I’ve always been skeptical when I see the “Kodak moment” metaphor being used as some kind of oracular call for institutional change: “Adapt or go the way of the dinosaurs…and Kodak!” The ominous admonition works so well precisely because it is a dramatic illustration of how historically dominating institutions can fail spectacularly when they opt for status quo success instead of embracing already visible changes. All you need is a dominant institution (like private law firms generally and BigLaw specifically) and some obvious technological or market changes (like AI and legal process outsourcing) and…voila!…you’ve got yourself a Kodak moment.
The Kodak moment case against BigLaw was made recently in the 2016 Report on the State of the Legal Market published by The Center for the Study of the Legal Profession at the Georgetown University Law Center and Thomson Reuters Peer Monitor:
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.
Ron Friedmann in his post, Is Big Law Having Its Kodak Moment? responds to the Georgetown/Peer Monitor report by arguing that the velocity of change in the legal market, while real, is not sufficient to justify dire proclamations of private law firms facing an extinction level event. I completely agree with Ron that the threat is exaggerated, but I also think that there is a different lesson to be learned from the Kodak story – one that has been continually missed in the Kodak moment morality play.
First, some historical context about Kodak that was not provided in the version of the Kodak story depicted in the Georgetown/Peer Monitor report: George Eastman didn’t invent photography or the basic light sensitivity chemical processes used for his film and paper. Nevertheless, he was a quintessential disruptor because his film-based solution was vastly more portable and cheaper than the glass plate solution it replaced. Kodak’s core (existential) business was always light-sensitive emulsion bonded to film and paper and associated development chemicals rather than camera production and sales. Although it was necessary for Eastman to develop (no pun intended) the Brownie camera in order to initially sell his real products, the inevitable competition and disruption in camera types, sizes, cost, etc. was actually a very positive thing for Kodak throughout the film era. While Kodak’s core business faced active competition from Agfa, Fuji, Ilford and others, it was never particularly disruptive and was never an existential threat to Kodak’s business. Even the Polaroid process (which Kodak helped develop and supported early on) was more of a market expansion than a disruption.
It is a mistake to think that digital cameras were the ultimate disruptors that tripped up Kodak and, therefore, that Kodak’s “moment” was failing to jump on the digital camera bandwagon that it’s own employees helped invent. In fact, Kodak halfheartedly produced digital cameras just as it had, for many years of its existence, halfheartedly produced analog (film) cameras. Even if Kodak had more vigorously committed to digital camera production, chances are very good that it still would have failed. Indeed, there’s a good chance it would have failed even faster than it actually did. That’s because it lacked any advantage at the high-end of the market (no established interchangeable lens mount and profit-generating lens catalog compared to Nikon, Canon, etc.), and the digital point-and-shoot low-end of the market pretty quickly became commoditized, viciously competitive and unprofitable similar to what happened in the personal computer sector. More importantly, the bottom of the digital camera market has been almost completely disrupted by camera phones. Today, the high-end DSLR market is in bad shape too, with some players, like Samsung, failing outright in the market and most of the others either losing money or treading water only because lens sales buoy camera R&D and marketing costs.
Kodak’s actual “moment” and true disruptive nemesis was the advent of digital display, storage and sharing of photographic images. If it weren’t so damn easy to upload, share and view photographic images online and photographic consumers still depended on paper-based prints, chances are good that Kodak would not have gone bankrupt. Yes, the blow from its loss of film sales would have been significant but it could have continued to compete in the print and processing business at its core and maybe even expanded, especially if increases in digital image-making in the consumer market resulted in increased print demand. In short, blaming Kodak’s demise on its failure to get fully behind digital camera production is not only wrong, it probably actually extended Kodak’s corporate lifespan!
What’s really telling here is that nobody faults Kodak for failing to get into the digital monitor business or the social web application business. The obvious reason is that the technological underpinnings of the hardware and software related to digital image display, storage and sharing are so unrelated to Kodak’s core competencies and the technology itself relates to so many more types of content than just photographic images that it’s just silly to think that Kodak could have applied its specific market advantages in photographic chemicals, paper and films in these completely different technical spaces. Quite simply, Kodak has taken a bum rap for its strategic inaction, considering that nothing short of abandonment of its core business would have saved it. Kodak’s real sin here is its failure to diversify away from photographic imaging altogether like Agfa (and a few others) did.
