Challenges in the Legal Market
Let's first take a look at the challenges the legal market is generally facing and why these are important for legal corporate functions. Many authors conclude that legal departments have to deal with a situation that is often called “more-for-less” or “better, faster, cheaper”.
There are, according to legal futurist Richard Susskind, three parts to this situation: First of all, because of economic conditions, General Counsel are under pressure from their management to reduce the number of lawyers in their teams. Secondly, they are also required by their chief executives to cut the spending for external counsel. Finally, the regulatory requirements for doing business continue to increase, resulting in the need for more advice for the companies. These conflicting elements put legal departments into the difficult situation of handling more work with less headcount and less support from external sources. Other authors make the same observation. Galbenski and Barringer (2013) identified the “better, faster, cheaper” challenge, which describes the same situation, as one of seven trends in the legal services market. And Callier and Reeb (2015) also observed that in the legal services market, legal departments face increasing budget constraints resulting in more insourcing and less outsourcing. However, there are also critical voices. Hartung and Gartner (2015) doubt that the “less” part of this observation—the budget and headcount cuts—can actually be observed in the market while agreeing that the workload for legal departments increases.The more-for-less (or “better, faster, cheaper”) challenge will affect the way GCs are purchasing legal services. They will increasingly look for alternative ways of sourcing or billing and will be open to handle outside counsel relationships in new ways, if they are able to receive legal services in a similar quality but at lower costs.
Accordingly, an increasing amount of time and effort will be spent on sourcing management and unbundling of legal tasks. This is a result of the more- for-less challenge and it will bring legal project management into the focus as one of the main tasks for legal services providers. Susskind described unbundling as the evolution of legal services through five different stages: from bespoke to standardized, systematized, packaged and commoditized services (Susskind 2013). He explained that, when moving from bespoke to commoditized, the cost of legal service comes down, the price becomes more certain, the time taken to complete work reduces and the quality goes up—which may be in favor of the client but not for law firms operating under the traditional sole-source/billable hour/cost- plus business model. Since the different stages of legal services may exist simultaneously for any matter, dispute or deal, it is possible to decompose them into a set of constituent tasks. According to Susskind, the different tasks may then be sourced from alternative and multiple sources which may not only include off-shoring or outsourcing, but also computerizing or sourcing with no qualified lawyers involved at all.Another challenge that legal departments will have to deal with in the future is the increased pressure to use information technology. Information technology will create new possibilities of how legal work is done, from online marketplaces to machine learning, embedded legal knowledge and big data. Technology will be developed and used for different aspects of the legal market, from Do-it-yourselflaw websites, document assembly, online dispute resolution, legal data analysis to computational law; it will be present in many areas, just like in other markets already today. Legal departments will have to introduce many of these technologies, either of their own accord or because of outside pressure.
But there is also good news for legal departments. With increasing competition among legal services providers, the legal market has turned into a buyer's market (Callier and Reeb 2015) and legal departments therefore have a strong position in that market.
Ribstein (2012) described the development of increased power of in-house lawyers as they become the purchasing agents in an expanded market for legal information. However, he also expected that in-house lawyers will ultimately find their own power eroding because of products and services that replace customized legal advice with standardized technology. In his opinion, the place where this is most likely to begin is large corporations, for several reasons: they have large data sets which they can use, their buying power represent a large share of the demand side of the market, they do not have misaligned incentives like law firms (spending more time on a matter means more hours to bill) and finally they are less impeded by disadvantageous regulation (Ribstein 2012). I strongly agree with his view but would go even further: in my opinion, such innovation will start with small and mid-sized enterprises (SMEs). According to Clayton Christensen (1997), disruptive innovation usually starts at the low end of the market, and that will also be the case in the legal market.The second question with regard to these challenges is: will they go away? Since the legal function experienced ups and downs before, one may wonder if this is only a phase which will disappear sooner or later. I am convinced that these challenges are not cyclical but structural. Once management has gained the insight that legal departments need to act more like other corporate functions, it is highly unlikely that this mindset will change back to the previous. And once they see that legal functions can operate with less headcount and budget, they will show little willingness to increase legal spending again. Another reason is technology. Technology not only enables management to better analyze all aspects of the company, including the costs and budgets of the legal departments. Management will also require legal departments to deploy and utilize technology more effectively. Legal departments will change the way they work and will not look back.
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