Given lawyers' predilection for precedent, the probability of a corporation outsourcing to an ALSP depends on the number of corporations who've already done so. This dependence produces the classic S-shaped adoption curve we've seen in everything from refrigerators to iPhones. UnitedLex's deal with GE, coming on the heels of their deal with DXC, suggests we're about to hit the steep part of this curve in legal services outsourcing. The incipient broad, rapid, change has profound ramifications for in-house legal departments, ALSPs and law firms.

In-House Departments

Let's start in house. The maturation of ALSPs into credible large-scale service providers to real companies says it's time to re-conceptualize what an in-house legal department is. It's not a GC who advises the CEO team, hands out work to outside counsel, and oversees a cadre of proficient lawyers doing routine work. Instead it becomes an elite team of business-savvy lawyers whose capabilities are broader than those of a typical Am Law partner. Yes, they know the law as well as their private practice counterparts but, rather than being fascinated by its subtleties, they see it as just one part of a business' broader set of activities and one that benefits from management just as others do. Freed from the invisible-hand effects of the billed hour, they are committed to efficiency—reusing existing work product mercilessly, getting work done by the lowest-cost resource capable of doing it, and making decisions quickly. They see technology as a way to get more done, faster, and can't wait to deploy it. They aren't afraid to manage. They self-identify not as philosopher kings but as savvy, broadly skilled, hands-on, pragmatists. In short, they are what top-tier law firm partners would be if they weren't in operating environments designed for effectiveness rather than efficiency and didn't have a tendency to the precious.

For such a legal department, the coming-of-age of ALSPs heralds the formation of a tripartite perfect storm: “grown up” ALSPs; complacent Am Law 100 firms, and newly abundant, business-ready, technology. The opportunity for next-generation legal departments is similarly threefold. First, offload all routine, high-volume, low-risk work to ALSPs. Such outsourcing is never easy but it helps that ALSPs are typically open to rebadging current personnel. Second, take more, and more interesting, work from the mid-tier Am Law 100. There's an inevitability to this displacement. Much of Big Law has proven itself incapable of evolving its business model beyond the billable hour and its inherent elephantine drag on efficiency. The workaround for clients? Take the work in-house where the business model is focused entirely on efficiency (managed by metrics like “cost per matter resolution”) and let Big Law be hoisted with its own petard. Third, make use of proven technologies (in a way that billable-hour based operating models can't) to execute the work taken in-house intelligently and efficiently. The ALSPs play a helpful, secondary, role here: they're the proving ground for new technology. While AI and machine learning are still developing rapidly, it can be daunting to figure out what solutions to deploy. Making such determinations isn't a core competence of legal departments. The better answer is to leave it to the ALSPs—it's central to their business model, they've grown up with this stuff, and they're in a winner-take-all stage of market development where, as a group, they're prepared to overinvest. When they've worked it out, in-house counsel can co-opt their solutions.

For a small set of larger in-house legal departments, there's another opportunity: rather than outsource the work to an ALSP, spin out the in-house group to become an independent ALSP. With the parent company as an anchor client, the spun-out entity would immediately be above the threshold scale. This is what General Motors did with EDS back in time. Surely there's a group within a financial institution doing sophisticated work efficiently that could deliver its services to others? Or an IP portfolio management group within, say, a life sciences company? Such a spin out must be coming.

UnitedLex, Other ALSPs, and Would-Be ALSPs

Turning to ALSPs, let's start with UnitedLex itself. First, they're to be congratulated. By signing another watershed deal and with no less a company than GE, a name synonymous with driving change in law, they're helping reshape an industry. They should enjoy the moment, then get back to work. The deal will have given competitors renewed fire-in-the-belly; this isn't even the end of the beginning.

It looks like UnitedLex is getting lots right and can serve as a model for others. I admire what I take to be their growth strategy—putting share gain ahead of profitability. I say this because my guess is that, given that GE knew how to get a bargain, UnitedLex's margins on the deal are tight. That's more than OK; that's smart. The real benefit from this deal will come in the form of learning how to manage real-world, large-scale, legal outsourcing efficiently and effectively. This will enable them be a higher-quality, lower-cost, option for the next company looking for a similar solution and thus to win the business. These wins will compound to a dominant share position.

Other pointers for UnitedLex and other ALSPs to consider include:

• Maintain “we'll rebadge your people” as an option for clients (as in the DXC deal). This addresses a major concern of legal department leadership teams thinking of outsourcing. It's important too to treat the rebadged people well; one botched transition could backfire severely. A reputation as a good guy is like moss: takes years to grow; can be destroyed in seconds.
• Focus on industry verticals. It's dangerous to draw a trend from two deals but, with DXC and GE as major clients, it looks like UnitedLex has an offering that industrial companies find compelling. This plays to an irrationality that many companies evidence in much of their purchasing: they believe to an unreasonable degree that industry-specific experience is critical. It's unclear who has the lead in the large and likely highly lucrative financial sector vertical; it's probably better thought of as multiple sub-segments each of which can be individually targeted, mined, and owned by individual ALSPs.
• Track corporate merger rumors: newly merged companies are fertile ground for legal department restructuring and hence outsourcing. The general sense of upheaval during post-merger integration pushes to the side previously dispositive reservations executives may have had about outsourcing.
• Systematize your processes in order to facilitate speedy growth. Services businesses are notoriously difficult to grow rapidly. Unlike in their product business counterparts, you can't simply share the product spec with contract manufacturers to meet burgeoning demand. The analog to manufacturers' factories are skilled employees, who can take years to develop and train. Hence, capturing best practices, synthesizing them into standard methodologies, and rolling these out across the organization quickly is critical. Think of it as developing the parallel in the legal world to Arthur Andersen's “Method/1” project management methodology back in the 1990s.
• Start to identify the kind of strategic partner that would most help the business. Legal process outsourcing must have one of the largest TAMs (total addressable markets) of any service segment not yet overrun by the giant business process outsourcers (BPOs), e.g., Accenture, Wipro, etc. Similarly, the Big Four audit firms must be eyeing the business wistfully, especially in the United States. These players have probably been looking at curves of declining risk and rising cost of entry. As these curves cross, many ALSPs will make it onto lists of potential acquisition targets. Formulating in advance what constitutes the perfect fit will help sort through the potential partners.

Am Law 100 Firms

There's a segment of Am Law 100 work that legal departments won't take in-house. It's the work that an individual corporation doesn't do often or that bets the company. It's probably about half of the work that the Am Law does today. The other half? It's going in-house over the next 20 years. One can legitimately argue about the percentage of work that will go in-house over what time frame. But it's a moot point. It's inarguable that the displaced volume is of a scale sufficient to precipitate a major industry restructuring. Most law firm leaders know this and that their firms have to change. The problem is that rank-and-file partners have no motivation to change; they don't feel sufficiently financially, or otherwise, at risk. As one managing partner said to me recently: how do you tell a room full of millionaires that they have to change? The answer is, of course, that you don't. Rather, you orchestrate a process that lets them come to the realization on their own that their evolving in response to the changing market is vital to their leaving a dynamic firm to the next generation. But that's a longer topic for another day.

Hugh A. Simons researches and writes about the business of law. He's a former senior partner at The Boston Consulting Group (BCG) and chief operating officer at Ropes & Gray. He welcomes readers' reactions at [email protected].