Editor’s note: This is the first in a four-part series examining the ways in which firms are managing e-discovery work and whether there is profit to be had in such endeavors.

Litigation support services departments in law firms — now largely tasked with helping attorneys manage the e-discovery needs of clients — are at a crossroads. To invest or divest.

Some firms are doubling down and investing millions in e-discovery technology, people and processes, looking to recapture the revenue paid to e-discovery vendors and offer clients a cheaper way to handle their discovery needs all under one roof.

On the other end of the spectrum, firms are doing away with hosting data, buying software, processing electronically stored information and conducting forensic investigations. They would rather leave that to the experts.

And when they ship all of those processes out the door, they are often looking for a preferred vendor, known as managed services providers, who can handle it all across the firm’s platform in order to manage efficiency and cost for clients. These firms are choosing to handle only the legal work, which some say is often the more lucrative work, associated with e-discovery.

And of course there is always the gray area — the majority of firms that have a hybrid approach to handling what has become a vexing issue for some clients and an opportunity for others who have taken the matter into their own hands and chosen their own preferred e-discovery vendors.

Jason Lichter joined Pepper Hamilton in September as the firm’s director of discovery services and litigation support. His main charge since joining the firm from Seyfarth Shaw is to figure out just where in the spectrum of e-discovery models Pepper Hamilton will fall.

Lichter’s new boss, Pepper Hamilton CEO Scott Green, helped create a fully integrated e-discovery operation at his old firm, WilmerHale. There, the people, processes and technology are all housed within WilmerHale’s back-office operations near Dayton, Ohio.

Lichter said a similar approach is certainly on the table at Pepper Hamilton, but he is looking at many options. The collection of electronic data, Lichter said, is best performed by certified forensic examiners.

“Pepper as a firm does not presently have any intention of getting into the collections business,” Lichter said. “But immediately after collection [comes] processing, filtering and culling and I’m very much including that among which we are addressing.”

Lichter said there are different options for where information can be housed, be it internally or on a vendor’s server. He said the lawyers who need to access the data don’t care where it is, just that it can be retrieved quickly and efficiently.

Lichter created a working group within the firm to examine the best approaches with an eye toward making a decision by the end of the first quarter of 2013.

“My focus is on ensuring we provide the best litigation discovery support to clients and if the best way is to make particular investments in technology, that is what we’ll do,” he said.

But backing the wrong horse in terms of investing seven figures in technology that might quickly become obsolete is a concern, Lichter said.

Regardless of whether Pepper Hamilton takes the “all-in” approach adopted by firms such as Morgan, Lewis & Bockius, WilmerHale or, more recently, Drinker Biddle & Reath, the firm needs to remain flexible and have the ability to give clients more than one offering considering many clients are creating their own preferred relationships with vendors, Lichter said.

David Cowen’s company, The Cowen Group, focuses in part on placing e-discovery lawyers with law firms and law departments. He recently surveyed a number of his clients and found that more than 40 Am Law 200 firms are looking to move in the opposite direction of an “all-in” model and considering using managed services providers.

“It’s quite remarkable the number of firms outsourcing to a managed services model,” Cowen said.

The law firms that are making the capital investments in the people, processes and technology to bring e-discovery services in-house have a strong handle on what their clients’ needs are and are making a strategic decision based on that rather than an opportunistic move, Cowen said.

Even if firms own a license to e-discovery software, Cowen said there is a “very healthy appetite” to outsource the infrastructure. The legal technology, which runs the bell curve in terms of sophistication within law firms, is often the first to go. Then firms start looking at whether to outsource the project managers and technicians as well, Cowen said.

Jennifer Schwartz of The Cowen Group cautioned that just because firms are outsourcing doesn’t mean they are washing their hands of the e-discovery process.

“Firms aren’t interested in owning the commoditized process piece, but still want resources to manage the quality of that work,” she said.

The heightened IQ of vendors in this space is driving much of the move to the managed services model, Cowen said. A few years ago, firms would buy a software program and there would be no one to tell them how to use it. Now there are companies that can manage the entire e-discovery process, he said.

Before 2004, vendors were focused on getting into the law firms, Cowen said. From 2004 to 2012, they were focused on penetrating the corporate market. Now the vendors have a clear understanding of what the corporate market needs, he said.

“We’re at the beginning of the middle of the e-discovery service model,” Cowen said.

Early on, it was chaotic, and now there is more clarity on how to handle it and why. Technology and, more specifically, predictive coding, were tipping points there, he said.

What is clear from all involved in figuring out these questions of delivery models, wherever they may fall on the spectrum, is that there is no right answer and no one would be judged for sending the work to vendors.

However, some area firms have opted not to send out the work. And each firm with its own e-discovery arm has its own approach.

Read about the variety of approaches firms have taken from insourcing to divesting the e-discovery process in Thursday’s Legal.

Gina Passarella can be contacted at 215-557-2494 or at gpassarella@alm.com. Follow her on Twitter @GPassarellaTLI.