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Law Firms Keep Losing Business to In-House Competitors

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By Casey C. Sullivan, Esq. on June 11, 2015 1:09 PM

Even as the legal market begins to improve, law firms are losing out to in-house legal departments, a recent survey has found. The legal consulting company Altman Weil surveyed chairs and partners at more than 300 U.S. firms with over 50 lawyers.

Their report found that almost all firms acknowledge that competition from non-traditional sources is here to stay. But the biggest competition is coming from clients themselves, as businesses in-source legal work.

In-Sourcing is BigLaw's Biggest Competitor

Aside from other law firms, corporate legal departments are a firm's largest competitor, the survey found. Over two-thirds of the surveyed firms reported that in-house legal departments were taking business from them, while a remaining 23 percent view in-house lawyers as a potential threat. Less than 7 percent don't see what the fuss is about. Compare those numbers to threats from legal technology and quasi-legal service providers. Only 24 percent and 17 percent of firms surveyed were losing business to those nontraditional markets.

The results are even more drastic when you separate BigLaw from the smaller players. Seventy-six percent of firms with 250 lawyers or more were losing business to in-house legal departments, while the remaining 18.7 percent viewed in-house as a threat. Only 2.7 percent didn't see themselves as competing with in-house legal departments, compared with 8.5 percent of smaller firms.

Clients Need to Demand Change

Given the competition, firms have been slow to adapt. Law firms need to "reinvent themselves in a leaner, more agile and responsive model," Altman Weil consultant Tom Clay told Bloomberg. But the survey shows there's still not enough being done. Less than half of the firms surveyed had adopted changes to lawyer staffing, delivery of services, or pricing. This is despite the increased focus on value and competitive bidding that many corporate clients are demanding.

Why not? Supposedly, because "clients aren't asking for it." The biggest in BigLaw, firms with over 1,000 attorneys, are the most intransigent, saying that they're "not feeling enough economic pain to motivate more significant change." Apparently, some firms need a written invitation to become more competitive. But hey, their loss is your gain.

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