ALSP: How Companies Can Transcend Cost And Extract Maximum Value

For alternative legal services providers to remain competitive, they need to demonstrate value to their clients

There is a lot of legal industry buzz surrounding the newly issued 2023 Alternative Legal Service Provider Market (“ALSP”) report by Georgetown and the Thomson Reuters Institute. Much of that buzz relates to their finding that over the last two years, ALSPs have grown over 45%, now representing an industry size of $20.6B.  

While some of this growth can be attributed to a bigger pool of providers added to the ALSP bucket, there is strong agreement that much of it occurred during the pandemic, in large part due to a scarcity of resources and greater acceptance of remote delivery.  

For those unfamiliar with the ALSP industry, it is comprised of service providers that manage volumes of legal work that is often routine in nature and benefits from technology, process improvements, and access to highly trained and more cost-effective resources than found at a traditional law firm or within a corporate legal department.  

For corporate legal departments, usage of ALSPs has remained consistent, especially in traditional areas of contracts management, e-Discovery, legal research, staffing, and regulatory and compliance services. What has changed since the days when I was a buyer of these services for a Fortune 10 tech company is that cost is no longer the primary driver.  

While cost still matters, the primary motivation is creating capacity for the legal department to focus on more strategic and higher risk/complexity work – the work that underpins the value this function delivers to the company.  

As the role of the chief legal officer/general counsel broadens in both scope and complexity, freeing up much-needed capacity to keep up with increased scope and complexity is becoming an imperative rather than an option. A secondary and often overlooked benefit of focusing the legal department’s efforts on the most interesting and strategic work is that it supports staff retention as members of the team see greater purpose, satisfaction, and value in their contributions.  

And yes, it also reduces costs on both ends of the spectrum as ALSPs can provide greater transparency and cost efficiency, while the corporate legal department keeps more of the interesting work rather than farming it out to expensive law firms. 

Legal department leadership increasingly relies on legal operations to help identify and transition work shifting to an ALSP. It has been impressive to see the growth of legal operations over the last five years. Legal ops leaders are highly influential and often serve as the primary point of contact during the procurement and decision-making process. That is why dedicated legal ops organizations, such as CLOC and LINK are heavily sponsored by legal services and tech providers.

As mentioned earlier, cost is no longer the primary driver for using an ALSP. In assessing providers, it is critical to determine their ability and level of sophistication for leveraging technology in their service delivery and approach to continuous improvement. Tech-enabled services should encompass automation, data analytics, and reporting, and offer expertise in the key application platforms used by the corporate legal function.  

As budgets get constrained in 2023, identifying ALSPs that can help maximize value from existing technology investments is critical. For example, while Contracts Lifecycle Management (CLM) tools have seen explosive growth over the last few years, many are still not being optimized by internal teams and/or have poor adoption and ROI. It is easier to fix what you already have as opposed to simply licensing the next shiny new toy.

ALSP's value to an organization is not just about the delivery of services but providing insights and recommendations as part of its commitment to continuous improvement. They need to deliver expertise on the technologies that underpin the service delivery today and tomorrow. ALSPs should also support corporate clients in becoming more digitally enabled through more real-time data and analytics that drive both informed decision-making and improvements.  

As an industry, we should caution against overselling home-grown technologies and development capabilities. It is simply too hard for smaller service companies to develop enterprise-grade applications. We can, however, learn to better use and enable existing applications to drive greater value for our clients.

For ALSPs to remain competitive, they need to demonstrate value to their clients. This includes focusing on exceptional delivery and creating true partnerships. When a true partnership exists, the ALSP is often viewed as an extension of the corporate legal function and their employees identify themselves closely with their corporate clients.  

As corporations anticipate and plan for the global economic headwinds of 2023, they are already starting to see large layoffs and hiring freezes. These changes will certainly impact budgets for the corporate legal function. This is coming at a time when increased costs are driving service providers, particularly law firms, to push for fee increases for their services. To meet these budgetary challenges, corporate legal leaders will continue to push certain types of work to ALSPs. The old mantra of “doing more with less” does not resonate with today’s employee base and leads to high attrition and job dissatisfaction.

As a result of the above, I fully expect to see in the next 2024 ALSP report that overall the industry has again shown double-digit growth and that increasingly sophisticated and demanding corporate buyers will have used these service providers to better weather the economic headwinds of 2023.

Gabriel Buigas is the Executive Vice President and Leader of the Contracts, Compliance, and Commercial Services business unit at Integreon.