Perspective on the CLOC State of the industry Survey

If you haven’t read the 2019 CLOC State of the Industry Survey, you should. This year’s survey had a substantially larger response, particularly from smaller law departments, and went a bit deeper into certain issues than the previous CLOC survey, released in 2017. When compared against other industry reports, it confirms trends towards increasing maturity in legal operations and interest in more advanced topics like law firm evaluations, alternative legal service providers, and artificial intelligence. But most importantly, it confirms that part of the mission of CLOC—to raise the stature of the legal operations discipline—is happening, with 65% of legal operations directors now reporting straight to the general counsel.

Here are some other interesting takeaways:

The larger a corporation, the lower its legal costs tend to be as a percentage of revenue. 

The CLOC report shows that the larger the organization, the less internal and external legal spend it will have as a percentage of revenue. For instance, large organizations (defined as having more than $10B in revenue) on average will spend only .5% of revenue on all their legal needs, both internal and external. Medium organizations (those having between $1B and $10B in revenue) tend to spend about 1% of revenue, while small organizations (with less than $1B in revenue) spend a staggering 2.7%.

However, as a caveat, compare these numbers to the 2017 CLOC survey—there are substantial differences, probably owing to changes in the sample between 2017 and 2019. If analyzing the report, look closely at those differences, which CLOC helpfully reports as part of the survey. 

Legal operations becomes more efficient the bigger the organization it serves. 

A similar scaling effect can be seen when looking at the number of legal ops professionals necessary to support in-house attorneys: In larger organizations, legal ops workers become more efficient—meaning that they are able to support more attorneys per legal ops worker. So, large organizations—probably benefiting from more mature business processes, a greater variety of legal ops professionals with a greater variety of skills, and better technology—can support a large number of attorneys with a legal ops team that is disproportionately small when compared to the size of the department. Specifically, the survey indicates large organizations need only about 1 legal ops worker to support every 13 attorneys. Small companies, on the other hand, on average have 1 legal ops worker for every 6 attorneys. Much less leverage.

Whether a company has a legal technology roadmap may be a pretty good indicator of whether that company “gets” technology, including AI. 

Two interesting findings from the survey:

  • “84% of respondents that are currently using AI have a technology roadmap, or are currently developing one”
  • “Companies with a developed technology roadmap spend 3x more on technology than organizations that don’t have a roadmap or those still developing a roadmap.”

While cause and effect aren’t always easy to distinguish, it does seem that having a technology roadmap is associated with spending money on legal technology. 

The report also mentioned that 12% of organizations are currently using AI in some part of their administration and another 45% are exploring such options. This is consistent with findings from the 2018 Blickstein 11th Annual Law Department Operations Survey (see Q58) and other industry sources that indicate between 10 and 30% of organizations—depending on the use case involved-- are already using AI to perform tasks like predict outcomes, assist with due diligence and discovery, assemble contracts, conduct client self-service programs, and better understand legal spend. These real-world applications indicate that products like LegalVIEW® BillAnalyzer are putting AI to good use today and helping save law departments both time and money.

Just because insourcing is growing doesn’t mean that outsourcing is shrinking. 

The CLOC survey indicates that 41% of in-house organizations experienced an increase in full-time in-house attorney headcount in 2018. It also states that in over 50% of organizations, outside spend stayed flat or declined. While these statistics might lead one to the conclusion that spend must be moving in-house, it also means that outside spend increased in many, many organizations.

My take: While outside spend might be staying flat or decreasing in the majority of organizations, it is increasing enough in the rest of organizations to outweigh whatever savings are occurring elsewhere. Big picture: The pie may be expanding for everyone, with both in-house and outside expenditure increasing together. The AmLaw 200 saw profits increase by 3.1% in 2018 and many AmLaw 100 firms did better. A possible explanation: Even as in-house organizations become more and more adept at doing insourced work, the growing regulation and interdependence of the global economy (and growing corporations with growing legal needs) will continue to increase the total amount of legal work faster than in-house organizations can redesign themselves to accommodate it. 

If this is true, there will be plenty of “overflow” work for law firms in the foreseeable future, despite efforts of in-house organizations to insource as much as they can. In this circumstance, the in-house world may expand more quickly than law firms, but they can both expand together.


About The Author

Nathan Cemenska

Nathan Cemenska, JD/MBA, is the Director of Legal Operations and Industry Insights at Wolters Kluwer's ELM Solutions. He previously worked in management consultancy helping GCs improve law department performance and has prior experience as a legal operations business analyst.

In past lives, Nathan owned and operated a small law firm and wrote two books about election law. He holds degrees from Northwestern University, Ohio State University, and Cleveland State University.