Alternative legal service providers (ALSPs) are growing much faster than any other part of the legal market — 12.9% compounded growth in just the past two years, according to a recent study, “Alternative Legal Service Providers 2019: Fast Growth, Expanding Use and Increasing Opportunity,” 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.
This growth doesn’t necessarily pose a threat to law firms. But because of the cultural differences between in-house legal departments and law firms, on the whole, law firms are much less likely than their clients to benefit from alternative providers.
Law firms should be able to use alternative providers to work more quickly and less expensively. They could white-label the services of ALSPs and become their own best customers. ALSPs could be great for law firm efficiency.
But law firms are more concerned with profitability, and specifically, profits-per-partner. At some firms, those profits-per-partner numbers are reaching records — but in most cases, those numbers are achieved by shrinking the number of partners, not by increasing profits. For law firms, any effort to change the law firm business model presents a huge change-management challenge.
I know how difficult this challenge is, because I’ve lived it. About ten years ago, when budgets at in-house legal departments started to be slashed, we knew we had to change the way we worked. Our responsibilities weren’t changing, nor were expectations. We learned to work differently.
For law firms, any effort to change the law firm business model presents a huge change-management challenge.
Now, at NetApp, for example, we use a pre-signed non-disclosure agreement (NDA). A member of our legal team can pull up an NDA on his or her phone. It’s pre-signed by our general counsel, and it can be signed electronically by the other party. The department leverages ASLPs and technology not only to improve efficiency, but also to drive better law firm partnerships, use and outcomes at the same time.
The arrival of ALSPs, for the most part, finds a willing — or at least open-minded — reception from corporate legal departments. ALSPs are promising efficiency, and we value efficiency. That’s why, in each of the top five uses cases for ALSPs within corporations — litigation and investigation support; legal research services; regulatory risk and compliance services; document review and coding services; and electronic discovery services — the growth in use of ALSPs has at least doubled, and in some cases tripled. While significant growth is also coming from law firms, it’s exploded on the corporate side.
I’m expecting this growth to continue, because of the continuing collaboration within in-house legal departments. I founded the Corporate Legal Operations Consortium (CLOC), which provides networking and educational opportunities for legal operations professionals. It grew from 40 members to 2,000 in just three years.
Collaboration is a Necessity
For in-house counsel, such collaboration is a necessity. We know that ALSPs generally do a very good job. We talk to each other about different ALSPs, about what works, what doesn’t, and what kind of talent the different providers can access. This transparency helps all the in-house lawyers who use ALSPs, and it makes it much easier for the others to get started.
In-house counsel also collaborate internally. We no longer buy legal services and tools department-by-department. Instead, we purchase through a central legal operations team. If one department has a good experience with a new legal service provider, that provider is set up to work with other parts of the organization as well.
Law firms don’t seem to embrace this attitude. I recently asked a partner at one of our outside law firms to use project management software. He told me that was not possible, because his firm didn’t use project management software. I told him that actually, they did — another attorney at his firm, in a different department, had recently completed a matter for us using just that software.
But law firms seem to think that every time they share a shred of information, they’ve giving away a competitive advantage. Inevitably, that makes them slower to come up the learning curve on technology and on new ways of doing business. The research conducted by Acritas for the ALSP study bears this out. In a note, the researchers write: “law firm alt divisions growing fast but most didn’t provide detail.”
For law firms, that’s both the good news and the bad. On the positive side, the firms are experimenting: They’re actively creating partnerships with ALSPs, and among firms who work with alternative providers, one-third say they plan to establish an ALSP affiliate within five years. But if they’d collaborate, law firms could move so much more quickly. And even when promised anonymity, and even if reports of their experience with ALSPs could help the whole industry, law firms don’t want to share what they’ve learned.
In-house attorneys are no longer at the early part of the ALSP adoption cycle. We know what’s available, we know what works, and we know what’s possible. There’s no time to waste. It’s too late for law firms to be early adopters. No one wants to be last. Which means the law firms will act as a herd — or get left behind.