Archive for August, 2009

Aligned contracting – the right way to deal

August 25, 2009

I’ve been giving a lot of thought into why clients and outsourcing service providers fall out and I think that in most cases, it comes down to different expectations; i.e. each party provides misaligned inputs leading to misaligned outcomes.

I’ve talked before about how outsourcing is mostly about guessing. The service BPO/ITO provider guesses what the client wants and what the competitive organisations are going to charge. The client in turn guesses what services are going to be provided and how closely this matches their requirements.

I now believe that all service providers must sign up to agreements which reward them for the delivery of a desired outcome. Most current contracts are based on an input specification, i.e. build an integrated finance system to take us from a to b to x specification. The principle here is that this specification would be turned around. The proposed system must enable y millions of transactions to be covered per annum with no or minimal disruption.

This kind of approach would mean instead of letting a contract for the construction of the system,  a contract would be let for say 10 years for its design, build and operation. The client’s governance structure/team leaves it to the vendor to decide how best to achieve this based on strict total cost of ownership criteria, with heavy disincentives for failure and gain share for success, this drives the right behaviour, both with the principle contractor and its sub contractors, it focuses on the purpose of the system not its fabric.

Outcomes of aligned contracting against which key performance indicators would be matched could include: cost savings, better services, economic regeneration in areas of low employment – this is good not only for the client, but leads into the political and economic growth agendas of the current and future government leaderships.

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Is LPO the way to go?

August 4, 2009

There is a quiet revolution taking place in the legal market. At the moment, it is being kept hush hush because lawyers in the US, Australia and the UK are moving some of their “turn the handle” grunty back-office processes offshore – mainly to India. Of course, the reason they’re keeping it quiet is that they’re still charging top dollar/pound/euro to clients for these same services.

So far, so capitalist.

But, corporates are getting in on the act. As Matt Sullivan has said:

Organizations have traditionally retained outside law firms when they become parties to litigation or acquisitions. These situations, that create sudden, large volumes of documents to review, are exactly the circumstances for which LPO vendors are well suited. Many LPOs have the ability to quickly deploy large teams of young lawyers using the latest technologies to assess the responsiveness, privilege, confidentiality of litigation-related documents or to review the assignment and termination clauses of acquisition-related contracts. Indian LPOs can typically deliver these services for USD20 to USD50 per hour as compared to USD60 to USD100 or more for legal temps in the US. Low cost legal services sources are also emerging in such places as Israel, the Philippines, South Africa and Costa Rica.

To confirm this, I recently met Andrew Loach from CPA Global who is leveraging his 20 years of outsourcing experience with the general counsels of large corporate clients. As a result, he and his team are helping these corporations save USD10’s millions a year on their legal bills.

I’ve been checking around and his approach is being recognised by many legal luminaries as a brand new model which will change the composition of the legal landscape. Add to this the recent win of the Rio Tinto contract, and Andrew and his team are now probably the dominant force in this area world wide.

He has developed what he calls a “legal heat map” which helps general counsels segment and categorise work done internally and with law firms and then model the financial and operational implications of outsourcing lower level legal work to CPA’s various onshore and offshore centres.

Here’s a prediction for you and the outsourcing markets… KPO is going to be huge and LPO will lead the way. The US and UK magic circle need to pay close attention to this; when someone like Loach engages with law firms’ corporate customers, the legal boys and girls had better watch out. I know Andrew well and he has a track record in the outsourcing industry as someone who is innovative (and obsessive) when it comes to saving money for clients.