June 2006
Richard Phillips, Operations Director of OutSec has a series of five articles on outsourcing appearing in The Solicitors Journal. Here is the second:

Part Two: The Benefits of Outsourcing

Delivering benefits for the UK consumer is a main drive behind Sir David Clementi ‘s recommendations in his 2005 White Paper . The creation of the alternative business structure (ABS) is intended to create better-value services, improve access and provide greater choice for the clients of legal firms. But what is the payback for the legal firms themselves? There must be an incentive to undergo such radical change, other than just a proverbial shove in the back from a heavy-handed government intent on its aggressive programme of reforming legislation. Why submit to major surgery unless you are going to be healthier afterwards? The Canadian philosopher Marshall McLuhan said: “Politics offers yesterday’s answers to today’s questions.” The legal firm of today must address the questions of the future too. The era of outsourcing is upon us.

Outsourcing has major benefits and it has been applied successfully to other parts of UK Plc over the last few years. Many companies have moved their IT and customer relationship management (CRM) systems off-site, often abroad to the opprobrium of the press. Until recently such actions were seen as the preserve of the large multinational, but improvements in communications technology and subsequent reductions in cost-of-access have now brought global outsourcing of most parts of the legal process to within reach of any organisation. In the US, such relocation has been common for many years within the legal world. Where the US leads, so shall the UK follow…

The main benefit of outsourcing can be identified in just one word: flexibility. In the current global marketplace, corporate elasticity is essential for survival. Outsourcing allows internal company resources to operate at maximum efficiency and minimum cost. Almost all aspects of internal functionality can be externalised. Areas such as web and brochure design, printing, and office cleaning have already been outsourced; less obvious ones such as accounts, book entry, data storage, secretarial services, remote computer support and other non-essential office functions are now routinely moved off-site by the forward-looking legal firm. Simple cost-benefit analysis will quickly identify those areas most suited to the move.

The example of outsourcing of an area such as secretarial and typing support has three key identifiable areas of benefit:

Employment benefits

• Reduction or elimination of costs associated with conforming to the increasing burden of employment legislation (notably for those companies employing less than five people).
• Reduction in internal administration and staff costs.
• Reduction in pension and other employment liabilities such as national insurance payments, holiday entitlements and sick pay.
• Reduction in fixed salary costs as an overhead.
• Ability to access better-qualified support staff from a global rather than local resource pool.
• Variable capacity better able to handle peaks of work.
• More efficient use of existing office staff, allowing upgrade of legal secretaries to paralegal status in some cases.

Recruitment benefits

• Elimination of agency fees and associated recruitment costs such as advertising.
• Elimination of need for temporary employees and saving in internal staff training time.
• Ability to access better-qualified support staff from a global rather than local resource pool.
• Permanent ‘temporary’ staff more familiar with existing office practices ensuring better quality of service.

Space benefits

• Freeing up of valuable desk space in cramped offices.
• Elimination of need for additional computer equipment and IT support.
• Existing office space used by more productive staff.
• Removal of the need to re-site offices in extreme examples.

Outsourcing can be a response to any or all of the above, often driven by senior management keen to embrace the latest technology. Intelligent application of outsourcing support services will, by definition, deliver bottom-line savings and increase both profitability and productivity, particularly in those companies that experience seasonal fluctuations in demand for their services . There may be some initial costs associated with implementation; for example, in the case of outsourcing secretarial services, a move to digital dictation systems would be essential, but these costs are normally low and one-off. Some internal retraining may also be required and the subtle altering of existing business practices may be necessary to accommodate the new way of working.

The introduction or further development of existing internal software systems such as virtual private networks (VPNs) may also be necessary to allow off-site access to internal resources such as data-bases, CRMs and case management systems. Once these protocols are in place, the firm will have a much greater degree of choice in where and whom it can choose as its business process outsourcing (BPO) partner.

The benefits of accessing the very best quality support services on a flexible charging basis will ensure that value is delivered both to the end-consumer and the owners of the firms’ capital – a virtuous circle for all participants in the legal cycle. The creation of ABSs will ensure that the process of integration, shared resources, pooling of labour and greater use of off-site facilities will rapidly become the norm, rather than the exception. Streamlining of BPO throughout the entire legal profession will become commonplace within a few years. The global market for legal services is just about to open for business. Those firms who ignore the future, do so at their commercial perils.