Alternative energy

Alternative legal service providers (ALSPs) have seen a meteoric rise over the past few years. It is estimated that the worldwide ALSP market grew to $13.9bn by the end of 2019, an increase of 30% over the previous two years. In this article, we will consider why ALSPs have been so successful, and how traditional law firms should respond to their growth.

What is an ALSP?

An ALSP is a company which provides legal services without being a law firm. ALSPs range from businesses which offer specific products, such as template legal documents, all the way up to the legal arms of the ‘Big Four’ accountancy firms which provide comprehensive advice. 

ALSPs combine specialisation and technology to optimise certain legal processes; although they tend to be far more process-driven compared with law firms, they are also often more innovative in their approach, willing to break the mould and adopt new solutions.

Technology

A defining feature of ALSPs is the use of technology as an integral part of their business models. Some ALSPs are first and foremost technology companies which offer specialised software to deal with certain legal requirements. Rocket Lawyer, for example, provides simple legal document-assembly tools which can be used by SMEs and individuals to build straightforward contracts and other legal documentation. Even the legal arms of the Big Four rely heavily on the latest technology to optimise their delivery of legal services.

Specialisation and process efficiency

Smaller ALSPs tend to focus on a very specific type of legal product or service in an effort to optimise efficiency and reduce cost. Examples of legal service specialisations include:

• Legal document creation and review
• Intellectual property management
• Due diligence software
• Litigation tools, for example e-discovery and case prediction

The narrow focus of ALSPs means that they are able to optimise their delivery of the particular legal services which they provide. This can put them at a cost advantage compared to the fees charged by traditional firms. Furthermore, they can often yield results faster, providing better turnaround times for clients.

Consultancy and the Big Four

Not all ALSPs are focused on software products. Alternative business structures (ABSs) also come under the umbrella of ALSPs, and many ALSPs employ qualified lawyers who provide routine legal advice. However, these tend to focus on niche areas of law and are therefore used more for project work rather than general legal advice. Lawyers who work for an ALSP are often known as legal consultants. 

The legal arms of the Big Four (EY, KPMG, PwC and Deloitte) are also considered to be ALSPs. However, their size means that they are able to offer the full array of legal services provided by most traditional law firms, while also deploying the technology and process improvement skills contained within their wider organisations.

Have ALSPs had a detrimental impact on traditional firms?

The emergence of ALSPs has added significant competition to the legal market. Their ability to create efficiencies through technology and optimise processes means that ALSPs can often charge significantly less than traditional firms for specific routine work.

But despite the new competition, many firms seem to not only be retaining clients, but actually increasing their fees. According to a report by The Lawyer, the average cost of legal advice to UK businesses rose by 4% over 2020 – which compares to no rise in the fees charged by accountants and a reduction in management consultancy fees over the same period. The articled concluded: “In a crisis, businesses will always turn to their lawyers first and their consultants second.” So, at least in terms of the legal consultant services offered by ALSPs, it appears that they are not eating into the work of lawyers in traditional firms.

Traditional firms: the first port of call

In light of the aforementioned report, traditional firms appear to have inherent advantages compared to the Big Four and other ALSPs offering general legal advice. This is particularly true in the face of a crisis, such as the pandemic. The reasons why clients continue to turn to their lawyers compared to lower-cost options provided by ALSPs may be down to their greater flexibility. Traditional full-service firms will be able to turn their hand swiftly to any matter, and will often have built up a valuable relationship with their client over a number of years.

Clients looking at placing project work may be more likely to spend some time looking into various different options and finding an ALSP which can undertake a known type of work at lower cost. But when it comes to urgent legal jobs with many unknowns, it’s more likely that a traditional firm will be the first port of call – particularly where trust and confidence has built up between lawyer and client.

In terms of the Big Four, they all have a broad range of highly skilled lawyers who can provide tailored advice on a multitude of issues in the same way as a traditional firm. But the fact that they also provide other services such as accountancy and management consultancy means that some clients may view them more as generalists, and might prefer to work with a dedicated legal practice. 

