FACT: SCENARIO 2008

A survey of 115 General Counsel conducted by management consultancy Altman Weil in November 2008 – found that three-quarters of respondents were facing budget cuts. When they were asked to identify how they would deliver savings, the most frequently mentioned strategies were to bring more work in-house, reduce training and use lower-priced counsel. LPO came 13th – out of 13. December 2008 saw the publication of a survey of 143 general counsel members of networking site Legal OnRamp. This study found equal percentages of respondents – 16 per cent – predicting that 1–6 per cent, 6–10 per cent and more than 10 per cent extra of their spend would be offshored in five years’ time. Almost half predicted no change.

FACT: SCENARIO 2010

The newly released http://www.altmanweil.com/LFiT2010 found that while over 75% of firms surveyed indicate that they believe that more price competition, more non-hourly billing and the use of project management to improve efficiency of service delivery will be permanent changes in the legal landscape; Very few firms will look to outsourcing or offshoring as a means by which to change the service delivery model. Despite the recession and despite the opportunities for cost savings, most law firms remain reluctant to consider outsourcing and offshoring options. Less than 10% of firms outsourced or offshored legal work in 2009 or plan to do so in 2010. Only 28% of law firms expect outsourcing of legal work to be permanently adopted in the future, and 22% expect the same for offshoring.

Fronterion LLC’s Top Ten Trends for Legal Outsourcing in 2010 report predicts “2010 will be the proving year for legal outsourcing. Law 8irms and corporate legal teams will learn from their peers, resulting in make‐or‐break peer referrals, which will be strong indicators of the success and maturity of the outsourced legal services segment.Supporting – not supplanting – firm operations with an outside legal services vendor has emerged as a successful strategy and will gain momentum in 2010.”

The various studies point to continued resistance among a large section of general counsel to outsourcing legal work. While there is no denying the fact that the LPO landscape has changed considerably over the past few years, the pace at which this industry was/is expected to grow has not met expectations. Despite the potential for cost savings, law firms and corporate legal departments remain sceptical of outsourcing and offshoring, tentative in their efforts with many of them revealing that they were likely to adopt this model of service delivery only when pushed by clients to do so. Thus, the LPO industry will grow, just not at the pace that might have been expected in such a severe downturn.

The obvious conclusion that one comes to, then, is that there are obvious gaps that exist in this industry between demand and supply; between service providers and clients; between services provided and expectations; to name a few. Lets revisit some of the obvious pros and cons of LPO:

Advantages of Outsourcing Offshore:

• Cost effectiveness

• Time zone difference

• Common law legal system

• Availability of talent

• Attorneys can focus on higher priority work such as engaging with business units and focusing on prevention

Why Do General Counsels and Law Firms Fear the Outsourcing Industry?

1. The Nature of Work

• For corporates, legal departments, for long, have been viewed as cost centres and while the mandate for all General Counsels is to lower costs, few GCs are ready to take the risk, rock the boat and jump onto the LPO bandwagon; fewer would like to explain at their AGM about jobs that were outsourced (so we put a few people out of work here to save some money) and not performed satisfactorily. GCs have come up with objections ranging FROM the likelihood of sending across the wrong message to their outside counsel as well as their in house teams (hey, we are taking your jobs and sending them over to a place where it’s cheaper to get this stuff done) TO their distrust in the quality of talent and work in countries that are prominent LPO destinations.

• Traditionally, law firms and attorneys have been less susceptible to change (and less likely to) than their counterparts in other industries, especially considering the nature of their profession and their training. Outsourcing requires a slightly different mindset. It is a change in the way law firms and corporate legal departments view the practice of law. It is not just about delegating work to someone else in a remote corner of the world to save cost and it certainly is’nt it something you do just once. Leveraging the benefits of outsourcing requires continuous dedication.

2. The Ethical Risks of Outsourcing

• Client confidentiality is a major concern. Identity theft raises another prominent issue. Clients concerned over privacy may choose a firm with in-office paralegals over a firm with paralegals in India.

• Cultural differences regarding sharing of information remain a challenge.

• Supervision and monitoring of work is understandably a serious concern as well, especially due to the difficulty in monitoring the work of someone in another country. It is unnecessary for a law firm to disclose such an arrangement to its client if the offshore assistant/paralegal is under the direct supervision of an attorney. ABA rules, however, clearly indicate that an attorney must obtain the consent of clients if a temporary lawyer will handle a portion of their case without direct supervision. This complicates the supervision problem further.

