Insourcing Bringing Disruption to Mid-Size Firms

Dire disruptions are coming at law firms from seemingly every direction these days. It used to be that large corporations provided some of the most dependable demand for outsourced legal services, but an increasing number of those hefty clients are now bringing the majority of their legal needs in-house.

While insourcing is always a potential threat to contract service industries, that threat has recently become a harsh reality for many law firms that look to big companies for their big contracts. In a recent Forbes article, Priori Legal CEO Basha Rubin notes that companies have removed roughly $1.1 billion from their outside legal budgets, redirecting a fraction of that sum toward bolstering their in-house legal teams.

In Rubin’s view, this loss of business isn’t crashing down upon Big Law — it’s the midsize law firms that need to start thinking about how they’re going to make up the difference. Rubin offers three recommendations that will help those smaller firms weather the storm, and it so happens that those tips sync up with the key findings of Law2023.

Specialization: While it’s cost effective for companies to insource their general legal team, they still outsource for their specialists.

“When larger companies come to us, they want something very, very specific whether it’s tax, customs or regulatory compliance,” Rubin said. “Unless the company expects to need to consult these specialists every day or can predict exactly when they will, that expertise will remain external.”

Law2023’s report tells us that the ever-expanding access to reliable information about law firm performance will present golden opportunities for those firms that can outperform all others in niche markets. By doing one thing exceptionally well, midsize firms can retain the attention of big corporate accounts.

Technology: Most firms already leverage a range of technologies to work more efficiently and offer more competitive rates. But the technological arms race isn’t slowing down, so firms must make it a priority to remain up-to-date.

“You’re running a business, like any other, so I would figure out how to make my operations leaner and invest in technology now because technological innovation can automate rote processes and drive legal costs down,” Rubin said.

According to Law2023, traditional firms should expect to take a hit from the automated legal services industry. But the automated tools of today are still relatively basic, and they can’t fill the shoes of talented attorneys. Law firms willing to take risks with experimental technologies may position themselves early for success in a future tech era.

Billing: One of the most stubborn elements of the old way of practicing law is the billable hour. Companies are bringing more of their legal services in-house to maximize efficiency and minimize nasty surprises like sky-high hourly bills, so they’re also looking for more predictable fee arrangements when they choose to outsource.

Rubin tells mid-size firms to “experiment now, track your data scrupulously and figure out how you can be profitable in a non-hourly world.”

The findings of Law2023 reveal that law firms will establish their own R&D departments to identify the best new ways to package and sell legal services. In addition to exploring new fee structures, these in-house researchers may also develop entirely new legal products and practices to further differentiate their firms from the competition.

While these tips are especially pertinent to mid-size firms facing a wave of insourcing, small firms and even Big Law titans can prepare for the inevitable changes to the practice of law by heeding the findings of Law2023.