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Matthew Banks on January 11th, 2010 at 4:05 pm :
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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
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Debra Rozier on January 7th, 2010 at 1:53 pm :
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by Debra Rozier
George Rudoy provides an insightful look at the issue of insourcing vs. outsourcing for electronic discovery in his recent blog post, To Insource or To Outsource, at the Georgetown Law E-Discovery Law Blog.
Rudoy writes that he has always believed in outsourcing of electronic data collection, processing, culling etc. Recently, however, “the ever-increasing pressures on the legal budgets of corporations and resulting pricing flexibility of law firms services once again raised a question of insourcing vs. outsourcing of the discovery services in general and data processing in particular.”
Rudoy cautions law firms thinking about insourcing e-discovery, noting multiple challenges such as managing processing capacity and demonstrating an ROI. We generally agree with his assessment and add two more cautionary notes of our own, one around technology, the other around pricing.
Technology Challenges
While “processing” remains a core e-discovery component, the steps to the ‘left and right’ on the EDRM model are growing in importance. For example, Early Case Assessment (ECA) technology to perform data analytics (culling and finding the “right” documents for review) is rapidly growing ‘on the left’.
A combination of economics and the advantages of proximity to data storage devices likely will drive processing and ECA technology towards convergence in the form of tools that many companies will likely adopt in-house. For example, a blog post by the CEO of Clearwell, Not Yet A Gartner E-Discovery Magic Quadrant, But Still A Gartner E-Discovery MarketScope on 29 Dec 2009, discusses a recently released Gartner report. Gartner suggests that companies will increasingly bring e-discovery in-house.
But law firms that invest in bringing e-discovery in-house today could find that they do not achieve sufficient volume over the next couple of years to earn a return because their clients will increasingly rely on corporate resources. If not today, that risk will certainly exist by when the time arrives for the law firm to make further investments to keep its technology up-to-date.
Likewise ‘on the right’ of the EDRM, the tools to review documents after culling are also becoming more sophisticated. Vendors regularly upgrade the products they use and sell.
The history of technology in law firms suggests that firms usually lag behind in making upgrades. This is because firms often have their hands full and budgets maxed-out, which means they typically find themselves managing infrastructure as is. Investing in in-house e-discovery tools may commit these firms to technology platforms that quickly become obsolete.
If in spite of these challenges law firms do want to bring technology in-house, then they should strive to invest in technologies that offer both internal deployment opportunities and a service based model. This integrated approach will enable the firms to manage smaller cases internally as they want to, and then as cases grow, they can then choose to leverage the same solution into a more highly scalable service-based (hosted) model. The firms will benefit from greater flexibility by utilizing the same application provider for both the internal and hosted solutions. The provider can also offer such firms a greater level of support infrastructure than the firms might be willing to invest in on a purely internal basis alone.
Pricing Challenges
Our anecdotal sense is that some firms are also investing in in-house e-discovery platforms as a way of providing clients with “hidden discounts”. By absorbing a cost that would otherwise be a third-party disbursement or explicit line-item charge, firms can lower client costs without seeming to discount their rates. We’ve heard our friends in firms talk about offering their clients that “something extra”. But is this a good and a sustainable strategy?
Is the “something extra” really just a price mechanism? Or does it commit a firm to a new set of deliverables that then brings up a set of risks independent of the legal advice clients seek? Bringing technology in-house can enhance service; but it can also create a new service level to meet, one that is prone to many known risks and one that the firms may not be fully equipped to handle. For example, consider the possible impact to project deadlines. Service providers usually have more products in their arsenal and can also scale their staff and infrastructure quickly as project needs increase. Will the law firms maintain this same level of efficiency? What starts as a pricing strategy can spiral into a big operational challenge.
Even aside from potential operational issues, firms may not reap the anticipated ‘price benefit’. Clients may not realize they are receiving a hidden discount. Even if they do, they may none-the-less bargain hard for rate caps. Firms could be at risk for giving away a service and still having to discount or cap their rates.
Perhaps a bigger pricing risk is the move to alternative fee arrangements (AFA). In the AFA world, many fees may be fixed. With fixed fees, discounts are moot and firms will want to go with the lowest cost option, which usually means outsourcing.
A move to AFA also will lead to more unbundling of services, which means pricing components of matters separately. Smart clients will unbundle some components of matters such as e-discovery. If companies bid out e-discovery and document review separately, then an “in-house hidden discount” strategy just will not work.
