Integreon KPO and LPO Blog

Outsourcing Insurance? Or the Business Continuity Benefits of a Global Footprint

By Liam Brown, President & CEO, Integreon

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.

How LPOs will Help Law Firms Weather the Economic Storm

By Liam Brown, President and CEO, Integreon
[This post originally appeared at the Legal Process Outsourcing blog on April 8, 2008]

The Wall Street Journal recently ran a story with a rather downbeat headline: “Why Big Law is Bracing for a Leaner 2008.” Yes, the economic downturn is going to have a major impact on law firms, but these revenue pressures will likely lead to operational improvements in order to preserve profitability. The truth is that the legal profession has been slow to embrace the knowledge process outsourcing (KPO) trend that Wall Street began adopting nearly a decade ago. However, this financial environment provides the impetus to introduce competitive advantages and operating efficiencies that might otherwise have received a chillier reception during better economic times.

To be sure, law firms have long outsourced back-office functions such as payroll, copy center, mailroom and travel and it has become recent common practice for law firms to outsource IT functions too. But today there are also many non-core or low value-add knowledge worker functions that no longer make economic sense for law firms to handle internally. Non-core administrative functions include word processing and transcription, presentation graphics and accounting. Low value-add legal functions include e-Discovery services, litigation document review, research and intellectual property support.

I used to hear that constraints to outsourcing domestically or offshore to countries like India and Philippines included fear of losing control of the quality of the work or of security of information. But these fears are unfounded, as evidenced by the judgment-based, market-sensitive work the major Wall Street firms, major corporations and some leading law firms now outsource to third parties or their own offshore captives.

Indeed, major law firms that so far have resisted the outsourcing or offshoring trend will find it increasingly difficult to justify the cost of retaining these non-core functions in-house, particularly in the high cost cities in which they operate. Today more than ever before, their clients expect them to operate cost-effectively on their behalf.

My personal Eureka moment, which was the catalyst for Integreon entering the legal process outsourcing (LPO) market, was when I received a Big Law invoice for $250 an hour for their associates to review my e-mail during litigation. I was very happy with the value-added legal counsel that the partner at the firm provided (we prevailed), and thought “I am happy to pay the partner $500 per hour, but Integreon has knowledge workers offshore who can do this kind of review work for one tenth of the cost of the $250 per hour associate here in U.S… and I can afford lots more of them to do the work faster and with more rigorous quality checking”.

Leading outsourcing firms deliver services from low cost domestic cities, such as Fargo, ND, as well as from overseas countries such as Philippines and India. This allows law firms to adopt a ‘best-shore’ approach to their operations, keeping some functions in the U.S. or U.K., while moving other functions overseas. For example, work requiring extensive ongoing interaction with the firm’s lawyers might best be delivered from a low cost onshore location. Or work to be completed overnight in the U.S. by more expensive night staff might be performed much more cost effectively during the daytime in lower cost India or Philippines, leveraging the time zone difference. Or delivering services from multiple locations for business continuity reasons.

Those firms who have already invested in moving operations to lower cost locations over the last few years have a meaningful cost advantage going into 2008. I was recently sitting with the COO and CIO of one of our Big Law firm clients who both appeared quite relaxed because, as one of them put it, “we need to take $5m out of our cost structure this year and we can do that because we did the heavy-lifting of launching our offshore center already and now we just need to accelerate the rollout”.

So in my view, today’s pressure on costs will lead to lasting changes that will make the legal industry decidedly more efficient tomorrow. And the beneficiaries will be the LPOs, the partners at the law firms, and the law firms' clients.

Will the Deluge of Data Feed the KPO Market?

Two separate articles in the New York Times yesterday illustrate the impact of the web and the huge quantities of information available.  Ironically, I think the deluge of data described in these articles, rather than liberating professionals, makes life hard for them.  There is just too much to assimilate.  What's the answer?

Dirty Job, but Someone Has to Do It (NYT, 14 April 2008) describes how a small web site with just three reporters is doing very well just by searching the web for documents and information to a broader audience.  The columnist observes:

"As working reporters, we are able to get information — through the public and government Web databases and proprietary digital sources — that our ancestors in the business would not have dared dream of. I know because I’m one of the ancestors."

He Wrote 200,000 Books (but Computers Did Some of the Work) (NYT, 14 April 2008) reports that

"Mr. Parker has generated more than 200,000 books, as an advanced search on Amazon.com under his publishing company shows, making him, in his own words, “the most published author in the history of the planet.” And he makes money doing it... But these are not conventional books, and it is perhaps more accurate to call Mr. Parker a compiler than an author. Mr. Parker... has developed computer algorithms that collect publicly available information on a subject — broad or obscure — and, aided by his 60 to 70 computers and six or seven programmers, he turns the results into books in a range of genres, many of them in the range of 150 pages and printed only when a customer buys one."

