Many people I talk to are surprised to learn that it’s taken Integreon almost nine years to grow from startup to become a $100m business. Back in 2001, most analysts thought “outsourcing” meant offshore IT or call center services and, in the face of scepticism from the investor community at the time, the Integreon management team scraped together the money to launch a KPO business (before the term “KPO” even existed). We were a pioneer in Document KPO for banks, consulting companies and law firms in those early years. Then we became an early leader in Research KPO for the financial sector.

Over the last few years, we’ve become the largest provider of Legal KPO services to corporations and law firms. Over the decade we have slowly expanded our range of KPO services, built or acquired and integrated operations globally, as well as developed our proprietary automation, collaboration and knowledge management technologies. Along the way we have achieved the scale to generate the internal profitability that supports our ongoing investment in services, products, locations, etc. As we come to the end of 2009, we have become the leading global KPO (perhaps), and I feel fortunate to count many of the world’s leading brands as our customers.

These last twelve months have been tough for smaller, niche KPO providers. I have great sympathy for the entrepreneurs, employees and investors of those companies that have gone out of business or are struggling to stay afloat. I hope that they survive or succeed in selling to a larger, more stable entity.

Some industry analysts have recently commented that we are likely to see the serious entry of the large ITO and BPO players into the KPO market during 2010, through acquisitions. Perhaps. I am not sure how many of those firms have the management bandwidth, strategic inclination or patience to acquire, integrate and grow the available small captive or third party KPO operations to build a KPO business of any reasonable scale, which would be required to move the needle for them. Rather, I expect that the industry consolidators will be the handful of scale KPOs that are focused on growing their consistent cashflow business toward an IPO event.

We have not yet reached a new legal market equilibrium and already see more variation in strategy. The uncertain environment means that firm management must consider more options. Smart firms will, in our view, differentiate and tell the market what they are doing.

In this post, we first review market differentiation, explain why going public makes sense, and illustrate with recent announcements by Integreon clients Osborne Clarke and Simmons & Simmons.

The Legal Market is Differentiating

Once the legal market settles down from the recession, we don’t think it will look the same. We agree with Adam Smith, Esq.’s (aka Bruce MacEwen) premise in Law Firm Business Models: A New Series (30 October 2009) that the market is moving from a “mono-strategy” to a diverse environment. He concludes that, “we may begin to see a wealth of experimentation with different business models.”

For example, consider recent news about change in lawyer pay. Associate career tracks and pay were virtually identical across AmLaw 200 firms in the US for decades. No more. This past week, separate articles reported that Reed Smith and Drinker Biddle abandoned associate lock-step compensation in favor of associate categories and merit-based pay. Howrey, Bingham McCutchen, and Orrick have also made similar moves.

Another example is the rise of smaller firms. The legal press has reported about both BigLaw spin-offs and the relative success of regional firms. Whether these threaten BigLaw is not the point, rather it’s that clients now consider a broader range of legal providers.

Or consider the Legal Week editorial last week. Alex Novarese, in Editor’s Comment: The original LPOs, reminds us that in the 1990s, regional UK firms tried to capture share from higher-end London firms. He argues that the time is ripe to try again but notes that:

“At the top reaches of the global market there is now stratification, not consolidation. That means top firms are refining their practices, a process that increasingly sees them strip down their business rather than expand.”

This further supports the idea that the market has changed, that firms are no longer all playing from the same sheet of music, and that competition and differentiation have increased.

Successful Differentiation Requires Talking About It Publicly

We are surprised to read about some law firm changes as press leaks rather than public announcements. For example, Above the Law recently “broke” news about the The New Biglaw Business Model, According to O’Melveny & Myers, which described the firm’s strategy to become a leader in fixed fee billing.

Firms should, of course, have internal and private client discussions. We think they should also publicly announce new strategies. Clients clearly say they want more value from firms. A public announcement that explains how a firm will deliver more value helps position the firm to retain existing clients and win new business.

Until recently, most firms using legal outsourcing eschewed PR. Today, however, firms recognize that their clients equate outsourcing with better value. Firms that might once have taken steps quietly now announce their moves, recognizing the positive impact on clients…

Two weeks ago Integreon client Simmons & Simmons announced that legal process outsourcing - a team of lawyers in India - was an important part of its new strategy (see The Lawyer article or the Integreon press release).

Last week, Osborne Clarke managing partner Simon Beswick wrote an opinion piece in the The Lawyer, Outsourcing will enhance careers, not hinder them. Readers may recall that OC signed a major Middle Office outsourcing deal with Integreon early in 2009 (see our February press release and October news of two recent prestigious awards). Beswick addresses concerns that outsourcing hurts lawyer careers, making the point that firms need a clear strategy for how they will meet client demands to deliver better value and that outsourcing is one part of the solution.

We think Beswick’s concluding remarks apply well beyond outsourcing to any new law firm strategy:

“The market is demanding that lawyers now embrace change rather than simply adapt to it. Clients are looking to their firms to come up with innovative solutions and law firms that do not move with the times will be left behind by their more willing competitors.”

Firms are clearly making both strategic and tactical moves. We expect that to continue. And we think the ones willing to go public gain an advantage in winning the war both for new talent and new clients.

Everyone was pleased that EDRM has now debuted a new, much easier-on-the-eyes, www.EDRM.net. All EDRM working groups use this site to highlight completed content. The site also consolidates a lot of past research and standards materials. In addition, the EDRM launched a new Twitter feed via @EDRM to facilitate broader awareness about the organization’s on-going activities and accomplishments. (Speaking of Twitter, follow Integreon via @IntegreonEDD and me, personally, via @Babfab.)

The main action during the mid-year meeting took place in the working group discussions.  Here are some highlights:

An updated sample e-discovery data set

The Data Set Working Group reported on extensive collaboration with the National Institute of Standards and Technology (NIST), a US-government agency that sets many technical standards, including for the SHA-1 algorithm used in data (file) de-duplication. (And yes, the MD-5 hash is still commonly used as well).

