India’s Biggest Advantage Isn’t Its Labour Costs

At the start of this year I accompanied one of my clients on a trip to India to visit a number of LPO suppliers. During our packed week, in which we covered sites in Noida, Gurgaon and Mumbai, we saw a wide range of supplier capabilities, approaches and facilities. But one thing was consistent across all of the suppliers, and, I believe, is the quality that will ensure India’s continued success in this ever more competitive market. You may be surprised to hear that it has nothing to do with price.

With each of the suppliers we visited, we were insistent that we didn’t just get a series of presentations in their boardroom; why travel for 11 hours when you could do the same thing in the comfort of your own boardroom? So, as part of the agenda, we walked the floors and met the people who actually did the work on behalf of the suppliers’ clients. And this is where we found our gems. Without exception, everyone we met was professional, friendly, approachable and, most importantly of all, committed. And we didn’t just meet people the senior managers wanted us to meet – as far as we could (remember that there are very strict confidentiality requirements in place when you are working on firms’ legal processes) we talked to people randomly and without their managers present. The consistent themes we found were of staff who were proud to be there, that wanted to succeed and who put their clients at the same level (and, in some cases, above) their own employers. And, in an environment where they may have met their opposite numbers only once before and who might operate in completely conflicting time zones, that is highly commendable indeed.

And don’t think that this advantage could only be over other outsourcing destinations. As a management consultant, I’ve met many, many staff from hundreds of organisations across the world and, particularly, in the UK. Rarely have I seen such pride and commitment as we witnessed at those LPO providers in India. Whether you see that as an unfavorable statement on Western staff or a positive statement toward Indian staff, it can only be a good thing for outsourcing as a whole: it’s clear that the business case for resourcing offshore should be stated as not only being cheaper, but better.

Dealing with Growth in the Legal Department

Some of Orbys’s clients have ambitious growth plans over the next few years, in some cases increasing their turnover by over 30%. This will mean that the legal departments in these companies will come under increasing pressure from significantly higher workloads, usually without the required increase in headcount For those organisations that are, for example, heavily dependent on intellectual property or are developing businesses in emerging markets, these stresses will be much greater, and could, if it continues to operate in the way it is today, eventually take the legal department to breaking point. So, it is clear that something major has to change in the way that they do legal if their businesses are to exploit their growth opportunities.

Outsourcing has, and still is, been seen primarily as a cost-cutting strategy. And whilst it can certainly deliver on this, the additional benefits of flexibility and scalability are often neglected to the point that the outsourced services become a barrier rather than an agent of growth. The trick, of course, is building those objectives into your sourcing strategy so that the necessary mechanisms and levers are put in place at an early stage. But that will only get you so far.

So, how can the tools, approaches and methodologies of outsourcing be applied to the legal department in a way that will maximize flexibility and scalability? One answer is not to bring in a bunch of LPO providers to carry out a range of legal processes for you – this approach may provide some benefits in some areas, but a much more holistic approach is actually required.

The secret lies with TOM, or the Target Operating Model. This approach defines the structure and relationships between the different in-house and outsourced functions. It needs to cover all the interested parties, including the ‘business’, the in-house counsels, the in-house administrators, the external law firms and the LPO providers. It is the intelligent building-block approach to outsourced services that delivers the scalability, and it is the dynamic management of the flow of work through the TOM that provides the flexibility. Get all of this right and you have a lean, flexible and scalable legal department that is ready for anything.

Can LPO learn from ITO?

Everyone’s different. I’m different, you’re different. But, though we don’t always want to admit it, we do have an awful lot in common, and we can learn from each other because of those differences and similarities. So, as seasoned experts in IT Outsourcing (ITO), Orbys has huge amounts of experience that we think is relevant to the burgeoning LPO market – there are enough similarities between the two disciplines that mean that the young whipper-snapper LPO can gain from the learnings of the mature ITO market. The trick, of course, is recognising where the differences are, and adapting the learnings appropriately.

