Friday, December 17, 2010
How will 2011 spell out for LPO business?
The LPO Program today releases its forecast of the 2011 Legal Process Outsourcing market showing high growth in all areas of the legal community. The main users of LPO continue to be Corporate Law Departments, who are forecast to add $129m of spending in 2011. Law firms are shaking off traditional caution and are fuelling 41% of the projected growth. On these forecasts, it is expected that at least 9 high profile deals will be announced by law firms in the next 12 months.
Public Sector use of LPO is the largest new source of growth in 2011. Political considerations and ongoing caution across all sectors will support the growth of the on-shore delivery market, though India remains the most common delivery location.
Commenting on the forecast, Edward Brooks, of The LPO Program, said "The maturing of the supplier community is perfectly timed for buyers of LPO services. While very attractive cost savings open the door for LPO, the long term strategic advantages explain why a very sophisticated sector is actually signing on the line."
The LPO Program says that the Global LPO market is expected to grow 34% ($217m) in 2011, from a base of $640m, to $857m. Corporate legal departments are the largest drivers of the growth; closely followed by UK-based law firms. US law firms are very active in the market but continue to be cautious relative to their UK counterparts.
Overall the US market continues to be constrained by political considerations. Ongoing discussions in Congress continue to create an environment in which potential buyers of Legal Process Outsourcing services are treading cautiously. This will remain an issue until at least 2012 and is holding back US organizations from getting the full value of outsourcing.
The UK public sector will be the major new growth opportunity for the LPO market as it reacts to extreme cost pressures. While this segment of the market has been a regular user of external legal resources, full scale outsourcing of in-house legal functions is now firmly on the agenda across the UK, in particular within Local Authorities.
Reputation risk and political considerations will benefit low cost, onshore locations, namely Northern Ireland for the UK and relatively low cost US states e.g. Utah, Oklahoma. India continues to be the preferred offshore delivery location, with countries such as the Philippines and South Africa hampered by relatively low volumes of skilled resources.
Edward Brooks continued, "Ongoing economic uncertainty makes any organization wary of adding fixed costs and fixed capacity, and that makes LPO even more attractive. All deals benefit from significant cost savings, but market leaders are taking a strategic decision based on the value of having a variable cost base and a flexible talent pool."
The long term strength of the LPO market also looks very robust. Edward Brooks added, "We have seen a significant increase in the percentage of "Active Observers" in the market. We classify "Active Observers" as being subscribers to The LPO Program who move from being recipients of our free services and newsletters to paying for basic access the Program's Research Services. Active Observers are typically from organizations that are carrying out early stage analysis of their LPO options. Given the complexity of LPO projects, the deals that the Active Observers are contemplating are not likely to hit the market until 2012, but it is a healthy indicator of the future size of the market."
Survey Methodology Summary. The 2011 Projections are based on Total Contract Values of LPO deals that are currently being investigated by LPO Program clients. The LPO Program's client base closely reflects the shape of the legal services market in English speaking countries, so the core data can then be extrapolated across the full market to provide an estimate of the global market. We classify LPO as being where an organization changes how its legal activities are delivered, either to an in-house, captive model or a third party delivery location.