Conclusion
We agree with George Rudoy and believe that the concept of law firms completely insourcing e-discovery ultimately lacks a sustainable ROI. A combination of scarce investment capital, technology challenges, capacity and resource utilization management, and pricing risks will drive the majority of firms to instead rely on outsourced solutions as the optimal and most sustainable approach for addressing the full range of their clients’ e-discovery requirements.
UPDATE January 11, 2009: Chris Dale of the eDisclosure Information Project blog recently commented on this post, in his post Outsourcer Integreon adds to Insource v Outsource discussion.
Filed under E-Discovery (EDD), Legal Outsourcing (LPO), Outsourcing Tips
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Matthew Banks on January 4th, 2010 at 3:34 pm :
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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
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Matthew Banks on November 19th, 2009 at 4:49 pm :
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In a move that reflects long time practices in the US legal market, interest is apparently growing amongst UK law firms for use of temporary project based staff. Leading City firms in talks to bring in teams of contract lawyers (LegalWeek, 29 Oct 2009) prompts us to consider the differences between the legal process outsourcing (LPO) and local temp staffing models.
The article reports that major UK law firms may consider using temporary lawyers for more of their routine legal tasks. After the significant lay-offs over the last year and the change in the economic landscape, law firms are naturally apprehensive about venturing back into the full time recruitment market, at least until there is a sustained upturn in the volume of legal work (and even when that happens, many analysts feel that firms will not return to those old recruiting methods).
Beyond market conditions, clients demand greater efficiency. Sound familiar? Temp staffing in the UK is another example, along with LPO, of alternative models for delivering certain legal tasks. For perspective on the LPO approach, see our post earlier this week, LPO - No Longer a Case of ‘If’ but ‘When’.
Providers of project based staffing used to be called “temp agencies”; now they are labeled as “virtual law firms”. Same service, new name? No doubt they take away the strain of sourcing and vetting, take permanent staff off book, improve utilization numbers and no doubt they are capable attorneys who are offered quickly and locally…… but that is where the benefits stop. Relative to legal process outsourcing, temps lack several important benefits, some of which can truly transform the strategic approach of law departments and firms:
- Even if a provider is sourcing and vetting the lawyers, the team must still be project managed by the purchasing law firm.
- The purchasing law firm still carries the cost of infrastructure (facilities and IT).
- Lacking in this approach are any inherent process efficiencies (and improvements), metrics, continuous improvement methods, documented procedures, or quality control systems. This is contract staffing, not the offering of a methodology or a best practice operation.
- Integrated technology is not part of the offering.
- The temp lawyers are not dedicated full time staff. With the advent of LPO, purchasers can retain a core dedicated team on a full time basis at such savings who bring continuity of knowledge and staff, which in turn brings repeatability and scalability. That team can be ramped/flexed up and down.
I see the benefit in some cases of embedded, local teams. That is why we and other outsourcing companies provide onsite services, embedded into clients’ teams but managed and part of the LPO best practice process.
In short, my perception is that the LPO is a service and temp staffing is temp staffing. I’m sure there’s room for both but LPO likely will have the bigger long term impact on making law practice more cost-effective.
Filed under Legal Economics, Legal Outsourcing (LPO), Outsourcing Industry News, Outsourcing Tips
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Chris Niccolls on September 11th, 2009 at 9:53 am :
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A recent Reuters article, U.S. banks play catch-up on hiring effort, tells us that Wall Street is ready to hire again, citing a number of high level staff acquisitions and even the return of staff poaching. Well, when the bankers get hired again, the middle office is usually poised for expansion. Anyone who has spent time in investment banking knows that this means everyone’s favorite E-Ticket ride, the Wall Street roller coaster, is getting ready to take on a new crowd of riders! And what a ride it will be, filled with new twists and turns and that oh so dizzying drop at the end… WOW! So, buckle up everyone and let’s see what we can expect this time! |
The drop over the last year was a pretty steep one, so there’s going to be a lot of organizational rebuilding ahead. The problem is that when you’re rebuilding, so is everyone else, which raises costs and extends time lines. It would be nice to bring back all of the good workers who were terminated, but some those have since moved out of the industry while others may now work for your competitors. Eventually, you start to think about poaching staff (it’s not really poaching if they used to work for you), but then other managers start to have pretty much the same thoughts (everyone used to work somewhere).
And where will all of the support staff sit? You may have already reduced your space. So you’re competing with bankers for seating too, which is never a good thing. You’ll also need to consider other support functions that may be spread throughout the firm in IT, HR, Accounting, to say nothing of secretaries, word processors and researchers.
