Michael Porter's theory of competitive advantage and strategy

¶ … Managers Set Bad Strategies? In Forbes (2006) the author analyzes the many insights from a presentation by Dr. Michael Porter during the Wharton Schools' SEI Center Distinguished Lecture Series regarding how difficult it is for companies to define their own competitive and distinctive identity, defining key metrics of performance needed to manage their businesses. Dr. Porter also discusses the challenges of attaining best practices in all areas of a business, and cogently brings up the point that one customers' best practices is irrelevant to another. The focus on actions vs. strategies, and the negotiation process for strategic direction in companies is often incomplete and often disjointed.

Statement of the problem

The divergence in approaches to manage a business using key performance indicators (KPIs) or metrics of performance, the definition of what a strategy vs. action is, and the challenge of choosing a sustainable competitive level of differentiation that delivers significant shareholder value are all areas Porter discusses during his speech at Wharton. The main problem Porter asserts is that a singular focus on shareholder value alone is the "Bermuda Triangle" of strategy. Porter (1996) in his many published works on this area including Competitive Advantage of Nations, also illustrates these key points of finding a sustainable competitive strategy that is unique enough to ensure long-term growth.

Description of procedures

While this specific article focuses on Dr. Porters' speech at Wharton, his volume of research in previous books provides a foundation for comparing the procedures he uses to draw his conclusions. Porter (1996) in Competitive Advantage of Nations, uses a procedure of mapping strategic directions for several hundred companies that had been regionally competitive, and then grew into global competitive positions in their respective industries. These procedures or methodologies are also apparent in the insights from the Forbes (2006) article.

Analysis of the data

Porter's discussion of strategies fails capture the highly specific responses needed from home base countries' multinationals to expand into other nations with cultures highly dissimilar to ones' own. In the Competitive Advantage of Nations, Porter assumes a cultural homogeneity and "likeness" and has never published research illustrating a western multinational or for that matter home base country moving into foreign nations. The research Porter completed with the Japanese Ministry of International Trade highlights the insularity and importance of trust through relationships.

The growth of westernized home base industries into China is significantly more complex than Porter theorizes through the diamond or other analytical constructs as defined in Competitive Advantage of Nations. For example, Chinese consumers prove extremely loyal to domestic products and brands, partially because so few Western items existed in the market until the 1990s.

The transformation to a free market economy did little to change the cultural mindset that customers should buy products made exclusively in China. In particular, the interior areas of the country prove most resistant to accepting Western companies and products. In these areas, socialist loyalties and heavy central planning investment dominated prior to 1976, leaving a highly nationalistic legacy. Currently, customers in these regions appear to have a greater interest in preserving the old state subsidized system and have exhibited more resistance to the economic reforms and open-door policy that started in the early 1990s. Urban, coastal regions prove more culturally liberal but still appear slow to fully accept Western products. Customers grow to accept, and even prefer, foreign offerings, but there remains a significant portion of the population that continues to resist this trend.

These dynamics of the Chinese market for example would be difficult if not impossible to capture within the context of the Porter diamond and associated constructs.

Limited and justifiable conclusions

In the context of the article reviewed, the many insights gained from revisiting the bulk of Porter's previous works shows that the avoidance of the "Bermuda Triangle" by companies is much more difficult than initially portrayed. The negotiation theory that best fits Porters' comments in this article is clearing competitive bargaining, with a strong focus on how corporations become both demand-driven by consumer needs and more aligned with their internal strengths. Analyzing both Porters' presentation and previous works lead to the conclusion that regional competition and superior insights into the dynamics of an organization lead to superior competitive bargaining positions.