strategy paper lpo
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The idea whose time has come
Outsourcing in the Law Firm Environment
The content of this document is confidential and all the intellectual property rights
related to the document vests with the author. Copying of the content in any form
must be done with the prior written consent of the author.
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Introduction:
Who is the biggest exporter of German-made washing machines to the United States?
Not Miele or Bosch-Siemens, or any other German manufacturer. It is the American
appliance maker, Whirlpool, the company proudly reports.
True globalization results in blurring of the lines dividing the geographical topologies
and also compels the entities doing business in such areas to look for resources
available elsewhere that impact the very tenet of such business. The idea is to achieve a
low cost leadership while keeping product differentiation in place after analyzing the
cost activities in the entire value chain.
The success in offshoring Business Process operations with respect to reducing costs
and often improving quality has encouraged many firms to start offshoring their high-
end knowledge work as well. Their underlying expectation is that offshoring high-end
processes will result in additional cost savings and operational efficiencies, coupled
with access to very good talent in the low-wage offshore countries.
This paper analyzes the evolving Legal Process Outsourcing (LPO) market, the
opportunities it offers, the associated challenges, and the key drivers
According to the estimates, the KPO (Knowledge Process Outsourcing) market, which
comprises LPO, is expected to grow from USD 1.2 billion in FY1 2003 to USD 16
billion in FY 2010. The sectors that are expected to shine within the KPO industry
include data search, integration and management services, financial and insurance
research, biotech and pharmaceutical research and computer-aided simulation and
engineering design.
In terms of challenges, this paper analyzes the impact of key parameters such as quality,
confidentiality and project management expertise in the LPO industry.
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Flashback:
In the 1970s many large law firms in US "vended out" or "subcontracted" photocopying
because of the complexity of reproductive equipment and the lack of skilled personnel
needed to maintain the machines.1Beginning in the 1980s small and mid-sized firms
began to hire "facilities management" companies to run mail room and facsimile
operations in addition to providing copying services. Firms that used these services
expected to lower their costs and thus the costs to clients and to maximize the use of
firm resources on legal work by eliminating the problems associated with managing
support personnel and the maintenance of complex equipment.2
The practice of outsourcing professional support services in US developed from the
federal government's attempt to privatize these types of services. During the Reagan
administration the government attempted to increase contracts with the private sector
for services traditionally provided by government agencies. Although contracting for
tangible goods (i.e., weaponry and supplies) is a practice that dates to the founding of
the country, the privatization trend started in the 1980s represented a radical departure
from previous management practices.
In 1983, the Office of Management and Budget issued a revised set of guidelines
governing contracting with private sector contractors. These new guidelines included
outlines for the first attempts at contracting with private vendors for complex library
services. Out of these and similar guidelines the term "outsourcing" was coined for use
of competitive bidding to select private vendors to provide services in order to reduce
operating costs.3
Outsourcing in both the federal government and law firms of US has been promoted as
the best solution for the elimination of excess costs incurred by the continuation of
spending practices left over from periods of greater prosperity. During the 1980s large
law firms experienced unprecedented growth and expansion. During this time, the
salaries of partners and associates rose dramatically and lavish spending became the
1 Anne Woodsworth & James F. Williams, II, MANAGING THE ECONOMNICS OF OWNING,
LEASING AND CONTRACTING OUT INFORMATION SERVICES (1993) at 12.2 Monty Kaufman, Outsourcing Your Support Needs, PRAC. LAW., Dec 1994 at 35.3 Woodsworth & Williams
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hallmark of big firm culture. And now after having reached the right size, the paradigm
is shifting towards profitability as the opportunities to grow are challenging.
During the first half of the 1990s the term "outsourcing" developed along with an
expansion of the support service industry. The use of outsourcing has spread to law
firms of all sizes allowing all firms to respond to client pressures to reduce costs. Firms
were reluctant to bring in-house sophisticated electronic and computer systems,
choosing instead to outsource these needs.
And as Detroit is to Automobiles, India is (turning out) to Outsourcing. Michael E.
