4/24/17

Build or Buy? The Evolution of Law Department Sourcing

Recently, I had the pleasure of speaking with Nancy Jessen, SVP at Legal Business Solutions at UnitedLex about a survey recently completed with ALM on legal department insourcing, entitled "Build or Buy? The Evolution of Law Department Sourcing". Our chat was really interesting, different than what I expected. Here's what I learned.

We are all too familiar with the challenges facing law firms – the rise of competitive pressure, rate  squeezing, the need for better project management so as to be able to not only price and staff matters effectively but also turn a profit.  We also know of the impact of legal technology in the e-discovery space, in contract drafting etc. and all of the many AI applications that are threatening to take jobs away from lawyers. We think of these issues and many others as law firm issues rather than legal industry issues and look to the alternative model law firms, and outsourcing as the answer or at least on the path to legal market euphoria.  Nancy, and some of the ALM survey findings, point out, however, that legal departments face many of the same issues. 
For many years, law departments were immune from pressures and expectations that almost every other corporate function faced -- cost management, return on investment, justification for new resources, and technology-driven efficiency to name a few.  Then, 2008 hit and everything changed. Not just for firms, but for in-house departments, too. In-house teams were also being forced to demonstrate value, provide legal recommendations that supported business objectives, create internally efficiencies AND strategically direct external counsel.  A difficult task for
in-house counsel, just as it is for law firms trying to make sense of the new world order in legal.
Today, in 2017, managing e-discovery and other litigation software, supervising external counsel and overall legal spend is table stakes for in-house departments. Like their firm counterparts, today, almost 10 years later, General Counsels are focused (or trying to focus) on demonstrating value by increasing operational efficiency of the in-house team, from balancing high-cost/low-value staff against low-cost, inexperienced staff; dealing with the constant fear of the next budget cut  - something Nancy referred to as "death by a thousand cuts;" or the hardest part of it all, insourcing/staffing strategic lawyers who can sit with the C-Suite, make business decisions, help the company grow, avoid risk and support initiatives with the highest and best business impact.
The survey results, which include data from the ALM Intelligence 2016 Corporate Counsel Insourcing and Outsourcing Survey, highlight some of these moving parts:
·       In 2017, only 26% of law departments expect their annual operating budgets to decrease, while 32% expect an increase, and 42% expect it will stay the same.
·       In 2016, 34% of respondents said the number of full-time, in-house lawyers stayed the same, and 52% plan on maintaining that level in the next 12 months, indicating that increased insourcing within law departments may be slowing down.
·       In 2016, 39% of legal departments surveyed decreased their overall use of outside counsel, and 43% estimate they will do the same in 2017. Similarly, those who said their utilization of outside counsel would not change increased from 43% in 2016 to a projected 47% in 2017. Only 4% said they would increase the use of outside counsel in 2017.
·       Regarding Alternative Service Providers, 57% of respondents send work to ASPs. Of those, 25% said they plan on increasing the number of ASPs they use in the next 12 months, and 28% said the amount paid to ASPs will increase in the next 12 months.
In-house counsel, too, are subjected to shrinking budgets, doing more with less, engaging technology, and resourcing efficiently.
Just as many are calling on firms to radically change their paradigms, it seems the in-house departments are also looking to shift the paradigm. We see this in some small ways, with bold statements from in-house departments wanting firms to increase diversity. In-house departments can do more to change the archetype, but whereas firms have to deal with the complexity of the partnership models, in-house teams face obstacles around C-Suite buy-in, and personal reputation. 
GCs and firms both know they need to change. The question is, how can you best be strategic, deliver value, increase efficiencies AND operationalize all of it?  Would you buy it, or build it?

 

 

 

 

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