NIST also maintains a database of known operating system files, program files and other non-user file types. Vendors and legal organizations that process data use the “NIST list” to help “separate the wheat from the chaff”. That is, a simple step to reduce data volume requiring review is to eliminate from data sets all of the program and other files that do not contain user data. This process does not rely on file names or extensions, but rather on digital signatures.

Because of collaborating with the NIST, the Data Set group has gained a much better understanding of NIST objectives and processes for determining which file types get added to their list, the methods for updating such lists, and even some considerations for maintaining chain of custody. Understanding why many file types don’t make it onto the NIST’s list has helped the Data Set group develop a strategy for targeting additional file types that should be included in the EDRM’s e-discovery test data set. The term “de-Nist” was used extensively by the working group team leaders in reference to the process for removing non-user files from data sets. Interestingly, the NIST itself had never actually heard this term before, but NIST participants were pleasantly surprised to learn of its existence, as well as its importance as an e-discovery term of art.

Standardized metrics for e-discovery

The Metrics Working Group completed a Quick Start Guide and a number of tool templates, including ones for ROI tools, ECA cost estimation, collection and review tracking, and data mapping. The group helped build some new American Bar Association (ABA) tools, and helped in jumpstarting the Legal Electronic Data Exchange Standard (LEDES) Oversight Committee’s e-discovery code set. LEDES is a data standard that law firms and client law departments use to exchange billing information (“e-billing”); with the growing cost of EDD, the goal is to extend LEDES to include more EDD detail.

Searching

Participation in the Search Working Group has mushroomed, going from twenty-eight to eight-six members since earlier this year. The group’s Search guide has been one of the EDRM website’s most popular downloads. Additional resources are planned in the next six months, including XML formatted Search Specifications and a guide to Search Metrics. This group’s goal is to provide a framework for defining and managing various aspects of search – for example, features used in culling and review – to enable more predictable and complete results.

Introducing the Information Management Reference Model (IMRM) Project

The six month old Information Management Working Group has embarked on an Information Management Reference Model project, as a corollary to the existing EDRM model. The team was excited to report that twenty percent of the participants on this project are Records Management professionals. The group’s work is intended to provide a common, practical, flexible framework to help organizations develop and implement effective and actionable information management programs.

Code of Conduct

The Model Code of Conduct Working Group has been working hard on many thorny issues surrounding professional conduct and has just released a draft copy of recommended guidelines for software and services providers. If I weren’t working so much in the Evergreen group, I’d love to get more involved in this. The work being done here is driving development of standard ethical practices for e-discovery.

Sprucing things up

The Evergreen Working Group has a lot to show for its hard work too over these last six months. Our goal is to keep all content across working groups as current as possible. Our sub-committees got together and promoted as much content from working groups up to the website as possible. We really wanted to tie up loose ends and fill in all the blanks. This work, which is still in progress, falls under the umbrella of the Evergreen Content subgroup and should be completed by the Spring meeting. John Turner (Anacomp) was sorely missed at the mid-year meeting, due to a scheduling conflict, but his work on the Review and Analysis stages was warmly appreciated.

The Evergreen Standardize subgroup got off to a roaring start. This group aims to redesign EDRM.net for easier access to content and also to help EDRM participants stay up-to-date with what’s going on in their respective projects.

And now for the Gossip

• The walleye-cake appetizers were surprisingly good.
• George Socha is building a cinder-block bread oven in his backyard.
• We lost some EDRM participants because of the sagging job market. In light of economic stress, EDRM now waives membership fees for individuals who do lose their job, so hopefully this will help. For more information on EDRM memberships, click here.
• There was some prognosticating about future judicial participation in defining
  e-discovery best practices. When it does or doesn’t happen, I’ll hand out the
  ESI-Psychic Award.

The number of major outsourcing arrangements between leading LPOs and blue chip global law firms, banks and corporations has increased but the topic is rarely discussed publicly.  The Rio Tinto arrangement is one of the very few widely publicized.

Cooper’s approach to her challenges (as well as her messages to the industry) will resonate with GCs around the globe, who face similar pressures of increased workload but constrained budgets. LPO enables law departments to meet rising workloads whilst reducing costs. It opens up a “new way of working” where quality can be achieved at reasonable cost by reallocating legal tasks to partner providers.

Indeed, as I listened to this interview I kept coming back to Cooper’s notion of “a new way of working”.  Whilst I do largely agree with her comments, I have a slightly different take on how GC should think about legal outsourcing.

The “P” in LPO: Process is Not a Dirty Word

Cooper doesn’t like the “P”. She sees her LPO team as a genuine extension of her in house team, contributing to the overall workload and undertaking tasks that a junior lawyer within the in house team might otherwise undertake. She rightly points out that the “P” downplays or downgrades the importance and nature of the work.

I agree that LPO is not about administrative form filling. Nor is it restricted to organizations with massive volumes of standardized documentation.  Process, however, is integral to LPO: it  is core to the how LPO lawyers perform tasks, even complex ones.  Moreover, process should be core to lawyers everywhere but typically is not.  The legal market finally seems to be waking up to the importance of this.  Law Firms Look at Process Management in The Legal Intelligencer (20 Oct 2009) discusses project management and process, including law firms that are now adopting Six Sigma, a tool some LPOs, Integreon included, have used for some time. 

The benefits of process include consistency, predictability, quality, productivity and defensibility – these benefits apply across many legal tasks of varying complexity, not just tasks which by their nature are substantively straightforward, standardized and routine. For example, one of our current projects involves a multi-national corporation with a suite of 20 “medium complexity contracts” used regularly in its business. The company has different attorneys around the world following different processes using different templates in different locations, accepting different edits with different results. The LPO process brings a method which is common, documented, repeatable and scalable. Beyond labor cost savings, working with an LPO helps the company reduce work volume plus improve consistency and therefore decrease risk.