When a decision is made to hire 100 new bankers, are plans made for the 30 or 40 support staff they will need to do their jobs? At least you can avoid a drop off in quality from all of the new staff by getting your dedicated training team to develop a comprehensive training and evaluation program. Hmmm …You do HAVE a dedicated training team, don’t you? Well, if not, then you’d better get cracking because in 30 or 40 months it will be dismantling time again when the roller coaster starts to head downhill once more.
And that’s the ride… over and over again. But for those of you who are not thrill seekers, there are alternatives. Rather than the breakneck ups and downs of the I-Banking cycle, an alternative is to keep a core middle office staff and work with a Knowledge Process Outsourcing (KPO) provider who can smooth out the ups and downs of each cycle.
A good KPO has dedicated trainers and domain experts who can help you plan for upcoming changes and provide the staff you need to execute the plan. Because some banks look at outsourcing strategies as a “temporary” fix that is only applied at one stage of the I-Banking cycle, they have to keep building their services over and over again. And that’s a very expensive way to do business.
A better approach may be to build a balanced blend of in-house, onshore and offshore resources that serves your bank during any part of the I-Banking cycle. The result can be a more efficient organization that delivers greater consistency and responsiveness in support of your bankers, and in turn better service for your clients. Of course, for those adverse to outsourcing strategies, there is always the roller coaster.
Filed under Economic Trends, Knowledge Outsourcing (KPO), Outsourcing Industry News, Outsourcing Tips
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Chris Niccolls on September 1st, 2009 at 11:26 am :
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Arpit Kaushik recently authored an insighful article, Making sense of Offshore Outsourcing 2.0 (published in CIO UK, 28 August 2009; and originally in CIO US, 13 January 2009), identifying five principles for outsourcers who want to move to “Outsourcing 2.0″, which represents next generation outsourcing.
Making a correlation with Web 2.0, Kaushik’s five principles for Outsourcing 2.0 include:
- Offshore implemented as a platform rather than as the delivery channel,
- Globally syndicated delivery networks,
- Rich user experience: Success as the measure,
- Rich user experience: Relationships, not complex contracts, and
- Engagement as a conversation: Co-creation, not blame-game.
These principles paint a clear roadmap for Business Process Outsourcing (BPO) companies that want to move to the next stage of outsourcing evolution. Clear as Kaushik’s roadmap is, however, it’s a map for outsourcers, not for business managers.
Kaushik is absolutely correct that for outsourcing to be truly effective it needs to be pervasive and syndicated across the firm as a single, integrated approach rather than a series of disconnected initiatives. To achieve this outcome, the planning and analysis needs to be done at the C-Suite level. The problem is, the C-Suite does not focus on outsourcing; rather, it focuses on core business issues.
This distinction may seem subtle but it’s important. C-Suite executives generally receive staff recommendations tied to specific projects or functions. Whatever they need to move their business forward - building a new building, adopting a new technology, expanding the workforce, or even outsourcing - executives assume that staff have worked out the details reliably. But with the thinning of middle management, not just in this recession but over the last decades, the assumed attention to detail may only hold true with the help of a business partner who can augment these due diligence efforts and then translate them into strategic C-Suite business terms.
Rarely does the C-Suite see their organization as being confronted with an outsourcing problem. Instead they may see unrelated problems to solve or opportunities to pursue, for example, the rise in secretarial costs that needs to be controlled, an unprofitable product that has too many loaded costs, real estate constraints limiting the growth of their workforce, or the need to fix a recurring budget overrun. They do want a solution that works and is complete.
Kaushik ’s last three principles perfectly articulate these needs within the new wave of outsourcing. To be realized, BPOs must first establish a level of trust that quickly goes beyond metrics and penalties and rises to a holistic level that focuses on how the business should work. What this means is moving the conversation away from short term horizons (e.g., did we meet this month’s metrics), to more important business issues (e.g., are we fully supporting the client’s 2010 revenue goals). To achieve this, both outsourcers and customers must work at a higher level than in the past. They need to go beyond a traditional vendor type relationship, often characterized by “hand off” delivery processes, and instead mold a deeper business partnership using integrated, tandem processes.
To achieve such tight integration as well as the full benefit of outsourcing, customers and providers together should begin by considering how an existing or prospective outsourcer performs in three key areas beyond Kaushik ’s five principles:
- Focus on just a few markets: There are subtle and not-so-subtle differences in how similar services are supported in different industries. A BPO needs expertise in specific industries, otherwise solutions will be crafted that take too long to get “just right” and may miss critical opportunities. So customers need to make sure their provider has the right industry experience and expertise.
- Provide the services your markets need: No single BPO can perform every task for every client that every market asks for. Some big BPO’s focus on a single service such as Word Processing, or Accounting… which is perfectly fine. But providers who want to offer the synergies that the C-Suite demands need domain expertise across multiple service lines. So customers must make sure they assess the full range of provider capabilities.
