Outsourcing out in the open

by 04 Aug 2009

In the space of a few short years, the word “outsourcing” has gone from being a dirty word to a buzzword within international legal circles, writes Laura MacIntyre

The GFC has had one knock-on effect that many business-minded folk don’t regret – it has increased transparency and frankness about cost-cutting, and the reduction of head counts.

Rio Tinto made international headlines when it signed a deal to outsource legal work to India in June 2009. For members of the legal profession, the outsourcing of sup port services is not as controversial as the proposition of actually outsourcing legal brains as well as the brawn.

Australian story

The Australian legal sectors’ adoption of outsourcing pro vides an interesting case study. The local legal sectors’ adop tion of outsourcing has been, until now, met with less public scrutiny than British counterparts.

International legal services provider Exigent, who lists among its UK clients Pinsent Mason, Eversheds and Lovells, has taken a softly, softly approach in the Australian mar ket, but has already built up an impressive client list – not all of whom are ready to go public with their decision to outsource various support services.

Sensitivity about the outsourcing issue is most apparent in the top tier, and one of three directors of Exigent, Nicola Stott, says that a “Big Six” firm in Australia did not want to be named publicly as a client. There is markedly less ret icence about the topic from the small-to-mid-sized firms, for whom outsourcing has become a matter of survival in a harsh economic climate.

“What quickly became obvious was two things, firstly the daytime thing – we needed a data centre in the same time zone – and secondly that Australians were much more sensitive about offshoring than the Brits were,” she says.

Exigent opened up a data centre in Rockingham about 40 minutes south of the Perth CBD, so that, combined with the Capetown centre, it could offer a 24-hour service to Australian law firms.

Communication counts

Communication at an internal and external level is essential to the success of any outsourcing venture, Stott says.

“I just spent three months in the UK on secondment to Eversheds … I was in the project team working on all elements of the project – from IT, to human resources, to the communication, which is a massive part of the whole thing. They’ve really got to get their internal and external communication right to minimise the backlash,” she says.

“[Firms] need to recognise that it is a change-management program, and something they need to be committed to and not just tinker with – they need to get it straight in their minds what they want to do.”

Gaunt says the face-to-face aspect of having an onshore team provides some reassurance for internal staff members.

“We’ve kind of got a team that’s our team so they spend a couple of weeks here getting to know the people, getting to know the systems better,” he says.

“If [the work] went off to South Africa or something, you would only be able to observe [the work] when it comes back, but certainly the people who are doing probably the bulk of it, we know the individuals and that’s worked out pretty well as well.”

With firms such as Eversheds looking to shed even more administration staff in the coming year, human resources and communications profession als will have to come to grips with the complex arrangements springing up around outsourcing, and learn from the experience of others as they navigate the potentially perilous path.

“They have to make the really tough decisions if they want to make the savings,” Stott warns.

Taking the leap

Stott says there are currently two main trends in outsourcing at Australian law firms.

“Law firms in the past had to spend money on temporary staff, recruit ment, training them, not getting much productivity out of them – some people want to lose the cost of temps,” she says.

“Then you get into them properly using outsourcing – people here started to make the decision [12-18 months ago] that they wouldn’t replace staff as they lost people through natural attrition, so through non-replacement they start building some more flexibility.”

Swaab Attorneys CEO Bronwyn Pott says the firm’s foray into outsourcing arose purely out of need, but has since developed into a long-term flexible resourcing strategy.

“While I’d like to take credit for being forward-thinking … our long-term senior WP operator wanted to take extended leave, and we wanted to keep her role open for her,” she says.

“So the partners agreed to a trial period with Exigent, and when our operator decided living on the beach in Queensland was more to her liking than trekking into the city every day, we decided to change the structure of the group.”

Herber Geer managing partner Bill Fazio credits the 24-hour capability of external providers as the main driver for his firm’s decision to outsource, but admits there are still some kinks to be ironed out.

“In very general terms it’s early days. We’re excited by the potential to have this kind of on-call support and also the fact that it’s available 24-7 does make sense for a business of our size that can’t justify having those resources at 24-7, so we’re hopeful that this will be a great idea,” he says.

Driving factors

For those speculating about the cost breakdown, the hourly cost of Exigent’s services is roughly $40 to $50 per hour. Stott says the productivity of its team is often higher than that of a law firm’s internal staff.

“It’s all about productivity, so, firstly, we keep overheads low, and pro ductivity is higher. Our team members all understand the concept of charge able time, our staff’s targets are around 75 per cent chargeable in a day. For us, that is how we have to run our model.

“There’s a second metric for that – to ensure that the work isn’t taking too long. The teams are targeted based on output as well, so they have to think about charge-out, but they also have to think about output.”

Lavan Legal managing partner Greg Gaunt said that Lavan outsources accounts work for high-profile tenders to an external provider, as well as IT services, payroll and filing.

Gaunt says his main driver for outsourcing services is improved efficiency, and the high quality, rapid turnaround and accountability of external providers. “We always had our own payroll person and now we just outsource that, and it’s no cheaper but our payroll system was probably quite anti quated and we couldn’t quite see the sense of spending more money on hav ing an up to date system, whereas you outsource it and they’ve got the best systems,” he explains.