Email this article Legal Process Outsourcing, In-house Counsels, Law Firms and Providers: Researching Effective Practices
Mary C. Lacity
Curators’ Professor,
University of Missouri St. Louis,
USA
Leslie P. Willcocks
Professor of Technology, Work and Globalization and Director of The Outsourcing Unit, London School of Economics and Political Science, UK
© 2013 Mary C. Lacity and Leslie P. Willcocks
First published in the Web Journal of Current Legal Issues
Citation: Lacity and Willcocks, ‘Legal Process Outsourcing,
In-house Counsels, Law Firms and Providers: Researching Effective
Practices’, (2013) 19(3) Web JCLI
Abstract
Globalization and information technologies are the main enablers of Legal Process Outsourcing (LPO), the practice of procuring legal services from an external provider. Most legal firms and in-house counsels will have to consider the opportunities and risks afforded by LPO, a market estimated to be worth $2.4 billion globally and growing. Because of this growth and the relative neglect of the LPO sector in academic research, the Outsourcing Unit at the London School of Economics undertook research into the provision of services and effective client practices in this [x]. In this article, we present practices used by LPO clients and their providers to realize value from LPO services. The practices are based on data from 27 LPO providers, interviews with clients and providers from successful LPO relationships, and from lessons learned from prior Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO) research. The practices address the transformation of legal work, LPO strategy, provider selection, contractual governance, stakeholder buy-in, transition and coordination of work, provider turnover, and relational governance.
Keywords: Legal process outsourcing, contracts, service level agreements, stakeholder buy-in.
Contents
2.1. Conceive of LPO in the context of a larger transformation of legal services
2.2. Move towards the digital assembly line by disaggregating work
3.1. Consider overall value and provider capabilities, not just price
3.2. Test provider capabilities with a controlled experiment
4.1. Use fixed-fee FTE pricing for cost predictability, simplicity, and ease of administration
4.2. Use unit pricing if work is standardized and volume is large
4.3. Mandate yearly productivity improvements
4.4. Dedicate time each year to drive the innovation agenda
4.5. Gainshare the benefits from specific innovation projects
5.1. Communicate early and involve in-house lawyers
5.2. Use Key Performance Indicators to incentivise adoption by in-house lawyers
6. Transition and Coordination of Work
6.1 Assign a high-level point person to manage the LPO provider relationship
6.2. For larger projects or engagements, use an onshore engagement manager (OEM).
6.3. Build a playbook to specify requirements
6.4. Build a portal to direct work to the best source
6.5. Direct in-house lawyers to nurture the LPO provider’s lawyers
6.7. Learn from other in-house functions that have outsourced services
7.1. Have the LPO provider overstaff the project to mitigate turnover risks
7.2. Keep playbooks updated to protect against turnover effects
9.1. Take advantage of a provider’s global delivery capability
1. Introduction
Nearly all legal firms and in-house counsel will have to consider the opportunities and risks afforded by Legal Process Outsourcing (LPO), the practice of procuring legal services from an external provider. The LPO market is estimated to be worth $2.4 billion globally and is growing rapidly.(1) LPO provision is enabled by globalization of the labor pool and by information technologies that allow knowledge work to be distributed to its best source. LPO providers leverage information technologies like document management systems, contract management systems, front-end portals, work flow systems, and quality tracking and reporting tools to coordinate and perform legal services.
Demand for LPO services is growing as a result of larger market forces driving enterprise legal functions to transform into leaner organizations.(2) In-house counsel are no longer exempt from the cost-cutting and streamlining imposed on all other support functions. Enterprise legal functions are seeking ways to reduce costs by erecting captive centers(3) in low cost areas, by pressuring major law firms to reduce fees and to be more efficient by offshoring, and by engaging LPO providers directly.(4)
Presently, the LPO provider landscape is varied and includes specialty LPO/KPO(5) providers like CPA Global, Evalueserve, Integreon, MindQuest, Pangea3, and Quislex, and large, global ITO and BPO providers like Capgemini, Infosys, TCS, and Wipro. Indian-based providers are the leaders in the offshore LPO space, with more than one million lawyers and 128 LPO providers exporting legal services worth $640 million in 2010.(6) India’s LPO market may grow to $4 billion by 2015.(7) The Philippines, often considered the second largest LPO offshore destination after India, has 40,000 lawyers.(8)
Given LPO’s strong value proposition and huge market potential, clients with little or no LPO experience will want to learn more. The Outsourcing Unit at the London School of Economics and Political Science, in collaboration with legal sourcing consultant, Andrew Burgess, launched a research project to help educate and disseminate learning about LPO.The LPO research comprises data on 27 LPO providers(9) and in-depth interviews with LPO clients and their providers(10). In addition to the LPO specific research, we have been studying Information Technology Outsourcing (ITO) since 1989 and Business Process Outsourcing (BPO) since 2000.(11) Based on all these sources of data, we recommend a range of effective practices to ensure that LPO engagements meet client expectations. LPO “clients” are in-house legal counsel or law firms.(12) The recommended 25 practices pertain to LPO strategy (3 practices), LPO provider selection (2), stakeholder-buy-in (5), contractual governance (3), transition and coordination of work (7), provider turnover (2), relational governance (2), and location of LPO staff (1).
2. LPO Strategy
“We are transitioning our own legal team from bedside doctors to people who are trying to get the process to move as fast as it possibly can.” – General Counsel
According to management guru Alfred D. Chandler,(13) strategy is the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. LPO clients must decide how LPO fits into a larger picture of transforming legal services and learn to disaggregate legal work to achieve “best sourcing”. Clients should also consider the possible value of LPO provision besides cost savings. The following practices pertaining to strategy are recommended:
2.1. Conceive of LPO in the context of a larger transformation of legal services
As a strategy, LPO is best conceived as a part of a larger transformation of legal services.(14) For a long time, the legal profession has recognized that its primary business model—charging clients by the hour—does not align incentives well. Under this model, law firms are actually incentivised to spend as much time as possible on a client’s legal issue. One GC explained,
“I have a problem with the entire business model of charging by the hour because it seems to me the more hours you can charge the more money you can make for the business. And, when you’re a client, you actually want your lawyers to spend the least possible time on your issues, because you don’t want these issues to grow out of proportion.”
