Soothsayer of strategy: The guru of
management gurus talks exclusively to Neil Bennett about strategy and its
relentless overuse in business
Michael Porter is a guru. In the
overcrowded parking lot of management gurus he is the flaming red one with a
turbo charged, 32 valve, three-litre engine, a GURU1 number plate and a CD
changer in the boot.
Porter's book Competitive Strategy,
published 20 years ago, has become a management touchstone. Now in its 53rd
edition and translated into 17 languages it has been the handbook for countless
sweaty palmed decisions in tens of thousands of head offices around the world.
Every aspiring executive or wannabe management consultant has been drilled in
the details of Porter's Five Forces. Porter, a professor at Harvard
Business School, has not only taught generations of ambitious executives how to
run business better, but his CV reads more like Henry Kissinger's diary than the
life of an average academic. He has been an adviser to a pantheon of blue chip
corporations, including AT&T, Procter & Gamble and Shell and a
succession of national governments such as New Zealand and Portugal as
well as the US Congress.
Last week Porter visited London to
deliver the prestigious Stockton Lecture at the London Business School in front
of an invited audience. The title of the speech was "Is capitalism good for
social progress?" and you do not need to be told that his answer was yes. There
is no room for neo-socialism or the Third Way in Porternomics and he is an
ardent advocate of globalisation.
Before the speech he had some time
available for an interview and it was with some trepidation that I sat down with
the Von Clausewitz of the boardroom.
Porter is clearly delighted that
Competitive Strategy is still such a best seller, despite its many rivals and
imitators. Competition, after all, is not confined to the business world. "It's
amazing how robust the basic framework has proved to be over the years. There
have been many fads but I tried to get deep under the skin of the structure of
competition. There has always been active competition in the marketplace of
ideas, so I have been interested to see other theories rise and fall."
More than anyone else, Porter is
responsible for the relentless overuse of the word "strategy" in business
circles. Today every struggling chief executive tries to justify his desperate
decisions as being part of a strategy. Everything from mass redundancies to
stationery supplies are now considered strategic planning in an effort to
justify them or give them an air of grandeur. Porter is irritated by this
abuse of language and his ideas.
His next book intends to focus on just what
a strategy really is, and will be bad news for the vast majority of companies
and executives when they discover that, in his terms at least, they don't even
have a strategy.
"The word strategy is used promiscuously.
The truth is that in any industry very few companies have a strategy. The rest
are just imitators, following the pack. I want to distinguish between strategy
and best practice - reducing costs, improving products - which is often mistaken
for strategy.
"The default behaviour for any company is
best practice improvement, that is human nature. Developing a strategy requires
difficult choices and trade offs - all these things are uncomfortable. But you
look at companies like Southwest Airlines - these are companies that stand for
something."
In this new work, which should be
published next year and will be called What is strategy?, Porter is
already talking about introducing a new five-point plan. To complement
his original five forces, he has come up with five characteristics
that need to be visible in a business's strategy.
He says a company has to be able to
demonstrate that it is trying to deliver distinctive values that are different
from its competitors; it has to carry out a set of activities to deliver the
product in a different way to competitors; a strategy should involvetrade offs,
where a company has to sacrifice some of its subsidiaries or opportunities to
focus on its strategy; the fourth characteristic is fit - all the company's
activities have to be consistent; and the final element is continuity - there is
no point in having one strategy in 2000 if you have a different one in 2001.
In this way Porter is once again
creating the acid testthat businesses in Europe and America will be measured
against for years to come. But hasn't he ever wanted to put all that academic
theory into practice and run his own corporation? No-one ever doubts that he can
talk the talk, but can he walk the walk?
"I do think about it from time to time, but
I'm closely involved in so many companies already, on their boards or working as
an adviser. By working with only one company I could only follow through one
strategy.
"I have created three organisations so far
and I feel I have come pretty close to running companies but . . . there is
always the temptation." It is more likely that one day Porter may be
called on to run a powerful US or international organisation.
But how can Porter reconcile his
clear thinking and neat diagrams with the chaotic reality of the business world?
An environment where ego and expediency so often triumph over good planning and
common sense. Porter admits there is no hard evidence that properly
trained chief executives and strategic planners create better businesses. "But
on the basis of loads of personal evidence from hundreds of companies over the
years, there are a tremendous number of managers who find that having a
structure to look at competition has been enormously beneficial.
"There are many elements that make a good
CEO and strategic analysis is not 100 per cent of it. But the best CEOs are able
to give a clear purpose to their organisations. You find they endlessly repeat
their strategy to their employees." Which makes them easy to understand, if not
exactly entertaining dinner guests.
In any case, Porter's thinking and
theories stretch far beyond corporate success as many of his other books show.
Can Japan Compete? published earlier this year shows how keen he is to transfer
his thinking about corporate competition into the geopolitical environment.
Last week's speech was a classic example.
Porter is immensely optimistic about the impact of capitalism and the
free market on the developing world. "I hope that we have within our grasp the
end of poverty within our lifetimes," he says, sweepingly but sincerely.
"I feel that this globalisation phenomenon
together with the easy flow of capital around the world and the ability to move
technology might actually produce progress in the developing world. Now we have
something that is bigger than the corrupt despot."
Porter sees multinationals and
globalisation as immense forces for good throughout the world. "I believe that
the globalisation phenomenon has led to some great hardships in the world. But I
believe that most of that has been caused by the need for governments to undergo
draconian change to comply with the demands of the international financial
establishment.
"The problem was that we had countries that
were stuck in a rut for decades with no hope of making economic progress.
Unfortunately the people that often suffer the worst are the poor.
"Having said that, the multinational
corporations are almost always forces for improvement in developing countries.
They pay higher wages, they offer better working conditions and they are less
environmentally damaging.
"Ironically the protesters are confusing
the process of government and national restructuring with the impact of the
multi-nationals."
Porter believes that the pressure of
globalisation means that local governments no longer have the freedom to
mismanage their countries. "Globalisation provides independent accountability
for national governments. They have to have their finances in order and they
cannot squander their resources on stupid projects."
I make one last attempt to find a flaw, any
flaw, in Porter's relentless logic. So why is it then that even
successful corporations always seem doomed to eventual failure, even if they
have magnificent strategies? "Ah, I examine that in my new work. I argue
that many companies undermine their own strategies, a lot of the problem is
internal. Once you are successful you want to grow, it's natural. But the very
act of growing can undermine a successful strategy. Then of course there can be
structural changes in the environment that undermine a strategy."
Then it's time for Porter to meet
John Quelch, a friend who happens to run the London Business School. I leave,
just feeling relieved that it had been me, not Porter, who had been
asking the questions.
{PS}Features:
{ES}
Sunday Comment:
Neil Bennett
09/24/2000
The
Sunday Telegraph
34
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