The quest for competitive advantage, for winning the warfare of business is ceaseless. At stake are dominating a business segment, corporate sustainability, continued employment (yes, even for the Chairman/CEO), market valuation, the admiration of one’s peers, the chance to tap into global markets, a legacy of fame, and CEO compensation beyond the dreams of avarice.
Over a century has elapsed since the end of the Industrial Revolution and scientific management came into the scene. Commencing with the productivity experiments of Taylor, dozens of theories, “best practices” and frameworks have been proposed. In their time, much was made of “management by objectives,” the “7 Secrets” (or were there eight after all?), human relations, Japanese-style consensus-building and continuous improvement (kaizen), total quality management, “intra-pioneering”, 360-degree management, etc. One notes that some of the admittedly inventive ideas advanced were not even theories but mere paradigms. An example is a work of Tom Peters (In Search of Excellence), which touted those corporations that successfully combined high-tech and “high touch”. The paradigm was faulty because the icons of success based on excellence have since floundered, e.g. Disney.
In 1986, Harvard professor Michael Porter published his seminal “Competitive Strategy” and the science of corporate planning was born. From where one stands 22 years later, Porter’s is truly a framework that stood the test of time precisely because it sprang from the level-headed scholarship. His antecedent is “Strategy and Structure” by Alfred Chandler (1962), in turn showing the influence of Max Weber’s breakthrough work “The Theory of Social and Economic Organization” published in 1924 (Cruz, 2007).
The most compelling case Porter makes for the strength of keeping an eye on the fundamentals that really matter was the collapse of the dot-com bubble in 2001 (Newing, 2002). Recall that the seemingly boundless potential of the Internet sparked the interest of many “angel investors” and venture capitalists in a dizzying array of applications touted to become the next Microsoft, Netscape, Yahoo or Oracle. The crucial mistake, according to Porter, was to lose sight of the fundamentals and believe that such performance metrics as “eyeballs on the website,” click-through’s, affiliate links and viewing time were legitimate business goals. Instead, this strategy guru maintained, the cases of those who survived brought home the timeless lesson that winning and retaining competitive advantage is always and ever based on creating value: offer something the market wants and is willing to pay for at a price that will ensure a healthy bottom line for shareholders.
There is no better example of this than the amazing story of Google. Started as a pipedream for an efficient search engine in 1996, market capitalisation had rocketed to US$138 billion as of January 2006 (Lanchester, 2006), bigger than McDonald’s and GM combined, on the strength of constantly-improved search algorithms and a hierarchical layer of portal and indexing server farms. Larry Page and Sergey Brin, now worth at least $10 billion each, offered Internet surfers the efficiency of fast search and advertisers relevant ad link placement based on the AdWords and Adsense pay-as-you-go business models. And never mind that, until recently, Google pages had no “eye candy” whatsoever. Today, Google dominates the search-engine marketplace in America and moves aggressively to attain a dominant position in the rest of the world with search and multilingual search. The also-rans have to be content with fractional market shares: Yahoo was born as a portal even though the company has improved its search functionality markedly, AskJeeves was bought out by Google, Netscape essentially disappeared within the folds of AOL, Lycos struggles and Microsoft still has to find its bearings with MSN Search.
Competitive advantage in high technology is a moving target. The success of eBay left only local auctions (e.g. Craig’s List) open to would-be competitors. Amazon.com, on the other hand, put so much store on growth that it forsook profitability for many years (Frey and Cook, 2004).
Value management presumes, of course, a profitable market or niche. The recent thinking about “red oceans” as awash with the bloodletting of head-on competition and “blue oceans” as wide-open new markets that afford a “value leap for both buyers and sellers” (Kim and Mauborgne, 2004) really reverts to that other cornerstone of Porter’s: SWOT analysis. There is any number of new markets created in the last century: internal combustion cars, hybrid and electric automobiles, commercial aviation, petrochemicals, health care, management consulting, mutual funds, mobile telephony, biotechnology, discount stores, private express couriers, SUV’s, snowboards, and coffee bars. Finding a need that the market will pay to satisfy and positioning strongly on it are among the essentials of gaining a competitive advantage. In the market aftermarket, for example, Nokia has forged global leadership with some combination or other of the blue ocean ERRC paradigm (eliminate hurdles to ownership, reduce cost, raise the value, and create new uses). That second-ranked SONY-Ericsson has a much better return on sales is a reminder of the Porter dictum: survival and long-term competitive advantage demand superior value creation for shareholders.
Bibliography
Cruz, Elfren S. (2007) Framework. BusinessWorld, p. 1.
Frey, C. & Cook, J. (2004) How Amazon.com survived, thrived and turned a profit. [Internet] Seattle Post-Intelligencer. Web.
Kim, W. C. & Mauborgne R. (2004) Blue ocean strategy: How to create uncontested market space and make the competition irrelevant. Harvard Business School Press.
Lanchester, J. (2006) The global id. [Internet] London Review of Books. Web.
Newing, Rod (2002) Crucial importance of clear business goals: interview with Michael Porter of Harvard Business School. While the internet brings new ways of trading, it does not change the old and proven laws of business, says the professor. Financial Times.