by John Croft, President, Global Sales and Marketing, Integreon

On Tuesday I attended Centaur’s legal process outsourcing (LPO) conference, hosted by The Lawyer. Panelists from both law firms and in-house counsel made for a well-balanced discussion. Most noticeable was an underlying change in tone from debates at prior LPO conferences. Whether a result of the economic climate, the unbundling of legal services, or clear directives such as the one by Rio Tinto’s Managing Attorney Leah Cooper – it is now clear that no longer was anyone talking about ‘if’ but ‘when’.

Ms. Cooper led the charge against law firms, challenging their reasons for using the same old model – junior associates at £300 an hour – for repetitive aspects of legal work,  for which she now refuses to pay. What does she propose instead? Unbundling and re-distributing legal work among her in-house team, her outside counsel and an LPO provider. “The trick to doing this well”, she said, was “we all have to do our bit and work together.”

Whilst this idea might have shocked the market just six months ago, the conference saw well-considered and pro-active responses by some big UK law firms who are heeding her call.

Lovells partner Neil Mirchandani explained that his firm had been working in a three-way relationship with their corporate client and Integreon for nearly three years. Lovells previously created what we can now view as an early-stage LPO: their ‘Mexican Wave’ outsourced legal work to lower cost domestic law firms starting in 1999.

Allen & Overy shared that Integreon is now their preferred LPO partner and they use this LPO offering as part of a “suite of options” that they offer clients. Unlike Simmons & Simmons, which has a dedicated team at Integreon for LPO work (see our press release), A&O has chosen to deal with Integreon on a project-by-project basis. This approach provides the benefits of scalability when needed and no overhead when not.

Add these firms’ names to the likes of Slaughter & May and Pinsent, which have both publicly stated that they are working with LPO providers, and it is clear that the message is not only being heard – but acted upon.

At the same time that firms are moving from talk to action, the LPO competitive landscape is shifting. According to conference speaker Arun Jethmalani, CEO of analyst firm ValueNotes, 140 companies claim to provide LPO services. He says, however, that the reality over the last year  is that only a couple have emerged as the dominant players. Many smaller players have pulled out of the market or simply disappeared. ValueNotes reports that the important attributes of the dominant players include scalability; global footprint; referenceable clients (i.e. they actually do LPO on some scale!); and the ability to forward invest in technology, strong Western domain management, and onshore offices near the client.

Jethmalani compared LPO today with business process outsourcing (BPO) 20 years ago. Back then, there were hundreds of companies that claimed to operate in that space but today there is only a handful of dominant, global players. Now that law firms are joining the in-house counsel in discussing not ‘if’, but ‘when’, expect to see similar growth for a couple of LPO providers and a significant change in the way legal services are unbundled and delivered.

In January 2009, Aberdeen Group published Partnering for Performance: Knowledge Process Outsourcing. This report explains how companies have improved operations and profits by migrating high-end, knowledge intensive work to the right outsourcing provider. In this post, we summarize key Aberdeen findings and then share our perspective as an integrated KPO provider.

Integreon is making available a free copy of this report; click here to download a copy.

Report Summary

Aberdeen found that companies are outsourcing more complex and high-value processes. More specifically, the following areas are likely to see more outsourcing: market and industry analysis, competitive intelligence, consumer behavior analysis, and regulatory analysis.

The report cites IRI, a consumer data provider and analysis company, to illustrate how a “Best in Class” company can benefit by outsourcing. By outsourcing all processes that did not require routine interaction with its customers, IRI achieved the following benefits:

• Reduced cost by offshoring 35% of workforce
• Improved speed of capturing POS data by 33%
• Accuracy up to 99.6% (three point gain)
• Errors down 80%

More generally, Aberdeen found that “Best in Class” outsourcing consumers improve customer satisfaction by 18%, decrease time to market by 5%, and increase the number of projects meeting QC targets by 24%. Achieving these gains, however, is by no means automatic. Best in Class companies beat the average and lagging companies by a wide margin, as this table illustrates:

The report provides useful guidance on steps Best in Class companies take to achieve the biggest benefits from outsourcing. Companies must choose the right provider, define the work outsourced and monitor it regularly, and govern the relationship effectively. Also, they must work with a provider that can:

• Map processes effectively, pilot test them, then roll them out
• Communicate effectively with the company and address, in advance, how problems will be solved
• Measure and meet the SLAs customers set
• Offer a global delivery platform with on-demand service

Integreon’s Views

Integreon’s experience delivering high-end knowledge services for the last decade supports Aberdeen’s findings. We have always viewed outsourcing as more than just cost savings and have invested significantly in building domain expertise, creating a global delivery platform, fostering a culture of continuous improvement, re-engineering processes, and deploying technology aggressively (even to the extent that it cannibalizes some of our existing business and means additional investment in innovation to keep the business growing).

