Yet the growth rate shown in the most recent report still came as a bit of a surprise: a 20% compounded annual growth rate (CAGR) for the past two years, resulting in a current market size of $20.6 billion. In interviews with leaders from more than a dozen ALSPs, respondents said they expected standout growth in the sector to continue, and survey data from the client side supports these expectations. Among respondents from the largest law firms, 26% said they plan to increase spending on ALSPs, while only 3% said they expect their spending to fall. Within corporate law departments, 21% expect to be spending more on ALSPs in the future, with just 8% expecting spending to drop.

Interview respondents consistently referred to the ALSP market as 鈥渙pening up鈥� over the past two years, citing a variety of catalysts: changes wrought by the global pandemic, the impact of the Big Four auditing and accounting firms, and the shrinking size of many corporate legal departments, among others. ALSPs are taking advantage of those changes to greatly expand their service offerings; and while the industry is young, a number of ALSP leaders said they鈥檙e beginning to see a trend more commonly associated with mature industries: consolidation.

More growth ahead?

A sales director at a U.S.-based ALSP says that ALSPs have moved through the very early stages of the growth curve associated with any new innovation and are now poised for accelerated take-up. Among customers, the innovator and early adopter segments of that base have been using ALSPs for years, and their positive experiences are clearing the way for a wider mass market. 鈥淎ll of a sudden, people will say, 鈥極kay, it鈥檚 safe now,鈥欌�� the sales director says, 鈥渨hich will lead to even more expansion.鈥�

He also pointed out that the traditional legal market leaves behind a lot of unmet demand. 鈥淐lients simply cannot afford all of the legal and regulatory advice they need to buy,鈥� he says, especially if law firms remain wedded to the billable hour. 鈥淭here鈥檚 this latent demand out there, and if you change your model, you can grab more market share, because [clients] just cannot afford to buy answers by the hour.鈥�

The Big Four have also had a positive effect, says the founder and CEO of a U.S.-based ALSP, admitting that 鈥渢his is going to sound strange.鈥� The Big Four have convinced many general counsel, CFOs, and CEOs that business and law shouldn鈥檛 be so separate, the founder explains. 鈥淲e found that the Big Four moving into the space has actually just opened up the top of the funnel 鈥� it鈥檚 so much larger now.鈥�

ALSPs also get a boost from the fact that corporate law departments are shrinking 鈥� even though their workloads are not. A founder of an independent U.K.-based ALSP echoes that sentiment. 鈥淥ne of the things we see is that a bigger client doesn鈥檛 mean a bigger law department,鈥� the founder says. 鈥淚nside legal counsel and inside legal operations are shrinking.鈥� Meanwhile, he adds, inside teams have too much work, or work that isn鈥檛 a good fit for their capabilities. Legal departments are even bringing in procurement professionals 鈥� a relatively new part of the legal landscape 鈥� to try to close that gap in a cost-effective way.

Not surprisingly, the pandemic had an impact as well. 鈥淭he stigma of offshore support has worn off,鈥� says the vice-president of a U.S.-based ALSP. 鈥淲e all ended up working from home, and we learned it doesn鈥檛 matter where the person is that you鈥檙e talking with.鈥�

New opportunities

Together, these trends mean opportunities for ALSPs. The largest seems to be in regulatory & compliance work and advisory work, as well as in technology consulting. ALSPs are also looking to expand into specific service areas, such as labor & employment law, and into new geographies.

The impact of regulations such as the General Data Protection Regulation (GDPR) in the European Union and the California Consumer Privacy Act (CCPA) have produced 鈥渁 huge focus鈥� on privacy, says a U.S.-based ALSP leader. His firm is partnering with a technology company to provide faster and more focused data breach review. They鈥檙e also spending 鈥渁 significant amount of time鈥� helping clients update their contracts to reflect the new laws.

