As you may already know, Elevate recently released a new tool: a legal-industry-specific crystal ball that lets you see into the future awaiting law departments and law firms. OK, we didn’t. But we do track industry trends, and we hope sharing that information helps you anticipate, prepare for, and respond to emerging challenges and opportunities.
Headcount is rising at many law departments, including legal operations teams, which must contend with greater workloads to support growing, fast-moving, increasingly digital businesses, especially around compliance, where regulatory requirements proliferate (particularly those related to data security and privacy).
The Great Resignation makes it challenging for law departments to find, secure, and retain talent. Law department lawyers report spending too much time on non-complex, rote, low value-add activities and automatable tasks.
Outside counsel rates continue to rise (both to cover increased salaries and maintain record-level profits as law firms compete in the war for talent).
At a minimum, law department leaders want access to real-time, actionable data to allow them to better manage and control their department’s activity, performance, and costs. Many want to seamlessly integrate their law department digitally with the business.
To capitalise on the opportunities that will positively impact their organisations and the industry at large, general counsels’ collective goals include:
- Ensure the highest and best use of their lawyers
- Operate digitally, integrated with the business
- Gain better control of legal spend
- Leverage data and AI to analyse law department and outside counsel activity and performance to achieve strategic business advantages
- Manage and prepare for emerging data-related risks
- Improve legal operations’ strategic capabilities.
Though many firms earned record profits in 2021, firms now face formidable challenges in several areas. It seems that practically every law firm is contending with unprecedented competition for talent amidst the ongoing ‘salary wars,’ which have sharply increased structural overhead expenses. Yet associate (and more senior) lawyer turnover is high. Lawyer productivity is stagnant. The Big 4 continue to make inroads into the law services market. The pressure to spend more on legal tech is rising due to growing client expectations concerning firms’ use of technology. Any firms that fail to need to match competitors’ superior capabilities beyond legal services (e.g., collaboration technology, more efficient processes, etc.) risk falling behind.
Meanwhile, several trends threaten to eat into law firm revenues and profits. Clients are clamouring for low-cost services; they are also pushing back against attempts by outside counsel to increase rates. Many firms have substantial room for improvement with revenue realisation. If all that wasn’t enough, ‘insourcing’ by law departments – whereby corporate clients take various work in-house and away from their outside counsel – means less work and potentially lower earnings.
Legal technology and legal services outsourcing are proliferating, improving speed, increasing efficiency, lowering costs, and reducing rote work – allowing law departments and law firms to truly achieve ‘more for less.’ The trends affecting law departments and law firms will likely drive further growth. Although law companies, ALSPs, and captives have a mere one per cent of the US$850B global market for legal services, they continue to enjoy strong demand for their services, now used by 79% of law firms and 71% of law departments. Captives have a 3% market share of the alternative service delivery market, yet a CAGR approaching ~30%. Even with a larger market share (10%), the Big 4’s CAGR hovers around 8%. For law companies and ALSPs, with almost 90% of the market, their CAGR stands at 15% (up from 12% five years ago). Overall, the alternative service delivery industry is growing at a CAGR of 15%.
However, law companies cannot rest on their laurels. As noted last week by Richard Tromans writing in Artificial Lawyer, the Big 4 enjoy significantly higher awareness and favourability ratings than the leading law companies. Law companies must accept that the Big 4 now compete and collaborate in legal operations, just as law firms have accepted that the Big 4 compete and collaborate in legal advisory. The significant cost advantage law companies enjoy compared to the Big 4 will not be enough in the future. Law companies must also build well-known, trusted brands that confidently reflect their promise to deliver innovative solutions, based on domain and sector expertise, knowledge of the customer’s business and superb customer service, and useful technology.
The Big Picture: What Next?
For law departments and law firms, the opportunity and capabilities available to improve efficiency, boost productivity, and lower costs have never been greater. The last few years have reminded us that the world is Volatile, Uncertain, Complex, and Ambiguous (VUCA). Consequently, it is more important than ever to optimise processes and adopt legal tech and service solutions that achieve realistic financial ROI, provide real-time actionable insights, make an impact, and offer flexibility to operating models and costs. Even though we don’t have a crystal ball, we are confident that, given the current trends, we can expect to see growing deployment of legal technology, greater use of law companies, more competition, and collaboration between all the different players in the legal ecosystem.
 And we keep an eye out for in-depth reports on the industry, such as the 2022 Report on the State of the Legal Market, by the Center on Ethics and the Legal Profession at Georgetown University Law Center and the Thomson Reuters Institute, issued 11 Jan. 2022, available at https://www.thomsonreuters.com/en-us/posts/wp-content/uploads/sites/20/2022/01/State-of-Legal-Market-Report_Final.pdf.
 See “In-House Experts Weigh In on What to Watch in 2022,” Corporate Counsel 22 Dec. 2021, available at https://www.law.com/corpcounsel/2021/12/22/in-house-experts-weigh-in-on-what-to-watch-in-2022/; 2022 Chief Legal Officers Survey, Association of Corporate Counsel, summary available at https://www.acc.com/sites/default/files/2022-01/ACC_CLO22_Flyer_Final_0.pdf.
 See 2022 Report on the State of the Legal Market, (cited above); for a UK-specific view, see State of the UK Legal Market 2022, issued 14 Apr. 2022 by the Thomson Reuters Institute, available at https://www.thomsonreuters.com/en-us/posts/legal/uk-legal-market-report-2022/.
 Alternative Legal Service Providers: 2021 Report, Thomson Reuters Institute, the Center on Ethics and the Legal Profession at Georgetown Law, and the Saïd Business School at the University of Oxford, 11 Feb. 2021, available at https://www.thomsonreuters.com/en/press-releases/2021/february/alternative-legal-service-providers-are-quickly-becoming-mainstream-for-law-firms-and-corporations-creating-a-14-billion-market.html.
 “ALSPs? Big Four Are The ‘Dominant Brands.’” Artificial Lawyer 14 Apr. 2022, available at https://www.artificiallawyer.com/2022/04/14/alsps-big-four-are-the-dominant-brands/.
It is more important than ever to optimise processes and adopt legal tech and service solutions that achieve realistic financial ROI, provide real-time actionable insights, make an impact, and offer flexibility to operating models and costs.