The legal industry remains in a state of transition as we begin 2014. Continuing budget pressures, fewer new hires, increasingly complex cases, soaring data volumes, the need for more internal controls and better accountability, and rapidly changing business models are all transforming the culture of law firms and corporate legal departments.
Increased outsourcing
Expect to see a sharp increase in outsourcing in 2014, as corporations begin to insist on fixed-fee budgets for law services, and law firms recognize the intrinsic value and cost-cutting capabilities of vendors who have real expertise in e-discovery and IT. Quality issues associated with outsourcing will still be a concern, but in the age of bigger, data-heavy cases, heavier workloads and demand for faster outcomes, law firms will realize that they cannot meet the desired client service levels on their own while maintaining profitability.
Law firms perform fewer specialized services--the reliance begins on cloud-based services
In keeping with the accelerating outsourcing trend, law firms will perform fewer specialized services such as e-discovery, document review and legal research, relying on LPOs to perform these functions instead. Perhaps more interestingly, the law firm/LPO relationship is also likely to change, with long-term, strategic engagements taking priority over tactical, transactional engagements on a case-by-case basis. The focus in 2014 is on controlling costs, improving quality and efficiency, and increasing profitability over the entire litigation portfolio and over a series of budget cycles, rather than just securing the lowest unit price for a specific case or service.
More law firms also will slash their IT budgets in 2014 as they focus on cost control. Increased overhead costs and a history of inaccurate risk/exposure forecasting are resulting in lower per-hour revenues. Law firms must continue to reduce spend while increasing security. This trend will drive firms to adopt cloud-based services that can be managed more efficiently, cost-effectively and securely by outside providers.
Law schools begin to consolidate
Declining LSAT applications will continue to have a significant financial impact on law schools, which must continue to pay for tenured professors and adhere to ABA requirements for large, resource-intensive libraries. As more U.S. law schools operate at a deficit, a consolidation will begin. There will also be fewer externships as well as fewer jobs for graduates, as corporations refuse to pay the high rates that law firms charge for low to mid-level legal work normally handled by junior associates. Law schools will continue to partner with services providers to train students. Like a medical residency program, this will give students much-needed exposure to actual legal matters and hands-on experience of working in their field.
GCs take a proactive approach to priorities and the budgeting process
Organizations are learning to maximize ROI from their e-discovery projects as they better understand the risks and potential exposure associated with e-discovery. Proactive enterprise data management -- which starts with inside counsel and extends to select providers who can help reduce data volumes and more accurately predict costs -- will become an increasingly important strategy.
GCs will look closely at internal spend versus outsourcing, allocating more dollars for counsel while moving more lower-level associate work to LPOs. While per-gigabyte pricing was still a big factor in purchasing decisions in 2013, quality work product requirements and fixed-fee models will become more common. Transactional pricing is proving to be a short-term fix that doesn't address the larger issue of enterprise data management whose large data volumes negate potential savings from low per-gigabyte costs.
Legal strategy and litigation management still occupy GCs, but there will be more focus on compliance, security and information governance. Many more issues, especially IT-related considerations, are influencing the GC's budget than before.
Conclusion
As legal departments and law firms are called upon to do more with less, these entities will increasingly turn to third parties to manage non-core functions so that they can focus on their core competencies in order to control costs, improve technology and security, and maximize efficiency and profitability. GCs and law firms that invest in long-term, strategic relationships with a handful of LPOs are likely to see an increase in quality, accuracy, efficiency and cost savings. LPOs, on the other hand, will become the proving grounds for future lawyers, providing them with the practical expertise they would normally get from being a junior associate within a firm, and exposing them to a broader spectrum of legal services and cases.