Typical Price Variation: LPO, CCO, and FAO Services | Market Insights™
February 23, 2016
Typical price variation: LPO, CCO, and FAO services
Typical price variation: LPO, CCO, and FAO services
While Legal Process Outsourcing (LPO) has been in practice since the late 1990s, it gained prominence post the economic recession in 2008 when corporate legal departments and top law firms were forced to prune costs. What started out as cost optimization for transactional legal tasks has now evolved to global delivery for complex services like compliance, IP services, and legal research. In addition to the obvious benefit of cost savings, LPO has led to significant additional value for firms including better technology leverage, improvement of on-time contract delivery rates, and wider access to a vast pool of talent.
The growth of the market in the initial years was driven by specialist providers like Integreon, Mindcrest, Pangea3, and Quislex. M&A activity has been high over the past few years, with providers looking at inorganic growth. Simultaneously, a number of Tier 1 BPO providers like Genpact, Wipro, and WNS have ramped up their capability in this space.
Pricing drivers for LPO services
Contrary to popular belief, a number of complex and specialist services like commercial analysis and contract drafting are being outsourced with reasonable success. Quite naturally, the skill sets required for these services are judgment-based and command a higher price point. On the other end, more rules-based services like document management and preparation of matters are lower priced, commoditized capabilities.
The extent of offshoring utilization affects the overall price of LPO deals, as is true with all types of outsourcingengagements. Acceptable offshore leverage for a particular LPO process is determined by various factors such as frequency and depth of client interaction, level of intellectual judgment required, standardization of work processes, analytical skills required, intellectual property rights protection, etc. Based on these factors, the offshoring for support functions such as knowledge management is typically 50-60 percent, while that for relatively more judgment-intensive primary functions such as compliance and business development falls in the 35-40 percent range.
Broad price spectrum for these services
In a very broad way, relating LPO services to traditional BPO functions like Contact Center Outsourcing (CCO) and Finance & Accounting Outsourcing (FAO) provides a fair idea of where LPO stands on the BPO pricing spectrum.
Typically, pricing of LPO support functions like document management is similar to that of transactional CCO services. However, for other mid-complexity but core LPO functions –think knowledge management and contract drafting – pricing is typically 10-14 percent higher than CCO. This is primarily due to the need for more specialized skill sets for higher complexity legal services, a relatively less abundant talent pool, and the higher amount of client interaction required.
Transactional FAO services are typically priced ~20 percent over transactional LPO services, primarily due to their higher judgment and technology requirements.
Who commands a premium
Disclaimer… nothing can be generalized! Deal pricing varies based on a number of factors like competitive tension between providers, client bargaining power, and overall perceived risk in the solution. However, Everest Group has observed that specialist LPO providers often command a premium of 5-7 percent over multi-service Tier 1 providers delivering similar services. This is attributable to pure-play LPO providers’ higher degree of sector focus and greater investment in superior legal knowledge, while multi-service BPO providers leverage their wide footprint and existing client relationships to win and deliver LPO business.
It will be interesting to track how the commercial constructs for LPO evolve as further consolidation happens in the industry and economies of scale come into play.
What have you experienced with LPO?
“Captive centers currently account for less than 25 percent of the full-time employees delivering digital services, such as analytics, cloud and mobility, from offshore and nearshore locations, according to research by outsourcing consultancy Everest Group. However,…” Read more.
Microsoft has gone all in on DevOps. I’ve been talking with Microsoft’s engineering team that builds Azure, and there are several things we can learn from them.
Microsoft has structured its entire development of Azure along DevOps principles. They made the requisite investments in automating testing and automating provisioning. Of course, Azure is, in fact, a software-defined data center environment, so in some respects they are eating their own dog food.
What are the implications to Microsoft’s technical investments in the software-defined environment – the standard middleware, productivity tools and provisioning tools that go with that?
One of the most important implications is the labor model. Microsoft recognized the need for collaboration and speed and (a) built its teams to address those needs and (b) built the right working environment to enable the teams to do that.
Microsoft divided its Azure organization into small, homogenous teams – feature teams – with only two job functions: product manager and engineers. These teams range from 15 to 20 people who are collocated together. The product manager who has responsibility for the functionality a team is driving (the what and the when) sits in the team of engineers (responsible for the how) and works shoulder to shoulder with them. Microsoft also tore out all their offices and created an open environment of neighborhoods in which they put these working teams.
Microsoft continues to host a lot of development work in China and India. The strategy is to use this talent pool as independent feature teams delivering product capability into general Azure services and sometimes optimizing Azure services for the local market. The highest-level road maps for Azure operate out of Redmond yet leverage the day-to-day product management and engineering capabilities embedded in the feature teams deployed around the globe. This allows Azure to move to a true DevOps environment with continuous releases and automated testing.
The result? Microsoft Azure’s pace of innovation has skyrocketed, quality has improved and the number of errors has dropped dramatically. The offerings have improved and are more user friendly and easier to use. And Azure is now making tremendous headway in capturing market share.
Moving to a DevOps environment enabled Azure to keep pace with the likes of cloud competitors AWS and Google. What could it do for your company?
On April 20, 2016, Everest Group’s Sakshi Garg, Practice Director, will share her insights during the panel session titled, “Addressing Value, Risk, and Compliance through the offshore GIC Model,” at the SIG Global Summit. The Summit runs from April 19 – 21 in Orlando, Florida. Learn more.
Click image to enlarge
Wipro’s February 2016 acquisition of HealthPlan Services (HPS), an IT and Business-Process-as-a- Service (BPaaS) provider to U.S. payers and managed care organizations, is its fourth in less than a year, and the largest since 2007. The acquisition is part of Wipro’s effort to access non-linear revenue models as the global services landscape experiences ongoing churn.
