No Sleep For You!

Legal tabloid Above the Law recently published an email from a Biglaw partner to all associates, admonishing them to check their email every hour unless "asleep, in court or in a tunnel."  The partner goes on to declare that "all of our clients expect you to be checking your emails often."  The back story is that a partner emailed a new associate a request to send a fax to "a relatively new client whom we were trying to impress" but the associate had left for the day and didn't attend to the task until returning in the morning.  The partner closes the lesson by reporting that "in this case it was no harm no foul, but I think we can all imagine scenarios when this could be a disaster." As the Association of Corporate Counsel annual conference winds down, and our RSS readers are deluged with reports of how in-house counsel demands are increasing, placing unprecedented pressure on outside counsel, it might be helpful to once again reiterate a fundamental truth in client service:  speed does not equal responsiveness.

Now I don't know the back story behind the back story.  Perhaps the client was in his office expecting a late night draft, but the "no harm no foul" comment suggests otherwise.  So let me superimpose my own experience and propose a likely fact pattern:  the partner believes that impressing a client requires speedy turnaround of work product, so he requested a late-night fax to the client's office which would greet him or her upon arrival in the morning, demonstrating the firm's round-the-clock responsiveness to his needs.  Trouble is, relying on a fax to send this message is a bit like sending the finest horseman to inform the townspeople of the latest Amber Alert.  Why not send an email if speed is your central concern?

But of more interest to me is the partner's assumption that speed is impressive.  Clients regularly complain about a law firm's lack of communication and responsiveness.  Translating this as a desire for speed is not uncommon.  However, what it often calls for is setting proper expectations, and then meeting (or exceeding) the expectations.  Given our presumed fact pattern above, if the client was advised that a draft memo would be on his or her desk at 9 AM the following morning, and it was, then the expectation was met.  Exceeding this expectation is admirable, but if the client wasn't in the office late at night to receive the fax then the impact of the speedy response is wasted.

Impressing a client is all about understanding his needs, setting proper expectations for what it takes -- how long, how much, how difficult -- to address these needs, then fulfilling the expectations you've established.  Obviously things change, and often in thorny deals and litigation time is of the essence.  So when lightning-fast speed is a need, build it into the expectations.  But be careful about demonstrating round-the-clock prowess to a client who is price-sensitive, because the first thought that will leap to mind may be, "We agreed on tomorrow morning.  I'm pleased that you sent a fax to my (empty) office 12 hours early, but I hope that any extra effort taken to beat the agreed-upon deadline won't be reflected on my invoice."

Clients can be confusing that way.  This is why we ask questions, set proper expectations and then use these as guidelines for delivering exceptional service.  Substituting our own definition of exceptional service is a short-cut that we sometimes can make only once in today's competitive market.

Demystifying Outsourcing for Corporate Counsel

I was recently asked to contribute an article on the topic of outsourcing to the corporate counsel section of the Philadelphia Legal Intelligencer, the oldest law journal in the United States.  Below is the published article copy, followed by additional commentary developed while conducting background research for the article.

The Legal Intelligencer

By Timothy B. Corcoran

September 23, 2009

Corporate law departments face an unprecedented level of pressure to reduce costs, to do more with less and to deliver a quality legal product to internal corporate clients. In days past, as the saying goes, the chief legal officer would offer executive management a choice: “We can do the work well, we can do it quickly or we can do it cheaply. Pick two.”

Today’s CEOs want it all, and who can blame them? Every business function faces a relentless drive to eliminate defects, improve production capacity and accelerate time to market. Law departments have been somewhat sheltered from these pressures, in part because of the unpredictable nature of legal issues, much to the chagrin of executive management. Adding to the tension is the trickle-down effect of an unprecedented growth rate in law firm revenues over the past 10 years, which, according to a recent study by the Corporate Executive Board, increased 75 percent while other supplier costs increased by an average of 25 percent.

But is it only about cost? Will executive management be satisfied if the CLO extracts substantial discounts from its primary law firm suppliers or migrates some work to lower-cost regional law firms? According to some business leaders, this will simply no longer suffice.

