Wednesday, March 7, 2012

Michael Porter revisited

Some years ago, I spent some time reading Michael Porter's 1980 classic: "Competitive Advantage". It's still a great read. Some years later, Porter answered some of his critics with his 1996 HBR paper "What is Strategy", recently updated as given in an executive education presentation.

Now comes a nice summarization of Porter, and the evolution of his thinking based on accumulated experience, written by his research associate Joan Magretta and entitled: "Understanding Michael Porter: The essential guide to competition and strategy".

Of course, students of Porter have absorbed his idea that strategy is that which creates a sustainable value proposition for customers in the context of a sustainable value chain for the business. For Porter, strategy is unique activity, different from competitors:
The essence of strategy is choosing to perform activities differently than rivals do 
Michael Porter, "What is Strategy", 1996 HBR

And the purpose of strategy is enhanced business value; the means of strategy is competitive advantage (thus, the name of the book). Competitive advantage arises from the integrated effect of resources, capabilities, and differention:

But my eye caught something from Margette's book on the integration aspect of strategy (I'm always interested in anything that integrates the dots into a narrative)

The value proposition is the element of strategy that looks outward at customers, at the demand side of the business. The value chain focuses internally on operations. Strategy is fundamentally integrative, bringing the demand and supply sides together.

 Joan Magretta, 
"Understanding Michael Porter: The Essential Guide to Competition and Strategy"

I really thought the integrative effect of strategy was interesting in light of Porter's assertion in 1996 that Japanese companies had no strategies. To my mind, this is a shocking statement; but having worked for a Japanese owned company, I know where he's coming from. Porter says they simply focused on taking improved operational effectiveness (OE) to its maximum---and then they could go no farther, leading to the "lost decade". (Of course, it's a good deal more complicated than that, so I'll leave the lost decade right here). By Porter's definition, OE is not a strategy.

Operational effectiveness is about doing similar activities better than others—in other words, predictable repetition. Strategy is about doing similar activities in a different way that achieves goals more effectively; or doing different things than those that are customary to achieve goals.

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