A few years ago, an audience worthy of a rock concert turned up at Sydney's Convention and Exhibition Centre to listen with rapt
attention to the famous Harvard Business School academic Michael
Porter talk about competitive strategy. And talk he did - for an
entire day and virtually without interruption.
It was an impressive performance from a man of undoubted intellectual cred.
For many, Porter's name was long synonymous with the kind of tactics
and planning that spelt commercial success. His books (Competitive
Strategy: Techniques for Analyzing Industries and Competitors is in
its 63rd printing and has been translated into 19 languages; 1985's
Competitive Advantage: Creating and Sustaining Superior Performance is
in its 38th printing) are best-sellers. His seminars sell out around
Over time, the need for a competitive strategy a la Porter or his
peers Gary Hamel and Jim Collins became such a deeply embedded concept
that its connection to success was considered axiomatic.
Strategic analysis and planning were central components in any
management course, and although strict adherence to Porter's model
waxed and waned, the principles and approach outlasted those of many
management gurus. Porter has even been described as a "fireproof guru"
(in Business: the Ultimate Resource), largely dodging criticism and
lauded for his rigorous intellectual approach.
But the paint is peeling on the corporate strategy bandwagon, which
came to prominence in an era when many businesses were vertically
integrated, top-down organisations and change was not a daily
The latest critics claim strategists have hijacked the way companies
are run, forcing them down the wrong track, particularly as the
financial crisis worsens. The era of devising intricate five-year or
even one-year plans is clearly over, they say. And there's
exasperation with the use of case studies of winning businesses,
exploiting the idea that experience can be distilled into a formula
for future success. The competitive landscape, too, has been radically
altered by technology and old rivals could now be collaborators in a
Nonetheless, businesses clearly need goals and tactics. But too many
overemphasise strategy, which takes time, resources and focus away
from the less glamorous and gritty details of implementation,
undermining adaptation to shifting conditions, says Stanford professor
of organisational behaviour, Jeffrey Pfeffer.
It's not that companies can get by without a strategy, he says, but
too much time, effort and attention is spent on analysis and planning.
Blame the consulting firms, business schools and the business media,
"Strategy you need but strategy can be ineffectual without
implementation," said Pfeffer on a visit to Sydney last month. "It's
all about execution, day-to-day attention to detail and learning from
Case studies of successful businesses have bred a me-too approach with
senior teams ending up imitating each other's strategy, aided by
consulting firms. That's not a way to earn good returns, says Pfeffer.
And Harvard academic John Kotter wonders if the appetite for more
packaged strategic advice delivered from the pulpit has simply run its
"I think the looking for a strategy guru phenomenon has peaked and
gone down," he said in September, a few weeks before the financial
markets went into freefall. "Don't ask me to explain. Maybe people
just passed the edge on that and found other things or got
discouraged. There are lots and lots of strategy consulting firms [in
the US] who charged [companies] millions and millions and seven years
later they are not better."
Like Kotter, Pfeffer sees a preoccupation with strategy potentially
inhibiting rather than enhancing an organisation's response to change
- and that's a major risk in turbulence.
Many Australian businesses, however, remain influenced by a strategic
management approach which owes a lot to Porter's framework. But it's
time for a rethink, says Marc Stigter, consultant and program director
for the advanced management program at Mt Eliza Executive Education,
part of Melbourne Business School.
"I've always been sceptical about the concept of 'strategy' because I
have been part of so many strategies that have failed," he says.
"About eight out of 10 strategies fail and 80 per cent of companies
are dissatisfied with their strategies. It's a frustrating concept, so
why are all these companies still engaged in strategy? If 80 per cent
fail, why not concentrate on day-to-day issues? That's an interesting
The answer may have a lot to do with concentrating on the how rather
than the why of strategic management, Stigter says.
