Like other outsourcing segments, technology is changing the legal outsourcing landscape and the way businesses deliver legal services to their clients. Virtual workplaces are becoming extensions of traditional offices, more firms are moving from paper to digital, and data and analytics are increasingly underpinning every aspect of legal operations. A 2015 PwC study reported that the top five priorities for law firms in 2016 (in order of importance) are to improve the use of technology, standardize business processes, boost business partnering support, cut transaction processing activity and reduce costs.
Research from eFax Corporate found that the biggest changes that will happen in the next decade due to technology are paperless and virtual offices becoming the norm, mass adoption of cloud-based applications, law libraries replaced by e-books and increased legal process outsourcing activity. According to a study by Research and Markets, the global legal process outsourcing is expected to grow at a compound annual growth rate (CAGR) of 27.4 percent until 2019 as the cost of legal operations increase and firms seek ways to reduce these costs.
Besides the growth of LPO, here are other major trends that legal teams and corporate decision makers face in 2016:
Companies will continue to send legal work to countries like India and the Philippines. This trend is expected to continue in the next few years as firms find offshoring a more cost-effective option than onshoring. Some companies mix onshore and offshore LPO to keep costs down while mitigating perceived risks. For example, a blended delivery model allows a law firm to keep critical and sensitive work within the US, while sending less complicated legal work offshore. Having teams in multiple time zones also allow law firms to work around the clock and meet deadlines easily.
A recent poll of a number of UK law firms found that more than half of the respondents would consider outsourcing more of their operations to increase profitability, reduce service delivery costs, improve scalability, boost quality of service and improve focus on the core business. In addition to administrative and IT services, over a third of respondents said they would also consider outsourcing legal document review and drafting, while more than 25 percent said they would outsource legal research and regulatory services. As law firms outsource more complex legal work like litigation support and research, the benefits of outsourcing are increasingly outweighing the risks. Today’s legal departments and law firms are outsourcing not only to save money, but also to improve service quality and easily scale their operations as need arises.
According to a recent study, about 40 percent of in-house legal corporate departments are reducing their budgets for external legal advice, with the majority moving the work to their internal teams. To handle increased workloads, a third of respondents are hiring cheaper and less-qualified in-house paralegals. The transfer of low-level legal work to outsourcing providers to avoid this predicament is hardly new, and it will continue to grow in the coming years.
The study also found that corporate clients are increasing pressure on law firms to add value while slashing prices. Providing high-quality but affordable legal services present a conundrum that legal teams are solving in different ways, one of which is outsourcing. 2016 buyers of LPO services look for flexible pricing and delivery models. As buyer demands keep on rising, legal service providers that can’t meet quality standards and tailor offerings to meet their clients’ needs will lose business to established, major providers.
Flexible LPO service offerings will be in demand in 2016 as law firms and enterprises seek a unique delivery mix. Service providers that offer bundled and unbundled services and provide a single platform for multiple processes to be managed effectively will be popular. One advantage of centralized systems is avoiding inefficiencies associated with complex workflows.
Legal Process Outsourcing and Technology
Mergers and acquisitions deal volume reached around $5 trillion in December 2015, the highest in history. Large M&A firms are pulling in record revenues as well, while legal service providers and legal tech firms are in for a shakeup. Microsoft’s recent purchase of Equivio was ostensibly a move to make Outlook and Office 365 eDiscovery tools smarter and easier to use, but it also signals the shift of eDiscovery services from an assembly line model towards a more consolidated, data-centered approach.
While eDiscovery is still largely fragmented, consolidation will become more popular this 2016 as big providers acquire other large firms. New market entrants are accelerating eDiscovery consolidation even further through acquisitions that increase the company’s global footprint, improve its technological capabilities and allow it to provide a wider range of legal services. If the trend continues, legal analysts predict that the market will see a smaller number of big eDiscovery powerhouses and non-legal firms offering innovative eDiscovery solutions. This also means higher entry costs for attorneys and law firms that want to set up eDiscovery shops.
Process maps are schematics that detail the scope of a legal project or deal, including the number of people required, level of seniority of attorneys, pricing and potential risks. Raw data and technology that harvests and interprets the data are required to create effective process maps. Third party LPO providers that allow law firms and corporate legal teams to collect data efficiently, mine data for insights and demonstrate to executives and shareholders how analysis will improve the bottom line will be in demand this year.
The rise of cyber criminals and recent large-scale hacking incidents are pushing data security and confidentiality to the top of legal department priority lists for 2016 and beyond. As employees and clients use more devices and storage systems, risk management has become more difficult. The main challenge for law firms is to maintain effective defense against ever-evolving threats. The use of adaptive security is one solution. Analysts recommend that companies understand the level of risk and implement a mitigation strategy that reduces the risk to an acceptable level. This year, more law firms will use threat intelligence to understand evolving cyber threats, constantly monitor and fix IT vulnerabilities, and maintain cyber security awareness among employees. Clients will partner with third party firms providing adaptive security solutions geared for the legal industry.
Cloud adoption by law firms and legal service providers is still in its early stages, but cloud services are subtly changing the game. Cloud-based offerings are generally more affordable than traditional offerings, as the client does not need to invest in software, installation, upgrades and maintenance. However, data security remains a concern than can challenge widespread movement to the cloud.
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