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How law firms can use LPOs to their own advantage (podcast with transcript)

By Reginald Davis

September 30, 2013, 1:40 pm CDT

Podcast Transcript

Reginald Davis: What should your law firm do to deal with these upstart non-traditional legal service providers?

Bill Henderson: If I was a law firm, I would go out and learn what these vendors are doing and ask yourself: What can we do and what should they be doing? And try to put together the best package for your clients.

Reginald Davis: I’m Reg Davis, an assistant managing editor at the ABA Journal; and editor of our Paradigm Shift series, which discusses how today’s economic and technological climate is changing the future of the legal profession. This month, the series continues with “Who’s eating law firms’ lunch?”, a look at non-traditional legal service providers. These businesses are not only getting dollars usually paid to law firms, but are changing how some law schools are educating their students–and how graduates of those schools are finding success outside the law office.

I will be speaking with one of the principal authors of the series, Professor William Henderson. Bill is director of the Center on the Global Legal Profession at Indiana University’s Maurer School of Law, where he is the Val Nolan Faculty fellow.

We’ll begin out interview right after this.

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Reginald Davis: Have you noticed any kind of trends in what non-traditional legal service firms are doing, what areas they’re going into or what kinds of things they’re maybe challenging traditional law firms on?

Bill Henderson: Yeah. Reg, there’s really several buckets and I’m actively involved in trying to figure out how to bucket or categorize these firms. But I think the one that most people can get their heads around is if we just take the type of work that was created through the onset of electronically stored information, and we know that sometime probably in the 1990s it became impractical to have electronically stored information and discovery done by high-paid law firm associates. And so that work started to migrate toward contract attorneys. And it gave rise to a whole, fairly lucrative contract attorney business. And lots of companies that are still in place basically came into being and grew pretty dramatically as a result of the contract attorney business.

That slowly migrated to legal process outsourcing that was overseas-oriented. And some of that work started to filter off and go to India and the Philippines. And lots of pretty successful lawyers quit their practices, especially if they had Indian connections. And they began to set up these legal process outsourcing that was organized around discovery. Now the third leg –or the third what I call maybe a 3.0, at least in the litigation context–would be predictive coding. Where the machines are actually beginning to do some of this work better than humans can, and they’re only going to get better. And related to that, some of the work that was going off shore that still needs human involvement is being brought back on shore. And so you see movement toward on shore, primarily because proximity aids in the process of improvement.

And a lot of the original movement runs through this entire theme is just cheaper labor, what some economists might call labor arbitrage. The work can be done competently by lower-priced labor elsewhere, and so let’s take advantage of that cost savings. Now we’re seeing a pretty clear movement toward process design, where that’s the real innovation that’s taking place; the real cost saving that’s occurring. Actually, not only is it saving money, but it’s increasing cycle time, speed of delivery, and it’s increasing quality. So we’re kind of hitting on better, cheaper, and faster with the process improvement taking place.

Reginald Davis: Give me a little more definition of what you’re saying as far as process improvement, or process design.

Bill Henderson: Yeah. What it means is it’s laying out all the tasks that need to be done and trying to order them and sequence them in a way that reduces errors and reduces redundancies. Actually, redundancies are the opportunity for errors. And then finding the people that can best do that work and creating a checklist-type process that has them make sure that they do the work very efficiently and error-free, or as error-free as possible. So I’ll give you an example. There’s a company out there–we can talk legal vendors, if you want–called–I want to make sure I get this right, here–Lawyer Partner. I may be getting that wrong. But they process mapped all of litigation into–I think it’s close to 1800 steps. And it’s a pricing tool. But the real innovation is the process mapping to break things down into discreet tasks. That’s the first step in re-ordering the process and making it more efficient. Novus law, which we did–which is featured in the story–is the best example I’ve seen of using process to re-design a task like electronic discovery.

Reginald Davis: OK. And so we were talking about some of the on-shoring of this work that used to go off shore and everybody used to talk about it as outsourcing, and now you’re talking about it as on-sourcing. How are these things affecting both the non-traditional firms as well as the traditional firms?

Bill Henderson: It’s an opportunity for the non-traditional firms. And now–I just used this terminology recently. I called an LPO a 1.0 LPO, which meant that it was kind of the first wave to go to India. The 2.0 is the ones that are using process. And they’re really popping up in a lot of different places and they’re growing. And they seem to be hiring. They’re growing pretty vibrantly. There’s a lot of proliferation in that space. Some law firms are beginning to specialize–or create specialty units that compete with the LPOs and the predictive coding of folks and they have fairly sophisticated tools that they’re buying from software vendors. And so some firms are trying to compete because they want to hang onto that work.

There are some law firms–I won’t name names, here–that have created facilities in kind of rural parts of the country–definitely outside the major metropolitan areas–to set up kind of a captive legal workforce that specializes in this process improvement. Their wages are lower, but they are high paid jobs in that part of the country and you get a pretty good quality of life because the process makes the job predictable. So it’s an opportunity for big law just as much as it is for the upstarts. But the bottom line is the work’s going to go to whoever can do it best.

Reginald Davis: Right. And I was going to ask you, as far as traditional law firms, what should they do about these–you mentioned that some firms are actually creating competitors. Is there a general rule or would it be best for, say, big law firms to either cooperate with these non-traditional firms and use their services since they are–we’re supposed to believe–cheaper than what the firms can do themselves? Or should they just try to buy these guys up? Or should they create their own competitors?

