The Legal Process Outsourcing (LPO) industry has exceeded most people?s growth expectations since its emergence in 1997. The industry now has several players with a presence in India and servicing clients across continents. While certain providers have thrived in this environment, others have struggled to stay afloat and often succumbed to financial, client and work pressures. To better understand this trend, Value Notes decided to assess the growth of the industry and its service providers to date, by evaluating the financial performance of the segment?s service providers for the past 5 years.
Over the years, we have been tracking the industry and interacting with service providers and buyers of legal services. Based on our past research and these discussions, here are a few insights we have expected regarding the state of the industry:
1. The growth of the industry has been primarily driven by the larger players who continue to out distance themselves from the rest of the providers
2. Improvement in revenue-per-employee over the years
3. Simultaneously a fall in employee costs as a percentage of revenue
Given that LPO is almost 15 years old, service providers have had plenty of time to acclimatize themselves to the business environment as well as implement process efficiencies and effective work flow management systems. Additionally, service providers have had enough time to observe and benchmark their peers to improve their business models.
The initial findings from the study reveal interesting insights about trends within the industry. Employee costs continue to be very high for smaller players. This is primarily due to their low and fluctuating revenues over the last 5 years (2007-2011). Additionally, it has been noted that smaller players rely heavily on external funding to sustain themselves. Despite this, they are unable to be part of the growth of the industry and instead, continue to focus on survival.
The report detailing the financial state of the LPO industry will be released shortly. This will be the first in a series of reports examining the other KPO segments.