I've been getting an increasing number of service providers talking up the growth of Legal Process Outsourcing (with the mind-blowing acronym "LPO"). Personally I'm a bigger fan of PPO (Political Process Outsourcing), but it seems like we could have some onshore/offshore complications with that one, so let's talk about LPO.
Having had a few discussions with clients and service providers in this space, it's clearly an area for major cost-efficiences for businesses. I've even had one service provider bragging he was making a killing doing liquidation administration offshore. Bottom-line, several of the fat law firms are already offshoring their own legal support work to low-cost locations, whilst still billing their clients top-whack rates, so smart corporate legal buyers are focusing on engaging with LPOs, as opposed to highly-expensive law firms, for a lot of legal work, while retaining expensive lawyers for critical activies that require deep experience. And did you know Mahatma Gandhi was a barrister? I'd use him anyday overDenny Craine 🙂
I've recently had the pleasure of interacting with the industry's one full-time LPO advisor (if there are others, here's your chance to make yourself known), so I asked him if he can educate us more regarding what LPO's all about. Step up Matt Sullivan who lived in Pune, India, for two years, where he managed the risk management & regulatory compliance practice for a global IT outsourcing company as part of a 20 year career in services and outsourcing. He now plies his trade atRed Bridge Strategy, where he's teamed up with some very smart and friendly consultants who focus on global sourcing issues. Over to you Matt:
Changes Ahead in Sourcing U.S. Legal Services in 2009
Businesses have traditionally relied on a combination of in-house legal departments and outside law firms for all of their legal work. During the past few years, maturing processes, technologies, and legal-services-delivery-perspectives have created an environment where corporations now have a spectrum of choices from which to source legal services.
General Counsels can globalize in-house legal departments by consolidating legal staffers in low-cost jurisdictions or outsource legal work to Legal Process Outsourcing firms (LPOs) at significantly lower costs than traditional U.S. law firms can offer.
The delivery of legal services from offshore locations, primarily India, has grown dramatically in the last few years, and will continue in 2009. While LPOs are compelling, they are not the only option. Whether delivered through globalized in-house functions (international, legal, shared services functions) or LPO firms, mature legal processes now make it possible to deliver high quality work from across the globe despite the unique legal challenges of privilege, supervision and conflicts. Some large law firms have created their own “captive” units to offer lower cost legal services to their clients.
Why Now?
The availability of global legal processes has arrived. During the past five years Business Process Outsourcing (BPO) vendors have provided human resources and accounting services, and as a result, shown that many types of professional services can be successfully outsourced. More recently, the recession in the U.S. has forced a more vigorous evaluation of legal costs than ever before, while, the volume of legal work, particularly e-discovery, has been soaring. The American Bar Association (ABA Formal Op. 08-451) and several regional bar authorities have implicitly authorized legal outsourcing. Finally, major BPO players such as Infosys and Wipro have entered the LPO market and the major independent LPOs (Pangea3, Mindcrest, Quislex, UnitedLex, and the Clutch Group) have announced significant growth plans for 2009. Given the clear economic drivers, the removal of previous barriers, and the stated intentions of many of the major service providers, globalization of legal services will certainly quicken in 2009.
Implications for Corporations
To take advantage of the relatively new legal services sourcing options, corporations must organize and optimize legal services like any other shared corporate services. For example, a corporation that operates in the U.S., the U.K. and India, may need attorneys in each of these jurisdictions, but may choose to concentrate the bulk of its legal team in India instead of London or New York; thereby taking advantage of resources that cost 50% to 80% less. Multinational corporations, such as Accenture, DuPont, GE and Oracle, have already taken advantage of their global presence to consolidate some of their common legal functions in lower cost jurisdictions like India.
Some organizations may not have sufficient legal work or sufficiently predictable volumes of certain types of work to warrant global shared legal services. These organizations have traditionally retained outside law firms when they become parties to litigation or acquisitions. These situations, that create sudden, large volumes of documents to review, are exactly the circumstances for which LPO vendors are well suited. Many LPOs have the ability to quickly deploy large teams of young lawyers using the latest technologies to assess the responsiveness, privilege, confidentiality of litigation-related documents or to review the assignment and termination clauses of acquisition-related contracts. Indian LPOs can typically deliver these services for $20 to $50 per hour as compared to $60 to $100 or more for legal temps in the U.S. Low cost legal services sources are also emerging in such places as Israel, the Philippines, South Africa and Costa Rica.
