Are you looking to improve back-office functions in your firm, and do you want to achieve efficiencies while retaining management oversight? Chris Bull explains why co-sourcing could be for you

Every business owner, whether providing legal services, running a retail outlet or manufacturing, is faced with a series of ‘make or buy’ decisions: to do something internally (do it yourself or employ people to do it) or contract externally (this is known as managed service). But there is a third option: co-sourcing.

In managed service, the supplier delivers a ‘turn-key’ service that is wholly managed by them and governed by specific service level agreements. By contrast, in co-sourcing arrangements, a business function or process is performed by both internal staff and an external party or resources with specialised knowledge of the business function.

Law firms can – and increasingly do – use both models of outsourcing. In the real world, most contracts fall somewhere between the two, although with a foundation in one or the other. Which option is right for you?

Choosing between co-sourcing and managed service

Managed service is often appropriate for services which can be precisely defined, packaged and separated; are not within a firm’s core capability; or can be performed entirely off-site by a supplier.

Co-sourcing is sometimes described as bringing the advantages of outsourcing in-house

IT hosting, support and data centres are probably the fastest-growing areas of managed service contracting in the legal sector. Torquay-based Wollen Michelmore brought in a third-party legal sector IT specialist to turn around its dated and struggling internal IT service. Commercial Group implemented a new, resilient IT infrastructure, business continuity environment, on-site managed IT support service and network manager. As with most law firm IT outsourcing deals, this was fundamentally a managed service, with Commercial Group taking on responsibility for delivering the entire IT service.

Co-sourcing is often the right option where it is harder to separate out the internal and externally provided components of a function. It also works well where the firm cannot realistically compete with an external supplier in terms of know-how, proven processes and substantial resources, but wants to maintain management and decision-making responsibilities over the function. Co-sourcing is sometimes described as bringing the advantages of outsourcing in-house: the firm retains more executive control and maximises its internal capabilities, while tapping into external supplier expertise, scale and specialist resources.

West Midlands firm FBC Manby Bowdler (FBCMB) brought in a co-sourcing partner to improve its answering service. Its receptionists not only answered the phone, but also had to meet and greet clients, as well as manage daily administrative tasks. This led to calls not being handled in the best way possible, and clients not always receiving the right first impression. Outsourced communications provider Moneypenny brought its experience of call handling, call data analytics and customer service techniques to manage the incoming calls. As Neil Lloyd at FBCMB comments: ‘Not only are all calls answered 24 hours a day, seven days a week, but the calls are answered in a professional, efficient manner. This frees up time for our receptionists to focus on greeting clients arriving at the offices.’

Leveraging co-sourcing relationships

An increasing number of organisations are pursuing new business relationship models with a high degree of collaboration. Co-sourcing is one such model. The best co-sourcing relationships are genuine partnerships, where the skills and resources of in-house and third-party teams are successfully – ideally, seamlessly – blended to deliver a better service and cost than either party could expect to deliver alone. The relationship should embed more trust, cooperation and both risk- and value-sharing than is typically expected from outsourcing.

Firms opting to co-source a service need to demand a high degree of commitment from their partner, who should be completely aligned with the firm’s strategy. To create this kind of synergy, the business interests of both parties need to be aligned, with metrics and financials that incentivise achievement of the firm’s goals. Linda Storey, a partner at Pennington Manches, where PA services are co-sourced with PA and administrative service provider Intelligent Office, explains how important alignment was to them: ‘I had objectives to reduce the costs within our department, predominantly looking at the PA function to ensure it was modernised to be streamlined and efficient. Intelligent Office obviously wanted to deliver those efficiencies and had targets to do that… We have already reduced PA count and delivered measurable cost savings.’

There also needs to be substantial operational and managerial integration, with both processes and responsibilities clearly documented, in order to avoid disputes, duplication and important outputs falling between stools.

Five tips for effective co-sourcing

Alex Holt, director of business development at legal cashiering and accounts outsourcer The Cashroom, outlines five key elements for effective co-sourcing:

  • detailed process understanding
  • clear delineation of responsibility, to ensure that there are no grey areas
  • clear lines of communication – the individuals on each side have regular, direct access
  • regular review meetings
  • a ‘we are in it together’ approach.

Where are law firms using co-sourcing?

For many small to mid-sized (SME) firms, running an in-house IT function is becoming too big a challenge, especially in light of spiralling complexity, cost and cyber risk. Co-sourcing is a good option where firms want to retain, or hire, a senior IT executive or partner with strategic responsibility.

Co-sourcing is also gaining ground for finance and compliance, where complexity, risk and finding the right staff (especially where long-serving people reach retirement age) are big challenges. Haywards Heath-based firm Tegamus Law recently partnered with The Cashroom to deliver key elements of the firm’s cashiering and accounting. Tegamus’ compliance officer for finance and administration, Usha Nayee, explains: ‘The combination of our own finance people and their external resource has given us flexibility, resilience and improved security in a cost-effective solution, supporting our strategic growth plans.’

Another area of steady growth has been the central administrative services all firms need but are not necessarily expert at managing or hiring for. Many of these areas – reception, switchboard, general office, reprographics, document production – impact external clients as well as internal users, so co-sourcing is a popular approach, with firms retaining senior management responsibility and some component of on-site resources and PA resource in fee-earning teams. The third-party provider brings expertise in customer service processes, hiring and managing staff, supporting technology, and often off-site and out-of-hours support. Intelligent Office recently partnered with a top-50 firm where the new model separated document production, compliance and administrative tasks: around 100 of the firm’s PAs and secretaries now work for the provider on these tasks, freeing up those still employed by the firm to focus on adding value to client and fee-earner relationships.

Every firm should be taking another look at ‘make or buy’ decisions across their services, and considering co-sourcing as a potential ‘best of both worlds’ option.

Chris Bull is leading a workshop at the Law Management Section annual conference in London on 2 May.