A lot of the attention paid to the recently released 2017 Report on the State of the Legal Market has focused on the discussion of the fate of the billable hour. While drawing less attention, the discussion around the erosion of the law firm franchise is no less significant.
The report discusses the increasing willingness of clients to explore new strategies to “enhance the value they receive for the ‘legal spend.’” Clients are increasingly examining their traditional workflows to determine what portions can be disaggregated from traditional delivery models and farmed out to alternative vendors. Work that once would have gone to a law firm, or in some instances, work that a law firm never even had a chance to win because it’s been farmed out from the beginning, is driving a wedge between law firm and their clients.
The use of alternative vendors has resulted in much more of an ad hoc transactional relationship with clients than was common in the past, when one firm would handle all aspects of a client’s matter from start to finish. Increasingly, the law firm can be looked at as simply one more vendor providing legal services to the client, rather than as a trusted advisor and business counselor.
Another recently released report highlights the role these new alternative legal service providers (ALSPs) are playing in the market. The 2017 Alternative Legal Service Provider Study examines this emerging segment of the legal marketplace, and what it may mean to the traditional law firm franchise.
In one of the first key findings from the ALSP study, nearly 61% of corporations surveyed reported they are already using some sort of alternative service providers for at least one task. The services provided by these ALSPs range from the more mundane, such as basic corporate filings and compliance, to much more specialized cases where ALSPs are actually providing subject-matter-expert attorneys to corporations looking for expertise not present within their walls.
Nearly 61% of corporations surveyed reported they are already using some sort of alternative service providers for at least one task.
Corporations are also mandating that their outside law firms use ALSPs for tasks that the firm traditionally may have staffed themselves. For example, more than a quarter of law firms that participated in the study reported that they used ALSPs for tasks like litigation support, document review and eDiscovery. Of those firms, nearly a quarter or more reported that the use of ALSPs was due to client mandates. As one law firm partner stated: “Clients are increasingly developing their own panels and requiring their law firms to work together with their providers. So, the choice of whom we get to use is not our choice in those cases.”
This isn’t to say that all law firms are hesitant to get in the ALSP game, though. Nearly one in 10 law firms in the survey reported that they had created an affiliated entity to function as an ALSP to try and meet some of this client demand. A great many more have adopted what is commonly referred to as a “supply chain management” mentality. With this approach, law firms look to help their clients oversee the work of the multiple vendors, managing the relationships and ensuring the quality of the output, while not sacrificing the degree of strategic control the firm would lose if they missed out on the work entirely.
One partner summed up this approach quite nicely: “Why would we want to give away revenue? We also think there’s a danger to letting somebody else into activity with clients. We think an integrated proposition is one the clients like as opposed to having to manage two or three providers.”
There is no doubt that the law firm’s role as an advisor to its clients is shifting. The real question is how much influence does the law firm want to have over the impact of this shift. Obviously, the traditional law firm franchise has changed — but that change also represents new opportunity for those law firms willing to pursue it.