In recent years, several large law firms have gained attention by centralizing their back-office functions offsite — usually in locations with cheaper rent and labor costs than in the cities where they base their legal services.
Such setups generally are unrealistic for smaller firms. Nevertheless, you can reap similar advantages by outsourcing some of your functions. The same advances in technology that make centralization possible for big firms can make effective outsourcing possible for other firms.
When Expertise Matters
Law firm administrators and managers know that running a successful practice requires much more than legal expertise. Often the most challenging aspect of the legal services business is keeping the firm's critical functions running smoothly, including:
- Human Resources;
- Food Services;
- Travel Services; and
Many of these functions come with numerous subfunctions. Human resources, for example, includes recruiting and retention, training, leave management, benefits planning and administration — not to mention an array of compliance responsibilities. All of these are labor-intensive activities where expertise matters and that expertise frequently can be obtained in a more cost-effective manner by turning to external service providers.
However, the potential benefits of outsourcing go far beyond expertise. The primary draw for most firms is reduced costs, which come from a variety of sources. For example, as with the centralized back offices big firms are establishing, vendors may be located in areas with lower overhead costs, and their pricing will reflect that.
Vendors with multiple law firm clients enjoy (and pass on the benefits of) economies of scale and high-capacity utilization. They wield superior negotiating leverage when it comes to dealing with third parties like insurance carriers, and they provide early access to best practices, as well as the latest technology, without incurring the capital costs.
If you outsource functions, your firm may see reduced overhead and staff costs, including employment taxes, paid time off, benefits, salary and wages. Moreover, unlike internal staff, outsourced workers are paid only for work performed — you will not have to compensate them for idle time sitting at their desks.
Weighing Potential Vendors
Selecting vendors for outsourced services requires careful consideration. Not every vendor will be able to provide the functions and level of service you require. Begin by soliciting referrals from other attorneys and firms. Pay special attention to the experience of firms that are comparable to yours in terms of billings, number of attorneys and practice specialties. Among other things, ask about vendors' customer service — how often do problems arise? When they do, is the vendor responsive and does it resolve issues satisfactorily?
Also, think about fee structures. Some vendors charge a flat fee that increases as you add employees to your payroll. And, fees aside, can the vendor adapt in case you expand or downsize in the future?
Liability is another significant issue. Mistakes by human resources and payroll providers in particular can lead to sticky and expensive compliance problems. Will the vendor assume liability, or will you be on the hook for resulting costs? Similarly, be sure to check out the vendor's financial stability and business culture. You do not want to outsource your critical services to a vendor that could go out of business without warning, or with whom your firm clashes on issues such as risk tolerance and ethics.
Once you have selected a vendor, it is important to maintain frequent communication with the vendor through implementation and then regularly throughout the course of your relationship. In some cases, vendors might put one of their employees to work in the client's office.
Good Business Sense
As clients continue to demand greater efficiency and lower costs, outsourcing arrangements not only promote savings but can also provide your firm with a competitive advantage. Regardless of size, the firm might find that outsourcing makes good business sense.
Sidebar: Software — An Alternative to Outsourcing
Outsourcing is not the only alternative for law firms interested in reducing their dependence on internal staff for key functions. More and more firms are implementing software solutions.
Some firms have reduced their HR staff by introducing an HR information system (HRIS). HRIS represents the intersection of HR and IT, with non-strategic, recurring and time-consuming HR tasks accomplished electronically. The program also easily generates reports. The systems typically include flexible designs and databases of employee information that can be integrated across features. Procedures such as requests for time off can be handled and tracked automatically. HRISs may also incorporate accounting and payroll functions.
However, replacing several of your firm's functions at once with this software may not be the best choice. Discuss cost-containment options with your financial advisors. And, if you do decide to purchase software solutions, adopt them incrementally to ensure they fit your firm.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.