As David B. Wilkins and Maria José Esteban Ferrer detail in this issue’s lead article, the term “alternative legal service provider” (ALSP) can be misleading. Not only are these so-called “alternatives” increasingly used across the legal ecosystem by clients of all sizes and types, but many of today’s major ALSP players have in fact been around for decades. For example, legal staffing companies Axiom and Legility (formerly Counsel on Call) were both founded in 2000—nearly 20 years ago. Similarly, a number of other independent legal process outsourcing (LPO) companies were founded around the turn of the century, including Integreon (1998), Consilio (2002), and Quislex (2004). And even newer companies like UnitedLex (2006) and Elevate (2011) are hardly overnight sensations.
Despite this long history, however, there is evidence that the last half-decade has produced a sea change in the legal services market through the emergence of ALSPs. (We will continue to use this acronym to describe these new players for the sake of convenience.) In addition to Wilkins and Ferrer’s research, a recent report—published by the Thomson Reuters Legal Executive Institute in partnership with Georgetown University Law’s Center on Ethics and the Legal Profession, the University of Oxford Saïd Business School, and the legal research firm Acritas—provides context and scope around this development. One powerful takeaway was how much the market has made room for these new (and not-so-new) players: in total, 2017 saw ALSP revenues of roughly $10.7 billion, up from roughly $8.4 billion just two years prior. Put another way, in 2017, clients spent $10.7 billion on legal services from entities that were neither law firms nor their own in-house lawyers—and that was $2.3 billion more than they spent in 2015. Describing his then-13-year-old company in a 2013 interview, Axiom founder Mark Harris said, “We are finally … in the game, but the game is not going to be decided for a while. I genuinely feel we just got to the starting line.”
The term “alternative legal service provider” can be misleading.
While the trajectory of these new entrants has been taken by some as the latest death knell for big law, their growth is rooted in a familiar force within the legal profession—client demands for cost-effectiveness and, increasingly, value-based legal services. Much is made of the ALSPs that are helping to transform the delivery of legal services—and rightly so—but it is likewise important to examine why clients are now willing to pay them and trust them with their business. Indeed, one vital thread in the story of today’s ALSPs takes place in the offices of their would-be clients: How have clients come to think about ALSPs in the context of their business needs and what can that tell us about the future of the market for legal services?
How clients have evolved
As we have documented here in The Practice, the in-house counsel movement that began in the United States in the late 1980s and early 1990s and then spread around the world fundamentally changed the corporate legal ecosystem by putting clients in the driver seat of the market for corporate legal services. Law firms, while still critical, were increasingly challenged by corporate legal departments who became both the chief diagnosticians of their companies’ legal problems and the chief purchasing agent responsible for solving them. On one level, this shift had direct impacts on the traditional suppliers of outside legal services—law firms—including, for example, around the importance of specialization. On another level, however, the movement instigated a broader and more far-reaching overhaul of how companies sourced legal work, both internally and externally. Many of these changes have direct connections to the rise of ALSPs in the last 10 to 15 years.
At the beginning of the 21st century, in-house lawyers operated in a different environment from their present-day counterparts. Back then, the thinking was largely that they were hired as lawyers and should be able to handle most legal problems that came their way. If a legal matter required outside help, there was likely a list of preferred-provider law firms to choose from that would offer specialized and multifaceted (and expensive) support. In this sense, workflows were relatively simple: work was either done in-house or outsourced to a law firm. “There was a time when organizations—meaning the people in the organizations—might not have felt as empowered to look too far beyond the ranch for what support or resources might be available to them,” says Kurt Grasinger, a senior manager at Booz Allen Hamilton who oversees legal operations and strategy. “Many in-house lawyers 15 years ago might not have considered something like an ALSP even to be on the table when considering their resourcing needs. Now, it’s almost an expectation of management that they consider the full universe of options—including ALSPs—to solve each problem.”
“In the beginning, it was difficult because we were changing the traditional model,” says Jamal Stockton, head of Legal Innovation at Fidelity Investments.