Imagine the boardroom presentation by the chief marketing officer in which he or she provides a two-year revenue outlook for multiple global product lines, reflecting varying levels of demand and market share. This is followed by the head of manufacturing, whose production forecast incorporates the probability of interruptions in raw material supplies, ranging from droughts in South America to pirates off the coast of Africa to labor unrest in Asia. The treasurer, in turn, presents a plan designed to hedge against the risk of currency fluctuations.

Then the chief financial officer presents an eight- to 10-year cash flow projection for a pending acquisition. Raise your hand if you would like to be the general counsel in this setting who admits that since few variables managed by the legal function can be predicted with any certainty, and because of increasing supplier costs, the legal department will be submitting a 20 percent budget increase over last year.

Small wonder, then, that the drive for improved metrics and efficiency has arrived in the law department with some fanfare, and not a moment too soon. One recent innovation available to the chief legal officer is outsourcing, or assigning work to specialist providers in the United States and abroad that offer non-traditional legal services.

But is this really so new? Hasn’t it been the case all along that the company, which manufacturers widgets or develops software or provides business services, has outsourced its legal needs to specialist providers, first within the legal department and then to outside law firms? The corporate legal function serves both an operational and strategic role, but there are few business owners who dream of a sizable and well-run legal department as a strategic asset in the same way that they dream of, say, a world-class sales force. So let’s acknowledge that we’ve already been engaged in outsourcing, and then let’s take a harder look at what new options are available.

First, it’s helpful to define terms. Outsourcing refers merely to the delegation of work to another organization, where it can presumably be carried out more efficiently. Offshoring typically takes place when the other organization is in another country. Insourcing involves delegating work to another specialized group within the same organization. The delegation of work to outside counsel is an example of outsourcing, as is the use of contract lawyers to handle overflow volume in document review. Hiring legal research experts in India is an example of offshoring, as is moving a customer service call center to Ireland or a graphics design team to the Philippines. And insourcing, of course, is exactly how most companies perceive the legal department — an internal organization with specialized skills.

Most companies, and indeed most law firms, have engaged in business process outsourcing, or BPO, for some time. Whether it’s operating the corporate cafeteria or the mailroom or hiring a third party to ship goods, organizations have learned that subject matter experts can generally take over these tasks with minimal fuss and at a lower cost.

Many law departments have found that hiring contract attorneys provides an excellent opportunity to test their appetites for outsourcing, before establishing any offshore relationships. Market research firm Gartner estimated the 2007 BPO market to be $173 billion. The potential for cost savings in the legal function is also enormous, in relative terms. In a recent move that raised eyebrows in the global legal market, Australian-English mining conglomerate Rio Tinto announced that it expects to save $25 million annually, or 20 percent of its legal budget, after hiring a legal process outsourcing, or LPO, firm to perform routine legal tasks.

Critics declare that legal matters are much more strategic in nature than administrative functions and can’t be easily delegated. After all, do you really want the company to rely on the lowest-cost provider when it comes to a “bet the company” transaction or litigation? But therein lies the issue at the heart of the matter. Chief legal officers have long known that even the most important legal issue facing the company is composed of multiple smaller components, many of which involve routine, commoditized tasks. Law firms are expensive suppliers in part because they tend to treat all aspects of an important transaction as high value and high cost. With some exceptions, most lawyers believe their particular area of expertise is a premium offering housed within a firm that provides other premium services. It’s other lawyers in other firms who provide commodity services.

The truth, as usual, lies somewhere in the middle. The legal profession is not typically viewed as progressive in its business practices. However, the overwhelming growth of LPO has raised a number of questions about the practicality and ethics of relying on outsiders to provide legal services. Isn’t it a disservice to the client, possibly even unethical, to rely on low-cost providers for important legal matters? Not so fast, according to the American Bar Association. In Formal Ethics Opinion 08-451, the ABA declared: “There is nothing unethical about a lawyer outsourcing legal and non-legal services, provided the outsourcing lawyer renders legal services to the client with the ‘legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.’”

So how does a chief legal officer ensure a quality work product from an outside provider? The following are a few suggestions:

• Test-drive the work product of an LPO provider on a single project before engaging them for the long term. Quality providers will invest in significant ongoing training for their workforce and should welcome the opportunity to demonstrate their quality.

• Develop objective measures of quality. This can be achieved by working with the LPO to develop a detailed model of operating procedures for the required work. Once these procedures are in place, it’s easy to establish a quality template that tracks deviations from the desired outcome.

