Boosting law firm profitability – is LPO the answer?
A growing number of law firms are using legal process outsourcing (LPO) to deliver legal services at lower cost.
As global economies start to turn slowly back towards growth, conditions for law firms are improving. However, the market remains highly competitive and for many organisations an upturn does not guarantee a return to the levels of profitability and growth before the credit crunch. For all but a few law firms, profitability remains a serious challenge as clients demand more for less and reduce the number of firms they are using.
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Our research suggests there is a disconnect between the prices law firms can command and the cost of delivering services. It appears firms have not yet adjusted the way they provide services to meet the challenges of lower fee rates and the increase in fixed fees.
If law firms are going to meet this challenge and grow revenues at good margins, they need to find new ways of delivering services at lower cost. A number of firms and in-house legal departments are turning to legal process outsourcing (LPO) for the solution. LPO is a term commonly used to describe all aspects of moving legal services to a lower-cost model, whether on-shore, near-shore, off-shore, captive or outsourced. Our report will take you through the key steps firms should take before deciding whether LPO is the solution for them.
What services do you want to offer?
Before considering how to deliver routine legal services, law firms should decide what services they want to deliver. This means stepping back and asking three key questions: Where will we compete? How will we win? How will we add value?
What type of work does this involve?
Firms should think carefully about four key areas to determine the right delivery solution for them:
- Complexity categories: establish a common view and vocabulary within your firm of the different categories of work complexity
- Service line analysis: establish an honest view of how your service lines break down between those complexity categories
- Client view: develop an understanding of the view of your clients and target clients on the volume and nature of the legal services they require
- Evaluation: evaluate the extent to which the way your firm delivers services is aligned to the complexity of the work you do (or aspire to do), as viewed by your clients and target clients.
Could LPO reduce delivery costs?
With a clear understanding of what services they want to deliver and the type of work this involves, law firms can make a better assessment of where LPO might work for them. Even if they decide against LPO, there is no reason why law firms cannot imitate some elements of the LPO providers’ lean, efficient business models to enhance quality and reduce delivery costs.
Integrating services to create the 'one firm' experience
Improved management of all services across the firm can offer certainty of cost, quality and timely delivery as well as improved profitability. Whether the components of service are delivered by LPO providers, on- or off-shore SSCs, across global networks of offices or simply across practice groups, the task of bringing them together is becoming increasingly complex and represents a growing management overhead. Getting this right is vital to delivering the ‘one firm’ client experience that many law firms aspire to achieve.