A significant part of this shift in approach had to do with who was increasingly in the room. Concurrent with the rise of ALSPs, the legal profession has seen the rise of “legal operations,” a growing function within corporate legal departments whose influence and proliferation is marked by the establishment of organizations like the Corporate Legal Operations Consortium (CLOC). These legal operations professionals—such as Grasinger—were most often specifically tasked with managing the budgets of corporate legal departments, systemizing the management of vendors (such as law firms or ALSPs), and devising strategies to increase the efficiency of legal spend without harming quality. Legal operations (also known as “legal ops”) is about building capacity within organizations to think critically about their legal spend from every possible angle. “As the legal ops function has grown in the last 10 to 15 years, there’s this drive to not only make legal departments more efficient but to also be more thoughtful and value-minded about evaluating each problem and then assembling the right mixture of people for each, as defined by the needs of the issue and the in-house team,” says Grasinger. To address all factors contributing to their organization’s legal spend, legal operations must weigh both internal considerations, such as how to staff issues, as well as external considerations, such as what types of organizations can and should handle the company’s various legal work. Increasingly, that deliberation means considering ALSPs in addition to law firms.
Often, this inclusive mindset extends beyond simply the type of legal service provider. As part of their effort to improve the impact of their organizations’ legal spend, many in legal operations are trying to advance diversity and inclusion through their purchasing decisions. CLOC, for its part, maintains a diversity and inclusion (D&I) best practices team for the benefit of its members, which weighs D&I approaches through the lenses of data collection, recruitment, mentoring, and others. “It’s something we consider when we think about our law firms,” says Grasinger. “To the extent that there are opportunities to consider diverse ALSPs—I know for law firms we have things like Mansfield Rule certification—we want the ability to factor that in.”
Of course, all this change did not happen overnight. “In the beginning, it was difficult because we were changing the traditional model—one that was based on trust and so familiar to so many,” says Jamal Stockton, head of Legal Innovation at Fidelity Investments and a board member of CLOC. “Getting people to accept a new model is a challenge.” One of the goals for Stockton, a mechanical engineer by training with a background in process engineering, consulting, and technology design, is to help Fidelity’s lawyers understand the value of process. And, although convincing lawyers to change how they do legal work may present challenges all too familiar to legal organizations across the profession, internal lawyers have their own motivation to be receptive to what legal operations is trying to accomplish. “There’s much more pressure on folks who are providing advice and counsel internally to work faster, to participate in more meetings, to answer more phone calls,” says Stockton. “Once that pressure is put on them, they start to ask the question, How else can we get this work done? And we [legal operations and innovation teams] are the how-else-can-you-do-the-work people. Now they come to us.”
“There was a time when organizations might not have felt as empowered to look too far beyond the ranch,” says Kurt Grasinger, a senior manager at Booz Allen Hamilton.
Legal operations’ focus on process and value has helped fundamentally change how clients think about their legal work. “For most folks that journey started with e-discovery,” Stockton says. E-discovery was a prime candidate for optimization—a rote task that required comparatively little legal expertise but needed to be done frequently. The combination naturally lent itself to systemization and thus a lower-cost alternative to law firms was born. Once clients adopted a more process-focused mindset in their quest for better value from their legal spend—and had the internal personnel to act on behalf of that mindset—their eyes opened to a sea of other service providers prepared to do that work for a fraction of what they were spending. “The second we were able to understand what the value and the impact of doing that work was and the fact that other providers could do the work, then we said, ‘OK, we can really unbundle this,’” says Stockton. “That’s when the ship sailed.” By that point, he explains, the hurdle posed by the novelty of then-burgeoning ALSPs became much easier to overcome:
We still need law firms to do work for us. The question becomes what type of company do we go to based on the type of work that we are looking to get done. If ALSPs are doing legal work for us, and they can deliver the same quality of work at a lower cost, then we can begin to assess impact and value and move past the trust metric—which is still so critical in today’s billable-hour model. The evaluation process for similar services becomes easy to measure and in turn makes the decision about where to send the work data driven. Then we repeat this service selection process for every new activity we evaluate internally.
While, as Stockton recalls, the journey largely began with e-discovery, clients eventually turned to reexamine other aspects of their legal work. “It raises the question, What does the entire process look like before you get to e-discovery?” Stockton explains. Meanwhile, ALSPs began to scale up and explore new service offerings to match their clients’ needs and keep pace with this developing, process-driven mindset. Over time the approach to rethinking internal processes for legal operations became end to end—from intake to close. Stockton continues:
When it is an end-to-end approach, an observation is made along the lines of, “Wait a second. There are activities that our attorneys are doing at the intake process that are extremely manual-labor intensive and taking up a lot of their time, and this is something that we can have a more-junior associate on a different type of track work on.” It makes us much more efficient but also lowers our cost and gives our attorneys capacity back to focus on lawyering. That was a monumental shift in thinking for us.
