Legal Spending Archives - Thomson Reuters Institute https://blogs.thomsonreuters.com/en-us/topic/legal-spending/ Thomson Reuters Institute is a blog from ¶¶ŇőłÉÄę, the intelligence, technology and human expertise you need to find trusted answers. Tue, 24 Mar 2026 12:09:06 +0000 en-US hourly 1 https://wordpress.org/?v=6.8.3 2026 State of the Corporate Law Department Report: GCs align strategy to corporate imperatives, but C-Suites want more /en-us/posts/corporates/state-of-the-corporate-law-department-report-2026/ Tue, 24 Mar 2026 12:09:01 +0000 https://blogs.thomsonreuters.com/en-us/?p=70047

Key takeaways:

      • Disconnect between legal departments and C-Suite perceptions — While many general counsel believe their departments are significant contributors to business success, most C-Suite executives do not share this view. Fully 86% of GCs say they believe their department is a significant contributor, but only 17% of C-Suite executives agree.

      • A need to find new ways to demonstrate value — Legal departments are under increasing pressure to do more with less, as nearly half of GCs surveyed cite staffing and resource constraints as their top barrier to delivering additional value. Despite these limitations, expectations from the C-Suite continue to rise.

      • AI adoption accelerates, business strategy comes next — Legal departments are rapidly embracing technology to improve efficiency, manage resources, and address cost pressures. Not surprisingly, the proportion of GCs calling AI a strategic imperative has doubled.


Over the past several years, general counsel and corporate law departments at large have transformed their operations. Many have become more efficient enterprises, leveraging technology, in particular AI, at an increased pace. GCs have adjusted their hiring practices to conform with the modern corporation, taking new ways of working into account. And they have embraced data-driven decision-making, evaluating outside counsel and their own operations alike with a wider suite of new metrics and KPIs.

But do you know who hasn’t yet realized the fruits of that labor? The corporate C-Suite.

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2026 State of the Corporate Law Department Report

 

The , released today by the Thomson Reuters Institute, reveals a disconnect between how GCs and their corporate law departments view their own alignment to the wider business, and what C-Suite executives believe the legal department contributes. Within this gap, the message is clear: GCs not only need to align with their organizations’ overall business strategy, they need to learn how to prove that alignment to the rest of the company.

Indeed, when asked how they view legal’s contribution to the rest of the business, 86% of GCs surveyed said they viewed the legal function as a significant contributor. However, only 17% of other C-Suite executives said the same — and 42% said legal contributes little or not at all.

corporate law departments

As the report explains, this disconnect lays the inherent groundwork for the tension facing many GCs today. While they are increasingly aiming to align to business standards, the rest of the organization is not recognizing those actions. Instead, many C-Suites are looking for even more out of today’s legal departments to prove their contributions to organizations’ business imperatives.

As in past years, many in-house legal departments are being tasked to do more with less. Nearly half of GCs cited staffing and resource constraints as the top barrier they face to delivering additional value. Indeed, many said they expected outside counsel spend in some key areas — such as regulatory work and mergers & acquisitions — to remain high. As of the fourth quarter of 2025, more than one-third (36%) of GCs said they expect to increase overall spend on outside counsel over the next year, while only 20% said they plan to decrease their spend.


Despite legal departments’ gains, their C-Suites are looking for them to take the next step, turning operational excellence into business success.


Not surprisingly, many GCs said they view technology as one of the primary ways they have to combat these resourcing and cost issues. In fact, the proportion of GCs mentioning technology as a strategic priority entering 2026 doubled over the year prior. Legal departments have begun to feel positive effects of AI in their own organizations, the report notes, such as increased efficiency or time feed up for strategic work.

Despite these gains, C-Suites are looking for are looking for their legal functions to take the next step, turning operational excellence into business success. This can take a number of different forms, such as explicitly tying advice to client business objectives, presenting legal spend in the context of the business by showing it as a percentage of revenue, or approaching risk management with the goal of aiding business imperatives. “When we have a risky legal subject, the company never prefers just to see the legal opinion,” said one retail GC. “They’re also requesting you to drive them how to make a decision.”

AI and technology should also be approached in this same way, the report argues. Although almost half of all corporate legal departments have some type of enterprise-wide GenAI tool, according to the survey, very few are collecting success metrics around AI’s implementation or linking its use to business revenue. Put a different way, many legal departments are focused on unlocking capacity, rather than deploying capacity in a business-centric way — much to the chagrin of their C-Suites.

corporate law departments

Although legal departments have established a solid foundation upon which a business can stand, ultimately, C-Suites don’t want just a foundation. They want help building the entire house, the report shows, directly enabling the services that companies provide to customers. In that, GCs and legal departments have more work to do, not only tying strategy to overall business initiatives but actively communicating how the legal function’s work aids the company as a whole.


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Is your in-house legal department ready for AI? /en-us/posts/corporates/ai-ready-legal-department/ Thu, 04 Dec 2025 15:52:30 +0000 https://blogs.thomsonreuters.com/en-us/?p=68650

Key insights:

      • More focus on implementation, training, and integration is needed — Many legal departments need to be more prepared before accelerating their AI adoption plans.

      • Legal departments are looking to AI-driven tech tools to help them improve efficiency and reduce costs — Most corporate legal professionals say they consider their departments under-resourced but feel that technology can make processes more efficient.

      • Use of legal technology is expected to increase — Many legal departments report increasing or stable budgets for technology investments.


Corporate legal departments are racing to add new technologies. The rapid advancement of AI not only means that promising new solutions are emerging just about every day, but also that organizations and their legal departments may feel compelled to engage in a technology arms race in order to keep up with competitors.

There are vital lessons and warnings that legal departments should heed, however, as they rush to adopt AI and other emerging technologies.

The race is on

The emergence of AI-driven tools comes as legal departments stand at an important crossroads. They are under increasing pressure to take on more tasks while controlling costs. Indeed, more than half of the in-house legal professionals surveyed say their legal departments are under-resourced, according to the 2025 Legal Department Operations (LDO) Index, published by the Thomson Reuters Institute (TRI) in conjunction with Buying Legal Council.

At the same time, however, survey respondents ranked greater use of technology as one of the top ways to improve efficiency and reduce costs. It’s not surprising then, to find that 59% of respondents say they are increasing their use of technology tools, and an overwhelming 88% say they have stable or increasing tech budgets to make that happen.


You can check out ourĚý2025 LDO Index InfographicĚýhere


As a result, the number of legal departments that are looking to implement fast, large-scale technology deployments is surging. Although it’s currently only 12%, that’s a four-fold increase from just 3% last year, and it’s likely to continue climbing as the race to adopt AI tools intensifies.

Not surprisingly, AI-powered tools are some of the fastest-growing solutions being adopted by legal departments. Yet, adoption does not necessarily mean effectiveness — and as the LDO Index reveals, there are some important warning signs flashing as legal departments rush headlong into the AI future.

Underutilized tech tools

One of the most significant parts of this sobering reality is that many legal departments are not even taking full advantage of the technologies they’re already deployed.