Smart buyers of LPO services are not simply looking for Day 1 cost savings – they demand long term transformation and improvements. A key value add of LPO is creating these longer term productivity and efficiency improvements by combining process expertise with legal know-how. It’s the same core task but delivered in a more modeled and structured fashion.  Richard Susskind discusses this in detail in his recent book, The End of Lawyers?

“Process” captures implementation and transition planning, workflow, performance metrics capture and tracking, communication, and reporting. All of these are not ends in themselves – they are genuine tools for improving performance.

So if you don’t like the word “process” then call it “method” or “systemization”. Whatever we call it though, it’s an essential ingredient to delivering and managing legal services – whether from an LPO, law firm, or law department.

The “O” in LPO: “O” Means Outsource, not Offshore

“O” is for Outsourcing, not Offshoring. Outsourcing is about an approach, not a location.  The offshore element of the Rio Tinto deal is what grabbed the headlines, but Cooper explains that quite a few projects have actually been performed onshore in the US, and are still achieving cost savings when benchmarked against the cost of the law firm model.

LPO is not exclusive to India, nor those tasks which are suitable for offshoring. The “new way of working” is broader than that. We believe that outsourcing is a global phenomenon and LPO should be no exception. Outsourcing could be onsite at the customer’s office; it could be onshore, multi-shore or offshore.

Offshoring to India is highly successful and can be a great way to reduce cost and create efficiencies, but it’s not the only way. Organizations want the right fit for their requirements, not a one dimensional solution.  Different locations offer different attributes and mature LPOs offer law departments and law firms an explanation of the differences and a choice.  One size does not fit all; one shore does not fit all.

So What about the “L” You Ask?

The “L” of course is for Legal, which should not be confused with traditional business outsourcing, such as commonly associated with offshore technical support or call centers. Legal outsourcing requires domain expertise. So for example, Integreon’s legal outsourcing services are supported by our staff of full time, licensed lawyers, who can work on-site at client or law firm offices or at any of our secure facilities located onshore, including in such familiar places as midtown Manhattan and London, or in equally secure and lower cost offshore locations.

“Legal Process Outsourcing” therefore implies professional, experienced legal staff delivering quality, cost effective services from the client’s choice of locations.

“Virtually attending” a conference is increasingly popular, enabled by both official and unofficial social media and video “feeds”. We experienced this first-hand at the recent International Legal Technology Association (ILTA) annual conference. We report here on our experience and on the potential e-discovery implications.

ILTA hosted its first Virtual Exhibit Hall with roundtable discussions, and its first live streaming video interviews over ILTA TV. In addition, many individual attendees thumbed “tweets” on Blackberries, iPhones, and other smart gadgets, or shared their latest “pics” and “vids” from an inspiring keynote address, educational session, or other conference related event. Participation at a distance was easy via Twitter, Facebook, LinkedIn, and video feeds, including a complete video walk-through of the exhibit hall posted on YouTube by “Twitterer” Ed Valio, who also put together a nice picture album of the event.

Most of the online traffic reported presentation highlights. By many accounts, knowledge management expert and Above and Beyond KM blogger V Mary Abraham provided the best real time Twitter feed at @VMaryAbraham. Others chose the more “traditional” blogging route; for example, Integreon’s Ron Friedmann posted some detailed reports at session-end: e.g., Technologies that Will Disrupt Traditional Legal Practice (ILTA 2009). Some online traffic, however, was more “local”: Monica Bay of Law Technology News, for example, Tweeted that “everything Babs sez about the nachos is true,” commenting on advice from Integreon’s Babs Deacon. For transcripts of all the Twitter traffic that either mentioned “ILTA” or “ILTA09″, you can take a look at JD Supra’s Law Practice News Facebook page, which aggregated such Tweets on a daily basis during the conference.

We were intrigued at the video explosion too. ILTA-TV, sponsored by ILTA and produced by ii3, Inc., had a professional studio set-up across from the registration booth and conducted many live sessions and some taped ones. Integreon’s Ron Friedmann offered insight into key legal outsourcing considerations during a 5-minute ILTA TV interview with host Shy Alter. Thomson Reuters also interviewed several attendees using a hand-held camcorder, posting edited versions within a day. Ron’s one-minute segment on law firm billing trends is at Thomson Reuters’ Legal Current blog.

Integreon itself generated good online buzz. Our reception featured blogger Charles Christian of Orange Rag / Legal Technology Insider fame, who entertained with a lively comedy routine (and no, it was not about legal technology). During his performance, some of our guests Twittered away, including blogger extraordinaire Gabe Acevedo, of Gabe’s Guide to the e-Discovery Universe, and also Inside Legal, a co-sponsor of the 2009 ILTA technology purchasing survey. Of course, in good Twitter etiquette, we reciprocated those “tweets” with “retweets” from our own Twitter feed, IntegreonEDD.

While all this new technology has obvious benefits, it does carry some risks. Integreon has a sizable e-discovery business so we are very aware that any recorded information is potentially subject to discovery. “Those who have embraced the various forms of social networking seem to be on the forefront of Enterprise 2.0 communications and technology,” said Jeff Fehrman, Integreon’s VP of Forensics and Consulting. “More collaborative forms of digital text communications are rapidly evolving that closely mirror the speed and feel of dialog that traditionally has only been possible in person or on the phone. Because these discussions could be relevant to litigation, the implication for electronic discovery is an area of great interest for legal technologists like me.” Not surprisingly, this topic was the theme of several ILTA sessions. Video (and audio) recordings are also subject to discovery and pose their own set of challenges to manage and review. While we don’t expect any ILTA content to likely be targeted for discovery, the explosion of social media and video in the corporate context certainly does raise challenges for information governance and e-discovery management.

