Integreon

BigLaw New Normal May Accelerate Changes in How Firms Support Lawyers

by Ron Friedmann on May 17th, 2010 at 3:35 pm : Comments 000

Recent evidence suggest that the new normal for large law firms will differ from the pre-crash legal market.  Two weeks ago Hildebrandt Baker Robbins released its Peer Monitor Economic Index (PMI) for Q1 2010, which is flat - at the same level as 2009 Q4.  PMI is a function of demand (billable hours), productivity (hours per lawyer), rates, direct expenses, and overhead expenses.  Three components were down; the two that were up do not signal an upturn.  Rates were up but reflect only a change in mix, meaning lawyers with higher rates did more of the work. Productivity was also up but reflects fewer lawyers doing what work is available.  Hildebrandt concludes:

“It is increasingly apparent that the fundamental economics of legal practice are undergoing a significant and permanent shift…. With slow revenue growth, firms will continue to focus on cost‐cutting to bolster profitability, and consequently aggressive cost controls are now the norm, no longer simply a short‐term response to weak demand and pricing….. The strategic emphasis is shifting toward a different imperative: the need for greater efficiency in the delivery of legal services.”

Other signals also point to a new normal.  For example, Alternative Billing Arrangements Putting Down Deep Roots General Counsel Say (National Law Journal, 17 May 2010),  reports that “costs to U.S. companies have risen 20 percent over the past decade. During the same time period, however, legal costs have risen 75 percent.”  In reaction to ever-increasing costs, GCs increasingly use alternatives to the billable hour.  “[M]any companies and law firms now report that as much as 40 percent of their work is billed on alternate billing arrangements that include flat fees, phased billing and contingencies.”

The need to control cost, increase efficiency, and improve the value of legal services is turning new attention to law firm costs for lawyer support.  With AmLaw 200 median lawyer support cost at $170,000 in 2007, there is room for savings.  (See my personal post, Cost Control as Part of AmLaw 200 Turnaround Strategies, for how I estimated this. For 2008, the latest year available, the same assumptions and method yielded median overhead of $180,000.)

Two recent announcements will likely catch the attention of many law firm managers as a way to control and decrease this very high overhead.  As I discussed in my recent post here, WilmerHale Reduces its Middle Office Costs, US-based WilmerHale announced at the end of April that it will soon move about 200 staff positions to a low cost operations center near Dayton.  This move is initially only for staff support but will include a more cost-effective approach to high volume, routine legal support: WilmerHale moving support staff to Ohio in the Washington Post (3 May 2010) reports that the “business center will develop the resources to provide on-site document review as well.”

On Friday, UK-based Cameron McKenna announced a major middle outsourcing deal with Integreon.  The Integreon press release explains that the firm has signed a 10-year agreement with the company for outsourced Middle Office services, including portions of accounting and finance, HR and training, marketing and communications, learning and development, library and information services, research, information technology, and facilities.  The deal value is £583 million.  “By outsourcing non-billable tasks to Integreon, CMS Cameron McKenna can focus on its core competency – providing high-end legal and tax services.  CMS Cameron McKenna’s decision to outsource its Middle Office is part of its ambitious and progressive strategy to create a new model for law firms.”

Like WilmerHale, this deal does not initially include legal process outsourcing (LPO) services but a Legal Week article, Camerons set to outsource entire back office with Integreon deal (14 May 2010) , notes “Camerons will also review future legal process outsourcing opportunities with Integreon, but no legal services have been included in the initial deal.”

I was surprised that WilmerHale’s announcement garnered little legal media or blog attention.  My recent Google search “WilmerHale dayton ‘business services’ ” yielded only three dozen hits, few of which comment on the firm’s move. That’s not much discussion about what strikes me as a momentous decision. If Hildebrandt is right about the new normal, more firms should consider this type of move.  It will be interesting to see if the CMS Cameron McKenna announcement generates more coverage and discussion in the coming weeks.

I wonder how many more quarters of bad index readings will it take before we see more such announcements?  WilmerHale illustrates the ‘captive’ route to reducing middle office costs and CMS Cameron McKenna illustrates the outsourced approach.  Firms that figure out how to support lawyers at lower cost and let lawyers focus on practicing law and client service will have an advantage in the new normal.

[This post is an extension of my May 10th personal post, BigLaw New Normal Looks Bad - More ‘WilmerHale Moves’ Coming?)