• Lastly, attorneys must be careful to screen the projects performed in the past and future by individual overseas to avoid any conflicts of interest.

3. Not All Clients Support Outsourcing

• Over the past decade with increasing volumes of work being outsourced offshore, the outsourcing decision is a controversial one and some law firms may wish to avoid alienating clients who disapprove of outsourcing. Especially in lieu of the economic recession, and an increasing "Buy Native” sentiment across developed countries, a firm that openly sends legal work offshore may be less likely to earn clients who have been negatively affected by outsourcing or simply disfavour the practice.

4. Quality is Not Assured in Outsourced Legal Work

• Quality concerns, as mentioned earlier is a factor as well. American lawyers spending more time to carefully review work produced offshore for errors, mitigate to an extent the cost savings from outsourcing. This is particularly critical in the highly technical field of patent law, in which firms often outsource patent drafting to India despite the fact that the value of the entire patent can hinge on a single word.

5. Insufficient Planning And/Or Resources by Buyers and Vendors

• For many of those who tried legal outsourcing but burnt their fingers, some of the main reasons for their failure were insufficient planning and budgeting. Not understanding the vendor landscape; less knowledge of vendor capability, skill, and infrastructure; no checks on talent profiling, acquisition, and retention; were only some of the results of inadequate planning before outsourcing work. Any outsourced project must be run with the same discipline and planning as any other important function of the Company for example Marketing or HR. Adequate transition periods and/or effective cross-training between the client and the supplier are essential to ensure maximum benefit from an outsourcing relationship.

6. Legislation Across Developed Countries Has Targeted and May Continue to Target Outsourcers

• A crucial risk in legal outsourcing is the spectre of protectionist legislation. The political backlash against outsourcing has created a firestorm in the US Congress and US state legislative halls. Much anti-outsourcing legislation has failed, and the protectionist legislative movement is less active than in its heyday of early 2004. With the economic incentives for law firms to engage in out-sourcing outweighing the risks, hopefully more legal jobs will continue to be transferred to low cost nations.

In my next few entries I will try to analyze the cases of those who dared (including the latest one on Denis Field, former chairman and CEO of the US-based accounting major BDO Seidman, LLP, has hired the Mysore-based SDD Global Solutions, a legal process outsourcing arm of New York-based Smith-Dehn LLP, to assist him and his US legal team in his legal battle with the US government. BDO is the world’s fifth largest accounting firm), those who succeeded (Including Dell, Microsoft, to name a few) what did they do differently, lessons learnt, law firms of the future, growth and expansion for LPO vendors and more........

From The Buyer Perspective: “Trifles Make Perfection, but Perfection is no Trifle.”

Dell - ‘Why should I pay £200 an hour for a three-year qualified UK lawyer if the quality is not significantly better than a seven-year qualified lawyer in India who I am paying at £40 an hour?’ says Bruce Macmillan, Dell EMEA in an interview to the International Bar Association. Dell, along with Eversheds and MIndcrest, in order to demonstrate optimal cost benefits started tepidly focusing on large scale, standard form contracts involving reviewing changes proposed by other parties. Having tasted success in this delivery model, Dell is also examining other areas where LPO could be used, such as reviews of routine advertising material – to ensure compliance with different countries’ regulations – and the administration of some of its internal legal databases. However, Macmillan at Dell is still sceptical about using LPO for anything that requires a high level of briefing per activity. “The more non-transactional it is, the higher the investment cost in getting it briefed up in the first place and the more checking and validation you need to do to make sure you have got comfort that it’s being done properly’, he argues.

Microsoft - Martin Shively, leads the worldwide IP operations of Microsoft Corporation. Shively started outsourcing to India in 2004, when he took over budget responsibility for Microsoft's patent group. At that time, there was a lot of buzz about outsourcing legal work to India; corporations like General Electric Company were doing it, and slashing their legal bills. He started with the most basic task he could think of---proofreading patent applications. Instead of paying high-priced associates to do this work at a dozen U.S. law firms that drafted Microsoft's filings, he hired one vendor in New Delhi to do them all. It was, he says, "a safe place to have a failure." If it flopped "we just wouldn't tell anyone," he laughs. But it didn't flop. "We went there to save money," he acknowledges. "We stayed and expanded because we liked the quality of the work." It wasn't just okay, it was better.