The new regulations are especially hard to navigate for those organizations that do business across countries and regions. 鈥淚t鈥檚 increasingly complex to operate businesses in multiple jurisdictions and try to manage all of them,鈥� explains the CEO of a law firm captive ALSP in the U.S. 鈥淔or a lot of our clients, some of their biggest needs are just better use of some of the tools that exist that make it easier to have a good lens on the range of matters our clients have in different jurisdictions.鈥�

Technology consulting, as mentioned in the ALSP 2023 Report, is also a growth area 鈥� one that overlaps significantly with legal operations. A partner at a law firm ALSP says his firm is regularly asked to weigh in on matters such as how to manage work, how many lawyers to hire, and where those lawyers should be located. On the technology side, his clients want advice about which technology solution to buy, how it should be implemented, and how it can be made to work best for them. The partner described a typical request as one in which clients say: 鈥淚 bought some technology, and it鈥檚 crap, and it doesn鈥檛 work. Help me, because I鈥檝e spent half a million pounds on it, and I can鈥檛 admit it doesn鈥檛 work.鈥�

Growth through acquisition

As ALSPs grow, it鈥檚 not surprising that they become more attractive acquisition targets, fueling consolidation. 鈥淚n the early stage of this industry we were trying to say, 鈥榃ho do we acquire?鈥欌�� says the co-founder of a U.S.-based ALSP. 鈥淭here was nobody of any size to acquire. They were all tiny.鈥� Another ALSP founder expects consolidation to continue, as companies that are strong in one service area 鈥� for example, discovery 鈥� look to buy a competitor that is strong in a complementary area, such as legal operations.

A partner at a law firm ALSP is already noticing that his competitive set is smaller. 鈥淔our or five years ago, I think there were 10-plus providers in the market. There might still be, but you certainly don鈥檛 see them. You probably see three or four at the most.鈥� Now, he鈥檚 finding his clients are using ALSPs quite heavily, and hire just a handful of providers. His diagnosis of his market segment could just as well apply to the ALSP market as a whole: 鈥淚t鈥檚 grown up,鈥� he says. 鈥淚t鈥檚 matured as a service offering.鈥�

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We continue our monthly feature, Upfront & Personal, a column created by聽聽that brings 鈥渢he person behind the title鈥� to the forefront in interviews with some of the most influential members of the legal community.

Rose Ors: There has been much talk about the legal industry’s need to join the Fourth Industrial Revolution, with much of that focusing on digital transformation. What does 鈥渄igital transformation鈥� mean in the context of a corporate legal department?

Dan Lange: Some think digital transformation is all about adopting and using technology; and others believe it is all about using data to gain business insights. Each is partially correct.

Digital transformation does require both technology and data, but what will drive change is the ability of the general counsel and others in the legal department to reimagine how to optimize the department鈥檚 value to the company it serves.

Rose Ors: Deloitte helps transform many functional areas within companies throughout the world. Where do legal departments fall on the digital transformation spectrum?

Dan Lange: Overall, legal departments are one of the last departments to be transformed. Some legal departments are quite far along in that journey, but many are still operating in the same manner they have for decades. The pace of adoption continues to be relatively slow.

Rose Ors: Why do you think that is?

Dan Lange: It is not easy for legal departments to transform themselves because much of their work involves interacting with a range of business areas. They are not self-contained with end-to-end control and ownership of essential workflows, and that interdependence introduces complexity into the transformation process.

For example, contract lifestyle management is an area with many individual stakeholders who play a role in a multi-step process. It is not as simple as the legal department unilaterally saying, 鈥淲e are going to change how we manage contracts to become more efficient.鈥� They must get buy-in from all the other stakeholders.

Rose Ors: What are the most significant changes legal departments need to make?

Dan Lange: Legal departments typically do not accumulate or utilize the data needed to transform themselves. Decisions often continue to rely on the intuition and experience of the lawyer making them. A successful transformation requires a data strategy, and it also requires a rich and reliable dataset that can be mined for meaningful insights quickly. The results, of course, are smarter decisions and measurable outcomes.

Rose Ors: What鈥檚 an example?

