By Rob Fink, co-founder, Fenchurch Law

Original Opinion can be found at here...

The legal profession is often accused of remaining in the Dark Ages when it comes to how we present our business to the outside world.

The fact is there are other non-legal organisations more adept at engaging with the consumer, and these might well be ready to pounce on the market opportunity afforded by the Legal Services Act (LSE) to offer legal services to the man on the street.

This was a key challenge even for a start-up. As a professional negligence firm reliant on consumer engagement, we needed to configure the business in such a way to ensure beating competition from all corners, including from outside the legal profession. It is accepted that the sector is in a period of change. What better time to start with a clean slate and shape a business and service with the consumer very much at the centre? Wary of the changes afoot, we were anxious to look beyond the traditional law firm model.

Our thoughts turned to outsourcing as an option to streamline costs and maximise business benefits. But we soon discovered the horror stories: management nightmares, loss of quality control and irreparable reputation damage, plus the promised cost reductions failing to materialise.

But there were positive stories too. We looked at how legal process outsourcing (LPO) is evolving. For example, Clifford Chance’s decision to bring some members of its India-based support centre into the main firm (The Lawyer, 23 November 2009). Nevertheless, this demonstrates just how important it is for a firm to have its core business operating as part of the firm. The Lawyer also highlighted recently the Cripps Harries Hall/Lovells Mexican wave arrangement as a successful model (The Lawyer, 8 March). This is achieved by the City firm outsourcing appropriate work to Cripps at its lower-cost location, with the reassurance that it is conducted under the umbrella of this regional leader’s established brand.

We also noticed a trend towards other types of outsourcing: firms such as Beachcroft, Osborne Clarke and TLT Solicitors have signed up to an outsourced library service, for example. There is a big distinction between the outsourcing of functions that are core to the business (ie legal services) and ones that are back office. There would appear to be more risk attached to LPO: as a market leader in legal services, why outsource your legal function to an organisation that is less expert than you? Conversely, for the non-core functions, the opportunity is to outsource to an organisation that is more expert.

The management of professional negligence cases and insurance coverage disputes is our expertise. A function such as the switchboard is not core to our offering, but remains fundamental as it is the first point of contact between firm and potential client and is key to our engagement with consumers. This service should be proportionate in terms of cost, but also excellent quality. Handing this over to an outside provider seems to be the way to achieve this balance. CallCare is the provider we have engaged, in the belief that a company set up to focus exclusively on providing call handling services can be of benefit to us.

This period of change in the legal market is an opportunity for firms to review how their businesses are structured, but this should be approached mindfully. For a firm such as ours, where our USP is the experience the founders have of handling professional negligence claims, we do not want this ’muscle’ to be compromised by handing over legal work to an external resource. Yet we are happy to admit that we want to increase our profit margins and improve client care by outsourcing back office functions.

By Sara Parker Enlow, principal at Vantage Partners

Between two organizational cultures with very different priorities, strategies, and goals, a buyer and provider face numerous challenges. These are:

• Balancing a need for cost savings and a desire to improve service;
• Coordinating resources across business units and functions;
• Resolving complex issues efficiently;
• Ensuring the confidentiality of sensitive information;
• Transferring knowledge to the provider while also ensuring it is preserved internally; and
• Aligning key stakeholders and actively managing change.

These challenges are relevant to relationships between law firms and LPO providers, where concerns about confidentiality and coordination between buyer and provider are especially acute, Research shows that how these challenges are managed directly impacts the value that can be achieved in an outsourcing arrangement. For example, a recent Vantage Partners survey¹ revealed that 77 per cent of outsourcing buyers and 85 per cent of outsourcing providers thought, at least, 20 per cent of the annual contract value depended on the quality of their working relationship.

Relationship management and governance contributes to the worth of the engagement by creating value when the relationship is managed well and by destroying value when the relationship is poorly managed. For example, in a well-managed relationship, individuals who would otherwise be tasked to overseeing the work of the provider are able to focus, instead, on other value-added tasks. Additionally, both sides tend to share more information, enabling them to work more efficiently, and to propose and implement innovative solutions. Such high-quality communications is critical in LPO arrangements, such as those involving deadline-driven document reviews.