In fact, many technologies are being used widely across legal departments — such as legal research, spend management, and e-discovery — however, for many of these automation tools are underutilized and not being used effectively, despite the fact that the tools are considered valuable when used, according to the report.

That means that many technologies that have proven their worth within a legal department remain largely underutilized, collecting digital dust even though they could help the department achieve greater efficiencies.

Legal department software solutions are underutilized

The reasons for underutilization are many-fold, including inadequate training, lack of awareness, and failure to properly integrate technology solutions.

legal department

And the early signs for more advanced AI-driven tools is that they are following the same troubling pattern. Contract AI tools are currently more than twice as likely to be considered underutilized than being used effectively. Generative AI (GenAI) tools also are struggling to achieve an even split between underutilization and effective usage.

The underutilization of existing technology in legal departments isn’t just a current operational challenge — it’s a warning signal about departments’ readiness for the AI era.

The good news, however, is that AI tools are still in the relatively early stages of adoption. Legal departments are more likely to report that they have not yet adopted GenAI tools but are looking to procure them over the next 24 months, so there is still time to prepare. Therein lies the opportunity for legal departments to take steps now to ensure that they have not only chosen the right technologies but are deploying them properly to help ensure effective usage.

Some of these steps toward proper preparation include:

Conducting a technology audit — Assess the current utilization of existing legal tech solutions and use this assessment to prioritize investment towards those tools that address the department’s most pressing needs. This will enable strategic investments in the specific technologies that are most likely to drive efficiency and value.

Ensuring the department is ready — Deploying new technologies requires resources, and department leaders need to make sure there is sufficient implementation bandwidth.

Understanding that AI implementation is different — Unlike other technologies, AI is likely to require new processes, policies, and governance frameworks in order to be most impactful. In addition, AI adoption will require more substantial changes to departmental workflows, role definitions, and work practices than previous technology deployments.

Providing effective training and education — Attorneys and staff need to feel confident they know how to use a tool to get the most out of it and additional training on these tools can provide that. And by sharing use cases and best practices, leaders can reinforce training and continually drive awareness.

As the LDO Index report shows, successful technology adoption requires careful planning and execution. Corporate legal departments can’t simply purchase AI tools and expect them to magically generate efficiency from day one.

However, with proper planning and change management, new advanced technologies and AI-driven tools can transform legal department operations. By following the outlined steps to ensure better preparedness, leaders can help their legal departments prevent their AI investments from turning into expensive technology budget line items that ultimately disappoint by failing to deliver promised efficiency gains.


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Beyond cost reduction: How corporate legal departments can align strategic value /en-us/posts/corporates/value-alignment/ Tue, 02 Dec 2025 15:10:37 +0000 https://blogs.thomsonreuters.com/en-us/?p=68491

Key insights:

      • Value perception gap persists — Most corporate legal departments still measure and report primarily on cost, obscuring their broader strategic contributions.

      • Value alignment toolkit — A new value framework exists for legal departments to close the gap in the perception of their value to the organization.

      • AI accelerates urgency — The rise of AI makes comprehensive value measurement essential in order to safeguard legal department budgets and resources.


As many General Counsel continue to elevate their position as strategic leaders in their business, they are often constrained by cost-focused narratives. Despite their success in delivering high-quality legal advice, managing complex risks, and enabling business growth, many corporate legal departments remain trapped in a narrow perception defined almost entirely by spend metrics.

The disconnect is clear. While legal departments support strategic goals across multiple dimensions — delivering effective advice, operating efficiently, protecting the organization, and enabling business strategy — most measure and report only on cost and time. And when leadership sees only budget and time metrics, this unfortunately reinforces the cost center narrative and hides the real value of the legal department.

The perception gap: What gets measured gets seen and valued

Research from the Thomson Reuters Institute (TRI) reveals a troubling pattern: While 90% of legal departments now use formal metrics — up from 75% eight years ago — very few align those metrics to the full range of their strategic goals. Indeed, nearly half of all metrics currently in use relate to spend factors, while only about one-in-four measure quality, and even fewer capture how legal departments protect enterprise value or enable business strategy.

This creates what TRI calls a perception gap. When C-Suite executives describe in what areas they expect their legal departments to focus, they consistently over-emphasize efficiency while under-recognizing contributions such as business protection and strategic enablement. As a result, many legal departments struggle to secure resources for risk management initiatives, their strategic contributions go unnoticed and unrecognized, and their efficiency efforts are viewed as mere cost-cutting rather than value optimization.

The root cause of this misalignment lies in measurement itself. A legal department cannot manage what doesn’t get measured, and more importantly, it cannot demonstrate value for what remains invisible.

The 4 spinning plates: A complete picture of legal value

Through extensive analysis of strategic priorities across hundreds of legal departments, TRI identified four core areas of responsibility that remain evergreen regardless of changing business environments, regulatory shifts, or technological disruption.

protecting

The four spinning plates model captures these perpetual responsibilities — effective, efficient, enable, and protect — in a deliberate metaphor. Like a performer keeping multiple plates spinning simultaneously, GCs must maintain constant attention across all four areas. They are fundamentally interconnected — efficiency gains can enable strategic work, while strong risk management builds the trust necessary for bolder business strategies.

Yet when metrics are focused primarily on cost and time, they tell only a fraction of this story. Many legal departments have built their measurement framework around the Efficiency plate alone, leaving the other three plates far less visible to enterprise leadership and limiting their understanding of legal’s comprehensive roles and strategic influence.

Closing the gap: the value alignment toolkit

TRI has spent years conducting research, developing frameworks, and facilitating strategic planning sessions with legal department leaders on this challenge. Now, it is making this expertise broadly accessible through a comprehensive new resource: the Value Alignment Strategic Toolkit.

This free online resource center provides practical, immediately actionable guidance to better define, measure, and communicate a corporate legal department’s full value to the organization. The toolkit is built on benchmark data from hundreds of legal departments along with proven strategic frameworks and expert insights that all is organized into six interconnected sections that guide users from foundational clarity to strategic execution. These six sections include:

      1. Define your department’s strategic goals — Establish business-connected objectives with clear ambitions
      2. Design metrics that matter — Select measurements that demonstrate value creation, not just cost
      3. Strengthen your data — Build robust collection and analysis methods, including feedback involving the voice of the stakeholder
      4. Tell your value story — Develop compelling narratives that resonate with enterprise leadership
      5. Review, refine & advance — Implement continuous improvement processes
      6. Maximize your impact — Scale success across all four spinning plates of value

Each section includes practical resources, including assessment tools, templates, checklists, framework guides, and real-world examples. The metrics masterclass features more than 50 legal department metrics aligned to the four-plate framework, including 12 recommended core metrics that span all four strategic areas.

value

For example, a GC preparing for a quarterly check-in with the CFO could use the appropriate templates, guides, best practices, and the recommended metrics to create a one-page dashboard. The dashboard would provide customized metrics to align with their CFO’s priorities, such as deals accelerated, risks avoided, or initiatives supported.