Dan Lange: Let鈥檚 take contracts again. A high-quality repository of contracts is becoming table stakes for legal teams. Digital storage of the actual agreements supported with appropriate data-tagging provides for rapid search, retrieval, and reporting. Tagging metadata inside contracts can help measure risk positions and identify critical milestones and deadlines, as well as identifying those who must approve the contracts.

A repository could increase efficiency by providing contract templates and clause libraries to speed future contract drafting. When privacy rules or other laws change, the repository would enable the legal department to quickly determine which contracts have clauses that need to be revised.

A successful transformation also requires legal departments to employ the multi-disciplinary expertise that many departments now lack. Those departments that invest more in Legal Ops will accelerate the pace of change.

Rose Ors: What else must legal departments address?

Dan Lange: Legal departments tend to focus on changing individual aspects of their operation in isolation. This one-off approach can result in disjointed investments in process improvements and technologies which may not operate well with each other or are not connected to the greater enterprise.

There are far too many instances in which corporate legal departments define a problem too narrowly. Technology is a prime example. A legal department sees a need for a technology upgrade, buys that technology, and thinks it will solve whatever larger problem there is. When the issue remains, they are dissatisfied with the technology and may stop using it.

Rose Ors: How can legal departments avoid too narrow a focus?

Dan Lange: Legal departments must recognize that real transformation consists of several elements. It will require expertise in four key areas: change management, process improvement, technology utilization, and project management. You need to employ a multi-disciplinary set of skills and experiences as well as subject matter specialists.

At Deloitte, we launched Legal Business Services to meet these broad needs.

Rose Ors: What does Deloitte bring to the table?

Dan Lange: As the world’s largest professional services organization, we have extensive experience in those four key areas I just mentioned and subject matter specialists, all of which we can draw on from around the globe. We have decades of experience applying our knowledge to help legal departments align their talent, data, and technology.

We recently added some of the most talented and respected market leaders to our team, including Mark Ross, Richard Levine, Lewis Christian, and Steven Walker. Our goal is to help the legal department move from a primarily risk management and compliance center to one that drives quantifiable business value.

Rose Ors: What does a modern in-house legal department look like five to 10 years from now?

Dan Lange: I see a legal department where lawyers are focused on strategic issues using data to drive faster and better decisions 鈥� a department that leverages data and artificial intelligence to perform low-risk, high-volume tasks more efficiently and offer self-help options to the business units.

The department also will use technologies that are not one-offs, but rather a suite of legal technology that is connected to the rest of the organization.

Rose Ors: What are the benefits of this cultural and technological shift?

Dan Lange: It has long been the goal of most general counsels and their legal departments to be valued as strategic business partners. Digital transformation will help them achieve this goal.

Even though regulatory hurdles prevent the Big Four and other accounting firms from practicing law directly, at least in jurisdictions like the U.S., they are increasingly going toe-to-toe with law firms in some areas of work. And while regulatory risk and compliance services seems to be the accounting firms鈥� bread and butter in regard to competing with law firms, some larger firms are also landing client mandates for merger and acquisition due diligence, corporate transactions, contract and document drafting, and litigation and investigation support.

In , 20% of large law firms reported they had competed against a member of the Big Four within the past year, and 23% said they had lost client business they had expect to win. It鈥檚 not totally surprising 鈥� Big Four accounting firms have been able to leverage their strong ties with corporate C-suite executives, their investment in technology, their ability to integrate legal services with other offerings, and their strong reputation for quality work into a serious threat to large law firms on many levels.

鈥淗istorically, lawyers have thought of accountants as a stodgy, conservative bunch, more on the boring side… but if that was ever true, it certainly isn鈥檛 anymore.鈥�

Of course, this leaves law firms scrambling for a strategy to combat this incursion 鈥� but what can law firms do strategically to battle back? As we鈥檝e suggested previously, , but rather, as Dr. Larry Richard, founder & principal consultant at聽, suggests, a strategic pathway might be found by understanding the psychological differences and similarities between accountants and lawyers. Law firms should also study the way accountants think and how that might give accounting firms an advantage when trying to make in-roads into the legal industry.