For many corporate legal departments, the prospect implementing and managing a global legal operation can be a daunting. Combining the practice of corporate law with business process redesign and outsourced vendor management requires a new set of skills. Working across cultures and time zones with a business in India or other distant countries adds to the complexities. There will be both stories of success and tales of woe, but the advantages of moving to new legal sourcing models are compelling, and the trend towards both corporate global shared services models and legal process outsourcing will increase significantly in 2009.
Matthew Sullivan (pictured) is a founder and principal at Red Bridge Strategy, Inc., a management consulting firm that helps organizations design and implement global strategies to reduce costs and improve performance. Matt has more than 20 years of business consulting experience, and lived in Pune, India for two years. He is also a member of the Massachusetts Bar.
As the sheer magnitude of the unfettered lending and borrowing that has taken place over the last few years continues to unfold, I am hearing more and more calls to put banking and government executives who failed to prevent this (or knowingly encouraged this) on trial. I am inclined to agree with them. The BBC's Robert Peston just put out an excellent analysis of HBOS's final earnings report as a discreet entity:
This corporate division generated losses of ÂŁ6.8bn in 2008 from loans and advances to businesses of ÂŁ116bn. It has had to write off an average of 47% of those loans in this area that have gone bad. Almost 12% of all its corporate loans are now classified as impaired or damaged. And as a percentage of the total corporate lending book, the impairment charge is just under 6%. On the basis of those statistics, HBOS appears to have left a big bag of money open on the pavement with a sign saying "borrow what you want".
How can you give out over $100 billion in bad loans? In Spain, for example, their banking system, which has been one of the least affected by the crisis, operates using dynamic provisioning, where each loan mustbe underwritten with capital in the banks' reserves.But what has transpired in the US and UK banks is tantamount to executives knowingly driving their businesses into the ground at the expensive of getting fat and happy themselves. It's like hundreds of these executives were riding tigers without knowing when to get off. If I hear one more jingoistic anti-offshoring argument about the fact that a whole industry should be tarnished because a single service-provider was caught cooking the books… how about a whole industry cooking its books?
We had a great discussion a few weeks' ago regarding the USA's potential to take on more sourcing work, with increasing unemployment and downward wage pressures. I've made this point a few times now, but BPO is clearly the bigger onshore opportunity than mainstream application services for the US to muscle in on sourcing work. And where better to start than the call center?
Bottom-line, President Obama should take a leaf out of Margaret Thatcher's book and examine simple effective ways to provide productive and sustainable employment in depressed areas where industry is in a terminable decline. I never voted for old Maggie, but she did do one very smart thing during her tenure as British PM – she closed down unprofitable coalmines during the 80's recession, and encouraged businesses to set up call centers in depressed British cities. Now there are over 650,000 call center employees across the UK.
Wages in the UK are competitive for qualified staff – and they don't command ridiculous healthcare premiums. (One major healthcare insurer just increased its premium by 20% this year). While there are some good investment ideas inthe stimulus package, I would have liked to have seen some focus on business service support areas – as we discussed here.
Protectionist sentiment is swelling. The Buy America provisions in the stimulus bill are symbolic of the increasing resentment towards jobs and work going overseas. I have already seen this provision included in some sourcing RFPs from healthcare organizations and other companies benefiting from bailout money, or with significant public sector influence.
With over two-thirds of Americans filing first-time unemployment claims for the week ending February 21 to bring the total to over 5.1 million, this tide will surely rise. Over the past decade there had been considerable leakage of domestic customer service agent seats to offshore locations. Customer service is returning back to the country, literally. Inspired by the Canadian model and technological advances, customer care is increasingly being delivered from rural America.