• Institute standard project management techniques like those used every day in most organizations to manage technology initiatives and manufacturing operations.

• Manage LPO relationships with diligence. Don’t lose focus after the initial engagement discussions. Be aware that your LPO staffing team may change over time and insist on the same level of training for team members rotated in later to maintain consistent quality.

• Consider cultural implications. If you offshore, it’s important that your LPO liaison have solid English speaking skills as well as an understanding of the local culture. And conversely, you must communicate your own company’s culture and objectives.

In the end, outsourcing can generate far more than labor arbitrage. Ray Bayley, co-founder of Chicago-based NovusLaw, in an interview on the “Adam Smith, Esq.” blog, discarded that as the primary objective of LPO: “We’re not in the business of ‘lifting & shifting:’ Taking what’s done here and moving it to a cheaper jurisdiction in order to do it the same way. That’s a brute force approach that adds nothing to the quality, reliability, and repeatability of the work.” Instead, for example, a routine service like document review can be studied and modeled and the multiple variables influencing the cost can be identified and quantified, thus reducing the cost and adding efficiency and value.

What’s to prevent a legal department from embracing this sort of “Lean Six Sigma” approach to analyzing and improving its own legal services? Nothing at all. In fact, legal departments that adopt these techniques will be better positioned to identify, evaluate and select appropriate outsourcing providers. Among the hidden benefits to outsourcing is the familiarity the client generally gains regarding business process improvement techniques. Once ingrained into an organization’s operational mindset, it’s difficult to revert to a blissfully unaware state where efficiency and quality are abstract concepts.

It would be remiss to conclude without addressing the emotional response outsourcing and offshoring can sometimes generate. Whether from organized labor or politicians or trade groups, it’s not uncommon to hear opposition to outsourcing, particularly when it’s perceived as sending jobs overseas. The Economist recently declared offshoring to be a win-win phenomenon, at least on a macroeconomic scale. But the backlash has led to a reversal in some industries, such as the return of technology call centers that lowered costs but also lowered customer satisfaction rates. Many LPO providers offer services across the United States and in English-speaking countries to help mitigate these very concerns.

Human nature tends to question that with which we are unfamiliar. And to many, it’s an uncomfortable realization that some sophisticated legal processes can be analyzed, broken down into constituent parts, delegated to disparate providers and returned with higher quality, lower costs and greater predictability than we’ve been accustomed to. But with change comes opportunity. Imagine tomorrow’s boardroom presentation by the chief legal officer, who can now submit, with some certainty, the costs and implications of ongoing legal matters. Even better, imagine having the capacity to focus on matters of more critical long-range interest to the company, demonstrating that a well-run legal department is a significant strategic advantage. •

Copyright 2009. Incisive Media US Properties, LLC. All rights reserved.  The Legal Intelligencer

Click here to see the article on the Legal Intelligencer site.  (Subscription may be required.)

There are numerous sources to help understand the changing legal landscape, with more arriving each day.  I found a white paper “Future Law Office” distributed by Robert Half Legal, the legal professional placement division of Robert Half International, to be very informative.  While its position may be considered somewhat self-serving, the white paper describes the very real use of contract lawyers by in-house legal departments as a means of testing whether they can obtain quality legal work product through non-traditional means.  In fact, this has the same effect as the approach taken by many corporations who “test” potential new hires by first hiring them as a temporary employees.  And why not test the goods before purchase?  Rocky Dhir, President of Chicago-based Atlas Legal Research, invests a significant portion of his resources in training, so he encourages potential clients to take a test drive.  “Actually test the work product of any LPO provider before engaging them long-term.”  Selecting wisely is critical, because “picking the wrong firm can end up being more expensive.”

Suhasini Sakhare of Zeta Intelex recognizes the challenge in demonstrating quality in a profession that tends to not have objective measures of quality.  Her organization follows a rigorous process to ensure the highest-quality output, using as a foundation very detailed operating procedures based on the client’s needs.  These are often developed through repeated observation, as “most clients who should be intimately familiar with their own legal processes actually aren’t.”  Once these procedures are in place, it’s easy and intuitive to establish a quality template that tracks all deviations from the desired outcome.  It may come as a surprise to Biglaw partners, but not to many clients:  the quality of the legal work can actually be improved by outsourcing due to the intense focus and quality controls in place.  Of course Biglaw legal work product is routinely high quality, but absent objective measures of quality clients are no longer willing to pay high rates on reputation alone.

