New avenues for cost management

Outsourcing among US firms has become increasingly common, although few have yet considered the potential for outsourcing secretarial and word-processing functions.

By Ron Friedman, Prism Consulting

Law is and has always been a learned profession. Legal practice has always been a business as well, but in the past couple of decades, large law firms have evolved into big and sophisticated businesses. To boost revenues, firms have merged, gotten serious about strategy, invested in marketing and opened offices around the world.

It is fair to say, however, that firms have emphasized growing revenues over containing costs. The legal trade press reflects this. Articles about mergers, client service and practice-group management abound, but good ones on managing costs are relatively rare.

Large firms in particular have untapped potential to improve profitability. Outsourcing reduces internal costs yet maintains service levels for clients. Though outsourcing is already widespread, it still has tremendous potential to reduce costs further. Achieving cost reductions does not, however, require staff disruptions.

This article briefly reviews the logic behind outsourcing. It then explains why firms should evaluate the relatively new opportunity, in particular, to outsource secretarial and word-processing tasks.

Outsourcing to improve operations and reduce costs

What firms outsource today

Before examining ‘the why’, it is useful to inventory ‘the what’. Firms long ago realized the benefit of outsourcing back-office functions such as payroll, copy center, mailroom, food service and travel. Outsourcing is especially important in technology: IT departments outsource network operations, applications development, major systems upgrades, running software and help desks (a function with extensive lawyer contact).

Outsourcing even extends to law practice itself. Some firms rely on armies of contract lawyers to review the growing volume of discovery documents. Others turn to well-established companies for legal research. One large law firm, UK-based Lovells, farms out aspects of real-estate matters to UK firms with lower rates.

Why firms outsource

Firms outsource for many reasons. Of course, cost reduction is important and oft cited. In fact, however, many firms are motivated more by doing the job right and by avoiding management headaches than by saving some money.

By focusing on one or two functions, outsourcing vendors gain advantages over law firms because:

They become truly expert at managing the functions since this is their only business;
Vendors can invest in efficiency-enhancing processes, and spread the cost over many customers;
Recruiting and retaining higher quality talent is easier because a large, focused company can create career opportunities that customers can rarely match;
Working for multiple customers means more consistent capacity utilization than any single customer can achieve; fewer peaks and valleys mean lower costs.

Beyond specialization, vendors have two other significant advantages. First, they can locate functions that need not be performed on-site in lower cost domestic or offshore markets. In contrast, customers often operate in high-cost cities. Consequently, outsourcing companies pay less rent and lower salaries yet can deliver work by internet, phone or overnight shipping. Second, vendors achieve a scale that makes it easier for them than for their customers to operate around the clock, an increasingly important necessity for large law firms.

Some firms skip outsourcing but try to replicate the advantages with an internal shared-services model, centralizing in one place, functions previously distributed across locations. For example, shared services are a big trend in technology. Many law firms are consolidating servers and staff from multiple offices to a central place (some in low-cost locations).

The benefits of outsourcing secretarial tasks

Secretaries and document processing are typically the third biggest cost after associate salaries and rent. Though the ratio of secretaries to lawyers has fallen, few firms have fundamentally
re-thought the role of secretaries and how best to meet lawyers’ administrative support needs.

CBF, founded in 2001, is a company that provides outsourced secretarial and document processing services. Based on client feedback, the company chose to build a US-based solution and selected Fargo, ND for its supply of low-cost office space and skilled but inexpensive labor.

An outsourced, shared-services model, such as CBF’s, saves money relative to traditional secretarial staffing. It offers operational advantages and the opportunity to deploy secretaries in new ways. Outsourcing is not, however, an all-or-nothing proposition – law firms can still keep their secretaries. But outsourcing some secretarial functions can lower the secretarial ratio by hiring fewer new ones, re-assigning some and allowing attrition to occur. Moreover, it creates the opportunity to recast the role of secretaries with a focus on higher value tasks.

Matching resources to needs

Large law firms face a widespread but little discussed and infrequently solved challenge: aligning secretarial support with lawyers’ needs. Secretaries’ skills vary as do lawyers’ needs – matching the right secretary to the right lawyer is hard, even on objective criteria. Throw personalities into the mix and the matching process is that much harder.

Another challenge is availability. Support needs vary by month, week, day and hour, yet staff assignments are fairly fixed; most secretaries work for a set number of lawyers during regular hours. Also, managing scheduled time off (especially at holidays) and unplanned absences can be a big frustration.