The AI imperative: Why better metrics matter more than ever

Not surprisingly, the emergence of generative AI (GenAI) adds new urgency to this work, presenting both opportunity and vulnerability. On one hand, AI holds significant potential to enhance legal department capabilities by automating routine tasks, accelerating research, improving contract analysis, and freeing lawyers to focus on higher-value strategic work. At the same time, however, if legal departments continue to be viewed primarily through an efficiency lens, advances in AI that reduce time and cost could conceivably threaten department resources and headcount.

Comprehensive value measurement can help legal departments demonstrate enterprise value that cannot be replaced by AI. When legal departments can clearly articulate how they protect enterprise value, enable faster time-to-market for new products, strengthen board confidence through proactive governance, and maintain high stakeholder satisfaction scores, they establish their strategic necessity regardless of technological advancement.

The Value Alignment Toolkit provides frameworks and tools to build this comprehensive measurement approach, ensuring legal departments are positioned to leverage AI’s benefits, while at the same time demonstrating the irreplaceable value that the legal department provides, including:

      • Quantifying strategic legal department contributions that AI cannot replicate, such as judgment, relationship-building, business counsel, risk navigation, and more
      • Demonstrating value beyond efficiency to justify budgets and resources
      • Identifying high-impact opportunities in which legal department expertise can best leverage AI to address the most pressing business needs
      • Assessing ROI of specific AI use cases to prioritize where to adopt and scale, and conversely, areas that are not ready yet

Moving from cost center to strategic partner

For a corporate legal department, the transformation from cost center to strategic partner requires more than aspiration, it requires data-driven evidence. It demands a systematic approach to measurement that captures the complete picture of the department’s contributions and then communicates that value in clear business language.

The Value Alignment Strategic Toolkit enables legal departments to shift from reporting simple cost metrics, such as:

We reduced outside counsel spend by 15%

to telling a more complete story:

We delivered value by maintaining 90% stakeholder satisfaction while handling 25% more strategic matters, reducing costs through technology and process improvements, preventing potential regulatory exposure through proactive compliance programs, and accelerating product launch timelines through innovative legal structures.

This is not merely reframing — it’s revealing what was always present but had remained largely invisible. This enables strategic conversations about the department’s complete contribution rather than defaulting to discussions solely around cost.

The path forward

Many corporate legal departments today create enterprise value every day across multiple dimensions by providing sound advice, managing risk exposure, and enabling growth. Yet too often, that value remains unrecognized simply because it isn’t being measured or communicated effectively.

At a moment when business transformation is accelerating, regulatory complexity is increasing, and technology is reshaping legal service delivery, continuing to rely on cost and time metrics alone isn’t just insufficient, it actively undermines a legal department’s strategic position.

The complete value story of legal departments deserves to be told. It’s time to move from defending budgets to demonstrating impact, from reporting costs to revealing value, and from being seen as a necessary expense to being recognized as an essential strategic partner. Better frameworks and tools can shift the conversation from cost center scrutiny to strategic leadership discussions about how GCs and their teams enable business growth.


Transform how your legal department demonstrates value by accessing the free frameworks, metrics, and strategic guidance in the Value Alignment Strategic Toolkit

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“Law Firm Rates Report 2026” analysis: What kind of jet engine is your firm? /en-us/posts/legal/law-firm-rates-report-2026-analysis-jet-engines/ Wed, 05 Nov 2025 15:18:29 +0000 https://blogs.thomsonreuters.com/en-us/?p=68319

Key takeaways

      • Rate strategies can mask performance —Rate and realization strategies can make it unclear how they affect the bottom line and what is actually driving firm performance.

      • Firms use vastly differing rates and discount strategies — Many law firms are taking various approaches to better balance different strategic goals around profitability and performance.

      • Firms need to understand their rate system configuration — Law firm leaders need to better understand how their rates and realization form an interconnected system.


Law firm leaders, practice group heads, and firm pricing teams go through countless discussions about setting rates, realization targets, and collection metrics. The conversation often devolves into debates about how much standard rates can be raised, how much to discount those rates, and how aggressively to apply write-downs or write-offs before submitting invoices to clients.

In fact, firms use vastly different rate and realization strategies in an attempt to better balance benefits and costs, according to the Thomson Reuters Institute’s recent Law Firm Rates Report 2026, which took a closer look at how law firms diverge in how they manage these different strategies. Understanding which configuration a firm runs — and why — can be key to effectively managing revenues in today’s legal market.

The 4-stage system

Think of a firm’s rate and realization as an integrated system having four sequential stages, similar to the operation of a jet engine. Inputs flow through multiple processing steps before emerging as collected revenue that powers the next cycle.

jet engine

Stage 1: Standard rate increases (Intake)

This is where raw potential enters the billing system; and like a jet intake, standard rates determine how much volume enters the system.

These standard rates are the foundation — the starting point that feeds everything downstream. Some firms set aggressive annual increases of 10% to 15% on their standard rates, while others in the same market segment may push more modest 3% to 5% bumps.

This intake volume goes a long ways to determining how smoothly the following stages work. Set rates too aggressively without the infrastructure to support them, and it creates client resistance and downstream problems. Set rates too conservatively, and the rest of the system will be starved of the inputs needed to generate strong performance.

Stage 2: Pre-work realization (Compression)

At the compression stage of a jet engine, air gets squeezed down so that the remaining stages can use it efficiently.

For law firms, this is the critical stage in which standard rates meet the reality of client negotiations and market forces. Some firms utilize high-compression systems by limiting pre-work discounts and maintaining worked realization as high as 95%. Other firms operate low-compression models, immediately releasing pressure through aggressive discounts that can bring realization down to 75% to 80% before work on matters even starts.

Stage 3: Post-work realization (Combustion)

This is where strategy meets execution. For jet engines, it’s where the massive amount of intake air is put to work by mixing with fuel and igniting into power. At the same time, some of the air is allowed to bypass the combustion chamber, helping maintain the optimal operating temperature.

Similarly, firms can apply write-downs after the matter is completed and worked hours are logged with the goal being to optimize billing for the current market conditions. Firms pushing for 100% post-work realization every time (pushing the engine too hard) might maximize revenue per transaction, but risk damaging client relationships over the long-term. Write-downs — particularly on associate work — can function as a buffer that protects higher partner rates from client pushback and preserves long-term relationships. Like a jet engine, some level of what initially could be seen as inefficiency may actually protect the engine.

Also, just as jet engines must be engineered to balance tradeoffs between compression ratios (Stage 2) and air bypass ratios (Stage 3), firm leaders must decide how to balance pre-work vs. post-work realization, even fine-tuning by timekeeper level or practice, according to how they feel they can best generate revenue more efficiently.

jet engine

Stage 4: Collected revenue (Thrust)

This final stage produces thrust — the collected revenues that drive a firm — however, this doesn’t represent the end of the process. As the hot gases blast out the back of the jet engine, they also spin turbines on their way out, powering the air intake and compressor blades up front, creating a self-sustaining cycle.

