The concept of insourcing by corporate legal departments has generated some press recently. Jennifer Smith’s Companies Curb the Use of Outside Law Firms highlighted the issue for law firms and judging by the reaction, it explained for some law firm leaders what has been happening to them. Other writers and commentators (here, here and here) added to the discourse with their own take on the issue. As Suzanne Edwards reported in her Houston Companies Hiring More In-House Lawyers to Save Money, even law firms in the very hot legal market of Houston appear vulnerable to large clients cutting back on the use of outside counsel in favor of insourcing. Various reasons are offered for the growing popularity of insourcing, but prominently among them are the views that the high cost of outside counsel, inside counsel’s better service orientation, and inside counsel’s deeper understanding of the client’s business make insourcing a no-brainer. As reported, however, not everything will go in house as big ticket items outside a company’s legal talent base will still go to outside counsel.

Unrelated to that reporting but nonetheless relevant, a recent meeting of general counsel generated some raw viewpoints on how some GC’s see their relationship with outside counsel. A long list of problems, concerns and irritants was compiled by Pam Woldow in her Straight From the Horse’s Mouth-GC’s Say What They Want From Outside Firms-law firms would be wise to take note. Without repeating the list verbatim, and without assessing the fairness of all the points expressed by the GC’s, it helps explain the trend toward insourcing. Law firms that don’t react to insourcing or hope to survive on the “bet the company matters,” will be disappointed.

So what’s a law firm leader to do? Fundamentally, the rise of insourcing is telling law firms to:

Keep Costs Down. No small factor in driving companies to insourcing is the high cost of outside legal services. It does not take a rocket scientist to realize that one response to insourcing is for outside law firms to keep costs down. Alternative fee arrangements, success fees in lieu of some hourly fees must be considered as a way to reverse the GC’s aversion to hiring outside counsel. High legal costs truly have to be tackled-lip service to the problem is not only inadequate it is insulting. Major changes are required. Become financially lean and streamlined so the GC begins looking at the in-house team as bloated.

Become a Business Partner. Time and again, reports about insourcing cite the fact that for clients, the in-house lawyers “get it.” Consider seconding some of your lawyers, but even if that is not a great option, make it your business to know everything about your client’s business. And then show them, at no cost to the client (blogging, invites to panel discussions/seminars, and the sending of “business clippings” instead of just case clippings is a start), how much you know. Of course, you may find it necessary to specialize as a firm since it is difficult to be expert at everything. But since specialization may be key factor in law firm success in the future, becoming a business partner may just work.

Don’t Wait for the Big Ticket Items. Sure, all firms will want the big-ticket items (the proverbial “bet the company case”) but relying on a steady or even sufficient diet of such engagements could be a fool’s errand. The competition for the big ticket items will be fierce, it will include firms far outside your market, and given what typically is at stake in such cases, you may not even be considered much less make the “short list.”

Insourcing is a message to today’s law firm leaders. It tells law firms that clients are fed up with the status quo. To address this fundamental change in client perception of outside counsel, leaders should build law firms around a dedication to lowering costs and providing better service. Is that going to be your reaction to insourcing?