Golden rules to maximise your returns from outsourcing

In the second part of a series on outsourcing for law firms, two leading consultants – one a finance specialist and the other a human resources and industrial relations expert – outline their strategies for getting the most out of your external advisors and suppliers.

FINANCE

David Frost, founder of Your Part Time CFO

David Frost has decades of management experience in the legal, medical and allied health sectors, including a former role as executive director of Rigby Cooke Lawyers in Melbourne. Following are his key tips when outsourcing.

1. Put a premium on law firm experience

There is no substitute for knowledge, experience and qualifications, according to Frost. While there are many consultants in the market, it pays to check if they have specific experience with law firms. Beware, too, of advisors who claim they can do everything. Frost says the best outsourcers know their limitations and can connect firms with other trusted suppliers as required. Do your due diligence, including an assessment of testimonials, and apply the same rigour when hiring an outsourcer that you would when recruiting a new partner. “You need to know that the outsourcer can do what is being asked,” Frost says. “So do your reference checks.”

2. Be realistic and create true partnerships

Frost is adamant there is “no silver bullet” for firms that are struggling to succeed or grow. Yet many managers or partners expect their outsourcing suppliers to turn around the firm immediately. “If managing a law firm was that simple, then why would they be calling you in in the first place,” he says. The key is to create real partnerships with consultants, prepare a plan to guide your success and then implement the plan. The relationship needs to be based on honesty and mutual respect, with the outsourcer being given the power to call out poor behaviour by employees without being fired or ostracised. In short, listen to their advice, Frost advises. “The biggest advantage is that if it doesn’t work out you can just shake hands and move on.”

3. Don’t treat outsourcing as a cost only

Some law firms immediately recognise the value of bringing in consultants, but others view the experience as a cost they want to avoid. Frost says the risk of such an approach is that the status quo will be maintained and the firm’s profits will plateau, or fall. He urges clients to trust him and see his services as an opportunity, not just an expense.

“My role is to add value to their business and to improve their profit and cash flow,” Frost says. Although bookkeepers are cheap compared with an experienced finance expert who may command a salary of $175,000 to $260,000 a year, accessing such experience through an outsourcing arrangement can make sense. “You can get their experience for a fraction of the cost of a (fulltime executive),” Frost says.

4. Reject advisors who just want to cut, cut, cut

Frost believes firms should insist on getting outsourcers who take a holistic approach to their client’s business. Any consultant can come in and cut staff numbers – and temporarily boost the bottom line. Such an approach dismays Frost, who adds: “I’ve never been a cost-cutting CFO … You’ve got to grow the staff you’ve got.” Laying off staff can often create a culture of fear that results in the firm’s best lawyers and employees departing, whereas a good advisor will consider all aspects of the business, from staff and practice management systems to IT and merger opportunities.

5. Avoid locking in long-term contracts

One of the beauties of an outsourcing arrangement is that you can walk away if it is not delivering, so do not get pressured into signing long-term contracts before assessing their performance. Twelve months is too long a contract if things are going badly, according to Frost. “So only lock in when the relationship is working,” Frost says.

6. Set rules for intellectual property rights

Intellectual property guidelines need to be established up front in an outsourcing relationship to avoid confusion and possible bad blood, Frost says. He is happy to share his ideas and IP with a client, but in turn he does not like clients trying to then claim ownership of his IP. “I don’t want to be told that I can’t use it anywhere else.” Frost has also heard of scenarios whereby a consultant gives a client access to proprietary systems, but then cuts access to that IP if a relationship or contract is terminated, potentially causing upheaval and unexpected costs for the firm. Discuss such issues in advance.

7. Conduct regular reviews of outsourcers

Frost believes firms typically know within months if their outsourcing arrangement is working. In any case, it is important to review the relationship at periodic intervals.

