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Rio Tinto outsources legal work to India

Outsourcing to locations with lower fixed and/or variable costs is all well and good, but it still leaves the underlying issue that there are variable costs in the (legal services) supply chain. What clients are telling their legal service providers is that they want fixed fees - this means eliminating variable costs from the equation. However, all that's been done here (and all that outsourcing can ever achieve) is that those variable costs have been moved from one intermediary (law firm/inhouse) to another (outsource provider). To be sure, the variable costs have also been reduced for now, but they will inflate again when the outsource providers' own input costs rise as their economies develop. The only sustainable, long term solution for the elimination of variable costs is automation. Starting from the industrial revolution, automation has been steadily creeping up the value chain, in line with the advancement of enabling technology. We are now able to automate intellectual as well as physical labour. There's no better illustration of this evolution within a single organisation than Ford Motor Company, which not only uses labour automation to assemble its vehicles, but is now also beginning to use document automation to assemble its legal contracts (using the Exari document assembly system).

4-Mar-2010

11:51 pm