Sullivan & Cromwell spends millions of dollars on technology, ensuring its equipment is accessible to its lawyers around the globe and that its digital security can keep clients safe. Chairman Joe Shenker, citing bank surveys, says the Wall Street firm's tech costs per lawyer are higher than any of its peers.

Still, Sullivan & Cromwell has managed to improve its profit margin while maintaining high-quality telecommunications, computers and servers. That financial success isn't tied only to the firm's lawyers. It's partly a result of back-office decisions.

Starting in 2017, the firm began outsourcing some of its technology functions and infrastructure. The change required about 30 high-level staffers, including engineers, to leave the firm and become employees of another business, HBR Consulting's managed services division.

It was a sea change in Sullivan & Cromwell's evolution, Shenker says.

"You can't keep up doing state-of-the-art, best-of-the-best [in technology]—which is what we try to do—doing it yourself," Shenker says. Law firms just can't compete with big tech companies, he says. Instead, "Let's focus on what we're great at and let other people focus on what they're great at."

Sullivan & Cromwell isn't alone. Big Law is embracing outsourcing. Not only are more firms doing it, but the industry is outsourcing a growing number of high-value departments, often shedding administrative and operations employees in the process. The decisions carry some risk, but also big rewards.

The outsourcing trend goes beyond law firms opening so-called "captive" operation centers, in which they move some back-office jobs to lower-cost locations with firm employees. More and more firms are moving departments and jobs outside the firm entirely.

Chris Petrini-Poli, executive chairman of HBR Consulting

HBR's managed services division has been hired by 17 Am Law 50 firms, including Sullivan & Cromwell, and about 25% of the Am Law 100, according to Chris Petrini-Poli, the company's executive chairman. In 2019 alone, seven new law firms hired HBR to outsource various functions, he says.

Another outsourcing provider for law firms, Williams Lea, does business with 25% of the Am Law 200, plus many other firms, CEO Clare Hart says. "It's increasing across the spectrum," she notes.

Technology jobs like the ones outsourced by Sullivan & Cromwell are a big part of the movement. The International Legal Technology Association's 2019 technology survey ­reported that 39% of law firm respondents outsourced infrastructure support, up from 28% the year before. Security outsourcing grew to 32%, up from 22%.

And it doesn't stop there. A group of Am Law 100 firms are working to develop a first-of-its-kind, shared back-office center in a low-cost location in the United States to handle functions including accounting, payroll, IT and data security, research and human resources. It's a sign of just how much outsourcing has taken hold in the industry in a short time—and, perhaps, an indication of how much further it might go.

Cutting Costs

Outsourcing can save law firms millions of dollars in the long run. They often spend between $15,000 and $25,000 per firm user on tech services, Petrini-Poli says. HBR can bring down costs by 20% to 30% for IT services, he says. An Am Law 100 firm could spend an average of $20 to $30 million a year on technology costs, meaning it could save about $4 to $6 million annually. Petrini-Poli wouldn't say how much HBR costs for firms, but its pricing is based on a flat cost per user each month.

HBR's managed services division now has more than 200 employees who oversee outsourcing of law firms' IT, procurement and research functions. Part of its pitch is that it seeks to provide firms with "the best in breed" in supplies and vendors, such as servers, telecommunications circuits, computers and data centers, Petrini-Poli says, adding that HBR can do so because it's buying products on a much larger scale than an individual firm. The company's message to firms is simple, he says: "Stop investing in the basics of IT; start investing in things that will shape your firms," including the technology that builds connections with clients.

When HBR hires staff from law firms, they often stay in their current cities, with more career and training opportunities, or take advantage of other opportunities, Petrini-Poli says. HBR's center in Dayton, Ohio, also offers IT, library ­research and procurement services to fill in any gaps that exist in a law firm's staff, he says.

Clare Hart, CEO of Williams Lea

Williams Lea, meanwhile, offers back-office support from low-cost centers in Wheeling, West Virginia; Normanton, England; and Columbus, Ohio. Beyond its traditional offerings of mail and copy centers, the company now provides law firm outsourcing for administrative, finance and accounting, human resources, facilities, marketing, document processing and records management, Hart says. Firms can see at least a 10% cost savings by utilizing the company's services, she says.

Hart cites a 2019 survey commissioned by Williams Lea to demonstrate the spread of law firm outsourcing. Seventy percent of law firm leaders reported outsourcing some or all of their back-office functions, up from 56% in 2018.

"I don't think there's a law firm that isn't thinking about outsourcing some of these services," Hart says. "The benefits are so real."

Economies of Scale

The way Shenker sees it, outsourcing some of Sullivan & Cromwell's nonlegal functions allows the firm the benefit of having skilled talent oversee the work, as well as having enough scale to lower costs, much like large corporations do when they purchase products and services in bulk.

Firms are constantly buying the latest hardware, including servers and computers. But even the largest law firms are just medium-sized business consumers. They all bring in much less revenue than Fortune 500 companies and financial institutions that can easily drive down technology costs.

"Middle-market businesses are actually paying for the discounts that others are enjoying," Shenker says. "The middle-market consumer is really bearing the brunt of it."

Meanwhile, law firms are competing every year for the top technology and engineering talent and processes. "I'm not Google," Shenker says. "How do I keep up?"