Strategic Legal Sourcing: The Key to Agility

A more strategic sourcing framework

The purpose of diverting certain types of work to an automated self-service system or a specially programmed machine-learning algorithm is, of course, to give in-house counsel more time to handle strategic legal matters that require a higher level of expertise, judgment, or personal interaction.

How much of each any given project requires is a judgment call all its own, but the best legal matter management tools help clarify the decision by allowing users to label incoming issues by various criteria, such as:

• Nature and complexity of the legal matter
• Urgency/priority of the issue
• Strategic importance
• Potential risk exposure
• Estimated cost and budget

Once issues are labeled, such systems and tools can start to provide a relevant framework and concrete data criteria for making more strategic sourcing decisions. In addition, the data (input and outcomes) and insights gleaned from implementing such a system can be used in a continuous improvement cycle to further drive efficiency and effectiveness in sourcing.

The chart below depicts a high-level outsourcing model that is a useful tool for visualizing outsourcing considerations that require higher or lower levels of unique legal expertise.

The chart above applies primarily to law firms, but as you can see, the category with the lowest price sensitivity, highest value, and least competition from a law firm’s perspective is Unique Legal Expertise. Where issues of price sensitivity and efficiency come into play are lower down the legal food chain, in Ancillary Support Services and some routine legal services.

These also happen to be the areas where ALSPs are doing such an impressive job of providing higher levels of service and quality at a lower price point, effectively chipping away at the traditional legal model from below.

Insourcing vs. outsourcing

In companies, a similar value chain is attached to the work of in-house counsel depending on levels of expertise, specialization, and experience. And the decision to keep a project in-house or outsource it typically hinges on how important specialized expertise is to the matter, as well as whether there are benefits to be gained through in-house counsel’s greater access to—and knowledge of—relevant executives and C-suite decision makers.

When making insource/outsource decisions, then, the company’s needs and capabilities should always be taken into account. Indeed, there are many reasons to keep work in house, and companies typically have a wide range of internal expertise at their disposal should they decide to tip the scales in favor of an internal solution.

Mid- and senior-level attorneys already have relationships with internal executives, after all, and tend to have a better grasp of company strategies, which makes them capable of offering key insights that may be beyond the scope of outside counsel. In fact, this “inside story” dynamic is so powerful that it actually behooves both the company and outside counsel to find ways to collaborate more effectively—through summits or informal meetings, for example—that would expose outside counsel to industry and company cultural considerations.

In many cases, keeping work in house can yield high-quality results at a lower cost, which is part of the reason why the number of attorneys hired by companies to serve as in-house counsel has tripled over the past 20 years. Even with more lawyers, however, the range and complexity of issues corporate legal departments must contend with nowadays still far outstrips their ability to keep up.

The business of law

Despite the proliferation of various ALSPs, the current reality is that most outsourced legal work will continue to go to law firms for quite a while. The type of law firm selected will depend on the company’s right-sourcing algorithm (matching needs with the most effective solution) and the ability of law firms to provide competitive fee-arrangement models that provide the highest value (benefit less cost), or what might be called “the lowest logical cost.”

In general, outsourcing strategies and insource/outsource decision-making for legal departments should not differ fundamentally from those made for other professional services categories of work. What is different is the rapid increase in outsourcing options and the role of decision makers themselves.

As previously noted, there has been a growing bifurcation in the legal industry between the “practice of law” (special law firm expertise) and the “business of law” (running legal like a business). In the past, lawyers invariably made sourcing decisions on a matter-by-matter basis, and nobody questioned their wisdom (or special favoritism). As legal operations have gained traction in managing the business of law, sourcing decisions are increasingly made jointly, with attorneys applying standard procurement practices (RFPs, convergence, performance-based fee arrangements, legal project management controls, etc.) and using data to generate insights. 

In addition to analyzing the case for techno-sourcing and insourcing, however, legal operations departments should be exploring the expanding universe of outsourcing options available from ALSPs, MLSPs, technology providers (both fully integrated and point-source solutions), and new legal business models and applying standard procurement practices as a guide.  

Insource or outsource? This is the question.

