Elevate Releases Crystal Ball for Law: 2022 Insights for Legal Services, Law Firms and Law Firms | raise

As you may already know, Elevate recently released a new tool: a legal industry-specific crystal ball that lets you see legal departments and law firms into the future. OK, we didn’t. But we follow industry trends,[1] and we hope that sharing this information will help you anticipate, prepare for, and respond to emerging challenges and opportunities.

Legal departments

Headcount is growing across many legal departments, including legal operations teams, which face greater workloads to support growing, rapidly changing and increasingly digital businesses, particularly in compliance, where regulatory requirements proliferate (particularly those related to data security and privacy).[2]

The big resignation makes it difficult for legal departments to find, secure and retain talent. Lawyers in the legal department say they spend too much time on non-complex, rote, low-value activities and automatable tasks.

Outside counsel rates continue to rise (both to cover rising salaries and to keep profits at record highs as law firms compete in the war for talent).

At a minimum, legal department heads want access to real-time, actionable data to help them better manage and control their department’s activity, performance, and costs. Many want to seamlessly integrate their legal department into the business.

To capitalize on opportunities that will positively impact their organizations and the industry as a whole, the collective goals of General Counsel include:

  • Ensure the highest and best utilization of their lawyers
  • Operate digitally, integrated into the business
  • Better control legal expenses
  • Leverage data and AI to analyze Legal Department and outside counsel activity and performance to achieve strategic business benefits
  • Manage and prepare for emerging data risks
  • Improve the strategic capabilities of legal operations.

Law firms

Although many companies made record profits in 2021, companies now face formidable challenges in several areas. It appears that virtually every law firm is facing unprecedented competition for talent amid ongoing “pay wars” that have sharply increased structural overhead.[3] Yet the turnover of associate (and more experienced) lawyers is high. Lawyer productivity is stagnating. The Big 4 continue to make inroads into the legal services market. The pressure to spend more on legal technology is growing due to rising customer expectations of how businesses use technology. Any company that does not need to match the superior capabilities of its competitors beyond legal services (eg, collaboration technology, more efficient processes, etc.) risks falling behind.

Meanwhile, several trends threaten to eat away at law firms’ revenues and profits. Customers demand low-cost services; they also fend off attempts by outside attorneys to raise rates. Many businesses have substantial room for improvement in terms of revenue generation. As if all that weren’t enough, “insourcing” by legal departments — where corporate clients do a variety of work in-house and outside of their outside counsel — means less work and potentially lower revenue.

Law firms

Legal technology and outsourcing of legal services are proliferating, improving speed, increasing efficiency, reducing costs and reducing rote work, enabling legal departments and law firms to truly get “more for less” . Trends affecting legal departments and law firms will likely drive further growth. Although law firms, ALSPs and captives only hold one percent of the US$850 billion global legal services market, they continue to benefit from strong demand for their services, now used by 79% of law firms and 71% of legal departments. Captives have a 3% market share of the alternative service delivery market, but a CAGR approaching 30%. Even with a larger market share (10%), the Big 4 CAGR hovers around 8%. For law firms and ALSPs, which hold nearly 90% of the market, their CAGR is 15% (up from 12% five years ago). Overall, the alternative service provider industry is growing at a CAGR of 15%.[4]

However, law firms cannot rest on their laurels. As noted last week by Richard Tromans writing in artificial avocadothe Big 4 enjoy a significantly higher level of notoriety and popularity than the major law firms.[5] Law firms must accept that the Big 4 are now competing and collaborate on legal operations, just as law firms have accepted that the Big 4 compete and collaborate in legal advice. The significant cost advantage law firms enjoy over the Big 4 will no longer suffice in the future. Law firms must also create well-known trust marks that confidently reflect their promise to provide innovative solutions, based on domain and industry expertise, knowledge of the client’s business and excellent client service, as well as that a useful technology.

The big picture: what next?

For legal departments and law firms, the opportunity and available capabilities to improve efficiency, boost productivity and reduce costs have never been greater. The past few years have reminded us that the world is volatile, uncertain, complex and ambiguous (VUCA). Therefore, it is more important than ever to optimize processes and adopt legal technology and service solutions that deliver realistic financial return on investment, deliver real-time actionable insights, have impact and provide flexibility in operating models and costs. Even though we don’t have a crystal ball, we are confident that given current trends, we can expect to see an increasing deployment of legal technology, greater use of law firms, more competition , and collaboration between all the different players in the legal ecosystem.

[1] And we keep an eye out for detailed industry reports, such as the 2022 State of the Legal Market Reportby the Center on Ethics and the Legal Profession at Georgetown University Law Center and the Thomson Reuters Institute, issued January 11, 2022, available at https://www.thomsonreuters.com/en-us/posts/wp-content/uploads/sites/20/2022/01/State-of-Legal-Market-Report_Final.pdf.

[2] See “In-house experts weigh in on what to watch in 2022”, Corporate legal advisor Dec 22 2021, available at https://www.law.com/corpcounsel/2021/12/22/in-house-experts-weigh-in-on-what-to-watch-in-2022/; 2022 Survey of General CounselAssociation of Company Lawyers, summary available at https://www.acc.com/sites/default/files/2022-01/ACC_CLO22_Flyer_Final_0.pdf.

[3] To see 2022 State of the Legal Market Report, (Cited above); for a UK-specific view, see State of the UK legal market 2022published on April 14, 2022 by the Thomson Reuters Institute, available at https://www.thomsonreuters.com/en-us/posts/legal/uk-legal-market-report-2022/.

[4] Alternative legal service providers: 2021 report, Thomson Reuters Institute, the Center on Ethics and the Legal Profession at Georgetown Law, and the Saïd Business School at the University of Oxford, February 11, 2021, available at https://www.thomsonreuters.com/en/press-releases/2021/february/alternative-legal-service-providers-are-quickly-becoming-mainstream-for-law-firms-and-corporations-creating-a- 14-billion-market.html.

[5] “ALSP? The Big Four are the “dominant brands”. artificial avocado Apr 14, 2022, available at https://www.artificiallawyer.com/2022/04/14/alsps-big-four-are-the-dominant-brands/.