Most Legal Departments Are Not Fully Embracing ALSPs, Survey Says
Article by Victoria Hudgins
While outsourcing is gaining traction, a new survey from EY found most companies haven't adopted managed services for most of their needs. But recent events may trigger broader adoption, an EY legal leader notes.
The advent and benet of legal managed services isn’t lost on corporate legal departments. But a lack of prior experience leveraging alternative legal service providers (ALSPs) for various tasks prevents most legal departments from fully embracing them, according to a new EY survey.
EY Law on Monday released its ”Realizing the Benefits of Legal ManagedServices” report. The accounting rm commissioned a survey of 1,058 legal departments in 25 countries to understand why some are actively using legal managed services while others remain reluctant.
Respondents were placed into three categories: pioneers, explorers and observers.EY categorized 37% of its survey respondents as “pioneers” who previously outsourced law services to non-law rm providers and are actively looking to expand their use of ALSPs.
Following closely behind (35%) were respondents who fell under the “explorer” distinction. Explorers were denied as being aware of new legal service delivery models and their benefits but largely leverage those providers for “discrete tasks,” such as e-discovery and litigation. They are considering expanding their use of ALSPsbut are unsure how to proceed.
EY also placed 28% of survey respondents into the “observers” category, meaning they aren’t considering managed services even if they are aware of the benefits. The survey noted pioneers and explorers were mainly law departments in large and midsize organizations, while most observers were law departments at smaller organizations.
EY also examined why legal departments were in varied stages of outsourcing. According to the survey, an in-house team’s experience leveraging ALSPs greatly nuanced their expectation and adoption of legal service vendors. While many observers (41%) had no cost-cutting targets for legal managed services, 55% of pioneers had such targets.
While cost-cutting goals varied, participants labeled explorers (53%) and observers(62%) agreed external counsel costs are the biggest opportunity for cost savings. Notably, only 42% of pioneers said external counsel was the focus of their cost-cutting measure. Instead, most pioneers (57%) were aiming to trim internal costs.
EY global legal managed services leader John Knox said while most companies may see outside counsel spend as “low-hanging fruit, pioneers have done that work already in the last three or four years and there’s probably less opportunity.”
He noted events such as a recession and COVID-19 can trigger reluctant legal departments to diversify their supply chain of legal service providers.
“If a particular location goes down or something they have a supplier to ease that pain, and the other driver we’ve seen a lot of because of COVID is companies moving to digital. I think a lot of companies have been caught short by a lot of their contracts being paper-based, locked in boxes.”
While most respondents weren’t fully implementing or even seeking more non-law firm outsourcing, 42% said they were currently outsourcing contract management. Knox attributed contract outsourcing to a common pain point many corporations face. While common across many legal departments, the work itself is largely high-volume, commoditized, and ripe for new, efficient processes, he said.
While contracts are routine tasks with proven tech solutions, the same can’t be said for legal entity management and compliance tasks and due diligence. Indeed, both tasks were tied (29%) as the least likely service to be outsourced by EY respondents.
Still, most respondents (46%) said they were considering outsourcing legal entity management and compliance.
Due diligence was also least likely to be outsourced (29%), but the second-highest(45%) task being considered for outsourcing by legal departments. Knox linked the hesitancy to technology’s expanding development and sophistication.
“To outsource due diligence effectively you need sophisticated AI tools and technology,” he said. “Only now are clients getting comfortable with the quality of the machine learning tools to actually drive efficiency across their due diligence.”