How Law Firms and ALSPs are Working Together in Larger Legal Ecosystem
By Axiom Law
It’s a classic case of perception vs. reality. On one hand, the misconception persists that business law firms and alternative legal services providers, or ALSPs, are locked in a to-the-death competition for corporate clients.
In truth, law firms—far from facing an existential threat—are increasingly collaborating with alternative legal service providers to win and retain clients. Of course, the degree to which they work together or work independently in a larger legal ecosystem depends on the type of ALSP, of which there are many.
ALSPs range from managed service providers that address process inefficiencies for high-volume but routine legal work to elite flexible legal talent providers, like Axiom. Those in the latter category often tackle the same type of work for which law firms are traditionally retained – but more on that later.
As to the former category, a new survey by Thomson Reuters finds that a majority of large law firms now say that these types of ALSPs can, in fact, help them retain client relationships. And an increasing number of large and midsize firms see ALSPs “as a force to help them differentiate the services they offer to clients,” the survey said.
Collaborating to Create a More Flexible Business Model
ALSPs have grown into a $20.6 billion legal market segment, the survey reported, with rapid expansion expected for the foreseeable future. The report notes the increase in partnerships with law firms has been and will continue to be an important factor in the growth of certain categories of alternative legal service providers. Among the large law firms surveyed, more than a quarter plan to increase their spending on ALSPs, compared to just 3% who foresee decreased use.
“Both law firms and corporate law departments are realizing the value of ALSPs, citing their specialized expertise, cost-efficiency, and ability to help manage headcount."
One key attraction for traditional law firms is the more flexible business model offered by process-oriented alternative legal services providers. In 2021, James W. Jones of Georgetown University and Mari Sako of Oxford University wrote that traditional law firms rely on a business model that meets customer needs by providing customized advice to help solve specific legal problems. While a traditional law firm may be able to operate a do-it-yourself ALSP, “the organizational structures and procedures that are required to do so remain complicated and administratively awkward,” Jones and Sako wrote.
Alternative legal services providers (of all types), in contrast, are built specifically to meet the needs of corporate clients for more efficient, predictable, and cost-effective delivery of legal services. Jones and Sako noted that ALSPs have access to intellectual property and technology, expertise in process mapping, project management and data science, investment capital to continuously upgrade technology and attract talent, a problem-solving approach that cuts across practices, and a management structure designed for making rapid business decisions.
Working with an ALSP, a law firm is thus able to access talent, technology, and processes that can enhance rather than endanger their ability to do what they do best—solving critical legal issues for their clients.
Access to Highly Qualified and Motivated Talent
And at the moment, when a number of firms are grappling with the prospect of lawyer and staff layoffs, the headcount management benefits of an ALSP relationship can give law firm leaders the ability to quickly staff client projects with highly qualified talent without crippling the firm’s bottom line. Not surprisingly, one of the top reasons law firms responding to the Thomson Reuters survey said they valued ALSPs was for their ability to help them manage hiring. “Indeed, the third-most stated reason for using ALSPs is to help meet peak demand without having to increase permanent headcount,” the survey said.
Working with an ALSP allows a law firm to tap into an easy-to-access talent pool of fully vetted and deeply qualified professionals on an as-needed basis. In fact, the most common reason law firms say they use ALSPs is their access to experienced professionals, particularly in litigation and investigation support.
Technology, Efficiency, and Law Firm Growth
The second-most cited reason by law firms for working with an ALSP is to get access to technology that is not available within the firm. The results from those using managed process type ALSPs for e-discovery were “most dramatic,” according to the Thomson Reuters survey, with 73% of firms saying that access to technology is important. “This dovetails with law firms’ increasing willingness to use ALSPs as technology consultants,” the survey said.
The combination of headcount management and access to technology can give law firm leaders the ability to increase operational efficiency and lawyer productivity—and hold the line on rates. Among larger law firms in particular, the survey reported positive attitudes about the value of ALSPs in mitigating pricing pressure and retaining client relationships.
Large law firms are also enthusiastic about the ability of ALSPs to scale and expand their businesses. Two years ago, when Thomson Reuters conducted a previous survey of the ALSP market, 50% of large firms said working with alternative legal service providers would help them grow their businesses. Now, 69% of large firms see ALSP relationships as a path to growth. Among midsize law firms, the numbers have gone from 35% two years ago to 49% today, the survey found.
How Elite ALSPs and Law Firms Can Work Together in A Bigger Sandbox
Of course, there are the other types of ALSPs that fall more squarely into a traditional competitive role with law firms in terms of supporting more complex legal work. Per the report, corporate legal departments “are increasingly seeing the value of alternative legal service providers” and “the boundaries between alternative legal services providers and law firms...are rapidly blurring.” But even here the perception that law firms and these types of ALSPs are locked in a to-the-death-duel is mythology, rooted in an antiquated notion of the legal ecosystem.
That outdated notion is what many call the “staff up or send out” paradigm. The idea is that the legal universe includes two “layers” of legal resourcing: the internal department and law firms. The modern GC, facing hiring freezes, budget cuts, and historically large law firm rate increases, knows that this model doesn’t work in a cost-constrained environment.
Instead, legal departments are utilizing elite ALSPs as a third layer. Rather than confining their thinking to the “either/or” of in-house or law firm, GCs leverage these ALSPs as a virtual bench of “always-on,” flexible talent that combines legal experience with knowledge of in-house issues and trigger points and yet can also be used on a completely ad hoc basis.
This third layer of the legal function offers a bridge between the in-house team and law firms, providing flexibility for unexpected matters as well as a level of internal organizational understanding that allows for immediate action. It supports the core internal team with on-demand lawyers whose experience can be drawn on to deal with emerging risks,
workload surges, and even law firm management, without incurring the costs of outside counsel or full-time hires.
Here, flexible talent ALSPs improve risk mitigation by matching legal matters to the right legal talent. These types of ALSPs also extend in-house expertise and availability, thereby limiting what needs to be sent to a law firm and when. They also provide a buffer that enables GCs to determine the optimal moment, during the course of a legal matter, to call a law firm (thereby limiting total legal spend).
It's important to note that this more modern model does not undermine the value of law firms. In fact, it embraces the unique capabilities of firms to handle bet-the-company work while enabling organizations to engage with them on a more strategic scale.
The survey results beg the question: What does “alternative” even mean anymore when describing ALSPs?
Whether they are the type of ALSPs that partner with law firms for process efficiencies or the category of ALSP that can help legal departments engage with firms on a more strategic scale, alternative legal service providers are now firmly entrenched in the legal business mainstream.
Far from being locked in a legal business Thunderdome, alternative legal services providers and law firms are well on the way to building a more collaborative legal ecosystem that better serves all clients.
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