Where’s the Value?

Ask anyone. It’s all about value these days. We have entered an era where costs no longer determine the price of legal services. Value determines the price. The drive to achieve value is challenging the status quo in the legal services industry. Historically, lawyers have set the price for their legal services by determining their costs; and then adding their profit margin in order to arrive at the final price for their services. Isn’t this the antithesis of the way in which most other industries determine the price for their goods and services?

For most other industries, the price for goods and services is determined by what the market is prepared to pay. Cost is not the predominant factor. So what does this mean for lawyers? If clients will no longer pay for more than the value that they derive from legal services, and as competition on price continues to intensify, lawyers will be forced to control their costs and seek innovative ways in which to service their clients.

The drive for value creation affects both law firms and law departments alike. External clients want their law firms to deliver value; and internal clients want their law departments to deliver value. The pressure is definitely on.

Most discussions between law firms and their external clients revolve around obvious topics such as lowering fees; fixed fees; and alternative fee arrangements. Most discussions between law departments and their internal clients usually revolve around lowering costs and headcount. Although these are worthy discussions, the focus in my view should be extended to include a discussion involving legal process outsourcing (LPO). Whether you are a law firm with external clients, or a law department with internal clients, you can no longer ignore LPO as one of the methods by which you can deliver value to your clients.

Every law firm and law department has legal work that, although necessary and important, does not warrant the costs that are incurred to provide the services. LPO offers a compelling way in which to provide these services; and can to do so at costs that are commensurate with their value.

Lip service? Think again. Rio Tinto is a perfect and recent example of a law department embracing this change. It recently announced that a portion of its legal work is being serviced offshore in India, with an estimated savings of $20 million per year. Without doubt, the move by Rio Tinto is bold; but it is by no means a first. Rio Tinto is one of many law departments and law firms that have begun to embrace LPO as a strategy to deliver value to clients. Call it a survival strategy. Call it a competitive advantage strategy. At the end of the day, it doesn’t matter what you call it. It just makes sense.

Everyone in the legal industry is trying to position themselves in the best possible way in order to survive long term. We are all being asked to “do more with less”. The billable hour model is under fire; and no longer provides law firms with the right to charge whatever fees they deem to be appropriate for their services. Clients are pushing back in increasing numbers. If conventional thinking leads to conventional results, isn’t it time that the legal industry embrace the value of LPO?