The web and its proliferation of information feeds new businesses like the two described above but also creates problems.  It's an old adage there is a progression from data, to information, to knowledge, to wisdom.  I've personally talked to professionals who say they just cannot keep up with the vast flow of data and information. 

This deluge seems likely to continue feeding the knowledge process outsourcing business.  Yes, a range of technology helps manage the deluge.  RSS feeds help consolidate information.  Smart search tools help find information.  Semantic engines can even summarize articles.  But ultimately, you still need smart people to make sense of the huge volume of information and create knowledge from it.  Knowledge-intensive businesses that drown in data will likely keep turning to smart professionals offshore to help them make sense of it all.

Time Magazine Reports on Legal Process Outsourcing

Call My Lawyer ... in India (Time, 4 April 2008, by Suzanne Barlyn) opens in a way that I like. It quotes a lawyer who says "he's ethically obligated to do what's best for his clients, 'and that includes saving them money'." 

Barlyn goes explains the significant cost savings possible by using lawyers in India, whose salaries range from $6,000 to $30,000 (US) versus $160,000 for associates in large law firms.  Convincing lawyers to use offshore resources, however, is not easy she notes but then cites vendor experience, a market research report, and the growing cost and burden of e-discovery to suggest that the practice is gaining traction.  Examples at DuPont and TransUnion illustrate the potential cost-savings.

In response to one law professor's concerns about confidentiality, the reporter cites Integreon's security:

"LPO firms say they are up to the task of security and confidentiality. At Integreon's facilities in Mumbai and Gurgaon, for example, guards search attorneys' belongings to ensure they're not carrying flash drives or laptops, according to CEO Liam Brown. Computers don't have disc drives, usable usb ports or CD burners, and most can't print. Attorneys work for a specific client in areas called dedicated delivery centers, which are accessible via a fingerprint scan and monitored by cameras. Each room can hold up to 36 terminals--many of them with dual screens. The company never stores data locally. Rather, the lawyers work directly on the client's server and only over a secure line or via the Internet. The space becomes a "virtual extension of the company we're working for," says Abhishek Khare, head of the Gurgaon office."

As an industry insider, I think this is a well-balanced and fairly reported article.  And it's always a good sign that something is mainstream when Time Magazine reports on it.  By now, the New York Times, Wall Street Journal, and Business Week have also covered legal process outsourcing.

Signs of the Rise of the KPO Industry in India: Integreon Manager Profiled in Hindustan Times

One sure sign that an industry and market has come of age is when the general press profiles the management leading it.  Knowledge process outsourcing has grown rapidly and Integreon has been pleased to play a leading role in that growth.  Helping us do so is a team of very talented and dedicated professionals. 

Knowledge is power: a profile of Shilpa Shetty (Hindustan Times, 1 April 2008) profiles the rapid rise of Shilpa Shetty, Director of Document Conversion and Graphic Services at Integreon.  Shilpa has been with Integreon since 2001 and now has a team of 180 people and "manages up to five clients and is in charge of implementing the projects, reviewing contracts and renewing them as well as taking charge of client visits."

Congratulations Shilpa!

Law Firm Business Intelligence and Legal Process Outsourcing

I mentioned in my prior post that the March/April 2008 issue of Law Firm Inc. magazine is excellent reading for any large law firm manager.  The two lead articles cover business intelligence (the "Metrics Movement").  The Numbers Game and You've Got Their Number... Somewhere provide an excellent overview about the rush by large law firms to adopt BI, including hiring small armies of analysts.  Large firms are moving rapidly to sophisticated profitability analysis.

Some firms have consciously not wanted to know profits in detail lest they be forced to make tough decisions about specific partners or practices.  Firms do not have to profit maximize, so they can choose to overlook some findings.  And maximizing total profit may require keeping some low-profit practices so the firm can hold itself out as full service.   

As the Metrics Movement takes hold though, pressures will build to increase profits.  Costs will likely receive greater scrutiny.  Long-ignored costs may become visible if it turns out that some practices or offices consume disproportionate amounts. 

This Movement will mean more work for legal process outsourcers like Integreon which can reduce direct costs and improve efficiency.  First, moving work offshore still provides tremendous savings through labor cost cost.  Second, as BI matures, large firms will more carefully allocate overhead as well as direct costs.  Hidden costs such as recruiting staff, training them, and hiring temps to cover absences will become more visible.  As firms include all overhead in BI, the savings from outsourcing will look even more favorable. 

And third, the ethos of BI will lead to recognition of an even less visible cost: management distraction.  Capturing the implicit cost of the COO focusing on the wrong issues may never be possible.  With all the analysis and focus on profits though, how long before the COO realizes the value of her time.  Isn't the firm much better off if she focuses on BI instead of, for example, on the latest minor staff kerfuffle? 

