The not-so-alternative Alternative

The idea of going alternative is replacing everything that is traditional. In the next future, will Alternative Legal Service Providers be the norm?

By Anna Marra,  Project Manager, Consultant and Trainer. Director of IE Law School´s Executive Education Management for Lawyers programs

Recent research into the workings of the legal industry indicates that stark changes have been taking place. Over the past ten years, the demand for greater efficiency and client-oriented approaches in legal services have fundamentally altered the industry model. Major firms are now widely dependent on Alternative Legal Service Providers (ALSPs) for a variety of legal and business services, marking an essential shift in the dynamics of the legal market.

One of the main conclusions from the “Report on the State of the Legal Market 2020”—presented recently by the Center on Ethics and the Legal Profession at the Georgetown University Law Center, the Thomson Reuters Legal Executive Institute and Peer Monitor®—is that legal outsourcing services provided by non-traditional competitors are no longer considered an alternative. Instead, they are becoming more and more essential within the legal market.

According to the report—which monitors the most significant trends impacting the US legal market in 2019 and identifies crucial issues that will affect the market in 2020—the legal industry has been undergoing continuous, incremental improvement throughout the past 10 years. Accordingly, the existing model has been adapted sufficiently to meet the expectations new clients have—producing respectable but not extraordinary performance results.

Legal outsourcing services provided by non-traditional competitors are no longer considered an alternative. Instead, they are becoming more and more essential within the legal market.

On the other hand, there is another part of the legal ecosystem that has rejected the traditional law-firm centric approach, in which the pricing and delivery of all legal issues are always under the control of the firm’s partners. This part of the ecosystem, comprised of clients, non-law firm competitors and “new law firms,” has completely disrupted the way legal practice is perceived, shifting the weight from a law-firm-centric approach to a client-centric perspective.

Indeed, the report states that “while it would be premature to say that this new model has become the ‘norm’ for law firms across the market, it is increasingly clear that the market is moving decisively in this direction.” Legal outsourcing services are no longer thought of as supplementary to the legal services industry, but rather, the idea of going alternative is replacing everything that is traditional.

In “Taking the ‘Alternative’ out of Alternative Legal Service Providers,” David B. Wilkins and Maria José Esteban Ferrer reason that the simple use of the word “alternative” to describe many of the innovative practices now emerging in the legal market—such as alternative  providers of legal service and alternative fee arrangements—seriously underestimates the true significance of these developments “as the harbingers of impending dramatic changes in the market.” As such, pinning them as alternative “continues to marginalize and mask their true significance.”

Efficiency, predictability, and cost-effectiveness in the delivery of legal services is the new mantra. And the way to achieve this is to open up the world of legal practice to its newest allies.

 

 

The relevance and reach of ALSPs

Clients and in-house legal departments in particular are pushing for better budgeting and billing, which means law firms need to adopt legal project management and process improvement to cut costs, improve quality, and enhance responsiveness. Legal departments are recruiting experts in legal operations to manage outside counsel relations and are assembling virtual teams of lawyers to handle particular projects.

As the report highlights, teams are now comprised of “lawyers from one or more outside law firms working with designated in-house lawyers and with other non-law-firm service providers (sometimes including project managers, accountants, legal process outsourcers, legal staffing firms, and many others).”

In order to respond to the incoming expectations and achieve a better internal performance, law firms themselves have been building alliances with professionals and specialists from other fields. Almost all firms of any significant size now rely on project managers, process improvement directors, best delivery officers, legal designers, chief financial officers, HR directors, chief technology officers, innovation directors, and pricing and LPM directors. Specialists are considered particularly useful in client-oriented meetings on topics such as pricing, project management and technology adoption.

In order to respond to the incoming expectations and achieve better internal performance, law firms themselves have been building alliances with professionals and specialists from other fields.

The conclusions from the “Alternative Legal Service Providers 2019: Fast Growth, Expanding Use and Increasing Opportunity” survey, edited by Thomson Reuters, indicate that in-house lawyers are contracting more and more alternative legal service providers, or ALSPs, to achieve better pricing and performance. This survey was conducted as a follow-up to a similar investigation conducted in 2017, which was designed to monitor the size and scope of the legal market’s ALSP segment and to measure law firm and corporate usage, as well as the attitudes toward ALSPs.