Now that the dust has settled from the New Year frenzy, it is a good time to channel our inner psychic and do some crystal ball gazing about enterprise technology trends. Following are the technology trends that we see playing out in 2016 and into early 2017.
The fundamental disruption being caused by consumerization of the enterprise IT has profound implications on how organizations approach the user experience (UX). As consumers’ expectations and benchmarks for next-generation channels evolve, UX is key in enabling the digital mandate. This translates into an enhanced focus on superior design, collecting data (user behavior, regional preferences, A/B testing, and demographic information), and personalizing content. Design coupled with the appropriate tracking/monitoring will be crucial in driving meaningful engagement through a personalized UX. While global technology providers have generally lagged in bringing UX and design thinking into solutions, this is changing. Whether it is Accenture (per its 2013 acquisition of Fjord), Infosys (with AiKiDo, its next generation services in Design Thinking), or Wipro (via its 2015 acquisition of Designit,) service providers have started looking outside their organizational set ups to develop these capabilities through M&As, acqui-hiring and setting up separate business units, often outside their P&L play.
Numerous examples of unlocking barriers to provide open access to APIs to catalyze innovation, gain developer trust, and accelerate the pace of use-case creation emerged in 2015. For instance, in September IBM acquired StrongLoop, a provider of popular application development software (enterprise Node.js) that enables software developers to build applications using APIs. In November, IBM launched API Harmony with cloud-based API matchmaking technology for developers. It also opened up access to IBM Watson’s cloud-based API. In an attempt to woo developers, Salesforce announced App Cloud, which integrates its existing Force, Heroku Enterprise, and Lightning services to create an interactive learning environment for “citizen developers” creating Salesforce apps. Apigee, a company that helps organizations build and manage API connectors, went public in April 2015, and its revenues and margins are performing well. It has also witnessed traction with large enterprises such as AT&T, Bechtel, Sears, and Walgreens, to name a few. Given how crucial APIs are to advancing innovation and enhancing the digital experience, we’ll see many more technology companies jump on the open API bandwagon.
The emergence of new operating paradigms continues to transform IT operations. DevOps, the latest, promises quick and reliable unified development and operations to meet business needs. Then there’s conventional ITOps, and NoOps, an extension of DevOps wherein developers take over all responsibility for processes such as architecture design, capacity planning, performance optimization, etc. In the absence of a clear winner in 2016, there will continue to be various shades of these methodologies in place across various industries/organizations, depending on maturity of IT set up, specific needs, business constraints, regulatory requirement, etc. DevOps adoption will continue to struggle to move beyond lip service as organizations grapple with challenges related to change management, restructuring, talent, and governance to manage complex IT environments.
Read our previous take on DevOps
The conversation about the Internet of Things (IoT) will move beyond just sensors and connected devices. We have already begun to see the emergence of new business models such as Printing-as-a-Service, Home Automation-as-a-Service, Blood Tests-as-a-Service, Transport-as-a-Service, etc. IoT and the connected world have made these individual products into continuously evolving prototypes that can be enhanced through over the air updates, thereby introducing new features. Connecting various disparate products will lead to improved analytics and, therefore, better forecasting and customer experience, highlighting new possibilities for IoT-based value creation.
It is time for Chief Information Security Officers (CISOs) to take their place in the sun. After years of CIOs treating security as a hygiene checklist item, recent high-profile data breaches and global cyber warfare have placed the spotlight firmly on cybersecurity. Our digital services research indicates that 70 percent of enterprises believe cybersecurity is a major concern in their digital journey. Cybersecurity initiatives also rank as the second most important among digital enablement priorities. In the single biggest affirmation of this change, the White House announced on 9 February, 2016, that it is seeking to hire its first Federal Chief Information Security Officer as a part of a new Cybersecurity National Action Plan. As security takes a seat on the board, enterprises will start treating cyber risk at par with financial risks. CISOs should see budget approvals getting easier as they look to revamp cybersecurity preparedness, enhance audit and governance controls, and shift the focus from prevention to mitigation. Security will gain a more prominent place in public discourse in the context of 2016 U.S. presidential elections (you may recall that attackers targeted both presidential candidates’ websites and emails during the 2008 and 2012 elections.)
Enterprises need to take a hard-nosed look at their technology spend and realize that the walls between business and IT need to break down. All aspects of IT – application development, maintenance, testing/QA, infrastructure – are getting aligned to specific business outcomes for greater visibility, predictable demand, enhanced governance, risk mitigation, and audit control.
These themes are already sweeping the global technology landscape, and will only gather steam as the year progresses. We would love to hear what you have to say about enterprise technology in 2016, and beyond.
“So many sessions, so little time. We know you can’t catch them all, so we came up with a shortlist of speakers you shouldn’t miss at NASSCOM 2016.” Read more.
“This week, Everest Group published its latest ranking of top IT service providers. Contrary to what might have been expected, IT powerhouses such as IBM and HP did not top the list. Instead, New Jersey-based Cognizant took the crown followed by Accenture and, coming in third place, IBM.” Read more.
“Research firm Everest Group announced its top IT outsourcing companies, and there is a surprise in pole position. ‘Our assumption would have been that Accenture would be No. 1 and IBM would be No. 2,’ Abhishek Singh, practice director at Everest Group, told CIOmagazine. ‘But as we began to consolidate and analyze the data, it was clear that Cognizant had upped their game by way of year-on-year growth. That’s what landed them on top.'” Read more.
©2023 Everest Global, Inc. Privacy Notice Terms of Use Do Not Sell My Information
"*" indicates required fields