How can traditional firms compete with ALSPs?

Although traditional law firms may be insulated to some degree, it’s important that managing partners and practice managers keep abreast of the developing competition posed by ALSPs. Crucially, they need to ensure that their firms continue to adapt to a changing legal market, putting in place the right technology, optimising their processes, investing in the best talent and cementing client relationships.

Technology

The same technology used by ALSPs is available to legal practices. Traditional firms should ensure they harness any relevant software to help with process efficiency and automation of routine tasks. Embracing innovative tools to streamline legal work allows firms to compete with ALSPs on price and turnaround times. Examples of legal technology which can put firms on a more equal footing include:

• Legal document building: there are a variety of tools on the market which can help lawyers craft bespoke contracts and other legal documents for their clients, using sophisticated guided questionnaires which ensure that relevant clauses are included. 
• Contract review tools: software linked to the latest legal developments can quickly scan large volumes of contracts, automatically looking for any clauses which need to be updated in light of new legislation or case law.
• Automated billing software: many practice management systems now offer modules which automatically record time spent on dealing with individual client matters, generating invoices at the end of the month and saving time.

Creating new skills

Implementing new technology is not enough without the right people in the firm to take advantage of the sophisticated systems and software. Although it may be possible to diversify the skillset of an existing IT team, it will often be necessary to hire new people. Emerging specialisms in the field of legal technology include: 

• Data scientist: with new tech comes more data. Data scientists and data analysts help to capture this data, interpret it and ultimately extract value from the information. Most ALSPs understand the importance of data and many legal technology companies are owned and managed by people with data science backgrounds.
• Innovation manager: to bridge the gap between law firm management and technical staff, some firms are hiring innovation managers. They will normally have technical expertise along with business acumen, to enable them to assess the viability of new technology products and services.
• Training officers: learning and development officers are increasingly common in larger firms. They ensure that new staff can understand how to use any software which is unfamiliar, as well as continuously training lawyers and support staff to keep them up to date with new features and systems.
• Business support: legal process engineers and business operations staff can help a law firm to compete with ALSPs on efficiency, reducing costs and overseeing large scale projects.

Retaining talent

As well as bringing on board staff with new skills, it’s important that traditional firms manage and retain their existing talent. Younger lawyers, in particular, are increasingly demanding more flexible working opportunities, which are more likely to be offered by ALSPs. Although most firms had to adapt to staff working from home during the pandemic, it’s important that they retain some form of agile working going forward to reduce any temptation for key talent to jump ship.

Bolstering client relationships

It’s vital that traditional firms take good care of their existing client base, being as proactive as possible and demonstrating a personal level of service, to help differentiate them from ALSPs. If a firm has spread itself too wide, it may be necessary to abandon certain service areas, so that they can focus on their core skills and hone their reputation in a certain field, working more closely with their “bread and butter” clients.

Traditional firms should bear in mind that their in-house corporate clients are under increasing pressure to reduce costs, and they will often be tempted to take their work to an ALSP who can provide a cheaper quote. So the relationship law firm partners have with GCs are particularly valuable, and time needs to be spent bolstering these as much as possible.

Partnership and ABS conversion

Any large-scale project work which has an international dimension is often seen as low-hanging fruit by process-driven ALSPs – and particularly by the Big Four who have a multi-jurisdictional presence. In these cases, it’s a good idea for traditional firms to consider partnering with overseas firms and even some of the smaller ALSPs.

More generally, it can often be a better idea for firms to work together with ALSPs rather than trying to compete with them. Farming out routine work to ALSPs can be a win-win situation, particularly where retaining a client in the long run is more valuable than maximising profits in the short term. This type of arrangement can work as a “loss leader” strategy, reaping dividends for firms over time. 

Law firms with partnership structures may take the decision to convert to an ABS to enable them to secure outside investment, or bring non-lawyer partners to the team who can offer a new perspective. Others will set up technology units as stand-alone ALSPs, or even acquire external ALSPs.