The recent developments in AI and machine learning across industries have convinced many that this innovation is on par with the great, transformative technologies of the past: electricity, cars, plastics, the microchip, the internet, and the smartphone. From economic history, we know how these general-purpose technologies diffuse and transform. We also realize how hard it is to forecast when, where, and how the most disruptive changes will take place. At the same time, we have learnt what to look for, how to be ahead of the curve, and when a new technology is likely to transition from something interesting to something transformative.
When the predictive accuracy of AI solutions is aligned with ease of access and use, firms can leverage predictive coding and unsupervised learning solutions with greater confidence. They can move towards a faster and more comprehensive delivering of litigation prep and advisory by understanding their client’s data through predicting where litigation is likely to occur and whether it is worth settling or moving to trial. This can occur through a comprehensive unsupervised learning approach where enterprise data is classified according to the context of which it appears within the data.
Consider at a basic level identifying privilege signals, or the more sophisticated use of emotional signals that provide evidence of fraud. These outcomes are valuable for the corporate client, but they go further to providing a competitive strategy that can increase a law firm practice groups business considerably. The application of unsupervised learning and more targeting predictive coding can reduce uncertainty throughout both the discovery process and performance reporting. It’s great to show your clients a more efficient workflow, but what really matters is the tangible data that demonstrates how changing their behavior to incorporate your AI driven solutions will provide them with better results and lower fees over time. This can be used to both increase confidence in existing clients and demonstrate to new prospects how your firm can provide competitive value.
Breaking it all down
The essence of formulating competitive strategy is relating a company to its environment. Although the relevant environment is very broad, encompassing social as well as economic forces, the key aspect of the firm’s environment is the industry or industries in which it competes. Forces outside the industry are significant primarily in a relative sense; since outside forces usually affect all firms in the industry, the key is found in the differing abilities of firms to deal with them.
The intensity of competition in an industry is neither a matter of coincidence nor bad lack. Rather, competition in an industry is rooted in its underlying economic structure and goes well beyond the behavior of current competitors. The state of competition in an industry depends on five basic forces. The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long run return on invested capital. Not all industries have the same potential. They differ fundamentally in their ultimate profit potential as the collective strength of the forces differs; the forces range from intense in industries like tires, paper, and steel – where no firm earns spectacular returns – to relatively mild in industries like oil-field equipment and services, cosmetics, and toiletries – where high returns are quite common.
The best strategy for a given firm is ultimately a unique construction reflecting its particular circumstances. However, at the broadest level we can identify three internally consistent generic strategies (which can be used singly or in combination) for creating such a defendable position in the long run and outperforming competitors in a practice or industry. In coping with the five competitive forces, there are three potentially successful generic strategic approaches to outperforming other firms in an industry:
- Overall cost leadership
Effectively implementing any of these generic strategies usually requires total commitment and supporting organizational arrangements that are diluted if there is more than one primary target. The generic strategies are approaches to outperforming competitors in the industry; in some industries structure will mean that all firms can earn high returns, whereas in others, success with one of the generic strategic may be necessary just to obtain acceptable returns in an absolute sense.
Overcall cost leadership
- Cost leadership requires aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas like R&D, service, sales force, advertising, and so on. Achieving a low overall cost position often requires a high relative market share or other advantages, such as favorable access to raw materials.
- The second generic strategy is one of differentiating the product or service offering of the firm, creating something that is perceived industrywide as being unique. Differentiation, if achieved, is a viable strategy for earning above-average returns in an industry because it creates a defensible position for coping with the five competitive forces, albeit in a different way than cost leadership. Differentiation provides insulation against competitive rivalry because of brand loyalty by customers and resulting lower sensitivity to price. It also increases margins, which avoids the need for low-cost production. The resulting customer loyalty and the need for a competitor to overcome uniqueness provide entry barriers.
- The final generic strategy is focusing on a particular buyer group, segment of the product line, or geographic market; as with differentiation, focus may take many forms. Although the low cost and differentiation strategies are aimed at achieving their objectives industrywide, the entire focus strategy is build around serving a particular target very well, and each functional policy is developed with this in mind. The strategy rests on the premise that the firm is thus able to serve its narrow strategic target more effectively or efficiently than competitors who are competing more broadly. As a result, the firm achieves either differentiation from better meeting the needs of the particular target, or lower costs in serving this target, or both.
Whichever strategy a firm chooses, it is critical that it defines this strategy before it begins implementing AI solutions. The value of AI is clear. It enables firms to save time and resources. It supercharges the analytic ability of attorneys across a variety of practice groups, enabling their teams with both a more comprehensive and focused understanding of the matter at hand. This in turn leads to better service and results for their clients.
Competitive strategy involves positioning a business to maximize the value of the capabilities that distinguish it from its competitors. It follows that the central aspect of strategy formulation is perceptive competitor analysis. The objective of a competitor analysis is to develop a profile of the nature and success of the likely strategy changes each competitor might make, each competitor’s probable respond to the range of feasible strategic moves other firms could initiate, and each competitor’s probably reaction to the array of industry changes and broader environmental shifts that might occur.
As AI advances, we’ll use machine learning to reduce uncertainty more broadly. Hence, strategic dilemmas driven by uncertainty will evolve with AI. As the cost of AI falls, machine learning will resolve a wider variety of strategic dilemmas. AI will increase the value of the complements to prediction. The data resulting from machine learning will become so important that it will help inform firms when to change their strategy and take advantage of what it has to offer.