ALM Blog — Insights for managing the business of business

April 11, 2017

Law Department Sourcing – At the Tipping Point of Transformative Change

By: Richard Caruso, Vice President & General Manager, Legal Media at ALM

The topic of this year’s General Counsel panel at the LMA Annual Conference, which I had the honor of moderating, was on the rapidly changing buying cycle for legal services. The four-person panel was comprised of General Counsels and Legal Operations Professionals from Yahoo!, Cisco, NetApp, and PetersenDean, all of whom are leading organizations that have re-engineered their “build vs buy” strategies for sourcing legal work.

ALM Intelligence recently released its inaugural study on the evolution of law department sourcing, authored by Daniella Isaacson.  The key findings from the study depict that the industry is at the tipping point of transformative change. According to the study, Legal Department leaders are more and more taking a microscope to their law department operations and have been rolling out process improvements across the board. Interviews with industry insiders indicate that over the next 3 to 5 years, law departments will continue to work on operational improvements and processes, focusing on aligning workload, budget, and staff, both internally and externally.  This year’s LMA General Counsel panelists echoed these findings and left the audience with a few key insights on how law firms need to align with the shifting dynamics in the market. Those insights primarily centered around two themes: Value and Predictability.

“Value is key”

Each of the panelists confirmed the ongoing trend of more matters staying in-house. However, highly complex and critical matters continue to be sourced to outside counsel. While there was agreement that General Counsels continue to be less price sensitive for critical matters and high stakes litigation, the reality is that there isn’t as much “bet the farm” level activities as in the past – and there is high competition for what remains. According to the panelists, one of the key elements to being successful at winning this work will be firms that can demonstrate that the value of the services they provide are aligned with the costs. The simple advice they provided the audience to help accomplish this, “know our business” and understand the broader corporate environment beyond the general counsel’s office.

“Predictability wins the business”

The panelist’s conveyed that there is an increased pressure to treat legal departments like any other unit in the business with cost accountability and other business metrics. That means that gone are the days when the legal department budget philosophy was based on “it takes what it takes”. Like many other budgets, legal department’s budgets are not increasing. According to the panel, successful pitches come from firms that have the data and have done the analysis to demonstrate what their desired outcome tends to cost. In other words, give them predictability of cost so they can manage their budgets and expectations accordingly.

There is little question that the legal industry is in a period of disruption with continuing pricing pressures on the demand side that have caused ripple effects in the delivery of legal services.  As Daniella Isaacson points out in the “Build or Buy? The Evolution of the Law Department Sourcing study from ALM Intelligence, “the biggest questions remaining are how long will it take for law departments to mature, how will right sourcing of legal workload affect the industry long term, and which law firms will stay ahead of the curve.” The proverbial match has been struck and law departments are collaborating more than ever before. To this point, the panel referenced the growing importance of The Corporate Legal Operations Consortium (“CLOC”) which has been established to further education and establish a forum to share best practices on legal department tools, technology, templates and knowledge bases across the profession. Therefore, it is only a matter of time before these questions are answered.

Leave a Reply