The customer service rep is the organization’s ambassador to the caller. The human voice provides the company’s human face. Much of the time when the customer calls it is because something has gone wrong. If the caller cannot understand the agent due to accent issues and/or communicative styles, the problems are compounded. The caller can become agitated and the company may wind up losing a customer. In the present economic environment, just hearing a foreign accent could trip the trigger. Losing dollars chasing dimes is not wise.
Earlier in this decade, there was a mad dash for the low-wages on offer in India – and more recently the Philippines and low-cost Latin American countries such as Peru and Nicaragua. Everything was thrown over the wall once telecommunications technology and the associated costs became less of an issue. A Mercedes Benz owner was furious when connected with an offshore agent, “How can somebody help me with problems related to my car when they have probably never even driven one?”
Like Britain in thn 1980's, Canada has also explored ways to grow its economy, concludingthat the stability of the nation and its people were major assets. It was determined that the call center industry to serve the American market presented an excellent opportunity. Beginning in the late eighties, strategic initiatives were put in place involving tremendously unified efforts by all levels of government and higher education. These efforts were initially intended to address economic woes of unemployment in traditional industries and leverage the value of the Canadian dollar.
The programs proved to be successful, particularly in more rural areas. The Canadian turnover rate was consistently a third of US. As there was less competition in rural areas from other industries for workers, there was far greater retention and a seasoned experienced workforce developed.
American providers have noted the formula along with being able to take advantage of the lower cost of living in many rural areas. Additionally, wages are lower with a reduced turnover rate adding to the value proposition. Human resources consultant FurstPerson reports in its 2008 Call Center Recruiting and Compensation Survey that the average cost of attrition per agent is $5,466.32. Consequently, call center providers are increasingly leveraging opportunities in areas with smaller cities, particularly in the Midwest.
One such provider is West Direct headquartered in Omaha, Nebraska (the oft-dubber "call-center capital" of the US). The business model is based on having 39 contact centers around the country, mostly in cities with populations ranging from 50,000 to 150,000. West Direct also employs home-based agents.
By offering telecommute positions; a much wider net can be cast to attract agents in outlying areas. The employee saves time on commuting and the cost of fuel. The employer is able reduce the costs of a seat in a brick and mortar center while frequently attracting high quality employees at a lower wage. It is common for the churn rate to be in single digits for home-based agents.
Technology, high-speed connections, and Web based applications has enabled companies to tap into rural America with its strong work ethic. Customer care can be domestically delivered at an attractive price point with callers being greeted by a fellow American. I'll wager $100 we have new call center development in Michigan before 2009 is over.
My colleague Dana Stiffler had some fun in Egypt this week, as a guest of Egypt’s Information Technology Industry Development Agency (ITIDA). Check out her observations at Think Global.
When I talk with firms about outsourcing, the conversation almost always circles around whether the client should sort out its internal processes before it can consider outsourcing opportunities. In most cases for large global enterprises, transformation can be carried out concurrently as part on an incremental outsourcing transition. However, for mid-market firms which may not have the resources, technology or the expertise as larger enterprises, moving too much of its back office too quickly to a third-party can often prove more damaging to the business than any savings generated. That is not a risk you want to take in a cut-throat economy, where you may not have a chance to recover from poor decisions.
To this end, an old friend of mine, Bill Rieke, shared his experiences with CFOs of mid-market firms trying to drive cost-efficiencies into the financial processes. Bill is a respected veteran of the BPO industry, having worked on multiple international engagements with Convergys and subsequently Genpact. He now works independly with firms as an advisor with BPO and process optimization. Over to you Bill…
In American Heartland, Optimization Finally Brings Hope of Accounting Transformation
I have been networking with several mid-market companies in Cincinnati, Ohio, and the surrounding states in the American heartland during our economic downturn. The concerns expressed by CFOs are not unlike the rest of the country or the world – lack of demand, availability of working capital, etc.
However, these heartland CFOs appear to be tackling their concerns not by outsourcing finance and accounting and other back office activity but rather by eliminating activities. They are doing so by optimizing the integration of their sunken expenditures in information technology, i.e., ERP platforms, and by reengineering their legacy internal business processes.
