Where’s the LPO Tipping Point?

LPO tipping pointEveryone is well aware that the LPO market is a nascent one, but in recent times there has been a lot of noise made about the fact that it had finally reached its ‘tipping point’ – that is, that it had finally matured enough to be accepted into the frequent-flyer lounge of the outsourcing industry. This stance was backed up with plenty of well-publicised examples from law firms and GCs who were actively using LPO providers across a range of tasks. Even from my own experience, and particularly from visiting the Indian delivery centres of some of the leading LPO firms, it is clear that there now exists a credible and workable solution to the requirement of wanting to outsource transactional legal work to low cost centres. So, surely that means the LPO tipping point has been reached? Well, no (in my humble opinion). What has happened over the last 6 months or so is that it is the question has changed.

Or, to put it more accurately, the market is changing. The tipping point that everyone is actively chasing is actually moving further away as the dynamics of how organisations use LPO are changing. This is reflected in a wider trend within outsourcing generally where ‘outsourcing’ itself is no longer a stand-alone activity but is more-often-than-not part of a larger transformation program or strategic imperative. So when GCs are thinking about how they can respond to the increased workload, fewer resources and shorter timescales, they do not immediately think “I need to outsource”: they think about how they can transform their departments using a variety of different tools and approaches, one of which might be outsourcing.

This means the problem is approached from a different perspective, and the usual way that LPO vendors engage with their prospective clients (“What process would you like us to carry out for you?”) is no longer valid. With the power more firmly on the client side (because they have taken the time to understand their strategy and map their processes) it is the GCs who are asking questions like: “I have all these processes, why should I outsource them to you?”.

That change in approach is driving different models, or ‘eco-systems’, that are being built around the in-house team. Some organisations are building their LPO relationships through their law firms, some are building Centres Of Excellence around technology solutions, whilst others are building internal Shared Service Centres with integrated LPO capability.

As the client approaches shift and mature, it means that the proverbial tipping point moves further out, at least until there is some stability in the eco-systems that are being adopted and the supplier base has adjusted their own models accordingly. That will inevitably see some big changes to the current crop of suppliers, with the BPO players likely to be the long term winners (assuming that there are some acquisitions on the cards) and the small litigation-focused suppliers doing less well. It’s an exciting time for the market, but don’t expect it to reach that tipping point too soon.