It’s a great moment for legal process outsourcing (LPO) providers. The deal, announced last week, that outsources a portion of DXC Technology's legal department to UnitedLex is a high-profile and compelling proof of concept. The market looks poised for growth as more and more big companies move to outsource. However, clients aren’t the only ones who’ll take note of this watershed moment; so too will rival, and potential rival, LPO service providers. Some of these enjoy significant benefits over the upstart innovators who created the LPO market. Innovators beware, the big dogs are about to get off the porch. Who’s coming? If we look at how other markets have evolved, we can predict at least the following five types of competitors to duke it out. The Big Company Spin Out Several major companies have large legal services departments that basically do in-house what an LPO provider would do on the outside. Some company is going to be enthralled by the revenue-generating opportunity of spinning out their legal services department to service other companies too. The analog is General Motor’s spin out of EDS back in the mid-1990’s—a formerly captive service provider comes to the open market with capabilities honed in the real world and at a scale that immediately enables a competitive cost position. You could see an industrial company with expertise in the legal aspects of managing vendors across a global supply chain doing this. Or an investment bank that tracks complex securities contracts. Or a Big Pharma company that’s invested heavily in the processes required to maintain a global patent portfolio. The possibilities are endless; it’s only a matter of time until such spin outs appear. High-leverage version of a law firm As law firms pursue various ‘get closer to the customer’ and ‘increase share of client wallet’ initiatives, they get closer to being outsource service providers without the long-term contracts. Thus, law firms should be natural providers of outsourced legal processes. A major part of the hold back for law firms is that, given their current operating models, Big Law can’t meet their profit per partner aspirations at the LPO price point. There’s a way around this, as has been proven in the management consulting business. Booz Allen Hamilton (Booz) was originally akin to McKinsey and The Boston Consulting Group, serving corporate clients using a relatively low leverage ratio model of around 5 nonpartners per partner. However, unlike the others, Booz was an early entrant into the relatively low-priced government contracts business. They met their profitability aspirations by dramatically changing their leverage ratios. They left behind the traditional 5:1 ratio, finding that much of the work could be executed at ratios of 15-20 to one, and higher. This made it a stunningly profitable business, more profitable than the legacy business, with the profit differential ultimately becoming a source of serious friction. Law firms already offer services close to process outsourcing, but clearly its implementation could be taken further. Some audacious firm, probably one that’s already feeling the pressures of shrinking industry demand and overcapacity, will take the plunge: cut price, gain share, and leverage up to make it a very profitable enterprise for partners. The BPO outsourcing behemoths The business process outsourcing (BPO) market is hard to isolate as it resides inside companies like Genpact, Capgemini, Infosys and Accenture that also do technology outsourcing. Many of these companies are public and under pressure to grow. As, per some industry watchers, traditional outsourcing growth has slowed, they’re probably looking seriously for new outsourced processes to offer to companies. LPO is an adjacent service to those that the BPO providers currently offer and one which they could be expected to pursue. These players certainly know what they’re doing when it comes to selling technology-rich services to cost-conscious clients. They’re known commodities to the CFOs and CIOs who are likely to be close advisers to any GC looking at outsourcing. They’ll enter the LPO market with considerable tail winds. The Big Four Imagine you’re the GC of a multi-billion dollar company. You’ve been under pressure from the CFO to cut your costs for years. Suddenly everyone is talking about LPO. You’ve got to go to the board with your proposal for fundamentally restructuring how a multi-million-dollar, not well understood, part of the business gets done. You could propose outsourcing to a ‘new law’ company of whom no board member has ever heard, run by someone who could be a board member’s grandchild. Or you could propose PwC or Deloitte. Which would you do? Make no mistake, this is a business well-suited to the Big Four. They know process and they know CFOs; they’re instantly credible. Lest you think auditors know little about legal processes, remember they’re well versed in tax filing and global mobility (i.e. that part of the multinational company world that deals with ex-pats, their benefit packages, and hypothetical tax adjustments). As shown in ALM Intelligence’s recent report on the Big Four’s expansion into the legal market, they have already been testing the LPO water. Deloitte’s Margin Matrix partnership with Allen & Overy, targeted at regulatory aspects of derivatives trading, has been highly successful and shows what a technology-enabled Big Four player can provide in the legal market. PwC’s legal division’s new outpost in Washington, D.C., also shows the Big Four are keenly interested in grabbing something of the U.S. legal market. While it’s true a Big Four firm can’t offer LPO-type services to a company they audit, there are three other Big Four firms who can. The innovators That the LPO market is now finally coming of age is due in great part to the persistence over the last decade of the technology-empowered new breed of legal service providers. Their business models have evolved as they’ve aged—from software providers, to AI and machine learning mavens, to technology-enabled turnkey providers of key process management. They’re business acumen is as plaudit-worthy as their technology. The cruel irony: those who’ve developed the market will be pressured mightily to stay viable in it. Not all can be expected to survive as the four new breeds of competitor outlined above enter from their different starting points with their different strengths. There’s going to be some tough thinking at the board meetings of the innovators. Can they make it as standalone service providers? Should they look to partner with, and eventually be acquired by, larger players with greater renown? Or are there software companies who might acquire them? How to win? As the competitive landscape grows more complex, and rivalries heat up, how should these players look to win? Technology? Process management? Yes, certainly. But at least three other factors will matter too. One is to invest strongly early. Proven experience will be key, so success will breed success. Another is to focus, from the start, on specific industry verticals and the legal processes that matter most to them. While, for example, global mobility may be global mobility to anyone with cross-industry perspective, in-house lawyers have a history of not thinking that way—as a senior partner friend likes to say, life sciences companies want even ERISA lawyers with life sciences experience. Competitors originating from the legal world will have an advantage in appreciating such idiosyncratic sensibilities of their GC clients. Hence the third key to winning: partner with someone who knows lawyers well and listen to what they say. Hugh A. Simons, Ph.D., is formerly a senior partner and executive committee member at The Boston Consulting Group and chief operating officer at Ropes & Gray.Nicholas Bruch is a senior analyst at ALM Legal Intelligence. His experience includes advising law firms and law departments in developing and developed markets on issues related to strategy, business development, market intelligence, and operations. He can be reached by Email, Twitter, or LinkedIn.