Let me explain
The Sarbanes-Oxley Act of 2002 (SOX) mandated a range of new standards from Corporate Board responsibility to new accountability by external auditors. SOX also dictated dramatic increases in internal control assessment and enhanced financial disclosure.
To implement SOX provisions, consultants were engaged to document business processes, assess the risks of these processes and then implement new procedures to cover internal control weaknesses. The goal of these efforts was not based upon efficiencies but rather rigid compliance. In fact in 2004, the SEC Advisory Committee found that 2.55% of revenue was spent on SOX 404 compliance for small public companies.
So while attention was devoted to SOX compliance, the global economic boom ushered lots of cash and corporations used that cash to acquire new ERP platforms such as JD Edwards, Oracle and SAP. These systems brought the promise of integration, streamlined operations and improved working capital management. But often, the value of these platforms fell well short of the marketing literature. Sometimes this was the failure of the systems themselves (thus the age of application wrappers) and at other times, it was the failure of legacy internal business processes surrounding these ERP platforms. And yes, consultants were used to implement these platforms – often without the skill or knowledge to optimize the business processes as well as the platforms themselves. And there is one well-documented Ohio company whose decision to outsource a new ERP platform was later rescinded.
So as we entered early 2008, we had business processes around legacy operational departments with incremental, SOX-mandated internal controls. We also had newly deployed ERP platforms whose actual financial benefits were far short of those promised. And finally we had very few heads of finance and very few heads of operations seizing control of costs and operational efficiencies. In short, we had profit leakages in a so-so economic environment, but now have significant working capital holes in a down economy.
Late 2008 – Today
Progressive CFOs in the heartland have now engaged a handful of very skillful, business savvy niche consultants and consulting firms to merge, integrate and optimize their technologies and business processes. These niche players are bringing six years of SOX experience combined with practical working knowledge in ERP deployment thereby quickly monetizing value that ERP specialists and working capital improvement consultants had promised. Outsourcing is still an agenda item especially in a handful of non-core functions and periodic analytical projects – but the financial improvements from optimization are now quickly being harvested to bring forward true accounting transformation.
Bill Riekeis a seasoned veteran of the BPO industry and advises CFOs on BPO and process optimization
Lee Ann Moore sent me this interesting analogy of Slumdog's Millionaire's success at the Oscars, and whether it could enhance India Inc's image in the wake of the Satyam scandal and the "Buy America" protectionim we're seeing at the moment…
The post-Academy Award media has declared 2009 the year of India. Will that hold true for outsourcing and Indian workers? Perhaps this push is just what our political leaders need to keep protectionism policies at bay. It is too late to impact the recent bailout package that bans recipient companies from hiring H-1B workers, many of whom are well-educated Indian nationals. Can this Oscar favorite change our attitude toward work in India?
How could our sentimental side not cheer for all the Jamal’s and Latika’s of India who grew up in an impoverished country and work every day to create a better life for themselves and their family? Granted the movie presents a well-written yet fanciful tale, but it helps us understand a unique and beautiful culture. Only time will tell if Hollywood can help the American worker minimize his fear of losing a job to India or perhaps treat the tech support personnel with a bit more respect. Shall we track the call center escalations pre and post-“Slumdog”?
There are many challenges in understanding how a global economy will benefit the American worker and corporations. Thomas Friedman’s recent post, The Open-Door Bailout, provides a compelling argument for open borders and challenging Americans to focus on innovation over fear or job loss. Perhaps the emotional appeal of “Slumdog Millionaire” will allay the fears of the American worker and challenge Washington to think and act global.
What I detest most about recessions is when firms put all their focus on short-term cost-reduction measures and take their eye off the ball with initiatives that can reap much more lucrative efficiencies over a longer period. I am somewhat hopeful this recession is a little different: shaving a few percentage points off the bottom-line is unlikely to make a huge difference when your very survival is at stake, and several companies are exploring more radical, longer-term strategies that will lift them above the depressed morass. Moreover, many smart executives are seeking to tie themselves to longer-term projects that give them added job security and enhance their own roles in changing times.
