10 Strategic Insights from Michael Porter
Guru Michael Porter, one of today’s leading experts on business strategy, recently was interviewed by Joan Magretta who has written a book on Harvard Business School’s Prof. Michael Porter. The book is entitled: UNDERSTANDING MICHAEL PORTER: THE ESSENTIAL GUIDE TO COMPETITION AND STRATEGY.
The following came out of the interview resulting in article entitled The Most Common Strategy Mistakes. The article ran in the December 21, 2011 issue of HBS Working Knowledge (a free weekly electronic newsletter hbswk.hbs.edu/.) Some of Prof. Porter’s thinking is highly unconventional. Here are 10 of his insights :
- The Grandaddy of all mistakes is competing to be the best, going down the same path as everybody else and thinking that somehow you can achieve better results. “This is a hard race to win,” says Porter. “So many managers confuse operational effectiveness with strategy.”
- Confusing marketing with strategy. “It’s natural for strategy to arise from focus on customers and their needs,” says Porter. “So in many companies, strategy is built around the value proposition, which is the demand side of the equation. But a robust strategy demands a tailored value chain — it’s about the supply side as well.”
- Overestimating strengths. “There is an inward-looking bias in many organizations,” he says. You might perceive customer service as a strong area so that becomes a ‘strength’ on which you attempt to build a strategy. But a real strength for strategy purposes is something the company can do better than any of its rivals.”
- Getting the definition of the business wrong or getting the geographic scope wrong. Here he cites the late Theodore Levitt who illustrated how the railroads failed to see they were in the transportation business so they missed the threat posed by trucks and air freight. In the geographic area, he adds “There has been a tendency to define industries as global when they are national or encompass only groups of neighboring countries.
- The Worst Mistake: Not Having a Strategy at all. “Most executives think they have a strategy when they really don’t, at least not a strategy that meets any kind of rigorous, economically grounded definition,” he says.
- Not addressing the hidden biases embedded in internal systems, organizational structures and decision-making processes. “It’s often hard to get the kind of cost information you need to think strategically,” he says. “Or the company’s incentive system rewards the wrong things.
- Companies undermine their own strategies. “Nobody does it to them, They do it to themselves and their strategies fail from within,” says Porter,
- Strategy killers in the external environment. “These range from so-called industry experts to regulators and financial analysts,” he says. “These all tend to push companies toward what I call ‘competition to be the best.’“ Porter believes companies should differentiate themselves and not strive to be like everybody else.
- If you listen to every customer and do what they want you to do, you can’t have a strategy. “When you have your strategic hat on,” he says, “you want to decide which customers and which needs you want to meet. As to the other customers and the other needs, well you just have to get over the fact that you will disappoint them, but that is actually a good thing.” Porter intimates that you can’t be all things to all people.
- Single-minded pursuit of shareholder value, measured over the short term, has been enormously destructive for strategy and value creation. “Managers are chasing the wrong goals,” he says. “Having a strategy in the first place is hard. Maintaining it is even harder.” Clearly, Porter believes developing and effective strategy is a long-term and not a short-term process.