Similarly, strong collection performance creates confidence for more aggressive standard rate increases in the next cycle. Conversely, weak collections undermine the ability and confidence to push rates higher, creating a negative feedback loop. This explains why some firms may sustain 8% to 10% annual rate hikes while others struggle to maintain 3% to 4% increases. Firms with strong collection discipline can reinvest that credibility into higher rates, while those with collection problems may find themselves prone to breakdowns.

Like a jet engine, sustained success depends on how efficiently the entire engine runs.

Three distinct configurations

As the Rates Report illustrates, most law firms can be clustered into three operating configurations based primarily on how they manage pre- and post-work realization.

Configuration 1: The low-compression approach

These firms start with higher standard rates but release billing pressure early and often through aggressive upfront discounting. While these firms tend to achieve better demand growth — 1.9% compared to a 1.0% for the average firm — at the end of the day, that higher demand translates to only marginally higher fees worked (9.0% growth compared to an 8.4% average).

These firms also lag in productivity, as measured by hours per lawyer. Comparing fees worked per lawyer, they’re running slightly behind the pack. This means that high activity levels don’t necessarily translate to proportionally higher performance.

Configuration 2: The high-compression approach

These firms strive to maintain high pre- and post-work realization with minimal pressure loss throughout the stages. While one might expect this approach to generate superior results, their demand growth sits right around average (1.3% compared to 1.0% for the average firm) and the same with fees worked.

Indeed, while these firms have earned the market position to maintain rates with minimal discounting, this premium positioning doesn’t translate into premium growth.

Configuration 3: The afterburner approach

These firms show a massive drop-off between standard rates and collected revenue because they’re incorporating higher discounts and write-downs across both the Compression and Combustion stages. These firms accept the realization losses in order to generate client satisfaction and maintain competitive momentum in a strategy that trades pricing efficiency for relationship velocity.

Indeed, these firms are essentially injecting extra fuel into their exhaust stream and lighting it on fire, similar to a jet’s afterburner. And like an afterburner, it appears hugely inefficient, burning upstream resources that theoretically could have been conserved. Some firms are succeeding with this approach in terms of demand growth and productivity improvement, while others are finding themselves locked in a dogfight to maintain performance.

So, which is the superior rate strategy?

What’s remarkable is that despite being significantly different approaches, all three end up collecting nearly identical amounts — between $553 and $580 per hour on average.

This means that the choice isn’t about finding the objectively best configuration, rather it’s about understanding which approach aligns best with a firm’s unique culture, client relationships, and operational strengths.

For example, a firm with strong project management and lean operations might thrive with the low-compression approach by trying to process more work through the system. A firm with premium brand position might excel with the high-compression approach by leveraging reputation to minimize discounting. And a firm with deep, long-standing client relationships might succeed with the afterburner approach, treating discounts and write-downs as strategic investments in future client retention.

As the Rates Report noted, firms shouldn’t evaluate any one stage in isolation. The best strategy isn’t about maximizing any single metric, rather it’s about understanding how each firm’s configuration fits with their specific market position and strategic goals. Understanding where a firm generates — and loses — power can help law firm leaders properly adjust their strategies as market conditions change in order to withstand any turbulence.


You can download a copy of the Thomson Reuters Institute’s Law Firm Rates Report 2026 here

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2025 LDO Index: Legal departments want better service enhancement, but success metrics don’t always reflect priorities /en-us/posts/corporates/2025-ldo-index-legal-success-metrics/ Wed, 08 Oct 2025 14:18:43 +0000 https://blogs.thomsonreuters.com/en-us/?p=67886

Key takeaways:

      • Cost centers to strategic business enablers — In-house legal departments and general counsel in particular are increasingly focused on aligning their goals with broader company objectives, moving beyond traditional cost containment to emphasize service enhancement and business growth.

      • Current success metrics are still heavily focused on spend — Although GCs and legal operations professionals want to prioritize service and enable their businesses, most law departments continue to track and report metrics related primarily to costs and spending.

      • Updated metrics are essential for future success — To truly support business objectives, law departments must evolve their metrics and implement new data strategies to better capture service quality, business impact, and enablement.


In recent years, and especially in the AI age, corporate law departments have been tasked to increase efficiency, doing more with less and contributing back to the business at large. This has contributed to the rise of corporate legal operations as a discipline — what was fairly recently a niche concept for only the largest companies has morphed into a regular part of the corporate legal equation, and one that is increasingly tasked with keeping up with a burgeoning technology ecosystem and aligning the in-house legal function with larger company goals.

Increasingly, corporate law departments are fully embracing their role in enabling larger business objectives, and general counsel in particular are more focused than ever before on service enhancement for the business, according the 2025 Legal Department Operations (LDO) Index, published by the Thomson Reuters Institute (TRI) in conjunction with Buying Legal Council.

“Team mission: We are a trusted partner and strategic enabler, empowering [our company] and its builders to innovate with confidence,” answered one technology company GC about their team goal for legal operations. “We provide clear, practical legal guidance that removes friction and unlocks opportunity — driven by thoughtful leadership, collaboration, and operational excellence. The legal team intentionally tracks its greater vision to be the same as our company-wide mission.”


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However, are law departments actually reaching that goal? That answer becomes a bit murkier, not the least of which because corporate law departments aren’t actually measuring what they identify as their goals. While GCs and corporate legal departments are gradually moving away from cost containment as their top priority, the primary success metrics they track by and large all deal with legal spend and spending impacts.

The message is clear: Law departments want to move away from being a cost center, but in order to truly accomplish that goal, they need to update their metrics and data gathering to actually move more in line with the business.

Aligning goals and metrics

Recent TRI research categorizes in-house legal departments’ role into four distinct categories: effectiveness, efficiency, protecting the business, and enabling growth. Each of these should be a focus of the department, but historically not all four have been given equal time. Many business leaders, for instance, traditionally have believed the legal department’s role to be more centered on protecting the business rather than enabling growth, leaving key business enablement to other internal teams in the company.

That shift is slowly changing, however. GCs are increasingly focused on aligning the department’s business goals with that of the larger organization, shifting the department from a cost center to a business generator, the LDO Index shows.

LDO Index

This is particularly true when comparing GC survey respondents with those respondents who hold a legal operations title. Among GC respondents, 47% say they are more focused on service enhancement than cost reduction, while just 7% say they are more focused on cost reduction. For legal ops professionals, that sentiment shifts, with a higher proportion focused on cost reduction (22%) and fewer focused on service enhancement (36%). This tracks with what is asked of each role, as legal operations professionals are typically tasked with more efficiency-centric and technology tasks, but GCs are conduits to the larger business.

Overall, however, both sides agree on one aspect: The legal department is shifting to become more service-focused than being simply about cost savings. It is interesting, then, that when asked what metrics are routinely reported on in their legal department, spend still remains far and away the top one. This is particularly surprising given that GCs are often the ones establishing these metrics, even though they hold a stronger stance towards service enablement than most legal operations professionals.

LDO Index

Indeed, spend by law firm and spend by matter type clearly dominate available metrics across many corporate law departments. Further, even many of the next most commonly tracked metrics available, according to one-third of respondents — forecasted versus actual spend, total spend by business unit, and total spend by practice group — still center around costs. Many of the service-centric metrics — such as quality of legal outcomes, cycle time, and costs avoided — are captured by less than 20% of respondent legal departments, the survey shows.