Diane Brown, vice president for legal strategic and shared services at Fidelity, works closely with Stockton around legal operations generally and legal staffing specifically. As she explains, this shift to end-to-end thinking had widespread impact throughout Fidelity’s legal department, including around staffing. “If additional support or resources are needed, we have a process that includes a staffing committee to address the need,” Brown says. “A solution for a resource need might be utilizing an ALSP, or maybe not. We no longer have the mindset that adding headcount is always the answer. Instead, it’s about making sure that you understand the need and have fully examined all possible resources. Ultimately, we’re trying to determine whether internal shifts in work to give attorneys capacity back is warranted and possible or if an ALSP is the optimal solution.” Again, this shift was matched by the growth of ALSPs that, like the aforementioned Axiom, were increasingly able to provide high-quality services with experienced and talented lawyers (for more, see “The evolution of ALSP careers” below).
While the journey largely began with e-discovery, clients eventually turned to reexamine other aspects of their legal work.
Fidelity is far from alone, as many large legal clients have undergone similar transformations since the turn of the century. Where once virtually all of an in-house legal department’s work was done between internal lawyers and a small number of law firms, today clients are rethinking how they handle legal work from start to finish. As legal operations professionals have entered the picture to augment in-house legal departments, companies are more conscious of their own processes, more discerning when they need to purchase legal services, and more capable of arriving at truly cost-effective solutions. No part of the process is above scrutiny and no service provider is off the table. Through this evolution, clients have helped opened the door for ALSPs to flourish.
The evolution of ALSP careers
There is another shift underway in the ALSP space—one with respect to ALSP careers. Not only are ALSP careers changing in substance but, as law firms and in-house legal departments begin to incorporate greater flexibility in their own ranks, perceptions around lawyers from ALSPs are evolving as well. “Historically, there was a perception that lawyers went to contract work simply because they had no other options,” explains Brown. “There must be something lacking or there is a perceived issue. I can say, over the years, I’ve seen a shift away from that.” Brown continues:
People are learning that there are attorneys taking the contract route simply because of life events. Maybe the individual is coming back from starting a family, and this is a way to get back into practice. Or maybe the individual wishes to reset their career path and this is a way to have an income but also affords more flexibility to explore and test other options. More simply, it could be a means for an attorney to have balance in their life but still stay in the game. Perceptions have grown quite a bit in terms of recognizing that attorneys are in the contract model for any number of reasons, and it’s not simply because they’re undesirable or incapable.
“A lot of ALSPs have experienced, credentialed lawyers,” says Grasinger, echoing Brown. “They often also have a flexibility model that many find attractive, both on the client side and on the employee side as well.” For these lawyers, ALSP career paths are now often a deliberate and satisfying choice. Perhaps they miss out on the partner-track aspect of working in big law, but they might just as well say that is for the better. “I know good lawyers at ALSPs for whom it was still important to be professionally engaged with solid, cutting-edge work,” adds Grasinger. “And yet, they also had the flexibility to say, ‘OK, now I’m also able to pivot more of my attention to these other things that are going on in my life.’”
In light of these shifts, the question for legal service providers—ALSPs and law firms alike—has turned to: What are these operations- and process-minded clients looking for? Value to the client is often the primary driver, which includes a metric of cost but is ultimately a more multifaceted calculation. (After all, a service can be expensive and valuable just as it can be cheap and worthless.) Indeed, while the element of cost is always present, there are a number of other related and often-overlapping dimensions at play in the value equation.
Efficiency. As a component of cost-effectiveness, clients are looking for efficiency. “We want the right people to be doing the right job,” says Brown. Clients are becoming increasingly vigilant when the task and talent do not match up—and often it is too much talent for too little a task. “This is something we have done in the past,” adds Stockton. “The question now is, do you need a lawyer to go get that answer for you.” The guiding principle for clients and their legal operations professionals is to minimize entropy in the resolution of their legal matters and ensure all players are operating at the tops of their respective capabilities—and that means efficiency in both process and human capital.