ALSPs are leveraging different business models, and they come in different shapes and sizes. They range from small startups to massive disruptors, such as the Big Four accounting firms. According to the survey, while law firms contract specialized expertise and highly trained legal judgment, ALSPs may employ contract lawyers for specific time-framed tasks—implementing process improvement or project management across massive volumes of work. They may also contract technological expertise to improve productivity and efficiency.

The survey states that ALSPs represent an increasing and significant segment of the legal industry, with global annual revenues for 2017 estimated at $10.7 billion. The main tasks performed by ALSPs to support legal departments focus on five main areas:

  • Litigation and investigation support (38% of corporations),
  • Legal research services (34%),
  • Regulatory risk and compliance services (32%),
  • Document review and coding services (32%),
  • And e-discovery services (28%).

Source: Alternative legal service providers 2019: Fast Growth, Expanding Use and Increasing Opportunity, 2019, Thomson Reuter, Thomson Reuters Legal Executive Institute

The use of ALSPs in 2019 has expanded significantly in comparison to the 2017 survey. This is the case not only for corporations but also law firms, especially the larger ones. The 2019 survey found that among large US law firms:

  • 65% used ALSPs for e-discovery services,
  • 50% used ALSPs for legal research services,
  • and 52% for litigation and investigation support

Source: Alternative legal service providers 2019: Fast Growth, Expanding Use and Increasing Opportunity, 2019, Thomson Reuter, Thomson Reuters Legal Executive Institute

ALSPs and legal outsourcing services from outside and within

Not surprisingly, for cost, efficiency, and quality purposes, the outsourcing of certain legal services can be more convenient for law firms than providing the services themselves. The most common model for outsourcing is dealing with ALSPs as third-party vendors.

Nevertheless, some law firms prefer to partner arrangements with third-party professionals. According to the 2019 survey, “about half of law firms that use ALSPs for either intellectual property management or specialized legal advice provided by licensed lawyers do so via partnership.” The partnership approach was also preferred by over 40% of law firms using ALSPs for litigation and investigation support purposes, legal drafting services, and e-discovery.

Conversely, some law firms recognize that potential new business models have to transform the industry and they have established their own in-house ALSPs. The State of the Legal Market Survey identifies this trend as the creation of “Captive” Subsidiaries for Legal Related Services.

As an example, the survey details how Allen & Overy “launched several such entities, including A&O Consulting, Aosphere (for regulatory and legislative tracking worldwide), Fuse (for technology innovation and solutions), and Peerpoint (for legal talent access)—all packaged under the firm’s Advanced Delivery Solutions.”

Other examples include Denton’s Risk Consulting, promoted by Denton “to join a number of other similar organizations pioneered by the firm,” and Konexo, described as “an alternative legal services provider” created by Eversheds Sutherland. The firm has also launched new subsidiaries Eversheds Sutherland Consulting and Eversheds Sutherland Ignite which both deliver services for in-house law departments.

What will happen in the next decade? Clients will continue to be the drivers of change, while the new legal industry model will be based on collaboration and the pursuit of efficiency and productivity.

A future based on efficiency and collaboration

Legal project management, efficiency and profitability, pricing strategies, delivery of legal services, re-engineering of work processes, and technology for automatization, prediction, and innovation have all become keywords in the strategic agenda for all law firms that want to remain competitive. Nonetheless, the survey’s conclusions highlight some troublesome trends, such as an increasingly lackluster performance in demand-based growth, a constant negative performance in productivity, an increasing rate of growth for direct and indirect expenses, and the limited access to resources needed to deal with any serious economic downturn in the future.

What will happen in the next decade? Clients will continue to be the drivers of change, while the new legal industry model will be based on collaboration and the pursuit of efficiency and productivity. As the survey predicts, the new model will be “open to developing multidisciplinary approaches; more aggressive in pursuing technology-based solutions; more committed to value-based pricing; more focused on outcomes, and more committed to continuous work process improvements.” In this new model, legal project management will be key.

 

Anna MarraAnna Marra is a PM trainer and consultant for private and public organizations. Anna was a pioneer in proposing the discipline of Legal Project Management to improve performances in law firms and in-house legal departments. In 2017 she became Councilor of the LPM Global Advisory Council of the International Institute of Legal Project Management (IILPM). Presently she is IILPM Accredited Training Provider (ATP). Anna is author of various publications on legal project management, corporate social responsibility, and strategy for law firms.

Note: The views expressed by the author of this paper are completely personal and do not represent the position of any affiliated institution.