December 8, 2020

The Hidden Costs of Insourcing (Part 4)

Note: this is the fourth installment of a four-part series exploring the hidden costs of insourcing. Be sure to read:

Imagine that a key member of your legal team has just given you their notice of resignation. When asked why she has decided to leave, she tells you that she joined your organization hoping to handle complex corporate legal matters. Instead, she has spent most of her time managing a recurring set of contracts. When a company decides to insource high-volume legal work like vendor contracts, non-disclosure agreements (NDAs), and engagement letters, it should consider the impact of that repetitive work on its legal team. 

Consider the productivity costs to a highly-trained (and well-compensated) attorney trying to negotiate a purchase agreement on a multi-million dollar transaction. The attorney’s attention is diverted by periodic, semi-urgent requests to review NDAs and vendor contracts. Psychology researchers refer to this predicament as “task switching.”  According to the American Psychological Association, “even brief mental blocks created by shifting between tasks can cost as much as 40 percent of someone’s productive time.”¹ Employees have about four peak hours of productivity per day– this is an extremely costly practice.²

Task switching between highly repetitive, time-sensitive tasks that arise sporadically throughout the workday is particularly pernicious.  Research also indicates that task switching leads to an increase in errors and heightened levels of fatigue and agitation.³ And what do fatigued and agitated employees tend to do? Search for new opportunities to engage with higher-level work. 

Given the negative effects of task switching caused by repetitive, low-value work and the fact that such work is usually boring and unfulfilling, it is no surprise that companies that insource repetitive, lower-value activities experience higher rates of employee turnover. This turnover carries a hefty price tag: according to the Harvard Business Review, “The fully loaded cost of replacing a worker who leaves is typically 1.5 to 2.5 times the worker’s annual salary.”⁴  Replacement costs range from incremental time and expense spent recruiting, to interviewing, onboarding, and training, as well as periods of low productivity for recently onboarded employees.  

The costs of turnover ripple through the company.  When one employee quits, the whole team is affected. Their workloads increase due to the reallocation of the former employees’ responsibilities. This creates stress and interrupts workflow for the members of the team who shoulder the lost employees’ duties. These inefficiencies can echo through the entire company, touching strategic partners and even customers. For example, missing headcount in a legal department causes delays in turnaround time for contracts. A loss on customer-facing teams can lead to decreased customer satisfaction due to a lost relationship and subsequent revenue shortfalls.  

Understanding the cost and value of insourced tasks can improve retention and productivity rates for your legal team. Click here to download our white paper on how to calculate the true cost of insourcing at your company.

 


¹ https://www.apa.org/research/action/multitask

² Alex Pang, Rest

³ https://www.psychologytoday.com/us/blog/brain-wise/201209/the-true-cost-multi-tasking

⁴ https://hbr.org/2006/12/the-high-cost-of-low-wages