Law Firms – Welcome to the World of Strategic Sourcing

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Often referred to as a “sacred cow” of Sourcing, law firms are finally feeling the squeeze felt by every other business that supplies goods or services to clients.  It took the recent recession for companies to realize that “everything is negotiable”, even the legal fees charged by their outside legal counsel.  According to an article by Jennifer Smith in the Wall Street Journal entitled “Companies Reset Legal Costs” now that the recession is over (is it??) . . . “clients who won concessions on their legal bills when law firms were scrambling for business still are calling the shots when it comes to paying by the hour”.   Finally!!  Welcome to the conversation!!  Could this mean that including legal fees as part of sourceable spend is finally happening?

I remember venturing into the world of Strategic Sourcing 15 years ago and being told that legal fees were out of scope.  We were able to get it done all those years ago BUT it took a lot of selling AND it was painful.  Still, today, as we work with client organizations, legal will end up in Wave 5 where all the most difficult categories are placed.  Not because it is so difficult to actually source legal spend but because the internal resistance is so great.  I believe this is primarily due to the fact that most Strategic Sourcing is cost focused and this particular category of spend really requires a Value-based approach.  In addition, most general counsel do not want any part of negotiating with their external partners even though they are supposed to be the “experts” at negotiating.  Talk to the Chief Legal Officer about outsourcing legal research to India and you can literally see the bow tie unravel.  If you look at legal services as being similar to other professional services such as accounting, finance, IT, HR, management consulting. etc., it’s a wonder that legal has been able to fly under the Sourcing radar for so long.  Or could it be that those well-honed negotiating skills have been used to justify why Sourcing is not applicable.

According to Ms. Smith  . . . “the number of companies seeking novel arrangements is on the rise and expected to grow further.  In 2011, 61% of U.S. general counsel in a Fulbright & Jaworski survey of 405 companies said they used alternative-fee arrangements, up from 48% in 2009.

So, it appears that the veil has been lifted.  When I read this article, I felt like I was in a time warp.  It addition to alternative billing structures, it discusses things like clients demanding visibility into what they are paying for, detail plans on how law firms will execute the work, questions around the number of partners required to sit through a deposition? Really, these are basic sourcing strategies that have been around for well over 20 years – they are not NEW, people!!

While companies are still trying to find ways to save money, now may be the time to jump on the bandwagon.  Legal departments may now be more amenable to exploring the Sourcing process, particularly now that it is becoming more mainstream.  Like every change though, develop your business case, brush off your selling document, let them know “what’s in it for them” and realize that it will not be easy.  Once the sourcing process is complete you need to ensure that the solutions are adopted (our AEIOU model) within the legal department or there will be no actual business benefit.  And if you are really brave and also want to have a little fun just mention outsourcing to India and watch the bow ties unravel . . . . . . . .

Join in the conversation and tell us about your experience in what appears to STILL be uncharted territory.

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Anne Kohler
Anne has been leading consulting and financial management organizations for over 25 years. She has extensive expertise in Strategic Sourcing, change management, contracting & contract management (both the buy side and sell side) organizational design and supply chain management. Anne has a passion for collaborating and educating her clients while helping them to uncover hidden value in their organizations. In addition, Anne has been named by Supply & Demand Chain Executive as a “Top 100 Provider Pro to Know” every year since 2007 and a 2013 Top Female Supply Chain executive.
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