"Strategy is a Greek word and military term which means coming up with
a plan, mobilising troops and defeating the enemy. It has to do with
longevity and it's about survival. The problem I have is I do a lot of
work consulting to companies and a lot of my clients struggle with and
attack Porter. And a lot spend a lot of time analysing the company's
income and it's just about SWOT [strengths, weaknesses, opportunities,
"If you go into Porter, it's about customers, markets and rivals and
looking at your strength and risks: it's called strategic alignment.
This is the analysis phase. We cannot argue that strategy analysis is
not important - that's too simplistic.
"But companies are spending so much time analysing, that when it comes
to application, the goal posts have moved on. Strategy is not about
methodology and frameworks, it's a mindset or philosophy."
Meanwhile, the consulting firms that benefited from packaging up
strategy advice are also adjusting as demand for their expensive
advice falls off or changes. In his new book The Lords of Strategy,
business journalist Walter Kiechel outlines how four men essentially
invented corporate strategy, then set up the strategic consulting
business - Bruce Henderson, founder of Boston Consulting Group, Bill
Bain, founder of Bain & Co, Fred Gluck, long-time managing director of
McKinsey & Co, and Michael Porter.
While these top-end firms have great skills in understanding economic
analysis, employ bright people, and put together clever ideas, Kotter
says, their methodology and approach are not going to deliver the
means for their clients to suddenly jump and change to meet future
Even though demand for some forms of advice has fallen away, there's
still demand for strategic help, say Australian consultants.
Kotter is probably right in his critique of packaged strategy advice,
says James Goth, Sydney partner and managing director of Boston
Consulting Group, in that these things swing between popularity and
the latest fad.
"Clients are over getting a nice strategy document which was the case
in the '80s and '90s. Now most of the strategy is intimately linked to
implementation. And there will always be rogue elephants in
consulting," he says.
"But our client base hasn't changed markedly. We did a study a year or
so ago of 20 large global firms and we asked whether strategy was more
or less important, and 90 per cent said it was important."
Michael Rennie, managing partner of McKinsey in Australia and New
Zealand, says the demand for strategy advice and how it is delivered
has certainly changed in the last few years.
"When I joined 20 years ago, that's all we did - we went and gave them
a blue book of strategy. Now it's the other way around."
McKinsey now provides more implementation assistance and advice, says
Rennie, and about a quarter of its consultants are process specialists
who work in-house, training and leading groups of clients. They may
spend six months in a client business. "It's a big shift - we have a
behavioural practice and adult learning - it's what people want."
The firm is still busy in Australasia, Rennie says, although it's
different in the US where "the work has changed - there's lots of risk
The crisis is actually a time to clarify the mind on strategy, says
Richard Rumelt, professor of business and society at the Anderson
School of Management, University of California.
"In suddenly volatile and different times, you must have a strategy. I
don't mean most of the things people call strategy: mission
statements, audacious goals, three- to five-year budget plans. I mean
a real strategy," he recently told the online McKinsey Quarterly.
For many managers, the word has become a verbal tic, he adds.
"Business lingo has transformed marketing into marketing strategy,
data processing into IT strategy, acquisitions into growth strategy.
Equating strategy with success, audacity, or ambition creates still
more confusion. A lot of people label anything that bears the CEO's
signature as strategic - a definition based on the decider's pay
grade, not the decision."
A real strategy is neither a document nor a forecast but rather an
overall approach based on a diagnosis of a challenge. Rumelt says its
most important element is a coherent viewpoint about the forces at
work, not a plan.
The growing criticism of the traditional strategy management approach
goes well beyond confusion about definitions. In-house strategy
functions can take up many resources and lock in a certain way of
thinking and responding that may well have unintended consequences.
In particular, many critics baulk at the implicit assumption in much
strategy theory that once a plan is worked out, it will simply be
implemented and deliver results, regardless of market conditions.
There's little latitude for the complexity of implementation, the pace
of change or good old human behaviour.