Porter, the Roland E. Christensen professor of business administration at the Harvard
Business School, wrote the landmark 1980 work, Competitive Strategy: Techniques for
Analyzing Industries & Competitors and reconciled historical views on competitiveness
and defined the concepts of unique positioning in its successor, The Competitive
Advantage of Nations, Indias vast pool of English speaking low cost talent coupled
with similar legal infrastructure is providing the law firms in both US and UK such
conduit for profitability.
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The sunrise in India:
Legal hawks of USA and UK are apparently taking comfort from the country's
elaborate, British-modeled legal structure, which they want to exploit for including but
not delimiting to paralegal work and research support.
In the US alone, the potential for such outsourcing orders could be as high as $2 billion
annually (details given in this document), most of which could land in India.4 A study
shows that the top 200 US law firms spend about $20 billion annually on office
operations and documentation, a cost they cut via outsourcing for the sake of
operational efficiencies.5
Legal services are thus beginning to join a swelling list of functions-customer contact,
transaction services, debt collection, and payroll processing-the West is looking to
migrate to the subcontinent. And, similar to the earliest suite of services sent offshore,
legal support may mean attractive deals for local suppliers marketing themselves as the
world's back office.
Randy Altschuler, Co-chief Executive Officer at OfficeTiger, estimates that support
services are a substantial cost factor for the top 200 US law firms. For example,
Altschuler says these firms typically spend $2.9 million annually on word processing
and secretarial jobs alone. The budget for legal recruiting is $350 million and human
resources departments can cost $200 million. "Assuming a very conservative
outsourcing potential of 10 percent (of the $20 billion spent by US law companies on
office operations), the resulting market opportunity is about $2 billion.
Intellevate LLC's (its Indian legal support center has proofread its one thousandthissued patent in April 2004) Chief Executive Officer Leon Steinberg opines that India's
lower salary base allows the company to have more involved quality control than is
affordable in the US. Intellevate's clients get their work done at $20-$40 an hour,
significantly less than the $100-$250 an hour that companies charge for similar services
in the US, according to Steinberg. The size of the patent drafting and support
services market potential is $50 million a year. "Most of that will go to India," says a
4 2004 estimates by Office Tiger LLC5 Study conducted by Office Tiger LLC in 2004
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bullish Steinberg. The recent incentives extended by Indian government to promote
such activity in India include a seven year tax holiday and exemption from Indias
import and export duties.
According to a recent report from Deloitte6, almost all law firms of UK are currently
outsourcing some or all of their support functions. IT operations are the most
commonly outsourced function, with 61 percent of firms confirming that they already
outsource or plan to in the near future. Document management and production is the
most common operation outsourced to an offshore location by law firms, with 31
percent of respondents planning or already doing so. The report showed a trend for
larger law firms to be either considering or planning to extend their outsourcing to HR,
payroll, knowledge management and finance functions. Paul Thompson, professional
practices partner at Deloitte, says: Outsourcing and offshoring are still relatively new
concepts to the legal sector and there are real opportunities for law firms to gain
competitive advantage by considering which of their operations could be appropriately
managed this way.
As late as year 2004, Microsoft Corporation began using Indian professionals to search
for prior art- written information about an invention- in preparation for filing patent
applications. Other Fortune 500 companies, such as Oracle Corporation, have
considered it. And law firms, which often follow the lead of their clients on new
initiatives, are finally catching on.
Bickel & Brewer, a 34 lawyer Dallas litigation firm, opened a facility in Hyderabad,
India, in 1995. Several hundred Indian employees- both lawyers and non-lawyers- scan,
code, index, and abstract documents and the practice turned out to be so successful that
the firm spun it off as a standalone company.
Londons Allen & Overy is currently outsourcing word processing to 74 Office
Tiger employees; a practice that the firm says saves a seven-figure sum.
6LAW FIRMS SEA CHANGE IN ATTITUDES, Deloitte offshoring and outsourcing research reporton legal sector Published26/4/05 and available athttp://www.deloitte.com/dtt/press_release/0,1014,sid%253D2834%2526cid%253D81319,00.htmlThe law firms who responded to the survey represent a good cross section of the UKs top 40 firms.
They range in size from fewer than 150 to over 1,200 fee earners. In most instances the survey wascompleted by the COO, CIO or Managing Partner.
