This story of the demise of Kodak is an important cautionary tale for law firms in the current market environment. Since 2008, the market for law firm services has changed in significant and permanent ways. Clients who previously deferred to their outside firms on virtually all key decisions regarding the organization, staffing, scheduling, and pricing of legal matters are now, in most cases, in active control of all of those decisions. Increasingly, clients are demanding more “value” in return for their legal spend, and by value they mean greater efficiency, predictability, and cost effectiveness in the delivery of legal services. What once was a seller’s market has now clearly become a buyer’s market, and the ramifications of that change are significant.

Clients today are more willing than ever before to disaggregate matters, combining the services of several different service providers in order to achieve increased efficiencies. They are more open than ever before to utilizing non-traditional service providers (including non-law firms) to provide a wide range of services previously obtained almost exclusively from law firms. And clients are far more likely today to retain work in-house, bringing their outside counsel in only where needed to supply specialized expertise or to handle matters on a discrete project-by-project basis.

Law firms have responded to these changed market conditions in largely passive and reactive ways. In the face of client insistence, most firms have taken steps to improve their budgeting capacities for client matters, adopted financial systems to facilitate alternative fee arrangements, accommodated the outsourcing of certain functions (like document review and e-discovery), and implemented some processes for project management. To date, however, 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.

The reactions of the law firm market to the rapidly changing environment in which firms operate parallels in some respects the story of Kodak. The current challenge in the legal market is not that firms are unaware of the threat posed to their current business model by the dramatic shift in the demands and expectations of their clients. Instead, as in the case of Kodak, the challenge is that firms are choosing not to act in response to the threat, even though they are fully aware of its ramifications. There are many reasons that may lead firms to make this choice, but one of the primary ones is surely that, like Kodak, many law firm partners believe they have an economic model that has served them very well over the years and that continues to produce good results today. They are consequently reluctant to adopt any changes that could put that traditional business model at risk. While that might appear to be a viable short-term strategy, the danger is – again like Kodak – that this effort to preserve their past and current success could result in law firms failing to respond to trends that over time could well challenge their traditional market positions. There is already growing evidence that those trends are well underway. It remains to be seen whether most firms will be able to avoid the dangers posed by their own success.

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