Firms must explore the option of setting up low-cost centres to avoid the ‘real danger’ of becoming progressively less competitive, new research suggests.
A study by consultancy Jomati has found that, although the number of firms that have so far chosen to operate low-cost centres are in the minority, more will go down this route, with savings becoming increasingly apparent.
The report says while clients have not shown much interest in whether firms are northshoring or offshoring, they clearly care if firms are able to offer more for less, which these low-cost centres can help them achieve.
It said: ‘At some point in the future, it is likely that client sentiment will change, and delivery models that are currently regarded as “nice to have” will become a “non-negotiable must have”.’
The report showed low-cost centres used for back-office staff are able to achieve cost savings of more than 50% on rent and 30% on salaries.
Meanwhile the low-cost centres for legal work can give clients discounts of 30-50% compared with main office rates, enabling firms to win work that would previously have been uneconomical to undertake.
The savings for the low-cost legal centres come from requiring fee-earners to be generalists, offering flexible employment options to minimise costs during quiet periods and not replicating the firm’s partnership structure.
Part of the reasons firms gave for setting up low-cost legal centres was as a defensive strategy in anticipation of increased competition from new market entrants, and to create new ways of delivering legal services.
It noted that while most firms that have set up low-cost centres are large US- or UK-headquartered firms, with more than 1,000 lawyers globally, there are now signs that firms in other locations and with lower headcounts were starting to go down this route. It cited three firms with less than 400 lawyers which have also opened centres.
The study said the fact that firms were implementing this sort of change, alongside other changes such as offering contracted lawyer services, undermines the common justification for inaction that the ‘law is different’.
It predicted that ultimately traditional law firms could transform themselves into entities, almost identical to new market entrant competitors. But it said this evolution is likely to take years, meaning firms have a window of opportunity to explore their options.
But it added: ‘As alternative providers continue to become ever more established, and as an ever-increasing number of law firms also seek to capitalise on the efficiency improvements they have introduced, it is unlikely that this window of opportunity for reform will remain open forever.’
Tony Williams, principle at Jomati, said: ‘There’s now a real sense of momentum among traditional law firms to update many of their longstanding working practices. Of course, the challenges of doing so should not be underestimated […] they must deliver - often significant - operational change while also keeping their existing clients and fee-earners happy.’
’Despite this challenge, it’s likely that there will be ever-increasing convergence in the way that legal services are delivered, as approaches previously considered alternative gain widespread credibility and acceptance among traditional law firms.’