Cloud computing has all the attributes and potential to support a global outsourcing environment with lower infrastructure costs, lower energy costs from eliminating hardware boxes, and much better scaleability to provide computing resources to meet demand in an unpredictable global market. My view is that we are in a global delivery continuum, where many organizations will originally evolve from crude BPO environments (a lot of lift and shift), explore SaaS delivery to optimize that environment, and ultimately dabble with SaaS apps that be deployed in a Cloud "plug-in" model. A flashy diagram will likely ensue, but that's the nuts-and-bolts of how this continuum will eventually play out. Bottom-line, those service providers which persist in a labor-arbitrage-only service model and ignore the benefits and cost-efficiencies of SaaS and Cloud, will get left behind.
"I just knew the mainframe would make a comeback", said an excited industry veteran on Cloud computing recently. He's actually right, but the difference in today's world, is we are creating the applications and the development environment to run real business applications in a cloud environment.
We're not there yet, but smart organizations need to start exploring service provider relationships where Cloud is on the horizon. Cloud computing is not only rapidly emerging as an infrastructure option that is relatively inexpensive; it is also becoming a buyers' market.
Cloud has come a long way since being a small blip on the radar in 2007 when the likes of Microsoft, HP, Google
, and IBM teamed up with universities in developing virtual data centers. Much as software as a service (SaaS) did earlier in this century, Cloud will revolutionize the delivery of technology. The key question now is whether this economic downturn will derail its development. In the very near-term, it's adoption will likely be impacted as many firms put anything "discretionary" on the back-burner, but as the fog clears (or the clouds part…), Cloud will surely be at the forefront of new investment plans for companies seeking more computing bang for their buck.
Cloud providers have invested millions of dollars to offer data centers where users enter a massive shared data center to access Web based applications. The robust infrastructure of the providers allows users to scale server needs and data storage capacity up or down as needed. Fee structures are commonly based on usage or as a monthly subscription, often with no upfront expense, contract or commitment. Without a commitment, the risk of buyer’s remorse is minimized. Like SaaS business models, fees are carried as an expense. This is a very appealing value proposition in a tight economy – especially tying elements of Cloud and SaaS delivery into a BPO model, where the savings from lower-cost labor and increased process efficiencies can be combined. These three delivery vehicles for business services are going to become increasingly intertwined as business move towards these lower-cost on-demand models – not solely for getting their software applications services on a cheaper, more scaleable model, but also to get these support functions delivered a business services on-demand. I hate to keep going back to the payroll analogy, but if you can get your business support functions delivered in a way that works on a global basis, provides the data your leadership needs in an integrated fashion – and at lower cost that you can do internally, then that is the future.
Cloud business offerings come in a timely fashion. Data storage requirements are ballooning as a result of increasing automation, blogging and Web 2.0 adoption. Data storage capacity is particularly critical for customer facing organizations. By using a cloud provider, an organization can alleviate capacity problems rapidly without an up front expenditure of scarce funds and avoid having to invest in continually building out the data center.
The value proposition also embraces many other appealing elements of SaaS:
* Economy of scale – one to many
* Continuous infrastructure upgrades
* Performance monitoring and management
* Robust redundancy and disaster recovery
* Improved network reliability
* Increased application security
Moreover, in many cases energy costs for computing hardware can account for up to 60% of ongoing maintenance costs. Outsourcing service providers can significantly decrease the cost of their services by adopting green datacentersto underpin their Cloud delivery, which have much lower running costs. Hence, going Green with service delivery should not be an added cost-burden to outsourcing service providers – it will provide a cost-advantage.
Cloud is by no means a silver bullet to alleviate the challenges of all organizations, but it does represent a weapon that can be quickly added to the mix of the arsenal for many. Large enterprises may have sufficient resources internally to accommodate routine business requirements. But should a need arise to quickly ramp up a business unit or product line; cloud becomes a valuable arrow to have in the quiver to quickly enable agility. For companies of any size that have a seasonal business or product lines, having this capability is very valuable to accommodate peak demand periods without having in-house servers sitting idle at other times. Touch-wood we'll start emerging from this economic slump in the coming months ahead, and companies need to be ready to scale-up their support infrastructures in a smart fashion to respond.