On the flip side, poorly-managed buyer and provider relationships are characterised by conflict and unnecessary escalation. A lack of trust leads to limited information sharing, which results in ineffective decision making, an inability to delegate and, ultimately, wasted resources. In the LPO content, where delegation of tasks is fundamental, this can be devastating.

Effective governance and relationship management isn’t about designing complex organisation charts, or holding hands and being friends. It is about designing mechanisms that guide the arrangement successfully. These include:

• Processes – processes must be defined for activities such as decision making, managing the scope and demand for service, monitoring performance, and driving innovation;
• Skill – leaders on the both sides need to be skilled managers who are adept at aligning stakeholders, solving problems and negotiating collaboratively;
• Tools – buyers and providers need job aids, templates, workflows and guidelines that will help the efficiency and effectiveness of their work, while enabling the transfer and preservation of institutional knowledge;
• Management systems – roles and decision-making rights and responsibilities need to be well articulated, along with a set of metrics and incentives; and
• Mindset – a collaborative mindset focused on joint value creation is required.

Rather than developing a one-size-fits-all approach to outsourcing governance, each system must be tailored to suit the complexities of the arrangement. For example, an outsourcing arrangement aimed at transforming the way middle-office services like new business or litigation support are conducted, is likely to be met with significant internal resistance. Getting people to change the way they think about these services takes active management. Therefore, the governance of such an arrangement should include bringing individuals on board early and keeping them informed throughout the engagement to prevent duplication of capabilities. Conversely, building alignment and driving behavioural change are less likely to be major challenges in traditional, back-office outsourcing deals focused on generating cost savings in the areas of IT or payroll. Governance of these arrangements calls for a streamlined approach for maximum efficiency

Many law firms are new to the idea of trusting a provider to perform these activities and then managing that relationship. Regardless of the nature of the arrangement – whether back middle, or front office; highly complex or relatively simple; very transformative or more about efficiency – it is critical that buyer and provider sit down together early and discuss their goals and the likely challenges they will need to manage. After all, more than 20 per cent of their annual contract value is at stake.

Sara Parker Enlow is principal at Vantage Partners. She can be contacted at: senlow@vantagepartners.com

From ‘Implementing a Successful Legal Outsourcing Engagement’ report published by the Ark Group, London September 2009 and written by Bell, M. To purchase the report, visit: http://www.mpmagazine.com/bookshop.asp

Out-sourcing as a concept is not at all new. It basically means getting parts of a job or the complete job done from somebody other than self. Division of labor, hiring employees and delegation are the key components of out-sourcing & can be considered as efforts to improve productivity and achieve more. As early as the eighteenth century, Adam Smith in his seminal book – “The Wealth of Nations” talked about division of labor and gave an example of how it can increase productivity multiple times. He said “One worker could probably make only twenty pins per day. However, if ten people divided up the eighteen steps required to make a pin, they could make a combined amount of 48,000 pins in one day”.

Earlier, the division of labor and delegation was constrained to people who were physically present around the job that needed to be done. With communication technology blowing away boundaries, it is possible to complete one’s part of the job (or in some cases the entire job) and send it across to the consumer without realizing that the consumer and producer are in different continents or on diametrically opposite sides of the globe.

Off-shoring (Out Sourcing to foreign countries) can be considered a natural extension of what division of labor & delegation achieved. Like division of labor & delegation, Off-shoring not only brings in specialized skills & ability to achieve more output, it also allows the organization to get things done from locations that are most cost effective. Off-shoring in its current form has been successfully adopted by a lot of large and small organizations across the globe and have gained tremendous competitive advantages. Household names like Nike, Apple have off-shored its production facilities to cheaper and skillful countries in the south-east Asia to gain competitive advantages. This allows them to bring world class, high value products to the markets at affordable prices.

Some of the key advantages of off-shoring are:

Cost –  Organizations can achieve significant reduction in the cost of an assignment by adopting the off-shore business model. Off-shoring work to low cost & high skilled countries like India can dramatically reduce costs of a long term, complex project. A study by leading research group – Everest, found that direct costs savings of upto 75% can be achieved by corporations in the US, and in UK when they off shore work to a country like India – as seen in the chart below.

