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Outsourcing services is one way to manage growing costs for some businesses. The decision to go offshore, however, is not for every legal or accounting shop and often is driven by a client's needs.
"We have an offshore operation. It's owned by KPMG and provides services that support both internal needs and client needs," says Timothy White, managing partner for Upstate New York at KPMG. "On the audit engagement side it's been helpful in allowing us to manage costs and keep fees competitive."
KPMG uses its offshore location in India for internal work that is primarily administrative in nature, he explains. Any client-related projects performed at the offshore site are tasks such as data comparison and input and preparation of spreadsheets.
"It's lower-level work, not highly valued by our customers," White says. "If we can utilize the offshore site to input data in a pretty document for a client overnight while our domestic team is sleeping, that's productive and cost-effective."
KPMG tries to maximize the benefits of lower labor costs, he says, while recognizing the limitations of outsourcing.
"We are still moving slow and steady through the process and realize the more you take offshore, the more you risk client service. As professionals in an industry that has to be mindful of quality and accuracy, we are careful of the tasks we send out," White says.
Offshore labor is not a profit-making proposition, he says, but a way to manage costs, especially in a market where salaries are competitive and expectations for compensation continue to rise. Using offshore labor for some tasks allows White to keep higher-paid staff doing valuable work and in turn better control costs for his clients when negotiating fees.
DeJoy, Knauf & Blood LLP made the decision not to outsource services overseas. But it has had to focus more on its process and procedure because of it, says Mark Blood, director of tax practice at the firm.
"We don't do anything on paper; we are completely digital," he says. "Data security is such a huge issue now. Clients have it in their mind we have a giant vault with all their secure information, and we do have that with their paper documents, but with digital documents it's even more critical to protect."
Adds Blood: "We spend a lot of time safeguarding documents and have developed a system of sending documents in encrypted emails."
DeJoy, Knauf & Blood has been paperless since 2005. But Blood says his firm does not have many services it could send offshore.
Law firms also have reaped benefits from offshoring services, but there are challenges as well, says Alan Winchester, partner and leader of the e-discovery team at Harris Beach PLLC.
The firm outsources some of its large document review services to highly trained staff in India.
"In our environment, they come in through Citrix, an application that emulates a desktop. It sends a screen shot and makes it just as if they were here," Winchester explains.
Labor costs significantly less, and with Citrix the work is done with no security breach and no loss in time, Winchester says. Citrix is one of the ways Harris Beach ensures controlled access and better management of its reviewers.
Still, there are disadvantages.
"The challenge for a law firm is how to remain profitable if you outsource too much work," Winchester notes. "There is also a liberalization of who can practice law. Twenty years ago, law firms would balk at outsourcing of document review. Today private equity groups and accounting firms can do it."
Another downside of outsourcing is the limited opportunities to gain experience. Jobs that new lawyers typically are asked to do now are sent out.
"You don't come out of law school knowing how to be a lawyer. The more you outsource, the less you have to give to associates," Winchester says. "How do we train the next generation?"
Christopher Thomas, partner with the litigation group at Nixon Peabody LLP, says his firm has not sent anything overseas in a year.
"We have done it in the past, and we still provide it as an option, but clients do not seem interested," he says. "They'd rather stay domestic, making use of our attorneys, contractors and technology."
For Nixon Peabody's clients, predictive coding is now the preferred technological solution for cases involving large-scale document reviews.
"Predictive coding has been at the cutting edge of e-discovery for the past five years, and it's really taken off in the last two years as courts have issued decisions approving its use," Thomas says.
Predictive coding is used to determine which documents are relevant to a client's case. The technology makes use of algorithms and a human interface that Thomas compares to Internet music provider Pandora.
"After you teach the software what is relevant, it can quickly review tens of thousands of documents, like Pandora reviews songs, and identify those that contain the same and similar information," Thomas says. "It is faster, cheaper and more accurate than traditional word searches or full attorney review."
Once predictive coding has culled the relevant documents, Thomas says, clients have not wanted to go abroad for the review of those documents. One reason is the perception of quality control.
"Quality control is always a top concern for clients, who are all aware of cases in which sanctions have been meted out where the quality of the review has been substandard," Thomas says. "The trend that we are seeing is that clients are opting to have their documents reviewed by our attorneys and contractors. They know the reviewers, and it's easy to monitor the progress and quality."
Predictive coding, Thomas adds, is not the best approach for every client or every case. The initial cost is high and it does not make sense for small document cases.
In the end, outsourcing services requires careful assessment.
"It's a resource, a tool, to help manage costs, and like everything else you have to use it the right way and find the right balance," Winchester says. "When you do, your client benefits and so does the firm."
Lori Gable is a Rochester-area freelance writer.
9/20/13 (c) 2013 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email email@example.com.