Not unlike SaaS, cloud has produced niche providers that specialize in empowering their clients to take advantage of the new environment. For example, application development has seen the emergence of providers offering a myriad of tools for developers to work within the cloud environment. By utilizing cloud, developers are able to tremendously reduce the time of server configuration and reduce the internal disruption throughout the R and D process all the way through to the proof of concept.
Increasingly, on into the future, buyers will reap the benefits as more major providers enter the market. Many established providers with robust infrastructure, skilled staff and a legacy of delivering high quality service are finding their traditional markets saturated with competition. Cloud provides a logical emerging market that offers opportunities for growing their business. The scramble to offer more benefits at a lower price could well rival the marketing wars we see today in the automotive industry. This can only result in brighter prospects for organizations seeking cloud cover in an economic storm.
Outsourcing for the sake of cheap labor will generate some savings in the short-term, but these costs will quickly spring back if you don't follow-through with improved processes and technology that allow for a global operating model. Simply shipping out your mess for less is never going to make much of a difference to your bottom-line, and will often end up costing you more in the long-haul. Bottom-line, when you move into a global outsourcing model, you have to transform the way your business deploys its technology platforms and business processes if you are to generate real cost-efficiencies. Embracing the new developments in SaaS and Cloud are sure ways to make an outsourcing experience work on a continual basis.
Just a reminder that the Global Services Conference in next Thursday at the Sheraton New York Hotel. Seems like a good group of industry practitioners and buyers will be there in force (judging by the number of meeting requests I've been getting).
There's a distinguished speaker line-up including Linda Tuck Chapman, and Thomas A. Stewart, Chief Marketing and Knowledge Officer of Booz & Company and former head of the Harvard Business Review. You'll also have the chance to rub shoulders with a very impressive array of sourcing leaders from F500 enterprises – for more details check out the agenda here. I hope to see many of you there – drop me an email if you can make it… If you would like more details on the show, contact my good friend Ed Nair, editor of Global Services Magazine.
Ladies and gentlemen, these guys need no introdution. Each year we are treated to a new set of rankings that gets everyone talking. Yes, it's the infamous Black Book of Outsourcing's top advisors and consultants guide! Forget your sourcing advisors, forget research reports, forget client references – these guys will simply tell you how it is with their magical rankings.
You have to hand it to them, they never fail to stir up emotions, excite some small outsourcing vendor, or boutique advisor… when it comes to the Black Book, anyone can get in on the game. This year we're treated to several one-man bands, outsourcing vendors posing as "independent advisors", and some firms who don't even do what their category states… can you guess some of them?
I've been getting an increasing number of service providers talking up the growth of Legal Process Outsourcing (with the mind-blowing acronym "LPO"). Personally I'm a bigger fan of PPO (Political Process Outsourcing), but it seems like we could have some onshore/offshore complications with that one, so let's talk about LPO. 
Matthew Sullivan (pictured) is a founder and principal at Red Bridge Strategy, Inc., a management consulting firm that helps organizations design and implement global strategies to reduce costs and improve performance. Matt has more than 20 years of business consulting experience, and lived in Pune, India for two years. He is also a member of the Massachusetts Bar. 
As the sheer magnitude of the unfettered lending and borrowing that has taken place over the last few years continues to unfold, I am hearing more and more calls to put banking and government executives who failed to prevent this (or knowingly encouraged this) on trial. I am inclined to agree with them. The BBC's Robert Peston just put out an 
We had a great discussion a few weeks' ago regarding the 
When I talk with firms about outsourcing, the conversation almost always circles around whether the client should sort out its internal processes before it can consider outsourcing opportunities. In most cases for large global enterprises, transformation can be carried out concurrently as part on an incremental outsourcing transition. However, for mid-market firms which may not have the resources, technology or the expertise as larger enterprises, moving too much of its back office too quickly to a third-party can often prove more damaging to the business than any savings generated. That is not a risk you want to take in a cut-throat economy, where you may not have a chance to recover from poor decisions.
"I just knew the mainframe would make a comeback", said an excited industry veteran on Cloud computing recently. He's actually right, but the difference in today's world, is we are creating the applications and the development environment to run real business applications in a cloud environment. 