External law firms also have a culture of always delivering quality, but not necessarily value. As one GC said,
“Law firms struggle with doing anything other than a Porsche or Rolls Royce level of service and they’re not quite happy with a dodgy Buick, which is all that I might need.”
Enterprise legal functions and law firms need increasingly to think about best sourcing—packaging legal work and assigning it to the most efficient and effective source, whether the source is in-house lawyers, captive LPO centers, or LPO providers. Work should be pushed to the most effective deliverer.
2.2. Move towards the digital assembly line by disaggregating work
Best sourcing legal work requires enterprise legal functions and law firms to disaggregate legal work. Rather than assigning a legal matter entirely to one source such as an external law firm, for example, the work could be broken down to multiple tasks and work assigned to different sources. For example, Mergers & Acquisitions (M&A) is not high volume for most enterprise functions, but within M&A some tasks have a lot of volume that could be sourced by an LPO provider.
The CEO for one provider in our study compared the evolution of the legal profession to the evolution in the medical profession. Medicine has evolved away from the family doctor who performs all medical services to trained specialists. He said:
“In the old days you went to a doctor for everything. I remember growing up in India, the doctor even had a compounder and would prepare all the medicines and give it to you right there. Today, medicine is all unbundled services. Today, you go to a doctor, he sends you to a specialist, the specialist sends you to a technician to take your x-ray. You have technicians and nurse practitioners who are specialists, but they are not doctors. I think the legal profession is headed this way too. People are starting to look at legal services in a systems, process-oriented manner because technology and globalization allow you to do that.”
Other providers in our study, however, have a different view on disaggregation by objecting to the idea that LPO providers will only perform carved-out, low-level tasks. One provider, for example, said if only low level tasks are outsourced, then maybe five or 10 percent of work can be transformed. He conjectured: “If an entire set of legal work is outsourced, then real transformation becomes possible.”
2.3.Consider LPO provision for more than just cost savings.
Clients are initially attracted to LPO because of the potential for cost savings. Indeed, the clients we interviewed use LPO providers to reduce costs by 30% to 50%. But the clients also sought and realized additional value from LPO services, including the ability to focus in-house legal staff on higher-value work, faster service delivery and scalability. As the LPO market matures, clients might also seek additional value that some ITO and BPO clients are now achieving. Each source of value is discussed further below.
Lower Costs. LPO providers reduce client costs through superior technologies, process maturity, and by substituting high-cost labor for lower-cost labor. Many LPO providers have delivery centers located in low cost countries like India or the Philippines. From our sample of 27 LPO providers, we calculated the average cost for a fully qualified lawyer based in India at $248 per day. The concern, of course, is work quality. In order for LPO providers to reduce costs for their clients and still protect service quality, they balance onshore and offshore resources. The average team composition from our sample is 22% of a provider’s team members are located onshore and 78% of members are located offshore. The onshore resources are more expensive but have the advantages of close customer proximity, deep domain understanding, high cultural compatibility, and the facilitation and coordination of work with offshore team members.
Focus in-house lawyers on more strategic work. In our study, none of the clients were using LPO to cut in-house legal staff. To the contrary, the GCs from the client companies wanted their in-house lawyers to focus on more value-added and more interesting work. One GC represents all the clients in our study when he said, “We are doing this because there are a whole bunch of tasks that are just being done inefficiently by the team.” He told his in-house lawyers, “Here’s an opportunity for you to stop doing those tasks and to focus on more value-added stuff, which is what every General Counsel I have spoken to has put into place.”
Increase delivery speed. Service delivery speed can increase with LPO. For example, Microsoft reports that Integreon increased contract turnaround by 20% and increased on-time delivery of contracts to 99.5%.(15) Service speed can increase by having more people working on a service and by having offshore resources working shifts while Western clients are asleep. Achieving a smooth “follow the sun” work schedule is possible, but requires considerable coordination.(16)
Scalability. Scalability can be improved by hiring an LPO provider to meet short term increases in demand. One client, for example, uses an LPO provider to help with large document reviews. The LPO provider astonished its client by ramping up with 150 qualified lawyers within a month’s notice. The client said, “If you look at e-discovery and document review in particular, the volume of work is so spiky. I am very happy for the provider to manage that risk and be able to staff up and ramp down.”
Additional Value. Although cost reduction, the ability to focus in-house legal staff on higher-value work, faster service delivery and scalability are the four client business objectives that emerged from the LPO specific data, clients might leverage LPO for additional value. From ITO and BPO data—two markets that are more mature than LPO—clients can also consider how LPO might drive other business objectives like process transformation, access to innovation (particularly IT-enabled innovations), access to new markets, and commercialization (e.g. setting up an LPO business with a provider).(17)
3. LPO Provider Selection
“We selected our provider because of their flexibility and their willingness to do what is right for us.” – Client Director
The clients in our sample went through the usual outsourcing procurement process by issuing RFIs or RFPs to narrow the selection and then assessing more thoroughly the short-listed providers. All the clients in our sample assembled decision teams that included people from the enterprise legal function and from the procurement department, the latter whose role was to ensure compliance with the company’s sourcing policies. Two practices pertaining to LPO provider selection emerged from the interviews:
3.1. Consider overall value and provider capabilities, not just price
As noted in the strategy section, clients adopt LPO to significantly reduce costs, but clients should not select an LPO provider based solely on price. Clients should assess providers on a number of capabilities.
The clients we interviewed selected providers based on prices, quality of work, turnaround times, flexibility, and proven track records. One client, for example, worked with procurement to develop the RFP, but the GC crafted the selection process to make sure the least expensive provider did not become the automatic winner. He wanted a provider that had great processes, technologies, and people in addition to lower costs. Another CC selected his LPO provider based on costs, time zone compatibility, resource scalability, and proven ability to service Western clients.
From ITO and BPO research, we developed a model(18) that helps clients assess 12 important provider capabilities. These capabilities are certainly relevant to LPO provision:
- Planning and Contracting: the provider’s ability to design ‘win/win’ contracts that are flexible and responsive.
