Outsourcing Trends and Issues
What are current outsourcing trends and issues. That’s the topic that John K. Halvey of the Strategic Sourcing and Technology Group at Milbank Tweed addresses in this Outsourcing Conference 9am session.
[This blog post comes to you live from the ALM-sponsored Legal Industry Outsourcing Forum (May 23, 2007, NYC). Notes and comments are real time with minimal editing and posted as a session ends. I am taking notes in Microsoft OneNote, so use the outlining format.]
1. What is the net effect of outsourcing generally?
a. McKinsey Global Institute reports a net positive effect. But Tom Daschle says exporting jobs hurts millions of Americans. Halvey does not see political resistance to offshoring legal work. But he anticipates more regulation of offshoring in the next administration.
2. Current snapshot
a. The IT outsourcing market continues to grow but is maturing
b. We are now in the 2nd phase of the business process outsourcing (BPO) is now well underway but also maturing.
c. The Global 1000 are moving to BPO – little cannot be outsourced
d. Legal Process Outsourcing (LPO) is in a nascent stage
e. The distinctions among different types of outsourcing, however, are blurring.
3. The LPO market
a. LPO market in India is worth $80mil according to Forrester
b. It could grow to $4bil by 2015 (Forrester)
c. Global Legal Professional (GLP) certification test is a likely future development
d. Bars have issued ethics opinions
e. Halvey, who practices outsourcing law, has heard for decades that this or that will never be outsourced and eventually it will. Two years, lawyers were very skeptical. He thinks it is clear that LPO will grow, even if Forrester is too optimistic
4. The Outsourced Economy (A Milbank Service Mark, SM)
a. The core of each business shrinks. That is, the set of activities that business is open to outsource, continues to grow.
b. Sees a development that companies will, in future, manage brands, not assets. Viewing world as brand management – goods or services – will allow outsourcing more and more functions. Companies will manage component manufacturers, where a component can be a service. The brand managers – the big companies – will be aggregators. For example, one of his large clients recently consolidated / aggregated all of its project management functions, then outsourced it. If companies can do, this, where is the limit?
5. Maturity of IT Outsourcing > Platform for BPO
a. With the outsourcing of so much technology, the global technology platform is fairly mature
b. The robust global infrastructure enables the global BPO market
6. Question: why haven’t law firms outsourced more of their IT
a. Halvey thinks it is because that have not yet achieved sufficient scale
b. For firms to remain cost competitive, they will have to scale further to take advantage of outsourcing cost reduction opportunities. (Note from Ron: I have written previously that the merger trend among the AmLaw 100 will encourage outsourcing.)
c. Halvey’s outsourcing deals often involve multiple data centers and 10s of thousands of PCs. Contrast this scale of typical law firm, even large ones
7. BPO Offerings
b. Finance and Acccounting (F&A)
d. Marketing and PR
e. Customer care
f. Real estate management
g. Project management
h. R&D (Research and Development)
8. Key questions for any contract, including legal outsourcing
a. What is it?
b. Who does it?
c. Who owns it?
d. Who pays for it?
e. What happens if it is not done?
f. These are questions in every contract, every outsourcing deal; answers will be harder in LPO deals than in other deals
i. The complexity will drive growth in outside advisors (consultants), due diligence, negotiating teams with more skills, more lawyers working on LPO deals.
ii. Halvey has seen “cobblers children have no shoes,” meaning law firms that have signed standard forms for outsourcing. He thinks this will change rapidly
9. Getting LPO Deals done (time kills deals)
a. Getting law firms and law departments to close a deal takes time. Time kills deals
b. Consultants and vendors will have to shepherd the process
c. All involved will have to understand the law firm culture – this may well be harder in LPO then other BPO markets
d. Seems necessary to have managers on the ground in India
e. The tendency of law firms and law departments is to bring together a large group of stake holders (“large tent”). To get a deal done, you need no more than 5 or 6 people in the room (“small tent”).
f. Deals need a win-win set up. But early deals, to work, will probably require letting someone else win first.
g. We will see “ready, fire, aim” initially. Halvey not clear if firms will share information with each other about their LPO deals. Halvey does not think firms like his will outsource legal work and, if they do, they will not want to share.
10. The normal outsourcing deal is fairly collaborative.
a. Lawyers are MUCH less collaborative than IT or business people
b. Lawyers will have to overcome instinct to take deal and study it to death
c. Suppliers have to work hard to figure out how to engage firms collaboratively
d. When conceding: the when is more important than the what
e. Venue of actual deal making matters. Vendors should get their lawyer customers out of their offices. Lawyers should visit vendors anyway as due diligence.
f. Avoid huge conference rooms and too much food – don’t encourage endless discussions.
g. Law firms, unlike corporations, often lack someone to force a deal to close
h. Lawyers focus more on details than big picture – suppliers need to get them to focus on macro, big picture
i. Lawyers often make idle threats. Halvey seen much posturing around issues. Both sides need to learn use leverage appropriately
j. Some deals should NOT happen. Market is still at risk if a couple of transactions go badly.
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