In an influential article on the popular TechnoLawyer blog -- an article so influential that it already has led several law firms to hire at least one off-shore legal outsourcing company -- legal technology guru Seth G. Rowland pays many respects to LPO, while at the same time warning that it threatens the entire Western legal world as we know it. Rowland is here to praise legal process outsourcing, and also to bury it. Below is an excerpt from the TechnoLawyer synopsis:
How would you like a Tim Ferriss-style four hour work week? Impossible you say? Not with legal process outsourcing. Just send that multi-state research memo to India and your eDiscovery review to the Philippines. Why hire overpriced American associates when you can outsource to cheap, English-speaking lawyers overseas? Although tempting, legalprocess outsourcing has a dark side that threatens the American legal industry. In this TechnoFeature, document and workflow automation expert and technology consultant Seth Rowland identifies the major LPO players, explains what they offer, and then lays out an alternative strategy that American law firms can employ to reduce costs and compete globally while avoiding the fate of American manufacturing companies that outsourced themselves into extinction.
But before we cross over to the "dark side," here's some of the good stuff:
Every revolution has its tipping point. The tipping point for legal process outsourcing (LPO) may have occurred two weeks ago when Thomson Reuters acquired LPO powerhouse Pangea3....
Lawyers have finally begun to realize that our legal system is undergoing a transformation. Once a regional business managed by local and state bar associations, the practice of law has officially become internationalized. Thousands of lawyers in Mumbai as well as Australia, China, South Korea, New Zealand, Sri Lanka, Israel, and the Philippines are busy drafting legal briefs, abstracting leases, coding documents, summarizing depositions, and conducting due diligence. They are working under the supervision of American lawyers, for American law firms and corporations, on matters of American law.
This revolution is made possible by advancements in computer technology and telecommunications that allow a virtual world-wide presence for the practice of law. Documents, data, and images can be stored in the cloud, accessible securely to users around the world. Thanks to LexisNexis and Westlaw, anyone anywhere can conduct legal research. With the emergence of VoIP telephone service, Web conference services such as GoToMeeting and WebEx and Cisco's TelePresence, virtual teams can work together at practically no cost. Using a virtual PBX system like 8x8 with a "SoftPhone," you can dial extension 10 for Mumbai, and extension 11 for New York.
This revolution is also made possible by cultural advancements. The globalization of "English" as a universal language for the conduct of business has resulted in more people speaking English as a second language than speak it as a first language, according to Thomas Friedman in his book, "The World is Flat: A Brief History of the Twenty-First Century." Former British and American colonies like India, South Africa, New Zealand and the Philippines also share a "common law" legal system. With a median salary of $20,000 per year for an Indian lawyer [Rowland must be talking only about the largely irrelevant elite of the elites, because law is generally not considered a high-paying profession in India, and most Indian lawyers fresh out of law school earn from $120 per year -- that is no typo -- to $2,000 per year, and $12,000 is considered to be a decent annual paycheck even for newly-minted graduates of top law schools], the services of a highly trained lawyer can now be offered for a fraction of the cost of an inexperienced American paralegal. Moreover, the time difference (10 hours between New York and Mumbai), is such that assignments given at the close of business in New York, arrive early morning in Mumbai and often can be completed by the time the assigning lawyer in New York gets back to the office.
* * *
With the addition of American management techniques and American-trained attorneys into the LPO workflow, as well as special education programs in Indian Universities, the quality and consistency of these services has improved in recent years. The price is right, and the quality is good. LPO gives you a 24x7 flexible workforce that enables you to replace your "fixed staffing costs" with "discounted variable staffing."
So far, so good. So what's the problem? Without offering any evidence, Rowland assumes that this is all a zero-sum game, in which the success of offshore legal outsourcing must inevitably be a threat to Western law firms. At the same time, he offers more praise for LPOs, to the point of arguing that Western law firms need to learn from the offshore companies in order to survive:
Our legal system is being given a wake-up call. The pressure of the market is forcing the "profession" of law to recognize what Ed Poll calls "The Business of Law." Law firms are under pressure to act like businesses. That means cutting costs and making charges more predictable. The sky has not fallen yet. We still is time to save the American legal industry. The same business process modeling used by LPO firms when combined with the appropriate technology can transform our law firms into sleek efficient, productive, innovative and highly profitable companies that serve as a model for the world to follow.