- Account Leadership: the provider assigns an account lead who sets strategic direction with the client lead, aligns incentives, adapts to changes, motivates and inspires people, and delivers dramatic change.
- Business Management Capability: the provider’s ability to delivery to service agreements and to the provider’s and client’s business plans.
- Behavior (People) Management: the provider’s ability to hire, train, retain and inspire their employees.
- Domain Expertise: the provider’s ability to apply professional knowledge for problem diagnosis, understanding and solutions.
- Business Reengineering: the provider’s ability to incorporate changes to the service process to deliver dramatic improvements.
- Technology Exploitation: the provider’s ability to swiftly and effectively deploy technologies for business purpose.
- Sourcing Expertise: the provider’s ability to access and deploy resources cost-effectively as needed.
- Program Management: the provider’s ability to deliver a series of inter-related projects by managing change, transitions, upgrades and new solutions
- Governance: the provider’s ability to define, track, take responsibility for and measure performance.
- Organizational Design: the ability to design and implement successful organizational arrangements for relationship management.
- Customer Development: the provider’s ability to help customers make informed choices about service levels, functionality and costs.
3.2. Test provider capabilities with a controlled experiment
If a client plans to engage an LPO provider for a significant volume of work, they might consider testing provider capabilities with a controlled experiment like one client in our study. The client has the largest LPO engagement amongst those we studied, which fluctuates in size from 24 to 120 Full Time Equivalents (FTEs). Because the account was going to be large, the client wanted a better way to assess provider capabilities than merely going through the normal procurement process. The client used an RFI to narrow the selection to two providers, and then it organized a controlled experiment by assigning the two LPO providers and an external legal firm to review the same set of documents (nearly 20,000 of them) within a two week period. The external legal firm—the client’s strategic, long-term partner—served as the benchmark. The client scored providers on 20 criteria. The competing teams knew how their work would be evaluated. The experiment was expensive, but the client was confident it helped to fully test provider capabilities.
4. Contractual Governance
“We have a fixed per person rate for a dedicated team and then with project teams there is a mix of hourly and day rates.” – Chief Counsel
Contractual governance is the formal, written contractual agreement between the LPO client and provider. Compared to the level of contract maturity in ITO and BPO contracts,(19) we did not find the same level of contract maturity for LPO contracts, particularly for pricing and Service Level Agreements (SLAs). All of the LPO relationships we studied have some type of SLA as part of the Master Service Agreement (MSA) or as part of specific Statements of Work (SOW), but SLAs were typically limited to the quality and/or timeliness of work and spot checks on client satisfaction. Some clients also receive reports on the provider’s efficiency, however, the measures and reporting mechanisms varied among our sample. Despite the lack of maturity on many accounts, clients were generally satisfied with their LPO contractual governance mechanisms.
4.1. Use fixed-fee FTE pricing for cost predictability, simplicity, and ease of administration
Most of the LPO relationships we studied use a fixed-fee pricing structure for a specified number of FTEs. One contract, for example, has fixed fees for junior lawyers and a higher fixed fee for senior people. Another client’s contract is fixed-fee for the dedicated team and a mix of hourly and day rates for special project teams.
Clients like the predictability, simplicity, and ease of administration of this pricing mechanism. Clients easily estimate cost savings by comparing LPO rates with in-house or legal firm rates, with some adjustment for productivity. For example, one client estimates the time it takes an in-house lawyer to do a task compared to an offshore LPO lawyer for a sample of projects. The LPO lawyers are not (yet) as productive as in-house lawyers, but the costs are so much cheaper offshore, that total costs are still significantly lower offshore than onshore, even with lower offshore productivity rates factored into the assessment.
For FTE-priced deals we studied, contracts include service levels for quality, turnaround time, and client satisfaction. The LPO clients primarily rely on spot assessments of client satisfaction. At one client’s company, for example, its internal lawyers fill in a customer satisfaction form after the completion of a major project. If the score is ever below the agreed upon level, the partners immediately address the issue. Another client has a number of SLAs covering turnaround time, unnecessary escalation (i.e. the provider escalated a question or issue back to the client that was unnecessary), quality, and customer satisfaction. Customer satisfaction is measured at the completion of every significant negotiation. The provider also has 15% of their fees at risk for non-performance, but the clause has never been triggered.
Overall, the clients we interviewed are generally satisfied with the fixed-fee FTE pricing mechanism. For example, one CC said, “We have been pretty happy with it so far; we haven’t looked to tweak that in any way”. According to the clients we interviewed, FTE pricing has better incentives than the hourly rate model because the LPO providers have to be efficient to meet their service level agreements. One GC described FTE pricing as a change in mindset. LPO providers have to think: “How can we maximize the throughput so I can meet the service level agreement?” rather than: “How many hours can I charge the client for?”
4.2. Use unit pricing if work is standardized and volume is large
In ITO and BPO, many contracts have unit prices, such as price per user supported, price per invoice processed, and price per policy administered. The advantage of unit pricing is that clients pay for volume of output rather than volume of input, such as hours worked. In the LPO context, clients we interviewed said that pricing per unit is difficult because the volume of services is not as high in legal functions compared to other back office functions. For example, finance and accounting may process millions of invoices and can calculate an average price per invoice processed. One GC said, “We haven’t linked price at any specific volume criteria at this point”. As another GC said, “I think one of the challenges of unit pricing is finding enough volume to get to that kind of model. Legal services have much less volume altogether”. In the future, however, this GC foresees that pricing models can evolve in LPO, such as pricing per contract.
LPO providers seem more ready than LPO clients to move to transaction-based pricing. One LPO provider, for example, describes their output-based pricing,
“We rarely use resource-based pricing (hourly, daily, weekly or otherwise). Instead, we prefer to use output-based pricing because it better aligns incentives between [LPO provider] and its clients. Billing on a time and materials basis penalizes the provider for investing in efficiency and productivity, which would reduce the amount of billable time. As we view our ability to deliver efficiency and productivity gains as a core strength, we prefer to bill on an output based model that rewards us for productivity gains while passing on most of the gains to clients in the form of lower cost per unit of work.”
