With the majority of law departments expecting an increase in demand, they are hiring in-house lawyers and investing in technology to automate routine tasks and workflows, according to the 2023 Harbor Law Department Survey.
Now in its 20th year, the annual Law Department Survey provides benchmarking data on legal spending, staffing and operations. Since its inception by HBR Consulting, now part of Harbor, the Law Department Survey has provided both in-house leaders and their law firm counterparts with a holistic view of law department priorities and challenges. This year's survey had a total of 170 respondents, with the majority representing companies in the Fortune 500.
"Despite macroeconomic uncertainty, corporate law departments expect steady growth in demand for their services. However, outside counsel spending has decreased significantly relative to revenue, with a renewed focus on law firm selection and management," said Lauren Chung, chief practice officer, Harbor, and editor of the survey. "Law departments have also turned their focus inward, increasing the workload of their existing teams and turning to AI and workflow automation to improve efficiency."
Increasing workload for existing resources as demand grows
While 80% of law departments anticipate an increase in overall demand for their services, their teams are not growing at the same rate. One-third of departments reported that their staff shrank in size year over year. To cope with the growth in demand, law departments report that they have increased the workload of their existing resources.
Looking ahead, departments anticipate lawyer headcount to experience the most movement, with 49% expecting an increase. Meanwhile, headcount across other roles appears to have stabilised:
76% of departments anticipate no change in legal operations headcount, and 58% expect no change in support staff.
More departments turn to technology for solutions
There has been a significant increase in the number of law departments exploring the use of artificial intelligence (AI). In the 2023 survey, 40% of departments said they were considering implementation of AI tools, up from 23% last year. At the same time, the number of law departments reporting that they have already implemented AI tools decreased to 18% from 26% in 2022.
"Although there appeared to be a decrease in AI implementation, this is in part due to the advent of ChatGPT, which has dramatically changed legal industry perceptions of AI," said Sean Monahan, director of data modernisation, Harbor. "Overall, we are starting to see a more differentiated understanding in the market of advanced technologies and which tools actually constitute AI."
Meanwhile, the focus has shifted to automating routine tasks to handle increased demand, with 25% of law departments reporting this as a strategy – up from 16% last year. In the 2023 survey, 39% of departments said they had a workflow system already in place, while another 31% are now considering the implementation of workflow automation tools.
"Generative AI has captured the attention of the business community, creating a 'halo effect' for technology and innovation," said Rudy DeFelice, CEO of KP Labs, a Harbor company. "In keeping with this year's Law Department Survey, we are hearing from many clients that workflow automation projects that were once on the back burner have gained renewed attention as companies realise the importance of investing in a solid foundation for future AI implementation."
Decrease in outside counsel spending and emphasis on firm selection
In 2023, outside counsel spending relative to revenue has decreased – only 0.14% of revenue, down from 0.17% in 2022 – with tempered spending expectations for the near future. Looking ahead, despite the widely anticipated increase in demand for legal services, only 22% of in-house teams plan to increase their use of outside counsel to handle the overflow.
To manage outside counsel spending more diligently, more law departments are focusing on the law firm selection process, as well as how and when they engage outside counsel, with 40% reporting this as their primary method of managing costs – up from 29% the year before.
The top outside counsel initiatives pursued by these firms include:
- Introduced stricter internal guidelines on the use of outside counsel, 52%
- Executed a structured annual rate review process, 49%
- Planning to use data analytics to support business decisions, 43%
- Increased use of regional or boutique firms, 41%
- Planning consolidation of preferred providers on outside counsel panel, 31%
"Stricter management of outside counsel comes as no surprise in light of spending constraints and a continued focus on optimising legal service delivery. Law departments are closely scrutinising law firm billing and annual rate reviews and instructing their teams to be more cautious in how they use outside counsel," said Jaime Woltjen, director of Harbor’s strategy and transformation practice. "The pressure on law firms, then, is to optimise billing practices and pricing while continuing to explore ways to demonstrate unique value to their clients."
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