Integreon KPO and LPO Blog

Integreon Blog Has Moved

As of August 1, 2008, the Integreon KPO and LPO blog has moved.

Our new address is http://www.integreon.com/blog/.  The new blog is integrated with our website and the RSS feed on it is enabled.

The Indian Economy and Its Impact on Outsourcers

By Lokendra Tomar, SVP Knowledge Services

Business Week ran a story on the Indian Economy in its July 2nd edition “India's Economy Hits the Wall”.  It paints a grim picture of Indian economy and its prospects.   Though the article is certainly accurate, observers of and participants in the Indian economy should not lose sight of the fact that overall growth will likely continue at about 7 or 8%, down from 10% or higher.   

The negative macro environment highlighted by Business Week may actually benefit outsourcing companies.  In the last two months the Indian rupee has depreciated rapidly against US dollar and is now at INR 43 to USD, which directly benefits outsourcing companies operating from India (costs being in Indian rupees and revenues being in US dollars). This was a big worry for outsourcing industry in 2007 when the rupee topped out at INR 39 to USD level. 

Furthermore, most major India-based outsourcing companies are insulated to some degree from the Indian economy.  They have established a global delivery platform, meaning building operations centers in the US and elsewhere.  For example, Wipro invested in several US delivery centers (see, e.g., Information Week article, April 2007).  And finally, smart outsourcers have taken other steps to insulate their businesses, particularly keeping salary hikes under control by limiting annual salary hikes to an average of 10% despite high inflation and supplementing pay with incentives including professional development leadership training.

The Decline of Captive Outsourcing and Offshoring?

By Lokendra Tomar, SVP Knowledge Services

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

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

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

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

For suppliers, the real competition for best-in-class third party outsourcing providers is not so much other third-party providers as it is best-in-class captives.  Moreover, as outsourcing moves up the value chain into the middle-office and as global macro-economic volatility continues, outperforming captives becomes even more difficult, requiring highly adept management and a global delivery and customer service footprint.

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

Upgrading and Transforming Law Firm Support - Goodwin Procter Moves

We read with great interest Goodwin Procter's announcement on 15 July 2008 that is has created a new position, Director of Professional Development & Training for Administrative Professionals:

"Among law firms, Goodwin Procter is unique in establishing this directorship. The firm has grown rapidly, opening five offices in California since 2006, and a critical step in this nationwide expansion has been optimizing its organizational structure." 

For an excellent perspective on what this announcement means, see Jordan Furlong's blog post, The other talent war.  Furlong is the editor of the National, the Canadian equivalent of the ABA Journal.

Why, you might ask, is a legal outsourcing company interested?  At Integreon, we view outsourcing as more than just reducing cost.  For us, outsourcing is just as much about "optimizing organizational structure" to use Goodwin's words. 

Our years of experience working with law firms and investment banks on outsourcing high-end support and professional functions has taught us to customize services for each organization.  Moreover, we understand that organizational transformation is at least as important as cost savings.  So we assess each task and role for continuity, collaboration, and communication.  The mix of these factors determines which tasks and roles can be outsourced and which are better staying at the firm.

As firms systematically assess the role of their administrative professionals, we think they can and should consider how outsourcing can help improve service.  Many who read about legal process outsourcing may think LPO means only document review.  But our services include document processing ("word processing"), business development research, presentation graphics, and finance & accounting support.  Utilizing these and other "Middle Office" outsourced services, firms can enable many of their professionals - secretaries, financial experts, knowledge managers, HR professionals, and others - to focus on their their "highest and best use." 

Far from being a threat, outsourcing is an opportunity.  By offloading high volume, judgment-based tasks, firms free their professional staff from to add more value.  This improves their careers, enhances service to lawyers and clients, and can also reduce costs. 

Cost Arbitrage is No Longer Enough (Black Book of Outsourcing Rankings and Findings)

By Lokendra Tomar, SVP Knowledge Services

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.

BPO to Cross the Billion Dollar Mark

In our prior post, we noted that BPO and KPO scaling faster than IT Outsourcing.  Lokendra Tomar, SVP Knowledge Services, pointed out that business process outsourcing players were on the way to crossing the $1 billion US dollar revenue mark faster than IT outsourcers got there.

Now, BPOs queue up to book seat in billion dollar club in the Economic Times (4 July 2008) makes a similar observation:

"Analysts feel that IT services success story is now unfolding in the BPO industry... Large Indian IT services players, which roughly took about two decades to cross the $1-billion mark, operated in a different era when they mostly grew organically. Their inorganic growth path came much later unlike the case of the BPO companies, which may have crunched the time to grow big."

BPO and KPO scaling faster than IT Outsourcing

By Lokendra Tomar, SVP Knowledge Services

IT outsourcing has already seen the advent of billion dollar companies from India (Infy, Wipro, TCS, Satyam) which compete head-on with global giants such as IBM and HP.  A recent report, Firstsource in WNS, Intelenet buyout radar, Economic Times, 27 May 2008, suggests that we likely will see a similar pattern in the business process outsourcing (BPO) market.

