In the UK, law firms are following the American trend of outsourcing non-core services. So what is the key to a successful partnership with an expert provider? Communication, says Margaret Lang


W hile consolidation and competition continue to exert pressure on law firms in the UK, the profession has slowly been importing outsourcing as a management tool both from industry and US law firms.



In many organisations, functions such as IT, finance and human resources have been outsourced to expert providers who service a number of similar businesses and can therefore deliver economies and efficiencies of scale which are passed back to the provider's clients.



Although relatively unexplored in the UK legal sector, outsourcing has risen rapidly on the law firm management agenda. Practices are looking for ways significantly to improve client-service levels, positively to impact on partner profits, and to allow the senior management team to focus on strategy and growth.



Continuous competitive pressure on performance, service delivery, costs and fees as well as an increased regulatory and compliance environment, frames the whole debate, and increasingly successful firms are now evaluating possible outsourcing arrangements as part of their strategic business reviews.



A recent survey undertaken by American Lawyer Media Research examined outsourcing trends in US law firms and found that 61% had outsourced some functions in the past year. The most frequently outsourced functions were document management and administration, secretarial support and word processing, while finance and accounting functions were the least likely. In the UK, a 2006 survey has confirmed that 63% of law firms are considering outsourcing in some form.



The starting point in evaluating any form of outsourcing is strategic, and firms need to examine at what stage in their management evolution outsourcing can be a valuable tool.



As a guide, firms will need a clear vision and a strategy for growth, a plan for the execution and delivery of that vision, and a management team that is confident in its plan and in its personal abilities.



Critically, a desire by the partnership to move at pace whether towards cultural change, growth or more specific impacts on performance such as profitability or competitive advantage is central to the decision to outsource any of the firm's services or processes. If a firm is at this stage in its development, outsourcing will assist the management team's delivery of its plan.

Having made the strategic decision, firms then need to consider which services can be outsourced. The quick answer is any non-core activity, which means firms need to be clear what is core to the business and to the achievement of their strategic goals. For example, in the current challenging recruitment market a practice may consider human resources a core service that strategically should be kept in-house.



A rule-of-thumb definition is to analyse all those activities and tasks outside the provision of legal services and below the fee-earner line. Those that take up most management time and cause disruption to the delivery of legal services when they fail should be considered critical but non-core.



Typically, these services relate to document production and records management, administrative services, IT support and finance.

The US survey found that while 73% of firms outsource administrative services such as their travel requirements and 52% outsource food service functions, the most recognised outsourced functions are document-related, with more than 70% of firms outsourcing reprographics, off-site records storage, mail room and messenger services.



In addition, more than 60% of respondents cited an increased focus by fee-earners on core competencies as the key reason to outsource, while 35% found significant cost reductions.



When asked to identify reasons not to outsource, again more than 70% of firms identified quality control as the highest risk factor, with 40% concerned that costs may outweigh benefits and the same number concerned that there may be issues connected with data security and confidentiality.



In terms of making the outsourcing work effectively, the selection of a vendor partner is the key factor. Significant time should be spent with a potential partner, particularly ensuring that the firm meets a range of people across the vendor organisation. Visits to existing client sites should be organised and references taken from more than one client firm, including from users of the service as well as the managing partner, chief executive officer or finance director.



This process builds a clear picture of the service provider's own culture. It is essential that a cultural fit exists with the outsourcing partner, not only to ensure effective service delivery and management of any employee issues, but also because outsourcing can be a dynamic in helping firms develop their own internal and client-facing culture.



So what makes a successful outsourcing contract?



A clear understanding between both the service provider and the firm of each other's strategic goals and the challenges that exist at the start - open communication and sharing of the firm's strategic business plans allow the outsource provider to personalise their services and maximise the value they can add.



Delivering consistently high quality, clearly defining service levels that are monitored by detailed and accurate metrics, and providing progressive management information are necessary components of contract delivery, particular in the early stages of the contract when change is most acute.



It is expected that within the next five years in the UK, where it is estimated that between 10% and 15% of a firm's annual revenue is spent on administration and document management, the legal market will adopt outsourcing to a similar extent as in the US.



Law firms there have consistently found that outsourcing services provides more time to devote to fee earning and client management.



Margaret Lang is chief executive of Intelligent Office UK