Shively began to fly to India once or twice a year to discuss plans, review the work, and build relationships. More than satisfied with the results, he pushed the volume and complexity of the tasks and hired a second firm. Soon the Indian companies had 35 people working exclusively on Microsoft projects. In July 2007, at the suggestion of his bosses, Shively moved to India himself. He points to the Indian operation's numbers: In fiscal 2005, patent work there amounted to less than $150,000. The work product continues to meet Microsoft's standards, and the cost is never more than 40 percent of what he'd pay in the United States; in some instances, it's a mere 10 to 15 percent, he says. In fiscal 2008, his company saved $6.5 million outsourcing its patent work. He's confident the savings will hit $10 million this year. In fiscal 2009 the tab was estimated to come to around $4 million.

From The Vendor Perspective: “Winners don't do different things, they do things differently.” Infosys

...and that is exactly how LPO vendors in India today are expanding and creating a niche for themselves. Lets take the example of Infosys Technologies that ventured into the LPO space two and a half years ago, diligently building on its infrastructure and operations, and is today envisaging a growth of 20-25% for the LPO industry. According to an interview published recently by Matthew Sullivan, founder and principal at Red Bridge Strategy, Inc. on his Global Legal blog, Rahul Shah, AVP and Head, Infosys LPO spoke about the LPO market and Infosys’ niche place in it. More specifically, he believes “that full service providers like Infosys offer a very different proposition to the clients that can take the LPO industry towards maturity much faster. Infosys believes in being transformational partners with its clients leveraging consulting, technology, BPO and LPO capabilities. This helps them in the following ways:

It provides them the scale to invest in best talent as well as significant management oversight to provide world class experience to its/firms clients.

It enables a connect at a much higher level in the client organization – Head of Business Services in law firms and CFO’s / COO’s / GC in corporates. This enables them to make the LPO initiative much more strategic than tactical.

It enables a mix of mature services like F&A to be in play apart from LPO services – thus bringing about proven and tested business benefits through mature services and enabling a higher appetite for the clients to do more offshoring.

Lessons Learnt

Choosing the right vendor: A buyer must define adequate metrics against which he would like to see his vendor perform before he steps into the market to shop for a vendor. With the plethora of vendors available, some with robust infrastructure, some who have created a niche for themselves in certain areas of outsourcing and some others who are offering a broader range of options. With so many options, the buyer must have his laundry list of essentials ready at hand so that he can optimally evaluate and ultimately select the most appropriate vendor.

Don’t limit your horizons: LPO service providers are fast ramping up their infrastructure as well as deliverables to meet the optimal level of expectations set out by their buyers and would like to secure a larger share of their clients’ legal spend and move up the value chain. The focus is now on offering end to- end solutions, rather than simply handling a defined part of a project. Buyers need to take a step forward and keep the faith.

Buyer Vendor relationships are crucial: The success of an outsourcing relationship depends a great deal on how robust is the communication and relationship between the buyer and the vendor. There will be initial hiccups but starting in a discreet manner and road mapping not just the work but also the relationship will help create a conducive environment in which both the buyer and the vendor are on the same page as far as expectations are concerned. On their part, it is essential for a vendor to understand how the buyer works in house while for the buyer it is important to give the vendor adequate exposure to the quality of work that is expected of him. Understanding the nuances of cross cultural communication and collaboration are key requisites here.

Don’t hesitate to ask: In tandem with my previous point, buyers should necessarily evaluate the infrastructure as well as processes before finalising a vendor. One way to do this would be going by hearsay but a more effective way would be to issue a pilot project to your top five vendors, evaluate them on certain pre-defined metrics and then get into a conversation about costs. This way, both parties would have a fair idea of what to expect.

Don’t hesitate to say No: This is more for vendors who, many a time tend to take on work that they may be incapable of handling due to stretched resources or absence of requisite resources. Pushing back on work isn’t seen as a minus rather a conscientious decision to deliver quality rather than quantity.

Law firms and Corporations in the foreign destinations are not at all comfortable about becoming too dependent on any one particular LPO.

They know it is dangerous because extreme dependency affects them with every administrative and managerial change in the LPO. The LPO’s attrition directly hits their work and they suffer. The change of TLs and Managers during the pendency of the project causes major trouble to the work-flow of the off-shoring company.

Outsiders to the deal might get the impression that a particular LPO has almost monopolized a particular UK or US law firm. But from the comments made by many real time off-shoring law firms it was unambiguously clear that they have no choice because there aren’t too may players who can handle high volume.

