Charles Dickens wrote in A Tale of Two Cities, ‘It was the best of times, it was the worst of times’, and those words seem appropriate today. While 2009 was a year of turmoil and uncertainty, hope glimmers for improvements in 2010.
The outsourcing industry, like many others, is experiencing good and bad conditions. Continued pressure to gain market share and boost profitability will fuel the growth of all outsourcing activities in 2010 and beyond. However, the dimensions of outsourcing – selection of process, and destinations of choice – will alter as the economy and business conditions change.
In our 2010 projection for the industry, the International Association of Outsourcing Professionals (IAOP) predicts that there will be an acceleration of legal process outsourcing (LPO) activities across all industries in 2010. Some of these transactions were postponed while CEOs and FDs tackled basic business model issues and tried to gauge the impact of the recession on their companies. We believe there will be continued pressure from the market to show consistent profitable growth before confidence in the economy is restored.
This will result in LPO agreements requiring higher value propositions, more certainty of results and a shorter window of commitment. Long-term outsourcing commitments of five years or more will become rarer, while shorter-term agreements, with the flexibility to change terms, will become the norm for outsourcing contracts. Companies will also demand a value proposition achieved over a shorter period of time, consisting of direct savings, rather than softer benefits accrued over a longer timeframe.
As we see it, this will put business pressure on outsourcing service providers and lead to further consolidation of industry players. This will create an outsourcing marketplace where services are more in-depth and provide a higher value contribution to customers.
The legal profession, awash in documents, will obtain tremendous benefits from such an outsourced offering, comprising not only traditional man hours but also technological solutions and advancements in document review and management services. This could alter the way legal professionals utilise systems and traditional manual back-office operations. As we look to LPO in this context, such a solution would make it tough for a provider dependent only on cheap labour. Use of ‘combined technology-based solutions’ to streamline back office operations for law firms reduces not only the cost, but more importantly, improves the turn-around time for legal documents.
Even though there is political pressure in some areas to slow down offshore outsourcing, we have not seen a major shift in companies’ strategies. As offshore providers increase their depth of business knowledge and domain expertise, they continue to provide a higher value proposition beyond just labour arbitrage. We are also seeing that destinations outside of the ‘Big Two’ – India and China – are becoming more competitive, offering new options to clients.
Interestingly, with the high unemployment in the US and some European countries, there will be opportunities for local governments to establish commercial zones where labour subsidies will reduce the cost of operation. This will create a new option for many companies – law firms may choose to outsource locally. ‘Rural outsourcing’ is a term that is being used to describe this phenomenon. We expect that rural outsourcing will gain traction in the down economy and will present a viable alternative to offshoring.
Socially responsible outsourcing will also play a greater role in 2010 and beyond – not just by ‘greening’ aspects of outsourcing but by responding to social needs of the countries where the providers are based. This will boost investment in social projects, supporting higher levels of training and skills development in the relevant local communities.
Overall, we expect that outsourcing will continue to be a tool of change and, as business conditions remain uncertain, companies will look for both cost savings and flexibility. LPO remains an attractive option for companies and law firms to raise their processing ability and reduce cost of operation.
There is one caveat, however: predicting the future may be a fool’s errand. As Voltaire noted, ‘Doubt is not a pleasant condition, but certainty is absurd’.
Jagdish Dalal is managing director of thought leadership at the International Association of Outsourcing Professionals (IAOP) and principal of JDalal Associates LLC. The IAOP named CPA Global among the world's leading outsourcing companies in its 2010 Global Outsourcing 100 ranking.
