Transforming the legal function Part 2

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1 Transforming the legal function Part 2 Identifying and moving towards your Target Operating Model What your team will look like in 2020 and how will you get there? June 2015 the law firm clients would design

2 L Volume H DIY Automation L Volume H In October 2014 asb law published the findings of its research into how the legal function might look in 2020 and the steps that might be taken today to ensure legal teams are ready for the challenges of the future. A copy of the report, 2020 Vision Transforming the Legal Function, can be viewed at The report concluded that the next five years will see further radical change driven by on-going pressures on legal budgets, the ever expanding role of corporate counsel, and demands for better alignment with strategy and the delivery of tangible value. The provision of legal services will however remain the primary function of the legal department, although the mix of work traditionally undertaken in-house and traditionally outsourced is likely to change. With boundaries between the predominant players in the market blurring, increased competition and choice creates opportunities which cannot be ignored by in-house legal teams. Alternative ways of delivering legal services include: technology based solutions to enable and empower the business; standardisation and automation; virtual legal practices; Legal Process Outsourcing (whether offshore, onshore or nearshore); Alternative Business Structures; resource banks and freelance lawyers; direct access to the bar; and innovative or forced collaboration between different suppliers. During April and May 2015, we attended two international General Counsel summits and spoke with over 200 General Counsel to find out what that mix might look like by It is clear that, as in-house teams have grown in size and specialism, General Counsels are taking advantage of the evolution and fragmentation of the external legal market to reshape the legal function. Approximately 90% of the GCs we spoke to believe that their sourcing mix will be different in five years time, of which approximately 20% felt it would change significantly. While the outsourcing mix will vary from business to business, the general consensus was that we are moving from a traditional model such as this: Traditional mix To a broader mix of providers which might look more like this: A new mix L Complexity H LPO In-house team Law firms Regional/niche ABS Resource banks Importantly, the majority of GCs believed that their teams should focus on the high volume and high complexity work, often described as core activity. Most recognised the value and efficiency of outsourcing the more routine matters. Brand L Complexity H A B C

3 In addition to driving efficiencies, the attendees of our ThinkTank on 12 May 2015 agreed that the advantages of outsourcing legal work included access to progressive legal technology and valuable market insight, as well as the ability to meet fluctuating demand and resource specialist needs without carrying a static cost. Many appreciated the valued added services they receive from their suppliers and the external validation and liability insurance when required! However, as one wise Chief Counsel put it: If you think you can just throw the work over the fence and expect to get something back exactly as you like it without any other investment, chances are they will not be that Chief Counsel Even today, in the more mature ITO and BPO markets, about 16% of contracts result in failure and about 25% result in no changes in performance as a consequence of outsourcing. One GC maintained that an outsourcing arrangement can only ever be as good as the ability of the organisation sending the work out to manage the relationship with the provider. In-house teams and law firms alike will therefore have to master a number of new capabilities to maximize the chances for successful engagement and we hope that the practices presented here will quicken the learning process. 2

4 How to get from the current sourcing mix to a different one It s important that outsourcing is not seen as a discrete activity that offers a complete solution in its own right. The decision about the right service delivery approach and sourcing mix involves process, people, technology and organisational structure. Outsourcing is one element of transformation and needs to be seen in a wider context. As the previous quote suggests, you can t simply throw work over the fence to an external provider and hope for the best. The question is: how do you bridge the gap? There are many ways of going about the transformation of the legal function. The model presented below is a useful way of representing the operating model of your in-house legal function. This is particularly useful when you are considering making changes to that model significant or otherwise. Legal Support Target Operating Model 1. Articulate strategy, assess stakeholder requirements and business need 2. Convert strategy into operational design principles 3. Complete assessment of suitability for outsourcing at service / process level 4. Complete market analysis of potential providers The changes that have swept over the legal marketplace over the last decade have triggered many General Counsels to consider how legal services are delivered by both their in-house teams and by their external providers, and to review their overall sourcing model. Furthermore, your operating model is a sub-set of your strategy and business model. Sourcing decisions should be made in the context of your operating model and your business strategy. It s important to state that your sourcing model is just one part of your overall operating model. 3

5 Review your operating model Before considering any change to your sourcing approach, we would recommend considering your entire operating model. This can be a daunting exercise, so you may need some structure to help manage this. The model on page 3 provides exactly that. Before getting started, let s clarify the components of an operating model. The acronym; PILOS helps some people to remember the elements: Processes Information and IT Location Organisation and People Sourcing 1. Identify your current operating model A good starting point is to draw out the key features of your current operating model i.e. What types of processes do you operate? What sorts of technological capabilities do you possess? Where are there gaps? How is the in-house team structured? How is this aligned with the business structure? 2. Develop your Target Operating Model Start strategically. Clearly articulate your business strategy, your stakeholders requirements and the services that are required from your function. The next step (one of the most important) is to convert your strategy into a set of operational design principles. e.g. Design principles 1. Self-service solutions will be introduced where possible 2. Added value services will be delivered geographically close to the users 3. The efficiency of transactional services will be improved through automation, standardisation and allocation of work to the lowest cost provider 4. We will increase the proportion of spend on value added services For such a major change, you ll need the buy-in of senior stakeholders. We suggest a series of workshops with key stakeholders to define and agree these principles. Once at a principle-level, it is extremely helpful to agree operational changes at the start to avoid multiple long and protracted debates about each proposed change at implementation time. Once you have a clear articulation of your current operating model, you can start to develop your target operating model. 4

6 3. Define your legal needs Following the definition and agreement of some operational design principles, we suggest considering your current and target operating model service-by-service. What services does the business require of your legal function? e.g. Business and commercial strategy support Contract review and drafting Clearly, this example is just one way that services might be delivered in your future operating model. Hopefully, it illustrates why and how you must consider your entire operating model when contemplating outsource / in-house decisions. If you are considering changing your in-house legal function and/or sourcing mix, we would be delighted to discuss this topic further, share our experiences with you and identify how we may help you further. Intellectual property protection Litigation support Property acquisition and disposal support Please contact: 4. Apply your design principles Once these services have been defined, you can begin to consider how they could be delivered across each element of the operating model. For example, let s consider how contract review and drafting might change within the operating model if we assume that we had agreed design principles 1 and 3 above: Lyndsey Ratcliffe Partner, asb law lyndsey.ratcliffe@asb-law.com Processes you may decide to reengineer the existing processes to be more standardised Information technology you may decide that these services should be delivered via a selfservice portal Location for a global team with multiple locations, you may decide to relocate the delivery of these standard services to a lower cost location Organisation and people you may decide to restructure the department and create a centralised team to deliver contract review and drafting services Sourcing you may decide to insource these services from your panel firms and deliver all these services from the newly created, centralised team 5