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There's a fine line between an information provider embedding itself in its customers' workflows, and actually taking over those workflows and a chunk of the customers' business. Thomson Reuters' acquisition of India-based legal process outsourcer Pangea3 pushes the line further out. But change is coming to legal services; and Thomson Reuters is not sitting around waiting for the legal services industry to change itself.
Important Details: Thomson Reuters has created quite a stir with its acquisition of the Indian legal process outsourcing (LPO) firm Pangea3. LPO has become an integral part of the legal services market, as both law firms and corporate legal departments have attempted to cut costs and gain efficiencies by outsourcing routine matters to third-party firms, some of them located offshore.
Pangea3 has 650 employees at its major delivery centers in Mumbai and New Delhi. Its client base includes Am Law 250 law firms and some of the world's largest financial services, pharmaceutical, healthcare, food and beverage, technology and consumer goods companies. The firm offers a variety of services organized into four distinct lines of business including legal document review; corporate transactions; intellectual property; and risk management and compliance. While Thomson Reuters did not disclose Pangea3's revenues, it claims Pangea3 has enjoyed over 20% annual growth in recent years, and that the entire LPO market will soon exceed $1 billion. That compares with $200-300 billion in total revenues for the US law firm industry. In general, the UK legal services industry has been a bit more dynamic and forward-thinking in its approach to outsourcing both legal work and other business processes.
One of the advantages of this acquisiton is that its benefits will accrue to a number of business units within Thomson Reuters' legal business. In addition to the law firm and general counsel markets, which are the big users of LPO services, bits and pieces of the Pangea3 service offerings will find a home in Thomson's intellectual property units, its new Governance, Risk and Compliance unit, and various litigation-related document review offerings, for example.
Implications: This acquisition is a big deal because LPO has become a big deal in the legal services industry. On the one hand, there is no denying that LPO is one of the many tools (including alternative fee arrangements and new staffing structure) that the legal services industry are starting to apply in order to wring more efficiency out of a industry with a business model that has been stubbornly resistant to change. Many lawyers and law firms have been reluctant to embrace LPO, however, because it doesn't fit with their self-image of what lawyering is all about. The idea of offshore, low-wage lawyers tackling legal matters the way that offshore call centers tackle customer support in other industries is insulting and threatening to many lawyers and law firms. But the success of the LPO model is evidence that just perhaps the mystique around what lawyers do is a smokescreen and that maybe, just maybe, legal services is an industry that can benefit from the same kinds of automation and process-thinking that are now applied in virtually every other industry.
Thomson Reuters understands this because it has been relentlessly finding ways to insinuate itself into customers' workflows, with offerings that help firms manage time and billing, back office finances, litigation processes, their in-house knowledge and know how, and to help them to market themselves. This acquisition is a logical next step in its progression of providing information, then software, then services to a rapidly changing legal market.
In some sense Thomson Reuters will be competing with its customers - but that is a fair turnabout because, as we have pointed out earlier, many of the new technologies being adopted by the legal industry have allowed them to in essence compete with the legal publishers of the world (see Insights 1 June 2009, JD Supra Adds Law Centers). There are new ways for legal professionals to collaborate and to share information and practices that, to some extent at least, replicate the information that they traditionally could only obtain from the major legal publishing houses.
Jordan Furlong of Edge International and Stem Legal published a very timely blog post recently, Destroying your own business, in which he describes the inability or reluctance of the legal services industry to make the changes that need to be made in order to turn itself into a modern, efficient industry. Most of the innovation in legal services today, he argues, is occuring outside the legal profession itself. Rather than acquiring new players like Pangea3, major law firms are busy merging and consolidating among themselves, creating larger and larger versions of an outdated business model. Thomson Reuters has seen, from a position outside the industry, what many inside it could not, namely the opportunity to own and perfect another piece of the evolving delivery of legal services. As all major information providers learn sooner or later, Thomson Reuters has found that there is a natural (and perhaps inevitable) progression from providing information that supports business processes, to providing technology that supports those processes, to providing the processes themselves.