SOURCING INSIGHT Legal Process Outsourcing Over the past 7 to 8 years, Trestle Group has witnessed legal process outsourcing (LPO) gaining major importance in the sourcing sector, adding to the ever growing business process outsourcing (BPO) industry. In the beginning, major law firms only outsourced limited, low-skilled legal tasks to third-party providers. Today, comprehensive LPO services are an integral piece of the value chain in legal departments of global companies. As these services move deeper into the overall legal value chain, clients have become increasingly anxious about whether these services will fulfill their standards and if sufficient controls are in place. Experience demonstrates that service providers focused on LPO grow into trusted organizations with mature delivery processes and indeed, fulfill the quality and data security expectations of their clients and in many cases, provide efficiencies and innovation. A Trestle Group Research Publication New York London Frankfurt Zurich Bangalore
Executive Summary Legal process outsourcing (LPO) is a trend on the rise that provides both multi-national corporations and law firms a range of benefits from improving operations to reducing costs. The pressure for these companies to outsource legal processes emanates from several sources. The first driver is that highly qualified legal personnel should be used efficiently and strategically not on administrative or basic tasks that consume time and valuable effort. The second driver is cost reduction and efficiency that clients and stakeholders expect to be optimized in today s competitive marketplace. LPO providers are specifically designed to deliver this advantage as their existence in the market is based on this promise. LPO offshore services, for example in India or the Philippines, offer large cost savings and high quality as they employ skilled legal staff trained for Western legal standards. The third driver is access to flexible labor pools, around-the-clock service and innovative legal service delivery that are enticing more and more firms to reevaluate and adjust their legal process-sourcing model. Legal services range from low-level to high-level tasks and the decision, which services to outsource to an LPO provider - is challenging. The same principles used in traditional BPO engagements are applied in LPO engagements. This ensures that the firm outsourcing retains their core processes and the services provided by the service provider are integrated seamlessly into the end-to-end process. Global LPO providers have already proven their competencies in destinations like India, the Philippines and South Africa. LPO providers are integrating their services into many of their global offices as a part of their global footprint approach, catering to local language requirements. The LPO service provider global presence coupled with their maturity in providing these services builds a strong case for LPO sourcing. SOURCING INSIGHT Legal Process Outsourcing 2
Services & Approach Legal departments within global corporations and traditional law firms perform a variety of legal services for their clients. Traditionally, the low-skilled work was tasked to junior lawyers however, when the same tasks can be performed by qualified paralegals and lawyers (many with degrees from major universities in the United States and Great Britain) from a third-party provider at a much lower cost - managers are forced to consider changing the way their processes and companies are organized. As LPO has established itself as common practice and as service providers have consistently delivered quality results, companies from the US and Europe place a higher level of confidence in their providers and entrust them with tasks higher up the value chain. The range of common LPO services consistently outsourced to providers covers both groups of services, with an increasing trend to include high-end tasks. The diagram below shows typical tasks throughout the value chain: LPO Services Low-skilled tasks! Form completion! Litigation support! Legal publishing services! Legal transcriptions! HR administration! Client billing services High-end tasks! Legal research! Client communication! Software licensing agreements! Patent application (also: Patent Process Outsourcing [PPO])! Forensic analysis of administrative communication! Contract drafting! Document review! Title reporting! Finance and Accounting! Knowledge management Critical success factors for an LPO engagement include: Requirements are well documented and understood Expectations of key stakeholders are understood and buy-in is ensured Current processes and interfaces are understood before they are transitioned. If a transformation of the process is required post-implementation, then timelines and responsibilities are set in advance of the transition A realistic business case is created using fully-loaded costs, realistic assumptions and is the basis for a financial decision and future tracking of savings Performance metrics are defined and included in the SLA / contract Governance measures for both the implementation and running the operations are defined and stipulated in the contract Sourcing professionals with LPO sourcing experience are used to steer the project SOURCING INSIGHT Legal Process Outsourcing 3