This also brings up one note about the survey: Respondents to this question leading to the chart above were given a choice from a list of predetermined metrics, meaning that conceptually, there may be service-centric metrics in use that are not listed here. However, additional open-ended research found in backs up the assertion that many in-house legal departments are still primarily measuring costs, despite wishing to focus their overall priorities elsewhere.

Moving to better metrics tracking

There is recognition that the law department needs to evolve in order to serve constantly shifting business needs. And for many departments, meeting these needs starts by developing data sets that can be shared across the organization.

“I see my role evolving into a more strategic, innovation-focused function — leading digital transformation, leveraging [generative] AI for smarter legal service delivery, and aligning legal operations with enterprise-wide goals,” said one energy industry legal operations professional. “I anticipate deeper collaboration across departments, greater emphasis on data analytics, and a continued shift from process execution to proactive business enablement.”

In fact, many respondents — particularly those at companies with newer legal operations functions — did note that better metrics tracking is on their roadmap for the future. And some said their primary goal at first was simply to become established, and more business-centric goals would come next.

“We have just started to develop the legal operations function at the company over the past year and a half,” said one financial industry legal operations professional when asked how they see their role evolving. “During the first part of this second year, we have been focused on legal spend and tracking our work with outside counsel to see where we can reduce our overall spend and ensure we are receiving the best service from our outside counsel. The second half will be focused on furthering our knowledge management base internally with shared resources and regular tracking of regulatory risks… so as to better be able to support the business.”

Yet, this focus is not universal, and especially for law departments that have not updated their data gathering and metrics capabilities, the time for thoughtful action is now. The LDO Index concludes with 10 practical actions that legal department leaders can undertake, with one of them explicitly calling to implement key metrics for data-driven decision making. This goal should be a top priority for all legal departments, regardless of whether the action comes from a GC or a professional with a background in legal operations.

Entering 2026, GCs and legal operations professionals alike should look into supercharging their metrics for success, focusing on how they can better measure business enablement and promote service enhancement more than ever before.


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The evolution of legal demand in uncertain times /en-us/posts/legal/legal-demand-uncertainty/ Mon, 02 Jun 2025 12:29:23 +0000 https://blogs.thomsonreuters.com/en-us/?p=66073 The precipitous drop in the first quarter’s Law Firm Financial Index (LFFI) — a measure of law firm industry financial health tracked by the Thomson Reuters Institute — that resulted in a 13-point decrease in Q1 2025, compared to Q4 2024, may not yet indicate any industry-scale risk, but it is a reflection of weakened law firm performance compared to a historically strong 2024.

The first quarter of this year had some bright spots for certain law firm financial metrics, particularly in terms of demand and worked rates. However, Q1 also brought concerns about demand patterns that differed from what was previously anticipated — and this is particularly important development for law firms that are looking to maximize gains in the coming months.

Why demand in 2024 was so successful

In 2024, the average law firm saw an increase in legal demand growth of 2.8%. Indeed, last year’s acceleration was remarkable, being the second fastest annual growth since 2008 and was particularly noteworthy given 2023’s growth of just 0.8%. The only comparable rise occurred in 2021, which saw a 3.7% growth largely due to the rebound from the 1.6% decline that came as a result of the global pandemic that began in 2020.

In addition to 2024’s substantial expansion, which built on an already solid performance in 2023, last year’s growth originated from a broad range of practices. The demand surge for counter-cyclical practices that started in 2023 persisted throughout 2024, becoming even more pronounced, especially in the practice areas of litigation and labor & employment.


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While counter-cyclical practices continued to be the primary source of growth in 2024, this was the year in which transactional practices finally showed signs of life, which was one of the legal industry’s most anticipated comeback stories. Throughout 2022 and 2023 transactional practices had remained in negative territory, but in 2024, the group of practices finally saw expansion. The two main drivers of this performance were corporate and real estate, which saw considerable gains last year. Still, tax finished the year with flat growth and M&A remained in contraction.

2024’s late corporate resurgence

It wasn’t until Q4 2024 that the legal industry started to see a shift in demand trends. While litigation continued to exhibit significant strength in the market, Q4 was the first time in nine consecutive quarters that corporate work grew faster than litigation, likely hinting the resumption of the transactionally driven demand environment that law firms experienced during most of the last decade. The only question at that moment was whether the transactional demand comeback would be able to make up for the deceleration of counter-cyclical practices that also occurred in Q4, which would allow law firms to sustain their strong growth in demand throughout 2025.

legal demand

Volatility in Q1 upends the transactional comeback

Transactional practices’ surge over counter-cyclical ones that began in Q4 2024 had the potential — to the hopes of many law firm leaders — that this trend would become a new reality within the legal industry, heralding a return to the prior transactional work-dominated status-quo.

And while the start of 2025 did bring a modest growth of 0.5% in overall demand, it also brought a hefty dose of political and economic changes in the United States. So, even though transactional demand continued to accelerate faster than counter-cyclical in Q1, from a monthly perspective, the data suggests that this trend could be coming to an end sooner than many had hoped.

Since October 2024, weekday adjusted demand growth showed transactional practices gaining a substantial advantage over their counter-cyclical counterparts. Yet, by March, the gap in performance between the two groups only narrowed to almost zero.

legal demand

What is interesting yet unsurprising about this trend is that the shift happened only after the new administration of Donald J. Trump took office and started announcing impactful actions on the broader economy, bringing volatility into the markets. What March’s outcome could be telling observers is that this uncertainty has started to impact demand from clients, as they seek legal protection from anticipated regulatory changes, leading to disputes over compliance, adding to clients’ financial stress, and finally resulting in disagreements over contracts, financial obligations, or other types of business dealings. In that event, a resurgence in demand for counter-cyclical practices during the second half of 2025 would not be surprising.

What to expect in the future

Today, demand in the legal industry stands solid, not quite at the highs of 2024, but neither is it on the negative trajectory that December 2024 and January 2025 suggested. Indeed, the late surge in Q1 should give firms some solace that there aren’t significant signs of weakening. Still, the legal market cannot ignore that the recent economic, commercial, and geopolitical uncertainty has impacted their business and may continue to do so, especially as clients’ needs change.

Further, some of the policies proposed from the Trump administration, if enacted, could hinder overall economic activity, affecting industries, including law firms, in many different ways.

Given the environment, law firm leaders would do well to monitor and study these industry trends frequently to better understand from where the sources of growth are originating and how and which of their clients’ businesses and industries will be impacted by government regulatory and legislative policy changes.

Being able to leverage this type of insight can be a game-changer for law firms — because for every challenge there also comes opportunity.


