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competitive advantage

competitive advantage

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M ic h a e l P o rte r's C o m p e titiv e A d v a n ta g e
a n d B u s in e s s H is to ry
R o b e rt E . A n k li 1
U n iv e r s ityo f G u e lp h
S t r a t e g i c p l a n n i n g a s a f o r m a l d i s c i p l i n e o r i g i n a t e d i n t h e 1 9 6 0 s a n d
e a r l y 1 9 7 0 s .I t
s o o n b e c a m e a fa d , b u t fa d e d e q u a lly q u ic k ly w h e n th e
prom isedsuccesses
d id n o t m a te ria liz e [S e e 3 , 1 3 , 1 4 , a n d 1 7 fo r re c e n t
e x a m p le s ].
J a p a n e s e
s u c c e s s
d i d n o t s e e m t o d e p e n do n p l a n n i n ga s m u c h a s
it d id o n q u a lity ,c o rp o ra tea n d n a tio n a lc u ltu re ,a n d m a n a g e m e n t
its e lf[1 2 ].
Y e t t h e n e e d f o r p l a n n i n g r e m a i n s ,
f o r , a s P e t e r D r u c k e r r e m i n d su s :
M a n a g e m e n th a s n o c h o ic e b u t to a n tic ip a teth e fu tu re , to
a tte m p tto m o ld it, a n d to b a la n c es h o rt-ra n g ea n d lo n g -ra n g e
g o a ls. . . . T h e id e a b e h in d lo n g -r a n g e p la n n in g is
th a t
[th e
q u e s tio n ]" W h a ts h o u ldo u r b u s in e s sb e ? " c a n a n d s h o u ldb e
w o r k e do n a n d d e c i d e db y i t s e l f ,i n d e p e n d e n t
o f th e th in k in go n
"W hat
is o u r
b u s in e s s ? " a n d
"W hat
w ill
it b e ? "
T h e re
is s o m e
s e n s eto th is .
I t i s n e c e s s a r yi n s t r a t e g i cp l a n n i n g t o s t a r t
s e p a ra te ly
w ith a ll th re e q u e s tio n s .
W h a tis th e b u s in e s s ?
W hat
w ill it be?
W h a t s h o u ld it b e ?
T h e s e a re , a n d s h o u ld b e
s e p a r a t ec o n c e p t u a l
a p p ro a c h e s .W ith re s p e c tt o " W h a ts h o u M
o u r b u s in e s sb e ? " th e fir s t a s s u m p tio nm u s tb e th a t it w ill b e
d iffe re n t.
L o n g - r a n g ep l a n n i n gs h o u l d p r e v e n tm a n a g e r s
fro m u n c ritic a lly
e x t e n d i n gp r e s e n tt r e n d s i n t o t h e f u t u r e , f r o m a s s u m i n gt h a t
to d a y 'sp ro d u c ts ,
s e rv ic e s ,
m a rk e ts ,
a n d te c h n o lo g ie s
w ill b e th e
p ro d u c ts ,
s e rv ic e s ,
m a rk e ts ,a n d te c h n o lo g ie s
o f t o m o r r o w , a n d
a b o v ea ll, fro m d e d ic a tin gt h e ir re s o u rc e sa n d e n e rg ie st o th e
d e fe n s eo f y e s te rd a y[ 2 , p p . 1 2 1 -2 ].
A s b u s in e s s
h is to ria n s
y o u w o u ld ,o f c o u rs e ,
a g r e ew ith th e la s ts e n te n c e ,
b u t
y o u m i g h t b e w o n d e r i n gw h y I
th in k it n e c e s s a ryt o
e v e n re p e a t it.
N e v e rth e le s s
I d o s o fo r g o o d re a s o n .
1 I w o u l dl i k e t o t h a n kK r i sI n w o o d
a n dJ a m e s
In g h a mf o rh e lp fu l
c o m m e n ts .
B U S IN E S S A N D
E C O N O M IC
H IS T O R Y , S e c o n d
S e rie s ,
V o lu m eT w e n ty -o n e ,
1 9 9 2 .
C o p y r i g h t ( c ) 1 9 9 2 b y t h e B u s i n e s sH i s t o r y C o n f e r e n c e . I S S N 0 8 4 9 - 6 8 2 5 .
2 2 8
2 2 9
M y in te re s ti n b u s in e s s
a n d b u s in e s s
h i s t o r yf o l l o w st h e q u e s t i o nt h a t
P e te rD ru c k e ra s k s ,
" W h a td o w e h a v eto d o to d a yto p re p a refo r to m o rro w ? "
P a rt o f w h a t w e h a v e to d o is to u n d e rs ta n dh o w w e g o t to w h e re w e a re
to d a ya n d th e re inlie s m y in te re s ti n h is to ry ,
b u t, lik e m a n yo f y o u ,I a m a ls o

