Why Corporations are Using ALSPs …and Why Law Firms Should be Concerned

Topics: Alternative Legal Service Providers, Artificial Intelligence, Business Development & Marketing Blog Posts, Client Relations, Corporate Legal, Data Analytics, Efficiency, Law Firm Profitability, Law Firms, Legal Innovation, Legal Managed Services, Midsize Law Firms Blog Posts, Thomson Reuters

ALSPs

For decades, corporate clients have provided law firms with a market stronghold. But law firms’ once-firm grip on this market has been loosening over time. While law firms have been making minute changes in their service delivery and business models to maintain their competitiveness, a new study on the growth, prevalence, and use of alternative legal service providers (ALSPs) shows some clear trends that should come as a warning to law firms: Evolve now or face marginalization. ALSPs — including the Big Four audit & accounting firms — see the opportunity, and they are starting to eat law firms’ lunch.

The study, Alternative Legal Service Providers 2019: Fast Growth, Expanding Use and Increasing Opportunity, was published in late-January by Thomson Reuters Legal Executive Institute, the Center on Ethics and the Legal Profession at Georgetown University Law, the Saïd Business School at the University of Oxford, and Acritas, a UK-based research firm. The study found that the market for ALSPs’ services (by both corporations and law firms) increased at a rate of 12.9% compounded growth over the past two years. It also identified the scope and reasons that corporations are increasingly turning to ALSPs.

The study found that two of the top five reasons corporations are choosing ALSPs are to access specialized expertise and to add headcount at peak times. And like corporations, law firms also say they use ALSPs as a way to access specialized expertise, albeit in niche areas that law firms have already ceded to other legal providers. But that is law firms’ fourth-ranked reason to use them, behind several others that emphasize efficiency, expertise, and scale.


The study found that two of the top five reasons corporations are choosing ALSPs are to access specialized expertise and to add headcount at peak times.


Once upon a time (and this is no fairy tale for law firms), law firms were uniquely qualified to offer specialized expertise and to help clients scale up in response to spikes in legal demand.

In fact, even core work done today by general counsel was once mostly the domain of law firm partners. Before 1990, pretty much all corporate legal work was done by law firms: In-house legal teams and ALSPs didn’t exist. Today, law firms still believe that a major part of their value is in their expertise and their ability to help clients respond to spikes in demand. If corporations now believe these providers can offer those same benefits (albeit only in a limited set of practice areas) at a lower cost, that’s a big problem for law firms. The problem only becomes bigger as the market and use for ALSPs expands.

The study also found that law firms look at ALSPs as a way to increase profits or control costs. But corporations look at them differently: They care greatly about efficiency. ALSPs work very hard to leverage everything from labor arbitrage to technology to data analytics to meet that expectation. So, it shouldn’t be surprising that corporations are using ALSPs to meet their internal requirements. Efficiency was the second-most popular reason that corporations said they use ALSPs, right behind access to expertise. Efficiency is also clearly a factor in some of the other big drivers of their use, such as the ability to free up teams to work on more strategic matters.

The Data Driver

For corporate legal departments that are serious about efficiency, ALSPs come with some very welcome, if unintended, benefits. Chief among them: data.

In-house counsel can ask their ALSPs for metrics related to every task, or even for each person, which the ALSPs are generally capturing as a matter of course. I can find out how long it took for something to be uploaded. I can ask an ALSP to re-create their process for me and provide metrics for every person who worked on my account over the past two weeks (or any other time frame). If it’s taking twice as long to do a non-disclosure agreement in India as it is in the U.S., I can find out what’s going on. There’s no way corporations can get that sort of data from their law firms, or even from their own in-house teams.


Because ALSP resources are less expensive, more flexible, and easier to work with, ALSPs are often integral members of the in-house teams they support.


With an ALSP, I can dig deep without affecting my team or the business. I’m only affecting the work, leveraging data to make decisions and adding value to our internal customers and to the business.

As for law firms’ specialized expertise? ALSPs are hiring more and better legal professionals, such as licensed attorneys and others. They’re bringing in a more diverse set of talent, including data scientists and project managers; and they are training these professionals and working with clients to deliver support that exactly matches their clients’ needs at a much more reasonable price than law firms can offer. Moreover, ALSPs make very savvy use of relationship and project managers (even though most don’t hold these titles). These managers work side-by-side with their clients to provide legal support, improve process design and implementation, and leverage technology. The result: The ALSPs’ work product reflects the desired business and risk/reward profiles of their corporate clients.

Because ALSP resources are less expensive, more flexible, and easier to work with, ALSPs are often integral members of the in-house teams they support. Typically, they bring a humility and customer-service focus that is lacking at most law firms. Even if the level of expertise does not match what law firms offer, ALSPs may bring other skills and capabilities that provide greater value.

It’s hard for law firms to operate at this same level, partly because of their own business models. Law firm expertise is so expensive that it’s difficult to leverage in producing the end-product required by corporate business clients.

Most in-house attorneys and other in-house legal professionals take the work product provided by law firms and then re-shape it so it can be used most effectively by the ultimate end-user. And most law firm attorneys have little or no idea how the advice and other work they provide to corporate clients is actually implemented. They don’t see how the sausage is made.

Maybe if they did, however, it might speed the client-focused evolution in service delivery that law firms so desperately need.