You can download a copy of the recentĚýQ1 2025 Law Firm Financial IndexĚýfrom the Thomson Reuters Institute, here

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Why and how corporate GCs are reallocating their outside legal work /en-us/posts/corporates/reallocating-outside-legal-work/ Mon, 12 May 2025 13:33:38 +0000 https://blogs.thomsonreuters.com/en-us/?p=65792 It should come as no shock that the top strategic priority for corporate general counsel (GCs) in the United States, the United Kingdom, and Canada is cost control, according to the recently released 2025 State of the Corporate Law Department Report from the Thomson Reuters Institute (TRI). In fact, cost control is among the Top 5 priorities cited by GCs in every region around the world. This is not surprising — large swaths of corporate C-Suite officers cite higher corporate profits as a key component of their definition of success and reducing costs as a key strategic priority to achieve that goal. It is only natural for GCs to follow suit with those priorities.

Yet it is an inescapable reality that GCs, generally speaking, must rely to a large degree on outside law firms to meet all the needs of their organizations, which carries a significant cost. In fact, the cost of outside law firms is not only high, but continues to rise, and quickly. According to TRI’s recent Q1 2025 Law Firm Financial Index, law firm worked rates grew by 7.3% in the first quarter of 2025, the fastest pace of growth for this figure in nearly 20 years.

We should pause for a quick note: this growth in billing rates is not occurring without input from GCs as clients. Indeed, we are talking about growth in worked rates, also known as agreed-upon rates, or the rates clients agree to pay to engage new matters.

So how can clients that are so concerned about cutting costs agree to such large billing rate increases?

Moving work to save money

We should begin with an observation that agreeing to pay a certain price for something is not the same as agreeing to buy a certain number of units of that thing at that price. Put another way, simply because GCs are agreeing to pay increased rates for law firm billable hours does not imply any guarantee as to how many hours GCs will actually hire their traditional law firms at those rates.

We have observed a years-long trend of demand for law firm services shifting away from the top-tier, most expensive law firms, while demand for hours from Midsize and Am Law Second Hundred law firms has continued to grow. Indeed, we have dubbed this pattern demand mobility. In addition to shift work to lower-cost law firms, other GCs are looking to reduce their spend on outside counsel as a whole by bringing more of their legal work in-house.

In fact, among all corporate GCs interviewed for the State of the Corporate Law Department Report, 42% said they anticipate increasing the percentage of their overall legal spend that they dedicate to their internal team.

reallocating

As the chart also demonstrates, 22% of GCs said they predict a decrease in their spending with outside counsel. Interestingly, however, a plurality of GCs also anticipate increasing their spend with alternative legal service providers (ALSPs), including those affiliated with law firms. This may indicate that it is not necessarily the idea of working with law firms against which clients are potentially pushing back, but rather, clients may be looking toward the more predictable cost structures typically associated with ALSPs.

A push toward ALSPs?

In fact, the report also provides some indications that GCs are looking more favorably toward ALSPs. According to the above chart, roughly 15% of GCs overall said they intend to increase their spending with ALSPs; but among GCs who are current users of ALSPs (whether independent or affiliated with a law firm), that number is closer to 25%. This suggests that GCs that are already clients of ALSPs appreciate the services they are receiving and intend to use these providers even more.

It is likely no coincidence then that those GCs using ALSPs were also more likely to be looking to reduce their use of outside law firms. In fact, 33% of GCs that are currently using an ALSP, even one affiliated with a law firm, said they were looking to decrease their spend on outside law firms — an 11-percentage-point increase over the overall population of GCs surveyed.

This provides a fairly strong indication that there is something about ALSPs that GCs find favorable. Indeed, TRI’s 2025 Alternative Legal Service Providers Report provides plenty of evidence for myriad reasons why GCs like ALSPs. In the context of costs, however, a likely favorability driver is the predictability of ALSPs’ cost structures.

ALSPs tend to work off of fixed fees or other pricing models that provide alternatives to the traditional billable hour much more frequently than do law firms. GCs likely view this as an advantage. In fact, it’s a practice GCs are encouraging their outside law firms to pursue more aggressively. Fully 61% of GCs say shifting toward value-based billing or alternative fee arrangements is a medium-to-high priority — and they are placing the onus for that shift on their outside law firms.

Implications for cost structures in 2025 and beyond

Law firm standard hourly billing rates for 2025 are already locked in place and unlikely to change. However, there will undoubtedly be room for GCs to use increased leverage in agreed-rate negotiations or to push for increased use of value-based billing practices going forward. Indeed, many GCs already are making their desire for more predictable billing models well known, appearing ready to push work toward those law firms that can provide alternatives to traditional billable hour arrangements or even to ALSPs that can provide more predictable billing structures.

Regardless of what mix of strategies GCs pursue in their search for cost savings, the top-down nature of the push coming from corporate C-Suite officers is clear, and GCs will be feeling the pressure to deliver results.


You can download a full copy of the recently released 2025 State of the Corporate Law Department Report from the Thomson Reuters Institute here

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Q4 LFFI Analysis: A year of record profits for law firms has them looking at investment options /en-us/posts/legal/q4-lffi-analysis-investment-options/ Thu, 06 Mar 2025 13:43:04 +0000 https://blogs.thomsonreuters.com/en-us/?p=65119 It has been a year of record growth for law firms, with broad-based demand growth and slowing inflation leading to double-digit profit growth, a factor reflected in the most recentĚý¶¶ŇőłÉÄę® Institute Law Firm Financial Index (LFFI). However, we did see a slight cooling in performance in Q4 due to increased expenses and a deceleration in some demand growth, which resulted in the LFFI score dropping to 64.

When looking at the slowing demand growth in further detail, we see that the previous record-high growth in counter-cyclical practices has slowed significantly, while transactional practices have seen a rapid increase in growth. While the latter was not enough to fully counteract the former, it is a welcome improvement to those practice areas that have been struggling since the transactional boom of 2021.

Law firms’ profit growth this year surpassed expectations, with this outcome suggesting that law firm leaders, who typically budget conservatively, saw 2024’s results as an opportunity to make sizeable investments in their firms. We saw direct and overhead expenses sharply accelerate by 6.2% and 6.9%, respectively; and by looking at these expenditures in detail we can see where leadership is focusing their key investment priorities.

LFFI

The rise in overhead expenses was driven by renewed investments in technology, knowledge management, and recruiting, while the surge in direct expenses can be attributed to firms paying out sizeable bonuses. These trends give an indication that law firms believe that investing in their people and improving their technological distinction are a crucial aspect to pushing for profit growth in 2025 and beyond.

Where and why are law firms spending their profits?

When looking at data from over the last decade, we can see that 2024 experienced some of the strongest profit growth on record, with profit increases across all law firm segments reaching 11.5%. Consequently, law firms have taken the opportunity to improve compensation packages for their talent. Throughout the year, direct expenses per lawyer have gradually increased, averaging 4.3% in Q4 2024. Although this is not the highest level ever recorded, it occurs during a period of significantly lower inflation compared to the historic highs of 2021 and 2022.

Investment in talent is top priority

And unlike the intense associate compensation war of 2021, this past year has witnessed a more widespread yet milder acceleration in compensation across the market, suggesting a broader but less aggressive competition for talent — but one that is becoming increasingly competitive.