Filed under Captive v. 3rd Party, Legal Economics, Legal Outsourcing (LPO)

WilmerHale Reduces its Middle Office Costs

by Ron Friedmann on April 29th, 2010 at 6:58 pm : Comments 000

Large US law firm WilmerHale announced Monday that it is opening a new business services center in the Dayton area, which will employ “approximately 187 employees from existing WilmerHale offices and new employees from the Dayton area.”  This may herald a new chapter in law firm middle office services, that is, how large firms go about providing the support lawyers need.

WilmerHale explains that this will achieve “improved efficiencies for administrative teams and the firm, and reduce significant operational expenses.”  Only a few large law firms have so far opened support centers in low cost locations; these illustrate different operating and location options:

• Orrick has a large and established domestic low cost support center, its Global Operations Center in Wheeling, WV, which it owns and operates.
• White & Case and Baker McKenzie both have low cost offshore centers in Manila, which each firm owns and operates.
• Clifford Chance operates a center in Delhi, which Integreon advised and supported. The Integreon press release and a New York Times article, Law Firms Are Starting to Adopt Outsourcing (27 Oct 2006), tell the story.
• Osborne Clarke outsourced much of its middle office to Integreon, which built a low-cost, centralized,  shared services center in Bristol (see Integreon press release).  This innovation was recognized in 2009 by the Financial Times “Innovative Lawyers Award” and the Managing Partners’ Forum “Innovation in Practice” .

WilmerHale’s decision will likely cause many large firms to take notice and consider their strategies and costs for lawyer support.  Given the increasing price pressure in the legal market, reducing support cost may become a competitive necessity.   The list above could well grow significantly in a year or two.

From our provider perspective, we think WilmerHale’s announcement is good news for the legal outsourcing market.  Law firms that consider how they provide lawyer support must first answer “what’s the best operational model to provide it?”  We think  - and the list above supports this - that centralizing support in a low cost location is a a key part of the answer.

Whether a firm should own and operate centralized services or outsource to Integreon or similar provider is a separate consideration.   Much literature exists on on the pros and cons of a “captive” low cost service center versus working with a 3rd-party outsourcing provider; these studies largely come out in favor of third parties:

• Pros and cons of captive offshore operations (EquaTerra, 2007)
• Assessing the Role of Captive Operations in Global Services Delivery Models (EquaTerra, 2007)
• Comparison of Outsourced and Captive Solutions for Capturing Value from Offshoring (Everest Research, 2007)
• Shattering The Offshore Captive Center Myth (Forrester Research, April 2007)
• Captive 2.0: The Next Generation of Indian IT and BPO Captive Operations (TPI, 2008)
• Captives in India: Is the Honeymoon Over? (Evalueserve, 2009)

At minimum, the own and operate model requires a scale that only a couple dozen global law firms have.  Beyond scale, outsourcing to a third party offers several advantages over a captive operation:

• Better capacity utilization - By aggregating demand across many law firms, a third party is better able to manage work load variability than any single firm.   Providers also take steps to utilize staff more consistently and effectively; these include:  cross-training staff to perform different types of work; scheduling shift start and end times based on rigorous analysis of actual demand patterns; and judicious use of overtime based on real, rather than anticipated demand.
• Improved efficiency with the right processes, tools, and training – with scale larger than a single firm can achieve, providers can more readily invest in analyzing and documenting processes, acquiring specialized software, and providing appropriate training.
• Managing financial risk by converting fixed to variable costs - Law firms face challenges investing capital; providers can tap the capital markets (for example, Integreon recently raised $50 million).   Working with a third party, firms can convert fixed costs that require capital to variable ones.
• Delivering performance with service level agreements (SLAs) and metrics - Most law firms lack the metrics and formal programs to assess internal service delivery.  Many even find it a challenge to administer rigorous performance reviews or take corrective HR actions.  So internal service levels vary widely. Outsourcers, in contrast, live by metrics and SLAs.
• Assuring business continuity with multiple locations – While a central location for staff does minimize cost, it increases the consequences of a business disruption.  Working with a provider that has a global delivery platform (as Integreon does) allows splitting production between two or more countries or arranging a ‘fail over’ from one location to another in the event of a disruption.
• Operational know-how and focus - Running a central services center is not as easy as it looks.  Providers are in the business of doing just that and have learned how to optimize building and operating such centers.  Experienced providers like Integreon operate multiple low-cost delivery centers.  This means they can benefit from the “experience curve effect” in a way law firms cannot.  Moreover, providers are in the business of support services; for law firms, building and operating a center can become a distraction.

Given the lead time to plan centralizing, we don’t expect to see immediate announcements triggered by the WilmerHale decision.  We won’t know the impact on the market for at least a year or two.

