Destination SA: A preferred legal outsourcing destination

July 1st, 2014

By Richard English

In 2011 De Rebus ran a feature on the state of the legal process outsourcing (LPO) industry in South Africa (2011 (Nov) DR 18). The article shed light on the status of the industry in global terms and the role South African LPO providers are playing in capturing market share. As South Africa is predominantly an outsourcing destination (rather than the originator), it may come as a surprise to many readers that the LPO model is, in fact, taking off among local enterprises as an alternative to traditional legal service frameworks.

The advent of the LPO industry and its proponents relied chiefly on cost reduction as its main driver, made possible simply by offshoring the service delivery locations to lower-cost countries such as the Philippines and India. This paradigm suited a market where a dogmatic approach to process was favoured over discretion or specialist skills. Outsourced services were generally linear in nature, with little margin for deviation from the ‘rule book’.

This model still exists and is worth a reported $2,4 billion (according to 2010 figures) (L Wood ‘Research and Markets: The Global LPO Market is Expected to be Worth $2.4 billion in 2012’ (2011) Business Wire, March 11). The argument could well be made that it is here to stay. However, buyers of LPO services (traditionally law firms in developed Western countries) have come to realise, that in many instances, an unbending approach to process is not ideal. It is axiomatic among the legal fraternity that exceptions exist for every rule. Where a task requires specialised skill or discretion for its successful execution, the cost of the service becomes less of a decisive factor in its procurement. The word ‘process’ in LPO is increasingly being replaced by ‘service’ among providers, acknowledging the mainstream adoption of more flexible delivery models.

In South Africa, where outsourced legal service providers are a nascent feature of the legal landscape and new players are emerging, the country has become an ideal location for the delivery of services to legal enterprises based in the United Kingdom (UK), Canada, Europe and even Australia, for a host of factors. The rising popularity of our outsourcing providers was acknowledged in October 2012, when the Department of Trade and Industry (assisted by Business Process Enabling South Africa (BPeSA)), was named best ‘Offshoring Destination 2012’ by the UK’s National Outsourcing Association. It was a tremendous accolade and show of confidence, and indeed was repeated a few months later at the equivalent European Outsourcing Association Awards ceremony (see ‘NOA award winners 2012 announced’, accessed 2-6-2014).

Providers – some based in South Africa – traditionally served international clients only. They have first-hand experience of (and in some cases have led) significant innovations in service delivery, including workflow optimisation, pooled resourcing leading to greater efficiency and technology enablement. This expertise has been honed over the years to deliver value to the most demanding of clients. Crucially, the benefits afforded by these providers are increasingly relevant and available to the local South African market.

As previously stated, the key factor in facilitating the rise of the LPO industry was reduced costs. This was made possible by simply outsourcing services to a lower cost country. The question therefore arises: Aside from cost reduction, what are the other drivers behind companies sending work offshore?

The answer to that question lies in service delivery models offered by new model providers, which are by necessity based on optimal utilisation of resources, efficient workflow processes (including the six sigma ‘lean’ methodology), effective use of legal technology and quality assurance. As a result of these applications, legal process outsourcers are able to offer the market –

  • improved process efficiency and access to leading technology (eg, contract drafting automation);
  • scalability and flexibility of resource, as opposed to fixed resource costs that do not align with peaks in demand;
  • improved turnaround times, for example in the creation of legal documents such as ‘business as usual’ contracts;
  • improved management information and reporting, such as reporting metrics that cover unit costs and completion time; and
  • alternative fee structures (including capped, fixed or unit priced fees).

These benefits are increasingly appealing to the domestic market, to the extent that the primary benefit of cost reduction (associated with offshoring to a lower-cost country) becomes a secondary consideration.

The first example of a South African organisation recognising the benefits of introducing LPO to its mix of legal service providers took the form of a large mining conglomerate. In 2012, specialists from our commercial and contracts team were seconded to its headquarters in Johannesburg to co-develop a contract-drafting and management-workflow process, with a view to outsourcing particular aspects of the service. The pilot was a success, with notable milestones including –

  • contract drafting turnaround times being cut by 700%;
  • improved adherence to in-house drafting protocols;
  • improved visibility into and control over commercial and legal risks contained in new contracts; and
  • improved productivity within the in-house legal team, whose members were able to commit their time to more strategically important tasks.

Recognising the wider benefits available, LPO services were introduced to other business units within the broader business and the relationship is now entrenched. Off the back of this strategy, the client’s legal team was shortlisted in the categories of Innovation and Best In-House Legal Team at the 2013 African Legal Awards ceremony. Leaders within the in-house legal team are sharing their experiences with other similar corporations nationally. By all accounts, the idea that LPOs are relevant to the South African market is gaining traction.

It is not only multinational corporations that stand to benefit. Law firms of all sizes are showing interest. Smaller firms are interested in accessing scalable support for sophisticated functions such as technology assisted contract management, while larger firms are interested in the competitive advantage a relationship with an LPO provider might bring when bidding for large scale projects, where cost of delivery is a decisive selection factor.

What does this mean for the wider legal services market in South Africa?

The global financial crisis of 2008 was acutely felt in the UK and US, where LPO providers now find their most accessible market. However, lessons learned in those regions apply equally well to others and the backlash against the hourly bill, opaque fees and law firm protectionism has not receded as quickly as the memory of the economic crash. Lawyers in the UK are realising that change in their delivery model is imminent, either by their own volition or at the instance of key clients. South African lawyers have a unique opportunity to monitor the developments in these jurisdictions closely and emulate the successes wherever possible. This will secure their future when the inevitable happens and clients pick up the universal chorus of demanding more for less.

Richard English BA LLB (Rhodes) Dip Global Strategic Outsourcing (Middlesex University UK) is a non-practising attorney and associate director at Exigent Limited in Cape Town.

This article was first published in De Rebus in 2014 (July) DR 34.