Outsourcing, Insourcing and Going It Alone

Written by Val Pitt
LitSupport – Founder & Communications Manager

Not so long ago, the idea that law firms might outsource any data related functions was unthinkable.  Insourcing (allowing a provider to take over a function on the firm’s premises) data related functions was unheard of.

Concerns about confidentiality and data security loomed largely.  Our own in-house research shows that these concerns are still at the forefront of partners’ minds when considering outsourcing or insourcing any function that touches on billable work.  Rightly so.  When these things go wrong, they can go spectacularly wrong.  Law firms are right to be cautious.

Things are, however, changing.  Partners are becoming more confident in understanding what they want to achieve through outsourcing, communicating that clearly to providers and demanding changes when the need arises.  Service providers, such as LitSupport, are getting better at demonstrating that their services are of a higher standard and a lesser cost than going it alone.

Despite this, our own in-house research shows that while partners are clearer in understanding what they want to achieve, they are not as confident in assessing the best methods for achieving their goals or assessing whether certain providers have the ability to deliver what they need.

I’ve put together a high-level overview that might serve as a useful starting point to assess the benefits and drawbacks of outsourcing, insourcing and going it alone.

Going It Alone

By far, the most powerful, and I would say, the only argument for going it alone is the complete retention of control over every aspect of a function.  This means that a law firm, at its best, will be able to micro-manage every aspect of a function and respond to changes quickly.  Before the advent of genuine expert service providers, going it alone was the only truly reliable chance law firms had for achieving a fast, responsive and secure function.

By contrast, the foremost reason for using service providers to operate a function (whether insourcing or outsourcing) is the huge cost of operating a function at the highest levels in-house.  These costs include not only money but time, human resources, square footage, technology, processes and ongoing research and development.  The balance between the high cost and high levels of control has been a delicate one.  Now, however, the very best service providers are able to offer a level of flexibility, control and responsiveness at a price that, for many of the leading firms, tips the balance in favour of outsourcing/insourcing.

Outsourcing

Over the last 20 years, law firms across the globe have been facing increased pressure to maintain profit levels while dealing with clients’ unwillingness to pay for anything other than pure legal services.  This confluence of forces has meant that the cost savings and efficiencies created through outsourcing have become more and more attractive.  It is the cost saving element that is the primary motivation for outsourcing in Australian law firms.

Gradually, however, the rationale has been changing.  It is now a given that outsourcing via a proven service provider will deliver cost savings.  Law firm rationale for outsourcing certain functions is increasingly the access to high level, subject-specific expertise.  Data volumes, in a staggering variety of forms, is increasing exponentially in modern legal practice, particularly in litigation.  This increase has meant that genuine, scientific expertise is required to stay on the cutting edge of ensuring that support functions operate at the highest levels.

Maintaining an in-house level of expertise that is at the forefront of scientific research in areas such as data security and handling is beyond the scope of a law firm’s remit.  This maintenance of scientific expertise, without the access to the economies of scale and specialisation of the service provider, is also beyond the scope of what a law firm client is willing to pay for.  Access to the highest level of expertise, combined with cost savings, are the two primary reasons for all outsourcing in Australian law firms.

By contrast, the main disadvantages relating to outsourcing are almost exclusively related to outsourcing carried out by an unqualified provider.  Issues such as the inability to pass on the outsourcing costs to clients, loss of control, standard levels, disruption, etc, are all related to the professionalism of the service provider.  With the right provider, none of these issues will apply.

Insourcing

Insourcing is the process by which law firms allow a service provider to take over a function within the firm and operate it on firm premises.  Insourcing in Australian law firms is still the exception rather than the rule.  LitSupport is an insourcing pioneer and is successfully operating a number of insourced functions in Australian law firms.

Insourcing represents a halfway point between going it alone and fully outsourcing the function offsite.  The primary benefits of insourcing are largely the same as outsourcing, with two major exceptions.

First, outsourcing a function will often lead to a significant headcount reduction in the law firm. This can lead to a drop in staff morale and the associated problems.  However, when insourcing a function, the best service providers, such as LitSupport, will go to huge lengths to rehire and retrain as many of the firm’s current staff as is necessary to provide the best service.  This tends to lead to a rise in staff morale as redundancies are minimised and the remaining support staff have access to formal career development and cutting-edge training opportunities, often for the first time.

The second primary benefit of insourcing a function as compared to outsourcing is psychological.  Traditional lawyers, used to working in traditional ways, can sometimes feel a sense of disconnect if certain familiar functions such as print, copy and mail rooms are outsourced offsite. Even though the best service providers will work with a law firm to ensure that all staff understand a new outsourced service, there is always a significant percentage of lawyers who want a function to remain onsite.

Indeed, our own in-house research shows that the main block to outsourcing any function is partnership resistance.  Consequently, insourcing represents a gentle way to access the benefits of outsourcing, while maintaining the familiarity of having a function onsite, often with the best of the firm’s original staff.

Food for thought

When done well, outsourcing or insourcing can free up lawyers to concentrate on what they’re best at.  This allows firms to minimise costs spent on all aspects of law firm management and support; conferring a significant competitive advantage.

Our in-house research shows that the main disadvantages of outsourcing or insourcing arise when law firms use the wrong service providers.

Often, senior support staff will be tasked with the role of researching and recommending service providers in the first instance.  The culture of legal practice means that partners will put the support staff under unnecessary time pressure to carry out this research.

My best advice to partners is to allow your staff the time and resources to find the right providers; this will take longer than a week but should not take longer than a month. Then interrogate the service providers yourself.  If a service provider cannot communicate its services or the costs in plain English, without jargon or obscure bundling, then stay away.

Investing time and resources in the process of finding the right provider and clearly understanding and defining exit strategies before any commitments are made, is the best way to achieve all the advantages of outsourcing or insourcing.

 

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