October 25, 2006
Off Shore Moves Open Opportunities for Midsized Law Firms
Recently Legalweek.com, among other news sources, disclosed that Clifford Chance was opening a service center in India to move 300 accounting and IT support jobs to India. The move is just the latest in Clifford Chance’s ongoing outsourcing initiative. When you look at the financial statements for law firms of any size, salaries constitute the majority of operating cost. Accordingly, when an organization turns to cost cutting for improved financial performance, it is salaries that are in the gun site. Outsourcing can save big dollars, but it doesn’t come without risks.
Off shore moves aren’t automatically good or bad. Some may improve capability and service quality. However, I was impressed by a quotation attributed to Russell Lewin, former managing partner of Baker & McKenzie, which included the remark, “…you cannot underestimate the way hidden cultures impact upon your operation.” The person on the other end of the phone may be smart and eager to help, but it can be difficult to communicate effectively across cultures even when both parties are speaking a common language.
Relying on outsourced functions can negatively impact the firm’s legal professionals, lowering their effectiveness and efficiency. If that happens, the move will prove penny-wise and pound-foolish. The biggest risk, however, is that outsourcing administrative and accounting functions will alter the client’s experience in dealing with the law firm. For the client, service quality involves more than just legal competence. For example, the timeliness, accuracy, and quality of billing procedures—including how questions and adjustments are handled—are an important reflection on the law firm.
In spite of service quality risks, the outsourcing trend continues in BigLaw circles and among the vendors and suppliers to those firms. According to one of the popular outsource companies, a leading U.S. provider of enterprise business software for major U.S. law firms is in the process of outsourcing its support center to them.
Consolidations and acquisitions have reduced the number of law firms and vendors serving them. Unfortunately, what usually comes next is higher prices and lower quality as fewer suppliers put their emphasis on cost reductions rather than market share increases for improved performance. Customers get less and pay more.
What does this mean for midsized law firms? While they are milking their cash cow, you have a rising star. Midsized law firms that emphasize service quality and lower cost for the customer can take business away from their larger competitors.
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Filed under Blog by Tom Collins