To close, we note that some conferences now dispense with any physical presence.  ALM, sponsor of LegalTech, has announced a Virtual LegalTech Conference. This conference + exhibit hall runs around the clock; in addition, there are quarterly “live webinar” days with multiple sessions offering complimentary CLE education. One of the live webinars on November 19, 2009, the kick-off day, will be The Challenge of Preserving and Collecting Evidence in a Cloud, featuring Integreon’s Jeff Fehrman and the renowned e-discovery consultant and commentator Craig Ball. Like social media, cloud computing is another hot EDD topic, so be sure to mark your calendar for this event. For details on how to register for Virtual Legal Tech, click here. We look forward to seeing you there, virtually that is.

[For readers interested in learning more about e-discovery, we encourage you to follow us on Twitter @IntegreonEDD.]

The drop over the last year was a pretty steep one, so there’s going to be a lot of organizational rebuilding ahead. The problem is that when you’re rebuilding, so is everyone else, which raises costs and extends time lines. It would be nice to bring back all of the good workers who were terminated, but some those have since moved out of the industry while others may now work for your competitors. Eventually, you start to think about poaching staff (it’s not really poaching if they used to work for you), but then other managers start to have pretty much the same thoughts (everyone used to work somewhere).

And where will all of the support staff sit? You may have already reduced your space. So you’re competing with bankers for seating too, which is never a good thing. You’ll also need to consider other support functions that may be spread throughout the firm in IT, HR, Accounting, to say nothing of secretaries, word processors and researchers.

When a decision is made to hire 100 new bankers, are plans made for the 30 or 40 support staff they will need to do their jobs? At least you can avoid a drop off in quality from all of the new staff by getting your dedicated training team to develop a comprehensive training and evaluation program. Hmmm …You do HAVE a dedicated training team, don’t you? Well, if not, then you’d better get cracking because in 30 or 40 months it will be dismantling time again when the roller coaster starts to head downhill once more.

And that’s the ride… over and over again. But for those of you who are not thrill seekers, there are alternatives. Rather than the breakneck ups and downs of the I-Banking cycle, an alternative is to keep a core middle office staff and work with a Knowledge Process Outsourcing (KPO) provider who can smooth out the ups and downs of each cycle.

A good KPO has dedicated trainers and domain experts who can help you plan for upcoming changes and provide the staff you need to execute the plan. Because some banks look at outsourcing strategies as a “temporary” fix that is only applied at one stage of the I-Banking cycle, they have to keep building their services over and over again. And that’s a very expensive way to do business.

A better approach may be to build a balanced blend of in-house, onshore and offshore resources that serves your bank during any part of the I-Banking cycle. The result can be a more efficient organization that delivers greater consistency and responsiveness in support of your bankers, and in turn better service for your clients. Of course, for those adverse to outsourcing strategies, there is always the roller coaster.

Integreon is making available a free copy of the report; click here if you would like to request a copy. To receive the report, you must complete the registration form with the required contact information, including an e-mail address with a business/corporate domain name, and agree to subscribe to the Integreon blog. This offer is valid through Oct. 31, 2009. 

Summary and Findings of FreePint Report on Business Research Outsourcing

The survey targeted managers of knowledge and information services but also included managers of document preparation (word processing, etc.), legal support, and pitch support (graphics, presentations, etc.). The majority of respondents were senior-level decision-makers spanning a range of industries, including legal, financial services, management consultancies, and pharmaceuticals. A total of 71 managers responded with nearly 40 percent from corporations with more than 1,000 employees.  About one-third were in the US, one-third in the UK, and one-third elsewhere in the EU, Australia, Canada, or other countries.

The findings reveal disparate views about quality and the cost of outsourcing. On the one hand, the 40 percent of organizations that do outsource are satisfied with outsourcing quality and cost effectiveness. On the other hand, the 60 percent not outsourcing cited quality and cost concerns as the most important factors influencing their choice not to outsource. 

We can’t explain this seeming contradiction though suspect it says more about outsourcing perception than reality. It may reflect negative perceptions of offshore outsourcing. Some recent surveys (e.g., see our blog post Cost Arbitrage is No Longer Enough (Black Book of Outsourcing Rankings and Findings) suggest that customers look for high cultural compatibility, which typically favors onshore outsourcing.  The survey was not designed to tease out differences in onshore and offshore outsourcing. We welcome reader views on other explanations for the seeming inconsistency.

One other result particularly intrigued us: Among those who outsource, the majority of the work continues to be done in-house; respondents who outsource report that over 75 percent of the work remains in-house. This finding supports a key outsourcing benefit, namely, to free high-end professionals for their “highest and best use.” Outsourcing is ideal for handling important but routine tasks that can otherwise overwhelm more valuable strategic work.

Overall, the survey results suggest that organizations considering outsourcing may gain benefit from reviewing the upsides reported by those already engaging in outsourcing. With 2010 budget planning just around the corner, this may be the right time for those organizations to take a fresh look at how outsourcing can facilitate achieving their quality and cost efficiency goals in the new year.

For the report table of contents, click here.

To request a full copy of the report from Integreon, click here.

Making a correlation with Web 2.0, Kaushik’s five principles for Outsourcing 2.0 include:

1. Offshore implemented as a platform rather than as the delivery channel,
2. Globally syndicated delivery networks,
3. Rich user experience: Success as the measure,
4. Rich user experience: Relationships, not complex contracts, and
5. Engagement as a conversation: Co-creation, not blame-game.

These principles paint a clear roadmap for Business Process Outsourcing (BPO) companies that want to move to the next stage of outsourcing evolution. Clear as Kaushik’s roadmap is, however, it’s a map for outsourcers, not for business managers.

Kaushik is absolutely correct that for outsourcing to be truly effective it needs to be pervasive and syndicated across the firm as a single, integrated approach rather than a series of disconnected initiatives. To achieve this outcome, the planning and analysis needs to be done at the C-Suite level. The problem is, the C-Suite does not focus on outsourcing; rather, it focuses on core business issues.