- Support offshore, onshore and onsite strategies: Kaushik is right to say that outsourcing is “not about ‘which’ shore you use”. But if a provider is going to fully provide for the outsourcing needs of a big client, it must have multi-shore capabilities. Clients don’t necessarily come into an engagement knowing that they need support from a variety of geographies. Yet, once the program is underway, details may emerge that the C-Suite did not anticipate, for example, national privacy laws, internal security regulations and the cultural history of a firm all come into play when designing specific programs. A BPO that lacks all of the right locations lacks all of the right tools to fully service the client. So customers must consider the range of geographies and locations, including onsite, over which their provider operates.
Filed under Business Process Outsourcing (BPO), Knowledge Outsourcing (KPO), Legal Outsourcing (LPO), Onshore v. offshore, Outsourcing Tips
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Lokendra Tomar on July 16th, 2008 at 8:00 pm :
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The annual Black Book of Outsourcing survey results were recently released. Beyond the rankings, authors Douglas Brown and Scott Wilson report on several important findings in their “state of the industry” report. (For the record, Integreon scored very well in the rankings; see our Black Book press release.)
We think the most striking finding is what the authors calls reverse outsourcing:
“Outsourcing is taking on a new twist. Rather than U.S. jobs going to India, the latest evolution of outsourcing is moving in reverse, with India’s leading service providers opening offices on Main Street, USA. The reverse outsourcing development is too new for Indian companies to point to actual cost savings yet, but moving front office processes closer to the client is fast attracting buyer interest. Major suppliers are responding to the demand for enhanced, locally delivery customer service.”
Several Indian outsourcing firms have established and grown US presences, not only for front office marketing and sales, but also for delivery of services as well. TCS, Wipro, Satyam and HCL are notable examples. Outsourcers have multiple reasons to adopt “dual shore” strategies. One is purely administrative, linked to visa challenges.
The bigger and more important reason is the realization that the best customer service requires a combination of an offshore and onshore team or, in some instances, pure onshore teams. In Integreon’s view, supported by the Black Book findings, firms with only offshore operations will find it increasingly difficult to provide world-class solutions.
The authors also comment on what buyers value. For client segments in the early stages of adopting outsourcing, for example legal process outsourcing (LPO) such as legal document review, “client relationship and cultural fit and trust and end-to-end service” is key. This may be because the providers may not have differentiated themselves on service delivery in early stages and cultural/relationships issues become proxy for potential performance.
For more mature segments – document process outsourcing (DPO) or knowledge process outsourcing (KPO) such as research and analytics – “innovation and deployment and comprehensive end to end service” are the key to successful relationships. This finding adds to the already overwhelming evidence that as outsourcing clients gain sophistication and develop increasingly high expectations, providers must deliver more than simple cost-arbitrage. Innovation, cultural fit, and domain expertise are among the critical success factors for the future.
Filed under Business Process Outsourcing (BPO), Knowledge Outsourcing (KPO), Legal Outsourcing (LPO), Onshore v. offshore, Outsourcing Tips
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Mike Bryant on May 20th, 2008 at 2:40 pm :
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We read with interest Orrick’s Ops Center: One Small Town’s Salvation (The Recorder, 9 May 2008), which describes law firm Orrick, Herrington & Sutcliffe’s Wheeling, WV Global Operations Center (GOC).
Orrick’s GOC and Integreon’s Fargo, ND delivery center share similar histories, economics, and demographics. Both delivery operations started in the last few years. Both started with administrative tasks and are now expanding to higher value works. Orrick has saved millions in operating costs; so have Integreon’s clients. Both are top notch employers in small cities in rural areas. Moreover, both Orrick and Integreon understand that improving operations by streamlining processes and applying technology is as important as labor rate savings.
Of course, there are differences. Fargo is flat and Wheeling is mountainous. More seriously, the biggest difference is ownership and scope. Orrick is a major, US-based, international law firm. Integreon is a privately held company focused exclusively on high-value, knowledge-intensive outsourcing. We take the GOC idea a big step further with a global platform, operating delivery centers similar to Fargo in India and the Philippines. Integreon’s global scope provides a deeper talent pool, richer business continuity options, and access to even lower cost labor than is possible in a single location.
Law firms and other organizations face three important questions about how they operate:
- The threshold question is, “should we centralize middle office functions?” If yes, then
- Where should we operate our central function and
- Should we own or outsource it?