From the Suburbs to Offshore

The March/April 2008 issue of Law Firm Inc. magazine is excellent reading for any large law firm manager.  I like the two lead articles on business intelligence, but more on those in the future.  Now let's focus on The Other Office by Arthur Jones (not online as of posting this), sub-titled "Moving support staff offsite may soon start to make sense."  Highlights of the article before my comments:

• Rents in Manhattan and Washington are $100 and $80 per square foot respectively and climbing.  [I presume rent is comparable if not higher in London.]
• Though several NYC and DC firms do have suburban offices for some staff, there is no trend yet toward moving staff to the 'burbs.
• Law firms have an emotional fear of being physically separated from staff.
• Managing two offices may entail hidden costs.
• One real estate broker is quoted as saying top law firms "may look to move their functions overseas."  But the author writes "Offshore is a move of a different magnitude, and no one has started adding up the downside disadvantages yet."

Your honor, I object!  If the first step in considering any change is "adding up the downside disadvantages," woe onto the legal market?   I'm not saying offshore or outsourced is right for every firm, but how about starting with potential benefits.  The benefits of offshore service - and several firms do have offshore centers - include lower occupancy cost, lower compensation, bigger and better talent pools, and higher efficiency.

I approach the question of how best to operate a law firm empirically.  A first step is to explode myths.  Proximity may be valuable but I think it's over-rated.  For example,  in my own experience working in a law firm in a 50 story tower, most lawyers considered having to take an elevator a big hurdle.  Taking the elevator to the lobby and switching banks was an even greater hurdle.  And going across the street to a nearby office was rare indeed.

Where someone sits seems much less important than the service level received.  Some lawyers complain about internal service at large firms - it  matters little to them that staff are nearby.  Many more are happy but rarely interact with staff providing services.

Think about the implications from another angle:  what if a perceptive client should ask "If it's so critical to you that your staff be in the same building, then why are you a global firm?  If you need everyone in close proximity, then how can you work on the global team my company needs?"   How do you answer that when you are reluctant to locate staff in another building?

With a legal market recession possible this year, firms may take a harder - read more empirical look - at their support needs.  Once they look hard, I think they will see that operating support away from expensive central city space does make sense.  And once they see that, a move offshore seems much smaller.

The Impact of a US Economic Downturn on Knowledge Process Outsourcing (KPO)

By Lokendra Tomar, SVP, Knowledge Services

Several articles have recently suggested that the likely recession in the US will be bad for the outsourcing industry.  In our view, the economic uncertainty is a dual-edged sword with more positives than negatives.  Integreon may experience some negative news from some customers but the unsettled economy increases our opportunities.  Two factors will determine the overall impact for our knowledge process outsourcing.

On the one hand, the slowdown negatively affects our clients.  In some instances, this may mean less business for us.  This is likely true where (1) Integreon and other KPO penetration is already at a very high level or (2) client spending on KPO services is discretionary and does not add to enterprise profits for the clients.  This negative affect, however, may be tempered by our clients deciding to compete harder for the smaller pool of available business (e.g., "let's do more pitch books" or "we need to provide more value at the same price to keep customers").

On the other hand, the slowdown forces our clients and prospective clients to seek better value propositions to protect or improve their profits.  They will turn to Integreon services to benefit from the offshore cost, efficiency, and experptise arbitrage. 

On balance, I think that the drive to win business, to increase value, and to reduce cost are likely to outweigh for Integreon and other KPOs what may be a decline in overall economic activity in the US.

Leading UK Law Firms Outsource to India

The Financial Times reported in Diligent and a long way from Chancery Lane (25 February 2008) about UK law firms outsourcing work to reduce costs.  Integreon and Clifford Chance feature in the article.  "Integreon’s work for the sector highlights the moves that law firms are belatedly making in a bid to cut costs that have risen quickly in London."  Though the article focuses on cost reduction, it also highlights the talent available in India. 

How Are Customers Responding to KPO Consolidation?

By Liam Brown, President & CEO, Integreon

The President of Copal, a financial services KPO, is quoted in The Economic Times (March 15th, 2008) Copal Partners eyes LPO foray via buyouts: “We are in discussions with 10 LPO firms in India whose revenues are in the range $5-75 million. We hope to close one or two acquisitions this year.”

I have noticed savvy customers starting to ask questions in RFPs, during the sales cycle, and drafting change of control terms into contracts, to protect themselves from entering into a contract with an outsourcer, only to find the provider subsequently sold by the founders or investors to a new owner, which doesn't like the terms and seeks to renegotiate at the earliest opportunity. Sometimes the terms of the initial contract were agreed at better than market rates with the founder(s) (who might have pursued revenue growth to bump their valuation for sale), and who were the customer's primary contact, but who unfortunately have moved on with their proceeds from the sale. This might leave the customer without an advocate, working with a provider who might feel that they have negotiating power because of how much work the customer invested in launching the KPO program. Other customers are multi-sourcing their work around to more than one provider. And still others are choosing to source multiple services from only one provider that they believe is going to be one of the industry aggregators, i.e. not going anywhere.