HUMAN RESOURCES/INDUSTRIAL RELATIONS

Leonie Green, Director of Conscious Workplace

Leonie Green has a Masters in Workplace and Employment Law from Monash University.  She worked in private practice as an employment and industrial relations lawyer, and has also worked in a multinational corporation as the HR director (Australia-New Zealand) and Group Industrial Relations manager. Following are her key tips when outsourcing.

1. Address systemic business flaws

Green says her small law firm clients typically come to her with a specific problem. For example, it could be a particular challenge with one employee that cannot be resolved. The key to effective use of consultants, she says, is to ensure that in tackling this particular issue that the consultant and management identify if it is a sign of broader problems in the firm. “What often happens is that we see some other systemic issues that are going on that we can fix quickly and easily and prevent the same thing from occurring again,” Green says.

2. Seek clarity around budgets

When problems occur with employees, law firms need to understand the cost of managing that issue internally – and the cost of not managing it at all. Only then can partners assess whether it makes sense to bring in an outsourcer as a gun for hire, according to Green. “You can do a pretty clear cost-benefit analysis of whether or not it’s worth outsourcing the issue,” she says. “Most times, clients haven’t gone through that process.”

Budget clarity up front is required for both the firm and the outsourcer, otherwise there is likely to be confusion over what the agreement will cover and if additional costs may be incurred for work that falls outside the original brief. As Green explains: “Most outsource providers will negotiate and find a way to solve what they can within the budget. There’s either the bells and whistles or the ‘quick fix’ option.”

3. Be on the same page with expectations

In line with transparency around budgets, Green says it is crucial for outsourcers to understand a client’s desired outcome. That allows them to set an appropriate budget and timeframe for their work. An experienced outsourcer can help the firm set goals in their early negotiations. Such clarity increases the chances of a win-win for both sides. “I want to make sure that what I am delivering adds value for them,” Green says.

4. Select an outsourcer that is fit for purpose

“Be really clear on what you need, or work with a couple of consultants at the outset to work out what you do need before you sign up,” Green advises. While most firms get word-of-mouth referrals to see which outsourcers have a good track record, Green says that may not be enough. Some consultants may have built their reputation on leadership development, for example, while another may be stronger on compliance issues. So the key is not just to choose someone who is good, but someone who is good for your firm and its requirements.

5. Insist on outsourcers adopting a people-first mentality

There is a tendency with HR disputes for firms and their consultants to automatically turn to legal solutions. Green prefers to try to avoid litigation and instead focuses on bringing people together to find a mutually acceptable – and financially effective – answer. “If you start with the law, you often end up dealing with the law – and that can be very expensive.” A people-first approach, she says, can often end in an underperforming employee stepping up to the mark or leaving the firm without bearing a grudge.

6. Synchronise technology and IT

Green says there is a great range of HR and practice management tools on the cloud that many firms are ignoring. A tech-savvy consultant can help advise firms about tools that can save the firm time and money, and potentially work on compatible systems that allow cost-effective, remote work. “If they’re using a product that’s in the cloud and the consultant can log into that product and see what’s going on with employee files, that makes it easier to assist from an external perspective if the consultant is not on site,” Green says.

And some final business tips …

David Frost says ‘keep your staff busy’

In quiet times, Frost says, there is no excuse for lawyers and paralegals to be sitting around. Give them additional training, or engage them in some other activity such as social media work or blogging that helps their career development and the profile of the business. He recalls that with one client he introduced coaching of legal staff – and within 12 months the firm improved its top line by about 15 per cent. “And all we did was talk about what the expectations were on a weekly basis and then held people accountable,” Frost says.

Do not make the mistake, he warns, of recruiting lawyers thinking that they are going to generate work. “If you can’t generate work as a firm, just recruiting another person (won’t help). You need to get the right person.”

Leonie Green says ‘treat people with respect’

If an employee is not performing well or their values are not aligned with those of the firm, there is every chance, Green says, that they want to get out. “But they just don’t know the way out,” she says. Green says it pays to treat all staff with respect, even if there is tension between both parties. “When you treat people with respect on the way out, you get respect in turn and people walk away without badmouthing their employer.”