Thomson Reuters will soon release its second biennial “Alternative Legal Service Study.” The inaugural study popularized the “alternative legal service provider” (ALSP) moniker to describe a new breed of “legal” providers with different economic models, structures, expertise, and DNA than traditional law firm partnerships. The study separates ALSP’s into different categories: captive and independent legal process outsourcers (LPO’s), managed legal services, staffing companies, and “accounting and audit firms.” The latter group refers principally to the Big Four, the collective name given to Deloitte, Ernst & Young, PricewaterhouseCoopers, and KPMG, the world’s four largest professional services networks. Each operates under a unified brand that ranks at or near the top of the most respected global professional service providers, has 9-12X revenues of the world’s top-grossing law firms, and employs thousands of attorneys–not to mention many more legal professionals. Not all ALSP’s are created equal.
What is most significant about ALSP’s–especially the Big Four–is that they are reshaping the boundaries of “legal” services and providing the expertise, skills, experience, and tools required to satisfy clients/customers. In the case of the Big Four, they also provide “brand security” derived from long, deep-rooted relationships with the corporate C-Suite. All this is emblematic of a changing legal industry– the by-product of the complexity and speed of business, shifting consumer needs, new skillsets and elevated expectations of providers, and new buy dynamics. Law is morphing from a lawyer-centric guild to a customer-centric marketplace.
The genesis and evolution of ALSP’s is unmet legal consumer demand for value-driven, efficient, cost-effective, data-reliant, predictive, proactive, interdisciplinary solutions to customer challenges. Law firms have largely continued to focus on legal expertise–practice– even as legal delivery–the business of law– has become a three-legged stool supported by legal, business, and technological capability. ALSP growth reflects two key market trends: (1) an opportunity for tech and process-enabled, well- capitalized, corporatized, digital, client-centric delivery models to provide managed “business of law” legal services with augmented expertise, efficiency, value, and measurable results that law firms have typically failed to deliver; and (2) growing willingness of legal consumers to engage a new suite of providers for tasks/matters traditionally the province of law firms. Leading ALSP’s are agile, proactive, fluid, able to scale, aligned with consumers, and constructed to deliver at the speed of business.
The Big Four Are in The Law Business No Matter How They Are Characterized.
Many in the legal profession mistakenly describe the Big Four as “accounting firms.” That is how they began, but they long ago crossed the cultural and expertise divide separating accounting from other professional services–law included. The Big Four are continuing to redraw traditional professional boundaries by leveraging their global imprint, deep C-Suite ties, interdisciplinary expertise, depth, breadth, technological and process prowess, vast war chests, digital transformation expertise, training capability, corporate structures and economic models–global brand with member firms maintaining separate balance sheets– to provide consumer-centric, value-driven delivery of services.
The debate is no longer whether, when, or how the Big Four will vie for legal market share–it’s how dominant they will become and the threat they pose to law firms. A cadre of elite firms that handle a disproportionate share of “bet the company” premium work is not presently facing this threat–other firms are. There is a wealth of evidence that all Big Four members are “all in” the global legal market. For example, each has secured an “alternative business structure” (ABS) license, enabling them to own and manage entities that engage in regulated practice activities in the UK, Wales, and beyond. In Singapore, a strategically important, dynamic market, each Big Four member has recently begun to practice as law firms there, competing directly with global and local firms. The Big Four collectively employ approximately 10,000 attorneys globally, providing “boots on the ground,” with expertise in a range of practice areas including tax, immigration, corporate, litigation support, regulatory work, and labor/employment. These areas overlap with existing core practice service/product lines. The Big Four are also leveraging their world-class technological and process expertise to provide managed services in the legal space. Nicholas Bruch details this in an informative piece here.
The Big Four’s leadership have been explicit about their legal market intentions. Cornelius Grossman, EY Global Legal Leader, said of the recent Riverview tie-up: “This acquisition underlines the position of EY as a leading disruptor of legal services; it will provide a springboard for current EY legal managed services offerings and bolster the capabilities that we can help deliver for EY clients.” Piet Hein Meeter, his Deloitte counterpart, provided a similar assessment: “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.”