鈥淗istorically, lawyers have thought of accountants as a stodgy, conservative bunch, more on the boring side,鈥� Richard, an expert in lawyer personality, explains, adding that by implication, the thought that follows is that lawyers are more likely to innovate. 鈥淏ut if that was ever true, it certainly isn鈥檛 anymore,鈥� he says.

For example, a few decades ago, it was large accounting firms that were the first to move to a multiple-office model, with law firms following about 10 years later, Richard says. And accounting firms also were the first to go beyond the borders of the U.S. and globalize, when just a couple of law firms were venturing out at that time. Accounting firms also were the first to create multiple career paths 鈥� they moved away from the traditional partner and associate model and adopted other significant roles such as manager, managing director, senior leader, etc., Richard says. 鈥淭hese innovations offered meaningful alternative career paths to those individuals who didn鈥檛 want to be on or who couldn鈥檛 sustain being on partner track.鈥�

Law firms are still a step behind the large accounting firms in many strategic ways, Richard explains, and are only now seeing the value of creating non-partner roles and middle-tier positions, and even hiring non-lawyers to jump start their legal tech innovation or process management initiatives. 鈥淪till, most law firms have not really expanded in the creative ways accounting firms have, so law firms still have this hierarchal upper system that’s pretty static, and most talent doesn’t like it,鈥� Richard says, adding that law firms that do not embrace the kind of flexible hiring that accounting firms have may find it harder to attract needed talent, especially around technology and innovation, in the future.

Richard says that accounting firms have made these advancements right under the noses of law firms at times, simply because too often lawyers don鈥檛 look at accountants as a group that could compete with them for client business.

This thinking, however, has somewhat blinded law firms from really seeing 鈥� and reacting to 鈥� the strides accounting firms have made in positioning themselves in the minds of clients as innovators, proactive collaborators, and trusted advisors. 鈥淚 remember about eight or nine years ago, the American Institute of Certified Public Accountants (AICPA) began a marketing campaign around the tagline, 鈥楢ccountants: Your Trusted Advisors鈥� 鈥� and you didn鈥檛 hear a peep from the law firms about it, even though that label was one they had previous owned,鈥� Richard notes.

鈥淭his is not good, and I had hoped it would be a wake-up call for law firms,鈥� he adds. 鈥淏ut thus far, it hasn鈥檛 been.鈥�

The point to remember, Richard says, is that the two professional personalities are not all that different from each other, and although accountants may be less urgent and not as skeptical as lawyers 鈥� two of their own attributes that lawyers view with pride 鈥� these two small differences may undermine the ability of lawyers to develop innovations in branding and marketing their services, even though these traits serve them quite well in the practice of law.

鈥淪kepticism is a very key factor and an essential mindset for the high-quality practice of law. At the same time, we have impressive evidence that a skeptical mind kills innovation,鈥� Richard says. 鈥淚t also makes it hard to be an effective leader, to collaborate, to be collegial, and to develop younger people well.鈥� Because lawyers are so high on skepticism, they become enormously risk-averse 鈥� even if it鈥檚 a 0.01% chance of something going wrong 鈥� because they want to protect the client, he explains. 鈥淭he result? Innovation suffers, unless they can learn how to dial their skepticism back a bit.鈥�

Unfortunately for law firms, this schism between the two professions may widen in terms of success and client satisfaction. 鈥淚 think accounting firms are doing a very good job at hiring highly talented lawyers, and eventually they’re going to find a way to change the rules and compete directly in the legal profession in the U.S.,鈥� Richard says, adding then, they鈥檙e going to be impressive competitors for large law firms.

So, to the previous question of what can law firms do? Richard says they need to wake up to this new reality and start taking the competitive threat of the Big Four seriously. 鈥淓ven now, I think many law firm leaders may not have this issue on their radar screens.鈥