d e e p l y i n t e r e s t e di n t h e f u t u r e a n d s o I t r y t o r e a d t h e c u r r e n tl i t e r a t u r e i n th is a re a . T h u s ,I fin d M ic h a e lP o rte r'sw o rk u s e fu l. It m ig h ts e e m s tra n g e th a t a p e r s o nlik e m y s e lfw o u ldb e g iv in gs u c ha p a p e rs in c ee a c hy e a r th e r e a re s e v e ra lp e o p le h e re e a c h y e a r fro m H a rv a rd w h o h a v e b e e n s tu d e n ts a n d / o r h a v e w o r k e d w i t h P o r t e r . Y e t i n t h e p a s t c o u p l e o f y e a r s ,I h a v e a s k e ds e v e r a l

(n o n -H a rv a rd )
p e o p l ea t t h e s em e e t i n g si f t h e y h a d r e a d P o r t e r
a n d m o s t r e p l i e d n e g a t i v e l y .
I th in kth a tis a s h a m eb e c a u s eh e p ro v id e sm a n y
to o ls fo r th e b u s in e s s h is to ria n .
W h a t i n t r i g u e sm e a b o u t s t r a t e g i cp l a n n i n gi s t h a t o n e p l a n s i n a w o r l d
in w h ic ho u tc o m e s
a re n o tc e rta in ,
y e t m a n y o f u s w r i t e h i s t o r ya s i f w e k n o w
th e o u tc o m e .G h e m a w a t,h o w e v e r,m a k e s th e c o m m o n s e n s e
o b s e rv a tio nt h a t
s u c c e s s
fa c to rsa re a s h a k yf o u n d a tio nf o r s tra te g y[ 3 , p p .5 -6 ].
2 The sam e
c a s ec a nb e m a d efo r w ritin gh is to ry .O f c o u rs e ,
w e d o k n o w th e o u tc o m ei n
a

c e r t a i n s e n s e ,b u t , u n l e s s w e a r e v e r y c a r e f u l , w e w i l l m i s s i n t r i g u i n g p o s s ib ilitie so r le a d s b e c a u s ew e a lr e a d y h a v e o u r h y p o th e s is .W ith th is e x p la n a tio nl e t u s g o o n to lo o k a t P o rte r'sw o rk .

