The emergence of the outsourcing industry has provided a much-needed support network for busy companies seeking to retain their competitive edge. The question is now is no longer whether to outsource, but what to outsource and to whom. CPA’s Rob Stichbury examines the options
Although outsourcing is not a new concept, the industry has experienced a period of phenomenal growth in recent years, as busy companies increasingly turn to external providers to fulfil highly administrative or poorly served functions of their business. And, as the industry has evolved in size and expertise, so too has the nature of the tasks that are being outsourced. Today’s companies are not just looking to outsource business processes, such as back-office functions, call centres, human resources and IT (Business Process Outsourcing or BPO). Based on its success, they’re also turning to off-shore providers for Knowledge Process Outsourcing (KPO) and Legal Process Outsourcing (LPO) like paralegal work, as the race for cost savings has given way to the race for top skills.
A helping hand
So, does LPO work and is it suitable for the IP industry? The simple answer is yes. In our fast-paced industries, businesses need to strive for continual innovation in order to ensure competitive advantage. Without back-end support, such progress would not be possible. The hunt for competitive advantage translates into greater legal, particularly IP, activity. That’s not just in the number of patents that companies seek to register and protect, but also in the trend to actively ‘farm’ patent estates. Without external help managing the administrative side of the IP work, few corporations would be able to keep up with or afford to properly develop their IP portfolios.
IP currently accounts for over 45% of the LPO market and is expected to lead the growth in this sector in the next three to five years. The service mix already includes basic IP services, such as proofreading and paralegal support, but as low-end IP administrative tasks are outsourced with success, companies are electing to off-shore more complex tasks to trusted suppliers. They are leveraging the experience and talent off-shore to improve processes, and apply the benefits of scale and technology.
An increased emphasis on merger and acquisition (M&A) activity since 2004, has provided part of the reason for this growth. IP due diligence is fundamentally important in all M&A activity, and increasingly in private equity and venture capital deals. This has big implications for IP departments as it also generates large volumes of work in tight timeframes, distracting staff from otherwise core activities. If forced to manage the work internally, companies are faced with increasing costs, backlogs and delays in work, and compromises in the quality of the work being produced.
The rising cost of office space, the scarcity of skilled staffing in the developed world and the challenge to manage the peaks in workload all put pressure on a company’s bottom line. LPO has enabled companies to increase productivity and capacity, to achieve scale and bandwidth to operations. It also satisfies board pressure to leverage IP and keep costs down, while still maintaining (or even improving) quality of work.
The growth in worldwide patenting activity over the past decade has also meant that national patent and trademark offices are struggling to keep up with the speed of innovation. In 2005 (the most recent data available), the European Patent Office (EPO) had 119,800 patent searches pending, and this figure is due to grow by 24% each year. Similarly, in 2006, the US Patent Office (USPTO) revealed details of a backlog exceeding 700,000 patent applications and the situation looked all too familiar at the Japanese Patent Office (JPO) in 2005, when its backlog hit 790,000. At that point the JPO took action and outsourced 25% of its prior art searches to help get back on top of the escalating workload. The move to outsource and increase capacity at the JPO was welcomed by industry, too, since application delays can mean that precious patent licensing opportunities are lost.
In such an aggressive environment, outsourcing is no longer a choice – the question is not whether a business should outsource, but instead, how best to do it: ‘We all know that outsourcing is not just about cost take-out any more. Done right, outsourcing will make your organisation more nimble, more agile, and more competitive.’ (Kevin Campbell, 2007 group chief executive – Outsourcing, Accenture.)
Choosing the right partner
Ultimately, it is the importance of quality, not cost, that is driving growth in the LPO marketplace. That’s why companies looking to off-shore or outsource key tasks should be looking for an experienced partner that is able to assure quality of work, as well as manage risk, guarantee data security, export control, interoperability of data and smooth transfer of work.
In the IP industry in particular, there is now also a growing trend towards multi-sourcing and multi-shoring, where corporations and law firms select not to outsource a variety of in-house tasks to one expert supplier or global jurisdiction, but instead select the best (or most innovative) supplier or the best jurisdiction for each task. Better still they find a supplier that has the breadth and scope to provide the appropriate specialist multi-discipline expertise and a multi-shore option. IP service providers work on a variety of levels, but aside from CPA, there are only a few companies that can actually provide the global multi-faceted approach to LPO that most businesses need.
At the very basic level, businesses should be outsourcing non-core and lower-value activities, leaving in-house staff to focus on their core value and added-value activities to drive earnings growth. Working on the concept that highly trained, outsourced IP specialists can lift the burden of managing the IP prosecution process, many law firms are also now choosing to off-shore more key IP tasks. Clifford Chance is just one example of a global law firm that has chosen to partner with an India-based outsourcing company to manage its key financial services. US-based Schwegman, Lundberg, Woessner & Kluth (SLWK) is another, but it chose to establish its own captive IP-outsourcing company in 1999 to achieve this.
There were practical reasons for setting it up in India, explains Steve W Lundberg, founding partner: ‘In the late 1990s, there was a labour shortage in Minneapolis (home to SLWK’s first office) of qualified personnel to do certain functions like proofing and lower level case management.’ Tapping into the bank of talent in India allowed the firm to increase capacity, improve cycle time and retain complete control, all without sacrificing quality or security. And, as corporations become more wary of the hourly charge of legal counsel, IP outsourcing also provided SLWK with the opportunity to pass on cost savings to its clients – a benefit that few competitors could provide at the time.
Sidestepping the pitfalls
Be sure to use an already existing and experienced supplier, the same rules apply to outsourcing as they do to any key business task: focus on quality, implement robust processes, certification, security and risk management practices, and apply good governance practices. Outsourcing is no stroll in the park and there have been several high-profile failures where the wrong processes have been outsourced to the wrong areas. A good supplier will eliminate these difficulties and the chances are if they are a global service provider, they will be able to select the best talent at the best locations for the required tasks. Companies shouldn’t be afraid to scrutinise the security and confidentiality provisions when choosing a supplier. They should also be looking for a proven track record of quality service delivery, guaranteed service level agreements, highly-trained staff and state-of-the-art facilities.
The key is to outsource, but to be able to manage and track the progress of your outsourced work. Many service providers have procedures in place that guarantee the highest levels of client confidentiality and professional delivery. These will also enable real-time workflow delivery, enabling executives to monitor the quality of their services for a fraction of the usual time.
What does this mean for your business?
Setting up an outsourcing programme takes time, but compared to hiring a new department or multiple numbers of specialist legal staff, the process is quicker and easier to manage. It’s also more economical and makes you more agile in the market, enabling you to upscale or downscale as required. For the IP world it holds real advantages as volumes increase and skilled professionals become harder to source. Businesses should look at their current set-up, check their financial position and choose a provider with strong sector experience and a reliable reputation.