LPO clients might also consider a number of service level agreements that are standard or emerging in ITO and BPO contracts.(20) Here are three that incentivise providers to improve performance over time.
4.3. Mandate yearly productivity improvements
Although clients like the simplicity and predictability of FTE pricing, many clients also realize that input-based pricing discourages the provider from implementing innovations that would reduce the number of FTEs because the provider’s revenues would decrease. To overcome this disincentive, many ITO/BPO clients necessitate innovation by mandating productivity improvement requirements in the contract that require the provider to improve the client’s productivity, most typically by four to five percent per year. Both clients and providers reported positive results from mandatory productivity targets.
4.4. Dedicate time each year to drive the innovation agenda
ITO and BPO clients often expect their providers to be constantly innovating by introducing new methods, tools, and technologies. Innovation objectives can quickly slide down the list of priorities if everyone’s attention is focused on operations. In high-performing ITO/BPO contracts, the partners don’t let operational issues stall innovation; they contractually dedicate time each year to drive the innovation agenda. The client and provider typically identify four to six innovation projects for the coming year and agree how those projects would be funded. They also used the next practice to agree on how the benefits should be allocated:
4.5. Gainshare the benefits from specific innovation projects
Among all the ways to incentivise innovation, gainsharing packs the most punch because it promises to increase the provider’s revenue as well as the client’s performance. On an innovation survey, 79 percent of clients, 77 percent of providers, and 78 percent of advisors indicated that gainsharing on innovation benefits was the best way to incentivise innovation.(21) In a follow-up question, however, clients indicated that only 40 percent of innovations delivered on their accounts used gainsharing. Paired interviews with BPO clients and providers also found fewer than half the clients contracting for gainsharing clauses, or even when gainsharing was included in the contract, only half of these clients availed the gainsharing option. On the other hand, a quarter of clients interviewed reported that gainsharing was prompting powerful innovations on their accounts. What distinguished successful from unsuccessful gainsharing? Gainsharing was most effective when used at the project level. Clients and providers who built a business case for each innovation project and agreed in advance how the financial compensation would be allocated, reported great results with gainsharing.
5. Stakeholder Buy-in
“Lawyers think they are important, but it’s just another service” – General Counsel
Engaging an LPO provider, particularly for the first time, represents a radical shift in the sourcing of legal work. Proponents of the LPO relationship are the stakeholders who will “gain” the most benefits from it, such as GCs held responsible for corporate legal spend. The clients we interviewed also reported that c-suite executives and business unit heads were supportive or at least accustomed to outsourcing, as many of these client companies have existing outsourcing contracts for information technology, finance, accounting, human resources, and customer support services. These stakeholders accept and expect the targeted outsourcing of legal services. Opponents to legal outsourcing are the stakeholders who think they have the most to lose--the in-house lawyers and the external legal firms were the most resistant stakeholders. Many lawyers think along the lines of, “We are part of the mystical craft of specialists. We’re professionals, and you can’t commoditize us” said one GC. The in-house legal teams were generally more accepting of outsourcing parts of discovery and less accepting of outsourcing parts of due diligence, because discovery work is seen as less specialized. Another GC said of his internal lawyers, “Certainly within our in-house team the skeptics think that LSO was irrelevant because the level of complexity of the work they had was not suitable to providing to the LSO.” To get in-house lawyers on board, the following practices were suggested:
5.1. Communicate early and involve in-house lawyers
As previously noted, none of the client firms we interviewed intended to use LPO providers to replace in-house lawyers. To the contrary, the GCs from the client companies wanted their in-house lawyers to focus on more value-added and more interesting work. In addition to assuring in-house lawyers that LPO was not replacing them, the GCs had to convince them that LPO would make their jobs easier and more interesting; they needed to hear this reasoning early and often.
Not all internal lawyers will have the time or inclination to be involved in the LPO decision process. But having representatives from among the legal staff will facilitate buy-in and can lead to better decisions. One CG said,
“In starting the LPO, we got the lawyers who would be working with them and whose work would be impacted by them, involved early on so they would be part of building the future; communicating with our own people to enable them to understand why we were doing it and to get them into a position where they too wanted it to be a success rather than them feeling threatened by it or wanting it to fail.”
5.2. Use Key Performance Indicators to incentivise adoption by in-house lawyers
In-house lawyers find it easier to pass work off to an external law firm than to an LPO provider because the external law firms will know how to perform the work with little instruction. Therefore, in-house lawyers have to be incentivised to use the LPO provider.Key Performance Indicators can motivate in-house lawyers to adopt LPO provision. At one client, the CC has an internal KPI that requires his team to become more efficient each year, which essentially functions as a directive to use the LPO provider. The CC said,
“We have sort of an internal mandate to use our LSO provider which is reflected in our performance requirements, our performance KPIs, if you like…I think it is truly important that each of your in-house lawyers have a personal objective around what they need to get out of the LSO arrangement. Pulling some of those levers is important to overcome any resistance.”
5.3. Invest in face-to-face meetings
One practice to overcome resistance is for everyone to meet face-to-face. At one client company, a senior leader visits India every six months. The GC said, “It does add to the expense but we thought it was worthwhile”. Face-to-face meetings have additional benefits, such as building group cohesion. One client said that his team visited the LPO staff in India and that they built a close rapport with the employees. The client’s Director explained,
“What I found in talking with the management afterwards, is that really went a long way in just getting them to know our company, getting to know our people, and knowing that we care about the project and that it was important to us versus them being some factory where people are sending them stuff and expecting it to come back. I didn’t realize that it had that impact, but I’m glad it did.”
