Alternative Legal Service Providers (ALSPs) are transforming how we think about the practice of law. While the ALSP market started by offering lower-cost services to the lower-value end of the legal industry, the market has grown and expanded during the last six years to a total of nearly $14 billion.  According to Thomson Reuters Institute Report on the ALSP market about 79% of law firms and 70% of corporate law departments are using ALSPs. Many of these law firms are using outside ALSPs like e-discovery to remain competitive and efficient. Others have responded to the perceived threat by creating their captive units using ALSP models. 

Baker McKenzie: A blueprint for future success

In 2018, American Lawyer 100, top 5 firm Baker McKenzie announced the creation of its own Legal Innovation Hub, dubbed Reinvent. This new unit began collaborating with corporate legal departments, universities, and legal tech ventures to facilitate innovation in the legal services space.

Why? ALSPs

Alternative Legal Service Providers (ALSPs) burst on the market a few years ago. First, they began leveraging technology to create solutions that provide low-end legal services at a lower cost to clients. As a part of the digital transformation (and disruption) that all industries are experiencing, these ALSPs then began evolving to help provide clients—both corporate counsels and law firms—with specialized expertise, enabling them to work more cost-efficiently and effectively. Today, ALSPs are transforming what it means to practice law.

How legal firms are using outside ALSPs

Although there’s understandable fear over the competition, over half of the legal firms work directly with ALSPs. They are primarily offering specialized expertise, such as:

• Regulatory risk and compliance
• Litigation
• Investigation support

Electronic discovery services is the number one ALSP use, followed by legal research services and litigation and investigation support. But the uses don’t end there. ALSPs are also being used for document review and coding services, legal technology consultation, IP management, and much more.

In some instances, law firms are offering ALSPs to help give clients options to control cost. But, in truth, many legal firms have realized it’s more profitable to outsource specific tasks. Overall, many law firms say that ALSPs help better compete with other organizations, including managing resources during peak periods without increasing headcount permanently.

Reversing the Market Share Trend

American Lawyer 100 firms like Baker McKenzie took notice of this growing, $14 billion industry and took decisive action to protect its business interests. Reinvent, the new Legal Innovation Hub made Baker McKenzie a magnet for legal tech ventures, allowing them an opportunity to reverse the tide where major legal firms were losing market share to outside ALSP providers. This type of business strategy aligns with other major industries, such as consumer goods, where companies like The Kraft Heinz Company and PepsiCo embrace and encourage start-ups through early acquisitions and the creation of their own product incubators.

Strategy + Tactics

In short, Baker McKenzie realized that some of these new legal technologies were long on tactics but short on strategy. They recognized that the best client experience would be to combine these tactical innovations with their existing legal expertise. For instance, their partnership with SparkBeyond gives Baker McKenzie access to a vast network of external data to help identify “unseen drivers of client demand.”

Baker McKenzie’s head of IP and technology at Reinvent explains: “The collaboration will give us unparalleled insights into the future of legal services and what they could be if only we had a wider perspective.” Reinvent aims to “reinvent” the firm’s services to “create new service lines.”

“To stay ahead in innovation, look at horizontal industries and the ones leading your current industry, someone is always doing something new. ” -Jeff Butler, Author & Keynote speaker

How does Baker McKenzie’s Reinvent help smaller firms?

Smart, agile organizations spot the trending directions that market leaders are going and adjust their firms accordingly. For example, in the HBA (health and beauty aid) category, some well-known smaller brands routinely reverse-engineer the expensive formulas of high-end products from market leaders to create and launch their own similar products.

The Direction in Undeniable

Law firms are changing. Clients want 24/7 access to their cases. They expect fast, efficient results from their lawyers. Although you don’t necessarily need your own “innovation hub” to thrive in the new world, you do need to make sure you’re watching the trends and adapting accordingly.

Five Ways to Adapt

1. Analyze your most and least profitable areas of expertise. Evaluate what’s holding back your profits for both. Can you increase profitability by optimizing your processes with technology like a legal case management solution? Can you outsource tasks to an ALSP?
2. Do you need to adapt or pivot? If an ALSP now dominates your area of expertise, you may need to consider pivoting. Perhaps like Baker McKenzie, you need to create a hybrid model of an ALSP along with your experience, or maybe a pivot is in order. Proactively pursue the direction that’s right for you.
3. Track the trends. The pandemic uncertainty resulted in the explosion of many areas of law, such as litigation and even corporate legal support. Are you equipped to serve a growing niche? Then capitalize on the opportunity.
4. Watch the market leaders. You don’t need to be a multi-billion-dollar organization to capitalize on market trends and opportunities.
5. Adapt and apply your expertise. You, too, can continue to deliver an excellent customer experience by recognizing the trends, applying your own expertise, combining it with efficient tools like case management software, and integrating ALSPs that improve profitability.