How does design thinking differ or relate to strategic management? This was the question posed to me at the conclusion of my first class. It caught me off-guard for a moment because this was a law student asking. Nothing against law students (obviously) but the fact that this student knew about Porter’s five forces (which she expanded her question to include) was illuminating if not jarring. It was a perfect moment for me in many ways. First, I was delighted that this student was already working through the relationship of design thinking to other business tools. Second, I was amped that my students are already challenging this material in a meaningful and honest way. Only through the process of challenging and reconciling will each student make the material I present their own. Design thinking is certainly a methodology that must be “owned” by the person practicing it. Just reading about it will not suffice.
So what about strategic management and design thinking? The brief answer I gave my student was that they were not mutually exclusive. Strategic management (which has many forms and frameworks) tends to focus on the market and then how the business should align to operate within that specific market. Design thinking looks at the user or customer first and then builds and test products or services that best address the user problem. Better stated: strategic management focuses on competitive strategy while design thinking focuses on innovation strategy. Both are relevant and essential to learn and apply within the current legal market.
Applying Porter’s Five Forces*: The traditional legal market is becoming more competitive, driven by weakening bargaining power from the supply-side (lawyers and law firm) and a strengthening bargaining power (activism and awareness) from the buy-side (at least in the corporate legal market). Add to this the increasing threat of substitutes for a growing portion of legal work (outsourcing, technology displacing human capital, and more in-house counsel doing work that previously was done by law firms) as well as the rising threat of new entrants – from legal startups to foreign developments such as PWC - it is easy to see that there is an unmistakable trend pushing the legal market into a state of flux.
The uncertainly that is present in the market is in great part due to the exhaustion of applying a competition-based strategy. Firms have pulled many of the easy levers available in becoming more competitive. Actions such as lowering costs, using growth as a strategy (which it is not!), and increasing price elasticity are common tactics that have been fully deployed in the current market. As Porter recognized and stated many times, once the majority of players in a market begin to employ a competitive strategy, profits begin to erode and players begin to look alike. This is not to say that any individual player cannot achieve greater profitability in highly competitive markets – through the use of different business models or business networks but it becomes increasing difficult using only a competitive lens.
Which brings us to the current tension or uncertainty in the market. Many law firms are wondering whether they should focus further on being even more competitive? Or do they look to an innovation strategy? Unfortunately most law firms are more familiar with and comfortable with a strategic management plan that is based heavily (if not exclusively) on simply beating the competition in the existing markets. Just look to the recent Squire Patton Boggs tie-up. Despite Mr. Newberrys’ assertions that this was not a move based out of fear of collapse or financial stress – it was indeed just that. Further exasperating the competitive model, Squire Patton Boggs is making a tremendous error in mistaking “growth” as a strategy. It is a tactic. A tactic that should be tied to something actionable and meaningful to the underlying business model. Focusing on just growth tends to simply grow your problems along with attributes – what is gained? Complexity.
So what about the innovation strategy? This is 100% accessible to law firms but they simply have to first be aware of it and learn about it. Design thinking is just one methodology or tool that can craft, build, and execute innovation. The key focus here is not to be more competitive in an existing market. It is to either create a whole new market or deploy a new product or service into the existing market but do so with a business model that allows for significant differentiation and greater value creation to the customer and to the firm. While this may seem less concrete than the competitive strategy it isn’t. In fact, in many ways this strategy yields more substantive outcomes than a pure competitive strategy. It can indeed be more powerful and real in terms of value creation.
Keep reading this site for further and deepening insight to crafting and executing an innovation strategy built on design thinking.