- The Climate that Propelled the Growth of Lower End Providers
When the Association of Corporate Counsel (“ACC”) launched its Value Challenge in 2008, it sought to exact greater value from the AmLaw 200 (the 200 largest U.S. law firms measured by aggregate revenue and size). These law firms had a virtual monopoly over the outsourced legal services of the ACC’s largest corporate members. The ACC campaign came on the heels of a powerful confluence of developments that have accelerated the change–if not the reshaping–of the legal marketplace in the U.S. and internationally: (1) the collapse of Lehman Brothers and the ensuing economic crisis and its impact on the legal vertical; (2) developments in IT; (3) The Legal Services Act of 2007, a sweeping regulatory overhaul of the UK legal system which, inter alia, sanctioned institutional investment in law firms; and (4) “unbundling” of legal tasks and the ascent of legal service providers (staffing companies, legal process outsourcers, eDiscovery providers, etc.). One result of this “perfect storm”–among others–was the accelerated growth of “low-value/high-volume” legal service providers. Put another way, BigLaw no longer handled matters from start to finish– be it litigation or a large corporate transaction. A growing array of legal service providers now perform those services–and with a different model and modus operandi than law firms.
- The Legal Service Provider and the Law Firm/In-House Legal Department
Legal service providers are distinguishable from law firms in a number of important ways: (1) unlike law firms, they can be capitalized by institutional investors; (2) they are often managed by trained business professionals, not lawyers; (3) their economic model is very different than that of BigLaw; it is devoid of such price escalators as profit-per-partner (“PPP”), opulent offices, and the expectation of mammoth law firm margins; (4) they do not charge by the hour (though they have putative hourly rates) and typically bill on a per unit, fixed- price basis. Tasks have benchmark quantitative and qualitative metrics.
Most significantly, legal service providers do not have ultimate risk retention for their work, because they are under the supervision either of law firms or in-house legal departments who contract their services. Though they frequently engage in what would traditionally be viewed as “legal services”, they are not deemed to be “engaged in the practice of law.” Some might say this is a distinction without a difference–and perhaps it is. Nonetheless, service providers deliver low-end, high-volume service to those who actually “engage in the practice of law” and, so, are generally regarded as “vendors” rather than as collaborating professionals.
- The Ascendancy of Service Providers and What they Can Teach Law Firms
Legal service providers may function at the lower end of the legal supply chain, but they are in the vanguard of change vis-Ã -vis process and economics. Let’s consider the process element first. Before doing so, let’s acknowledge that just as not all law firms perform at a uniformly high standard, so too can that be said for legal service providers. The point is that there are providers who can teach law firms–who occupy the high-end of the supply chain–a great deal about the marketplace’s pressure to bridge the value/cost divide. Here are some things that the top service providers do that the vast majority of law firms don’t:
- Provide metrics for gauging quality and productivity
- Provide services at a fixed price with quality controls
- Provide project management to ensure quality and timeliness
- Some project managers are attorneys (“Project Counsel”) who provide a potent combination of legal and project management expertise
- Work transparently with their clients
- Adhere to delivery and cost schedules
- Match resources to tasks in the most efficient manner
- Ensure value/cost divide is bridged
- Use IT efficiently
- Strip out cost escalators that do not drive value to clients
- Limit work they undertake to what they are capable of doing effectively and efficiently
- Work collaboratively and seamlessly with other lawyers (including clients)
Though most employees of these providers are lawyers, they tend to operate differently than their brethren at large law firms. While lawyers working at firms might deride service provider tasks as “grunt work” or “low-end”, the lawyers practicing at top providers not only make important legal contributions but they also learn important business and technology skills. One could argue–I would–that the top service providers expose and train their lawyers for the direction the legal marketplace is headed, where virtually all lawyers–excepting those who perform the truly bespoke work (bet-the-company trials and mega-mergers) will be expected to perform according to the process, metric-rich standards of top service providers.
- A Quick Peek at What’s Coming
If the elite among legal service providers are already addressing the ACC’s “wish list”–indeed exceeding it–then what is to prevent them from going “up-market” and capturing even more legal work? And what’s to prevent them from white labeling their services for top law firms so that their piece of the pie is further expanded while allowing law firms they service to be “leaner and meaner” and to achieve a competitive advantage in the increasingly competitive BigLaw marketplace? Answer: nothing;it’s already happening.
And while we’re at it, what’s to prevent the top legal service providers–with their process-driven DNA, metric-centric approach to delivery, pared-down profit margins, and venture-backed war chests–from creating a two-company model whereby they maintain their core business and align with a law firm of their making for whom they provide the bundled, back-end services? Answer: nothing, it’s already happening.
The “low-end” providers of the legal marketplace are garnering an increasingly large portion of the BigLaw pie. Don’t be surprised if the most successful “low end” providers don’t soon become the ones to integrate the legal supply chain by applying many of their core service elements to high-end work. It would certainly be ironic were the “volume” players to further migrate up the supply chain and take a large chunk of “high-end” work from law firms because they know more about what high-end customers want–demand–than BigLaw does. Stay tuned…
