London and New York, Meet Mumbai and Delhi

With the news today that both Clifford Chance and Eversheds are ramping up their outsourcing initiatives in India (covered in The Lawyer and in LegalWeek), it's timely to report on a panel on outsourcing that I attended last week at the ABA's annual convention here in New York.

But first, the Clifford Chance and Eversheds news: The firms are taking slightly different approaches, albeit with the same thrust, of cutting reliance on pricey London-based personnel for low-level legal work. CC is expanding its inhouse India capability (Delhi-based) by ramping up paralegal capacity to review documents in basic due diligence work, cloning documents, and "low-level drafting." Eversheds, by contrast, has contracted with a third-party provider "to outsource small commercial contracts that are too expensive to carry out in the UK or in-house." In future it may (read: will) expand to cover due diligence. It's apparently premature for Eversheds to announce projected cost savings, but CC says it's already saving £8-million annually.

So much for the background. Now to the outsourcing panel.

Fortunately, on the panel were Sally King, regional operations manager for the Americas at Clifford Chance, Jim Lantonio, who was executive director at Milbank when they outsourced their word-processing functions to Mumbai, and Ron Friedmann, a senior executive with Integreon, a major outsourcing firm.

Ron opened by presenting pictures of the Integreon facilities in India, emphasizing the very high level of security, including biometric scans for access to workrooms, bans on all potential digital or analog recording devices, encrypted data transfer protocols, and so forth.

Sally reported that CC has 100 employees in Delhi today at its facility, and anticipates having 300 by 2010, performing tasks such as accounting, accounts payable and receivable, low-level HR functions, and, in general, all "low touch" functions which don't need to be performed in the City of London or in midtown Manhattan.

Jim explained that a key consideration in Milbank's sending its wordprocessing to Mumbai was that "there's no career path in wordprocessing at a law firm." So going to a third-party firm that does wordprocessing as a core function provides the possibility of career growth. The Milbank wordprocessing staff--drawn from the New York job market--consisted, certainly on the overnight shift, of actors and actresses whose key career priority was not, to put it delicately, Milbank at midnight.

What was the key obstacle to the offshoring at Milbank? "Not technology, and not confidentiality or security--those we could readily take care of; it was the politics of sending jobs abroad." But, reported Jim, what changed the nature of the conversation about "sending jobs abroad" was the recognition that capable people in the New York metropolitan area did not want 24/7 wordprocessing jobs. The critical battle of convincing lawyers, used to looking over secretaries' shoulders as they typed, that the work could be done as well in Mumbai, remained.

So Milbank embarked on a year-long double-blind experiment. When a lawyer submitted a job to wordprocessing, it would go either to Mumbai or to New York, at random. Lawyers were then asked to grade the resulting work product, without knowing where it came from. At the end of a year, satisfaction rates were 97-99% for Mumbai-sourced work and 75-78% for New York-sourced work. Case closed.

The New York Times reports that Wall Street investment banks are taking the next step beyond the back office:

After outsourcing much of their back-office work to India, banks are now exporting data-intensive jobs from higher up the food chain to cities that cost less than New York, London and Hong Kong, either at their own offices or to third parties.

Bank executives call this shift “knowledge process outsourcing,” “off-shoring” or “high-value outsourcing.” It is affecting just about everyone, including Goldman Sachs, Morgan Stanley, JPMorgan, Credit Suisse and Citibank — to name a few.

Here are the numbers of employees in India for some of these firms:

• Morgan Stanley:  500 "doing research and statistical analysis"
• Goldman Sachs:  3,000 in Bangalore alone, of whom 100 are investment researchers
• JPMorgan:  325 analysts in Mumbai
• Citigroup:  22,000, of whom "several hundred" are in investment research
• Deutsche Bank:  6,000, in unspecified roles
• Credit Suisse:  6,500 in lower-cost jurisdictions including India, Poland, and Singapore

And inevitably the jobs now being performed outside New York, London, and Hong Kong are slowly moving up the food chain.  One can foresee a day when it makes little sense to talk of investment banks being headquartered anywhere in particular, a day when they will have become global in the most fundamental sense.  At that point, the very notion of "outsourcing" becomes something of a metaphysical concept.

Still doubt the potential power of outsourcing? Then ask yourself what functions your firm already "outsources," even if it's to people down the block. Copying? Catering? Mailing? Website hosting? Tax preparation? Think of it in these terms or not, you're already outsourcing; the only question is where your core competencies as a law firm end and the core competencies of other firms (wordprocessing?) begin.

I asked the panel whether the ability to offshore basic document review was changing the career paths of junior associates, who presumably did that work heretofore. "Oh, yes, it has already changed things greatly," reported Sally. Jim agreed that had been his experience at Milbank. "The days of seeing a bunch of associates in a war room with boxes of documents to review are long gone."

Marry that observation to the increasing ubiquity of this trend—Clifford Chance and Eversheds are not exactly arrivistes—and you have a chance to take a "zero-based budgeting" look at what your firm does and what it engages with others to do.  Your clients are already there.