It’s not as challenging as one might think to implement quality control processes within a law firm.  This is project management 101, after all, and the techniques aren’t limited to managing technology initiatives and manufacturing operations.  Ron Friedmann, senior vice president of marketing for Integreon, ran practice support for a large law firm and was CIO of another.  In his view, “There are many parallels between managing projects and managing a company’s legal strategy.”  He elaborates, “Law departments can reduce costs by explicitly acting as general contractors to solve company legal problems. Like any GC (general contractor that is, not general counsel), a law department should consider what resources it employs full time and what it sub-contracts.”  I’d go even further and say that outside counsel can also act as project managers and even general contractors.  Why couldn’t a Biglaw relationship partner serve his clients needs by coordinating internal services with outsourced services on behalf of the client?  We do it already, quite regularly… local counsel, anyone?

Like any relationship, the connection between an outsource provider and an in-house legal department takes time and effort to maintain, even with good metrics and processes in place.  Stephen Seckler, a lawyer and consultant, advises IPEngine, an IP outsourcing firm with operations in India.  “It’s important that your liaison have solid English-speaking skills as well as an understanding of the local culture.”  John Roney, President of Applied Dynamic Solutions of New Jersey, has long experience with managing outsourced IT projects, and suggests the lessons are universal.  “Many projects get off to great starts but when the spotlight is off, there is often a break in the continuity of the team, and sometimes new team members don’t receive the same rigorous training.”  He also urges companies to treat the outsource vendor as a part of the team.  “This means attending staff meetings to understand the company’s culture and grasp the company’s objectives.”

We’ve focused primarily on the challenges facing corporate legal departments and Biglaw.  “Much of the LPO industry is geared to serve the needs of large corporate legal departments and large law firms, but there’s a lot more to it,”  declares Ed Scanlon, president of Total Attorneys, which provides contract lawyers and paraprofessionals to handle general legal work overflow and specialized services, such as bankruptcy case management, to small law firms.

The results so far suggest that non-traditional means of delivering legal services, via contract lawyers or outsourcing or offshoring, should be an essential aspect of a law department’s tool kit in the future.

The ACC Challenge - What does it mean for law firm technologists?

I recently had the pleasure of speaking on a panel at the ILTA 2009 Conference in suburban Washington, DC.  ILTA is "the premier peer networking organization, providing information to members to maximize the value of technology in support of the legal profession."  The panel was organized by Bryan Cave partner John Alber, a longtime thought leader at the nexus of technology and the practice of law.  See here for some excellent examples of his mind at work.  I was joined by Connie Hoffman, CIO at Bryan Cave, a woman with a very distinguished career leading technology initiatives in the corporate sector, and Fred Krebs, the President of ACC, the Association of Corporate Counsel, which launched the initiative that formed the basis for our discussion.  Fred has led his organization for many years into the tough issues surrounding the in-house counsel and outside counsel relationship. The panel was attended primarily by law firm technologists, most in senior roles, along with a smattering of law firm leaders from varying firm sizes.  The purpose of the panel was, as described by the title, to describe the ACC Value Challenge and how it will impact law firm technologists. Or, more to the point, how law firm technologists can impact the ACC Value Challenge.  Regular readers will recognize the ACC Value Challenge right away.  ACC has put a voice and a framework around the need to improve the value proposition for long-suffering in-house counsel, that is, deriving quality work product at a fair price.  I say long-suffering partially tongue in cheek.  As I've written previously, any party who considers himself long-suffering at the hands of another is partly culpable for not changing his situation.  ACC recognized that in-house counsel lament how the balance of economic power in their relationship with outside counsel has long been dominated by the law firms, so they decided to stop complaining and do something about it.  Hear hear, I say.

I commenced my remarks with this Gary Larson "Far Side" comic.  I'd like to say that improving the dynamic between in-house and outside counsel, that improving efficiency, that deriving better value, is all about better use of technology tools.  But it's not.  Unlike the dog chieftain, it's not necessarily our time as technologists to save the day.  At least not primarily through the use of technology.

