ALSPs & Clients’ Desire to Use Them: Law Firms’ Newest Balancing Act

Topics: Alternative Legal Service Providers, Business Development & Marketing Blog Posts, Law Firm Profitability, Law Firms, Legal Innovation, Midsize Law Firms Blog Posts, Peer Monitor

Law firms today face a market that would be unrecognizable to a lawyer even as little as 10 years ago. Prior to the Great Recession, law firms typically handled all aspects of their clients’ matters from start to finish. Today’s reality is different.

The market has shifted to a strong “buyer’s market.” Clients, particularly large corporate clients, are exercising their buying power in constantly evolving ways. Much of this behavior is being driven by new pressures being exerted on the client’s general counsel (GC). The GCs are increasingly under pressure to reduce their overall legal spend, to make their costs more predictable, and ultimately, to “do more with less.”

In turn, GCs are ratcheting up the pressure on their roster of outside counsel to make that happen.

Indeed, nearly 30% of GCs are planning to decrease their reliance on outside counsel, increasing the amount of work they must handle within their own departments. At the same time, those same GCs report that 74% of them had no plans to increase their own staffing. So, they are faced with two options: i) either force their existing staff to take on the additional workload; or ii) find alternative ways to accomplish the necessary results.

Much of that new work is funneling to an evolving segment in the legal market known as alternative legal service providers (ALSPs).

While corporations’ direct use of ALSPs centers mainly around specialized services like IP management or regulatory compliance, corporations are directly impacting how law firms interact with ALSPs as well. Today, it is quite common for law firms to be turning to ALSPs themselves to aid in areas of client service such as:

  •        E-Discovery services;
  •        Document review and coding services;
  •        Litigation and investigation support; and
  •        Non-legal/factual research.

And this list is not exhaustive.

Law firms recognize this shift. In a recent poll, 37% of firms agreed that their business model is being challenged by competition from ALSPs.

Incorporating Supply Chain Management

But law firms are not without options.

Some firms have adopted with what is often referred to as a “supply chain management” mentality. Rather than simply allowing work to go to these ALSPs and potentially jeopardizing the firm’s strategic control over the client relationship, firms are attempting to take a more proactive role by offering their services to help manage this new network of relationships. This tactic keeps the law firm solidly in the mind of the client while recognizing their clients’ desire to work with these vendors, ensuring the standards of quality that clients demand, and keeping the matter workflow unified.

This then provides the client with the potential cost savings they are hoping to gain by using an ALSP, and helps mitigate the risks associated with adding new vendors to the workstream by addressing the number one concern clients have about ALSPs — lack of quality.

Savvy law firms can insert themselves into these new relationships in a way that a nominal fee for managing will seem reasonable, especially to clients who are used to paying consultants and project managers for just this type of work.

More adventurous firms may even take the bold step of creating their own affiliated ALSPs to meet client demand. This can be risky. It is expensive, and if the firm does not hit the right target with their new venture, they risk missing a chance to differentiate themselves in a meaningful way. But it does not have to be so complex as starting an entirely new business. Even a reallocation of resources into a “center of excellence” within the firm that has a particular expertise and can bill clients on a more predictable, cost-effective model can help meet client desires.

Unquestionably, there is a lot to unpack in this topic. For those attending the LMA Annual conference in Las Vegas, March 27-29, please join me for a session that explores this topic in much greater depth at 10:45 am, Tuesday, March 28.