Kevin Colangelo

Kevin Colangelo

Law firms that choose to build their own captive, low cost facility for their non-core activities often do so out of concerns over a potential loss of control in relation to the activities if they were to retain a third party service provider to provide such services. Unfortunately, this reflects a misperception of the nature of relationships with managed services providers, which are designed to be symbiotic and are actually focused on the firm continuing to have the same, if not greater, control over day-to-day operations.

In this context, “control” can encompass both risk management and commercial elements, and it includes considerations such as: (1) the ability to hire and fire, (2) the ability to ensure a consistent quality of service, (3) control in terms of investments in, and ownership of, infrastructure (e.g., capital assets), (4) protection of confidential information and/or intellectual property, (5) control in terms of ownership of something of value, and (6) control in terms of a somewhat-unexplainable discomfort (e.g., “I just mean control, know what I mean?”).

Experienced, top tier service providers are intimately familiar with all of these concerns, and they dedicate considerable time to creating and implementing solutions for each of them. As such, it’s critical for law firms that are evaluating what to do with their non-core business activities to have a fundamental understanding of exactly how a service provider will manage each of these six aspects of control:

  1. The ability to hire and fire: The service provider will allow the firm’s managers to be as involved in the recruitment and selection process as they want to be. Most firms want to be involved in developing the position profile for recruiting and then involved in phone or video interviews of the final candidates for key positions (e.g., team leads). Over time, it is very typical for a law firm to develop trust in the service provider’s recruiting system and reduce its involvement. In addition, the firm will also retain the right to request that a service provider employee be removed from their account at any time, for any reason.
  2. The ability to ensure a consistent quality of service: In this regard, a service provider is actually likely to improve a law firm’s control. Most in-house operations at law firms are run on a “no news is good news” basis (i.e., after a manager is hired, law firms typically don’t provide any ongoing oversight of an operation, unless the lawyers anecdotally complain about service). In an outsourced environment, the firm’s processes and workflows are process-mapped, documented, measured, monitored, and continuously improved by the service provider in close collaboration with the firm’s personnel. The firm itself will at all times know, at a significant level of detail, exactly how its provider is performing with respect to each of the included services.
  3. Ownership of infrastructure: If the law firm prefers that the service provider not provide facilities and equipment, the firm can enter into leases directly with a landlord or directly purchase capital assets, such as PCs. This does, however, reduce flexibility as the firm will have to enter into leases in all of the locations from which it will want services delivered, with sufficient seat count to support growth, and with sufficient additional firm capital investment for equipment.
  4. Protection of confidential information and/or intellectual property: In this regard, top tier service providers apply information security practices and protocols (e.g., ISO 27001) to protect confidential information or IP that are equal to, and often higher than, the level of information security at most law firms. Unless specifically approved by the firm, all operations will be delivered from delivery centres dedicated to the firm, and access is restricted to employees dedicated to work only on behalf of that firm, working on a secure and monitored network that is restricted to such firm.
  5. Ownership of something of value: If one thinks of “control” in this manner, it’s important to understand that a number of the law firms that have built captive operations in the past decade have tried to sell them when (i) the firm realized that their cost base is rising faster than the alternative of working with a third party, or (ii) the firm has been unable to achieve enough scale to realize an ROI comparable to working with a third party provider. These banker-led sales processes have not been successful for several reasons. Typically, third party service providers that have evaluated purchasing captives have found them to be leases of buildings with over-paid people, not using productivity enhancing software, and following inefficient, entrenched processes. In short, many law firm captives are sub-scale operations that simply are not good investments for the law firm or any third party.
  6. “I just mean ‘control’, know what I mean?” Finally, if one feels about “control” in this manner, an experienced service provider is prepared to readily transfer the operation that it has built on a law firm’s behalf to the firm at any time, at the firm’s sole discretion. In almost 15 years of operating these services, Elevate’s leadership has never experienced a law firm client start with an outsourcing engagement and then at some point in the future decide to insource these important, but non-core business services. Even so, it is routinely offered to give firms the ultimate comfort and protection.

The broader message that law firms need to distill from these examples is that their concerns over control are important to service providers experienced with serving the needs of large law firms, who have literally built their business model around (and invested significant capital in) understanding and providing solutions to these concerns. This is a point that is too often overlooked, or even dismissed, when firms are evaluating whether to build or buy lower cost operations.

The era of analogizing third party managed service relationships to one’s personal experience with an offshore help desk is long over, as is the uninformed claim that “most of these relationships are eventually brought back in-house” due to control issues, quality issues, etc. Market conditions have created an imperative for law firms to cut costs and become more efficient, and this includes a rethinking of how non-core services are delivered that goes beyond just the reflex of the firm doing what they’ve always done in a cheaper location.

Law firms must develop a deep understanding of how third party service providers think about and operate with regard to these non-core services (remember, these are core services for the providers). Firms that do this are in a far better position to maintain the control they require, and at the same time achieve both the cost reductions (often in the tens of millions of dollars) and operational improvements they seek, than if they simply conclude that building their own operation is the only viable and safe option.

“Do what you do best, and hire others to do the rest” has never been more relevant to global law firms.

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