This distinction may seem subtle but it’s important. C-Suite executives generally receive staff recommendations tied to specific projects or functions. Whatever they need to move their business forward - building a new building, adopting a new technology, expanding the workforce, or even outsourcing - executives assume that staff have worked out the details reliably. But with the thinning of middle management, not just in this recession but over the last decades, the assumed attention to detail may only hold true with the help of a business partner who can augment these due diligence efforts and then translate them into strategic C-Suite business terms.

Rarely does the C-Suite see their organization as being confronted with an outsourcing problem. Instead they may see unrelated problems to solve or opportunities to pursue, for example, the rise in secretarial costs that needs to be controlled, an unprofitable product that has too many loaded costs, real estate constraints limiting the growth of their workforce, or the need to fix a recurring budget overrun. They do want a solution that works and is complete.

Kaushik ’s last three principles perfectly articulate these needs within the new wave of outsourcing. To be realized, BPOs must first establish a level of trust that quickly goes beyond metrics and penalties and rises to a holistic level that focuses on how the business should work. What this means is moving the conversation away from short term horizons (e.g., did we meet this month’s metrics), to more important business issues (e.g., are we fully supporting the client’s 2010 revenue goals). To achieve this, both outsourcers and customers must work at a higher level than in the past. They need to go beyond a traditional vendor type relationship, often characterized by “hand off” delivery processes, and instead mold a deeper business partnership using integrated, tandem processes.

To achieve such tight integration as well as the full benefit of outsourcing, customers and providers together should begin by considering how an existing or prospective outsourcer performs in three key areas beyond Kaushik ’s five principles:

1. Focus on just a few markets: There are subtle and not-so-subtle differences in how similar services are supported in different industries. A BPO needs expertise in specific industries, otherwise solutions will be crafted that take too long to get “just right” and may miss critical opportunities. So customers need to make sure their provider has the right industry experience and expertise.
2. Provide the services your markets need: No single BPO can perform every task for every client that every market asks for. Some big BPO’s focus on a single service such as Word Processing, or Accounting… which is perfectly fine. But providers who want to offer the synergies that the C-Suite demands need domain expertise across multiple service lines. So customers must make sure they assess the full range of provider capabilities.
3. Support offshore, onshore and onsite strategies: Kaushik is right to say that outsourcing is “not about ‘which’ shore you use”. But if a provider is going to fully provide for the outsourcing needs of a big client, it must have multi-shore capabilities. Clients don’t necessarily come into an engagement knowing that they need support from a variety of geographies. Yet, once the program is underway, details may emerge that the C-Suite did not anticipate, for example, national privacy laws, internal security regulations and the cultural history of a firm all come into play when designing specific programs. A BPO that lacks all of the right locations lacks all of the right tools to fully service the client. So customers must consider the range of geographies and locations, including onsite, over which their provider operates.

As my colleague Ron Friedmann suggested in his personal blog post, A BigLaw Watershed: O’Melveny Partners with H5 for EDD, this may be the first such public announcement from a BigLaw firm. The trend towards new approaches to cost-effective discovery, however, especially incorporating advanced technology, is clear. “Our clients face rapidly increasing litigation costs fueled in part by the mounting expense of document review,” said Richard Goetz, Chair of O’Melveny’s Class Actions practice group (see press release). He succinctly captures the central issue driving law firm thinking. 

An increasing number of major law firms are reacting to the budget constraints faced by their corporate clients.  They recognize the increasing competition among law firms in this down market and that the traditional delivery model, with its enormous costs, is unsustainable. Innovative firms are exploring methodologies available from specialist EDD providers.

The huge cost pressure represents a threat and opportunity for law firms in the competitive landscape. An array of processes and technologies to reduce cost are readily available.  If firms ignore these tools, their corporate clients will adopt them directly or turn to providers who offer them. O’Melveny appears to recognize this, has publicly stated so, and is taking advantage of the opportunity.

In our experience, however, technology is only part of the answer.  Irrespective of the review tool a litigation team chooses, they will be left with a sizable number of documents that require human review. General counsels need to consider carefully the most appropriate resource to conduct reviews. Options include law firm associates or staff attorneys, contract or temp lawyers that they or their outside counsel retain and manage, or offshore review teams (often working with onshore teams). With offshore review now well established and validated, an increasing number of corporations are using offshore review teams to further contain cost. And law firms are starting to respond in kind, also offering an offshore review alternative in some cases.

We see the law firm thinking evolving, with more and more offering offshore or multi shore document review and deploying data analytics or a more holistic integrated approach to discovery. But the common trend is clear: manage cost (i.e. reduce cost and make cost more predictable) by managing the volume of data that funnels into review and delivering review at a lower cost while ensuring a defensible production. Clearly, the greatest savings come from leveraging both technology and global managed review options.

In our June post Legal Outsourcing Tipping Point? we suggested that the publicity surrounding Rio Tinto’s legal outsourcing reflected a tipping point for the legal process outsourcing (LPO) market.  We think this NLJ article puts more weight on the scale to tip the market.

For years (literally) most legal media articles about LPO questioned outsourcing and raised caution flags.  Many quoted large law firm partners as skeptics (honestly held views to be sure but unfounded in our opinion).  Then came this summer’s articles about Rio Tinto merely reporting the facts of an outsourcing deal.   Today’s NLJ article may represent a further shift:  from skeptics, the legal media are now virtually advocates.

The article explains the proposed federal Financial Regulatory Reform, that it would increase corporate compliance cost, and that general counsels should consider using offshore lawyers to do some of the work.   The article is by an executive at one of our fellow LPOs so it will not surprise readers that we agree with it.   With the proverbial foot in the door, we suggest opening it a bit wider.

Specifically, the logic in the article applies equally to any heavily regulated area.  That is, there is a lot of relatively routine legal work associated with many regs and such work is in the sweet spot of legal outsourcing.  And when we say ‘legal outsourcing’, we choose these words specifically because ‘offshoring’ is too limited a view of legal outsourcing.  Onshore outsourcing is another option and, in our experience, some US and UK lawyers are more comfortable with the onshore option or a blend of on- and offshore teams.