6. Transition and Coordination of Work
“If you think you can just throw the work over the fence and expect to get something back exactly as you like without any other investment, chances are they will not be that successful on their own.” – Chief Counsel
The clients we interviewed reported different levels of success during the transition of work to the LPO provider. The client who reported the easiest transition relied on the more experienced provider to drive the transition process. The Director explained: “Our provider does a very good job of transition… [they] walked us through the whole process”. Others had rockier transitions, but all participants learned that the transition and coordination of work requires the right leadership, documentation, communication, and processes. The following practices were recommended:
6.1 Assign a high-level point person to manage the LPO provider relationship
Clients in our study have a client lead in charge of the LPO relationship. This person should have experience, personal credibility and political clout within the client organization, which normally requires a senior person, most typically a direct report to the GC. Providers all appreciate the value of a supportive high-level point person. For example, the VP of one provider said of his client’s point person,
“His job is to make sure that elements that need to be engaged from the client side are engaged. We talk every week and on-site meetings once every other quarter. That kind of relationship has been very, very crucial in making this relationship a success, in addition to the executive sponsorship”.
The Head of Managed Services for another provider said that his team leads meets with the client lead every week to go through prioritization, questions of legal substance, and to address any issues. They also talk about the team, team members, travel schedules, training schedules, and the pipeline of work. The provider said, “There’s lots of open sharing.”
6.2. For larger projects or engagements, use an onshore engagement manager (OEM).
An OEM is employed by the LPO provider but works at or near to the client site to coordinate work. Because the OEM is familiar with both the client’s and LPO provider’s processes, technologies, cultures, and employees, the OEM smoothes the transitions of work between the client and LPO provider. The OEMs also take the burden of manning late night conference calls, clarifying client requirements, and addressing time–zone bottlenecks if the provider is located offshore. Because of the expense of an OEM, the practice is best suited for project work, such as a large legal matter, where playbooks cannot be defined fully in advance and when requirements emerge as the legal matter progresses. One client, for example, assigns an onshore project manager to work directly with the client’s project manager. The Director explains the value of the OEM:
“And the good thing there is I have somebody I can call during the day or my outside counsel has someone they can call during their business day to say, ‘Hey, here is the issue we are seeing’ or ‘Here are some things we want you to deal with.’ And that person is responsible for being up in the middle of the night to make sure they are feeding the information to the team in India. So we’ve always got somebody in our time zone to deal with.”
The client trained the OEM along with its own legal team to transfer as much knowledge as possible. The idea is that the OEM is qualified to step in to be the client’s discovery project manager. The Director explained the dual purpose for training the OEM: “One, it would help them better understand our organization, our process, and how we do things. Two, it gives me some overflow capacity. If my team were to get too busy, we could bring this person in and have him just do our job.”
6.3. Build a playbook to specify requirements
Playbooks and other supporting documents like process maps and checklists provide instructions to the LPO provider’s team. The clients report that LPO providers are quite good at developing and updating playbooks. A VP for one provider explained, “We create a checklist, playbooks, guidelines, process maps and all the other things that go in making a much focused quality programme. Every work request is treated with the same quality of standards that we agree that they will follow.” The playbooks and other supporting documents help lawyers trained in one country (like India) to understand the nuances and legal requirements of serving clients from other countries (like the United States). Playbooks also standardize service and establish clear lines of responsibility. The Director for one client explained that playbooks“…provided us with understanding of how to better manage all of our document reviews. Things like the quality control checks, the communications, the standing meetings, those kinds of things. Having that template to kind of get things going really seems to help out a lot.”
6.4. Build a portal to direct work to the best source
Portals serve as “front doors” for people within a firm to request legal services. Portals require people to specify consistently the type, scope, requirements, and timing of legal work and can be used to route work to the best source. One GC wanted to relieve his legal staff from performing all the small tasks colleagues ask specific lawyers to perform as a “favor”. All requests for legal services now go through a portal that has rules for directing requests by type to the best legal source. The GC said, “The portal sources to the right people. For some particular types of work, my team doesn’t even see the request because it automatically goes to [the provider].”
6.5. Direct in-house lawyers to nurture the LPO provider’s lawyers
Many lawyers expect that an LPO provider should have the same level of experience and produce the same quality of work as lawyers from an external law firm. Such expectations are unrealistic, and may result in a negative perception of the LPO provider’s performance. One GC said, “That’s a challenge to overcome that people still think of them as external lawyers. They have a bad experience and they think they are not going back to the LPO provider rather than ask, “How do I get them up to speed so they don’t do that again?’” The GC asked his internal lawyers to think of the LPO’s staff as part of their junior team that needs mentoring. He asked them to chat with them, invest time getting to know them, and help them be successful.
6.6. Have joint and frequent communications with the client, external legal counsel, the LPO provider and, if relevant, the technology provider
All the clients we interviewed stressed the importance of frequent communications between the client and LPO provider. One CC, for example, said, “Good and frequent communications are certainly key”. Planned meetings may be scheduled daily or weekly depending on the type of work assigned to the provider. The coordination of work, however, often entails other stakeholders besides the client and LPO provider. At one client company, having all parties on weekly calls was one of the key lessons learned. When the LPO provider is given conflicting instructions from the client and external law firm, a tri-way call was the best way to resolve it, or a four-way call if the tool from the technology provider was involved.
6.7. Learn from other in-house functions that have outsourced services
Our LPO research uncovered the same cultural issues found in ITO and BPO research.(22) For example, many Indians did not ask for instructions to be clarified if they didn’t understand the client fully. Instead, Indian teams often “took their best shot” and then found out they completely misunderstood the client’s requirements. The LPO clients we interviewed said that they had to create a culture that rewarded and welcomed when the Indian team asked questions, pushed back, and challenged the client. One GC commented, “So, giving them the courage to go and clarify their instructions was certainly something that took a little entrenching in the beginning. Giving them confidence to go back and clarify their instructions and so on. That’s certainly been one of the things that we’ve been doing over the initial year”.
Although this is the first time the client firms in this study outsourced legal services, it is not the first time their firms have outsourced business services. Seasoned client executives from other support functions like IT, HR, and Finance had already conquered the outsourcing learning curve of packaging work, designing process interfaces, and bridging cultural differences. In hindsight, some of the clients we interviewed wished they would have sought the advice from other functional areas. For example, one client said, “I wish we could have spent a little more time working with somebody in our business group that was familiar with outsourcing”.
