ALSPs Help Firms Go After "High-Hanging" Fruit

In his book, The Lean Startup, Eric Ries popularized the concept of developing a minimum viable product, or MVP, to expose customers to a new product and gather feedback before building out lots of new features and functions. The MVPs that most corporate legal departments first sampled from companies, such as Lexitas, that came to be known as ALSPs, were forms of e-discovery and document review services and/or technology offerings.

The increased utilization of alternative legal services providers (“ALSPs”) for such services—which were traditionally performed by law firms—came as a result of corporate buyers looking to create more value and efficiency from their procurement of legal services. They shifted from a “one-stop shopping” approach to one in which they see the delivery of legal services as part of a supply chain. Today, corporate legal departments continue to look for ways to unbundle legal services and direct legal work to the provider best suited for the task. Legal matters, even highly complex ones, are increasingly seen as projects that consist of discrete tasks, and more value can be derived by allocating those tasks across a spectrum of legal services providers with unique skill sets.

As a result, utilizing an ALSP for e-discovery is now standard practice in most litigation matters above a certain size and scope. Document review for transaction due diligence and pretrial discovery is routinely outsourced to ALSPs. E-discovery and document review are low-hanging fruit in the legal supply chain, because almost everyone now recognizes the technological, human expertise, and project management efficiencies that ALSPs can bring to those functions.

As companies become more sophisticated at how they buy legal services, they are gaining bargaining leverage. Many law firms, in turn, are adjusting how they do business. Many firms are proactively finding ways to partner with ALSPs to create new efficiencies and generate more value for clients. For example, firms are engineering new operating models whereby they are retaining complex parts of litigation and transactions and outsourcing more routine work to ALSPs. Law firms that aren’t adapting will have change forced upon them by their clients.

Moving forward, as corporate legal departments continue to explore not just Who can do what? but, more importantly, Who should do what?, it will be increasingly incumbent on law firms to deliver more value in the type of sophisticated work they do best. In other words, they must focus more intently on the high-hanging fruit of legal services.

As law firms shift their focus to more complex work, ALSPs will also continue to evolve their business models to offer more “high-hanging fruit” solutions for clients, helping both law firms and corporate legal departments, alike, generate more value. According to the “Alternative Legal Service Providers 2019” study by Thomson Reuters, Georgetown Law Center on Ethics and the Legal Profession, and Acritas, “ALSPs are steadily moving up the legal value chain to offer more sophisticated services.” In particular, ALSPs like Lexitas will play an increasingly important role in providing law firms and corporate legal departments with the specialized expertise they need—in the form of talented lawyers—that allows existing members of their teams to be allocated to their highest and best use.

Law Firms Pivot and ALSPs Plug-In the Gaps

In February, the law firm Irell & Manella announced that it was abandoning most of its transactional practices in an effort to focus almost exclusively on high-value litigation work. It decided to pivot toward high-hanging fruit. “This strategy positions us to continue achieving outstanding results for our clients while supporting our team of top-flight attorneys,” the firm said in a statement.

In an era when the biggest firms are getting bigger, Irell & Manella is among a growing number of midsize firms turning to narrowly focused practice specialization to remain relevant and drive profits.

While narrow specialization can be an effective strategy in an era of disaggregation of legal tasks and disintegration of institutional relationships between law firms and clients, there are still instances when specialty firms require expertise beyond their narrow scope in order to serve clients. For example, a law firm that provides only corporate mergers and acquisitions expertise may still need an ERISA expert to assist with deals from time to time, but not so often that it makes economic sense to have one on staff full-time. When such expertise is required, an ALSP can help plug-in the gaps with ERISA expertise on a contract basis.

On the other end of the spectrum are full-service law firms whose value proposition is based on the promise of providing all forms of expertise that a client may need—a true one-stop shop. However, such firms often face the same challenges as their more narrowly focused counterparts. They can’t always keep their specialists operating at full capacity. Instead of maintaining excess capacity that drags down profitability, full-service firms can work with ALSPs to add temporary lawyers when circumstances call for them, reducing fixed costs and increasing profitability in the process.

Corporate Legal Departments Focus on Highest and Best Use

A secondment involves a seasoned, highly-skilled lawyer temporarily joining a corporation’s legal department for a predetermined project or period of time at a set rate. Through secondments, corporate legal departments are getting the hands-on, specialized expertise they need, often at a lower cost than traditional outside counsel and without the overhead associated with hiring more full-time staff.

The use of secondees has increased dramatically in recent years for a number of reasons. Some of the reasons are economic. Engaging a secondee rather than adding a full-time lawyer is an effective way for corporate legal departments to convert fixed costs to variable ones. Other, and perhaps more important, driving forces are strategic. In particular, having access to more specialized talent through ALSPs allows corporate legal departments to allocate more work among their full-time, in-house lawyers according to fitness for purpose.

Over the last decade, many corporate legal departments have effectively leveraged ASLPs and legal technology to remove low-hanging fruit from their plates. Now, as in-house lawyers are elevated to working on more complex tasks (things that may have traditionally been outsourced to law firms), they are looking to ALSPs to provide more services—such as finding talented contract lawyers—to add even more value.

Conclusion

The driving force behind innovation in the legal industry in recent years has been a desire for more value in the delivery of legal services. While controlling fees and leveraging technology are important factors in value creation, the most important driver of results is elevating people to their highest and best use. ALSPs will continue to play a pivotal role in the process of right-sourcing human capital in law firms and corporate legal departments in 2020 and beyond.