The shift in thinking by both lawyers and the media does not surprise us.  Beyond the passage of time, which helps the legal market digest all things new, the economic crisis has forced corporations to reduce costs.  Legal outsourcing is one of the low hanging fruits.

Integreon is making available a free copy of this report; click here if you would like to request a copy. To receive the report, you must complete the registration form with the required contact information, including an e-mail address with a business/corporate domain name, and agree to subscribe to the Integreon blog.

Report Summary

Aberdeen found that companies are outsourcing more complex and high-value processes. More specifically, the following areas are likely to see more outsourcing: market and industry analysis, competitive intelligence, consumer behavior analysis, and regulatory analysis.

The report cites IRI, a consumer data provider and analysis company, to illustrate how a “Best in Class” company can benefit by outsourcing. By outsourcing all processes that did not require routine interaction with its customers, IRI achieved the following benefits:

• Reduced cost by offshoring 35% of workforce
• Improved speed of capturing POS data by 33%
• Accuracy up to 99.6% (three point gain)
• Errors down 80%

More generally, Aberdeen found that “Best in Class” outsourcing consumers improve customer satisfaction by 18%, decrease time to market by 5%, and increase the number of projects meeting QC targets by 24%. Achieving these gains, however, is by no means automatic. Best in Class companies beat the average and lagging companies by a wide margin, as this table illustrates:

The report provides useful guidance on steps Best in Class companies take to achieve the biggest benefits from outsourcing. Companies must choose the right provider, define the work outsourced and monitor it regularly, and govern the relationship effectively. Also, they must work with a provider that can:

• Map processes effectively, pilot test them, then roll them out
• Communicate effectively with the company and address, in advance, how problems will be solved
• Measure and meet the SLAs customers set
• Offer a global delivery platform with on-demand service

Integreon’s Views

Integreon’s experience delivering high-end knowledge services for the last decade supports Aberdeen’s findings. We have always viewed outsourcing as more than just cost savings and have invested significantly in building domain expertise, creating a global delivery platform, fostering a culture of continuous improvement, re-engineering processes, and deploying technology aggressively (even to the extent that it cannibalizes some of our existing business and means additional investment in innovation to keep the business growing).

For each vertical market we serve, our Account, Implementation, and Program Management team, which is a group of domain experts who serve as consultants and relationship managers, work closely with companies to deliver more than just cost savings.  They map processes, establish communication plans, and ensure companies choose, capture, and then use  metrics.  We have also long understood the value of global delivery and now offer on-demand service from the US, UK, India, and the Philippines.

We have many examples of helping our customers define and improve service levels, expand coverage and the range of services for their users, and improve time to market with quick ramp ups.  Our belief is that to keep winning business, we have to be significantly better experts than our customers rather than just being a low cost provider.

Introduction

A ValueNotes May 2009 report, Legal Services Outsourcing: What Do Law Firms Think?, provides insight into what large US and UK law firms think about offshoring and outsourcing.  ValueNotes (“VN”) is a respected analyst firm that has followed legal outsourcing for several years.  Many VN findings match our own market assessment, our customer feedback and recent broader trends we see in the LPO industry.  We do, however, have differing views on some of the VN findings.  This post highlights key report findings and shares our perspective on them.

How ValueNotes Conducted the Survey

VN conducted online and telephone surveys of both firms that offshore and those that do not.  In all, about 100 lawyers responded with about 30 from firms with over 1000 lawyers, 50 from firms with between 300 and 1000 lawyers, and 20 from firms with fewer than 300 lawyers.

ValueNotes Findings and Integreon Comments

LPO Penetration is Low.  VN found that offshoring still has fairly low penetration among law firms; less than 3% of firms in a random sample had tried offshoring.  On the one hand, low penetration is not surprising given that the LPO industry is still nascent.  On the other hand, 3% seems very low to us.  We wonder whether this finding is an artifact of asking individual lawyers rather than institutions.  Already four years ago, The American Lawyer reported that 6% of AmLaw 200 firms offshored work (see Law Firm Leaders: Conservatively Optimistic, Dec 2005). While it is understandable that only 3% of lawyers offshore, based purely on Integreon’s own customers, we know that many US and UK law firms do offshore.

Onshore Outsourcing is More Common.  Though the volume of offshoring VN found is lower than reported in other surveys and than many may have expected, the report notes that total outsourcing volume is higher because onshore outsourcing is more common (especially if one considers use of contract lawyers as outsourcing, which seems sensible to us).  We think onshore outsourcing is a key point.  Take document review for example, where outsourcing is well established onshore. Integreon currently has as many onshore review projects running as we have running offshore.

Our view is that LPO is a global phenomenon. Customers consider project complexity, availability of talent, business continuity, degree of real time communication, cost, and scalability in deciding on location.  In our experience, only a small portion of the market is dogmatic about location; the vast majority let business requirements drive the location decision.

Cost Savings is the Main Driver. For those firms that do offshore work, VN found that cost savings is the main driver, followed by client pressure.  VN notes that these two factors are, by and large, the same.  Our experience is that pressure from corporate law departments has historically been the overwhelming driver for law firms. Until now, the typical law firm response has been to react to a request from a client.   Some progressive law firms, however, are now proactively assessing and engaging LPOs so that that they can present alternative delivery and cost models to their clients.

We also see that many of our customers, both law firms and law departments, focus on more than just cost savings.  VN also found that firms that do offshore recognize offshoring benefits beyond cost savings, including satisfying client pressure and improving turnaround time.

What Customers Seek in an LPO.  VN found that customers of offshore services seek a provider with deep management and domain expertise, good references, end-to-end services, the ability to scale, and onshore / global delivery capability.  These findings are consistent with our own experiences.

