- Organizations globally plan to reduce their legal function costs by an average of 11%
- 59% report challenges in attracting and retaining talent for today’s legal function
- 74% already outsource or plan to outsource legal function activities
82 percent of companies plan to reduce their legal function costs over the next two years, with 42% of respondents planning on doing so by more than 10%, according to a new report released by EY Reimagining the Legal Function Report 2019.
EY surveyed more than 1,000 senior legal practitioners across 25 jurisdictions and found that, on average, companies plan to reduce their legal function costs by 11%, with the current average legal spend equating to US$172m for internal and US$169m for external.
Across regions, the anticipated reduction in spend is greatest in North America, where reductions of 13% are planned, with Europe and Asia-Pacific expecting the least impactful reductions at an average of 9%.
Challenges in talent and innovation
The survey highlights difficulty in attracting and deploying talent. Nearly three out of five businesses (59%) reported challenges in attracting and retaining the appropriate talent needed for today’s legal function. Deployment is also a challenge. Legal functions find they exhaust considerable time and effort on routine tasks, with 67% of respondents spending 20% of their time on routine compliance and “low value” tasks.
The survey also highlights that legal functions are in danger of falling behind when it comes to innovation. 64% of respondents felt that the legal function has not benefited from innovation as much as other functions, such as HR, IT and finance. Respondents cite “ongoing business-as-usual pressures” as the greatest barrier to innovation over the next 12 months at 36%, followed by “budget constraints” at 32% and “lack of management skill/interest” at 28%.
A need to re-evaluate operating models
Looking to the future, key trends identified include the increased adoption of outsourcing: 74% of organizations are either outsourcing already or would consider doing so for functions including contract management, document retention, due diligence, employment law, and entity and document management.
Procurement models are also shifting, with increased consideration now being given to alternative legal service providers (ALSPs) in order to drive value. Although the trend is visible across businesses of all sizes, it is particularly prevalent among smaller legal functions, with 60% of those with a headcount lower than 1,000 considering ALSPs and legal process outsourcers, a rise of 17% compared with the previous year.
Finding the right balance of technical expertise, work allocation and efficient technology utilization will remain the paramount challenges of this critical transformation process
The Romanian market
“EY survey covered legal functions in primarily large businesses across a range of sectors, including financial services, life sciences and health care, telecommunications, media and technology (TMT), transportation, consumer products and retail, as well as in the government and public sectors. Therefore, considering the complexity of the study, its conclusions cannot be ignored in Romania either even if the legal services market as well as the business environment, in general, have not reached the same level of development yet. By comparison, some of the respondents have legal functions with more than 1,000 legal professionals while on the local market a business with a large legal function has around 50 legal professionals.
Cost reduction as well as attracting and retaining talents are today’s challenges even for the legal functions of the local businesses. As a characteristic of the Romanian market, the regulatory inflation raises the work volume of these departments. Finding a balance between having the legal issues solved by legal functions sized to the business’s needs and outsourcing those services, which by volume or complexity, exceed the in-house capabilities is essential for ensuring the efficiency of the costs allocated to the legal services”, said Dragoș Radu, Managing Partner of Radu și Asociații SPRL.
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