For each vertical market we serve, our Account, Implementation, and Program Management team, which is a group of domain experts who serve as consultants and relationship managers, work closely with companies to deliver more than just cost savings.  They map processes, establish communication plans, and ensure companies choose, capture, and then use  metrics.  We have also long understood the value of global delivery and now offer on-demand service from the US, UK, India, and the Philippines.

We have many examples of helping our customers define and improve service levels, expand coverage and the range of services for their users, and improve time to market with quick ramp ups.  Our belief is that to keep winning business, we have to be significantly better experts than our customers rather than just being a low cost provider.

In our constant effort to learn more about the market, we’ve just launched a survey co-sponsored by FreePint. In particular, we want to know more about how outsourcing is viewed by those who use or buy any of the following services:

• Research
• Document preparation (word processing, etc.)
• Legal support
• Pitch support (graphics, presentations, etc.)

If you fit the description above, please consider taking this survey. We will share the survey results with all participants.

To receive a copy of the report, just provide your email address at the end of the survey. The survey is completely anonymous. Your email address will not be associated with your responses in any way; it will only be used to send you the survey results.

To link directly to the survey, click here.

All outsourcers have grappled with how the current economic crisis will affect outsourcing.  Evidence is emerging that outsourcing activity will increase.

Few companies or professional service firms made outsourcing decisions at the onset or in the early stages of the economic crisis.   As companies try to exit crisis management or adapt to a long-term crisis, however, they are again thinking about more tactical/strategic responses.  And outsourcing is back on the agenda.

For example,  Business Week, in JPMorgan Chase to Increase India Outsourcing 25% (9 March 2009), reports that JP Morgan “will increase its outsourcing to India by 25% this year to nearly $400 million [and] will also manage the integration of the acquired companies from India to bring down the cost of integrating different information technology (IT) systems.”

This article is consistent with many third-party studies over the last few years that outsourcing is only partly about cost savings.  It’s also about rationalizing business processes and freeing up internal resources for higher value work.

In our business, we see the same signs of a shifting mentality.  For example, we recently began what we believe is an industry first, outsourcing of an entire research function for a global investment bank (including onsite and offshore teams).  This was unthinkable previously.  And in the UK, following our announcement of outsourcing the Middle Office of top 30 law firm Osborne Clarke, we have had many inquiries about outsourcing from top 50 UK law firms.

How should knowledge process outsourcers (KPOs), their clients, and their employees respond to current crisis in financial markets?

Client Perspective

Choose your vendor carefully –  If there was ever any doubt, the current turmoil shows that that service quality and price should not be the only factors customers consider .  Long term vendor financial stability is critical as well.  Vendors with only a few hundred employers who depend on a handful of clients may find it difficult to survive even a single client loss.   Depending on how much business they lose and their financial backing, a key client loss can put at risk continuity of service to remaining clients.   Buyers should seek vendors with scale, good financial backing, and a broad customer base.

Outsourcing as a survival tool –  Outsourcing is not just about cost savings – it can be a company’s lifeline too. Unless you remain competitive, you may not survive as a business. You may be able to save more jobs (and create new ones) by outsourcing if done smartly and with the right vendor.  Choosing the right vendor will help you improve business economics, achieve flexibility, innovation, and help create growth (jobs).  The downturn could last quite some time so it is important to consider both your cost basis and operating efficiency, even as your deal with what may be emergency circumstances.

Vendor Perspective

Reduce client concentration - While it’s always good to get more business from existing clients, look to balance the client mix. Otherwise, if your biggest client accounts for 40% of revenues and suddenly disappears (which seems to happen very often these days), you may not be able to survive the impact. Diversify into more verticals and geographies.  Winning new business in this economy may be hard, but point your sales team in the right direction now.

Enhance capital –  Clients will start asking more probing questions about the financial stability of your business and access to capital. Cover your financial bases. Work towards moving to profitability and get an investor who can be there to support you on your long term business plan/strategy

Leverage opportunities to consolidate /buy cheap assets -   A major economic downturn is a time to be simultaneously conservative and bold. Be conservative in managing operating costs but be bold in buying good assets (companies, people), especially when many outstanding properties are available at the lowest price in years.  Tight operations coupled with strategic acquisitions will pay handsome dividends when the economy eventually turns around.

Employee Perspective (for India-based personnel)

A downturn is not the end of the world. It’s not first time it’s going to happen. The economy will recover and KPOs will grow again at a rapid clip.  This is perhaps first time that global events have had a direct impact in India, specifically immediate job losses.  Previously, these types of incidents were limited in scope and barely would even be covered in the press. Now, however, the impact has been pronounced, both in captives and third party vendors. KPOs are not the only ones affected by the global turmoil; many other sectors have shared in the turmoil (e.g., consider what has happened with domestic Indian airlines).  The pervasive impact of the Western downturn on the Indian job market shows that the Indian economy is now more tightly integrated into a US/global environment.  So it is natural that Indian jobs in many industries will rise or fall based on events in US/global markets.

But, there is hope among this bad news. Outsourcing is expected to pick up even more strongly in the months to come and that should drive new job creation.