What role does outsourcing play in today’s UK law firm?

February 01, 2023

At the Alternative Legal Management Summit, the last major UK legal management conference of 2022, Managing Partners, CEOs, CFOs and other leaders from leading UK regional and mid-tier firms gathered to hear an impressive array of speakers and topics. One of the event’s highlights was an insight-packed roundtable session facilitated by Stewart Vandermark, CEO at Nelsons Solicitors, which focused on a question posed by Stewart and many attendees: where does outsourcing fit within the playbook of today’s law firm?

What gets outsourced?

Terminology can often get in the way of a discussion about outsourcing services in any sector and law is no different. “Outsourcing” is the most commonly used term for both the initial act of moving responsibility for and resourcing of a service previously delivered in-house by an employed team to a third-party provider, and the ongoing management of that service by the third-party.  However, that term also comes with a bundle of sensitive associations, especially based on perceptions of how difficult the transition can be for the people involved.  Other labels that broadly mean the same thing include “contracting out,” “managed service,” and “third-party service provision”, and the question of whether to outsource is often described as the “make versus buy” decision.

The roundtable discussions revealed a wide range of services that law firms have outsourced or contracted out over the last decade or so. The view around the table was unanimous that the scale and pace of outsourcing in the sector has increased, but from the spectrum ran the gamut of firms who have almost everything still under their own control to others, especially more recently formed legal businesses, whose business model is to contract out as much non fee-earning activity as possible.

In the UK legal market, which first saw serious outsourcing of support activities develop in the 2000s, certain functions and support services have now generated active and sizable managed service markets. During the roundtable sessions attendees identified secretarial and administrative support among the services today’s law firm was most likely to consider outsourcing.

What is driving the decision to outsource?

Beginning with a case study and then adding in additional thoughts from other attendees a series of drivers behind the decision of firms to outsource services were identified.  Sometimes just one of these, in particular the first few, is enough to trigger the decision, but often firms will only take action when the following challenges form an irresistible business case to outsource:

1. The existing team does not have the right skills or knowledge to adapt to changing working practices and technologies (73% of attendees surveyed at the event stated that this was a reason to outsource)
2. The existing team (e.g. legal secretaries) are too senior and experienced for the changing nature of the role, and thus the service has become poor value for money
3. Hiring suitable replacements for leavers and extending support team size is becoming much more difficult as the war for talent impacts on every type of role (58% of attendees responded that capacity issues were a reason for outsourcing)
4. Service levels and processes are very inconsistent across the firm
5. Over-reliance on lawyers, often partners, and senior managers to supervise and manage support staff – not their best use and a distraction from the core focus of the firm
6. Increasing frustrations and disagreements within the firm due to uneven and inadequate service provision
7. Poor cost effectiveness and a lack of rigorous efficiency
8. Lack of flexibility as the firm grows and needs to ramp up service to meet demand from new offices, practices and acquisitions, or for extended hours of cover
9. Lack of flexibility as the firm experiences reductions in workload and fee income, and is unable to respond as support costs are all fixed, not variable

Finding the right partner that can deliver the best service at the best value

Stewart Vandermark stressed the importance of both the firm and their outsourcing partner having shared values.  Perhaps more obviously the outsourced service provider needs to have genuine and deep domain expertise in the services offered and the technology and processes used to deliver them. The best providers’ commitment and investment in developing their staff and regularly upgrading their services is a dimension few law firms can compete with by themselves.

The due diligence process is, therefore, critical to establishing the right provider and the focus should not be all on the financials.  Alongside meeting with all the key people at the provider, especially those who will actually be managing teams and delivering the services, firms should talk to reference clients and visit relevant review websites, market intermediaries (such as consultants and accountants) and the provider’s list of accreditations. Firms should invest time in developing the Service Level Agreements (SLAs) and Key Performance Indicators (KPIs) to be included in the contract to avoid any surprises in these metrics once the contract starts.

Alignment and communication are key to overcoming project challenges

The roundtable discussions raised some very positive and successful stories of law firm outsourcing projects.  However, even in these cases, everyone accepted there are bumps in the road on the way to ultimate success. The participants identified several actions to proactively manage project risks.

Getting the senior leadership team on-board upfront and early is critical.  It cannot simply be a “selling” exercise, where partners and managers are simply expected to stay on message and repeat the management team’s rationale for the change: benefits need to be described and demonstrated in detail and “teething” troubles dealt with promptly and decisively. More generally, communications are critical to making an outsourcing project work, particularly in the early stages. Most attendees had stories of how poorly planned and executed communications had created unnecessary problems.

Keeping the law firm and outsourced service provider aligned throughout the contracting and implementation process was regarded by most participants as crucial, and easy to get wrong. The contract must be right and supported by clear policy and process documents, but simply “leaving this to the lawyers” will always be a mistake. The initial meeting of minds between firm and provider can be lost quickly if people with operational responsibility don’t stay engaged continuously.

Clarity around respective roles and responsibilities, either side of the fence, and around who will interact with who and how often is considered equally important. The practicalities and day-to-day reality of management, reporting and handling issues are too easy to set aside and leave for the mobilization phase, and customers can end up regretting that decision.

Finally, our attendees with law firm outsourcing experience underlined that service quality and performance remains the firm managements’ responsibility even after outsourcing. Ultimately, the outsourced service is an extension and component of the firm’s own processes and systems. Senior management cannot “outsource and forget”; they must ensure that any service provider needs to be able to both manage its service autonomously and to work seamlessly as an integral part of the firm’s wider business services.

As the demand for outsourcing grows, there are three fundamental principles business leaders should consider when choosing the right outsourcing partner. To find out what these are, read our blog post on the top three tips for a successful outsourcing partnership.