Out of office: Firms outsource support services to cut costs

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Eager to cut costs, large firms nationwide are taking some of their employees out of the office.

Outsourcing work is not a new concept for the legal community, said John Peterburs, executive director of Quarles & Brady LLP, but its use is on the rise for support functions such as human resources, IT and accounting.

Wisconsin’s three biggest firms — Quarles, Foley & Lardner LLP and Michael Best & Friedrich LLP — all have embraced the practice to some degree.

“I think it has become more prevalent lately because of the general economy and the change in the law-firm environment,” said Penny Retzer, the head of document services for Integreon, a global outsourcing firm.

“Generally, I think that clients have put more pressure on law firms to make a change in rates and costs. As a result, the law firm internally has had to make some changes.”

Back- vs. front-office outsourcing

There are two levels of outsourcing. Back-office outsourcing means moving administrative staff to less-expensive locations. Front-office outsourcing involves actually replacing employees with outside workers.

On the back-office side, San Francisco-based Orrick, Herrington & Sutcliffe LLP and New York-based Pillsbury Winthrop Shaw Pittman LLP created “global operation centers,” in Wheeling, W.Va., and Nashville, Tenn., respectively. No lawyers work in those support staff facilities.

Quarles and Michael Best are giving it a try, as well.

Michael Best is in the middle of moving most of its IT, finance and accounting personnel from Milwaukee to its Waukesha office, where rent is cheaper. The move will be done by July 1, said David Krutz, the firm’s managing partner.

“With advances in technology and being able to go paperless with a lot of functions, they can do so much online and the need for a physical presence is just not as great as it was,” Krutz said. “It’s aided by the fact that it’s just a short drive away if there is a need for a meeting or face-to-face interaction.”

Quarles made a similar move, transferring some of its staff members from Milwaukee and Phoenix to a secure data center in a Milwaukee suburb. The rent-per-square-foot at the new location is about one-fourth of the cost downtown, Peterburs said.

When cutting costs requires more than a move, firms contract with outside vendors for front-office outsourcing.

Michael Best switched to a benefits administration vendor about a year ago, Krutz said, to streamline.

“There’s been a lot of changes in benefits over the last several years, and this has helped us keep up with them,” he said. “They also bring some economies of scale with their knowledge and systems, as opposed to us having to train somebody to make sure they’re always up to speed.”

All three Wisconsin firms outsource basic office functions such as mailroom and courier services.

Quarles made exceptions, however, Peterburs noted, at its three offices in Madison and Milwaukee where it retains loyal, long-term employees. In areas with a more transient workforce — Phoenix, Tampa and Chicago – the firm opted to outsource those roles.

“There isn’t a lot of turnover in the Wisconsin market, and we have very good internal management, so there’s no need to outsource it [here],” Peterburs said.

All three firms also outsource some IT tasks. Quarles, for example, outsources its IT helpdesk, as well as software development and project management.

IT is an especially appropriate area for outsourcing, Peterburs said, because technology changes so rapidly and busy in-house staff can struggle to keep up in addition to their other responsibilities.

Foley & Lardner took a major step in outsourcing last fall, when it contracted with London-based Williams Lea to replace its 37-person records department. Darrell Ohlhauser, Foley’s chief operating officer, said the firm did this largely “to move close to a paperless environment and reduce storage costs.”

Making the switch

Whether outsourcing front- or back-office staff members, firms need to tread carefully, Ohlhauser said.

Potentially replacing or moving staff members is a decision that involves several considerations, the firm leaders agreed.

It took about a year for Foley to partner with Williams Lea, Ohlhauser said, from the initial request for proposals to finally turning over the department’s work.

“The key to outsourcing is to find the right partner,” he said. “Because you can outsource service support, but you can’t outsource the responsibility and accountability for the effectiveness and quality of the operation.”

Peterburs said he values vendors that do background checks.

“We want people we can trust,” he said, “because they’re here in our own facilities just like our employees.”

That trust stems from availability, as well, he said.

“Law firms are high-energy places, with a lot of pressure on quick response to client needs,” Peterburs said. “So we need people in those areas that are likely very responsive to the lawyers.”

Many firms use outsourcing to lower costs, so price certainty is an important consideration, Krutz said. The fewer variables in expenses, he said, the better.

Once the right vendor is found, some of the hardest work is yet to be done, however, to avoid damaging employee morale, Integreon’s Retzer said.

“Change is hard,” she said. “For a lot of law firms, because they are so long-term established and have long-term employees, the overall consideration of change is difficult. They’re also very grateful to their employees.”

When possible, firms can try to negotiate with the vendor to have them hire displaced employees.

“Sometimes it’s better for our staff,” Peterburs said, “because the outsourced company might have more career opportunities for them than we would have within our organization.”

Quarles typically gives employees lengthy advance notice when jobs will be outsourced, he said, and makes outplacement services and career counseling available, along with a fair severance package.

“We don’t just give out pink slips,” he said, “and say, ‘You’re done today.’”