Legal Department Trends Expose Challenges and Opportunities Ahead for Law Firms
Across the board, legal departments face increasing budgetary pressures and are responding by insourcing legal services, maximizing efficiency through technology, utilizing non-law firm vendors, and moving to lower-cost law firms. These are a couple of the key findings of Altman Weil’s 2019 Chief Legal Officer Survey.
As in-house lawyers and legal operations teams find themselves increasingly buried in work, the need for better legal services solutions and workflows is becoming more pronounced. And as this need continues to trend upwards, it provides a distinct opportunity for forward-thinking firms to solidify their standing with long-time clients and expand their market share to new corporate clients looking for collaborative, data-driven, and cost-minded firms.
In this article, we’ll review key statistics from the 2019 Chief Legal Officer Survey and discuss the challenges and business development opportunities they present for law firms in 2020 and beyond.
The Trends: Increased Workloads, Technology Usage, and Cost Cutting
The Chief Legal Officer Survey highlights a recent trend for in-house staffing: Legal teams have increased in size and are continuing to grow due to a rising demand for their services from their business counterparts. As the graphs below indicate, more than one third of legal departments intend to increase their staff of in-house lawyers in 2020. Of those, 61% said they would do so to cover increased overall workload.
In tandem with this increase in workload, in-house counsel are taking on more and more roles to fill growing business needs, often wearing multiple hats rather than specializing. This change is pushing in-house counsel to become more reactive matter managers trying to handle a ballooning matter volume, as opposed to operating in a proactive advisory stance. This is where enterprising law firms come in.
With in-house counsel drowning in an ever-growing sea of matters, law firms should position themselves to act as collaborative partners, ready and willing to take on the added work in-house counsel are being forced to handle. By seizing on this surplus of work and highlighting their ability to manage it systematically and more efficiently than overworked in-house counsel, law firms can seek to carve out profitable niches. In doing so, they also will prove their value by releasing the pressure valve on in-house counsel, who can act as their future champions should their outside spend come under scrutiny.
Legal Department Efficiency Tools
In light of compounding budgetary constraints, legal departments routinely face pressure to accomplish more with less resources, and are tasked with leveraging efficiency tools to help balance their budgets. The Chief Legal Officer Survey goes on to reflect the tactics legal departments employ to increase efficiency, and notes that a whopping 60.1% cite the use of technology tools to make their work more efficient.
In addition to leveraging technology tools, the next three most common methods for increasing efficiency include collecting and analyzing management metrics at 44.7%, internal restructuring / reorganization of resources at 43%, and redesigning workflow processes at 41.2%. And as the chart below indicates, these numbers are even more
significant for large legal departments with 51 lawyers or more.
For large legal departments, 87.5% responded that they are increasing efficiency by leveraging legal technology. Further, another key development for larger legal departments is that 57.5% highlighted that they are looking to improve their efficiency by doubling down on their knowledge management efforts, which is in stark contrast to smaller in-house legal teams. Altogether, this illustrates that larger legal departments have a renewed focus toward running data-driven operations, where legal technology, metrics and analytics, and restructuring teams and processes will take center stage. Law firms eager to retain their larger corporate clients and expand their roster of clients should look to mirror these trends.
Controlling External Costs
Onto the topic of the hour, cost cutting. When it comes to legal departments controlling costs, the responses in the Chief Legal Officer Survey present important warning signs for law firms that many may already be aware of and feeling their effects. The chart below tells a significant story that can be summarized into two important points.
First, over 50% of legal departments are seeking to cut costs by reducing hourly rates (no surprise here), by requiring outside counsel to provide budgets, and through using alternative-fee arrangements or fixed fees. Second, and equally as important, is that a sizable contingent of in-house legal teams are reducing the volume of work sent to law firms (36.7%) or shifting work to lower cost firms (33.5%). This means that law firms need to work even harder to secure their market share in certain practice areas like litigation, where work will not likely be insourced or outsourced, but may be eventually transitioned to lower cost alternatives.