Filed under Captive v. 3rd Party, Legal Economics, Legal Outsourcing (LPO)

LPO for Law Firms

by Matthew Banks on January 11th, 2010 at 4:05 pm : Comments 000

by Matthew Banks

Boston based consulting firm Vantage Partners has published a White Paper, aimed at law firms, entitled Easy Mistakes to Make When Making Decisions About LPO. The Paper contains several pertinent market observations and useful recommendations for law firms, both at a practical and strategic level. I have selected a handful for comment (text copied from the Paper is in italics):

• In-house law departments are leading the way in the exploration and experimentation with LPO. And even where law firms are getting involved… Most law firm experience is centered around serving a particular client who has insisted in the use of a lower cost resource for some of the work. This is indeed true for most, but not all law firms. We are seeing more law firms folding LPO into their offerings and into their model. Recent examples include the Allen & Overy offshore document review option and the move by Simmons & Simmons to set up a core team in India. Most of this activity is from U.K. based firms. In addition, a number of US AmLaw 200 firms have set up either formal or informal LPO “investigatory committees”, as they conduct a due diligence process aimed at selecting one or more preferred LPO providers.
   
• The LPO industry is still relatively immature, populated by many small providers who may not have significant staying power and who do not, in fact, offer the usual outsourcing benefits in terms of scale, technology investments, or process expertise. An industry that in its formative years was characterized by the emergence of numerous, boutique providers, is now beginning to scale up and consolidate in order to meet the increasing sophistication of AmLaw 200, U.K. Top 50 and Global 2000 procurement. Although the market is still comparatively nascent, a handful of leading providers has pulled away from the rest of the pack in terms of their experience, scalability and infrastructure. Maturing providers combined with increased market activity and acceptability make now a great time for many law firms, used to following not leading, to examine LPO.
   
• Lawyers will generally be unable to shed responsibility for the quality of the work carried out by the LPO provider, even when the client has selected the provider and foisted it on the law firm. The structure for contractual relations and liability can vary. In some cases, the client will contract directly with the LPO even where a law firm is involved. In other cases, the law firm will be the aggregator who subcontracts to (partners with) with the LPO. In the latter scenario, the laws firm will have contractual recoverability from the LPO subject to any agreed limits on liability. We find that “risk” (reputational and financial) is a major part of any dialogue with law firms and should not be shied away from, but rather addressed and resolved head on. Quantifying risk (or lack of it) is very important, from the selection of suitable tasks for outsourcing through to transparency into the workflow process and quality regime. A robust documented and defensible process provides visibility into exactly what is being done, how and by whom, which means that the risk can be mitigated and managed. Risk management is something that Vantage has highlighted in their Paper.

The Paper goes on to list typical mistakes that law firms might make when they consider LPO:

• Failing to understand what your clients are really asking for. Be prepared to address a client desire for strategic transformational change. Procurement departments of major corporations and banks are getting involved in purchasing legal services. We see this in more and more RFPs. It’s not just the delivery of services that is changing but the way they are procured.
   
• Grudgingly accepting LPO when a client forces it upon you. It is easier to obtain quality outputs from an LPO provider if you enter into the relationship in a collaborative fashion rather than as the result of being coerced by your mutual client. It is even easier to do a quality job and get some credit for being responsive and innovative if, when asked by a client about LPO, you can identify some providers with whom you have already established a relationship and perhaps even have run some successful pilots. One hopes that all providers prioritize the best commercial and legal interests of the clients! Fortunately we experience highly collaborative working relationships with law firms. We also ensure that our documented process (which is approved by the client and law firm prior to project start) includes a pre-agreed communication and collaboration regime with outside counsel so this joint effort is not left to chance.
   
• Thinking you have to “own it”. There are “best friends” relationships or networks that can serve as good alternatives and don’t require a large capital investment. There are providers who can leverage economies of scale and process expertise to deliver a reliable and more flexible managed service and do so under fairly stringent service level agreements. At any scale, there are challenges with the captive model. Ownership and control are not the same thing. The unwinding of captives in the financial services sector is a warning indicator. See blogs at http://www.integreon.com/blog/cat/captive-v-3rd-party.

Filed under Captive v. 3rd Party, Knowledge Outsourcing (KPO), Legal Economics, Legal Outsourcing (LPO), Onshore v. offshore, Outsourcing Tips

LPO Predictions for 2010

by Matthew Banks on January 4th, 2010 at 3:34 pm : Comments 002

by Matthew Banks, Ron Friedmann, and Mark Ross

Integreon’s LPO experts, Matthew Banks, Ron Friedmann and Mark Ross take a look at what to expect in the LPO world in 2010.

