Bringing Legal into Strategy Development: A New Blue Ocean?
Bringing legal expertise into business strategy development is the natural conclusion of the process which I have advocated of lawyers to becoming more nuanced and practical business advisors.
In fact, all three topics lie along a spectrum, beginning with practicing law better at one end, moving through those business models that deliver low-level legal services with minimal input from mainstream law firms, and arriving at a the other end of the spectrum where lawyers give high value, and value-creating, strategic advice about the direction of a business long before there are any problems to be resolved.
The keepers of the business strategy profession are largely found in the management consulting industry—firms like McKinsey, Bain, and Accenture. Some of these firms developed out of the accounting profession (moving up the value chain into high-level advisory businesses in the same way that I have suggested should apply to the legal profession), and in the world of modern management consulting the legal environment is merely part of the tableau upon which a business strategy is built.
However, there are many situations in which the legal environment is not static but variable, and wherever this is true then legal is a variable that can be managed just like any other business variable. For example, in any case where a firm is involved in litigation which is significant relative to the size of the firm (“bet-the-company” litigation), or in absolute terms, such as Microsoft’s battles with the EU Competition Tribunal, then the legal environment should be considered as part of a business’ overall strategy—how could such a firm development its strategy without talking about the elephant in the room?
Furthermore, there are many fields of law in which the legal environment is fundamental to the business environment of a company:
• Tax
• Contracts
• Intellectual Property—trade marks, patents, copyright
• Competition, including merger review (Anti-Trust in the United States)
• Securities
• Corporate Governance
• Bankruptcy and restructuring
• Consumer Protection, Privacy, and Data Protection
• Product Liability
• Sector-specific regulation—e.g. food, medical & drug, energy, telecoms, transportation, professional services
• Labour and Employment
This means that no business strategy development process can be complete without incorporating legal strategy. However, business schools generally teach very little about the law, and for reasons that we will try to explore in later articles, legal as a function in a company is mostly left out of the strategy development process; the McKinsey Quarterly for example studies neither legal as a function nor professional services as an industry, and a search for “legal strategy” reveals almost nothing.
This is a blue ocean topic that has the potential to create significant competitive advantage. In the world of business academia, it falls into the larger class of “non—market strategies”, and some business schools do now touch on legal strategy in this larger context. However there are very few references or studies available which are focused on the relationship between legal and business strategy. The only text which takes on the topic squarely is Wharton professor Richard Shell’s 2004 Make the Rules or Your Rivals Will, which is full of cases where legal strategy made an impact on business strategy, from the foundation of the Ford Motor Company to Bill Gates’ battles with American anti-trust regulators.
The books is somewhat litigation-centric and begins by roughly recasting Michael Porter’s famous Five Forces model of the competitive environment of business into a model that attempts to predict the result of major litigation by assessing (i) the merits of the case, (ii) resources of the parties, (iii) public legitimacy of the parties, (iv) access to decision makers or home turf advantage, and (v) the strategic position of the parties in the market. This is fine for what it is, and Shell then goes on and organizes a wide array of the relevant stories he has collected into classes of business strategy moves such as blocking new entrants or locking in customers.
A key goal of this Journal is to develop an analytical framework for this topic which will help to identify which fields are most likely to reveal opportunities for business strategy innovation, when and why.
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Bringing Legal into Strategy Development: A New Blue Ocean?
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