They would love to look at alternatives which are equally good as back up, but such equally good LPO has to exist.

It was pointed out to them in the Conference as to what stops them from looking at medium sized LPOs as a viable alternative; the answer that came was that the reason that makes the law firms look only at big ones is because of the quick scalable  capacity of the big LPOs.

Hope that those who read my blog articles in the KPOC website, might recall that I had pointed out the very same thing in one of my previous blog posts.

It is a fact that scalability has got a direct connection with the availability of working capital. It is not possible for each and every medium sized LPO to pump in great amount of working capital.

So what would they do?

Keep on existing as small units which the bigger customers would not want to look to?

Be satisfied with what ever comes their way?

Do some clerical job and fancifully wish that they were running LPOs?

Is it not high time that the medium and small sized LPOs made some collaborative efforts to unite and merge rather than struggle to exist as small and minuscule units?

Category 1

You would find them to be shy, shaky and worried about losing everything in their life. Their  facial expression would be  as if hell has broken loose and the seas are swelling to swallow them in the waves. They would also be found to be abusive about lawyers of other countries without any valid reason …..Courtesy Legal Process Off-shoring to India

Category 2

The second category would be cheerful, expectant, looking forward to higher and better professional activities andwould be ambitious about the forthcoming days. They would be found to be exploring more and better means of global partnership in the legal profession…..Courtesy Legal Process Off-shoring to India.

Whether to belong to Category 1 or Category 2 is the choice of the individual concerned.

But it would only be those in Category 2 who would go ahead with their global legal profession. They would strike synergies with various legal service providers in numerous destinations over-seas, create extensions of their law offices off-shore and put together the best of services from across continents to serve the needs of their clients. In return they would earn a high degree of C-SAT; (Client Satisfaction) and obviously that would mean more inflow of client and cash.

Now what would happen to those in Category 1? Nothing much!!! I mean the same usual story of unsuccessful people…. who feel intimidated for nothing and create a mental blockage for themselves and ultimately end up actually losing everything in life.

But you don’t worry; as an Indian lawyer working in the LPO industry, just keep doing your job with higher efficiency with each passing day and you would have a world of accomplishments to win.

The Indian LPO industry is more than willing to "get into the room" with those people in Category 2 and  frame  future  strategies about how to take  the global legal profession to the next level.

Come, let us meet and talk at  the Global LPO Conference 2010 on 13th and 14th November, this year in New Delhi , India

The distance between US and India as well as the cultural gap restrains the medium sized foreign law firms from off-shoring work to India. Knowing well in their heart of hearts that they stand to gain, the small and medium sized law firms still sit back and keep on wondering about the negative consequences.

Our efforts at any LPO Conference should be to allow them to speak their hearts out and listen to their expectations from us…we need to invite them to specifically speak out as to what kind of training do they expect us to give to our LPO employees, what action/s on our part shall make them feel at home and comfortable.

The so called big LPOs have a sack full to spend on their marketing efforts and they would not much be affected by a Conference either taking place or not taking place in India. The ones who stand to gain are the small and medium sized ones. They are the ones which work on restricted budgets on every count. Their executives need to think twice before traveling to a foreign destination for official work.

Having a whole bundle of buyers right on the Indian soils would allow the small and medium sized LPO vendors to interact with the foreign buyers and thus gain exposure.

One successful LPO Conference shall pave the way for such an event on an annual basis. We shall write in details about the features of the upcoming LPO Conference in out next post.

Both events unfolded thousands of miles apart, with one in a country outsourcing and the other in a country to which it is outsourced. However, two things are remarkably common in both these instances-

i) both received good publicity mileage, which clearly seems to be the only plausible objective, and

ii) both failed, in equal measure, to address the issue square on and to base their criticism of outsourcing on any economic rationale

Critiques of outsourcing have probable existed for longer than the concept itself, for a simple reason that any disruptive technology, which has the potential to change the regular course of things, will always face opposition. People like inertia and change is always resisted. It takes fair understanding and a long term vision to see the benefits of any change – and takes character to, when time comes and results show benefits, to swallow the empty pride and accept the change.

As Mr. Obama has seen for himself while garnering support for the health care reform, not all are amenable to the idea of positive change. The economic rationale behind legal outsourcing is too strong to be ignored and perhaps any subsequent debate or challenge should be more fact based to gain some legitimacy.