LFFI

When examining the growth in overhead expenses, we observed that many law firms are investing in the development of technical systems, with above-average increases in knowledge management and business development expenses. This echoes the trend in direct expenses, suggesting that law firm leaders value the future benefits of improving core business functionality.

LFFI

While occupancy growth rates remain meager across the market, Am Law firms continue to increase their office and occupancy expenses at a higher rate than other firms. This reflects a deliberate effort by leadership of these firms to continue facilitating a complete return to the office. Further, Am Law 200 firms are emphasizing improved compensation and benefits for their support staff more than are Midsize law firms, potentially highlighting a strategic focus on attracting and retaining skilled personnel in traditional business functions. Of course, the Am Law 200’s compensation growth could also be the result of increased exposure to the rapid rises in compensation pushed by the Am Law 100.

Although other overhead expenses follow broadly similar trends across the market, a key difference can be seen in recruiting expenditure growth. Am Law 100 firms have experienced an 11.3% growth in this area, contrasting with contractions seen elsewhere. Following a year of record profit growth, these large firms are willing to increase spending both internally and externally to secure and retain top talent.

As noted in the Thomson Reuters Institute’s recent 2025 Report on the State of the US Legal Market, this can be seen as an example of the cost of chasing opportunity and may signal the start of a potential talent war heading into 2025.

Investment in technology continues to grow

Technology-based solutions have long been implemented by law firms, but AI-driven tools promise transformative changes for the industry. This potential has led to a notable trend of increased tech spending, with it growing at a historically high pace of 9.4% at the end of Q4, a notable year-end acceleration from the State of the US Legal Market Report, which showed on a 7.4% growth through the end of November 2024. A rolling 12-month metric changing 2 percentage points in just one month clearly shows the size of December’s increased spend.

With clients increasingly expecting the integration of tech solutions, law firms are investing heavily in the infrastructure, getting their data in order, and AI tools themselves, despite the increasing development and maintenance costs. Many law firm leaders have said they expect these tools to provide a competitive edge in a market that is becoming increasingly competitive.

What does this mean for the future?

Law firm leaders have chosen to invest in their people and their technological offerings to prepare for the coming year. Indeed, 2024 was an exceptional year for the legal industry, but ¶¶ŇőłÉÄę Financial Insights is predicting that the strong demand growth that we saw throughout the year (and which began to slow in Q4), will continue to erode further as we move through 2025.

At times like this, the importance of top talent will only be amplified as such talent acquisitions may be seen as the best way to bring additional work to firms. On top of that, improving firm lawyers’ efficiency will be key to justifying the ever-soaring rates to clients, as these rates return to being a more primary source for revenue generation. In fact, there are already questions being asked about increasing client pushback and the capacity of this level of sustained rate growth. So, perhaps differentiation of talent and technology can help fend off scrutiny.

The investments made in the final quarter of 2024 can define a firm and their leader’s performance in the coming years, but now that the dollars have been spent, the success of these investments will likely be determined by firms’ capacity to execute and fully utilize these investments to the fullest.


You can download the recentĚý¶¶ŇőłÉÄę® Institute Law Firm Financial Index for Q4 2024Ěýreport here

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ALSP 2025 Report Analysis: Clients want law firm affiliate services, but which will they choose? /en-us/posts/legal/alsp-report-analysis-law-firm-affiliates/ Thu, 20 Feb 2025 18:35:19 +0000 https://blogs.thomsonreuters.com/en-us/?p=64757 In 2023, the total market for alternative legal services providers (ALSPs) was between $28 and $29 billion, according to the recently released Alternative Legal Services Providers 2025 report from the Thomson Reuters Institute, in partnership with the Georgetown University Law Center on Ethics and the Legal Profession and The Professional Service Firms Group at Said Business School at the University of Oxford.

Of that total market, law firm captive or affiliate ALSPs — those owned and operated internally by a law firm —represented just a small portion of the total, $1.8 billion. However, that total itself at the same time represented a major jump from past iterations of our ALSP research. Just two years before, in 2021, the law firm affiliate market was just $1 billion, and two years before that, in 2019, it was just $500 million.

Obviously, it will be a long time before total law firm affiliate revenue matches that of independent ALSPs, but at the same time, the market opportunity for law firm affiliate ALSPs continues to grow exponentially. Particularly for a large law firm sector already deliberating alternative ways of billing, new technologies such as generative AI (GenAI), and an increasingly business-savvy client base, further building out law firm affiliates’ capabilities may seem a tantalizing prospect.

So, then the question becomes: What exactly do clients want from an affiliate ALSP? And where do they fit into the modern law firm’s client service equation? The answer may be simple to conceptualize, but tougher to execute.

Expertise and more

The reasons for using a traditional law firm have been clear for decades, if not centuries. Attorneys hold specialized knowledge about both the law and particular areas of interest, and that interest remains in high demand. One could presume, then, that the reasons for moving away from traditional law firms would be the opposite: lower cost and speedier service above all else.

However, when corporate law department leaders were asked directly why they would want to choose a particular legal services provider, they often tell a different story. When going to an ALSP, clients still want expertise first and foremost. They simply also want the cost savings, speed, and efficiency that comes with an alternative type of provider.

ALSP

For law firm affiliates, this means that there are multiple levels of success which they need to achieve. Similar to their traditional law firm counterparts, law firm affiliates are expected to deliver expertise and quality, even at a higher rate than independent ALSPs, simply because of their affiliation status. At the same time, however, they are expected to offer lower costs, greater efficiency, and quicker work than traditional law firms.

To be sure, finding this combination is not easy. Yet, for those that achieve success, the results can be greatly beneficial. Indeed, according to corporate respondents to the survey underlying the ALSP 2025 report, 15% said they anticipate increasing their law firm affiliate spend, while only 5% said they anticipate decreasing their law firm affiliate spend. The difference is even greater among corporate clients that already use ALSPs, with 25% noting they plan to spend more with law firm affiliates specifically.

Standing out through value

It’s because of this opportunity that many law firm leaders are eyeing the potential of law firm affiliates. However, therein lies the rub: The secret is out, and many law firms already have plans in motion to capture this emerging market.

Some law firms are planning on utilizing their affiliate to provide what clients ultimately want — expert legal advice — under an alternative structure or through tech-enabled services. However, the survey also found that law firms are also moving into areas that have typically been the purview of independent companies, such as consulting services, legal managed services, and process & management tools.

ALSP

With so many law firms actively creating multiple touchpoints, the question becomes less of whether clients desire these sorts of services because the data is in — clients are buying. Already, 33% of corporate clients said they are purchasing directly from law firm affiliate ALSPs. Use of affiliates is not novel and is increasingly a client expectation to provide cost and time savings beyond a baseline level of expertise.

For law firms, therefore, the question becomes more about market differentiation. If a law firm is one of the more than half-dozen with an affiliate that plans to offer managed services, for instance, how will those services differ not only from other law firm affiliates, but from independent ALSPs that would now be considered competitors as well?

The answer comes in the law firm demonstrating the value of its affiliate — and not only the value of the service itself, but how the firm’s expertise and the affiliate’s speed and cost savings complement one another. One interesting finding in the report is that, just as one-third of corporate clients said they are purchasing from law firm affiliates, nearly as many (27%) believe the law firms they’re working with use affiliate ALSPs “behind the scenes.”

