Strategy Paper LPO

7/31/2019 Strategy Paper LPO

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The idea whose time has come

Outsourcing in the Law Firm Environment

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must be done with the prior written consent of the author.

2005, Manav Sethi ([email protected]) - 1 -


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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.

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

http://www.intellevate.com/india/americanlawyer.pdfhttp://www.intellevate.com/india/americanlawyer.pdf


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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

2005 M S hi ( hi @ il ) 18

Strategy Paper LPO

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