Porter's Theory - Competitive Advantage through an Ahistorical Approach - Term Paper Example

PORTER'S THEORY: COMPETITIVE ADVANTAGE THROUGH AN AHISTORICAL APPROACH By Devangini Chauhan Michael E Porter has paved the way for revolutionary strategising trends and a whole new perspective on competition through his competitive advantage theory. Having initially graduated in aeronautical engineering, Porter achieved an economics doctorate at Harvard, where he was subsequently awarded university professorship, a position he continues to fulfil at Harvard Business School. After his earlier work on corporate strategy Porter extended the application of his ideas and theories to international economies and the competitive positioning of nations, as featured in his later books. In the corporate world, Porter's first book Competitive Strategy (1980), which he wrote in his thirties, became an international best seller, and is considered to be an authoritative piece of work on corporate strategy. The book, which has been published in nineteen languages and re-printed approaching sixty times, changed the way business leaders' minds worked. Further, it remains a guide of choice for strategic managers on a global scale. Apart from being rich in lessons about why and how industries, regions, and nations succeed or fail, this book is of great value as the first serious attempt to develop a really original grand theory of national economic development processes since the early years of Postwar development economics, and one of the most original ways of thinking about development policy in years. Source: Alan Chapman 2005 This brings us to a discussion on the technicalities of the model proposed by Porter. Porter's Five Forces model provides suggested points under each main heading. When taken into consideration individually, each of these gives rise to the development of a broad and sophisticated analysis of competitive position. This may further be used during the creation of a strategy, plans, or even where making investment decisions about a business or organization is concerned. These five competitive forces determine industry profitability and attractiveness apart from being responsible for shaping the prices that firms can charge, the costs they have to bear, and the required investments to engage in industry level competition. We are concerned with the fact that Porter's essentially ahistorical approach cannot provide a full account of either a nation's competitive advantage and corporate strategies or the growth and development of industrial clusters. For this, let us first understand competitive advantage. Competitive advantage is the response of afirm to the pressing need to organize and perform discrete activities. While these needs may not be perpetually spelt out, it is the responsibility of the planners and executers of policies to foresee such situations when catering for growth and development of the firm n various levels. So does this mean that we are dealing with changes and issues only on an individual level and not a national level The basic explanation for this comes from the fact that any change on an individual level is effected by changes on a national level. Yet, Porter's theory cannot accommodate strategies and competitiveness at such levels due to various constraints. The first of these emerges from the fact that people run businesses and economies - and everyone has his or her own unique style. These cannot be covered at length when talking which factors and resources will be utilized in which combination. Thus Porter's theory does not provide an accurate account of the diversity and dynamism in the corporate and commercial environment that businesses and firms thrive in. Secondly, there are various activities to take into consideration. The activities performed when competing in a particular industry can be grouped into categories, as these activities can be divided broadly into primary activities and support activities. It has been noted that primary activities are those involved in the ongoing production, marketing, delivery, and servicing of the product. Whereas support activities are those that provide purchased inputs, technology, human resources or the overall infrastructure functions supporting the other activities. Every activity employs purchased inputs, human resources, some combination of technologies, and draws on firm infrastructure such as general management and finance. Activities vary in their importance in regard of competitive advantages from industry to industry. (Porter M E, 1998). While this is a good theory to reckon with, cynics are of the opinion that in today's world there are 'n' number of influences on a firm's activities and not just a set number of the same. In this regard, firms believe that all activities contribute to the creation and development of buyer value, which may be defined as the consumer base of a firm and its product in qualitative as well as quantitative terms. Therefore, according to the theory, the buyer value of a firm is directly proportionate to the effort put in by the firm when providing various customer and other services especially in terms of time and quality maintained. In this way, firms create value for their buyers where the ultimate value a firm creates is measured by the amount buyers are willing to pay for the product or service offered in terms of the various activities it indulges in, as specified above. In a nutshell, a firm breaks even and garners profits if the buyer value manages to exceed the collective cost of performing the required activities. Thus, in order to gain competitive advantage over its rivals, a firm must either provide comparable buyer value, and perform activities more efficiently than its competitors at a lower cost, or perform activities in a unique way that creates greater buyer value and commands a premium price through differentiation. If we are to take recent facts into consideration regarding the state of the economy, we will find