Porter supporter 1

Guest blogger: 
Terry O'Sullivan Terry O’Sullivan, Senior Lecturer in Management and Head of Centre for Strategy and Marketing, Open University Business School

News just before Christmas of the bankruptcy of Monitor, the consulting firm set up by Harvard Professor Michael Porter in 1983, had many rival strategy gurus rubbing their hands in unseasonal schadenfreude. As the world’s most-cited (and highest-earning) business academic, a household name in corporations, governments and business schools since the 1980s, (and a golfer of near-professional standard to boot), you can see how he might have attracted some measure of envy over the last three decades. Explanations of the collapse of his firm abound – a failure to adjust to conditions post-2008, a reliance on methods which have outlived their relevance, even just something as simple as a lax attitude to costs in a very slow market.

But an uncomfortable question remains, in spite of all the post-hoc rationalisation – if the world’s most eminent strategist’s own business can come unstuck, what’s the point of strategy for the rest of us?

Perhaps part of the answer is to make sure we have the right expectations. Strategy can no more show us a failsafe future path than a crystal ball can. But it can help us to make more responsible decisions.

Maze Puzzle © FutUndBeidl via FlickrTake Porter’s celebrated Five Forces model, which first saw the light of day in the Harvard Business Review in 1979. It’s what sociologists call a ‘conflict theory’, depicting any given industry as a set of warring factions scrapping over available profit. Porter’s background in economics made him aware that some industries are more attractive than others in this respect, leaving himself open to the misunderstanding that all you have to do is choose the right industry and your strategy problems are solved. Even if anyone were free to abandon their current industry for something more attractive overnight, success is not so easy to come by. In fact the real (and to my mind genuine) value of the model is to help understand your own performance in whatever industry you find yourself, in such a way as to help improve decisions about your direction in the longer term.

Another Porter favourite is the ‘generic strategy’ idea, whereby he advises that there are only a limited number of ways to compete in any industry. A famous one is ‘cost leadership’ (epitomised by companies like Ryanair), where the name of the game is to do everything as cheaply as possible. Being a cost leader means that you can pass on your efficiencies to your customers as lower prices than those charged by rival firms (should you so desire). Again this is widely misinterpreted; this time as sanctioning competition as ‘a race to the bottom’, in which there are ultimately no winners. A more careful reading of Porter reveals that what he is actually advocating is not so much being the cheapest, or even the best in an industry, but being unique in some way that is valued by a sufficient number of customers to provide a viable, and sustainable business. Competitive strategy can thus allow a thousand flowers to bloom, rather than descending into a zero-sum game.

Porter himself parted company with Monitor in 2011 (the same year it made a public apology for having done business with the Gaddafi regime in Libya) and was winding down his relationship with the firm well before the economic downturn. Since then his interests have turned increasingly to social issues — for example healthcare reform and corporate citizenship. So he can hardly be held responsible for Monitor’s doldrums. On the other hand, it has also been suggested that the bankruptcy was actually a strategic move worthy of the master of positioning himself – smoothing the path for the firm’s acquisition (with most of its staff and client book intact) by another consultancy giant, Deloitte.

(This article is also published on Terry’s blog Marketing Talk.)

One comment

  1. Dear Mr. O’ Sullivan.

    Thank you for an interesting article and input. You state that reading Porter more carefully reveals that what he is actually advocating is not so much being the cheapest, or even the best in an industry, but being unique in some way that is valued by a sufficient number of customers to provide a viable, and sustainable business.

    I’m doing my Master thesis on Porter’s generic strategies vs. Blue Ocean Strategy and is discusssing, whether Blue Ocean Strategy can be considered an actual differentiation strategy or whether it’s actually a “whole new” way of seeing strategy.

    Therefore your discussion on the intepretation of Porters view on cost leadership is very valuable to me. Can you in anyway elaborate on this statement and explane to me, where Porter is advocating “being unique in some way that is valued by a sufficient number of customers to provide a viable, and sustainable business”?

    I’m also interested in literature suggestion on this topic, if you have any by hand. It would be very much appreciated, if you have time to reply to my comment.

    Best regards

    Malene Svendsen, Denmark

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