The result is that lawyers sometimes compete for secretarial time, especially on big projects where one secretary cannot produce all of the necessary documents. Floor coordinators, informal sharing arrangements and floaters help balance workloads but do not solve the problem. To provide the necessary back-up and 24/7 coverage, firms must staff central departments, which is hard because of the shift work.

The solution is over-staffing. Most firms have a net surplus of available secretarial time – they pay for secretaries whether or not there is work to be done. Secretaries are not to blame; extra capacity is a response to the reality that workloads vary far more than the resources.

By outsourcing to companies like CBF, firms can also relinquish problems surrounding secretarial recruitment, hiring, training and dealing with turnover; they become the outsourced company’s concerns rather than the firm’s.

Simplifying HR challenges

Recruiting, screening, hiring and training secretaries are costly and time-consuming activities. Whether a firm relies on ads or agencies, identifying candidates and screening them is a hidden cost in most firms. Moreover, these costs will likely increase over time. The pool of qualified candidates seems to be shrinking as a legal-secretary career becomes less attractive. With fewer qualified prospects, the cost to find each one increases.

Customers of companies like CBF reduce these costs. Recruiting, hiring, training and dealing with turnover become CBF’s problems instead of the firm’s.

Managing quality and performance

Most firms have trouble managing secretarial performance. Part of the problem is structural: administratively, secretaries report to a supervisor, but substantively, they report to a lawyer. Part of the problem is personality: an open secret is that many lawyers fear their secretaries. The combination makes monitoring quality and delivering performance reviews inherently difficult.

Skill mismatches, underperformance, quality control and personality conflicts often become chronic problems. Through no fault of their own, secretaries may miss opportunities to improve and work may need to be re-done or shifted to other resources. For example, some lawyers send complicated documents to central word processing even if their own secretary has time.

These same issues make quality checking difficult. Secretaries usually work as individuals, so lack colleagues to review and correct work. That neighboring secretaries may help proofread is the exception, not the rule.

Firms that outsource avoid these problems because quality control and performance appraisal is built into the process. For instance, before returning work to a law firm, CBF performs multiple quality control checks. And performance reviews are part of each job. For every project, CBF asks for feedback and receives it from around one-third of clients.

Reducing costs

A conservative estimate of the direct cost (salary plus benefits and payroll tax) for a secretary in a major urban area is $85,000. Making reasonable assumptions about hours worked, the hourly cost is about $50. If, however, secretaries are utilized only 80 per cent of the time, then the internal hourly cost is over $63 per hour.

Outsourcing offers a lower cost approach. The hourly price for support is less than the internal law-firm cost but the outsourced team is available 24 hours per day, seven days per week, 365 days per year. So firms can save direct costs by outsourcing. They can also reduce the indirect management costs described above.

Results to date

Better service

Several large, global law firms are customers of CBF. Initially, lawyers and secretaries were skeptical and concerned about the service. But quickly, both have become users. Lawyers like the 24/7 availability, the fast turnaround time and high quality. Secretaries like offloading onerous or document-intensive tasks so that they can help with higher-value tasks.

Lower costs

Law firms that outsource in this way find that they use much less secretarial overtime, that central word-processing departments shrink over time, and that the ratio of lawyers to secretaries drops. Based on the actual experience and the direction customers are taking, with a subscription model in a 500-lawyer firm, a net savings of over $1.0m per year is possible.

The potential for structural change

These savings stem from relatively easy changes. CBF and its customers believe that additional benefits will flow from re-organizing how work is done. But this will not occur automatically. Firms need to consider new organizational structures and new job descriptions for secretaries. For example, outsourcing ‘heavy’ document-production tasks and dictation frees up secretaries for higher value tasks such as relationship management, workflow and contributing to knowledge-management systems.

Conclusions

The legal market has steadily evolved and adopted ever more business-like approaches to operations. Low-cost computing and inexpensive, reliable, high-speed communication allow many tasks to be performed off premises. The outsourced, shared-services model is well proven; firms that seek to improve operations, offer their lawyers and clients a higher level of service, and reduce costs, should consider outsourcing some secretarial work and word processing. n

Ron Friedman is the founder and president of Prism Legal Consulting. A lawyer by training and former CIO at the law firm, Mintz Levin, Friedman, he has over a dozen years of legal market experience at two law firms and two software companies.