The challenge is to maintain a process balance and healthy relationship with the service provider as more high-end quality services are outsourced. Sourcing professionals are best equipped to ensure that proper quality checks and control mechanisms are in place to be able to quickly identify any shortcomings in the service. If the metrics show that adjustments are necessary, then quick action is required to protect the health of the end-to-end process. Benefits & Drivers Flexibility The universal challenge to convert fixed costs into variable costs has not escaped law firms. Legal costs have been steadily increasing for years. By presenting the option for firms to rent capacity on an asneeded basis, service providers have built an industry that now allows buyers in the legal world to have the control, flexibility and scalability that other industries have enjoyed for years through outsourcing. The impact reaches the bottom line and creates attractive business cases for managers. Security The legal industry places security and privacy of their clients data at the very top of their priorities. Longtime a concern and fear for many firms in considering LPO, the service provider industry has gone to great lengths to ensure compliance and implementation of rigid security procedures. In most cases, the client security levels are actually improved when shifting activities offshore. This can be witnessed by visiting any major LPO provider s site around the globe. Measures such as registering the serial numbers of laptops and other electronic equipment prior to entry, confiscation of mobile phones with camera capabilities and many other examples show their commitment to providing the highest levels of security possible. Cost Reduction & Efficiency Gains Once seemingly excluded from cost pressures on their fees, legal houses are now hearing clients ask for their typical services to be delivered at a lower price. This is compounded inside large corporations as the legal department is not a revenue generating business unit. The clear expectation from the executive level is more for less especially from those that are supporting profit-centers. As with most outsourcing engagements, the question of quality will arise. Can service providers deliver consistent high quality results or even improve upon the current state? The answer is yes. The undisputed prominence of this industry underscores the proven results many clients have witnessed over the past five years. Service provider experience is the obvious key clients should look for in choosing a partner. Companies must evaluate the efficiency of their processes. In general, legal departments do not staff individuals whose core competence is process efficiency and transparency especially in traditional law firms. Including a service provider can be a practical way to bring about the best legal service delivery methods that are again, scalable and controllable. Outsourcing legal processes increases operational efficiency as it enables a company s law department to focus on its core competencies while tasking out assisting activities. The service provider will have the possibility to assign larger teams to focus and attack ad-hoc / high-volume tasks. SOURCING INSIGHT Legal Process Outsourcing 4
Lastly, clients can further leverage LPO service providers by eliminating the need to keep up with legal technology for document review and other capital investments that must be made to run back-office activities. By sourcing the right work to the right partner, additional gains can be achieved to improve the balance sheet and reduce the management of non-core activities. Service Providers When service providers began to offer LPO services, only major law firms were their clients major corporations still kept their legal teams largely intact in a silo within their own walls. Today, LPO providers are increasingly winning new deals with major corporations as the benefits and sustainability of the LPO services have proven to be solid. Corporations and law firms have increasingly decided to move away from the exclusively in-house silo approach. The LPO market today features several service models from which they can choose: Captive centers formed by law firms in the countries of origin, e.g. in the US or in Europe Joint ventures by law firms, usually in near- or offshore locations Third-party vendors providing services to law firms and in-house corporate law departments, predominantly in near- or offshore locations The core competency of law firms is not to run captive centers or integrated joint venture models. Third-party vendors bring the expertise and focus to enable law firms to focus on their clients and their business law. Offshore or nearshore locations offer the benefits of the highly qualified talent pool and labor arbitrage. Oftentimes, the service provider offers constant availability, a factor that renders time difference negligible. The offshore market has clearly responded by growing aggressively and offering an increased range of services. To put that into perspective, the number of Indian firms providing LPO services in 2005 stood at 50 while today there are over 140. Compared to 40,000 law graduates in the US, offshore destinations like India or the Philippines offer a relatively large and highly qualified labor pool. 1 In India more than 80,000 law professionals graduate every year. 2 The Indian legal education system produces high quality and skilled young lawyers who can apply their legal knowledge to those systems of the US, Canada, the UK and in parts of Europe, as the Indian legal system is similar. Apart from a good education system and skilled legal professionals, nearshore providers offer an advantage over their offshore counterparts - closer cultural understanding to European or North- American customs. 1 Source: The Economist, Passage to India - June 26, 2010 2 Source: Sypher Solutions Infinite, Outsourcing LPO to India SOURCING INSIGHT Legal Process Outsourcing 5
