Another week brings another revealing study about the ongoing disparity between the innovation in-house legal teams expect and what they receive from their external law firms. Despite the buzz around artificial intelligence (AI) transforming the sector, we seem far from realizing its full potential.

This latest investigation, conducted by Thompson Hine, an Am Law 200 midwestern-based law firm, surveyed nearly 200 senior in-house legal professionals. The study, titled *Bridging the Perception Gap-Disconnects, Expectations and Opportunities*, was produced in partnership with Corporate Counsel and marks the fourth installment in this series of studies.

The findings are stark: only 5% of respondents perceive significant innovation from their law firms, mirroring the percentage from 2023 and only a slight increase from 2020. It highlights a crucial first disconnect: while 20% of firms boast about their innovation, only a fraction truly delivers, according to their clients.

So, why this gap? In many cases, law firms might prefer proclaiming innovation rather than actually embedding it into their operations. This echoes the early days of digital transformation when firms purchased computers more for show than for actual use.

Another issue is the definition of innovation itself. In-house teams seek practical technologies that streamline workflow and enhance productivity, while law firms often view innovation merely as a tool for reducing non-billable hours or as a marketing gimmick. This misalignment underscores why only 16% of surveyed professionals feel their external firms outperform in-house teams in innovation, and a mere 3% believe their needs for innovation are fully met by their law firms.

Moreover, the cautious approach to AI adoption illustrates this gap further. While 23% of in-house professionals acknowledge the advancements in AI, only 18% of external lawyers share this view, primarily due to concerns over accuracy and privacy.

The traditional law firm model, characterized by billable hours and consensus decision-making, also stifles innovation. The partnership structure, combined with inherent skepticism and independence among lawyers, often results in delayed or minimal adoption of new technologies.

Despite these challenges, the primary reason for the stagnation may lie with the in-house teams themselves. Although 93% of respondents claim that innovation is crucial in selecting law firms, they continue to engage firms that show minimal innovative progress. This is further evidenced by a lack of demand for advanced technologies like generative AI, with 80% of in-house teams neither demanding nor encouraging its use.

A separate study by Thomson Reuters highlights another dimension of the problem: the power of law firms to consistently raise their rates well above inflation rates, suggesting a comfortable complacency supported by client willingness to pay more without demanding significant changes.

Ultimately, unless in-house legal departments start demanding tangible innovation and leveraging their market influence to enforce change, the status quo will likely persist. As law firms continue to enjoy significant profits without substantial pushback, the incentive to innovate remains minimal. The responsibility, therefore, increasingly falls on in-house counsel to not only demand innovation but to actively reward it, potentially transforming the landscape of legal services.

In conclusion, for those in-house teams dissatisfied with the level of innovation from their external partners, it might be time to reevaluate their selection criteria and push for a realignment of services that prioritize effective, technology-driven solutions. Only through a concerted effort to demand and reward innovation can the gap finally begin to close.