With all that in mind, let’s reconsider how the Kodak story really relates to the present state of Biglaw. What can we really learn from the Kodak moment? The answer depends on what you view as BigLaw’s existential core (akin to the photographic film, paper and chemicals part of Kodak’s business) and whether the technological and business environment changes referenced in the Georgetown/Peer Monitor report and elsewhere are directly striking at those core legal services and products. If the disruptions are primarily occurring in the secondary and support products, functions and revenue sources of BigLaw, then it’s questionable to even label them as “disruptive,” which is basically the argument Ron makes in his blog post. But…and this is the big gotcha: If the disruptions are so significant that the only solution is for BigLaw to essentially abandon its core identity and stop doing whatever it does best, then we’re really talking about something like institutional mass extinction and not just “disruption.” The answer is not, “Get better, faster, leaner!” The answer is, “Get out!”
The real Kodak moment would imply that BigLaw’s core services – i.e., legal structuring, advocacy, risk mitigation, advice giving, etc. – are unneeded or completely replaced by something else (the pure libertarian bliss of everything transacted on blockchains perhaps?) In this scenario the only chance of survival for BigLaw is to diversify away from actually providing legal services! Sounds pretty ridiculous or pretty depressing, depending on how you choose to look at it, but it’s not totally unprecedented. Consider what happened to the big accounting firms. They didn’t actually abandon their core accounting and auditing services and therefore didn’t have a genuine Kodak moment as I’ve reframed it, but they certainly added a whole bunch of other consulting services. Is diversification into ancillary consulting services (with some related online products) and a shrinking dependence on traditional legal services the answer to BigLaw’s supposed existential crisis?
Lawyers with their specialized skill sets and cumbersome partnership and revenue generation models appear to be poorly positioned to compete in broader consulting, publishing and other knowledge services. Like Kodak with no digital display expertise or other compelling competitive advantage, the notion of BigLaw successfully pivoting into other markets is hard to fathom. In fact, it’s SO difficult to conceptualize that it makes the much maligned laissez faire attitude of BigLaw partners both understandable and perhaps even rational. Keep that in mind the next time you read about some looming Kodak moment and the push for change. The conservative response is not always the wrong one.
Yes. Exactly. Fuji didn’t pivot right away into digital imaging. It made cosmetics constituents and traded on its chemical expertise to range into other areas. Only recently has it begun to dominate in digital.
But I do wonder if law firms–big law firms–think much about what business they’re really in. The businesspeople who employ lawyers (and I’m not talking about law department lawyers) think of lawyers as helping them manage various pools of risk. If lawyers truly understood that, they might begin to measure their impact on risks and try to optimize, just as any good business does.
But that’s not happening, and I’m not sure it’s going to. Some of the blockchain work now being started may be seen as a recognition of and response to that failure. And I expect we’ll see more and more of that–creative business people finding ways to reengineer our business infrastructure to obviate the need for lawyers.
We may never eliminate them, just as we’ve never eliminated the need for, say, harness makers or calligraphers. But their importance in the economy may certainly change.
Thanks, John. A couple of things I didn’t mention in the post is that I’m passionate about photography, including the history of it. I also lived in Rochester during the critical early stages of the birth of digital. A neighbor/friend of ours was a Kodak executive who was deeply involved in the internal tug-of-war. She was on the side of making a more aggressive move into all-things-digital at Kodak and eventually left because of lack of movement. At the time, it seemed like we were watching the Titanic as it steamed toward a giant iceberg. I’ve now come to the conclusion that even if my friend and other visionaries at Kodak had prevailed, they might have successfully steered around the one iceberg only to run into another!
Your point that lawyers don’t sufficiently understand the real (risk management) business they’re in is an important one and worthy of a post in its own right! Stay tuned…