“CRITICALLY ASSESS PORTER’S CONTRIBUTION TO STRATEGIC THINKING”
Henry Mintzberg, Abraham Maslow and Michael Porter are renowned gurus whose hard works have left a footprint on management. Some of their works has helped in explaining the success and failure of big businesses over the past few decades and question marks have been raised in recent years if their work can still be applied to our present environment considering the rapid rise in globalisation and technological innovations. Few of the works done by these management experts have been on significant topics such as leadership, strategy and motivation, but this essay will focus on the effort of Porter in elucidating how businesses can gain competitive advantage in our growing competitive environment. The essay aims to assess Porter’s contribution to the way in which people in an organization think about, assess, view, and create the future for themselves and their associates.
However, given the space available the essay will only take a detailed look at the most criticised work of Porter and only few of his other works will be described. This essay will be based on previous researches by academics and strategists, and all information should not be judged as accurate but as a springboard since they are mostly based on historical theories.
In order to get a grip of the essay; it is necessary to highlight the key words related to the topic of the essay as any precise delusion can de delusive. To start with, Wit and Meyer (2002) defined strategy in terms of organisational objective as a course of action for achieving an organization’s purpose. For Kay (1996), strategy is the match between the organisation’s internal capabilities and its external relationships, describing ‘how it responds to its suppliers, its customers, its competitors, and the social and economic within which it operates’ (cited in Boddy, 2002 page 165). Both definitions are acceptable but assessing various strategies is the theme of the essay that is why a well defined structure of the essay is required.
The first part will introduce Porter’s works, the major assumptions of five forces analysis and Resource Based View. The second part will detail the fundamental differences between Porter’s work and recent works such as RBV before highlighting key areas of debate principally those presented by D’Aveni, Hamel and Downes. The third part will give a brief evaluation on how Porter’s work has developed our understanding of Strategy which will help develop a conclusion to the essay.
From the eighties, Porter has developed a number of models for businesses on how to gain competitive advantage. Porter developed models such as three generic strategies, five forces analysis, Porter’s diamond and value chain. In his three generic strategies model, Porter (1980b, 1985) identified two basic types of competitive advantage namely low cost or differentiation (cited in Wit & Meyer, 2002 page 350). He developed a third generic strategy from this called focus and proposed that an organization that hopes to achieve a sustainable competitive advantage must implement one of the three strategies. This is not the first and the very last of Porter’s works and another model he developed was value chain analysis (1985) where Porter argued that it is necessary to examine activities separately in order to identify sources of competitive advantage (Boddy 2002, page 166-167). The value chain provides a way to identify a firm’s sources of differentiation where it results from actual uniqueness in creating buyer value and from the ability to signal that value so that buyers perceive it (Toby Harfield, Strategic Management and Michael Porter: a postmodern reading). However, it is five forces analysis that has attracted the most number of criticisms. The model, developed by Michael E. Porter in his book “Competitive Strategy: Techniques for Analyzing Industries and Competitors” in 1980 (www3) pointed out that the state of competition in an industry is determined not only by the existence of competitors but also by the strength of buyers (customers) and suppliers, by the existence of substitute products or services and by the ability of new competitors to enter the industry which he collectively referred to Porter’s five forces. However, he argued that whatever the collective strength, the corporate strategist’s goal is to find a position in the industry where his or her company can best defend itself against these forces or can influence them in his favour (Mintzberg et al, pg 61). Thorelli 1977; Masson & Quall 1976 explained that forces mentioned above determine the conduct of firms, which in turn determines firm performance (Toby Harfield, Strategic Management and Michael Porter: a postmodern reading). Although the five forces analysis has become an important device for analyzing strategy the vast number of criticisms received consequently led to the development of a different approach called the Resource Based View (RBV). RBV, which has received the highest number of plaudit since the evolution of Porter’s work was first spotted in Wernerfelt’s article in 1984 before further development by Rumelt 1984, Barney (1986a; 1986b; 1988; 1991) (power point). RBV explains how a company’s resources drive its performance in a dynamic competitive environment (David J. Collis et al, 1995, pg 118-128). The idea behind the development of RBV is to state the importance of resources to gaining competitive advantage over rivals where resources are heterogeneous in nature. In clarifying the prerequisite of resources Barney (1991) explained that a firm resource must be valuable, rare, and imperfectly imitable and substitutable in order to be source of a sustained competitive advantage (cited in Henderson and Mitchell, 1997).