In tough times, that becomes more important. Many of the firms Kotter
has worked with in the US have been through periods of
"re-engineering" and trying to squeeze costs down. The smart ones, he
says, realise they will not survive or grow by pursuing their current
strategies and they need to come up with something different - not a
new strategy but a different business model which incorporates changed
management principles and behavioural factors.
Although Kotter hates the term "human capital", he reckons that's what
the future of most businesses hinges on.
"It's not machinery that matters, it's people," he says. "It becomes
Stigter agrees, and says Michael Porter's is a rational concept, much
about planning and tool kits and strategic alignment, but strategy is
about people. You have to know where the organisation will be from a
financial and a people perspective.
Many businesses have been fluffing around with strategy for too long
and Stigter says many now realise that the way they have been going
about it is not working.
"They are ending up with a 170-page document that nobody can
understand. It's about mindset and thinking about the future and the
need to prioritise and link to measurable targets, and leaders are
struggling to get that right. I feel strategy has moved on as well.
You will never hear companies say that 'we have been successful
because we implemented Porter's model'. But his work was written three
decades ago and life was more stable then."
Although the strategy gurus offered a popular framework for managers
over many years, the ensuing preoccupation with increasingly elaborate
strategic activities delivered by a handful of American pundits
appears to have run its course.
Meanwhile, the current economic downturn is not conducive to anything
that smacks of a management fad, as Financial Times columnist Lucy
Kellaway points out in a recent podcast. Fads are disappearing as the
economy slows because they cost money and there's too much fear
around, she says.
"If you are fighting for survival, you focus on essential things, you
want clarity, whereas management fads thrived on obfuscation."
A short history of corporate strategy
Before Michael Porter, strategy was largely focused on internal
organisation of a company's resources to meet market demands or to
boost market share by lowering prices. Porter reoriented the debate by
developing a broader perspective on how to plan and allocate resources
to compete successfully in a sector or industry.
A business must choose between three main strategies: cost leadership;
differentiation; or focus by dominating a niche market. The internal
capacity for competing effectively Porter called the "value chain",
and was either primary (logistics, marketing, service) or secondary
(procurement, IT development, HR).
The trick lies in choosing the right strategy at the right time to
achieve a sustainable competitive advantage and long-term success. The
three strategies are driven by five key forces: the threat of entry of
new competitors; the threat of substitutes; the bargaining power of
buyers; the bargaining power of suppliers; and the degree of rivalry
Porter's analysis brought a new clarity and intellectual rigour to
thinking about strategy, according to the management reference book
Business: the Ultimate Resource. Case studies of winning businesses
were an important part of the strategy gurus' work.
As some of these winning companies failed to flourish or even
collapsed, critics said the approach was too prescriptive and
US-centric, with little allowance for differing conditions.
During the 1980s, strategic thinking was reinterpreted by such writers
as Gary Hamel and Henry Mintzberg. They attacked the emphasis on
operational improvements to the detriment of differentiation and the
failure of strategy planning when it is divorced from business
activity - the ivory tower approach - or attempts to predict
Undeterred, Porter emerged with an updated approach and would apply
his thinking to international competition with 1998's The Competitive
Advantage of Nations.
But as the internet age gathered pace, dissatisfaction with the model
re-emerged. In 2001, Canadian Don Tapscott argued the starting point
for strategic thinking had been the stand-alone, vertically integrated
corporation, which prospered by doing just about everything in-house.
In his article "Rethinking Strategy in a Networked World (or Why
Michael Porter is Wrong about the Internet)", Tapscott argued the
information revolution changed the fundamentals of business, making
vertical integration old-fashioned.
Porter has often been accused of failing to incorporate the role of
employees and their management into the strategy formula. Melbourne
Business School's Marc Stigter says: "There's an extra problem now:
employee alignment. You have to have employees' confidence and skills
- do they know what to do? Do they want to do it? Strategy has become
a people game as well."
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