The Big Four are not taking on Big Law by replicating its model– stress cracks in the partnership model are already visible. They are instead focused on areas of unmet legal consumer need, leveraging–and supplementing as necessary– their existing resources to adapt them to “legal” consumers. Many of those consumers are existing clients looking for integrated, interdisciplinary solutions to complex business challenges–a natural fit. Law firms continue to provide “legal” answers while the Big Four offer holistic business solutions.
The Big Four are by no means the only ALSP’s–“law companies”– to impact the legal marketplace, though they are clearly the largest. Axiom has nine-figure annual revenue. UnitedLex has inked $1.5B of multi-year legal work during the past 18 months. Thomson Reuters has been a legal managed services leader for years and is currently engaged in legal transformation initiatives with 4 of the top 10 global market cap companies. Other law companies are making an impact, too.
What Do Clients Want from Legal Service Providers?
Legal buyers–not lawyers–are now calling the shots. What do they want? One way to answer that question is to know what they are most concerned about. Deloitte’s Future Trends for Legal Services report provides insight into the question. Research conducted from CEO’s, CFO’s, and General Counsel revealed four key corporate challenges listed in descending order: (1) doing more with less; (2) global compliance; (3) the speed of business; and (4) using technology appropriately. These responses all play to the strengths of the Big Four and other law companies, not traditional law firms. An even better way to know what consumers want is to hear directly from them.
Bill Deckelman, EVP and GC of DXC Technology, has already laid the foundation for a client-centric legal delivery team. He entered into a blockbuster managed services agreement with UnitedLex and its customer lifecycle platform (CLM), the largest such agreement in legal industry history. It’s working. Deckelman says DXC has “reduced internal contracting costs by over 35% in the first year and increased speed to final contract.” He foresees additional benefits going forward. Mayer Grashin, Litigation Counsel of CDK Global, echoes many of Deckelman’s observations when describing CDK’s long-standing enterprise managed services agreement with Thomson Reuters Managed Legal Services. Grashin cites the “relentless focus on process refinement,” speed, expertise, and cost-effectiveness of the managed legal services TR provides. “Disaggregation is a vital component of our strategy; a stand-alone legal service provider with a dedicated, process-oriented team of professionals, collaborating seamlessly with our in-house and outside counsel, delivers a better ROI, saves time, significantly reduces cost, and measurably improves the quality of our legal outcomes.”
Law firms continue to increase their marketing budgets and focus on what they sell. Top ALSP’s invest in learning the buyer’s business, risk profile, culture, competition, key challenges, and path forward. Their focus is on client needs, not what they sell. They also doubling down on training. Deloitte, for example, invested approximately $350M in “Deloitte University,” a sprawling, state-of-the art global learning center/hotel dedicated to training/retraining Deloitte personnel, advancing client interests, promoting thought leadership, and leveraging institutional knowledge to better serve clients. Other Big Four members, as well as Thomson Reuters, UnitedLex, Axiom, and a handful of other leading law companies are also making hefty training investments designed to train what DXC General Counsel Bill Deckelman calls “digitally-minded professionals.” This is not to imply that law firms are not investing in training–some are. But most law firm training relates to practice activities, not the integration of process and tech with practice.
The different structural and economic models of ALSP’s and partnership-model law firms matter. ALSP’s are generally corporate; this enables investment and promotes a long-term view. The law firm partnership model, in contrast, effectively discourages investment and promotes a “future is now” mindset because older partners rarely retain a residual economic interest upon departure. In an age where agility and constant learning are critical, many law firms are holding on to the remnants of the past while ALSP’s are building for the future. Firms seem to be resisting the future; ALSP’s are proactively aligning with legal consumers to shape it.
The forthcoming Thomson Reuters Study should be an interesting read. Anecdotal evidence indicates: (1) ALSP revenue is increasing; (2) the breadth and depth (complexity) of the work they handle is expanding; and (3) they are widening service and product offerings.
A final note: it’s time to retire the “alternative legal service providers” descriptor. My vote is “law company.” There is nothing “alternative” about the Big Four and a growing list of diversified legal service providers. As lawyers say, “res ipsa loquitur.”
Originally published in Forbes.