Conclusion Significant advantages can be obtained through the development of a pragmatic LPO strategy. As BPO, especially the higher-end services, gains importance and acceptance, LPO will naturally grow in quantity and significance. A properly structured and balanced LPO can bring a range of benefits. Firms choosing to tap into the efficient delivery of LPO providers will benefit from cost reduction and efficiency gains, flexibility (rampup / down) and other benefits that firms outsourcing other tasks have realized for years. The professionalism of LPO providers ensures even higher compliance with security measures and the safety of client data. Service providers have grown to include global footprints and best-in-class services in near- and offshore locations. Legal professionals should concentrate on their core and high value activities to drive growth. The problem of talent shortages or talent waste can rapidly be reduced or eliminated with the appropriate model. The careful design of a company s LPO model should begin by answering the questions, What is core to my service delivery? What strategic benefits can my organization achieve through LPO? Adherence to the same success factors as in traditional BPO determines the success or failure of an LPO engagement. Using sourcing experts with LPO experience will facilitate best-practices services delivery and in the end, a successful integrated LPO service. Executed properly and with the right experts to guide organizations through the critical transformation stage, legal process outsourcing can positively impact the business and result in a more cost efficient and effective sourcing model. SOURCING INSIGHT Legal Process Outsourcing 6
About Trestle Group Trestle Group is a leading and independent sourcing advisory firm. Utilizing experienced practitioners, we guide organizations through the sourcing life cycle. Deep knowledge combined with pragmatic approaches allow our experts to deliver value to our clients. Trestle Group teams stay current on outsourcing trends, market locations, and competitive service providers. Through white papers and other thought-leadership publications, we strive to keep industry decision-makers informed and aware of continuously changing markets and the options that are available to them. Whether an organization is considering establishing a captive center in Asia, outsourcing to Eastern Europe, or implementing a multisourcing strategy, we get sourcing done. To learn more about Trestle Group, visit our website: www.trestlegroup.com. About the Researchers Daniel Rivette is a senior consultant at Trestle Group. His broad international experience in complex government and business projects allows him to provide valuable insight to Trestle Group clients and internal research activities. From overseeing the transfer of onshore European business operations to a captive center in India to supporting major vendor selection processes in the financial services industry he has developed a valuable professional lens that allows him to clearly identify and evaluate sourcing risks and opportunities. Daniel is a graduate of West Point and has obtained an MBA from EM Lyon Business School in France. He is currently based in Zurich, Switzerland. Annegret Wägner is a consultant at Trestle Group. Annegret has extensive knowledge of investments in the precious metals' and commodities' sector, having done research and analysis. Her project experiences include implementation of regulations for new tax legislation in an IT system of a major bank and the assessment of procurement processes for an international enterprise. Annegret holds a degree in International Culture and Business Studies from the University of Passau, a B.A. (Honors) from the University of Limerick, and a Liccenciatura from the University of Granada. SOURCING INSIGHT Legal Process Outsourcing 7
Trestle Group is an international firm providing services solely focused on global sourcing. Through our diverse and complementary set of services, clients benefit from support ranging from strategy through to implementation. Whether you are interested in setting up operations in Eastern Europe, outsourcing to India or ready to make the world a better place through our Foundation (www.trestlegroupfoundation.org), Trestle Group is a solid partner. Experience Trestle Group today. Sourcing Lifecycle From Owner of Activities 1 Identifying sourcing potential 2 Analyzing status quo 3 Planning target state 4 Transformation to target state 5 Continuous optimization to Recipient of Activities Trestle Group Value Proposition Focus Trestle Group focuses entirely on IT and BPO sourcing. This emphasis provides clients with concentrated specialists that understand how to best design and implement sourcing strategies. Company Trestle Group s current client portfolio and past project experience establishes a solid foundation of market knowledge, expertise, methodologies, and best practice experience. Experts Trestle Group market experts bring professional personalities, first-hand market knowledge and innovative approaches to deliver solutions to complex sourcing challenges. Research Trestle Group demonstrates thought leadership through market publications and remains current by following industry trends and peer research. Contact Trestle Group For more information about the services Trestle Group provides, please contact one of our offices or visit our website. New York City, USA 245 Park Avenue 10167 New York Tel: +1 212 672 1740 Fax: +1 212 792 4001 London, United Kingdom 1 Ropemaker Street EC2Y 9HT London Tel: +44 207 153 1006 Fax: +44 207 153 1111 Frankfurt, Germany Friedrich-Ebert-Anlage 36 60325 Frankfurt am Main Tel: +49 69 244 333 162 Fax: +49 69 244 333 207 Zurich, Switzerland Limmatquai 94 8001 Zurich Tel: +41 43 500 1740 Fax: +41 43 500 1744 Bangalore, India Bangalore Raheja Towers 26-27 Mahatma Gandhi Road 560 001 Bangalore Tel: +91 80 41 800 880 Fax: +91 80 41 800 900 www.trestlegroup.com