For managers of corporate legal functions, a sweet spot lies between what their group handles that is routine work and what is rare work. With routine work, which appears with regularity, it is possible to train and delegate and systematize. It is also possible to have law firms to do much of it, albeit lower-cost firms that work on fixed fees, and thereby keep more interesting work inside (See my post of Nov. 5, 2005: reverse pyramid; and Oct. 18, 2005: mix of rocket science and quotidian work.).
As to rare work — legal issues a law department’s lawyers encounter infrequently – managers can’t develop and maintain the requisite skill levels. You can’t keep leading-edge acquisitions lawyers in the department, for example, if the company only buys other companies once a year. It is not just a matter of intelligence; it is a matter of sufficient volume to keep legal skills sharp (See my post of June 6, 2008: standardized, routine, and commodity services.).
Most general counsel reject my routine-work solution of retaining a law firm. They favor legal staff chugging away on the daily fare.