We think it’s just a matter of time before most large law firms centralize the middle office. Other large-firm early-adopters are Baker & McKenzie (A recent article, The compelling case for insourcing in Managing Partner magazine, Mar 2008, describes the firm’s Global Services Manila center) and Clifford Chance (an Integreon press release and the recent Financial Times article Diligent and a long way from Chancery Lane describe the firm’s centralized India operations).
When contemplating a captive operation, ownership is a key question. Are law firms prepared to own and run a captive operation in a lower cost US or off-shore market? Orrick apparently initially thought that its Wheeling facility would become a shared service center attracting other law firms to co-locate their back-office functions. The scale they have created may make sense for Orrick at this time but their original business plan needed to be significantly adapted to face the reality of Wheeling’s marketability to competing law firms. A captive business plan needs to stand on it’s own as a back-office operation and show an operating advantage versus partnering with an expert in the field that has both domestic and off-shore options.
We may be biased, but we think the majority of law firms will elect to work with a third party, either Integreon or one of our competitors, to outsource or create hybrid scenarios. Few firms have the management bandwidth, capital, and experience to set up their own centers or to achieve the necessary scale.
Once a firm decides to centralize and decides the ownership model, it must still choose location(s). When evaluating domestic options, don’t underestimate emotional ties. In Orrick’s case, Chairman Ralph Baxter hails from West Virginia; in Integreon’s, the founder of our Fargo operation had attended law school and practiced law in North Dakota. It so happens both of these regions have compelling business climates for locating a captive or KPO/BPO business. Objective factors law firms should evaluate include:
- Overall size of the region
- State and local government support
- Underemployment versus unemployment rates
- Depth of the local experience pool and ability to train locals in new skills
- Cultural and language fit
- Business environment: economic and political, infrastructure (IT/telecom), IP laws
- Talent: length and breadth of experience in BPO/KPO/LPO, labor pool, language, attrition
- Cost: wages, infrastructure (rent, transport etc), regulatory costs (or incentives)
Later this year, Integreon will release a white paper that explores in more detail the considerations for where to locate a delivery center.
The recent release of the AmLaw 100 report suggests that rapidly growing BigLaw profits may be endangered. We think large firms will remain healthy if they take the right steps. The last two decades in the legal market have seen a drive to consolidate firms and professionalize law firm management. The next decade likely will see a focus on rationalizing the delivery of internal services. A big part of that will be centralized facilities, most outsourced.
Filed under Legal Outsourcing (LPO), Outsourcing Tips
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Liam Brown on April 29th, 2008 at 8:00 pm :
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Lloyd’s announced last week that it now offers a new “Outsource Protector” policy, which protects insureds from force majeur disruptions to an outsourcing and offshoring-agreement.
Insurance is certainly one way to deal with the risk of interruption. According to the Lloyd’s press release, the policy “will reimburse the named insured for abandonment and relocation costs as well as extra contractual costs of working during the period of indemnity as a direct result of a variety of force majeure perils defined in this policy.”
Business continuity is a big issue today. Everyone realizes that no single building, city or country is risk free. Terrorism has unfortunately heightened awareness of the this issue but many other man-made and natural incidents occur regularly, including power black-outs, severed undersea Internet cables, floods, fires, snow storms, and riots. To ensure continuity, businesses must invest in operating from alternate locations. There is an economic cost to building and operating facilities. There is also an economic cost to developing (and regularly testing) plans to transfer work to the back-up site. But the reputation risk of being unable to deliver mission critical work is much more significant.
In our view, rather than buy insurance, companies should invest in effective business continuity plans, which allows any mission-critical work to continue in the event of a disruption in any one location.
Integreon recognized this issue some time ago and responded by investing in building a global delivery platform. We have delivery centers in Mumbai, Delhi, Manila, and Fargo (N. Dakota, USA) and the ability to move work across them. And on a couple of occasions, just for short periods, we have had to do just that.
Filed under Outsourcing Tips
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Matthew Banks on February 22nd, 2008 at 8:42 am :
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Ron’s recent post covered three reports on outsourcing. The Deloitte report highlights the need for both the client and provider to invest sufficient time and energy in planning the outsourcing initiative prior to live delivery.
The implementation (or transition) phase, lodged between the sales and delivery phases, is often overlooked in the rush to a project without sufficient preparation. This is false economy. Time invested in the implementation phase prevents problems later and ensures predictable delivery against agreed expectations.
At Integreon, we are rigorous about this; we dedicate attorneys specifically to the implementation phase, to work with our clients to map out process, workflow and governance, not to mention framing the right training and user manuals where required.
The literature on this is legion but it’s a lesson that many customers learn the hard way. It does not have to be that way.
Filed under Outsourcing Tips
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