We think it is also important to note that legal outsourcing works best when it is not about “lifting and shifting” a function from a high cost location to a lower cost location.  That is, the benefits are not merely labor cost arbitrage.  A mature LPO operates based on established processes that provide a consistent, repeatable framework for quality and workflow, performance measurement and continuous improvement.  Lawyers are, in our opinion, too quick to overlook or discount the “process” component of “legal process outsourcing”.  Clearly not all legal work is suited to a process orientation.  Much is, however, and we find lawyers tend to under-rate the value of process engineers, Six Sigma Black Belts and technology experts that are integral to mature an LPO offering – until they’ve worked with us.

Lack of Awareness is Biggest Reason Not to Offshore.  The biggest reason law firms cite for not offshoring – 85% of firms – is lack of awareness of offshoring or no perceived need to do so.  We find that hard to believe.  LPO has been around for 5 years and there’s been plenty of hype (including many articles about LPO in both the legal trade press and mainstream media).  The economic dynamic started to change a year ago and major corporate clients have been banging the drum for efficiencies for a considerable time.  That said, it can be dangerous to assume lawyers are informed because of the volume of articles.  For example, even today many US litigators remain under-informed about modern e-discovery rules and practice, a widely reported topic.

Security Concerns.  Other reasons for not offshoring include satisfaction with onshore outsourcing and prior unsatisfactory experience with offshoring.  Also, about 8% of firms cite data security and confidentiality concerns for not offshoring.  In our view, firms can easily allay these concerns by assessing a provider’s facilities, security, and procedures.  VN notes that firms with more extensive offshoring experience say that “client confidentiality and client conflict are not major concerns.”  The recent ABA Opinion Formal Opinion 08-451 [see our blog post ABA: Legal Outsourcing is Salutary and Ethically Allowable] bears this out. VN notes that firms with more extensive offshoring experience say that “client confidentiality and client conflict are not major concerns.”

Separately, Integreon, along with other reputable LPOs, meet stringent ISO information security standards.   Many LPOs (well over 100) have sprung up over the last few years since barriers to entry are low.  Only a few, however, have the process expertise, management systems and security infrastructure to support demanding legal work.  So it is no small wonder that law firms that may not have conducted careful provider due diligence would have had a bad experience.

Quality Concerns.  Some firms that tried offshoring were not satisfied with the quality.  We suspect that most of these instances were ad hoc, projects that were not properly planned or executed. Deep domain expertise is a critical component of most successful outsourcing, wherever the location. Most of the major activity in the LPO market is a result of long-term strategic decision making; these customers recognize the investment to be made and value to be extracted from proper and thorough documentation of workflow, quality testing, implementation and transitioning, to set the strongest foundation for success.  [For example, one of our multi-year agreements with a client supports multiple litigations with as many as 100 offshore lawyers working on their matters at any one time]

In our opinion, the “quality issue” is a perception not grounded in fact.  Quality should, of course, be at the top of every diligence check list. Saving 50% on cost is false economy if the quality is not right. A reputable LPO should be able to demonstrate understanding of the components of quality.  And not just with a blanket statement about “US or UK lawyers checking the work” but with a commitment to quality and a culture of quality from recruitment to process to audit to management, etc.

Customer due diligence should reveal whether it’s real. There are many ways to test quality – thorough diligence, references, tests (pre-pilots), and pilots to name a few. And a reputable LPO should be able to demonstrate that it has auditable, defensible documented processes and a performance metrics system which accurately monitors and ensures quality.  It’s also important to remember that quality is a moving target; for that reason, we have a formal Six Sigma process.   We note that every LPO pilot we have run met the pre-established quality standards.

Document Review Dominates Offshore Work.  For firms that do offshore, VN found that document review is the most popular function to send offshore.  This is consistent with our experience.  We continue to see document review driving LPO - offshore, onshore and dual shore - from both law firms and corporations. Many major law firms have experienced offshore document review, not as direct customers but at the insistence of their corporate clients. Many have seen it first hand and have become convinced of its efficacy because of what they see in their own layer of quality control.  Some of our law department customers have directly compared our reviews with their outside law firm on a blind basis and found ours  superior.  Obviously it’s not because we have better lawyers offshore than the law firms do onshore, but because we have a proven, repeatable, measured industrial process to recruiting, training, performing and auditing the work, including implementing technologies, which assist or automate the work.

The Conclusions We Draw

We find the ValueNotes report to be very useful.  While we take issue with some of the specific findings, the report certainly raises many of the issues lawyers should consider in offshoring.

And any quibbles notwithstanding, it is certainly true that many lawyers are skeptical about both offshoring and outsourcing.   We think this will change.  Our management team has decades of experience managing within large law firms and corporate legal departments and know that in the legal market, any new way of working takes years to penetrate.  Firms take time to gain comfort with new ways of working; indeed, it takes time to use those ways effectively and achieve the desired quality.   For example, for many years in the 1990s, a majority of lawyers and firms either did not understand why e-mail might be useful or actively thought it was not required.

Times change and eventually so do firms.  The economic reality today creates huge external and internal pressures for law firms.  Clients demand better value, which puts pressure on rates and revenues.  This squeezes profits, which puts the high overhead of law firms under the spotlight, perhaps in a way not seen previously.   Offshoring / outsourcing commoditized aspects of law practice is among the easier ways law firms have to improve their value proposition.  Similarly, outsourcing middle office operations is an effective method to reduce cost.

The legal market is slow to “tip” to a new way of working.  But when it does, it tips quickly.  We think in the current environment, the tipping point is upon us.

[ Update 29 June 2009: The PosseList blog also commented on this subject. PosseList is a thoughtful and insightful blog focusing on contract lawyers in the US and often comments on broader legal market trends. ]

Rio Tinto’s legal switch puts pressure on London by Alex Spence reports on the facts. Rio Tinto deal heralds huge changes by well-known commentator and author Richard Susskind discusses the ramifications.

Spence reports that “Rio Tinto has hired a team of lawyers in India to try to reduce its annual £60 million legal bill by 20 per cent.” It is working with an LPO to recruit a team of 12 lawyers in India to “work for it on tasks such as reviewing documents and drafting contracts.” Rio expects to have 24 Indian lawyers within one year.

