Done well, outsourcing provides specialist expertise on tap, without the cost and hassle of recruiting and managing employees with those skills. Done badly, it can lead to any number of problems. In this article, Priscilla Sinder, managing director of the outsourcer Property Conveyancing Consultancy, shares her tips on how to make outsourcing a success. (18 January 2023)
(You may also want to watch the Law Firm Ambition 2022 webinar recording Law firm outsourced operations, now and in the future, in which Bill Kirby and other experts are interviewed.)
Which operations suit outsourcing?
You can outsource most roles and almost any activity in a law firm.
Firms have always outsourced activities such as cleaning, document shredding/storage, and catering for events.
Then firms started outsourcing technology support of all kinds. Why try and become an expert in optimising your Practice Management System (PMS) when you can buy the time of a proper expert who has helped dozens of firms like yours?
The ‘back office’ is increasingly outsourced: dictation and document preparation, cashiering, the physical hosting of technology in the cloud, and all sorts of marketing services.
So too is the ‘front office'. Answering the phone is often outsourced, perhaps starting on an ‘overflow calls’ basis and then expanding the scope of the support. Dealing with the daily mail can also be outsourced so that documents go straight onto the PMS and the appropriate person in the firm is notified.
Management teams can also be bolstered by bringing in outside expertise in areas such as finance and technology on a contractual basis.
Increasingly, firms also outsource some of their fee-earning, by using self-employed solicitors. The post-pandemic switch to working from home has accelerated this trend. Firms such as Keystone pioneered the ‘dispersed’ (or ‘platform’) law firm model of providing a team of self-employed solicitors with all the facilities, infrastructure and resources they would expect in a reasonably large law firm, while allowing the solicitors to keep up a high percentage of what they bill. Meanwhile, some traditional firms are adding self-employed fee-earners to their teams, to add new expertise and to provide operational flexibility when the volume of particular work goes up or down.
One can also outsource particular parts of the legal process. Take conveyancing as an example. A firm can outsource the lead generation, the onboarding (and KYC/AML checks), title-checks and the post-completion process. This leaves the conveyancers to focus on the more technical parts of the transaction itself, enabling them to maintain a high level of client care.
(Commissioning a specialist service as part of your own legal service to a client, for example a medical report or tax advice, is not considered outsourcing.)
"In these uncertain times, flexible cost structures are an attractive option to law firms. Outsourcing fits perfectly into this strategy."
Bill Kirby, director, Professional Choice Consultancy
The benefits when outsourcing goes well
Let’s take cashiering as an example. To start with, your firm may have no need whatsoever to outsource this role. Perhaps you have a long-standing individual who is integral to your team and does a brilliant job. But then that person retires and you have difficulty recruiting a replacement, only to find that the replacement is then often absent and has poor performance generally.
The attraction of outsourcing is clear. The headache of recruitment, training, supervision, sick days and holidays all disappear. A good outsourcer will make the setting up process easy and will have a complete set of mapped-out, robust processes with checks and balances; so you can see that everything is working as it should be.
What’s more, outsourcing usually gives you the flexibility to increase or decrease the amount of whatever is being provided. So you might seek support for your over-busy conveyancing department for one month, then extend this support to other departments if the trial is a success.
But outsourcing, done badly, can damage your firm – just as a poorly performing employee can damage it:
- A call-answering service that puts callers off, rather than making them want to work with your firm.
- A supplier that builds and maintains a website that soaks up time and money but achieves none of the agreed outcomes for your firm.
- A contracted finance director who prioritises creating over-complicated management information systems (ie what they are good at and what looks impressive), at a time when the real priority should be revenues, cost-cutting and cash flow generation.
- An IT support company that has a Service Level Agreement that ticks every box on your list of requirements – but a company which, in reality, frequently does not answer the phone or reply to your emails.
Involve your whole team
While the business case for outsourcing a particular activity may seem obvious to the firm’s management, others in your team may have different views and concerns.
Discuss the proposal with your team, not least because people want to be consulted and to have their views listened to whenever there is change.
- How will it affect their day-to-day activities and responsibilities?
- Is anyone in danger of losing their job, either immediately or further down the line?
Sourcing the right supplier
Start your search with recommendations from people you trust.
Often, you will want a supplier with deep legal sector expertise. Which supplier are other firms using? What is their experience with the service provided? What insights can they share around issues like cost, reliability, ease of communication, and flexibility?
How stable and secure is the supplier? Who owns the company? For example, a technology company that has just been bought by a consolidator might be about to go through a period of upheaval, with major changes in the service and the people delivering it. On the other hand, new ownership can inject funding and innovation into a product that was sliding into obsolescence.