Flexibility. As clients reevaluate their processes—and how they handle each piece within each process—the ability of service providers to adapt to and even help facilitate that flexibility is key. At Fidelity, this mark of flexibility is embedded into how they think about staffing their matters. Among her many roles, Brown oversees the department’s flexible staffing program. “It’s a staffing model that truly is flexible because we’re able to service the entire department regardless of practice area,” explains Brown. “As the department evolves and strives to be more efficient, ALSPs can help during those transitional phases—avoiding the need to lean on law firms or hire permanent staff. The program effectively flexes with the department.”
A service can be expensive and valuable just as it can be cheap and worthless.
Expertise. In both Thomson Reuters’s 2017 and 2019 studies of the ALSP market, corporate clients (and law firms, for that matter) cited the need for specialized expertise as a top motivation for engaging with ALSPs. When the 2019 study broke this down by function, 60 percent or more of corporate survey respondents who had used ALSPs reported “access to specialized expertise” as a reason for hiring ALSPs for legal research, regulatory risk and compliance, and litigation and investigation support—the top driver for each function. As clients reconsider their own processes and staff, there is perhaps a recognition that some specialized expertise can sustainably exist not just outside the legal department but outside law firms as well. Per the 2017 study: “This includes technical expertise in areas such as e-discovery, as well as process or industry knowledge in areas such as regulatory compliance or M&A consulting.”
Quality. Undergirding all these factors is quality, whether the service in question is provided by a law firm or an alternative provider. Those who are providing alternatives to existing institutions and practices—as well as those who would like to preserve them—are often relentlessly focused on cutting costs. At the same time, it can be difficult to effectively reduce costs without having clear standards of quality. In the legal profession, these standards have been based on either “inputs” (for example, credentials, reputation, the time it takes to produce a service) or subjective measures of “outputs” (for example, “I know it when I see it”). But neither is sufficient to drive real innovation nor to understand what aspects of traditional practices should be maintained. As a result, developing and implementing objective output-based measures of quality is critical. Stockton notes that Fidelity, for example, has a set of metrics and systems in place pertaining to precision and recall in e-discovery used to determine the accuracy of document review across service providers, internal staff, and contractors. “We use this quantitative measure of quality to understand when a matter should stay in-house versus going to an ALSP and which provider it should go to.” These metrics help determine whether to go to a law firm for these tasks (though research suggests that automated processes are often more accurate for tasks like e-discovery) as well as judge between alternative providers.
Flattening the hierarchy
These goalposts in the era of legal operations help explain the growth and mainstreaming of ALSPs currently underway. As Wilkins and Ferrer’s eponymous argument suggests, we might do better to do away with the “alternative” framing altogether. More significantly, it is the mindset around legal purchasing that has changed. The old human-capital-centric mindset approached problems primarily in terms of which and how many lawyers will deliver the needed solution. The mindset of clients today, however (and certainly that of many ALSPs), appears to have evolved to put process at the center of their thinking. For clients, the key dimension is quality—both quality of the process being applied and quality of each piece within it—and the culture change described above has enabled them to seek quality from a variety of new sources.
While in one sense law firms are squeezed into an increasingly competitive market, in many ways they remain well positioned even as these changes take form.
That is why, to Stockton, the term “alternative legal service provider” has drifted far enough from its original context that it no longer applies to his thinking from a legal operations standpoint. “It might have meant something years ago when law firms were seen as being at the top of the hierarchy and there were very few ALSPs” he says. “But now the market has caught up to law firms and expanded the providers from which we may seek services.” He continues:
The company we go to will depend upon the service that we are looking for. If we need specialized legal advice, we will always go to a law firm. But if we’re looking to do any sort of repeatable and predictable work that involves the collection and analysis of data or black-letter-of-the-law legal work, we now have a plethora of other options to choose from. That’s why “alternative legal service provider” doesn’t mean anything anymore. These businesses are offering different services to meet our needs. With our bottom-up thinking about evaluating activities, it’s really about which company aligns to the activity and outcome we’re trying to achieve.
While in one sense this mindset squeezes law firms into an increasingly competitive market, in many ways they remain well positioned even as these changes take form. After all, law firms have their own value propositions when it comes to quality. By way of example, Grasinger recalls a meeting with an in-house lawyer and a businessperson within the same organization to discuss resourcing options for addressing a legal problem. The businessperson suggested simply going with the provider offering lower hourly rates and staffed with a large bench of professionals, to which the lawyer responded, “I could do that, or I could call up my trusted law firm partner. She charges a much higher rate, but her deep expertise and knowledge of our business means that I can talk to her for 10 minutes and she’ll spend an hour writing me an email detailing exactly what I need to do. Higher rate, but likely a much lower total cost, and I can be equally or even more comfortable with the result.” Grasinger adds, “But of course, what resource or resources that an organization selects depends on the nature and needs of the case.” The question of whether law firms ought to be the sole go-to legal service provider comes back to the specific need and often depends on the task at hand.