Someone once said that less happens in a year than you might think but more happens in a decade than you might think. That’s the way we feel about the legal profession and LPO. So rather than offer a list of dramatic and sweeping 2010 predictions; we tender below some likely developments consistent with broader trends that will continue to play out over 2010 and beyond, bringing significant growth to the LPO industry. We also break with traditional year-end predictions because our list exceeds the customary ten items.

LPO is part of the bigger picture of evolution of legal services. Legal organizations are now, more than ever, actively trying many new and related approaches: technology, back office restructuring, process improvement, LPO, alternative fee arrangements, and better knowledge management, among others. So, in that context, here is what we think 2010 will see:

1.  More organizations will outsource more work to more LPO providers.

2.  The third party provider model will dominate. We don’t expect to see many captives in the legal market; it’s too difficult and they fail.

3.  In the U.S., expect the ABA to provide more detailed guidance on how to outsource legal services ethically. While in the U.K., the Law Society, to date silent on the subject, will publically comment for the first time.

4.  There will be lots of talk about alternative offshore locations to India but none will yet emerge of such scale. Onshore and near shore will be the main alternative and could grow as quickly as offshore.

5.  LPOs, which are already good at what they do, will get even better. More experience brings better service.

6.  LPOs will expand what they do — more capabilities and services inching a little higher up the value chain but still based around the core services available today: discovery, contracts, compliance, research, and IP. In addition to moving higher up the value chain, LPOs will also expand into consumer related and high volume legal services such as conveyancing, personal injury, wills and probate.

7.  Document review however, will retain its #1 spot as the service most often outsourced, at greatest volume, and by far the greatest revenue generator for the LPO industry.

8.  Organizations will start to develop multi-functional teams on an FTE basis, rather than single function transactional work. For example, corporations will engage core teams to handle a variety of legal dept work such as contract management, compliance, etc. The underlying economics of a dedicated team is better both for customers and providers.

9.  LPO pricing will be stable.

10.  Revenue growth for the LPO market will be rapid and some providers could double in size over the next year or two.

11.  The biggest LPOs will reach 500+ lawyers working on document review, contract management, and due diligence projects. While concurrently, some smaller providers will exit the market altogether.

12.  We will see more Rio Tinto type publicity, but less than you might expect because law departments have no vested interest in making public their private outsourcing arrangements with third party providers. Law firms, in contrast, are more likely to publicize outsourcing because, as service providers in a competitive market, they may see it as a competitive advantage.

13.  Generally, law firm activity will be reactively driven by clients. Although a number of major firms will cement “preferred LPO provider” relationships. However, many or most top law firms will have had exposure to LPO one way or the other by end of 2010. That said, the first few firms to do something new are always long in coming; once a handful have acted, the market can tip quite suddenly.

14.  U.K. law firms will continue to be more active in offshore outsourcing than US law firms. US law firm activity will more likely be a mix of offshore, near shore or onshore.

15.  Recent blog posts have debated whether process is the future of law. In part, yes, but there will be a polarization between what clients are prepared to pay premium rates for and what the market will force into new models. Not all law will be process driven but LPO will help to increase the scope of what can be process driven.

16.  Procurement will drive more law department purchase decisions. Their drive to efficiency will push more work to LPO; their drive to systematize purchasing may slow down sales cycles. 

17.  The biggest LPO single client contract value will exceed $10M annually.

Filed under Captive v. 3rd Party, India Business and Economy, Legal Economics, Legal Outsourcing (LPO), Onshore v. offshore, Outsourcing Tips

Private Equity To Fund Acquisitions Of Law Firm Captive Business Services Operations?

by Liam Brown on November 20th, 2009 at 3:58 am : Comments 000

The Lawyer’s Lyceum Capital injects £25m into LPO start-up and LegalWeek’s Lyceum commits £25m to enter LPO market in Laureate venture articles show continuing investment momentum into LPO, as discussed in my post £400m Acquisition an Indicator of a Maturing KPO Market? This particular investor group has been looking for opportunities to invest in “new business models for delivery of legal services” for some time. I can’t find much about the startup company, Laureate, on the web, but Lyceum’s advisory panel knows a thing or two about the opportunity in the legal market: former Clifford Chance managing partner Tony Williams, visionary legal IT consultant Richard Susskind and Paul Hewitt, who helped develop legal services at the RAC and Cooperative Group. I expect to see some of this private equity money go towards acquiring law firms’ captive, non-core business services operations. It’s certainly a use of capital that Integreon has earmarked.