7. Provider Turnover
“Turnover has been very, very low. It has been absolutely no impact at all to me.” – one LPO client
“The turnover has been high within the dedicated team.” – another LPO client
High staff turnover in low cost countries has been a major problem for ITO, BPO, and LPO providers. In India, LPO turnover rates in Gurgaon can be as high as 30% because the proliferation of providers makes it easy for workers to find alternative employment. Other Indian cities have LPO turnover rates between 8% and 10%. Clients and providers understand that turnover will occur. The GC for one client said, “Turnover is a reality of outsourcing. It is a challenge because, obviously, some of the more talented lawyers who over a period of time look for their next move. So, you need to have good systems in place on their part so that capturing knowledge and sharing that knowledge is within team.” The following practices can protect clients from the adverse effects of attrition:
7.1. Have the LPO provider overstaff the project to mitigate turnover risks
Transitioning work to an LPO provider requires a significant amount of knowledge transfer upfront. Clients only want to do this expensive and time-consuming training once. Given that provider staff will experience turnover—either unwanted turnover from resignations or wanted turnover from poor employee performance—one client suggested that providers overstaff at the beginning of a project. Given that rates are so much cheaper with LPO, the extra headcount will not severely erode the business case. One client explained, “Typically, the provider overstaffs the team initially in case they need to weed out some people… So if we need 20 people, maybe we will put 25 people through the initial training.”
7.2. Keep playbooks updated to protect against turnover effects
Playbooks and other process documents are valuable not only for transitioning and coordinating work, but for mitigating the effects of LPO employee turnover. Detailed playbooks that are frequently updated will bring new employees up to speed quickly. One GC explained, “You developed a playbook so that even if the individual who’s been working on this particular area goes, the impact would be reduced because all that knowledge and issues and understanding are being caught and you’re always upgrading”. The VP from a provider added that the playbooks, processes, and technologies shelter clients from the effects of attrition. The providers in this research also discussed how their internal human resource policies, like offering interesting career paths, keep turnover low. A Senior Manager said his turnover rate in India is half the average turnover rate. He described why: “The reason the team is successful and has a low turnover, presently, is the combination of good leadership (which is what the present leader brings), the benefits package, and the quality of work. We’ve got good pay packets and we’ve got good benefits. We’re not overworking them to death. Some of these LPOs do do that”.
8. Relational Governance
“We are treating them like a partner rather than thinking of them as a supplier.” – General Counsel
Relational governance is the unwritten, informal mechanism designed to influence inter-organizational behavior. Relational governance is about the attitude clients and providers hold about the other and about the behaviours with which they treat each other. All of the clients in our LPO research talked about the importance of treating the provider as a partner. The partnership attitude manifests itself in partnership behaviours—such as resolving service issues together and conflicts fairly—that result in high performance from both client and provider perspectives.
8.1. Treat the LPO provider as a partner, not a vendor
Prior research(23) found that strong relational governance begins with an attitude we call the “Partnership View” in which a client regards the provider as a strategic partner rather than as an opportunistic vendor. LPO clients in this research specifically referred to their LPO providers as partners or teammates:
“They are very flexible, they’re very keen to learn, so they’re not sticking to the letter of the contract. And so and they do recognize it’s a partnership” – General Counsel
“I think treating them truly as a partner on the team, a team member versus a vendor that we are trying to beat up on price every time we are talking to them.” – Director
“To make this work, we wanted the Belfast team to feel like they were part of our team even though they are in a different country. We have done quite a lot of bringing them into our family and making them feel at least like first cousins, if not like brothers and sisters.” – General Counsel
The Head of Managed Services for a provider also described the close relationship he has with his client. He said, “It’s really a feeling of we are all on the same team, we’re all living in the same environment. Our team leader goes to the client’s legal team meetings. We participate just as if we are another unit within the legal department”.
8.2. Resolve Issues and Conflicts Together
All service organizations have service issues, defined here as a circumstance which interrupts performance. Service issues, which include service lapses, project delays, or difficult people, are common and occur in any service, regardless of sourcing option. In our interviews, we asked participants to describe a significant issue and how it was resolved. Below we give one example of an issue caused primarily by the provider, two examples of issues caused primarily by the client, and one issue caused by both parties. In these LPO relationships, partners didn’t focus on blaming the source of the issue but rather on working together to resolve issues. All the parties viewed the issues as a normal part of learning to work together.
One client asked the provider if it could support foreign languages. The provider indicated that they could support foreign languages from their Indian delivery center. After a trial period, it became apparent that the provider had never supported foreign languages from this location before, and the result—according to the client—was “quite disastrous”. The partners agreed that the provider would stop providing foreign language support. The issue has not weakened the LPO relationship, but rather has served as a valuable lesson.
On a large legal matter, one client severely under-estimated the number of lawyers the LPO provider would need to staff for document review. Although the client recognized that it was their fault for under-estimating the volume of work, they praised their LPO provider for working with them to address the problem. First, the provider more than doubled the size of the staff within four weeks of the engagement. But as the project neared its completion deadline, both parties realized they still did not have enough resources. The client and provider decided that working overtime was the best way to meet the deadline. The client and provider were sensitive about demoralizing and burning out the LPO provider’s staff, so they made the overtime work voluntary. The client also paid for the employees’ transportation, security personnel, and facilities management costs for weekend shifts. Eighty-percent of the LPO provider’s employees volunteered and the project was completed on time. The client said, “We have jointly identified that if something is not working that well, if it is clunky, we’ll pretty much come up with a solution”.
One client tried to assign new work to the provider without developing the playbook and processes first. The client wanted the provider to “make their best attempt”, but the client was not happy with the result. The provider reiterated that the nature of LPO work is different than assigning work to an external law firm and that LPO providers rely on processes, playbooks, and technologies to deliver quality service. The client learned his lesson and never by-passed the on-boarding process again.
On another account, the contract requires that the LPO provider will create playbooks by a certain date. Both the client and provider recognize that the volume of work has been so great, that the LPO provider is spending all their time doing the actual work, leaving little time to develop the playbooks. The GC said, “They are peddling as fast as they can with the work that is coming in but they are now finding it quite challenging to do the playbooks and the commoditization”. The client and provider are discussing ways to resolve the issue, which will likely be that the client pays for an additional person focused on developing the playbooks.
