but they’ve really shifted to the GC over the  last couple of years,” said Brown, adding that GCs have become increasingly receptive to LPOs as they are no longer able to “wave off their CFO”.

Getting any kind of delivery change through a law firm is incredibly difficult because of the partnership structure, said Brown. LPO has historically been seen by some firms as a revenue threat rather than a profit creator because it was viewed as a reduction to the top line.

“As for the GCs, it’s a very simple sales proposition: your total spend will drop,” said Brown.

The savings evidence is available in black and white. Savings from LPO for more than 95 per cent of GCs and 75 per cent of law firms exceed 30 per cent. Some deals have seen savings of more than 50 per cent, according to the study.

As ACLA CEO Trish Hyde pointed out in her speech, which followed Brown’s, the average external legal spend in Australia and New Zealand is currently $2.2 million dollars across all organisations.

However, the median is $400,000, according to the 2012 ACLA/CLANZ In-house Counsel Report: Benchmarks and Leading Practice, released today (12 October).

This shows that there a small number of high spenders that make the average sound better.

“In Australia, we had a lot of  legal teams doing a lot with not much, so that reinforces the message that the pressure is on; people are being asked to look at their budgets, to work smarter, to make change,” said Hyde.

Make your own luck

While LPOs clearly have an appetite for expanding their reach and footprint among law firms, firms have been slow to respond.

“The lack of strategic response from law firms has played into the hands of the LPOs because it’s created a better sort of running space for them,” said Brown.

He said that, typically, when asked if their law firms use outsourcing or off-shoring, GCs say they don’t know; that they want to deal directly with the law firm and it can choose how it delivers the work.

“Another set of GCs will say ‘there’s no way we’re going to let our law firms manage this because I always get a Lexus when a Toyota would have got me there perfectly adequately’,” said Brown.

Law firms will continue to have a thick pipeline of legal work if they are able to take the lead in project management, said Brown, but if they do nothing, they might be bypassed as GCs build relevant project management capability internally.

“The future shape of the legal service value chain will depend on what the GC decides to do and that is determined by how much the law firms actually want to assume responsibility,” said Brown.

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