Size matters. A large supplier that services large numbers of law firms of all sizes will tend to prioritise the larger firms, simply because they tend to be far more profitable. But large suppliers often have the capacity and capability to take on more work, with more collective experience of certain issues, and can cover team members taking time off.
List the attributes that you are looking for and use this to draw up a shortlist. Then do a more thorough quality assessment of the required skills and resources to whittle the list down to two or three favourites that you can meet in order to decide who to work with.
- If you lack the expertise to judge their technical skills, hire a suitable expert to help you in this process. Even as a layman, you can see for yourself who knows the answers and how individuals behave.
- Depending on the amount of contact your firm will have with the supplier, personal chemistry may be a key factor. Pick a supplier who you will be able to get along with, just as you would recruit an employee who fits your firm’s culture.
Some outsourcing can be done much more simply, as the risks are much lower.
- A one-off task such as designing a logo can be sourced using freelance online marketplaces such as Fiverr or Upwork; or by using your social media channels to ask for recommendations.
- Outsourcing an activity such as social media posts usually involves a trial period. You might try two or three suppliers this way before finding one that fits what you are looking for.
Once you know the price of outsourcing, double-check that it stacks up financially. Does the volume of work being outsourced make it feasible for both the outsourcing supplier and for your own firm?
Questions to ask
In a year’s time, what are the questions that you will wish you had asked before taking on an outsourcer? Here are some suggestions by Alex Holt
- In my shoes, what are the questions that you would ask a supplier like yourself?
- What is your experience of supplying firms exactly like mine? Can you name those firms?
- Talk me through the costs involved. (Then) What are the hidden costs that could occur? What is the most common area of contention when it comes to cost?
- Explain your processes, including the communication with our firm.
- Which named individuals would be on this project and please explain in detail their skills and experience. (The usual answer is “We would not pick a team until a contract is signed”, but persevere with this question until you are comfortable with the information. Often you can research the individuals on the web.)
- What reassurance can you give that these individuals will not be changed in due course for less skilled individuals?
- What is my firm’s role in the setting up process with you, and then thereafter?
- In your view, what is the key to success in this outsourcing arrangement?
- What are the common areas of complaint/dispute/tension and why?
- In what way are any of these activities covered by SRA and other regulations and how are these requirements handled?
Establish the facts and evidence, rather than taking the information that you are given at face value.
Start by speaking to two or three existing customers. The supplier will introduce you to their best customers of course – the ones that can be counted on to enthuse about the service provided. So ask probing questions, such as “If you were able to change one thing about the service, what would it be?”. But there is nothing to stop you contacting other customers, if you can establish who else uses the service.
If the supplier is a company with a large team, you should be able to find extensive information online: the team, the customers, the history, and their financial information (which is free on the Companies House WebCHeck website, although this service is planned to close at some point in the future).
If the supplier is an individual, bear in mind the old saying “Victory has a hundred fathers, but defeat is an orphan”. People may reference successful projects as their own work, when in fact they were not the key person in the team that delivered the outcome.
Documentation such as a Service Level Agreement (SLA) will help you and the outsourcer to identify and discuss the issues that might lead to problems.
The documentation should make clear the costs, timescales, the processes that will be followed (including resolving any disputes), warranties and indemnities, and the divorce clause – how and when the contract can be terminated by each party.
- For example, if you outsource the building and maintenance of your website, what bug-fixes fall within the warranty? If there is a cut-off point for the warranty period, what happens if the supplier causes the complete functionality of the service to be delayed so that bugs are discovered after this period?
- Focus on outcomes. For example, software contracts can be difficult to pin down. The supplier may do everything that has been agreed, yet the end result may be disappointing.
- Timescales often turn out to be optimistic and therefore contentious. Your firm may need an outsourced service to be fully operational by a certain date, perhaps because someone is leaving or joining your team at that point. But when it comes to that date, the supplier may have valid reasons why meeting this timescale turned out not to be possible. Unealistic expectations can lead to unrealistic planning.
- Even relatively simple outsourcing, such as commissioning a series of blogs, is helped by having an agreement that spells out exactly how the process and the pricing works. For example, can the firm edit the blogs? And if so, how many rounds of edits are included in the price and what are the charges for any further edits?
- Guard against unauthorised billing. Sometimes this happens inadvertently, such as when you casually ask “Can you do X?”’ in an email, meaning “Give me a quote and a timescale for X so I can then make a decision whether to go ahead” – but the supplier thinks it was a request to deliver X and so goes ahead and completes the task and invoices for it.