 

Why would law firms hide that from clients? For many, it’s simply to avoid cannibalizing potential billable hours or losing them to a lower-cost option. Others may be concerned about clients viewing a law firm affiliate as a less reliable option.

However, clients also said they wanted to decrease their spend with traditional law firms — 22% said they are decreasing spending with traditional firms, while only 16% are increasing. (For corporate clients using any type of ALSPs, those numbers are even more stark, with 33% of corporate respondents saying they want to decrease their spend, compared to 12% saying they are increasing.) The choice for law firms then may not be between keeping billable hours in the traditional firm compared to within the firm’s affiliate — rather, the choice may be whether clients will use the firm at all.

“Use of such affiliated ALSPs can be highlighted to the client as a means of demonstrating the law firm’s willingness and ability to innovate and seek greater benefit on the client’s behalf,” the report states. “Clients clearly appreciate it — they express a fairly solid desire to increase spending with those law firms they suspect are employing affiliate ALSPs on their behalf. Imagine how much more likely they would be if the benefits they were receiving were made more obvious.”

Clearly, law firm affiliate ALSPs should no longer be hidden away from clients. The affiliate of the future will need to stand on its own merits as a revenue-generating enterprise — and in doing so, it will need to provide an alternative path to revenue that could suit firms well in an increasingly technology-enabled future.


For more insights into the ALSP 2025 Report, you can listen to

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ALSP 2025 Report Analysis: How are competitive dynamics playing out between law firms and independent ALSPs? /en-us/posts/legal/alsp-report-analysis-competitive-dynamics/ Wed, 12 Feb 2025 18:27:26 +0000 https://blogs.thomsonreuters.com/en-us/?p=64844 The independent alternative legal services providers (ALSP) market has expanded significantly, reaching approximately $25 billion by the end of 2023, according to the Thomson Reuters Institute’s recently published Alternative Legal Services Providers 2025 report. This marks yet another period of rapid growth, with a compound annual growth rate (CAGR) of around 18% from 2021 to 2023. Importantly, the report also extensively analyzes a growing bifurcation among law firms and corporate legal departments with regards to how they partner with and compete with these ALSPs. This last part — competition with ALSPs — deserves further discussion.

ALSP

Are independent ALSPs and law firms competitors?

In the legal services universe, law firms have long been the go-to resource for individuals and companies seeking counsel. Their dominant position has allowed them to increase rates faster than other professional services and has resulted in some of the highest profit margins of any major industry. From 2015 to 2023, for example, demand combined with these rapidly increased rates to result in a roughly 6% revenue CAGR for firms in the Am Law 1-200 alone, easily outpacing broader economic growth in the United States.

This elevated top line growth, however, pales in comparison to the approximate 17% annualized revenue growth realized by independent ALSPs over the same period. As a result, and not surprisingly, law firms have lost legal service market share. By some estimates, law firms handled a little more than 90% of outside legal spend in 2015, but now that number is estimated to be closer to 86%. That four-percentage-point drop may not be much on its face; however, the pace of loss is accelerating and much of it is being absorbed by independent ALSPs. Yet despite this development, many law firm leaders said they do not see these providers as a threat to their business model.

Why law firms don’t see independent ALSPs as a threat

Of those law firm respondents surveyed in the ALSP 2025 report, only 21% said they believe that their traditional business model is being challenged by ALSPs. The other 79% are either unsure or disagree with the idea that ALSPs challenge their model. This perception rests on several key pillars, that include (not in order):

      • A perception that law firms’ value proposition is fundamentally different than that offered by ALSPs
      • A belief that ALSPs are taking work that would have been handled by in-house teams rather than outside counsel
      • An expectation that current legal barriers will remain in place and continue to exclude independents from the work that law firms perform.

While these perceptions each have compelling arguments supporting them, there is a different perspective that exists as well.

Looking at independent ALSPs differently

The first point mentioned above is connected to the fact that law firms currently have a corner on the most valuable area of legal service — legal advice. Corporate law departments surveyed in the ALSP 2025 Report did not anticipate allocating a significant, or even increasing, amount of their spend on legal advice toward independent ALSPs. This dominant market position on offering legal advice may suggest to law firms that the value they provide is unique. Indeed, in the chart below law firms lead by a substantial margin in the two areas upon which they focus: expertise and the ability to extend a law department’s capacity.

ALSP

What this chart does not show is that over the previous editions of the ALSP report survey, we have observed a trend of independent ALSPs steadily encroaching on both of these value propositions. For instance, in the most recent survey we found that independents are rapidly becoming key players in the consulting services arena, which ranks as the third most utilized service after legal advice and support. This service area, far from being routine, demands a high level of expertise, and much of its growth is linked with advancements in technology, including software acquisitions and training. Independent ALSPs expertise is further evidenced by a noticeable decrease in concerns about the quality of services; as of the 2025 report, only 31% of respondents viewed quality as a barrier to using their services, down from 41% in 2021 (these data points also include affiliate ALSPs, however this broader trend of increased quality is applicable to independents specifically as well).

As for the capacity extension argument, the narrative that independent ALSPs are only absorbing work that law firms aren’t interested in is evolving. The 2025 report highlights a significant shift in purchasing behavior among corporate legal departments; they plan to reduce their reliance on legal managed services from traditional law firms while ramping up their spend on independent ALSPs. This pattern is also evident in matter-specific legal services. Such changes indicate that ALSPs are not merely complementary but are becoming essential partners for capacity expansion and strategic service delivery.


Only 21% of law firm respondents agree that their traditional business model is being challenged by ALSPs.


As for the third point — yes, laws in countries like the United States currently provide a regulatory moat for law firm’s top line. But is this moat sustainable, and more importantly, should it be depended upon? We already see examples of jurisdictions like the United Kingdom, Australia, and states such as Utah, Arizona and the District of Columbia that have either eliminated or lessened the restrictions placed on ALSPs towards the practice/business of law. While regulatory momentum has been slow in the US, from KPMG in Arizona, where the Big Four giant plans on starting a legal service business, highlights the potential for independent ALSPs in the legal advice niche and underscores the danger law firms could face if their moat is defined by regulation.

The threat of potentially shifting market landscape is further illustrated in the data below. Corporate clients are anticipating a greater amount of spend going towards independent ALSPs, while they intend to spend less on traditional law firms. Herein lies a critical insight: ALSPs are not just peripheral players but increasingly formidable competitors in the legal services landscape. Failing to recognize and adapt to this reality could result in further market share erosion for traditional law firms.

ALSP

However, this competitive environment also presents an opportunity. Those law firms that strategically partner with third-party ALSPs or develop their own affiliate ALSPs can leverage these relationships to enhance their service offerings and remain competitive. Law firms must innovate and evolve beyond traditional practices to meet the changing demands of their clients. Embracing these shifts, rather than resisting them, will be essential for long-term success in an increasingly dynamic legal marketplace.


You can find more on how the legal industry is using ALSPs here

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