Address Demographic Challenges & Gain Competitive Advantages

In the US, as the ‘baby boomer’ generation is set to retire, the younger generation entering the work force is in far lower number than the generation retiring. This talent deficit will lead to multiple jobs chasing fewer locals. In such a scenario, off shoring routine tasks will help employers retain local talent by giving them challenging assignments instead of the routine tasks. Organizations can balance the ‘urgent v/s important’ challenge by retaining the important tasks locally, while off shoring the urgent but routine work.

Off shoring allows you to easily achieve 24 X 7 operations and gain critical “time to market” advantage.

Expand the portfolio of offerings

Off shoring allows organizations to leverage strategic opportunities. For example, a firm needs access to niche skills that not available internally. Reaching out to an off shore partner with the required skills, and bringing those skills into the organization as and when required allows the firm to increase its portfolio of offerings to its customers. Unlike having a highly skilled employee, who the firm would have to pay every month, this model allows the flexibility to pay only when the specialist skills are used. It allows the company to reduce its fixed costs and convert them to variable costs (pay-per-use model).

In other words, off shoring allows company to do more with less.

Gain Insights into high growth markets

Off shoring allows organizations to morph into global players, and use the knowledge gained from working with cross border partners in expanding their markets. For example, the BRIC countries are considered to be very attractive markets to sell products & services in the current millennium. Working with an Indian off shore service provider would allow firms in the developed countries to understand the country, culture and requirements of Indian markets. This information would prove very valuable if the organization’s growth strategy involves catering to the Indian market. Examples that readily come to mind are large US & European corporations like Alcatel, Lucent, AT&T, General Motors, Nokia, Apple, Micro-soft etc. All these companies were early adopters of technology off-shoring to India, and the knowledge they gained in this process about Indian market proved invaluable in developing and implementing their growth strategies for the Indian markets.

As the off-shoring relationship matures to more strategic in nature, the off-shore partner now morphs into almost an extended team & helps in the growth of the organization. The white paper on ‘Evolution of Outsourcing Relationship’ talks about this aspect in more details.

We usually come across claims by organizations that they are certified ISO 27001:2005 organization. But what does it really mean, and how does it benefit potential business partners? We will try to understand this in more details here, and explain what ISO 27001:2005 compliance means to our business partners.

Let us first understand in layman terms what ISO 27001:2005 means.

What is ISO 27001:2005?

ISO 27001:2005 is "Information Security Management System" standard published in October 2005 by International Organization for Standardization (ISO). It specifies information management system that brings information security under explicit management control. Organizations that claim to have adopted ISO 27001 are audited and certified compliant with the standard by accredited registrars’.

Why do you need ISO 27001:2005 certification?

A lot of organizations have information security controls, which typically are implemented to address specific situations in an ad-hoc fashion. For example, security controls would be in place to address certain aspects of technology, network or digital data security. However, the organization might not have adequate security mechanisms and controls in place for traditional information assets like paper, or for physical security or business continuity planning etc.

ISO 27001 mandates creation of an over arching "Information Security Management System (ISMS)" that creates a coherent and secure information ecosystem in the organization. Such integrated ISMS ensures that all data residing in the organization, be its own IP or its client data is available when required, to only who is privileged to access it i.e. appropriate levels of confidentiality is maintained , and in the form required without any risk of data-corruption or data loss.

What does it mean to be ISO 27001:2005 certified?

Given the above back ground, let us look at what it means when an organization claims to be an ISO 27001:2005 certified organization. It means that:

1) The organization has systematically examined its information security risks taking into account the possible threats, vulnerabilities and impact.

2) The organization has a coherent and comprehensive suite of information security controls in place to ensure confidentiality, availability and integrity of its and its client data.

3) Have an overarching management process to ensure that the information security controls are adequate to meet the information security needs & the process is reviewed on an ongoing basis.

4) The organizations information security practices are audited by accredited registrars for compliance to the ISO 27001:2005 standards.

How is this implemented at Mangalam?

