Large law firms “increasingly losing out to Big 4”

Sako: ALSPs already an integral part of the legal services industry

The Big Four accounting firms are really starting to make their mark in the law, with 23% of large law firms in the UK and US saying they have lost work to them in the past year, new research has found.

The report also showed how the role and influence of alternative legal services providers (ALSPs) is growing.

It estimated that the ALSP market in the US, UK and Canada was worth an estimated $10.7bn (£8.2bn) in 2017 revenue, compared to $8.4bn in the first study of its kind two years ago – a 12.9% compound annual growth rate in that period.

Of this, the lion’s share of the market ($7.4bn) was attributed to independent legal process outsourcers (LPOs), such as those offering litigation support and document review.

The Big Four were the next ($1.2bn), followed by contract and staffing services (like Axiom and LOD) at $1.1bn, managed services ($700m) – such as Elevate and UnitedLex – and law firms’ captive LPOs ($300m).

The report surveyed 171 decision-makers in law firms and corporate legal departments in the UK, and another 346 in the US and Canada.

It was produced by Thomson Reuters Legal Executive Institute, in partnership with the Georgetown University Law Center for the Study of the Legal Profession in the US and Oxford University’s Saïd Business School, as well as UK-based market intelligence company Acritas.

Two years ago, they said the threat of the Big 4 “cannot be overstated”. This appears already to be coming true.

The report said: “While regulatory hurdles prevent [the Big 4] from practising some types of law in jurisdictions like the US, they are increasingly offering a deeper array of alternative legal services to corporate clients.

“Because of their strong C-level relationships with many corporations, the Big Four possess a unique strategic advantage. They have made big investments in technology, and, of course, in the broader reputation of their brands.

“They are also able to integrate their legal services with their other offerings, and they have expertise that stretches around the world.”

As a result, 23% of large firms and 21% of mid-sized firms said they have had a client use a Big Four firm for work they had expected to win.

“The services for which the Big Four most often compete against traditional law firms include regulatory risk and compliance services – which was reported by half the firms that have competed against one of the Big Four – and merger and acquisition due diligence, reported by 43%.

“Though a smaller representation, a substantial numbers of law firms have competed against the Big Four for management of corporate transactions, legal drafting services, and litigation and investigation support.”

The report said interviews with decision-makers at the Big Four showed them to be optimistic about their ability to capture market share and confident in the strength of their unique selling proposition.

More broadly, the report said that corporate use of ALSPs was growing at a faster rate than the 2017 edition predicted, particularly for services such as litigation and investigative support, document review and legal research.

“In some cases, growth has already met or eclipsed five-year projected growth rates in only two years.

“In all, 74% of corporations surveyed are now using ALSPs in at least one service category, compared with 60% in the survey two years ago.

“Corporations are using ALSPs both directly and indirectly through outside law firms, with an increasing number of corporations reporting internal pressures to use ALSPs to reduce legal expenditures.”

Other findings of note were:

  • Most large law firms are now using ALSPs themselves – either in partnership or by developing their own – with more than half saying ALSPs could help them expand and scale their business, differentiate their services, and retain client relationships.
  • ALSPs are steadily moving up the legal value chain to offer more sophisticated services, “even becoming players in the market for legal research, long considered a quintessential law firm competency”;
  • Technology is often emphasised more strongly in ALSPs than at traditional law firms;
  • Once a corporation or a law firm begins using ALSPs, it tends to look for new opportunities to leverage their capabilities;
  • About a third of law firms say they plan to establish their own ALSP affiliate within the next five years;
  • Among law firms, those in the UK are most likely to use ALSPs for legal drafting services, due diligence in mergers and acquisitions, and project management services,
  • UK law firms are expecting substantial growth in their use of ALSPs over the next five years; and
  • Law firms of all sizes are also feeling more pressure from clients to consider ALSPs.

Eric Laughlin, managing director of Thomson Reuters Legal Managed Services, said: “The 2019 report captures the expanding influence of ALSPs on the global legal ecosystem.

“It’s not surprising to see adoption of ALSPs by both legal departments and law firms growing at a pace that has exceeded expectations. Their combination of specialized expertise, unique delivery models and use of cutting-edge technologies is rapidly disrupting the space.”

Mari Sako, professor of management studies at Saïd Business School and a co-author of the report, added: “In a short period of time, ALSPs have evolved from a relatively unknown phenomenon into a fast-growing segment that is an integral part of the legal services industry…

“They are expanding the available range of services by combining talent and technology to deliver legal services in modes that best suit their clients’ needs.”

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