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An organization’s raison d’être, mission, or higher purpose is certainly not transitory. Indeed, its ultimate goal is the perhaps intangible yet fundamental reasons for its very existence.
Still, to carry out a mission, a business organization must have strategy. Does this have to involve a five-year plan and solid components that translate as competitive advantage, as Porter claims? Well, that is a reassuring idea, but it is unrealistic to assume any competitive advantage will last indefinitely. Things change so very quickly that any competitive advantage is, at best, transient. And dealing with sources of competitive advantage that change as often as the tide calls for two skills that cannot be found among Porter’s five forces. First, the ability to execute a project-based strategy (rather than a traditional long-term plan), and second, the ability to build strategy around innovation, because innovation is not a mere luxury!
Agility is not just important for organizational matters. It is a key component of effective strategic thinking.
Competitive markets have been described according to a single model for over 30 years.
True
False
Right !
True. In 1979, Michael Porter’s acclaimed “How Competitive Forces Shape Strategy”* and his five forces framework became the reference for strategic market analysis. Porter’s model offers a means to determine the market attractiveness or competitiveness of industrial goods or services by assessing the following five forces.
1. Bargaining power of customers
2. Bargaining power of suppliers
3. Threat of alternate products or services
4. Threat of new entrants
5. Rivalry from competitors
The arrangement, ranking, and dynamics of these forces make it possible to identify key success factors, meaning the strategic factors you should focus on to prevent the five forces from taking profits for your organization. If your company can control these key success factors, it can gain competitive advantage. By definition, Porter’s five forces framework refers to a competitive market and not a specific firm.
* Harvard Business Review, March/April 1979.
Source: Competitive Advantage (Simon & Schuster, 1998) and Competitive Strategy (Simon & Schuster, 2004).
1. Bargaining power of customers
2. Bargaining power of suppliers
3. Threat of alternate products or services
4. Threat of new entrants
5. Rivalry from competitors
The arrangement, ranking, and dynamics of these forces make it possible to identify key success factors, meaning the strategic factors you should focus on to prevent the five forces from taking profits for your organization. If your company can control these key success factors, it can gain competitive advantage. By definition, Porter’s five forces framework refers to a competitive market and not a specific firm.
* Harvard Business Review, March/April 1979.
Source: Competitive Advantage (Simon & Schuster, 1998) and Competitive Strategy (Simon & Schuster, 2004).
Wrong !
True. In 1979, Michael Porter’s acclaimed “How Competitive Forces Shape Strategy”* and his five forces framework became the reference for strategic market analysis. Porter’s model offers a means to determine the market attractiveness or competitiveness of industrial goods or services by assessing the following five forces.
1. Bargaining power of customers
2. Bargaining power of suppliers
3. Threat of alternate products or services
4. Threat of new entrants
5. Rivalry from competitors
The arrangement, ranking, and dynamics of these forces make it possible to identify key success factors, meaning the strategic factors you should focus on to prevent the five forces from taking profits for your organization. If your company can control these key success factors, it can gain competitive advantage. By definition, Porter’s five forces framework refers to a competitive market and not a specific firm.
* Harvard Business Review, March/April 1979.
Source: Competitive Advantage (Simon & Schuster, 1998) and Competitive Strategy (Simon & Schuster, 2004).
1. Bargaining power of customers
2. Bargaining power of suppliers
3. Threat of alternate products or services
4. Threat of new entrants
5. Rivalry from competitors
The arrangement, ranking, and dynamics of these forces make it possible to identify key success factors, meaning the strategic factors you should focus on to prevent the five forces from taking profits for your organization. If your company can control these key success factors, it can gain competitive advantage. By definition, Porter’s five forces framework refers to a competitive market and not a specific firm.
* Harvard Business Review, March/April 1979.
Source: Competitive Advantage (Simon & Schuster, 1998) and Competitive Strategy (Simon & Schuster, 2004).
Porter’s framework is the most effective tool available for competitive analysis.
True
False
Right !
In fact, like any other model that claims to be THE model, Porter’s framework has been subject to criticism. It focuses on confrontation among rival forces, leaving little room for collaboration-based strategies, and it points to threats without indicating that they may also bring new opportunities. Moreover, in Porter’s system, strategy is to be adapted to the existing market (red ocean), a perspective that excludes other potentially successful approaches to business, like innovation, which has high strategic potential (blue ocean). In short, while Porter’s framework deserves recognition for having laid out principles for competitive analysis, it is far from perfect. In particular, it does not account for resource- and skill-oriented strategies that offer endogenous routes to business success. Yet competitive advantage is indeed increasingly found elsewhere than in rivalry and confrontation.
Wrong !
In fact, like any other model that claims to be THE model, Porter’s framework has been subject to criticism. It focuses on confrontation among rival forces, leaving little room for collaboration-based strategies, and it points to threats without indicating that they may also bring new opportunities. Moreover, in Porter’s system, strategy is to be adapted to the existing market (red ocean), a perspective that excludes other potentially successful approaches to business, like innovation, which has high strategic potential (blue ocean). In short, while Porter’s framework deserves recognition for having laid out principles for competitive analysis, it is far from perfect. In particular, it does not account for resource- and skill-oriented strategies that offer endogenous routes to business success. Yet competitive advantage is indeed increasingly found elsewhere than in rivalry and confrontation.