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http://www.deloitte.com/dtt/press_release/0,1014,sid%253D2834%2526cid%253D81319,00.htmlhttp://www.deloitte.com/dtt/press_release/0,1014,sid%253D2834%2526cid%253D81319,00.htmlhttp://www.deloitte.com/dtt/press_release/0,1014,sid%253D2834%2526cid%253D81319,00.htmlhttp://www.deloitte.com/dtt/press_release/0,1014,sid%253D2834%2526cid%253D81319,00.html -
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Some reflections of the Indian Sunrise:
Source: WNS India
Hildebrandt International, a well-known law firm consulting group, has announced a joint
venture to offer law firms administrative outsourcing support through India-based
OfficeTiger. Hildebrandt is known for its work with large, old-line law firms. The fact that
they are participating in an outsourcing joint venture adds credibility to the business practice.
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Source: November, 2004, http://www.intellevate.com/india/americanlawyer.pdf
TABLE
Approximate total spending by the top 200 US law firms:
1. Office operations $6.2 billion
2. Word processing and secretarial $2.9 billion
3. Information systems $2.5 billion
4. Marketing $850 million
5. Finance and accounting $500 million
6. Library $500 million
7. Legal recruiting $350 million
8. Human resources $200 million9. Legal research $620 million
10. Litigation support $4.9 billion
11. Patent & trademark prosecution $400 million
Total: $19.92 billion
Source: Hildebrandt International, OfficeTiger, 2004
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Fuelling the Indian revolution:
For the law firms in US and UK; Challenging opportunities for growth (Focus
from growth to profitability):
1. Growth through M&A will decline as the number of independent players
reduces and the economics of acquisition become less attractive.
2. Growth through alliances will decline as networks reach an optimum size.
3. Rapid organic growth is limited with the legal services market growing slowly.
Why India:
1. India is within the British Commonwealth, there are 54 countries that have
similar legal processes. This fits into the whole idea of knowledge process
outsourcing.
2. With the time lag between India and the US & the UK, the turnaround time is
24 Hrs
3. An associate lawyer in the US comes with a $225 per hour tag in the first year
which goes upto $450 an hour by the eighth year.
Not to forget, paper presentations on opening up legal and auditing firms in India are
making rounds within the government. Its a reality which is just taking its time to
shape up.
The limiting factors:
1. Lawyers cannot represent two businesses on opposing sides of a legal dispute
unless both sides waive the conflict of interest prohibition.
2. Cultural barriers
3. Attorney-Client privilege.
4. NASSCOM is at present working on data-protection legislation in India.
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Litigation:
1. Draft and prepare pleadings, including complaints, answers, counter claims,
motions and discovery.
2. Assist with trial preparation
3. Research and writing (Motions, trial briefs, appellate and supreme court briefs)
Bankruptcy:
1. Draft and Prepare Bankruptcy petitions (CH 7, 11 and 13), Chapter 13 plansChapter 11 Disclosure Statements and Reorganization plans, and post-petition
pleadings.
Banking/Transactional Law:
1. Management of closing pipeline - commitment through closing - Services
contingent upon specific need(s) of lending institution.
2. Comprehensive review of loan documentation and analysis of financial
statements to identify leviable assets.
Trusts & Estates:
1. Draft State-wise Inheritance Tax Returns, Federal Estate Tax Returns, wills,
guardianship procedures adoption procedures and incompetency proceedings.
2. Assist in administration of estates including informal and formal accountings.
Trial Work:
1. Deposition Reviews, summaries and Attendance /Counsel
2. Legal Research
3. Large Document Redaction
4. Automatic Bates Program/Stamping and Preparation/Tracking of Bates Index
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Real Estate:
Residential
1. Contract through closing - all necessary documentation including binder,
payoff,
2. letters, etc.
3. Draft mortgage closing documents including RESA, post closing letters and
security instruments.
4. Foreclosures--draft and prepare all necessary pleadings. Completion of matter
through receipt of Certificate of Regularity evidencing clear title.
5. Condemnation6. In Rem tax sale foreclosures - In Personam tax sale foreclosures
Commercial
1. Contract through closing - all necessary documentation including binder,
payoff,
2. letters, leases, satisfy conditions precedent to closing (environmental and
regulatory)
3. Draft mortgage closing documents including post closing letters & security
instruments.
