Evolution and competition to propel LSO in 2012

Evolution and competition to propel LSO in 2012

17 January 2012

LSO’s expansion into new legal disciplines next year will take place against the backdrop of a tougher contest for clients’ hearts and minds, says forecast

Legal Management/ Legal Services Outsourcing/ Litigation/ Mergers & Acquisitions/ Contract & Document Review/ Regulatory & Compliance

Changes will sweep through the legal services outsourcing (LSO) sector in 2012 as competition for potential clients heats up, according to legal management consultancy Fronterion LLC. In its annual overview of LSO (also known as legal process outsourcing, or LPO) the organisation highlights a move towards technology-based offerings; an evolution beyond litigation support; and forthcoming regulatory amendments as factors that will alter the sector’s landscape. Meanwhile, clients will seek to work around law firms and work directly with providers, even as those law firms attempt to integrate providers straight into their services: two trends that will make for a more vibrantly competitive industry.

In its 10 for 2012 paper, which follows up on forecasts published for 2010 and 2011, Fronterion also suggests that multishoring – previously covered on NewLegal Review – will continue to define the shape of LSO, as clients seek to allocate legal tasks between onshore and offshore models in ways that would produce the maximum savings and efficiency.

That trend, in Fronterion’s view, is likely to govern the overall direction of LSO in the next 12 months.

A technological future

As the multishore approach becomes more prevalent there will be a noticeable passing of the old order, which will see litigation-support functions that formed the bedrock of LSO in its earlier days giving way to newer and more technical services. The paper provides several reasons for this outlook. In the main, it says, a sector-wide dependency on litigation support is unsustainable at a time when commoditisation of the legal tasks involved has begun to stagnate. Furthermore, the business of executing of those tasks could be leaving the remit of flesh-and-blood employees entirely: in the long term, Fronterion says, ‘certain manual LSO services may become automated or eliminated altogether by computer programs that cost less than even the cheapest worker’.

With that in mind, the paper predicts, bundled LSO services and technology offerings ‘will be an essential differentiator for outsourcers in 2012’. Applications that providers may wish to offer include contract-management repositories; review platforms; and legal research tools that can trawl through thousands of documents for key themes and phrases. At the same time, providers will diversify their legal services into areas such as due diligence on mergers and acquisitions (M&A), as they aim to build from the traditional area of litigation support. ‘Expanding service adoption in 2012 will be an uphill battle,’ the paper stresses, ‘but worth the effort.’ The key focus for providers must be to set out a ‘progressive value proposition’ for clients.

‘Supreme validation’

LSO’s growing profile in the wider legal sector has captured the imaginations of law firms – to the extent that, next year, imitation is likely to be the sincerest form of flattery. In Fronterion’s forecast, LSO-style approaches to legal business are going to be replicated by traditional firms, who will implement detailed process management, regular reporting and scalable, transparent services in order to win over clients. This will be the strongest sign yet from law firms that they recognise how outsourcing providers have changed delivery expectations among corporate legal departments and redefined perceptions of value – a watershed that the paper calls ‘a supreme validation of the LSO approach.’

Other law firms, says the forecast, will choose to include workflow from LSO companies on key tasks in their initial pitches to prospective clients – a pre-emptive measure that, again, acknowledges that LSO techniques will naturally be sought after by in-house lawyers from the word ‘Go’. As Fronterion notes, ‘this represents a major milestone for the industry and expands opportunities for growth.’

However, the development could just as easily become a wellspring for intensified competition: law firms pushing for early integration of LSO companies will jostle for position with clients opting to make direct contact. In this climate, success will be determined by which provider will win which chunk of legal work from which corporate client – ideal preconditions for a hotly contested market, in which the relationship between providers, law firms and clients will be transformed.

Appropriately, then, it will fall to regulators in the US and UK to determine how that relationship should be managed. The American Bar Association is already scheduled to publish recommendations for reworked LSO professional guidelines in August. Fronterion also considers it likely that, in the UK, the Solicitors Regulation Authority (SRA) will be called upon to offer similar ideas as the full implementation of the 2007 Legal Services Act continues to unroll – a subject that NewLegal Review has covered in detail very recently.

In the forecast’s vision for 2012, LSO’s high profile in the legal sector will continue – along with its facility for sparking debate on how legal services should be offered even further into the future.