Thompson Reuters and Georgetown Law’s collaborative publication, The Report on the State of the Legal Market 2016 (“2016 Report”), opens with a brief case study of the Kodak company. The report describes Kodak as the camera and film market-maker during the 1970s and 1980s. During those decades, Kodak controlled “80 percent of the market for the chemicals and paper used to develop and print photos.” But when the market switched to digital, Kodak failed to respond. Futurist and innovation advisor Chunka Mui categorized this missed opportunity as one of history’s most staggering corporate blunders. Law firms need to heed the warning from the 2016 Report that Kodak was one of many ” well-established companies being blindsided by technological developments that oust[ed] them from their positions of market leadership.” Kodak even invented the very technology that led to its downfall. Kodak’s problem, according to author Richard Randall, is the same problem that plagued Borders bookstore and Blockbuster video rental— namely, wanting to take on the competition while maintaining traditional business. While Kodak’s competitors were establishing footholds in digital photography, Kodak was distracted by its continued focus on the film market.
The Kodak story is a cautionary tale for law firms. The 2016 Report warns that law firms’ adjustments to significant and permanent market changes are largely passive and reactive. The 2016 Report finds that “very few firms have been willing to engage proactively in the consideration or implementation of the kinds of operational changes that would be required to respond effectively to the changed expectations of their clients.” Law firms who fail to react to the indisputable legal market changes are choosing to ignore reality. Instead of attempting to convince readers to act, the authors of this article provide suggestions for readers about how to act. The 2016 Report’s finding that law firm partners are reluctant to move away from “an economic model that has served them very well over the years and that continues to produce good results today” is a harsh analog to Borders’ and Blockbuster’s addiction to physical stores and Kodak’s commitment to film. Such reluctance “could result in law firms failing to respond to trends that over time could well challenge their traditional market positions.”
Importantly, failing to respond does not always look like inactivity. In fact, organizations can be very active while failing to respond to market changes. Donald Sull calls this “active inertia.” This occurs when, “stuck in the modes of thinking and working that brought success in the past, market leaders simply accelerate all of their tried-and-true activities.” If the industry is at “an inflection point, old ways of measuring success can lead to a sharp decline—or failure.” Sull challenges leaders to avoid assuming that paralysis is the only enemy, and to recognize that action can be just as dangerous. “Instead of rushing to ask, ‘What should we do?’ managers should pause to ask, ‘what hinders us?’”
To survive, law firms must not rely on their old ways of conducting business. As Marshall Goldsmith wrote, “What got you here won’t get you there.” But the lesson learned from active inertia is that paralysis is not your worst enemy. The solution is for an organization to break the pattern of management-by-reaction, and begin to “reposition[] the core business while actively investing in the new growth business.” There are two questions for law firms—How is the market changing, and how do we change our law firm?
The authors will answer this question in four parts. First, the authors provide an overview of some current key market changes. Second, the authors describe the prevailing leadership structure in law firms and challenge the preference for promoting a successful partner to the most senior management seat. The authors propose an alternative that does not eliminate senior lawyer leadership, but adds a successful professional manager in the chief operating officer role, leading a team of operations directors and collaborating with lawyer-leaders. Third, the authors describe the characteristics of the operations team and the qualities of the leader. Lastly, the article explains how organizations change. The purpose of this section is not only to acknowledge difficulties associated with change, but to demonstrate that leadership and management can work together. Accordingly, existing models provide guideposts for law firms to follow.