Filed under Business Process Outsourcing (BPO), Captive v. 3rd Party, Economic Trends

Choosing the Right Outsourcing Destination in Changing Times

by Liam Brown on May 12th, 2009 at 3:09 am : Comments 000

Outsourcing is back in the news. Come to think of it, when has it not been in the news?  Two US national mainstream media had important articles last week.

Filed under Business Process Outsourcing (BPO), Captive v. 3rd Party, Economic Trends, India Business and Economy, Onshore v. offshore, Outsourcing Industry News

Consider Taking Our New Outsourcing Survey

by Ron Dappen on April 9th, 2009 at 7:23 pm : Comments 000

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.

Filed under Business Process Outsourcing (BPO), Captive v. 3rd Party, Economic Trends, India Business and Economy, Knowledge Outsourcing (KPO), Legal Outsourcing (LPO)

The Decline of Captive Outsourcing and Offshoring?

by Lokendra Tomar on July 21st, 2008 at 8:00 pm : Comments 000

Outsourcing the Offshore Operations by Steve Hamm in Business Week (16 July 2008) suggests that third-party outsourcing providers are generally better at managing operations than captive centers. This thesis comports with conventional wisdom.

A recent research report by TPI, a leading sourcing consulting firm, however, concludes otherwise. Captive 2.0 – The Next Generation of Indian IT and BPO Captive Operations finds that the difference in performance between third-party delivery centers and captives (a corporation’s offshore, owned and operated center) may not be so cut-and-dry. The research looked at four segments:

• Average captives
• Average third-party providers
• Best-in-class captives
• Best-in-class third-party providers

The data showed that while average third-party outsourcing is “better” than the average captive on cost and value, best-in-class third-party still falls behind best-in-class captive.

For suppliers, the real competition for best-in-class third party outsourcing providers is less other third-party providers than it is best-in-class captives. Moreover, as outsourcing moves up the value chain into the middle-office and as global macro-economic volatility continues, outperforming captive sourcing become even more difficult, requiring highly adept management and a global delivery and customer service footprint.

For buyers, this means a flexible approach to outsourcing strategy: a mix of captive and third-party services may be necessary. Buyers (clients) may do better with a captive where proprietary technology and detailed domain expertise are critical and difficult for a third-party to master. Where processes and functions are generic or sub-scale, third-party providers often have the advantage.

Filed under Captive v. 3rd Party

Wall Street Journal: Offshore “Captives” Being Set Free

by Ron Friedmann on February 11th, 2008 at 7:15 pm : Comments 000

Rethinking the India Back Office in the Wall Street Journal (11 Feb 2008) explains that company owned and operated offshore centers (”captives”)are often more expensive than companies expect. Consequently, “Some of the largest outsourcing units are still those belonging to Western companies, including Wall Street’s biggest banks… could soon be looking to get out of part or all of the business by selling either to Indian companies that specialize in outsourcing services, to private-equity firms or through initial public offerings.”

Dollar depreciation and Indian wage inflation have taken a toll but India still offers a significant cost savings. The bigger problem is that operating a captive is expensive and hard. A recent McKinsey / Nasscom study found that captives are “less efficient than companies run by outsourcing firms that specialize in the business. ” The article continues to observe that “Once the initial benefit was felt, companies found it hard to keep on top of their costs. Salaries and the cost of office space jumped. Staff turnover has been high, and companies are having to spend on headhunting fees and training.”

What the article reports is consistent with Integreon’s experience.

Filed under Captive v. 3rd Party

Further Thoughts on Howrey in India: Captive v 3rd Party

by Matthew Banks on February 11th, 2008 at 7:10 pm : Comments 000

Howrey have no doubt discovered that there are highly capable legal resources offshore and that it is possible to achieve quality and control through onshore and offshore supervision. I think the greater challenge for law firm captives (offshore centers owned and operated by the law firm) is the cost and time investment of establishing and managing an offshore operation. Third party providers such as Integreon offer law firms a key advantage: remove cost and hassle from onshore lawyers, not add to it.

Many of my law firm clients, particularly litigators and litigation support staff, complain that they already spend too much time managing onshore recruitment, training and staff turnover within large teams. Another concern I have for captives is scalability. Having a compact resource offshore is one thing, but the ability to scale up (and down) to meet project demands is another. For many law firms and companies, the real value of outsourcing comes with scale and/or resource flex.

Filed under Captive v. 3rd Party