Why isn’t there more legal outsourcing?

If there is a theoretical sweet spot for managed legal services and similar models are well-established in other industries, why then isn’t there a higher level of adoption?

There may be structural reasons why managed legal services, and in particular outsourced services, have had a greater uptake in other sectors. Taking IT as an example, there is often a compelling need to transform services. The intense and relatively short cycles of development in the industry mean that both hardware and software need updating regularly to ensure that service can be maintained or improved. Vendors promote this through their own product lifecycles, moving older products to end-of-life, out-of-support status to incentivise investment in retiring old products and rolling out new ones.

There is little parallel to this in law: occasionally there is a change in legislation that requires a wholesale change to existing contracts, but this is relatively rare.

It is also the case that IT uplift, be it hardware or software, typically requires both significant investment and cutting-edge capability held only by specialist suppliers. In addition the new estate will also need new skills to operate and maintain effectively. The allocation of these risks to the supplier in a large and technically difficult transformation exercise is often seen as sensible and worth paying for, along with holding the supplier responsible for the ongoing performance of its new service.

The requirement for significant investment may also have an effect. From a financial perspective, a proposition where the supplier’s upfront costs can be smoothed and paid back over time through ongoing service charges can often be attractive to customers with tight capex budgets.

Of course, there are other areas where outsourcing is relatively prevalent which do not have these characteristics of necessary technical change and high upfront costs – for example, HR or some finance functions. However, it may be that these functions are more obviously composed of standardised processes already taking place inside organisations, rather than more bespoke work being done with external third parties by lawyers.

It may therefore be the case that there are fewer external imperatives driving buyers of legal services to move to these models, and a feeling that legal work may be harder to map to this approach than some other areas. That may be true, but lawyers should be cautious about trusting their own views on the complexity of legal work: a Harvard Business School study found that lawyers’ assessment of their own work routinely ranked it as one level of complexity higher than an objective rating. It seems that sometimes those closest to something may not be best placed to analyse it.