Below are some of the key points of how data and network security is implemented at Mangalam:

• FTP servers used for data transfers are audited & certified for its security.
• In-house Servers are protected using access control devices and monitored using CCTV.
• Operators are not permitted to carry any removable media on to the production area. None of the workstation in production area has access to any printers. None of the workstations on the production floor have slots for removable media. We have restricted all the rights on workstations to copy or delete files. None of the workstations have direct access to the Internet. We do not permit hand baggage in the production area. We also do not allow employees to carry printed material, computer printouts or data storage media of any kind on the premises
• Every operator and Server activity is logged and monitored.
• Network is immune to any unauthorized access/hacking through active Firewall
• The main server is equipped with dual high-speed CPUs and RAID 5 Level redundancy  ensuring failsafe.
• All applications require authenticated access to the system using unique login identifier and password. We have strong password policy and all passwords contain at least 8 characters and include a combination of alphabetic and numeric characters. All the users are required to change their passwords within a specified period. By default, the password expires after 42 days and compels the users to change their password
• The system administrators designate the physical separation of data related to different applications/clients and control the access rights. This arrangement meets with general guidelines of providing access to data, strictly on a "need to know" basis. This additional layer of confidentiality helps prevent unauthorized access to client data.
• The auditing system keeps a detailed log of the user activity along with a list of all successful and failed system login attempts. Only the system administrator is authorized to run these reports to view the logged activity and only he can purge audit entries, based on a selected criterion.
• We require all employees to sign a confidentiality agreement prior to joining the company.
• We have efficient security personnel, guarding our facilities for all working shifts, seven days a week. All employees are thoroughly briefed on privacy & data security issues and they realize that any lapse on their part would normally result in termination of their employment.

By Paul Gilbert, chief executive, LBC Wise Counsel

THE ROLE of the in-house legal team, in good times or bad and on many levels, does not change significantly. In essence, there is a body of work to be done and the fortunes of the company and legal risk profile of its business are not necessarily linked to the volume of activity. Certainly a less busy business does not always equate to less work; indeed, challenging economic times may even create more work for in-house lawyers in terms of litigation, restructuring, transactional and other legal work. However, challenging times may affect the role of the in-house legal team in the following significant ways.

Heightened cost-consciousness

All employees, not just those on the legal team, are acutely aware that cost-cutting measures must be real and significant. This awareness puts lawyers under particular scrutiny to demonstrate value.

Increased scrutiny of outside counsel

Outside counsel fees must be managed as tightly as possible. In addition to negotiating fee discounts, legal teams must assess the worth of the activity to their business and ensure that only the most essential issues are put to external advisers. In challenging times, general counsels must closely debate the cost of employing a lawyer versus employing outside counsel to accomplish a task.

Heightened risk management efforts

In-house legal teams must take a proactive stance in managing risk by complying with changes in regulatory oversight and new legislation; identifying and managing threats to the organization (such as catastrophic litigation); and addressing self-insured retention levels and other insurance and legal issues. For many businesses, the appetite for entrepreneurial risk-taking is much diminished in tough economic times and the desire for compliance oversight is clear.

Expanded roles and workloads

To the extent that economic upheaval prompts layoffs and increases workloads, the work of the legal team will expand to include additional responsibilities. In such times, in-house legal departments are pressured to do more with less – fewer staff and resources.

In-house legal teams should focus their efforts on three key areas. First, in-house lawyers should concentrate on the work that is most vital, important, relevant and valuable. Prioritisation is crucial and focusing on the work that matters most is a strategic imperative.

Second, legal teams should examine how work can be accomplished in different ways such as through self-help tools, intranet FAQs or training. Transferring know-how is now a core competency for any in-house team. 

Third, more teams are developing training materials and guidance on ethics and compliance. Business codes of conduct have existed for years, but these documents are being renewed in the light of a new urgency to ensure that business are seen to do right by both reputational and regulatory risk.

Pual Gilbert is chief executive at LBC Wise counsel. He can be contacted at: pg@lbcwisecounsel.com 

From – ‘Implementing a Successful Legal Outsourcing Engagement’ report published by the Ark Group, London September 2009 and written by Bell, M. To purchase the report, visit: http://www.mpmagazine.com/bookshop.asp

The ‘Quality Assurance’ team usually looks for defects in the product/service before it is delivered to the client, but there is hardly any mechanism to check the effectiveness of QA in a proactive manner. Adding another level of QA i.e. QA of QA un-necessarily adds to the cost without matching benefits. This white-paper portrays a mechanism to measure the effectiveness of the ‘Quality Assurance’ team before the deliverable lands on client’s desk without the extra cost of second level of QA tests.