WNS and Intelenet are both reportedly planning to bid for Firstsource, which should take combined entity revenues higher than or close to $billion mark. Genpact also looks all set to achieve billion dollar revenue this year. If this happen, the BPO market will see its first billion dollar player much faster than did the IT outsourcing market. The IT sector took almost 15 years to get there; BPO seems on track to arrive there in 10 years.

Does that mean that with each new wave of outsourcing (IT, BPO, KPO, and LPO) companies are becoming better with the benefit of previous wave (experience) and growing faster? If yes, then we will perhaps see the first KPO/LPO $billion business in 5 years.

E-Discovery: The Importance of Process and Assessing Relative Risks

By Chris Janak, EDD Director

We read with interest of the recent inadvertent public exposure of confidential information in a public filing (GE Suffers a Redaction Disaster, The Connecticut Law Tribune, May 28, 2008).  This case illustrates two important more general points about risk:  focusing on process and assessing risk on a relative rather than absolute basis.

Plaintiffs in a pending sex discrimination case against General Electric filed papers digitally in PDF format.  Plaintiffs believed they had redacted the PDF files but savvy computer users were easily able to “see under” the apparent blacked out text.    Several prior widely publicized stories like this means the profession should already have been on notice. 

Lawyers worry, as they should, about this and other risks.  As they consider risk, we think they must focus more on risk relative to what.  Comments in the legal trade press suggest that outsourcing creates risk. This case illustrates that mistakes – in this event, a costly one - can and do occur even when services are performed by law firms or in-house legal departments.  This is not to point the finger but rather drive home the point that there is no risk-free path.

Minimizing risk is not just about being careful; it’s about having rigorous processes.  That means a tested, proven, documented, and repeatable process, complete with extensive quality checking.  The critics of legal process outsourcing might be surprised to learn just how process-focused Integreon and other reputable legal process outsourcers (LPO) are.  Any good LPO devotes significant effort to hiring practices, training, deploying technology consistently, and applying statistical controls.

Establishing a rigorous process to reduce risk also means minimizing the number of points of failure.  More hands and more hand-offs increase the likelihood of error.  Especially in e-discovery, which is inherently complex and prone to errors like the one in this suit, clients should seek unified control.  Integreon has, for example, recently created a single point of contact and responsibility for managing e-discovery.  We believe that the market will rapidly move in this direction, driven not only by the more favorable economics, but also by the risk reduction achieved in reducing the number of hands involved.

Risk may be unavoidable, but a realistic assessment of alternatives and implementation of rigorous processes helps minimize it.

Law Firm Middle Office Outsourcing to Manage Risk and Avoid Lay-Offs

By Mike Bryant, President, Legal Services, Integreon

Law firms are announcing layoff's weekly.  The most recent news in the trade press is about Holland & Knight and Bingham McCutcheon.  These firms get credit for addressing challenging economics and being public about their decision. 

After several years of unprecedented growth, many firms now struggle with the moral, legal, PR and operational issues of layoffs. Some take more aggressive action than others and each has its own philosophy, both about how much pain it can endure and how to communicate its actions internally and externally. 

What can firms do to reduce costs in a down economy?  Rent is the largest operating expense but not practical to reduce because of lease obligations and a challenging sub-let market.  Some firms may be able to push out unproductive partners and associates but most firms prune regularly so only a few have this option.

More often than not, law firm management targets the support staff in the back-office/middle-office for savings.  Those of us who have spent our careers focused on the law firm middle office know there are ample opportunities to drive efficiency and savings.  Law firm middle office functions typically lack the best practices and heavy automation found in corporations.  Consequently, in many firms, recent good years have magnified the staff headcount problem because staff has grown in tandem with lawyers.

Innovative outsourcing is one management tool used far more aggressively in corporations than in firms.  Companies outsource as a way to manage cost when growth falters or when revenue swings by geography or product lines.  They understand that outsourcing is more than just savings from labor cost arbitrage - operational flexibility is a key benefit.  Law firms, as relatively late outsourcing adopters, are only learning this now. 

The flexibility of a properly structured outsourcing contract can save law firms big dollars not to mention pain and suffering during periods of contraction or expansion.  Turning the volume up and down with an outsourcer is far less painful than over-hiring one year and firing the next.  Law firms must also assess costs carefully and over time.  Outsourcing may not always yield significant annual operating savings.  Factoring in often hidden costs, however, including recruiting fees, management distraction and now especially severance costs, can easily demonstrate big savings.

For law firms though, cost may be besides the point.  The bigger issues are the psychological, cultural and PR toll associated with lay-offs.  It is much easier to adjust capacity with outsourcing and many contracts have pre-determined provisions for scaling up or down based on pre-negotiated triggers.  How do you value the non-quantifiable benefit of avoiding lay-offs?

The flexibility of an outsourcing deal is under appreciated except by those that have identified and implemented these initiatives and now have shifted the risk of an unforeseen downturn to their outsourcing partner.

Centralized Law Firm Operations: Where + Ownership

By Mike Bryant, President, Legal Services, Integreon

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:

1. The threshold question is, “should we centralize middle office functions?”  If yes, then
2. Where should we operate our central function and   
3. 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.