Porter’s model is largely inspired by Sun Tzu’s The Art of War.
True
False
Right !
Chinese general Sun Tzu (5th century, B.C.E.) wrote the oldest known book on military strategy, The Art of War. His main idea is that the objective of war should be to force the enemy to abandon the fight, even without engaging in any combat, through trickery, spying, and mobility. You must therefore adapt to your adversary’s strategy to ensure victory at the lowest possible cost. Concepts from The Art of War have long been borrowed and adapted by strategy experts and by business specialists in particular, and Porter was clearly among those so inspired. The original five forces framework, essentially a business and economics model, disregards the social impact of strategic choices. Hence Porter’s position on shared value creation and the addition of five elements to the five forces: high purpose, ground, climate, command, and method. Yet the question remains, does the sum of the five forces (individually-driven) and the five elements (nature-driven) lead to better business strategy?
Wrong !
Chinese general Sun Tzu (5th century, B.C.E.) wrote the oldest known book on military strategy, The Art of War. His main idea is that the objective of war should be to force the enemy to abandon the fight, even without engaging in any combat, through trickery, spying, and mobility. You must therefore adapt to your adversary’s strategy to ensure victory at the lowest possible cost. Concepts from The Art of War have long been borrowed and adapted by strategy experts and by business specialists in particular, and Porter was clearly among those so inspired. The original five forces framework, essentially a business and economics model, disregards the social impact of strategic choices. Hence Porter’s position on shared value creation and the addition of five elements to the five forces: high purpose, ground, climate, command, and method. Yet the question remains, does the sum of the five forces (individually-driven) and the five elements (nature-driven) lead to better business strategy?
Porter’s framework is no longer effective for determining sustainable competitive advantage.
True
False
Right !
In theory, Porter’s model is an effective tool for establishing whether a firm has a competitive advantage, or whether it is hindered by unreliable customers, overly demanding suppliers, blood-thirsty competitors, and cheaper substitute products. In practice, this implies successfully identifying and ranking the five forces and then coming up with strategies to overcome the challenges they present (these are the key success factors) in order to build the most decisive, lasting, and defendable competitive advantage possible. That is the theory that strategic thinking has been based on since 1979. But that was then. Nowadays, the question has become whether there is still such a thing as lasting competitive advantage?
Wrong !
In theory, Porter’s model is an effective tool for establishing whether a firm has a competitive advantage, or whether it is hindered by unreliable customers, overly demanding suppliers, blood-thirsty competitors, and cheaper substitute products. In practice, this implies successfully identifying and ranking the five forces and then coming up with strategies to overcome the challenges they present (these are the key success factors) in order to build the most decisive, lasting, and defendable competitive advantage possible. That is the theory that strategic thinking has been based on since 1979. But that was then. Nowadays, the question has become whether there is still such a thing as lasting competitive advantage?
The idea of lasting competitive advantage is unrealistic.
True
False
Right !
Indeed! No model or method can be expected to ensure the success of your strategy or longevity of competitive advantage. It would be a serious strategic error to believe that any competitive advantage will last indefinitely and to consequently focus on consolidating a current position to ward off competition. Instead, tell yourself that there is no longer any such thing as lasting competitive advantage. Even the most successful business endeavors may fizzle within months. The main reasons are pressure from emerging countries, new technological developments, and diversification strategies that are as forceful as they are unexpected (such as Wal-Mart’s opening of medical centers). Porter’s idea of competitive ground is expanding as we speak, with no boundaries insight. You cannot know where the next surprise will come from.
Wrong !
Indeed! No model or method can be expected to ensure the success of your strategy or longevity of competitive advantage. It would be a serious strategic error to believe that any competitive advantage will last indefinitely and to consequently focus on consolidating a current position to ward off competition. Instead, tell yourself that there is no longer any such thing as lasting competitive advantage. Even the most successful business endeavors may fizzle within months. The main reasons are pressure from emerging countries, new technological developments, and diversification strategies that are as forceful as they are unexpected (such as Wal-Mart’s opening of medical centers). Porter’s idea of competitive ground is expanding as we speak, with no boundaries insight. You cannot know where the next surprise will come from.
Competitive advantage no longer exists.
True
False
Right !
No, competitive advantage is not a thing of the past, but its life-span has become limited. According to Rita McGrath, it has become “transient”, so we must learn to repeatedly and deftly shift from one type of short-term competitive advantage to another. In other words, periods during which you feel you are enjoying a competitive advantage are simply the calm between two storms. You must therefore fight against the (natural) tendency to seek stability, which is actually a source of power struggles, inertia, and inattentiveness. Instead, think of potential competitive advantage as a series of waves and repeating phases: product or service launches, product building & strengthening, the peak of premium exploitation, then product redesign, and finally closure before moving on to a new cycle. This is highly reminiscent of a project life-cycle, and McGrath recommends not only thinking and operating in project mode, but also building strategy around (and not alongside) innovation.
Wrong !