• When weighing insource versus outsource decisions for a new position, it’s helpful to consider the following questions:
• Will an internal resource be more effective at providing the service—such as industry knowledge, relationship building, or culture—than an external resource? 
• Do I need an external resource that has broader industry and practice area exposure?
• Is this role a core competency for our department?
• Is the work under consideration a core competency for our legal department?
• Do I have an existing employee that has the bandwidth and expertise to do the work?
• If so, do I have enough work on a consistent basis to justify hiring a full-time person?
• Is it possible to get the budget from Finance for a new headcount?  
• How much savings will Finance require to justify adding head-count costs to the budget?
• What is the comparative cost of outsourcing versus insourcing? 
• If I decide to hire a new person, will finding the right resource be difficult?
• What position continuity risk do I have—do I have a reasonable succession plan if this person leaves, or do I need an outsource provider with a deep bench?

The insource versus outsource decision for a group of matters, a portfolio of work (for example, employment law) or a function (contract review) becomes much more complex. Let’s assume you have good data from your eBilling/MM system to characterize the nature and extent of the legal work under consideration (for example, matters are “tagged” and sorted, as discussed above). In this case, the framework and decision criteria associated with selecting the appropriate outsource provider may be influenced by these additional questions:

• Is there a strategic advantage to insourcing the work? (See patent work example below.)
• Do I have a documented and vetted strategic sourcing model for my legal work? 
• What other sourcing models are other companies using, and what other sourcing models are on the horizon? For example, ALSP full-service model? MLSP integrated model? Law firm captive ALSP service model?
• Is the current sourcing model providing the best outcomes—that is, quality, speed, cost, innovation, etc.—compared to other sourcing models?
• Is execution of the model plan optimal?
• Are opportunities being left on the table?
• Are there certain sourcing goals I need to adhere to, such as 60% of work with panel firms?
• Does my data reflect that my actual sourcing is aligned to the model I’ve put in place? 
• Does my data/analytics suggest an opportunity to shift work from specialty providers to more price-competitive providers—either law firms or managed service providers?
• Has competition/RFPs been introduced into my sourcing model?
• In my RFPs, have I bundled my work into sufficiently large books of business (number of matters) for extended contract periods to incentivize providers to invest in people, processes, and technology? 
• Do I have fee arrangements with outsource providers that encourage outcomes priced at the lowest logical cost? For example, you might have the right outsource provider with respect to quality and speed, but costs are out of control.
• Is a provider with special connections or unique experience/expertise required?
• Do I need a provider with special technology or data-security capabilities?
• Do my outsource providers have proven processes, tools, technology, and people for project management, knowledge management, etc.?

Strategic insourcing case study

Suppose your company is developing a new product, but the competition is fierce and the race to be first to market is intense. Under the rules for filing new patents, the first to file is now the universal standard for ownership rights, so the speed with which inventors provide lawyers with complete and accurate details for patent filings could secure—or threaten—a billion-dollar opportunity.

In such a case well-developed, in-house relationships and communication channels can help expedite the patent-filing process and result in higher-quality filings. If the patents are secured and the product is a success, the legal department in this case has essentially served as a top-line contributor and profit center. 

Conclusion/Summary

In the related whitepaper, Right-sourcing: The Agile Legal Department’s Competitive Advantage, we discussed the pressures facing corporate legal departments to “do more with less,” and the many sourcing options available to them in an expanding legal universe of ALSPs, MLSPs, and technology providers, not to mention traditional law firms that are creating hybrid internal ASLPs in order to remain competitive.

We also discussed why, given the increasing volume and complexity of corporate legal work, legal operations managers should consider “right-sourcing” their departments by using a methodical, data-based process for “resource mapping”—a process that assesses each element in the legal value chain and gives managers a much clearer idea about what their insourcing, outsourcing, and tech-sourcing options really are, and can help them allocate limited resources as effectively as possible.

In this whitepaper, we discussed how automation and self-service technology solutions can ease the burden of busywork in a department and explored in greater detail how to build a strategic “framework” for making more effective resource allocation decisions. The relative merits of insourcing versus outsourcing were also explored, and we provided legal department managers who are interested in developing a more strategic allocation process with a list of questions they should be asking themselves in order to get started.

Together, these whitepapers are intended to serve as a primer for corporate legal departments in search of more competitive ways to conduct the business of law, and more effective ways to support the needs and goals of their respective organizations.

We call this process “right-sourcing.”