9. Location of LPO Staff
“We need a provider here in the UK. We need a nearshore provider. We have a lot of volume business in Germany, France, Spain, Italy, and Benelux... There aren’t many LPO providers that I’ve come across who are providing services out of those areas. I think there is an enormous opportunity.” –General Counsel
When many people think of LPO, they assume all the work is done in low cost areas like India, the Philippines, or China. Amongst our cases, the bulk of the LPO providers’ employees are located in low cost areas, but increasingly providers have also built delivery centers located closer to clients. LPO providers in our study recognize that large global clients need offshore, onshore, and nearshore alternatives. Global coverage can speed turnaround times by offering clients multiple shifts, balance the clients’ cost and service requirement objectives, and offer multilingual support. Providers in our study recommended the following practice.
9.1. Take advantage of a provider’s global delivery capability
Each of the providers in our study discussed their location strategies and how these locations benefit clients. One provider locates about two-thirds of its LPO employees in India and about one-third in the United States. It also has small teams located in the UK and Asia Pacific. It operates its own data centers to run its proprietary tools and to store and protect client data, if the client chooses hosting services. The bulk of the work gets done in India but it is common to include onshore and offshore resources to service a particular client. For example, one client has a contract with the US Department of Defense that requires US citizens to perform any work associated with the contract. The provider said, “It can be a mix of onshore and offshore so that the client gets the quality that they’re looking for as well as cost effective solution”. For some clients, the provider runs double shifts—one in India and one in the US—without having to make employees work overtime or odd hours. For one client, a provider supports multiple languages including English, French, German, Italian, Spanish, Japanese, and Portuguese.
One provider uses a multi-shore model with two delivery centers located in India and three delivery centers in the United States. By using a multi-shore approach, the provider aims to deliver high quality services at the most reasonable price given the size, scope and deadlines of a matter. During the interview, the Senior Manager discussed in more detail the decision to locate a delivery center in Minnesota to provide French language support. He said:
“We wanted French LPO support but France and Quebec don’t look too hot when it comes to cost. We can’t give French support out of India because French positions in India were handed back in 1954 and nobody speaks French anymore. So, that doesn’t work. I actually suggested that we try and locate a provider in Romania or Poland, but we don’t have enough work to sustain that. I said, ‘Okay, we can do it out of Minneapolis then’”.
Minneapolis has four large law schools and its proximity to Canada means that many lawyers speak French. The challenge with any LPO delivery center that provides French language support is that the French language differs across locations like France, Quebec, and non-Quebec Canada. He concluded by saying, regardless of location, “We excel at the quality of work that we do. We are very good at what we do in the delivery of the work. It is one thing we don’t compromise on: quality”.
Another provider in our study has four major delivery centers, two of which are located in the United States, one in India and one in Northern Ireland. The provider created a dedicated delivery team in Northern Ireland to service one client and both the provider and client are delighted with this location. The provider reports that
“Belfast has great access to talent including a bunch of folks that have moved from Belfast to London to pursue their legal careers and have had training with great firms and, for lifestyle reasons, are looking to move back home which is exciting because then when you get these folks, they tend to be geographically stable and loyal. We really like Belfast and the Invest Northern Ireland guys were great with working with us there”.
The client reports a 30% cost saving by locating staff in Northern Ireland, partially because Northern Ireland offers great tax incentives.
A third provider in our study locates most of its employees in India, but it also built delivery centers in the United States to support foreign language work and work that clients want done onshore. The provider built one delivery center in Utah because the Mormon population learns many foreign languages as part of its missionary work. In addition, the Mormon population is highly educated and has a tremendous work ethic. Although the costs are much higher in Utah than India, the set of capabilities adds great value for clients. For one complex legal matter, the client wanted to assign work to the provider’s Utah and Indian facilities. The Director from the client company explained: “With this particular case we were doing, it had some nuances that we thought it might be good to have some U.S. attorneys. We wanted to test the Utah facilities. It was a good experience and opportunity for us to work with the U.S. facility. So, I thought it was valuable”.
10. Conclusion
“In the future, we will do more with LPO. We haven’t got a specific target goal in relation to percentage of work, but I do foresee that we’ll grow it significantly.” – General Counsel
“I think we are going to continue to embed it. Every year we are sending more and more work to the LPO provider.” – General Counsel
Overall, the General Counsels from the client companies we studied are forward-looking and offered great insights about the future of legal work and the contribution of LPO provision to that future. They also seem firmly grounded in the present. They understand that expectations of resistant stakeholders must be actively managed by early and frequent communication and their behaviors must be guided by creating incentives and/or by circumventing, squashing, or co-opting obstructionists. They understand that outsourcing relationships are founded on a sound sourcing strategy, a thorough process for evaluating providers, a realistic business case that balances cost and quality objectives, strong client retained capabilities, sound contracts and strong relational governance.
The providers in our study are equally future-oriented and are actively globalizing their firms to best service client needs. Many offer offshore, onshore, and nearshore delivery. Global coverage speeds turnaround times by offering clients multiple shifts, balances the clients’ cost and service requirement objectives, and supports multiple languages. But they too are grounded in the present and manage their relationships work order by work order. The Head of Managed Services for one provider summarized the attention to detail on each work order as “We’re maniacal about quality.”
The clients and providers from this research all foresee that their use of LPO providers will increase in the future. We too are bullish on LPO, but we caution that LPO likely will have its share of failures and disappointments. Even today in the more mature ITO and BPO markets, about 16% of contracts result in failure and about 25% result in no changes in performance as a consequence of outsourcing.(24) Enterprise legal functions and law firms will have to master a number of new capabilities to maximize the chances for successful LPO engagements. We hope that the practices presented here will quicken the learning process.
(1)Wood, L., “Research and Markets: The Global LPO Market is Expected to be Worth $2.4 billion in 2012,” Business Wire (11 March 2011); see also, the Black Book of Outsourcing: 2010 Leading Providers of Legal Process Outsourcing.
(2)See Susskind, R., The End of Lawyers? Rethinking the Nature of Legal Services, (OUP, Oxford 2008),
(3)This paper focuses on legal process outsourcing, but many reader may also want to consider captive centers. Oshri, I. Offshoring Strategies: Evolving Captive Center Models, MIT Press, Cambridge MA 2011) is highly recommended as a source.
