Law firm 'conservatism’ slowing LPO market growth
Market hype and law firm conservatism have hindered the growth of the legal process outsourcing (LPO) market, according to a report by data analyst Ovum seen exclusively by the Gazette.
While the LPO industry is ‘set for significant growth over the next few years’, it is ‘still a nascent market’ some ‘seven or eight years’ behind the business process outsourcing industry, the report concluded.
The report noted that law firms have been slow to embrace IT outsourcing over the last decade, and suggested that this could explain their cautious approach to LPO. Law firms have publicly announced just 49 ‘small-scale’ IT outsourcing deals of more than $1m (£0.66m) in the last 10 years, with an average value of less than $15m (£9.89m), the report found.
Ovum also suggested that the need for consensus with all partners on major decisions was a barrier to LPO deals.
Ed Thomas, analyst in IT services at Ovum, said: ‘There’s a streak of conservatism that runs through the legal industry. A lot of these firms have been around for a long time and have done business in the same way for years. But this all has an impact on the cost of legal services.’
The report said that the recent deal between City firm CMS Cameron McKenna and outsourcer Integreon ‘suggests that law firms, having previously believed that they had different needs than companies in other industries, are beginning to appreciate that there are certain services…that all large companies require and that can be provided cheaply and efficiently by third parties.’
Under the deal, valued by Integreon at £583m over 10 years, CMS will outsource a substantial part of its non-legal office functions.
‘As the [chief executive] of one pure-play LPO vendor told us, it is not the case that law firms did not understand the benefits of the LPO model prior to the recession,’ the report said. ‘Rather, they understood its benefits right away, but there was no incentive for them to do anything about it. Now, with in-house counsel reducing the number of outside law firms they work with, the incentive is there for companies to begin to embrace LPO.’
The report suggested that hype around LPO caused numerous opportunistic start-up companies to flood the market before the sector could establish itself.
Comments
I concur
I can concur with much of the report as I am on the LPO "frontlines" with clients and prospects. Consensus building amongst partners at times is extremely challenging.
Also I agree wholeheartedly that many startup LPOs are popping up in advance of the market sufficiently ready to utilize all of its capacity. This is a worrisome prospect for someone like me who has been in LPO for over two years. The fear is that the new, inexperienced players in LPO will dilute the field. Thus slowing prospects for growth.
WIll be interesting to see how the overall market evolves given the frequency of new LPOs popping up every month.
This is more about good
This is more about good business sense than it is about conservatism. Sure, law firms are going to be cautious about delegating critical legal services to a less qualified labor pool. The answer for LPOs lies in being able to deliver high level skills rather than cater to the low end. Many of the law firms I am in touch with are having a tough time keeping their existing staff busy due to the economic downturn so there is less work to go around anyway. This leaves law firms in a position to scrutinize the risk/reward equation more closely. As a result, maintaining the status quo is a favorable choice especially when they're fighting to keeping existing business rather than focusing on growing new business.
Currently, most of the change is being driven by the end customers of the law firms. They're demanding lower hourly rates and more flexible pricing models. This is forcing law firms to modify their cost structure and this trend will snowball as the practice becomes more accepted.