Back to the future: Law firms as alternatives
It is important to remember, as Wilkins and Ferrer note in “Taking the ‘Alternative’ out of Alternative Legal Service Providers,” that law firms are in many ways the original alternatives. Fast-forward to today, and we see law firms outwardly acknowledging their clients’ evolving demands and expectations—including emulating the work and organizational models of ALSPs. Orrick’s Global Operations Center in Wheeling, West Virginia, as Wilkins and Ferrer explain, is an example of a law firm systemizing and retaining commodity-level work in a way that allows them to compete with lower-cost alternatives. Clifford Chance’s Best Delivery platform similarly appeals to clients’ demand for increased efficiency and flexibility, promising “ever more robust, consistent, efficient and innovative service” using “lower cost, process and technology-driven legal support centres in Delhi and Newcastle.” Other law firms are entering direct partnerships with ALSPs. In February 2018, Hogan Lovells announced a partnership with Elevate that provided the law firm with access to the ALSP’s more than 1,500 lawyers. In the words of Hogan Lovells’ U.K. and Africa head Susan Bright, “It is all about being able to respond flexibly to what our clients need.” Another prime example goes back to June 2018, when LeClairRyan and UnitedLex announced their joint platform, ULX Partners, which they established to offer prospective member firms their technological expertise and the ability to outsource certain functions such as information technology, human resources, and legal support functions, among others—though recent reports of LeClairRyan’s expected dissolution may fuel questions about the real merit of such a partnership.
From the clients’ perspective, these new law firm offerings and partnerships, while welcome, are also happening so quickly that clients are scrambling to adjust as the ones who ultimately have to navigate the wider legal services market. As Grasinger explains, there is now so much choice that it can be daunting for in-house lawyers, especially those who are used to picking from just a handful of large law firms. “There are so many vendors in the space now,” he says. In addition to offering their own expertise, he suggests that law firms can also play a role in helping clients navigate that space. Grasinger explains:
It could almost be like getting a really good sommelier. You go to a nice restaurant and all of a sudden you could be handed this enormous wine list with a potentially overwhelming array of options. There’s just so much choice, and there’s a lot of value to having someone with expertise to help you to navigate those choices. Now the upshot is that you could be putting a lot of trust in that person, but if you have someone who can know your business, know your needs, and then match what needs you might have to the best options available, then that can be extremely valuable.
Putting it all back together
Where ALSPs’ collectively rising star goes next is unclear. It may be that the profession is moving closer to an integration model akin to (and potentially including) the Big Four. It may be that ALSPs settle on specializing in discrete tasks like e-discovery. It may be some combination, or it may be something entirely different. Whatever the case, to use Wilkins’s expression, “It’s easy to push Humpty Dumpty off the wall. The question is, who is going to put him back together?” With all this unbundling and provisioning of legal services, the question remains as to who is going to “rebundle” it all.
For now, it is clear that no service provider is insulated from demands for quality and value.
“Some of the larger companies will grow their businesses through mergers and acquisitions, which could leave other smaller companies behind functioning like boutique firms,” says Stockton. “That will or has already happened to a lot of law firms. They may end up being specialists, which of course we value and need.” And, as Stockton explains, there are tradeoffs to this potential future of agglomeration and specialization:
All companies should be concerned with sustainability, attrition, hiring, and providing a career path for those who are hired. Alternatively, in-house needs to keep an eye on the cost of what we pay for to ensure that we continue to pay for value and not for brand and trust, especially as the big accounting firms begin to gobble up some of these specialist companies, in an effort to rebundle and package legal services. That’s what it looks like on paper. We’re keeping a close eye on the market to understand where this consolidation is headed. Do all businesses need in-house operations departments, or can we go to a service provider who may be able to offer more-competitive pricing because they will be able to operate at scale?
Whichever way the needle moves, it is bound to correspond with the developing needs of clients. Whether it is the in-house revolution, the age of “more for less,” or the age of legal operations, clients of legal services have (perhaps unsurprisingly) proved to be the watershed for the rest of the profession. For now, it is clear that no service provider is insulated from demands for quality and value.