(4)Lacity, M., and Willcocks, L. , “Industry Insight: Legal Process Outsourcing: The Provider Landscape,” (2013) 6(2) Strategic Outsourcing: An International Journal, 167; Orbys (2010), Legal Outsourcing: Current Market Trends, Reference Code DMTC2399.
(5) Knowledge Process Outsourcing (KPO) is the outsourcing of processes that requires highly specialized knowledge or expertise, such as medical, product design, animation, medical, and legal processes. From this definition, LPO may be viewed as a subset of KPO.
(6) Wood, L. “Research and Markets: Indian Legal Process Outsourcing Market,” Business Wire (7 October 2010), .
(7) Wood, L. op. cit.
(8)“Legal Process Outsourcing is as Much About Efficiency as Cost-Cutting.” (2011 7 Layer 2B)
(9)Data on 27 LPO providers were available to us from Andrew Burgess’s legal advisory business.The sample includes specialist LPO providers, full service LPO providers, and global BPO providers that offer LPO services. Across the sample, the 27 LPO providers employ a total of 10,858 LPO workers. The smallest firm in the sample employed 25 people, the largest firm employed 2000 people, and the average number of LPO employees was 402. These figures only include LPO employees, not employees devoted to other service areas such as ITO or BPO. The average LPO revenue was $35,187,454 in 2011.
(10)The four client executives interviewed held the titles of General Counsel (GC),Chief Counsel (CC), or Director. The four client companies were chosen because they were identified by our research sponsor as high-performing LPO relationships. To validate that relationships were performing well, we asked each client, “Overall, on a scale of 1 to 10, how would you rate the overall performance of the LPO relationship with a 1 indicating pitiful performance, a 5 indicating meets expectations overall, and a 10 indicating exceeds expectations?” The clients gave responses ranging from 5 to 9, with an average response of 6.76.The client’s enterprise legal functions range in size from 100 to 800 people. Separately, we also interviewed four LPO provider executives in charge of providing services to the client interviewees. The provider interviewees titles of Chief Executive Officer (CEO), Senior Vice President (VP), Head, and Director. For these providers, the average employeeheadcount is1,188 (range is 500 to 2,000 employees).
(11)We reviewed 1,356 findings from ITO and BPO research published from 1992 to 2011. We found that the determinants for outsourcing outcomes for ITO and BPO are similar. PositiveITO and BPO outcomes require a sound sourcing strategy, a thorough process for evaluating providers, a realistic business case that includes a balance of cost and quality objectives, strong client retained capabilities, sound contracts that specify outcomes and incent innovation, and strong relational governance. See Lacity, M., and Willcocks, L. Advanced Outsourcing Practice: Rethinking ITO, BPO, and Cloud Services, (Palgrave, London 2012). We think that many of these practices apply to LPO. LPO, of course, may have some distinctive challenges. Our aim is to further research the LPO market to assess the extent to which risk mitigation and best practices from ITO and BPO apply to LPO, and to uncover further unique best practices for the LPO context.
(12)The specific examples we present in this paper are from in-house counsels because those were the people who participated in our interviews, but the practices apply to both in-house counsels and external law firms.
(13)Chandler, A. Strategy and Structure: Chapters in the History of the American Industrial Enterprise. Cambridge, MA: MIT Press 1962).
(14)See Susskind, R. Provocations and Perspectives, A Working Paper submitted to the UK CLE Research Consortium (2012).
(15)“Microsoft Utilizes Integreon LPO Services to Gain Efficiencies while Reducing Costs,” Business Wire, (6 April 2010).
(16)Carmel, E. and Espinosa, A. I’m Working while They’re Sleeping: Time Zone Separation Challenges and Solutions, (Nedder Stream Press, USA 2011),
(17)For more strategic business objectives achieved with outsourcing see: DiRomualdo, A. and Gurbaxani, V. “Strategic Intent for IT Outsourcing”, (1998) 39 Sloan Management Review, 67–80; Lacity, M., Feeny, D. and Willcocks, L. “Commercializing the Back Office at Lloyds of London: Outsourcing and strategic partnerships revisited,” (2004) 22 European Management Journal, 127–140. Van Gorp, D., Jagersma, P. and Livshits, A. “Offshore Behavior of Service Firms: Policy implications for firms and nations,” (2007) 9 Journal of Information Technology Cases and Application Research, 7–19.
(18)The model was first published in Feeny, D., Lacity, M., and Willcocks, L., “ Taking the Measure of Outsourcing Providers,” (2005) 46 Sloan Management Review 41-48.
(19)See for example Nagel, T., and Murphy, M. “Structuring Technology Outsourcing Relationships: Customer Concerns Strategies and Processes,” (1996) 4 The International Journal of Law and Information Technology, 151-176.
(20)These practices are from Lacity, M. and Willcocks, L. “Beyond Cost Savings: Outsourcing Business Processes for Innovation,” Sloan Management Review, (2013) forthcoming ,
(21)Lacity, M., and Rottman, J., “Delivering Innovation in Outsourcing: Findings from the 2012 Outsourcing World Summit”, Globalization Today, March 2012 26, 31).
(22)See Carmel, E., and Tjia, P., , Offshoring Information Technology: Sourcing and Outsourcing to a Global Workforce, (Cambridge University Press, Cambridge 2005); Krishna, S., Sahay, S., and Walsham, G. "Managing Cross-Cultural Issues in Global Software Outsourcing," (2004) 47 Communications of the ACM 62-66. Lacity, M. and Rottman, J. Offshore Outsourcing of IT Work, (Palgrave, United Kingdom 2008).
(23)Lacity, M., Solomon, S., Yan, A., and Willcocks, L “Business Process Outsourcing Studies: A Critical Review and Research Directions,” (2011) 26 Journal of Information Technology 221-258.
(24)See Lacity, M., and Willcocks, P. Advanced Outsourcing Practice: Rethinking ITO, BPO, and Cloud Services, (Palgrave, London 2012).