Bill Henderson: That’s really good questions, here. I want to make sure–make clear that these vendors, although it started in electronic discovery and things related to litigation; there’s companies that are doing document automation–and this used to be kind of decision tree things like, just say maybe what TurboTax might have done a couple of decades ago–but actually there’s companies now that take all contracts from the Edgar database and use inductive statistics to basically produce market standards. That’s a big data use in the transactional context; vendors that are doing that. And then there’s other companies that are using data from the federal court system to predict case outcomes, like an IP.

So there’s a proliferation of different companies that are using technology and big data and process to try and do traditional legal work traditionally done by law firms better, cheaper, or faster. So if I’m a law firm, and this is eating away at some of the bundled services that I’ve traditionally offered; I’d have to ask myself: can I really do this better than these upstart companies? Or is it better to develop strategic alliances and to basically piece together a kind of re-bundled service where the law firm is acting as a general contractor and it knows the best vendor in e-discovery. It knows the best vendor to come up with market standard transactional documents. It knows the vendor to help price high-end IP cases. And there’s a trench of trusted advisory or advocacy work that the law firms are going to keep.

But in the meantime, they’re putting together–kind of quarterbacking the whole transaction or the whole litigation matter. There’s an opportunity for law firms to do that, but if they steer clear of these vendors and they try and keep the work in house using inefficient methods, then they’re really kind of telling their clients when their clients find out that they really have their economic best interest above their clients’ best interest. And I think that will come back to harm them, long term. So if I was a law firm, I would go out and learn what these vendors are doing and ask yourself: What can we do and what should they be doing, and try to put together the best package for your clients.

Reginald Davis: As we said in this most recent story, at least one firm–Akin Gump–did cooperate with Novus Law, and partially because the client themselves insisted that there be some work together and that it actually caused a reduction in fees. So I guess we’re just beginning to see that start happening at pretty high levels. Am I right?

Bill Henderson: That’s absolutely true. It’s a good outcome for Akin Gump because they’re holding onto the work and they’re learning how to work effectively with a world class document review provider. And I think it leads to a better outcome for the client and so it’s cementing the client relationship.

Reginald Davis: The article kind of has three parts to it, as I recall since I edited it. One part is dealing with these new firms, and one part is dealing with the law schools that are providing attorneys to work at these new firms. And the third part is the students, themselves. So I was wondering if you had people who are considering law school asking you: Where should I go, what should I do in order to hook into this non-traditional legal services part of the legal business. What would you advise them to do?

Bill Henderson: I would advise them to get a great, traditional legal education. But at the same time, moonlight and learn an area about, let’s say, law and technology, law and process; some sort of a new-edged angle to the legal market. Something where they’ll have some intrinsic interest or passion. And moonlight and learn that, invest in themselves, and become a specialist in that area.

One guy comes to mind that is probably the granddaddy of this sector. It’s a guy named Kingsley Martin, who founded a company called–what’s now called KMStandards. It used to be called Kiiac. And it’s a document-automation company that’s trying to standardize specific kinds of documents and [inaudible] clauses for specific types of transactions.

And he recalls wanting to–seeing the same transactions occurring over and over again during the 1980s when he was working for a large law firm. And he said, “Wouldn’t it be great to standardize this? Instead of doing a one-to-one lawyer, do a one-to-many.” And so he started learning C+ and BASIC–which are computer languages–and started programming, doing it two or three hours a day as kind of a hobby. And started programming his own stuff for his clients. And then it led him to basically be one of the founders of an industry that’s just about to–I think it’s probably going to hit its tipping point in the next year or two. I hear quite a few stories of people that just kind of pull on the string that they find interesting.

But the students aren’t going to find an employer that’s going to equip them with all the skills they need to prosper in this area. They’re going to have to invest in their own personal human capital. And so go out and moonlight and go out and work for free. Go out and shadow somebody that’s in this interesting sector that you find interesting and invest in yourself, learn something about it. And when you see an opportunity, leap at it.

Reginald Davis: I have one last question as we’re going to wrap this up. We’ve talked about the “Great Reset”, or the “New Normal” or what’s going on in the legal profession. I’m just wondering; considering the four stories we’ve already looked at, you got any idea about where we go in the next one? What’s the next subject that we need to tackle?

Bill Henderson: I think that a really interesting topic would be if you really pull these trends apart, you find out that they look new to us, but their seedlings are 10, 15, 20, 25 years old. And I think that it’s really–it’s our own kind of metal frames that are getting broken, now. And so when we talk about the great reset, we think the economy is resetting. What’s really resetting is our perceptions of the economy. And we’re coming up with a new schema to view; a reality that’s just changing every day incrementally. And so we have to come up with a new vocabulary and a new way of describing the world we’re working in.

And so I think it would be really worthwhile to think how lawyers adapt to change and how the first step is always denial. And then who kind of flips first and who flips last and what the consequences are of that. I think that lawyers grappling with the fact that–even in the big law firms, and I think some law firms are going to do just fine in the years to come–how they make money is going to be different so there’s going to be a lot of discomfort, even within organizations that make the switch to this new frame or new reality. So I think studying lawyers struggling with this new reality is going to be what we should be focusing on; just our coping with change.

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As part of our Paradigm Shift series, ABA Journal assistant managing editor Reginald Davis speaks with Professor Bill Henderson about his research into legal service providers, which forms the bulk of this month’s cover story, “Who’s eating law firms’ lunch?”