I strongly believe, through long trial and error in my own career, that real transformation comes from business process improvement, of which technology is and should be a vital component.

I won't replay the entire panel discussion here, but I have provided a link below to an excellent recap of the session.  I will, however, emphasize one of my closing points.  While technology may not be a miracle cure to help law departments and law firms improve efficiency and drive costs out of commodity services, the processes that good technologists utilize to implement technology are exactly the skills needed now.  Good technology implementations start with business process reviews, understanding what works, and what doesn't, what are the dependencies, where are the decision points, and so on.  Then there is a rigorous methodology to move from idea to implementation, with tracking and reporting along the way to measure progress, and post mortem analyses to identify opportunities for improvement.

In part due to the ACC Challenge, in part due to the efforts of the Legal Process Outsourcing (LPO) providers offering commodity legal services at a fraction of the rates charged by Biglaw, we will soon see more in-house counsel and outside counsel adopt project management techniques, allowing them to better deploy resources and reduce inefficiencies while continuing to deliver quality services.  Technologists are perfectly positioned to contribute to this transformation by modeling these behaviors that are so vital to the implementation of good technology solutions.  But be forewarned, a technologist braying that "technology is the answer" and ignoring business process improvement is as markedly out-of-step with the times as a Biglaw leader claiming that with the end of the recession will come a return to the rightful balance of power where law firms dictate the prices.  You know who you are... don't you?

For a much more robust recap of the ILTA session, see Susan Jacobsen's article here.  See also Fred's commentary here.

Rio Tinto Outsourcing Legal Work - What Does It Mean?

Last week the traditional media and blogosphere were abuzz with the news of rigged elections in Iran, and the resultant uprising.  In the legal marketplace, we had a similar level of buzz over the announcement that global mining giant Rio Tinto has agreed to outsource a substantial portion of its legal work to an Indian legal services company, leading to an expected 20% savings on the outsourced legal costs. Why such a furor?  Simply because the work being outsourced isn't the widely proclaimed mundane work of staff accountants, secretaries, mail room clerks and marketers, this is real legal work, the work of highly trained lawyers, that is being taken from top global law firms and moved to a heretofore unknown company with salaried lawyers!  "What is the world coming to?!" is undoubtedly the cry in BigLaw law firm boardrooms everywhere.  What, indeed.

Let's consider the traditional legal work pyramid.  As traditionally described, the top of the pyramid consists of strategic legal work, work that literally decides the fate of the client's organization, the so-called "bet the company" work.  When clients have this level of need, price is not the highest consideration or, at times, not a consideration at all.

This is followed by work that is important to the client but not mission critical.  There is both more of this sort of work and more providers who can perform the work.

And then there is commodity work.  This is often described as repetitive, routine, mundane work that doesn't require a high level of skill, but competency and efficiency are important.  The classic depiction is that insurance defense falls into this category.

Not surprisingly, few lawyers are able to objectively assess where their work product falls on the pyramid.  If we were to ask lawyers to categorize their work and then present the results graphically, the result would not be an upside down pyramid -- it would be more like a bowling ball resting on the head of a pin!  The commodity work is always performed by "other lawyers in other firms."

Many law firms, particularly the largest and most prestigious, think of themselves as "best of breed" in all categories, which suggests that for all legal work their clients can expect to pay premium prices. The fallacy in that assumption is that there are many components of a deal or of a major litigation that are routine and mundane and that don't necessarily require the services of a top partner at a leading firm who attended the most prestigious schools. Since the law firms themselves have failed to make any substantial differentiation in the legal services they deliver, the clients are forced to make these choices. The Rio Tinto outsourcing deal reflects one client determining that routine contract review and drafting and basic legal research are tasks that are more commodity than premium, and therefore a lower-cost provider can and should perform these tasks. Undoubtedly Rio Tinto will continue to retain top law firms for the strategic aspects of its deals and litigation, but this division between premium and commodity work will soon be commonplace.

While many view the Rio Tinto announcement as fairly novel in the legal profession, it's an unexceptional and routine business approach in other businesses. We expect to see more clients take this approach and we also expect top law firms to move slowly in response, but those that do embrace this as an opportunity to make some fundamental changes in the delivery of legal services will have a significant and sustainable competitive advantage. The new measure of law firm differentiation is not limited to pedigree and brand, but efficiency and business sense will now become important factors.

