Ideas and Growth Opportunities in LPO Segment

U.S alone accounts for a large share of the $250 billion global legal market. Out of this huge chunk, it is generally estimated that 3 to 4 billion can easily be outsourced. Except for the courtroom representation and agreement, all other legal activities can be outsourced. Hence it need not be mentioned that the potential of this industry is immense. The percentage of the distribution of lawyers in U.S is also equally interesting. According to U.S Info, 73% of the lawyers in U.S are employed in private practice and 10% are working in the legal department of the corporate world and these two are the major segments addressable for outsourcing.

For example, in India few of the LPO companies have started doing what the BPO or KPO were doing, prioritize their area of operation and target their prospective clients. The primary reason for this being the limitation of the availability of skilled manpower. The scenario is similar to the one faced by the BPO industry after its rapid growth: lack of skill workforce. A report by NASSCOM said, the number of law graduates from different Law Schools in India is around 15000 every year. Out of this number, hardly 1000 students enter LPO every year. This may be because the industry is still in its nascent stage. Language also acts as a constraint in some cases as the attorneys working for LPO should have a sound knowledge on English.

Although this number is sure to grow in future, it might not be enough. It is thus important for the LPO industry to decide from the very beginning on which area of operation it wants to focus. An effort to tap all possible fields will make its resource thin thereby increasing its vulnerability to the competitors. In a survey in U.S, 24% of CEOs showed their concern over the ever mounting litigation cost. So companies will be keen in identifying areas where they can outsource their legal work and bring down their litigation cost. Considered this perspective, the corporate sector is the prime target for LPO. Corporate industry is one of the many industries that are conducive to the concept of outsourcing.

One thing that the LPO needs to adapt directly from KPO and BPO is a regular maintenance of on-site resources. Since the industry is at its nascent stage, it is important that it gets regular nurture and care from offshore as well as on-site entities. Any LPO player genuinely interested in expanding its business should have 20% of its resource on-site. This can be a combination of local law school hiring or a combination of H1-B1-L1 visas. Whatever may the approach be, a successful LPO needs to maintain an on-site resource that will directly interact with the clients and a strong team offshore that will work for the client. Only a successful combination of these two can ensure the prosperity of a Legal Process Outsourcing unit.

Evolving Legal Service Ecosystem: The Growth of LPO

After decades of stasis, the legal industry in the United States and other traditional common law system countries is in the midst of an evolution. The entire ecosystem of legal service- its market, agencies and partners are all going through a significant change. As buyers of legal service, the relation of the client with his attorney is under pressure because of the rising legal cost that the client has to bear. In a circumstance like this, the client demands greater value for every dollar that he spent, thus providing a perfect ecosystem for the growth of legal process outsourcing within the country and to other service provider countries like India, China and Philippines.

It is only a handful of traditional law firms that have been able to adapt and adjust with this situation resulting in increased share of profit per equity partner. For most others, it is a new era of competition, both with other law firms and the new players that have entered the market in response to the corporate buyers. In an environment, like this, the Senior Law Firm Partners and General Counsels (GC) in Corporate America face a big challenge. Their budgets are showing little or no growth as corporations and Law Firms take the cost line management very strictly. In the meantime, the rates of the Law Firms are rising on an annual average rate of 5 to 6 per cent. (LawMarketing, Nov 18 2007). A recent report by RSG Consulting showed that the key areas of concern among the clients are: rising fees of the attorneys and the heavy price of buying legal advice.

Keeping the client's demand in view, the Law Partners and General Counsels no longer turn to in-house hires or traditional firms for works like document review or contract administration. When the clients want cost efficiency without compromising for the quality of their work and prefer to outsource their work to offshore entities. India is particularly a favorite spot serving their purpose, as the lawyers are trained in common law system, speak English, deliver quality work product and are cost effective as compared to their U.S counterparts. This shift has also resulted in a move away from the traditional system of pricing on a time-spent basis to product pricing on a per-unit-basis. It also results in a change from dollar- per-hour to dollars-per-contract.

There is a paradigm shift in the traditional manner of segmenting legal work by these Law Partners and Corporate. The ongoing process of distributing high end and low end work to a cost effective and efficient provider available in low cost countries like India has certainly strengthened the ecosystem. A client may pay a full rate to the firm but the question is, is he happy paying $300 per hour to a first-year associate, when he can get that same quality of work in paying just a fraction of it. For example, in a M&A case, this unbundling of the law pyramid will make GCs move to new-model firms to manage the process and brief the key documents (in place of senior associates) and offshore entities to do the diligence review (in place of junior associates and paralegals). At each level, the cost efficiency will be significant.