- Having agreed on a price for the service, the outsourcer will be keen to avoid any ‘mission creep’ that adds to their costs. On the other hand, assuming it is your firm’s first time using the service, there will naturally be a learning curve and you may discover that you need to make changes further down the line. So ask the outsourcer about the types of changes that other firms have made and how these changes have been dealt with in terms of extra charges.
"Communication is often where things go wrong when procuring services. So, test the understanding of the supplier. What are the key points that they think have been agreed?"
Becci Wicks, head of legal sector, Lloyds Bank
Outsourcing brings with it compliance risks, which need to be assessed, addressed, and monitored. For example:
- Any legal work must be done by a suitably qualified person, with ‘effective supervision’ by your firm. Also, clients must be able to make an informed decision about how their matter will be handled.
- If the outsourcing could potentially result in a loss of confidentiality, or information may be disclosed to third parties, client consent and confidentiality agreements should be in place. Law firms have a duty to only use suppliers that have suitably robust systems and processes.
- Even activities such as office cleaning need to be covered by contractual provisions that prevent the accessing of confidential material while on a firm’s premises.
- Just as you need to address the risk of cyber attacks to your own systems, ensure that your suppliers are not vulnerable either. This SRA note summarises the current cyber threats to law firms and the main defensive steps to take (June 2022): Risk Outlook report: information security and cybercrime in a new normal.
The regulatory, risk assessment and confidentiality issues in outsourcing are covered in this Law Society 2022 note on outsourcing.
But compliance itself can be outsourced to some degree. The responsibility for compliance always remains with the firm’s COLP and COFA, and ultimately with the partners/directors of the firm. But the task of keeping up to date, and implementing the regulations (including training your team) can be outsourced.
- Compliance software, including onboarding software, can reduce the burden of KYC/AML and other compliance.
- Compliance consultants can set up policies, controls and procedures (PCPs) and then do regular file reviews, to comply with SRA and other regulations and certifications (eg Lexcel, CQS, anti-bribery, GDPR and data protection).
- If you outsource onboarding or cashiering, the day-to-day compliance associated with those activities will be handled by the outsourcer – so check that their systems are robust from the compliance angle.
"As legal services move online, law firms face increasing challenges in ensuring that their IT systems and those of their cyber service suppliers are robust and can respond to attacks."
Paul Smith, senior risk management consultant, Travelers
Set up and then regularly review
Outsourcing frees up your team to focus on servicing your clients. Indeed, that’s the whole idea behind it. But you still need to invest time to set the outsourcer up properly and then to monitor progress and help the supplier make a success of it all. This time commitment means that your firm may not be able to make the full savings that you had expected.
If you burden the supplier with requests for endless reports that no one reads, you will simply increase the cost to yourself. So choose what to monitor carefully, working backwards from the measurable outcomes that you are aiming to achieve.
Test the service yourself. For example, regularly call your outsourced telephone answering service, or check how your outsourced marketing team is portraying your firm and persuading prospects to make contact.
Depending on what you are outsourcing, you may also need to have quarterly face-to-face meetings to review progress and plans.
The crucial meeting is likely to be the first of these. After the first three months you will probably know whether the outsourcing is going to be a success or not. If for whatever reason, things are not working out, a quick decision to go no further may be the right thing to do. There are strong parallels between recruitment and the probation period of a new employee: instinct will often tell you when something is not working, even if you don’t have all the evidence to prove it.
But in most cases, the quarterly meetings will be all about reviewing a successful situation and working out how to make it even better, while always striving to improve the working relationship that you have with the supplier.
"Contracts like SLAs are all very well, but if you are using a small supplier, the relationship that you have built up with the supplier is usually what counts when it comes to receiving support when you need it."
Guy Kerkvliet, head of outsourcing, Armstrong Watson
Outsourcing top ten tips
- Work out which activities could be done more cost-effectively by an outsourcing supplier.
- Start your search by asking for recommendations from people who you trust.
- Write a scorecard with the attributes that you are looking for, such as a track record of supplying other law firms.
- If you are sourcing a specialist skill but lack the knowledge yourself to judge a supplier’s skill, bring in a suitable expert to help you choose a supplier.
- Once you know the pricing, check that the proposed outsourcing stacks up financially.
- Question the shortlisted suppliers until you have a clear understanding of their strengths and weaknesses.
- Do your due diligence, to establish the facts and evidence behind all the claims being made.
- Document the agreement in detail, so there are no misunderstandings.
- Review progress periodically, to sort out problems and improve the outcomes.
- Do your part in building up a good working relationship with the supplier.