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UNDERSTANDING LPO / KPO
Today OUTSOURCING is synonymous to cost cutting, operational efficiencies, reducing overhead and infrastructure expenses and generating greater market share while concentrating on a company’s core business. While OUTSOURCING is present in numerous business functions, including manufacturing, legal, financial and human resources, it is the term BPO (Business Process Outsourcing) has occupied a larger space in the news in a couple of years. From mere data entry work, the focus has shifted to transaction processing. Now, there is a nascent move towards knowledge process outsourcing (KPO).
In the last decade, there have been three distinct phases in the Indian BPO industry.
· The first phase had those players that started captive units, such as GE and Citigroup in the mid-1990s.
· Then came the VC-funded companies and niche companies entering the BPO space and, of course, there were the big daddies of IT such as TCS, Infosys and Satyam, who started Intelenet, Progeon and Nipuna, respectively, around the same time.
· In the third phase, we are seeing these third-party players moving back to captive units.
Moving up the value chain towards KPO:
The BPO industry has evolved through these various stages but as it was seen that recently these BPO players move up the value chain and execute more specialised functions, the transformation from BPO to KPO (business process outsourcing to knowledge process outsourcing) has taken birth. The success in outsourcing Business Process operations with respect to reducing costs and often improving quality has encouraged many firms to start outsourcing their high-end knowledge work as well expecting that that will result in additional cost savings and operational efficiencies, with access to very good talent in the low-wage offshore countries like India, China, and Philippines etc.
The KPO Value Chain:
Typically, the extent of outsourcing is a function of the degree of IT-enablement possible and the quality of the human capital available. Some activities such as paralegal projects and medical transcription require low quality human capital as compared to activities such as data mining and analysis, engineering design and e-learning. The latter are also highly amenable to IT enablement. Other services such as legal consulting, intellectual property research and strategic consulting require the highest level of human capital and are the least open to to IT enablement.
KPO involves a high degree of execution risk as providers look to create and combine complex levels of process, technology, and services. The business processes will require domain expertise and high-end talent such as MBAs, engineers, doctors, lawyers, accountants and other highly skilled professionals.
KPO will move outsourcing up the value chain from simply executing commodity processes to carrying out processes with advanced analytical and technical skills and more decision making skills as well as some judgment and decision making. Examples of KPO functions are
1. Intellectual Property (IP) research
2. Equity, financial, and insurance research
3. Data search, integration, and management
4. Analytics (data analytics/risk analytics) and data mining services
5. Research and information services in human resources (HR)
6. Business and market research (including competitive intelligence)
7. Engineering and design services
8. Design, animation, and simulation services
9. Paralegal content and services
10. Medical content and services
11. Remote education and publishing
12. Pharmaceuticals and biotechnology
13. Research and Development (IT and non-IT areas)
14. Network management
15. Decision Support Systems (DSS)
The users of KPO services are market research and consulting firms, investment banks and financial services groups, life-sciences companies, and law firms and legal departments of large companies. These services will migrate down to the small and medium sized businesses as the market matures.
The benefits gained by KPO users are more than just cost savings. As with BPO, KPO users save time and are able to gain more operational efficiencies by focusing on core business activities while having access to a good extent of skills, technology and service offerings.
Given the large number of engineers, doctors, lawyers, accountants, and scientists in India, they have the ability to generate KPO services worth USD 12 bn by FY 2010 instead of USD 720 mn that it provided in FY 2003.
Challenges in KPO:
There are challenges in providing KPO services, specifically offshore. A major issue on this list is the security and confidentiality of data, customer information and proprietary IP. The regulatory environment may cause certain information to stay with the Company. However, multi-national companies may develop or buy their own captive in an offshore location to eliminate these risks and leverage the advantages of the location.
