Competitive Strategy: Techniques for Analyzing Industries and Competitors,

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- By becoming the lowest cost producer in a given market

- By being a differentiated producer (offering something extra or special to charge a premium price)

- Or by being a focused producer (achieving dominance in a niche market)

Porter insisted that though the “generic strategies” existed, it was up to each organization to carefully select which were most appropriate to them and at which particular time. The “generic strategies” are backed by five competitive forces which are then applied to “five different kinds of industries” (fragmented, emerging, mature, declining, and global.

To examine an organization’s internal competitive ness, Porter advocates the use of a ‘value chain’ –analysis of a company’s internal processes and the interactions between different elements of the organization to determine how and where value is added. A systematic way of examining all the activities a firm performs and how they interact is essential for analyzing the sources of competitive advantage. The value chain disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors. Each of these activities can be used to gain competitive advantage on its own or together with other strategically important activities. Here, the concept of linkages (relationships between the way one value activity is performed and the cost or performance of another) becomes relevant. These linkages need not be internal – they can equally well be with suppliers and customers. Viewing every thing a company does in terms of its overall competitiveness, argues Porter, is a crucial step to becoming more competitive.

This has led to the myth of “sustainable competitive advantage”. In reality, any competitive advantage is short-lived. If a company raises its quality standards and increases profits as a result, its competitors will follow. If a company says that it is reengineering, its competitors will claim to be reengineering more successfully. Businesses are quick to copy, mimic, pretend and, even, steal. The logical and distressing conclusion is that an organization has to be continuously developing new forms of competitive advantage. It must move on all the time. If it stands still, competitive advantage will evaporate before its very eyes and competitors will pass.

The dangers of developing continuously are that it generates, and relies on, a climate of uncertainty. The company also runs the risk of fighting on too many fronts. This is often manifested in a huge number of improvement programs in various parts of the organization which give the impression of moving forward, but are often simply cosmetic.

Constantly evolving and developing strategy is labeled ‘strategic innovation”. The mistake is to assume that strategic innovation calls for radical and continual major surgery on all corporate arteries. Continuous small changes across an organization make a difference. “We did not seek to be 100 percent better at anything. We seek to be one percent better at 100 things,” says SAS’s Jan Carlzon.

Porter would suggest that his “five forces model” and SWOT allow for nonlinear analysis, but most would agree that the overlaying of a linear mental model (self-confirming theory) on top of any nonlinear analysis would render any such argument questionable.

Henry Mintzberg has famously coined the term “crafting strategy,” whereby strategy is created as deliberately, delicately, and dangerously as a potter making a pot. To Mintzberg strategy is more likely to “emerge,” through a kind of organizational osmosis, than be produced by a group of strategists sitting round a table believeing they can predict the future.

Mintzberg argues that intuition is “the soft underbelly of management” and that strategy has set out to provide uniformity and formality when none can be created.

Another fatal flaw in the conventional view of strategy is that it tended to separate the skills required to develop the strategy in the first place (analytical) from those needed to achieve its objectives in reality (practical).

Mintzberg argues the case for what he labels ‘strategic programming’. His view is that strategy has for too long been housed in ivory towers built from corporate data and analysis. It has become distant from reality, when to have any viable commercial life strategy needs to become completely immersed in reality.

In an era of constant and unpredictable change, the practical usefulness of strategy is increasingly questioned. The skeptics argue that it is all well and good to come up with a brilliantly formulated strategy, but quite another to implement it. By the time implementation begins, the business environment is liable to have changed and be in the process of changing even further.

Mintzberg’s most recent work is probably his most controversial. “ Strategy is not the consequence of planning but the opposite: its starting point,” he says countering the carefully wrought arguments of strategists, from Igor Ansoff in the 1960s to the Boston Consulting Group in the 1970s and Michael Porter in the 1980s. The Rise and Fall of Strategic Planning is a Masterly and painstaking deconstruction of central pillars of management theory.

The divide between analysis and practice is patently artificial. Strategy does not stop and start, it is a continuous process of redefinition and implementation. In his book,The Mind of the Strategist, the Japanese strategic thinker Kenichi Ohmae says: “In strategic thinking, one first seeks a clear understanding of the particular character of each element of a situation and then makes the fullest possible use of human brain power to restructure the elements in the most advantageous way. Phenomena and events in the real world do not always fit a linear model. Hence the most reliable means of dissecting a situation into its constituent parts and reassembling them in the desired pattern is not a step-by-step methodology such as systems analysis. Rather, it is that ultimate nonlinear thinking tool, the human brain. True strategic thinking thus contrasts sharply with the conventional mechanical systems approach based on linear thinking. But it also contrasts with the approach that stakes everything on intuition, reaching conclusions without any real breakdown or analysis.”

When future could be expected to follow neat linear patterns, strategy had a clear place in the order of things. Organizations are increasingly aware that, as they move forward, they are not