On Competition (Harvard Business Review) [Englisch] [Gebundene Ausgabe]

This is a big ol' book - not just by volume, but by scope - and somewhere between Parts I (on developing strategy at the individual business level) and II (on the competitiveness of locations) it dawned on me that On Competition bears similarities to On Liberty, On Democracy in America, and On Human Nature*.

Like those classic tomes, this, too, cuts across disciplinary lines, tackles big subjects, and offers powerful insights into a wide variety of social problems.

Mr. Porter's been called "the world's most important business thinker" but, as I kept learning while reading Parts III and IV, his work touches on more than just business. His own big subjects are value creation and competition; the frameworks he's developed over the years have practical implications for organizations of all kinds. (think of government and non-government organizations)

You don't need to be a social scientist to understand the work. You *do* need to have a taste for academic-style writing and argument - and it'll no doubt help if you enjoy diagrams, activity maps, data tables, matrices, and other sorts of inserts. You should also have more than a passing interest in the interplay between business and society. If that's 'you', you'll find the articles in On Competition richly rewarding.

Maybe now more than ever. I think the book's most important message is that competition has the "staggering power to make things better - both for companies and for society." What better time than the midst of an economic crisis to learn that?

*by John Stuart Mill, Alexis de Tocqueville, and E.O. Wilson, respectively

"On Competition" (2008) is an updated version of Porter's 1998 earlier work by the same title. It begins with an excellent updated version of his 1979 Harvard Business Review "The Five Forces that Shape Strategy" article (covered in a separate review), continuing to explain why many firms evolve away from their original competitive strategies, and separate chapters on diversification's track record, the competitive advantage of nations, problems within American health care (covered in another review), industry clustering, IT's role in competition, and likely surprises for new CEOs. While there is considerable worthwhile material within this new edition, it is also hampered by considerable dated material - the chapter on IT is 25 years old and that on the Internet was written in 2001; meanwhile, the material on clustering (2000) omits analysis of China, and that on the competitive advantage of nations is oblivious to the contributions made by the PRC's industrial policies.

Following his "The Five Forces that Shape Strategy" chapter, Porter continues by pointing out that many firms lose their way over time, adding product lines, product extensions, even new new businesses that make it difficult to understand what is underlying strategy is. Reconnecting can be helped by answering questions such as Which of our offerings is the most profitable, distinctive? and Which our customers are most profitable? A company's history can also be instructive - What was the founder's vision?, What were the products and customers that made the company.

Losing sight of strategy often occurs through becoming caught up in the race of operational excellence, and managers mistaking 'customer focus' to mean they must serve all customer needs or respond to every request from distributors. However, the desire to grow has the most perverse effect on strategy. Extending product lines, adding new features, making acquisitions all broaden the position. Porter points out that Maytag, for example, expanded into refrigerators and stoves and acquired other brands with disparte positions (Jenn-Air, Admiral, Magic Chef). Maytag sales grew to about 5X from '85 levels by '94, but its return on sales dropped from 8-12% to less than 1% before being was acquired by Whirlpool. (Porter notes that Maytag was faced with homogenization through shared design, distribution and/or customer service, or for-going any advantage of its acquisitions.) Similarly, Neutrogena expanded into products such as eye-makeup remover, shampoo) where it was not unique, and ended up diluting its image.

Porter conducted an extensive longitudinal analysis of large firms and their acquisitions, concluding that they mostly destroyed shareholder value. The most obvious instances involved acquisitions in weak industries with low records of return on investment. An even more obvious strategy doomed to fail - paying a premium. Reasons for making acquisitions include obtaining a market premium for stabilizing earnings (if accomplished), taking advantage of restructuring opportunities (a 1-time benefit), transferring expertise (G.M.'s rationale for buying Hughes Aircraft and its electronic skills), or sharing activities (eg. distribution). It would have been particularly interesting to learn Porter's thoughts on recent auto acquisitions (Mercedes-Benz of Chrysler, Ford of Jaguar and Volvo, G.M. of Hummer, Saab), but this section preceding those happenings.

A likely surprise for new CEOs is learning that they cannot run the firm's day-to-day operations. Symptoms include becoming buried in meetings, becoming a bottleneck, people using the CEO's name to validate positions (eg. "Chuck thinks . . ."), staff overly trying to please the CEO.

I read Porter's major books: Competitive Strategy: Techniques for Analyzing Industries and Competitors, Competitive Advantage: Creating and Sustaining Superior Performance and Competitive Advantage of Nations when they were first published. When I saw this was available, I had to read it to see how he had updated the material and if his perspective was as compelling today as it was almost 30 yeas ago.

The updates, while not qualifying as a total re-write, definitely freshened and extended the material in important ways. Chapters 7 (Clusters and Competition: New Agendas for Companies, Government, and Institutions) and 8 (Competing Across Locations: Enhancing Competitive Advantage Through a Global Strategy) were especially good in their explication of the implications of clusters and their impact on competitive advantage.

The material in Parts III (Competitive Solutions to Social Problems) and IV (Strategy, Philanthropy, and Corporate Social Responsibility) was new to me and I found it to be extremely worthwhile. These chapters reflect what I think of as essential Porter, which is applying his deep understanding of competition rooted in economics to complex problems and coming up with innovative solutions.

In summary, whether you have read Michael Porter's earlier books or not, you should read this book. Michael Porter's writing is, to use Deming's term, "profound knowledge" on competition that everyone should be familiar with.