Editor's comment: The original LPOs

Why don't regional law firms run LPOs?

Here's a story. In the depths of the early 1990s, as the country pulled itself out of recession, a group of thrusting regional practices hit on the idea of pushing into London. The model seemed simple: use lower cost-bases to take work off City rivals. The economics were clear and many clients at the time were handing regional firms property and employment work that once went to London firms. What could go wrong?

Quite a lot. First, premium corporate and banking work proved impossible to shift thanks to client conservatism and the influence of investment banks. Worse, as the economy recovered regional firms struggled to keep pace with soaring partner profits in the City and to keep winning mid-tier work.

In addition, attempts to combine bulk divisions staffed mainly by para-professionals with the traditional partnership model targeting high-end work proved a nightmare. Despite making logical sense, the model didn't work, largely for cultural reasons. In the end, the regional invaders defeated themselves by losing confidence in their concept; seduced by the City, they tried to become part of the club.

But the weird thing, were you to survey a much-changed and recession-scarred market in 2009, with its renewed focus on efficiency and talk of legal processing outsourcing (LPO), is that the original attempt to re-engineer the legal model has been largely forgotten.

So why don't regional firms return to the original idea and reinvent it for the noughties? There is big potential to substantially expand their bulk divisions, including creating full-blown LPOs. With their skill-set, resources and location, they should be able to provide a strong product.

There are other factors that sceptical firms should consider. At the top reaches of the global market there is now stratification, not consolidation. That means top firms are refining their practices, a process that increasingly sees them strip down their business rather than expand. This stratification also means regional firms will probably have to get used to in-house legal teams and LPOs becoming competitive threats for commoditised work. Already during this downturn regional firms have suffered as major clients cut legal spend by keeping work in-house. They can either resource up to meet that threat or live in denial that recessions see regionals outperform (they don't).

This sounds grim but here's a potential happy ending. The earlier attempts to use cheaper cost-bases and new processes built on efficiency were barely tried before being abandoned. If developed, they hold huge potential, more than most regionals could hope to unlock through the conventional business model. It's risky, yes, but then the status quo is likely to get riskier for these firms anyway.

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