Up to now, top law firms have reacted by offering price discounts, or by offering alternate fee arrangements, or by seeking new engagements to make up for "lost revenue" when clients move commodity work elsewhere. The savvier firms will need to learn how to embrace this sort of outsourcing model in their own businesses. The irony of the situation is that law firms are themselves merely outsource providers of legal services to corporations whose main objective is to make and sell products. Once law firm leaders fully realize this, they will look to their own operations and apply business process re-engineering principles to reduce inefficiencies in the delivery of legal services, which can increase quality while decreasing delivery time, eliminate redundant or unnecessary steps, and allow for the use of prior work product rather than viewing each project as unique. As most other industries have learned, improving efficiencies in this manner can actually boost profits even while prices are flat or declining.

There are many pundits who talk about the need for change but don't explain the hows and whys or provide specific and concrete examples. Since the underlying basis for the change afoot is financial, in a future post we'll present a very simplistic financial model of a law firm operating under today's billable hour model and contrast this with one that embraces operational efficiency and alternate fee arrangements. Without question a law firm can not just maintain but improve profitability in this climate. Whether you believe this or not remains to be seen. What is clear is that clients like Rio Tinto have grown impatient waiting for law firms to act first. So don't wait too long. Because in your client's lobby right this moment is a group of entrepreneurs who have thought through in great detail your client's needs, and right now they have his undivided attention.

First Rule of Business: No Surprises!

In a recent post on his fantastic blog directed to corporate counsel, Rees Morrison describes the opening statement in a communication from a corporate General Counsel to his outside law firms:

On the first page of the JDS Uniphase guidelines for outside counsel gleams the distinctly un-lawyerly sentence "We hate surprises." That dramatic and clear statement leads off two paragraphs about the utter importance of prompt and full communication between law firms and the law department.

This lesson cannot possibly be repeated enough.

I've had the good fortune to lead businesses. It's hard to forecast revenues and expenses well in advance, it's hard to make progress when talented employees come and go, it's hard to make profits when those confounded competitors keep catching up or overtaking us! Each of these presents uncertainty. Uncertainty is a fact of business. Some have even found a way to quantify uncertainty so it can be incorporated into the business planning process (see here, but have Advil and a very good calculus textbook on hand).

With the market presenting uncertainty all day every day, the last thing business owners want is another surprise, particularly those that are self-generated, particularly from vendors and suppliers.

Most law firms add up revenues and expenses at the end of the year, and then decide whether to raise rates in the coming year. Problem is, the coming year has long since arrived when the rate increase notice is distributed in January or February. When's the best time to issue notices of rate increases? Late December? By Thanksgiving? In the corporate world, most managers have to submit all revenue and expenses for the coming year by the end of August, and several revisions will take place until we lock it down by early October. Anything past that date constitutes a surprise.

The same goes for budgets for ongoing matters. Predictability is often more important than absolute cost.  But sometimes costs exceed expectations. As a service provider, you shouldn't necessarily bear the brunt of overruns if your actions are in keeping with the assignment. But don't ever ever rely on the invoice to communicate the delta between actual and expected costs. Make a phone call. Make it long before the invoice is generated. Give the client as much runway to adjust accordingly. It may even impact their business decisions concerning how to proceed.

But it's not just about fees. We all know litigation is by nature unpredictable. That said, there is a finite set of potential outcomes. Each outcome has a financial and public relations cost. The savvy law firm helps its client identify and quantify the potential outcomes, within reasonable ranges. It's not just good client service, it also helps the client make better business decisions. As I've written elsewhere, most business owners don't consider legal issues in the same way that a law professor might, as an opportunity to explore fascinating areas of the law. It's merely risk management. What path gets me to my goal most expediently? Given my appetite for risk, what legal tactics further my business objectives? I may not even care about being "wrong" as long as the cost and PR impact are manageable. I don't want to be surprised if the legal tactics you advocate present unforeseen challenges.

By the way, if you're a lawyer and you don't explicitly know your client's appetite for risk, and how this shades his business decisions, and instead you provide advice based on what you feel is the "right" response to a legal issue, then you might very well be the next to receive a surprise.