that this is not necessarily an accurate measure at the national level. Thus, for a more competitive strategy, the theory that a firm adopts has to be more forward looking. In this regard, one may make use of clusters which are groups of firms and other broad industries linked to each other on the basis of various skill and their subsets. These function in the sphere of providing the necessary technical and research based support for various customer services, by making use of various institutions and universities apart from interns and other individuals. A cluster that has been well formed and makes the required effort to be called well functioning is one that contributes to the advancement of an economy in terms f growth and development. This is a crucial aspect that most firms tend to ignore. In this way, one can measure the implications of the theory and growth thereof, in a more accurate and reasonable manner. This also helps avoid monopolistic tendencies within markets in order to make sure development is not impeded. This brings us to the issue of equality, which is a major requirement for the development of an economy. The more consistent and widespread the development, the more advanced the economy can be called. Unless there is mass involvement in various policies and acts, an industry or a sector of the economy, cannot be called developed by itself. Therefore, there is a need to redefine the theory in order to make sure it accommodates such yardsticks for the measurement of competitive advantage. This is due to the fact that more people need to be aware of such measures for development to be actually felt and enjoyed. In this context, does Porter's theory ask the relevant questions What must we do to ensure that the industry evolves in a way that is maximally advantageous for the nation as a whole What skills and capabilities must we begin building now if we are to occupy the industry high ground in the future How should we organize for opportunities that may not fit neatly within the boundaries of current business units and divisions The answers are to be found in not in this theory but in the theories propounded by Gary Hamel, C.K. Prahalad titled Competing for the Future. The authors are of the firm belief that when armed with the information in their findings and subsequent theories, a company can create a pro-active agenda for organizational transformation and can control its own destiny by controlling the destiny of its own industry. Few companies that began the 1980s as industry leaders ended the decade with their leadership in tact and undiminished. Many household name companies saw their success eroded or destroyed by tides of technological, demographic and regulatory change and order-of-magnitude productivity gains made by nontraditional competitors. "Do you really have a global strategy", the first article by Hamel and Prahalad, developed the theme that small companies could prevail against larger, richer companies by inventing new ways of doing more with less. Differences in resource effectiveness could not be explained by efficiency, labor or capital, but by amazingly ambitious goals that stretched beyond typical strategic plans, raising the question how such incredible goals could get past the credibility test and be made tangible and real to employees As if in answer to this question, managers of late, have created new competitive space while sick units have protected the past rather than creating the future. In this regard, Porter's existing theory throws little light on what it takes to fundamentally reshape an industry and the gap provoked this book in which the goal is to enlarge the concept of the industry and not just the organization. Being incrementally better is not enough because a company that cannot imagine the future won't be around to enjoy it. (Hamel et al, 1996) New competitive realities have broken down various industry boundaries that have been retarding the growth of national competition and mass consciousness of the same. Also, a large chunk of the standard management practice has been discarded, while the conventional models of strategy and growth have been declared obsolete. These have been replaced by the powerful ideas and methodologies of Gary Hamel and C.K. Prahalad, whose much-revered thinking has already given birth to a new language of strategy. While it is true that their work paves the way for the development of a coherent model for how today's executives can identify and accomplish no less than heroic goals in tomorrow's marketplace, one can also determine ways for executives to ease the tension between competing today and clearing a path toward leadership in the future on a more global level through the basic framework of the theory laid down by the authors. This will hold testament to the importance and relevance of competitive advantage that forms the backbone of so much of today's accepted wisdom. Each argument put forward by the authors is clear and is seen to be progressing through the reasons behind competitive strategy being believed to be less mechanical that the claims of Porter in his theory of competitive advantage. The achievement of the same are then illustrated in terms of well-known companies. Therefore, Porter's approach lacks the underlying belief that winning in business today is not about being number one - it's about who "gets to the future first", thus making the "core competencies" approach the right one to strategic planning when it comes to providing a full account of either a nation's competitive advantage and corporate strategies or the growth and development of industrial clusters. References Cited: 1. Gary Hamel, C.K. Prahalad. Competing for the Future. Harvard Business School Press (1 Mar 1996) 2. Google Inc. URL: www.google.com (Accessed on: 10th Nov, 2006) 3. Henry Mintzberg. The Rise and Fall of Strategic Planning. Financial Times Prentice Hall (24 Feb 2000) 4. Michael E Porter. The Competitive Advantage of Nations. Free Press (1998) Read More