M ic h a e l P o rte r is o n e o f th e h o tte s t(in te rn a tio n a l)c o n s u lta n ts
t o
b u s in e s s
f a r m sa n d g o v e r n m e n t s .
H i s l a t e s t b o o k T h e C o m p e t i t i v e
A d v a n ta g e
o f N a tio n s[ 1 0 ]h a sb e e n c a lle d" b r illia n t"
b y s o m ea n d " n o t h i n gn e w "b y o t h e r s .
W h ile th e im p lic a tio n s
fo r p re s e n t
p o l i c y w i l l c o n t i n u et o b e d e b a t e d ,
P o rte r's
w o r k d o e s p r o v i d e t h e b u s i n e s s
h is to ria nw ith a p o w e rfu l
p a ra d ig ma n d s e to f
to o lsfo r c o n s id e r in g
b u s in e s s
in h is to ry .W h y a re s o m efirm s s u c c e s s fu l
a n d
o t h e r n o t ? W h y d o s o m e n a t i o n s s e e m t o s p e c i a l i z ei n c e r t a i n i n d u s t r i e sw i t h
lo ts o f c o m p e tito rs ,
w h i l e o t h e r n a t i o n sd o n o t s e e m t o k n o w t h a t a n i n d u s t r y
e x i s t s ?P o r t e r p r o v i d e sw a y s o f t h i n k i n ga b o u tt h e s e t y p e so f q u e s t i o n s .T h i s
p a p e rw ill lo o k a t h is th r e e b o o k s : C o m p e titiv e
S tra te g y[ 1 1 ], C o m p e titiv e
A d v a n ta g e[ 9 ], a n d T h e C o m p e titiv e
A d v a n t a g eo f N a t i o n s[ 1 0 ] .
P o r t e r ' s f a r s t b o o k C o m p e t i t i v eS t r a t e g y ,p u b l i s h e d i n
1 9 8 0 , is a n
e x h a u s tiv e
lo o k a t s tra te g y .H is c o n te x t
is th e w o rld o f th e la te 1 9 7 0 s ,
b u t th e
s t r u c t u r et h a t h e s e t s o u t i s a v e r y u s e f u l v e h i c l ef o r t h e b u s i n e s s
h is to ria n .
" T h ee s s e n c e
o f fo rm u la tin gc o m p e titiv e
s t r a t e g yi s r e l a t i n ga c o m p a n yt o i t s
e n v iro n m e n t"
[1 1 ,p . 3 ]. T h is is e x a c tlyw h a tth e b u s in e s s
h i s t o r i a n s h o u l d b e
d o in g .
2 T h er e a s o n s
a r eth a t" t is u s u a lly
d iffic u lt
to id e n tify
s u c c e s s
fa c to rs
re le v a n t
to a p a rtic u la r
s itu a tio n .
Second,even when a
s u c c e s s f a c t o r h a s b e e n d i a g n o s e d t o
b e
re le v a n t, th e
i m p l i c a t i o n s f o r t h e l e v e r s m a n a g e r sm u s t p u l l a r e n o t c o m p l e t e l y c o n c r e t e . T h i r d , t h e s u c c e s s
fa c to r a p p ro a c h la c k s g e n e ra lity b e c a u s e it
i m p l i c i t l y a s s u m e s t h a t s u c c e s sf a c t o r s a r e
u n d e r v a l u e d .F i n a l l y , i n v i e w o f i t s o t h e r d e f e c t s ,
it w o u ld b e re a s s u rin gi f th e s u c c e s s
fa c to r
a p p ro a c h to
s tra te g y c o n ta in e d s o m e s e lf-ju s tific a tio n : a
re a s o n w h y s tra te g ic th in k in g is
n e c e s s a ry
in th e firs t p la c e . It d o e sn o t2
2 3 0
P O T E N T IA L
]
E N T R A N T S
B U Y E R S
]
T h e s t r u c t u r a l a n a l y s i s o f i n d u s t r i e si n c l u d e s d e s c r i p t i o n so f r i v a l r y
a m o n g e x i s t i n gc o m p e t i t o r s ,
t h e t h r e a to f n e w e n t r a n t s ,
t h e t h r e a to f s u b s t i t u t e
p r o d u c to r s e r v i c e s ,
th e b a r g a in in gp o w e r o f s u p p lie r s ,
a n d th e b a rg a in in g
p o w e r o f b u y e rs .F ig u re 1 illu s tra te st h e s e re la tio n s h ip s .
S ta rtin gw ith th e
t h r e a t o f n e w e n t r a n t s , P o r t e r c o n s i d e r sb a r r i e r s t o e n t r y w h i c h i n c l u d e
e c o n o m i e so f s c a l e ,p r o d u c t d i f f e r e n t i a t i o n ,
c a p i t a lr e q u i r e m e n t s ,
s w itc h in g
c o s ts ,
a c c e s st o d is tr ib u tio nc h a n n e ls ,
c o s td i s a d v a n t a g e s
in d e p e n d e n t
o f s c a le ,
g o v e rn m e n t
p o lic y ,a n d e x p e c te dr e ta lia tio n .
T h e i n t e n s i t yo f r i v a l r y a m o n g e x i s t i n g c o m p e t i t o r s
d e p e n d so n th e
b a la n c eo f c o m p e tito rs ,
in d u s tryg ro w th ,
th e s iz eo f fix e do r s to ra g ec o s ts ,
th e
a m o u n to f d i f f e r e n t i a t i o no r s w i t c h i n gc o s t s ,
th e m in im u m s iz e o f in v e s tm e n t,
th e ty p e so f c o m p e tito rs ,
th e s tra te g ics ta k e s ,a n d th e s iz e a n d ty p e o f e x it
b a rrie rs . S u b s titu te
p ro d u c tso ffe r a lte rn a tiv e s
a n d lim it th e s iz e o f p r o fits .
S u b s titu te s
a ls o d e p e n do n p r ic e a n d th e e a s eo f s w itc h in gc o s ts .
T h e b a r g a i n i n gp o w e ro f b u y e r sd e p e n d so n t h e v o l u m eo f p u r c h a s e s
r e l a t i v et o t h e s e l l e r sc a p a c i t y ,
t h e f r a c t i o no f c o s tt h e p u r c h a s e
re p re s e n ts ,
th e
d e g re eo f s ta n d a rd iz a tio n
o f th e p u rc h a s e ,
th e le v e l o f s w itc h in gc o s ts ,
th e
le v e lo f p ro fits ,t h e th re a to f b a c k w a rdi n te g ra tio n ,
a n d th e im p o rta n c eo f its
q u a l i t y . T h e b a r g a i n i n gp o w e ro f s u p p l i e r s
m irro rsth a t o f b u y e rs .S u s a n
H e lp e r 's " C o m p e titiv eS u p p lie rR e la tio n sin th e U .S . a n d J a p a n e s eA u to

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