Business concepts and applications

¶ … 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.

Flaws in the procedural design

Starting with the concept of the home base nation and its critical measure of competitiveness being productivity, Porter oversimplifies and obfuscates the true measure of a nation's competitiveness by creating just a single dimension on which a nation evaluates its competitiveness. As many critics have pointed out, a multinational corporation with operating subsidiaries and reach into literally over 100 nations like General Electric drives up productivity in subsidiary nations, like Singapore for example yet does not necessarily translate this into a higher standard of living for Americans. This dichotomy that others point out show that home base productivity is irrelevant to global strength. It is actually the ability of multinational corporations, through a mix of the Porter diamond attributes in addition to tight integration with local, state, and federal or in the case of other nations, their ministries of trade that encompass an entire nations' trade policies that matter most.

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.