These changes brought in by the Law Firms and Corporate for running their legal process as cost effectively as the rest of the processes in their business has in fact strengthened the entire ecosystem, including changes in overall industry outlook towards strategizing budgeting and execution of legal work. As the Corporate become more sophisticated, the law firms are forced to change their approach and the new entrants, both for the high-end (new model firms) and low end (outsourcing), stand strong in this changed ecosystem for legal service, thus giving more impetus to the growth of Legal Process Outsourcing.

Cyber Security Zone and LPO

The outsourcing regime rests on data protection and client confidentiality and to that extent, it is sensitive to any breach that might prove fatal to the entire business. Some of the recent happenings of data theft have pointed to the vulnerability of these areas. Data Protection and Client Confidentiality are crucial to any outsourcing business and more so in case of legal outsourcing. The success of any client-attorney relationship depend on the attorney's ability to assure the confidentiality of the client's data with high stakes and any breach thereof can be a matter of ethical and professional liabilitiess that an Attorney carries along with the brief. These are serious concern for LPO as well.

The first step towards achieving cyber security is to sensitize employees to the layers of responsibility. "Developing a culture of privacy and data protection," says Salman Waris, operations manager, Legal Circle, "is more important. People should be educated about what they are handling...and what the repercussions could be." In recent past, a case of theft and breach of sensitive data was reported by Titus & Co., a law firm of Delhi. The Delhi High Court even passed an injunction in this case against four lawyers that includes a Nigerian national from using the data and confidential information stolen from their previous employer, Titus & Co. This was probably the first case of cyber crime and data theft and it showed the liability of legal profession in India. Since then there has been concern within the industry propelling higher security checks and systems. In another such incident of cyber crime a software company in Gurgaon filed a case against one of its employees, for transferring sensitive data of the company to his personal mail ID and later using it to the benefit of a rival company.

Cases like these, directly bring the security of the companies under scanner. Physical security is not enough for the outsourcing companies. In addition to physical security, they also need other special infrastructure towards maintaining cyber security, like: web security, LAN/WAN security, security against malicious programs, like virus, secure login and logout of the resource along with tracking. Listed below are the best security practices for LPO and also the best security practice for any outsourcing business:

LPO Best Practice:

• Make quality customer service the highest priority.
• Do not sell outsourcing services as loss-leaders with the expectation of making it up later.
• Responsibility for all our actions when performing the services.
• Resist the urge to over discount.
• Listen to the customers for ways by which the service can be improved..
• Manage the outsourcing deals to optimize customer service, not short-term revenue.
• Take real measures to reduce turnover and keep the workforce happy and interested in the work.
  

Security Best Practices:

• Secure and dedicated infrastructure that meets ISO 27001 standards.
• 24/7 on-campus security staff
• Bio-Metric access controller to enter into the office premises
• Firewalls
• Point-to-point network connectivity using routers that are configured with DES encryption at both ends
• Anti-virus software
• User–ids and passwords to log into the Client systems.
• Disabled floppy, CD drives and USB mass storage devices.
• Security policies are defined (desktop, password, e-mail, and domain).
• Regular reviews of firewall logs
• Periodic network and host vulnerability tests
• Regular internal audits
• Client audit teams are allowed to conduct security audits on the dedicated network provided for their services.
• Information security management and control audits as per ISO 27001:2005 standards.

Before starting its operations, an outsourcing company have to have proper infrastructure for complete protection against data theft. In 2005, the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) formulated certain standard of practice for Information Security Management. ISO/IEC 27001:2005, commonly known as ISO 27001, lists the requirements for the data protection of an outsourcing company.

Georgia Tech Information Security Center (GTISC), a leader in nation's information security research and education released their report on areas of cyber threat that shows data as the primary motive for cyber crime. It also identifies five areas that are cyber-sensitive. They are: Malicious Software, especially those under the guise of networking sites, cyber warfare - targeting U.S economy and infrastructure, software robots- specifically the attack that spread through wireless and peer-to-peer economy, mobile convergence- threat of voice fraud, threats to VOIP and the evolving economy for cyber crime.

Data Protection Law has always been a matter of controversy. General awareness, integrity and a sound security are the only solutions for the biggest threat to the industry, which employs almost half of the total working population of the county.