To prevent seeing work shift to lower costs firms, law firms need to enhance their own efficiencies and develop sustainable models that are profitable and comparable to lower end firms. As Google’s director of legal operations and Corporate Legal Operations Consortium (CLOC) president Mary Shen O’Carroll warned recently, law firms need to realize that they are replaceable and that complacent firms may be left behind.
And why is it so important that law firms stake out their business with corporate clients? Mainly because those legal departments who are undertaking initiatives to reduce costs are finding wild success at saving money by steering work away from their current firms.
The Chief Legal Officer Survey shows that over 90% of respondents undertaking the tactics realized significant improvements on cost control through outsourcing to non-law firm vendors, shifting law firm work in-house, and negotiating cost reductions in portfolios of outside counsel work. Beyond that, more than 80% of legal departments also found significant savings by shifting work to lower priced firms, reducing outside counsel hourly rates, reducing the volume of work sent to firms, and using alternative or fixed fee arrangements. With such glaring success rates, it would only make sense that in-house legal teams will go back to the same well again and again.
What This Means for Law Firms
In reviewing the Chief Legal Officer Survey taken as a whole, there appear to be three overarching takeaways and questions for law firms that are relevant whether they are seeking to retain existing clients or win business from new clients: Do you have your own house in order technology-wise to maximize efficiency; does your firm have a data strategy that adequately addresses your firm’s and your clients’ needs; and are you putting your best foot forward by having the right people at the table.
When the majority of legal departments, and the supermajority of large legal departments, respond that they’re spending more on legal technology to boost efficiency, law firms need to look inward to gauge the maturity of their own technology systems.
The operative question being, are my firm’s systems more sophisticated or advanced than my clients and are those systems being leveraged to their full capacity and utilized firm-wide.
This is an important question because as clients are shoring up their technology capabilities, they want to know that their outside counsel share the same values and feel the same pressure to do more for less. Further, firms living under the reality of constantly tightening costs controls from clients need to find ways to enhance their efficiency via technology to remain competitive with the lower cost law firms clients are increasingly willing to send work to and avoid the more drastic step of reducing their rates.
Beyond the underlying technology systems a firm is using, it’s also important to ensure that there is a parallel data strategy in place that is keeping pace with their technology usage. For firms handling large portfolios of litigation for their clients, it’s critical to review how they are accessing the basic data for the matters they’re working on. Are they using teams of paralegals and summer associates to gather the necessary data and ongoing case updates or are they using automated means through APIs to gather structured data that can be shared with clients?
With such a heavy focus from CLOs and legal ops teams on getting reliable data to power analytics and metrics, having law firms capable of providing efficient legal services delivery and the data to back it up is a clear distinguishing factor. Receiving reliable, regularly updated data from outside counsel helps CLOs better track costs and eliminates the resources and time that would otherwise be needed to develop data for reporting purposes and budgeting.
Lastly, whether firms are pitching to new corporate clients or seeking to retain and expand work from existing clients, it’s critical that the team advocating on their behalf reflect the changing makeup of the legal departments they want to partner with. This means putting knowledge management, legal innovation, and legal operations professionals directly in front of clients, and letting them share the technology prowess, data strategies, and savings initiatives the firm has to offer. This not only sets the tone for the firm’s seriousness and preparedness, but it also puts the legal professionals within in-house teams at ease knowing that there’s someone who speaks their lingo, who understands their pain points, and who’s eager to make their lives easier.
All images: Source: Altman Weil 2019 Chief Legal Officer Survey, www.altmanweil.com/CLO2019. © 2019, Altman Weil, Inc. Reprinted with permission.
About the Author
Josh Blandi is the CEO and Co-Founder of UniCourt, a SaaS offering using machine learning to disrupt the way court records are organized, accessed and used. UniCourt provides Legal Data as a Service (LDaaS) via our APIs to AmLaw 50 firms and Fortune 500 businesses for accessing normalized court data for business development and intelligence, analytics, machine learning models, process automation, background checks, investigations, and underwriting.