Rowland goes on to suggest over a dozen undoubtedly excellent software applications that law firms can use to emulate LPO companies and supposedly "save the American legal industry." But in his valiant effort to "save" legal work that otherwise is going overseas, Rowland misses three crucial points:
1. Even supposing that Western law firms adopt the most advanced LPO technology, there still remains the pesky problem that actual human beings are needed to implement it. Dean David Van Zandt of Northwestern University School of Law estimates that given student loan obligations, living expenses, etc., $65,000 per year is the break-even point that U.S. law graduates must earn just to stay afloat. The mavens at Above The Law say that "[a] break-even point of $65K seems low to us, given high law school tuition, the borrowing costs associated with student loans, and the opportunity cost of going to law school when you could be earning a salary in some other industry." They point out that "[a]nother academic, Herwig Schlunk of Vanderbilt Law, believes that the break-even point is much higher." But let's assume that Dean Van Zandt's "low" $65k figure is accurate. Even so, all of the high-tech emulation in the world cannot allow law firms to escape the fact that super-smart, ambitious, enthusiastic Indian lawyers from even the finest law schools are justifiably happy to work for one-fifth of that amount, considering the lower cost of living in India, among other factors.
2. It's not just about salaries. It's also about the low cost of both operating and living. The cost of office space in Mysore, for example, where the #1 ranked LPO in India is based, is still 1/43rd the cost of comparable space in Manhattan. Housing and other living expenses there remain so low that the Indian attorneys have a standard of living that would be the envy of many Manhattan associates, yet the Indians receive less than one-tenth the salary. Rowland fails to take advantage of the argument that salaries and expenses in India are rising, but that's not so important. Also rising are the skill sets of the Indian attorneys.
3. The fact is that offshore legal outsourcing need not be a threat to American lawyers. Many law firms are embracing LPO, and reaping rewards from it. Those firms are receiving more assignments and more client revenue, not less. This is coming in part from (a) existing clients who send them “elective” legal work that otherwise would never be performed, due to cost, but which is not a problem when Western lawyers are paid to supervise and edit the work of attorneys in India, and (b) new clients who come to those law firms only because of their reputation for developing an alternative to the old model. Also, the statistics suggest it is likely that off-shore outsourcing leads to more jobs in the West, not fewer. Off-shore legal outsourcing, especially high-end legal outsourcing, creates more legal work in the West, as deals previously undone, and litigations previously settled (or never filed), due to excessive legal costs, are suddenly affordable. Affordability means more work for the Western lawyers involved in supervision, editing, negotiating, and/or appearing in court. Commentator Michael Bell makes a similar point in a post on his LPO Source blog:
Are the projected 5000 new jobs in the LPO industry directly correlated to a 5000 job “shift” (read lost, redundant, right-sized, etc.) at top US law firms? Is it economically sound reasoning to assume that economic interactions are tit-for-tat? In short, no.
Does the increase of LPO mean that there may be marginally less demand for legal support staff for certain low-value service areas? Perhaps. Alternatively, doesn’t allowing firms to offer new services so clients can economically litigate and conduct transactions also increase the demand for the services of law firms, and thus the demand for lawyers? Absolutely.
As discussed above, mastery of the new legal services technology, while important, is not the salvation of Western lawyers who mistakenly see themselves inevitably in a competition with LPOs. This is because offshore talent already is using the same technology even less expensively. This supposedly frightening news is really a signpost showing a brighter future ahead, assuming Western law firms are up to the challenge. If any law firm or solo practitioner wants to not only ride out this "perfect storm," but also profit from it, then it seems that the focus should not be on trying to prevent Indian lawyers from doing what they do best. Instead, the aim should be to leverage the Indian talent, while at the same time training and utilizing Western attorneys to supervise and edit the work of the India teams, negotiate deals, argue in court, and provide legal advice. Most of that cannot easily be done in India, and much of it cannot be done in India at all. So why not focus on those higher value skills, rather than trying to hold on to work that can more efficiently be done offshore?