So, here are three key learnings from ITO that we think anyone contemplating LPO should seriously consider:

  1. Develop a good sourcing strategy. It is still sometimes missed out on in the ITO world, but most organisations serious about getting the most value from their outsourcing will develop a sourcing strategy well before they start to engage with the market. Key questions to answer will be: should I outsource? If so, what should I outsource? And how should I outsource it? The LPO market is currently driven by tactical project-based solutions, which means developing an LPO sourcing strategy will be swimming against the tide. But, if you want to avoid: engaging with too many suppliers; having multiple reporting systems; dealing with inconsistent approaches across regions or practices; spending more time sourcing work than delivering it; and, most importantly, not realising the maximum benefits available, then investing time in a sourcing strategy is well worth the effort.
  2. Understand what you are outsourcing. Over the years ITO has developed comprehensive definitions of the services it can provide (a good example is ITIL) – this common IT language allows the clients to understand exactly what they are buying, and the suppliers to be able to define clearly what they are going to do (and not do) for you. When Orbys was developing its LPO capabilities, one of the key things that struck us was the lack of any sort of ‘best practice’ library that was relevant across the whole legal profession. Much of this is due to the specialised nature of law, but the LPO market will be seriously hampered if it can’t come up with a good, standard model (we think we have one in Orbys). So, when you are trying to answer that ‘what should I outsource?’ question, make sure you and the supplier are talking the same language, or you could end up paying for something you don’t want or need.
  3. Build the right Retained Organisation. One of the biggest mistakes made by organisations outsourcing their IT is to think that they can take their best IT people and turn them into IT Supplier Managers. Unfortunately, the skills and character required could not be more different. The realisation that managing an outsourced service is very different from delivering one is a key learning that can be exploited by the LPO sector: lawyers won’t necessarily be the best people to manage your LPO suppliers. Look to build experienced supplier managers into your internal organisation, particularly if you have developed a multi-source strategy – the benefits of both cost savings and quality of service will far outweigh the investment cost.
And that’s just the tip of the iceberg – we’ll bring you more LPO-relevant ITO learnings in subsequent posts.

Forget LPO, the future is LSO…

As part of our work in the LPO advisory market, Orbys recently carried out a series of structured interviews with managing  partners and senior LPO partners across the top 30 major law firms at the heart of the legal outsourcing market, during which detailed quantitative information was captured on the extent of current and future LPO and LSO (Legal Services Outsourcing) activity within enterprise legal functions and law firms.

The reason we concentrated our efforts on the top 30 major law firms is that they occupy a pivotal central role within the legal outsourcing market: they have a privileged view of the actual and future end-customer demand for LPO and LSO across the multiple enterprise legal functions that form their client base; they are providers of LPO solutions to enterprise legal functions via their subcontract relationships with offshore LPO providers; and they are also significant customers for LPO in their own right as they seek to drive down their own cost bases through the use of LPO.

From these interviews, a couple of things became immediately clear:

  • LPO will continue to spread to more organizations, be adopted more widely across organizations, and spread up the value chain. As a result, the volume of LPO activity is set to accelerate dramatically.
  • However, LPO is likely to remain essentially a collection of tactical point solutions even if these multiply in number and extent. As such, it is different to the wider strategic outsourcing relationships that have come to dominate other in-house functions such as IT, finance and HR and that will eventually become the norm for legal functions as well.

It is this wider legal outsourcing—outsourcing of the complete legal service on a full-spectrum or best-of-breed basis across one or more law firms with significant service and commercial obligations—that Orbys terms LSO and that we expect to eventually become more significant than the current LPO market.

The deal which started the trend early was Unilever’s 2007 transfer of its entire trademarks unit to Baker Mackenzie, which subsequently transferred the bulk of the work offshore to the Philippines. The deal, which is still in place, includes the operation and administration of its 160,000-mark trade mark portfolio.

Another significant milestone in the LSO story was the deal between Tyco and Eversheds in 2007. This involved consolidation down from over 200 different external law firm relationships to a primary strategic relationship with Eversheds and delivered Tyco a claimed 26% cost reduction. The deal moved towards a fixed fee with significant incentive bonuses and penalties based on key performance metrics such as litigation success ratios and overall legal spend.

Since then Eversheds have been blazing the trail, signing up Cisco, Samsung, Severn Trent Water, Akzo Nobel and DuPont for LSO deals. Other law firms are following suit, for example, Linde Group has signed an LSO consolidation deal with DLA Piper, and Levi-Strauss signed an LSO consolidation deal with Orrick, Herrington & Sutcliffe in 2009 which meant that, except for brand protection work, Orrick became sole law firm supporting Levi-Strauss.

But, despite this level of activity, Orbys found that many law firms (60%) where yet to even consider LSO. Our opinion is that as more firms start to embrace this new business model, probably following some ‘toe-dipping’ with LPO, the competitive pressure from clients will ensure that LSO reaches the strategic agenda soon enough.

As experienced advisors on all aspects of outsourcing, our guidance to anyone considering taking the LSO journey, law firms and clients alike, would be to consider carefully your overall objectives for the change, your strategy for achieving those objectives and what the most appropriate roadmap might look like – sometimes the shortest route is not always the best. There are significant benefits to be gained for both parties and only a well thought out deal will ensure that these are achieved.