Commentary & Analysis
What Would Michael Porter Think?
I am naturally curious. I have always enjoyed learning and early in my career made a point of immersing myself in the work of some of the best thinkers in the business world. First, it was Peter Drucker whose writings are the foundation of what I know about management.
By Wayne Lynn
Published: May 17, 2013
I am naturally curious. I have always enjoyed learning and early in my career made a point of immersing myself in the work of some of the best thinkers in the business world. First, it was Peter Drucker whose writings are the foundation of what I know about management. Then, it was Warren Bennis who wrote the first works on leadership that peeled away the mystique and made it a workable and useful concept. In the 1980’s I came across Michael Porter. He was and still is, I think, one of the best minds in the field of business strategy. For the last 30 years or so, Porter has taught at Harvard, consulted to numerous corporations around the world, and written dozens of books and articles for various journals and magazines.
When I first encountered his work I was in my 30’s, just beginning the first of several general management assignments, and really interested in this thing called strategy. It was somewhat new in the business world. Strategy has always been a mainstream subject in military matters. As a matter of fact, one of the hottest books on strategy in the 70’s and 80’s was “A Book of Five Rings” by Miyamoto Musashi. This was written centuries ago by a Japanese swordsman and martial artist and is full of wisdom about life, conflict, competition, and strategy. The fact that this book was gobbled up by droves of executives is testament to the scarcity of published work on business strategy at the time. Porter, followed by many others, has more than filled the void since then.
Recently, I stumbled across a new book by Joan Magretta titled “Understanding Michael Porter: The Essential Guide to Competition and Strategy”. I hadn’t thought much about Mr. Porter in quite a while. His first book was “On Competition”. It was quite helpful to many who followed him. However, it was long and a tough read. It required more experience and big picture perspective than I possessed at the time. As a result I never did much with it. After reading a preview of Ms. Magretta’s work on Amazon.com I was intrigued enough to risk buying it and seeing what I could learn.
There is a lot to think about in this book. A good place to start would be to share the basic fundamentals of what Michael Porter says about strategy. I will start with a summation gleaned from the early chapters of Magretta’s work.
Business strategy is the pursuit of sustainably superior profit performance in the face of competition.
Porter contends that strategy is about creating value that creates superior profit…that can be sustained for a length of time (a decade or more)…and, all the while, doing it in a competitive environment. He goes on to say that the real point of competition is not to beat your rivals. It’s to earn profits.
It is not about “being the best”. This is what he calls a race to the bottom. In an undifferentiated industry, like most of printing, best practices are easily copied. You may gain an early lead that lasts for a period of time but the information on how to replicate your gain is available to everyone else. It is only a matter of time until the industry has raised its collective bar. Then, the impacts of the costs incurred to become and remain “better” are felt by all players and the industry, as a whole, is less profitable. Hence, his term “race to the bottom”.
It is also not about taking market share from others. Striving to be the biggest does not often lead to being the most profitable in an undifferentiated industry. This is especially true in a shrinking market. Gaining market share is usually achieved by using predatory pricing or by acquisition. Predatory pricing leads to lower overall margins. This does not meet Porter’s fundamental premise about what comprises good strategy. Growing market share by acquisition, if done carefully, does fit the fundamental premise of good strategy because the combined new company can both increase pricing power and lower its cost base relative to revenue.
Creating unique value, not beating your rivals, is at the heart of business competition. Most of us, when we think about competition, use analogies from sports. This can lead you astray in the business world for the reasons discussed in the last two paragraphs. Winning in the business world is too often associated with being the best or taking market share away from others. This is a direct corollary to the sports analogy and a dangerous approach to strategy.
Michael Porter states that strategy is the plan for how your company will create unique value and make you different. This difference is manifested in the real world when what you offer to the market:
- Is difficult for competitors to copy or replicate;
- Is difficult for customers to find another offering in the market that compares well on a head-to-head basis;
- Allows you to command a higher relative price or create a lower relative cost position; either of which or both gives you competitive advantage.
Dr. Joe Webb has written recently on marketing in the printing industry or the relative lack of it. Several have posted comments to these articles. It is no secret that we, as an industry, have displayed a conspicuous lack of understanding of this matter and its place in a successful business. You get the feeling from some sources that the reason the majority of us are faring so poorly in this turbulent time is because we are such poor marketers. I could argue that our marketing shortcomings are but a symptom of something deeper. Our real issue may be that we are weak strategists.
As I and others have said elsewhere, printing demand grew steadily across the 20th century. The reasons behind that growth had very little to do with our technology. Rising demand, over a long period of time, can make strategy almost unnecessary. The fact that there were around 56,000 printers in the United States in 1995 had very little to do with strategy; at least for the overwhelming majority of us. We weren’t very strategic because we didn’t need to be.
Now, we are long past the point where everyone understands that things have profoundly changed. Our industry has passed the peak of its lifecycle and is on the back side of the growth curve. There is less than half the number of firms remaining in business than there was in 1995. Our survival, as individual firms, is likely hinged more to clear strategic thinking than anything else. As I hope is clear to everyone, good strategy and good profitability are intricately linked in a highly competitive environment. Maybe it’s time to learn to be better strategists.
Have you thought lately about the choices you made along the way that got you to where you are today? Has your company remained true to the choices you made about what it was built to do and who it was built to serve? What about the choices you made about what the company wasnotgoing to do and who it wasnotgoing to serve? Do the reasons you made those choices still matter? The stakeholders (customers, suppliers, employees, lenders) those decisions were made for…do those choices still matter to them?
Are you still relevant as a business? Does your current profit performance reflect that relevance? Profitability comes when well-executed strategy creates value and relevance in the market. Think about that for a while.
If your answers to these questions are not resoundingly positive it may be time to start the strategy building process…either again or for the first time. We are in a chaotic, turbulent time. Print, instead of beingwhat we do, is transitioning into a tool (among others) that helps us achieve our core purpose, i.e., helping others communicate to target audiences effectively. The difference this time around is that we can play, instead of being a subcontractor in the process, as large a role as we dare choose.
By the way, this is how Michael Porter would begin to think about strategy in our business.