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Why too much onshoring could create a headache for LPO providers

Outsourcing (onshore or offshore) primarily seeks to achieve efficiency savings in respect of high volume, low quality legal work or through outsourced business processes (i.e. back office functions etc). Whilst this can reduce transaction and organisational overheads, the benefits are marginal, hence the need for economies of scale through outsourcing of bulk work. The real fat lies not at the feet of the industry; it rests more around the waist and thighs with the mid level associates and senior associates. However, at this level, the work is too technical to outsource and the LPO model cannot help. The IT industry has, for decades been adept at delivering high quality resource for lower cost through the widespread use of IT contractors. Typically contractors are paid a generous daily rate commensurate with the skills and experience they bring to the table and the technicality of the work. In return for higher headline pay, these people take care of their own career planning, CPD, tax, pension provision etc. The overhead savings from elimination of firm pension contributions, healthcare, flexible benefits, employers national insurance etc and the associated organisational administrative resource are considerable. This model has a natural ability to sort the wheat from the chaff and reward quality. Contractors work at various organisations, widening their technical and industry experience. Organisations utilising this resource can quickly ramp up their resource pool when large instructions come in. Any excess can be shed just as quickly, and without redundancy costs. Utilisation rates are maximised. The strong survive and earn Partner level salaries; the weak generally do something else. On the face of it, this model appears flawed when applied to the legal sector. It would appear to lack sufficient pay back to recover the organisational cost of training new lawyers and the golden carrot of Partnership pay and an equity share at the other end of the career conveyor belt. One must necessarily question where Partnership aspirations and securing the Partners of tomorrow fits within this model. Generally IT resource trained through formal post graduate programmes do stay with their first employer for a number of years to build a knowledge foundation. Contracting becomes attractive at the 2-3 year post qualification stage when the CV is fuller. An ideal time to spread ones wings in the legal profession and sufficient time for a firm to achieve pay back on that initial investment. At the other end of the scale, by now highly qualified and specialised contractors bank their years of industry experience, take a temporary pay cut and move in-house with the strategic aim of promotion with a stable, quality employer. In this way the carrot remains and rewards both employer and employee as these individuals bring much more to the table than someone who may simply have kept their head down and nose clean at one or two firms for a decade. There is sufficient fat within the current system to achieve a triple whammy of benefits if widely adopted. Firms can recruit highly skilled contractors as and when required, increase headline pay and reduce the charge out rate to clients. A rare win-win-win situation hitherto untapped by the legal industry.

24-Jul-2010

11:54 am