No, competitive advantage is not a thing of the past, but its life-span has become limited. According to Rita McGrath, it has become “transient”, so we must learn to repeatedly and deftly shift from one type of short-term competitive advantage to another. In other words, periods during which you feel you are enjoying a competitive advantage are simply the calm between two storms. You must therefore fight against the (natural) tendency to seek stability, which is actually a source of power struggles, inertia, and inattentiveness. Instead, think of potential competitive advantage as a series of waves and repeating phases: product or service launches, product building & strengthening, the peak of premium exploitation, then product redesign, and finally closure before moving on to a new cycle. This is highly reminiscent of a project life-cycle, and McGrath recommends not only thinking and operating in project mode, but also building strategy around (and not alongside) innovation.
A skillfully, carefully developed offer is a means to protect yourself from the competition.
True
False
Right !
No it is not, and a “superiority complex” is one of the five complexes that prevent people from seeing openings in the competitive yet increasingly permeable market. While it is tempting to continue to behave according to reflexes and organizational schemes developed during the age of lasting advantage, you should be aware of four other complexes or mindsets liable to compromise your competitiveness.
1. The inventor prerogative. This is when you consider that successfully pioneering in a domain should forever ensure market leadership.
2. One-upmanship mentality. Do you feel you must constantly improve product or service quality (and price) even though customers would actually prefer simpler, cheaper options?
3. Visions of an empire. This is when you direct all resources toward a single project or goal, thus sacrificing other promising initiatives.
4. Spinelessness. This refers to the temptation to give up when an opportunity seems too tough to seize.
1. The inventor prerogative. This is when you consider that successfully pioneering in a domain should forever ensure market leadership.
2. One-upmanship mentality. Do you feel you must constantly improve product or service quality (and price) even though customers would actually prefer simpler, cheaper options?
3. Visions of an empire. This is when you direct all resources toward a single project or goal, thus sacrificing other promising initiatives.
4. Spinelessness. This refers to the temptation to give up when an opportunity seems too tough to seize.
Wrong !
No it is not, and a “superiority complex” is one of the five complexes that prevent people from seeing openings in the competitive yet increasingly permeable market. While it is tempting to continue to behave according to reflexes and organizational schemes developed during the age of lasting advantage, you should be aware of four other complexes or mindsets liable to compromise your competitiveness.
1. The inventor prerogative. This is when you consider that successfully pioneering in a domain should forever ensure market leadership.
2. One-upmanship mentality. Do you feel you must constantly improve product or service quality (and price) even though customers would actually prefer simpler, cheaper options?
3. Visions of an empire. This is when you direct all resources toward a single project or goal, thus sacrificing other promising initiatives.
4. Spinelessness. This refers to the temptation to give up when an opportunity seems too tough to seize.
1. The inventor prerogative. This is when you consider that successfully pioneering in a domain should forever ensure market leadership.
2. One-upmanship mentality. Do you feel you must constantly improve product or service quality (and price) even though customers would actually prefer simpler, cheaper options?
3. Visions of an empire. This is when you direct all resources toward a single project or goal, thus sacrificing other promising initiatives.
4. Spinelessness. This refers to the temptation to give up when an opportunity seems too tough to seize.
Lasting growth depends on transient competitive advantage.
True
False
Right !
Thrue, today more than ever. What does the current market really demand? That you stay on your toes, ready to offer the organizational reactiveness necessary for sustainable development in transitory times. Building the required agility means investing in both management and workforce training, reviewing resource attribution several times a year, keeping in mind that resources are means (to execute strategy), not ends or symbols of power, and optimizing decision-making processes (it’s better to be basically right, right away, rather than perfectly right, too late!).
Building strategy around innovation and making project mode the standard for business operations creates agility…and discomfort. Especially for people who never expected to be a part of ceaselessly changing processes. You must therefore beware of potentially destructive stress and burnout — developing agility also requires keeping an eye out for dangers like organizational chaos and personal overload.
Building strategy around innovation and making project mode the standard for business operations creates agility…and discomfort. Especially for people who never expected to be a part of ceaselessly changing processes. You must therefore beware of potentially destructive stress and burnout — developing agility also requires keeping an eye out for dangers like organizational chaos and personal overload.
Wrong !
Thrue, today more than ever. What does the current market really demand? That you stay on your toes, ready to offer the organizational reactiveness necessary for sustainable development in transitory times. Building the required agility means investing in both management and workforce training, reviewing resource attribution several times a year, keeping in mind that resources are means (to execute strategy), not ends or symbols of power, and optimizing decision-making processes (it’s better to be basically right, right away, rather than perfectly right, too late!).
Building strategy around innovation and making project mode the standard for business operations creates agility…and discomfort. Especially for people who never expected to be a part of ceaselessly changing processes. You must therefore beware of potentially destructive stress and burnout — developing agility also requires keeping an eye out for dangers like organizational chaos and personal overload.
Building strategy around innovation and making project mode the standard for business operations creates agility…and discomfort. Especially for people who never expected to be a part of ceaselessly changing processes. You must therefore beware of potentially destructive stress and burnout — developing agility also requires keeping an eye out for dangers like organizational chaos and personal overload.
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