4. Foreclosures--draft and prepare all necessary pleadings.
Matrimonial:
1. Prepare Case Information Statement.
2. Draft and prepare complaints, answers, motions and post-judgment pleadings.
3. Discovery.
Office Management:
1. Consult on personal, procedural systems, file maintenance, billing and time
systems.
2. Coaching.
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Municipal Law:
1. OPRA Requests
2. Government Records Council Matters
3. Municipal Code Codifications, Submissions, manuscript reviews
"We conclude that given the appropriate instructions and supervision, paralegals,
whether as employees or independent contractors, are valuable and necessary members
of any attorney's team in the effective and efficient practice of law"
---In re Opinion 24 of the Committee on
the Unauthorized Practice of Law
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Market Reflections:
IPR research:
"Of the 166,000 patents issued by the U.S. Patent Office in calendar year 2001, almost
12 percent have since been subject to a certificate of correction. One or more claims of
the patent may be published incorrectly, altering their scope and impacting the
patentee's ability to establish infringement."7 Rader argues that companies due
diligence on their own patents has become more important because of a recent Federal
Appeals Court ruling establishing that certificates of correction do not apply
retroactively. This case confirms the need to proofread an issued patent as a necessary
step in the prosecution process.
1. Patent retrieval
Technology survey, invalidity search, cross-genre retrieval (e.g., associative
retrieval between newspapers and patents), cross-language retrieval, integration
of content-based and metadata-based retrieval, user modeling/interaction for
processional patent searchers
2. Patent classification
Categorization based on International Patent Classification and F-term,
statistical approaches, machine learning techniques
3. Natural language processing for patent processing
Text summarization, readability enhancement for claims, machine translation,
natural language generation of claims, term extraction, thesaurus production,
ontology construction analysis
4. Data/text mining for patent database, automatic patent map generation
5. Data engineering
Document structure models and markup languages for patent documents
7 According to a recent article in U.S. Industry Today by Michael Rader, a patent attorney with Wolf,Greenfield & Sacks, P.C. in Boston
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Source: BTI Consulting Group Survey8
8 New client research reveals hourly rates that corporate clients pay their law firms. What Clients PayLaw Firms: BTI's Billing Rate Reference for the Legal Services Industry 2003 is based on more than2,600 individual data points obtained directly from interviews with Fortune 1000 corporate counsel.Hourly Rates are examined by:15 Key States
13 Major Industries8 Primary Practice Areas
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Source: Legal Week
Note: The strategy must not be to delimit the opportunity space to top 50 firms. Volumes will come
from next 500 firms depending upon industry verticals and practice areas.
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Sample Cash Workflow for Year 01 of operations:
Expense Income
OPEX
Total no. of resources 50 INR/pa USD/pa Billable Resources 35
Av. Cost per resource (INR/pa) 500000 25000000 568182
Hourly Billings (USD)
Least Case Scenario 40Add: Admin cost (%) Includes:Includes transport, food, facilitiesmanagement, power cost et al 15 3750000 85227 No. of days/mth 22
No. of mth 12
CAPEX No. of hrs/day 7
Facility (Lease/sq.ft./person/pm)Assumption: 100sq.ft/person 70 4200000 95455Furnishing (Per Sq.ft.), Includes:Flooring, Networking, FalseCeiling, Lighting, Ducting, ModularFurniture, Chairs, and
Meeting/Conf rooms with furniture.Not Include (/May Include): TelInstr, EPBAX,Computers/fax/copier/printer 1500 7500000 170455
Systems (H/W & S/W, per person) 35000 1750000 39773
EDMS (Enterprise License) 2500000 56818
Total 1015909 Total 2587200
Assumption:Capacity Utilization(%) 60
Net Profit/Loss (USD) 536411
Note:
1. Above doesnt include the yearly access charges for access to various databases.
2. One may get already furnished space by paying marginal incremental lease rent and thus the
furnishing cost above may not apply.
3. EDMS: Enterprise Document Management System with state-of-art security features.
4. 1USD=44INR
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