Law firms squeezed as in-house teams learn to do more with less

With tighter budgets, rising business complexity, and rapid advances in artificial intelligence driving change, these teams are becoming more self-sufficient and reshaping the role of law firms in the legal services market.

Alison Laird, director of innovation at the College of Law, highlighted that the shift is prompting in-house teams to take a “more deliberate” approach to deciding what work stays in-house and what is outsourced to external law firms.

As teams leverage technology to expand capacity without increasing headcount or cost, she noted, in-house legal teams are steadily reclaiming routine, repeatable, and day-to-day legal work that was once automatically sent to external firms.

“Routine advisory work, repeatable contract work, first-pass research, policy drafting, risk triage, and business-facing legal guidance are increasingly being handled internally with teams leveraging AI tools that amplify in-house capacity without increasing headcount – and, therefore, cost,” she said.

As budgets stay tight and chief financial officers (CFOs) sharpen their scrutiny of external legal spend in an increasingly complex business environment, Laird shared that in-house teams are now significantly more senior and capability-rich than a decade ago and, when paired with effective use of AI, are increasingly able to deliver more with less.

“The main drivers to do more with less haven’t changed: budgets are tight, CFOs are scrutinising external spend, business is increasingly complex,” she said.

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“The difference today is in-house teams have more senior capability than they did a decade ago, and those that leverage AI effectively really can now ‘do more with less’.”

As this shift accelerates, Laird suggested that the default to external lawyers is breaking down, with general counsel now first asking whether work can be done in-house, enabled by technology, or handled by alternative providers before a firm is even considered.

“The old assumption that certain types of work automatically go to a firm is being challenged,” she said.

“GCs and legal ops are asking different questions – instead of ‘which firm should do this?’ they’re asking how can we leverage technology to do this in-house, or can an alternative (often cheaper) supplier deliver the work, to ‘why are we sending this out at all?’”

The ripple effects of this shift

This shift in the traditional relationship between legal departments and external law firms is beginning to reshape the legal services market in multiple and increasingly structural ways.

For years, firms have relied on a steady pipeline of advisory and project work from corporate clients, but Laird stated that model is now under real pressure as in-house teams grow more self-sufficient, build capability once found only in firms, and steadily erode the dependency on which the system was built.

“Law firms exist because they have clients that require legal advice. The more those clients become self-sufficient, the more [the] traditional model is under pressure because it was built around that dependency,” she said.

“In-house teams sent work out because they lacked capacity, tools, precedent banks, specialist knowledge, or confidence. That is changing.”

She suggested that this is placing mounting pressure on firms in the middle, pushing them to more clearly define their value as broad, general-purpose legal services become increasingly difficult to justify.

“For law firms, this means the middle is getting squeezed. Work that is routine, repeatable, or only moderately specialised is at risk of being pulled in-house, automated, sent to ALSPs, or done through a different delivery model,” she said.

“Firms will need to be much clearer about the job they are doing for clients. Being a general-purpose external provider is becoming less defensible.”

The rise of a new ‘best in class’

At the same time, the evolution of in-house legal teams is resetting expectations, establishing a new benchmark for what effective, high-performing corporate legal functions now look like.

Leading in-house legal teams are no longer simply bringing more work in-house, with Laird explaining they are instead taking a far more strategic approach and developing a clearer understanding of which matters should stay internal and which are better handled elsewhere.

“Best-in-class teams are not just doing more work internally. They are making deliberate choices about what belongs inside the legal function and why,” she said.

“They have mapped their work by strategic value, risk, and internal capability. They know which matters should stay in-house, which should go to firms, which should be automated, and which should be redesigned.”

“They have strong knowledge infrastructure, searchable precedents, clear playbooks, legal intake, matter data, sensible use of AI, and an external counsel strategy and spend plan that is actively managed.”

Importantly, she expressed that the strongest in-house legal teams are getting far better at demonstrating their value to the broader business, moving beyond simply reporting how busy they are to instead measuring and clearly communicating the outcomes they deliver.

“The best teams can also tell a credible value story to the business. They are not just saying ‘we are busy’,” she said.

“They can show what work they are handling, what risk they are managing, what spend they have avoided, and where external counsel genuinely adds value.”