As well, executing KPO projects is not easy and requires a professional services culture rather than a BPO culture. Processes executed within the KPO domain require higher quality standards because the stakes for the clients are high. Furthermore, the clients are likely to have apprehensions about the quality of the services delivered (especially by low-cost destinations) and these may be difficult to alleviate. To manage these perceptions and ensure smooth delivery, vendors work in an "80-20" mode which involves providing leverage to senior professionals.
In some cases, investment in KPO infrastructure is expected to be higher than that in traditional BPO.
The lack of a good talent pool for the execution of projects may often prove to be a hindrance in many countries.
KPO projects require a higher level of control, confidentiality and enhanced risk management. Negligence in any of these parameters will not only jeopardize the KPO services being provided, but may also affect the entire business conducted by the client.
In comparison to traditional BPO services, scaling up of KPO operations will be difficult, primarily owing to difficulty in finding highly trained professionals.
LPO- Legal Process Outsourcing:
Legal outsourcing refers to the practice of a law firm obtaining legal support services from an outside law firm or legal support services company. When the outsourced entity is based in another country the practice is sometimes called Offshoring.
A new addition to the KPO industry is the LPO or the Legal Process Outsourcing industry. Legal outsourcing to India started out as a low-end work that mostly included transcription. But that is a thing of the past. Now, everything from patent application drafting, legal research, pre-litigation documentation, advising clients, analysing drafted documents, writing software licensing agreements to drafting distribution agreements are being outsourced to low cost destinations.
About 86% of the corporate houses and major law firms (in the US, the UK, et al) have listed “high legal costs” as their top concern and the biggest cost worry. - Forrester Research
In today’s competitive world of business, gaining efficiency and staying profitable have become the corporate mantras. Most international law firms based in the US and Europe are taking the Legal Process Outsourcing (LPO) route to increase profitability. Several international law firms, legal departments of large corporations and also state and federal government agencies are increasingly outsourcing their legal work to reduce cost and increase efficiency.
Global spending on legal services is estimated to be over $250 billion, with the US accounting for more than two-thirds of the market. Conservative estimates of the current market potential for legal services outsourcing from the US alone are pegged at $ 3-4 billion. This comprises paralegal and research support, contract drafting and reviewing, contract management, library services, patent and trademark prosecution, and litigation support.
With associate lawyers in the US carrying an average price tag of $225 per hour in their first year and $450 an hour in their eighth, it was only a matter of time before law firms sought to outsource some of their more mundane tasks to cheaper areas such as India. With the rate of pay at between 10 to 15% of that of US lawyers and an overnight turnaround time, Legal process outsourcing (LPO) is catching on quickly.
Ethical Standards in Legal Outsourcing:
Outsourcing of legal processes (as discussed above) overseas to foreign attorneys (i.e. non-lawyers) is ethically permissible provided the lawyer
(A) Preserves the client’s confidences and secrets,
(B) Avoids conflicts of interests,
(C) Appropriately supervises the non-lawyer, so as to avoid aiding the non-lawyer in the unauthorized practice of law and to ensure that the non-lawyer’s work contributes to the lawyer’s competent presentation of the client,
(D) Bills the client appropriately for the work done, and
(E) When necessary, obtains advance client consent.
However, research analysts have concluded that its overall benefits have tremendously boosted business. LPO is also gaining momentum in countries such as China and South Korea.
The LPO business will soon become a mainstream practice for many attorneys in India. Professionals with Indian law degrees, including paralegals, are assets to multinational law firms. Outsourcing helps the in-house counsel to concentrate on core legal issues while outsourcing research and managerial tasks at effective costs.
Many Indian law firms have opened up offshoots of LPO business to cater to international law firms. The average salary of an attorney working at an outsourcing centre is around Rs 25,000 ($600) a month.
The India Advantage:
The advantage of the time zone, availability of English speaking attorneys and familiarity with common law attract foreign firms. Indian attorneys with US/UK qualifications are sought after. International attorneys are impressed not only by the labour cost differential, but also by the quality and speed of work done.