Susskind writes “the Rio Tinto deal suggests that imaginative pricing may not fully fix the more-for-less dilemma. Lawyers will need to go further and source their work differently, often by using less costly labour to do routine legal work…. People often assume that outsourcing and the options are applicable only to high-volume, low-value legal work. The Rio Tinto deal confirms this is wrong.”

The Rio deal adds to the list - literally - of corporations that offshore or outsource work.   At least 15 companies have publicly stated that they offshore work to outsourcers or to their own offshore operations (see Outsourced Legal Services list at Prism Legal, a personal site I maintain).

So Rio is just one more company offshoring. Or is it? Specifically, this deal is announced with the intent of significant cost cutting and that feels new. More generally, markets tip when the new and exotic become accepted and common. Geoffrey Moore’s Crossing the Chasm provides one framework for thinking about how markets adopt new approaches. Well before his work, however, economists modeled  adoption of new high tech products (e.g., Polaroid cameras or Xerox-brand copiers) with S-shaped curves: slow ramp up followed by sudden acceleration.

The continuous (smooth) S-curve may not be a good fit for legal. Instead, a discontinuous step-shaped function may apply. Consider legal market adoption of e-mail, document management, marketing, lateral partner moves, or mergers. For each, there seemed to be only a few firms doing it and then, quite suddenly, many or all were. The “step function” reflects law firm decision making: the first few adopters change slowly, gingerly, and quietly.  Firms want to follow.   Once a half-dozen to a dozen have led by adopting the new thing, “the coast is clear” and the rest rush in.

Unfortunately, like calling the bottom of a recession (or the top of the market), it’s much easier to recognize the tipping point after the fact.  Working for an LPO may distort my view but it feels like legal outsourcing is at a tipping point. Of course, we won’t know for some time. Whether the market tips this year or beyond though, I am confident that, as with e-mail, marketing, etc., we will look at outsourcing and offshoring and have forgotten what all the fuss was about.  Just like we did for so many other legal market changes.

[A variation of this post first appeared at the Strategic Legal Technology blog.]

In addition, LTN’s Monica Bay interviews Babs about her job hunting experiences in a Law Technology Now podcast, Greening Your Career: Surviving after a Layoff, available on Legal Talk Network.

For those attending the upcoming LegalTech West Coast conference in Los Angeles, Babs will be speaking on June 25, 2009 during the Greening Your Career networking breakfast. The breakfast will be hosted by Monica Bay and will feature a panel of experts in an upbeat discussion for members of the legal community who may be looking for jobs.

(Be sure to also visit Integreon at booth 208 during LegalTech West Coast to learn about our integrated discovery solutions.)

EDRM added two new projects this year, Information Management and Jobs. Information Management as its own project was an obvious evolution. It had been part of the Evergreen group but the topic has grown enough to warrant its own focus. The Jobs project is a timely response to the current economic situation plus the addition of recruiters to the attendee mix certainly made for a more entertaining conference. I’m not saying that e-discovery “geeks” don’t like to party, but if I’m going to be in a bar in the Midwest, it’s more fun if Michael Potters and David Cowen are there. Michael for example is a real people magnet and I think he managed to get jobs for some folks staying at the St. Paul Hotel who weren’t even in e-discovery.

Eric Mandel, Director of E-Discovery and Litigation Support with Zelle, Hofmann, Voelbel & Mason LLP and the Chairman of the Model Code of Conduct Project, is back on the law firm side having completed a long stint in vendor-land. The MCOC project is immensely stimulating, having many “nooks and crannies”. The one-year-old group is finishing up their first round of content and has made a plea for comments and suggestions from the rest of EDRM and from the general public. The group’s goal is to develop aspirational voluntary ethical guidelines for electronic discovery providers and consumers that will be similar to those under which attorneys, court personnel and others in the legal space operate.

Eric offered this interesting take on being back on the procurement side, “No matter how much vendors may think they understand their law firm clients, there is no way they can fully empathize with the cost pressures law firms are facing now from their clients. I used to think when I was on the vendor side that if I could sell value, then I could get the law firm to leave price as an afterthought.”

Courtney Gray, VP/Technology/Partner with Nextpoint, “spent a fair amount of ‘cocktail party’ time with the Data Group at ERDM’s semi-annual conference, learning more about their unique challenges. I gained a much clearer understanding regarding securing a pristine data set — one which has not been processed, deduped and culled to the point of uselessness in testing.”

My role in the EDRM is co-Chair on The Evergreen Project, one of the longest standing projects, which has now refocused its efforts on making the current EDRM content more useable. Evergreen is primarily concerned with ensuring that the Electronic Discovery Reference Model remains current, practical and relevant; enhancing the content at each node of the Model; and educating about how to make effective use of the Model. Our efforts may include guides on how to apply the model in practice such as with examples of usage scenarios.

There will be a flurry of activity this spring to make sure all content makes its way to www.edrm.net. This will be followed by an all out assault on the “use-ability” of the site. The EDRM membership as a whole has acknowledged that it is very hard to find information on the website in its current incarnation and so the Evergreen project has taken on the job of redesigning, auditing, linking, standardizing, and testing each component from the non-EDRM member point of view. I’m sure our group is up to the challenge. Quoting Evergreen member Josh Byrne, “I have been impressed with the level of passion for the topic, and the number of members who participate from one year to the next.”

One of the highest notes during the conference was the acknowledgement of Jason Velasco’s continuing service to EDRM and particularly for his three years as the Chair of the Evergreen Project. Florinda Baldridge, Project Management leader, outdid herself by creating a mock Law Technology News Cover to honor Jason. It was presented during the Wednesday night dinner and everyone enjoyed it. Thank you again, Jason!

Babs Deacon is the Director of Consulting and Data Analytics with Integreon and a co-Chair of The EDRM Evergreen Project.