I’m in the process of reading Thomas L. Friedman’s "The World is Flat: A Brief History of the Twenty-First Century." So far, it is a fun, compelling read. Which is what I expected, as Friedman is a fun, compelling guy. Here’s the point of his book in a nutshell:
Globalization 1.0 was countries globalizing and the dynamic force in Globalization 2.0 was companies globalizing, the dynamic force in Globalization 3.0 — the thing that gives it its unique character — is individuals and small groups globalizing. Individuals must, and can, now ask: where do I fit into the global competition and opportunities of the day, and how can I, on my own, collaborate with others globally?
What does this mean for the legal industry and legal marketing? In a word — change. Big change.
Early on in the book, Friedman makes the point that he’s glad he’s a journalist and not an engineer or software designer or accountant or in any of the other professions that were "easily" outsourced to India, China or elsewhere over the last 5-10 years. Except he then immediately goes on to talk about how Reuters has opened a 400 employee shop in Bangalore and aims to grow their operation there to 1,500 within the next year or so. The Indian journalists do the "grunt work" of Reuters’ financial reporting, taking earnings’ statements off the wire, putting them into tables, doing very basic analysis, and shipping the formatted information back out. More complex work is done by senior analysts, many of whom are in New York, London, Tokyo, etc.
Whoops! I guess you can outsource journalism.
Or parts of it. And that’s one of the biggest points that Friedman makes early on in his book.
Remember this term – "service delivery fragmentation." I’m coining it right now. You heard it here first, my friends. I’m going to come back to you people later as witnesses when I claim to have invented the phrase.
Friedman quotes an Indian entrepreneur talking about the old saw, "Well, you’ll never be able to outsource a haircut or a meal." This refers to the idea that you can outsource goods, and certain services, but not direct services. His reply?
"True. But I can take the reservation for your table sitting anywhere in the world, if the restaurant doesn’t have an operator. We can say, ‘Yes, Mr. Friedman, we can give you a table by the window.’ In other words, there are parts of the whole dining experience that we can decompose and outsource… [and] we are coming close to exporting a haircut, the appointment part. What kind of haircut do you want? Which barber do you want? All those things can and will be done by a call center far away."
Service delivery fragmentation. Most law firms practice a form of it now already. The days of one lawyer doing all the work for a client went the way of the dodo decades ago. But that used to be the norm, remember? Now, the work is split among several practice groups, any number of partners and associates, secretaries, paralegals, project support personnel, etc. In fact, with large clients, there are probably several (or dozens of) firms working together, maybe under the direction of one coordinating counsel. There may even be non-lawyer resources being managed by lawyers; expert witnesses, forensic pathologists, engineers, accountants, records management firms, information technologists, etc.
The practice of law is highly complex and one case can sometimes require hundreds of workers. The delivery of that service is fragmented.
Now all you’ve got to do is figure out how to go one step further. It seems like a big step because it’s across a large body of water. It seems like a big step because it involves another country. It seems like a big step because it’s across a bunch of time zones. But, as Friedman says, all this fiber-optic cable, email, voice-mail and technology has flattened the world. The "bigness" of the proposition is mostly in your mind. The broader your mind, the easier the step.
Those firms willing to make the step out and consider how to incorporate legal services outsourcing into their model will have a huge advantage in the next decade. Why? Effective use of legal outsourcing as part of your service delivery chain enables a firm to:
- Offer more services
- Reach new clients
- Offer lower rates for commoditized services
- Maintain higher rates for US attorneys
- Offload more of the mundane work to outsourced centers
- Maintain high-end, high visibility work for US attorneys
It’s all about doing the right work at the right place for the right price.
For example, outsourced legal services is a way for smaller firms to "up-size" their own service abilities. A firm with, say, 50 attorneys can’t normally, easily compete with a 100 lawyer firm. But if that 50 lawyer firm were to utilize the outsourced services of several Indian companies to provide back-office support for many of their routine, low-end support functions, those 50 lawyers could free up more of their time to work on value-added, high-end work, and compete with larger firms.
The cost differentiation will also enable firms that take advantage of Indian outsourced labor to provide services to a wider range of clients.
For example, US lawyers in estate planning might still do high-end work for clients that need complex, multi-level plans. But other customers — ones that couldn’t afford such services previously — might now be serviced by a more "fragmented" practice in which the first two-of-three rounds of work were performed off-site by Indian attorneys, the third round of which was simply spot-checked by a US lawyer.
Instead of paying $600 (3 hours of work at $200/hour), which the average customer can’t afford, this new process costs $190 (3 hours at $30/hour + 1/2 hour at $200/hour). This process yields:
- A cost of less than 1/3 for the US customer
- 15% more time spent on the job for the US customer
- More time availability for the US attorney to spend on complex matters
- Maintenance of the billable rate for the US firm
- New customers for the US firm
- Retention of previous customers for the US firm
- Passing off of tedious work from US lawyers to Indian attorneys
This same model will work for a variety of different practice areas. The main rule being that the US attorneys function more as managers, doing the value-added, high-visibility, highly profitable work, while the more commoditizable work is outsourced. For firms willing to move away from the billable hour model, outsourced work can even show a very healthy profit.
Change is always seen as a threat by some. That is inevitable. For those willing to embrace change, however, there is also opportunity. Globalization 3.0, as Friedman calls it, represents a significant opportunity for those law firms who are willing to consider "fragmenting" their service delivery further. Remember — you’re already fragmented as it is. This is just one more step — and potentially a very profitable one — on a journey that began when you stopped being a sole practitioner and began working with other lawyers, firms, paralegals, employees and service providers.