Mangalam measures the productivity & performance of each of its project through relevant quantitative metrics. For example, we measure the productivity of the E-Discovery team by the amount of data that gets processed per person per day, and this is tracked on a continuous basis. This helps us benchmark our performance, and look for avenues to improve it further. We have similar productivity metrics for our document coding team of the ‘Litigation Support Group’. This team is measured by the number of documents coded per person per hour.

As part of the operational process, after the coding team completes its task, the Quality Assurance (QA) team reviews the work product, identifies defects and gets it rectified before final delivery to the client.

The number of defects found by the QA team tells us about the performance of the coding team. We capture the data on the type of defects found by the QA team, the number of defects per document and use this data in training and re-training of the coding team. We use the defect data to measure the quality of output by the coding team, and run six sigma/kaizen initiatives to reduce the number of defects of each type on a continuous basis.

QA team measures the quality of work delivered by the coding team. However, how do we measure the effectiveness of the QA team? How do we know that the QA team has found out all the possible defects that were present in the output delivered for quality check? One way to do it would be the feedback from customers. If the customer reports defects or errors in the delivered output, that would go as a defect against the QA team. But this approach has two problems:

1) Sometimes, the client would not refer the wrongly coded document for a long time, and in such case the defect is buried into the deliverable without we even knowing about it. 2) A bigger problem with this approach is that the information about the defective delivery comes after the output is delivered to the client.

We were looking at pro-active mechanism to detect defects after QA review, but before the delivery to the client.

Using the historical defect data

To address the above challenges, we came up with a validation mechanism for the QA team. We used a statistical approach so that the QA team can validate whether they have found adequate number of defects in the work under review. If historical data tells that the coding team makes certain number of defects in a particular field being coded, the QA team should have found proportionate number of defects of that particular type in the work product under review.

Let us look at an example to understand it better. For example, historical data tells us that the coding team makes 3 errors in ‘document date’ for every 100 documents coded. So, if the current work product under review is of 1000 documents, then the QA team should expect around 30 defects of the ‘document date’ type. Similarly – if the historical data tells us that there are 2 ‘document type’ errors for every 100 documents coded, then in the assignment of 1000 pages under review, the QA team should expect around 20 ‘document type’ errors.

Based on this historical data, the QA team creates an estimate of the number of errors in each type of defect for a particular project under QA. After creating this estimate of expected errors of each type, the QA team would review the deliverable. If the number of defects found by the QA team in this deliverable varies by +/- 5% - the QA review is considered fine. However, if the variation is larger than +/- 5%, the QA team carries out a more rigorous review process to ensure that there are no lurking defects left in the work product & the review is adequate. We have found this method to be very effective way of improving the quality of reviews by the QA team. There are additional variations to this predictive mechanism to make it more effective without additional efforts. We found that in more than 70% of the re-reviews by QA team based on a higher variance with the estimate, the QA team did find out more defects in the work product. This would not have been possible in the absence of the trigger mechanism for a re-review by QA team.

If you think, your QA team can benefit from similar predictive mechanisms, our team of experts will be happy to help you implement such a system in your project. Send us a note and somebody from our team will contact you.

By Stephanie Overby

Breaking up is hard to do. And when it comes to IT outsourcing, it can be expensive and risky, too. But issues with an outsourcer--such as deteriorating service levels, lack of investment, excessive turnover, or even fraud--are potentially even more costly than the actual break-up.

Outsourcing relationships don't go south overnight. Customers are more likely to experience a series of subtle changes over time. And sometimes, the partnership itself may be relatively healthy but other changes--a merger or acquisition, for example--may make outsourcing less attractive than it once was. Here are nine signs it might be time to call it quits with your IT service provider--or at least get some counseling.



