It might be one of the best-kept secrets of the legal world – clients themselves are the most relevant disruptors on the market. Yes, the Big4’s legal arms are coming, more and more legaltech companies target the lower end of the market, and alternative legal service providers are growing exponentially. However, very few talk about the fourth group of disruptors, the in-house legal departments themselves. Very often, they are regarded ‘only as clients’. However, we believe that they are probably the most important disruptors in the ongoing transformation of the market. At least, if you consider the business as the ultimate client of legal services and you rely on the original understanding of disruption, as described by Clayton Christensen.

In his original theory of disruptive innovation Clayton Christensen described disruptors as competitors with a different business model, not only with new technology. According to him, the key is the different model of value creation. Technology may be an enabler, usually it is, but it is not always necessary for the disruptors to challenge the status quo.

If you understand The Business as the ultimate client of legal services (and why wouldn’t you do so), it becomes clear that the growing and developing in-house legal teams are a new, alternative provider of them. They offer their service with a substantially different business model – most importantly for fixed costs, with a natural closeness to The Business (the ultimate internal client) and the ability to focus only on that one client.

One might overlook in-house legal teams as disruptors, just because they are not separate legal entities, they have just started to use technology, and usually they do not profile themselves as ‘the new kids on the block’. However, slowly, but surely they have been acquiring, or perhaps more accurately are retaining, a larger and larger share of the market in the last 10-15 years in a process that very much fits the classical model of disruption.

Just as Clayton Christensen describes in his groundbreaking theory, in-house legal teams entered the market from the bottom, have done commodity or routine work. In addition, just as in many other industries, the incumbents, in our case large, commercial law firms (often referred to as ‘BigLaw’) ignored the disruptors and fled to higher margin work. However, in-house legal teams clearly have the appetite and are developing capabilities to be able to move upwards on the value chain, to provide more and more complex services.

So, what might happen next? The theory says, that usually the disruptors establish a firm foundation in the middle of the market and start moving ‘upwards’ to higher margin opportunities, which causes a ‘flip’ in the market in which established players must compete on new grounds, risk losing significant market share – or worse.

Technology, especially the current boom of contract lifecycle management and other solutions that target primarily the in-house legal departments, will just accelerate the process. The in-house legal teams are here to take that firm foundation in the middle of the legal market and start moving ‘upwards’, to more complex legal work. Certain areas might be exempted from this trend based on externalizing the risks, but in general, law firms, as incumbents should be aware of the trend and be planning for the changes. As with every trend, the disruption, and especially, the growing and developing in-house legal teams could provide opportunities for the law firms who see them. However, it could surprise others who wake up in the middle of the ‘flip’.

About the authors:

Andrea Miskolczi – Europe Director of Innovation
+420 236 082 497
andrea.miskolczi@dentons.com
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Marien Glerum – Benelux Managing Officer
+31 20 795 33 53
marien.glerum@dentons.com
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