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Are ALSPs really such a threat to law firms?

Alternative Legal Service Providers seek to disrupt legal services, not replace law firms, argues Gary Goodwin

Gary Goodwin

But you tell me over and over and over again, my friend,
Ah, you don't believe we're on the eve of destruction
“Eve of Destruction,” P. F. Sloan

Does the steady incursion of Alternative Legal Service Providers suggest the creative destruction of some, or perhaps all, of the legal profession as lawyers know it today? Austrian political economist Joseph Schumpeter called creative destruction the process in which innovation destructs archaic business models and creatively releases capital to be deployed elsewhere. I wrote a couple of years ago about how this described being out on the street with your law degree.

Do ALSPs intend to compete head to head with law firms? I would argue no; there would be no need.

As defined, an ALSP provides specialized services in high-demand legal fields that support a client’s legal needs, such as discovery and e-discovery, document review, IP management, and other time-consuming processes handled by in-house staff. This suggests a customer-centric rather than a traditional law-firm guild model. Most law firms promote a customer-centric approach; but scratch that thin oak veneer on a lawyer’s desk and the traditional law firm approach still pokes through.

ALSPs seem to have a better grasp of the burgeoning new field of legal operations. This applies techniques such as project management to the handling of legal files. Other aspects that ALSPs bring to the table include services that are value-driven, efficient, proactive and technology-supported.

Deloitte’s recent survey of trends from the C-suite identified doing more with less, global compliance, speed of business, and using technology appropriately. This illustrates how the Big Four professional services firms (KPMG, Ernst & Young, Deloitte and PricewaterhouseCoopers) see an increasing demand for ALSP services. A real customer-centric approach includes surveying the market and determining what their needs might be.

In order to position themselves appropriately in the marketplace, the Big Four appear to be investing heavily in technology, staff development, and customer surveys. Cornelius Grossmann, Ernst & Young’s global law leader, has provided an interesting take on these new strategic developments. He says that EY is not in competition with the traditional law firm, suggesting that EY has no interest in handling litigation that is one of the mainstays of the traditional law firm.

EY may have no interest in competing, but they are heavily interested, invested and involved with disruption of the legal profession. Disruptive innovation, a type of creative destruction, is really a process rather than a unique product or service. By starting at the outer edges of an underserved or overcharged market segment, obtaining market share becomes an easy task.

The Thomson Reuters Alternative Legal Service Providers 2019 survey placed EY as the number 1 brand in the ALSP marketplace, meaning it is the non-law firm with the greatest level of awareness for clients such as in-house counsel. These firms provide a range of services, and lawyers would do well to stop referring to the Big Four as accounting firms, as this provides a false level of comfort. The Big Four have become professional service firms and provide a holistic range of services that businesses require.

EY recently acquired Pangea3 Legal Managed Services from Thomson Reuters, after acquiring Riverview Law, a U.K.-based ALSP. Interestingly, Grossmann stated that “This acquisition underlines the position of EY as a leading disruptor of legal services.” This supports the idea that EY does not intend to compete with law firms; it does not have to, since EY is creating a new market space and delivering a new value proposition. For example, Grossmann discusses EY’s triage automated model that collects data about where the work is coming from, what work should be done by whom, and whether this is being done internally or externally all the while using real time dashboards.

EY now employs 1,000 Canadian lawyers spread across seven cities, and wants to continue to grow its legal business. Their focus remains on bulk services that they can commoditize.

Nor is EY alone. Piet Hein Meeter, Deloitte’s global leader, legal services, has said that “We are building capabilities to deliver seamlessly across borders as a truly global legal service provider. The innovative, technology-enabled and integrated nature of our services will disrupt the legal market as a whole.” Here again, we do not see competing with but rather “disrupting” the legal market. The legal profession appears to be in for an interesting time.

The recent Thompson Reuters ALSP survey provides an interesting perspective. Corporate use of ALSPs is mainly for regulatory risk-and-compliance services, specialized legal services and legal research. A big growth area for next year appears to be electronic discovery services.

Legal spend remains a high priority for businesses. A very low priority appears to be using ALSPs to alleviate problems facing businesses’ highest priority. At some point, businesses will realize they can get the same product for somewhat less somewhere else. If ALSPs become businesses’ main legal supplier, the ALSP may simply outsource specialized projects such as litigation.

 

With the advent of AI on both sides of a transaction, and of Blockchain, there might be correspondingly less litigation overall. However, law firms should position themselves to be a part, the surviving part, of the disruption by emulating some of the approaches by the big four. Complacency does not appear to be an option.

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