If corporate legal clients are in fact demanding greater value from traditional legal services providers, one might expect to see such clients: (1) shopping around more actively for outside counsel and (2) more frequently allocating billable work to more cost-effective alternative legal services providers (“ALSPs”). Have we seen those results? Yes, and no.
We have indeed witnessed corporate counsel on the prowl for more affordable outside counsel. This trend seems fairly consistent and pervasive. In the recently released 2018 ACC Chief Legal Officer Survey, it was reported that 1 in 3 chief legal officers (CLOs) terminated outside counsel for failing to meet expectations in 2017. Most of that work was reallocated to another provider or law firm. According to that same survey, 43% of CLOs are definitely planning or considering termination of an outside provider or firm in 2018. Similarly, Deloitte’s June, 2016 Global Research Study “Trends for Legal Services”, a survey of 243 legal services purchaser, reported widespread dissatisfaction with outside legal counsel. The majority (55%) of survey participants had undertaken, or were considering, a significant review of their legal suppliers at the time of the survey.
While CLOs often suggest that they favor ALSPs for their efficiency and cost-effectiveness, actual spending on ALSPs, as reported by CLO’s in Altman Weil’s annual survey, has decreased since its height in 2014. In 2017, actual corporate utilization of ASLPs was reported at its lowest level since 2012. CLOs are publicly praising ALSPs, but the underlying trend in corporate legal spend, tells a different story.
It seems corporate clients are fundamentally dissatisfied with traditional legal service providers, but their collective embrace of ALSPs has approached it’s zenith, at least for the time-being. What’s the explanation for the sputtering of the ALSP engine? Well, one possibility is that traditional firms are benefitting from a durable post-great recession grace period. Clients are dissatisfied, but instead of fleeing en masse, they have adopted a hopeful “wait and see” mindset as law firms work to adapt to the new landscape. Sounds dubious.
Another potential, and we think more likely, explanation proposed recently by Jordan Furlong on his fabulous Law21 blog (we are fans, Jordan!), is that we are entering the “the end of the beginning of legal market change.” In other words, the potential “disintermediation” of the legal market has been largely realized. There is only so much “routine” legal work that can be performed by non-lawyers/ALSPs — the rest is “complex” and requires the full attention of more traditional legal services providers. We generally agree with Furlong’s “end of disintermediation” framework and theory, but we’d like to build upon his ideas with two brief observations.
First, we think that disintermediation will persist as innovation transforms work previously considered “complex,” into routine, run-of-the-mill processes. The nature of legal work of all stripes is changing rapidly due to technology. Artificial Intelligence and Machine Learning allow lawyers to see issues more quickly and clearly, and process technologies can break complicated projects into modularized and simplified chores. And innovation in these, and new, areas will only continue to accelerate. As a result, work that is “complex” today will quickly become “routine” tomorrow through innovation. Disintermediation, then, hasn’t come to an end, but will instead continue at a pace roughly pegged to the speed of innovation in legal technology.
Second, even work that is properly classified as “complex”, and thus ill-suited for ALSPs, can be effectively deconstructed and partially addressed with the appropriate technology applications. This reality introduces another type of disintermediation. Law firms all largely look and operate the same way, at least with respect to work processes. In the future, that will absolutely change. It is already changing before our eyes. Tech-enabled lawyers and law firms can and will win market share from traditional law firms by leveraging technology tools to simplify complex work into more digestible and affordable units of legal work. This trend will unfold, ultimately creating a new, intermediate layer of service provider that sits between ALSPs and traditional law firms. Legal work won’t be properly categorized in the binary “complex” or “routine” framework, divvied up among only traditional law firms and ALSPs. Rather, it will be sorted into three or more (at the very least, “complex”, “intermediate/tech-enabled” and “routine”) different tranches of work, performed at various price points by different legal services delivery models. And, again, innovation will swiftly move certain legal tasks downstream from one bucket to the next.
Therefore, while we agree with the notion that ALSP market share can halt because there is a limit to the amount of “routine” work that can be disintermediated at any given time, we’d like to point out that: (1) the relative amounts of “complex” and “routine” work are not static over time; and (2) a second type of disintermediation, in the realm of non-routine work, is already occurring, in both cases as a result of the practical adoption of process innovation and technology.