1. Supersized Growth



Usually, organizations outsource with one of the following objectives in mind:

1)     Efficiency

2)     Optimization

3)     Transformation

Organizations continuously look for ways of doing things in a better way for lower costs. By partnering with a specialized service provider, it can leverage on the capabilities and expertise to improve its processes. Because the service provider delivers similar services to more than one organization, his ability to analyze and bring in process efficiency is much higher. Moreover, if the service provider is based in a low cost country like India, the client organization gets these process improvements at significantly reduced costs. Examples of such initiatives are largely technology driven and use of tools to improve turn-around-times or dramatically bring down costs of a executing a process.

While improvement in efficiency is linked to part of a process or a process, the same thought when extended to the entire function or the organization would result in many fold benefits for the organization. Such initiatives are more complex, time consuming to implement and require a huge change in the way an organization works. An ERP solution implementation is a good example of process optimization initiative in the organization

As the name suggests - transformation focused initiatives is the highest and deepest manner of benefiting from the partner expertise. Initiatives that are strategic in nature & change the way business is done fall in this category. Such initiatives are carried out in partnership with industry experts as partners, and with a huge risk-reward potential.

The outsourcing objective evolves with time and maturity of the relationship with the partner, as can be seen in the graphic representation below. As the client organization and the outsourcing partner understand each other better, their relationship moves from the primitive efficiency focussed stage to a more mature Optimization and sometimes even a Transformation focussed state of relationship.

By Kent Zimmermann, partner at the Zeughauser Group

The 2009 Am Law 100 rankings by The American Lawyer showed that the average profits per equity partner of the 100 top-grossing law firms in the US declined by 4.3 per cent in 2008. It is clear that 2008 brought to an end, at least temporarily, what The American Lawyer called the “Law Firm Golden Age” – the five-year period that saw historic percentage increases in both revenue per lawyer (RPL) and profits per equity partner (PPEP).

The year 2008 marks a reversal in profitability growth trends

The 2008 Am Law 100 financial results confirmed that many of the firms with a significant New York-based capital markets practice (which had enjoyed the strongest growth in RPL and PPEP during the five years ending in 2007) had a weak year, while firms with a litigation focus, including many regional firms that offer service at lower fees and are less dependent on the flow capital markets transactions, fared better.

            Average PPEP for the Am Law 100 has fallen, partly because the credit freeze that followed Lehman Brothers’ 15 September 2008 collapse devastated 2008 fourth quarter and 2009 first quarter productivity and inventory, and increased the length of the collection cycle.

            The credit freeze also decimated corporate finance and capital markets practices, catching many firms which had been hiring talent as if the preceding ten-year boom in the legal industry would continue unabated, leaving them overstaffed but with less demand for service.

Strategies for market leaders

The economic downturn will continue to impact firms of all sizes and practice areas throughout the legal industry. The Am Law 100 and Global 100 firms have been especially hard hit, and will need to act boldly to turn the crisis into an opportunity for important housekeeping and potential growth. Five proven strategies to help firms remain competitive in an uncertain economy include:

• Cost cutting;
• Strategic branding and positioning;
• Negotiating win-win alternative fee arrangements;
• Revenue-generation through client management; and
• Outsourcing.

Cutting costs

Economic challenges have led many firms to institute significant cost-cutting measures, but for many firms, continued and deeper cost cuts are needed. The following are some suggestions.

• Firms should take a sharp knife of payroll and other expense – some did so successfully in early 2009, but many still need to cut further;
• Firms should continue to lay off unproductive associates and partners and, if they have not already done so, firms should roll back salaries for all non-partner lawyers;
• Firms also need to act boldly to get out of unprofitable practice areas and locations, particularly those that do not align with their strategic growth plans;
• Most firms should materially scale back in lawyer hiring, as many have started to do; and
• During an economic rebound stage, there will be no shortage of recent graduates in the market for a job at Big Law, as well as a bountiful supply of outsourced talent to fill staging gaps.

Outsourcing

Based on the aforementioned market pressures, going forward many firms will need to build their leverage differently, turning to a flexible staffing model that relies more on outsourcing that on junior associates for routing work. In addition to hiring contract lawyers from reputable US-based outsourcing companies, firms should begin to look to the booming outsourcing industry in Asia – particularly India – to find lower-cost ways to do the work of first and second year associates that US-based outsourcing firms can offer.

