Legal Departments Ongoing Vendor Cull Is Mixed Blessing for Legal Tech

When the pandemic hit in 2020, it brought many economic vectors to a standstill, within legal and beyond.

But two years later, we are slowly seeing a bounce back in some areas, paving a hopeful, if not slightly stressful, path in the coming years. On the other hand, there’s one key area that still seems to be fledgling from when it was hit at the beginning of the pandemic—corporate vendor count.

Indeed, between 2020 and 2021, 70.5% of corporate legal departments cut outside vendors, while 15.9% added them. Additionally, the median number of non-Big Law, non-ALSP vendors serving the typical legal department also dropped by 9%, according to data from LegalVIEW’s 5th Insights report conducted by Wolters Kluwer released on Tuesday. The survey is based on invoice data in the LegalVIEW database, which consists of $150 billion in invoice data from medium to enterprise-size Wolters Kluwer clients.

While that may sound alarming, legal tech experts are not necessarily worried.

In fact, they think the thinning of the stove might be an opportunity for the existing legal tech vendors to load up on the necessary services within their products. What’s more, the loss of outside counsel might pose an opportunity for tech to fill gaps.

Nathan Cemenska, the director of legal operations and industry insights at Wolters Kluwer, says the fact that vendor count has not bounced back falls into the trend of convergence of vendors in the industry.

“It’s been going on for probably more than a decade. Basically, the procurement tactic is to reduce the total number of vendors because then you can get better pricing and alignment,” Cemenska said. “Still, we haven’t ever seen anything like the 16% drop that happened from 2019 to 2020. And the 8.6% drop that we saw last year is quite large too, especially when it comes on the back of the largest drop we have ever seen.”

While this might be a loss for the vendors that have been cut, Cemenska actually sees it as an opportunity to replace the vendors with “people, process and technology.” Then, the existing vendors can more easily be brought on board with the tech tools the department has chosen.

“Whereas if you have hundreds of vendors, it’s like herding cats and the relationship isn’t very big. If you’re giving someone $10,000 of work a year and you want them to change their whole way of doing business with you, that’s a hard sell,” he added. On the other hand, “if you’re giving them $5 million of business a year,” they might be more willing to go through the trouble of adopting new technology themselves in order to maintain a relationship with you.

While tech solutions might be able to fill the gap for a missing vendor, what happens if the cutback is actually one of the company’s tech vendors?

Brett Burney, principal at Burney Consultants and eLaw Evangelist at Nextpoint, thinks the loss of tech vendors might pose a chance for the competition to brush up on their “soft skills,” that is, the service elements of their product.

“I would see an opportunity here for vendors that are willing to put more into their services area, bringing value-add options to the relationship, and who put time and resources into that relationship instead of a bottom-line focus,” Burney said.

By “value-add options,” he is referring to features that might cultivate trust between the company and the provider.

“In other words, [they] might have hired you or detained you to do a document review project for us, but they need someone to call when they want to know what’s going on. [They want somebody] who is dedicated to the client, that can explain to them what’s going on throughout the process as opposed to providing a strict, formal, formalized service.”

To be sure, features like this, and the true expense they cause a provider are difficult to quantify, noted Burney. But he stressed that even beyond pricing, which is a top concern, corporate legal departments want a provider that answers when they say “Who the hell can I call to fix this problem with the tech?”

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