            Outsourcing commodity work, particularly when the work is being done under a flat fee arrangement, can reduce the cost of the work to the client and increase a firm’s profit margins a classic win-win. But the benefits of outsourcing extend beyond improved margins and reduced payroll costs. Shifting routine work out of the firm will free talented young lawyers to cut their teeth on challenging work that will help them grow in their practice and become ‘go to’ lawyers sooner; and associates who feel that their firms are investing in their professional development are more likely to rise through the ranks acting like owners who care about the growth of the firm.

            In addition to possible savings in occupancy costs associated with having a leaner staff in the US, outsourcing to India in particular makes good sense because it will allow firms to ‘stick their toes in the water’ in one of the most important emerging BRIC economies (Brazil, Russia, India and China). It behooves firms to deepen their connections to the increasingly important emerging economies over the next few years. Using outsourcing as a way to familiarize themselves with the Indian market – after developing and adequate quality control system – is one way to begin. It is true that not all leading firms are prepared to outsource to Asia; in the meantime, such firms can take advantage of the domestic outsourcing market, which can provide significant cost savings.

Excerpt from : ZG Alert: The 2009 AM Law 100, the Zeughauser Group, 4 May 2009. http://www.consultzg.com

The complete article can be found at http://online.wsj.com/public/resources/documents/zeughauser.pdf

If your organization is looking to outsource some of your business processes to service providers based in a low cost destination, then you might want to know some of the prevalent models of outsourcing. This will help you look at structuring the arrangement in the manner best suited for your outsourcing needs.

Organizations look at outsourcing and off-shoring with various objectives in mind. Some of the typical reasons why organizations take up services of offshore solution providers are:

1)      Bringing down costs

2)      Getting access to resources with specific/specialized skills.

3)      Achieve more with lower investments

4)      Test the attractiveness of local market before setting up local operations

5)      Leverage offshore partner’s capabilities and expertise to address specific organizational issues

 The different ways in which you could utilize offshore services are as below: 

1)      Staff Augmentation: Typically, organizations resort to this mode of services, when they want to manage the entire project in-house, have most of the human resources, but are short of the required resources to staff the project. In such scenarios, they could look at resources outside the organization (temp staff for short duration, low skill jobs). However, if the project is a long duration project, and the skill set of the resources required is very specialized, then organizations look at overseas partners to get skilled resources for longer durations. Because the resources from low cost countries like India are cheaper than the local resources, having such resources brings down the project cost and make it attractive for management approval. Such a model was extensively used by large firms like Microsoft, GE, Citibank, HSBC, etc to staff their information technology teams.

2)      Offshore Center Model: Organizations looking to optimize their costs or hire large number of skilled resources for a project/process that can be executed remotely will opt for the ‘offshore center model’. In this model, the entire process is transitioned to the team that would work on processes at an offshore destination. This destination, like India, would have significantly lower costs of operation than the local set-up. The off-shoring organization is only involved in supervising the end product/service delivered by the offshore team. Software maintenance or customer support types of business processes are well suited for this kind of relationship with your offshore partner.

3)      Build-Operate-Transfer Model: This model is an extension of the ‘Offshore Center Model’ described earlier. In this model, the organization mandates the offshore partner to build a team at offshore location (e.g. a low cost destination like India) and transition the complete process/project to the offshore team. Till this point, the model is exactly the same as the ‘Offshore Center Model’. However, in the BOT Model, after certain phase of stability, the entire infrastructure is transferred to the client for a one time transfer payment. This ensures that the organization intending to set-up a low cost off-shore presence does so by leveraging the capabilities of the offshore partner & improve the chances of its success.

4)      Captive Model: In this model, the organization takes the organic route to set-up its offshore operations. It identifies the senior management to run the offshore set-up, and then builds it ground up to transition the responsibilities from the parent organization to the captive unit at a low cost offshore destination. This is similar to setting up a subsidiary in a different country, and then transferring responsibilities based on the intent of creation of that particular subsidiary.

The below table maps the organization objectives to the type of off-shore model best suited to meet those objectives