Porters Views on Strategy - Essay Example

Porter argues that strategy is about ‘positioning’ – not about ‘operational effectiveness’. Please discuss this view and compare it to other perspectives, such as those by Mazzucato’s, Mintzberg & Waters and Grant Introduction: The term Strategy is used on a daily basis by a number of people across the world. The word has numerous levels in relation to the various fields that it is used within. There are a number of levels for strategy in the context of large organisations and businesses. There have been a number of authors and scholars who have defined strategy. Strategy concept has been borrowed from the military and has been tailor made by these scholars to fit into the business sense. The basic concept of strategy is to bridge the gap between the policy and tactics. These strategies and tactics further go on to bridge the gap between the means of the company and the proposed goals. The term Strategy has been derived from the Greek word ‘strategia’ meaning ‘general ship (Nickols, 2004). This paper aims at discussing the concept of strategy from the view point of one of the biggest contributors to the field of management - Michael Porter. The paper will review his thoughts on the subject in detail and will further deal with comparing Porter’s thought to other major writers and professors who have also contributed a lot to the field of management. The views of three major writers and contributors to the field of management will also be discussed in detail in this paper. These authors include, Henry Mintzberg, James A. Waters, Mariana Mazzucato and Robert M. Grant. Porter’s Views on Strategy: Michael Porter is a University Professor at Harvard Business School and a very contributor to the fields of management and economics. In an article he wrote for the Harvard Business Review in 1996, and also in one of his books, he argues that competitive strategy is "about being different". He adds, "It means deliberately choosing a different set of activities to deliver a unique mix of value". It is important to note that Porter has focused on discussing competitive strategy and his views are based more on differentiating the company in the view of the customers. Porter has defined competitive strategy as "a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there". Porter has provided for a very fresh and different view on the meaning of strategy. He highlights and emphasises on the facts that operational effectiveness is not strategy. Porter has in his article ‘What is Strategy?’, in the Harvard Business Review brought out some very important points (Porter, 1996). He argues that ‘Positioning’, which has been one of the major elements of strategy and has acted as the ‘heart of strategy’, is not being rejected by most managers. He discussed in this article that the current period believed that positioning is considered to be too static in the current dynamic world and the high use of technology (Porter, 1996). It is important to note that the information that has been provided here has been based on three major heads: 1. variety-based positioning 2. Needs-based positioning and 3 Access-based positioning Porter has also argued to say that operational effectiveness and strategies are both very essential for better performance of companies, however both of these fall in line after the primary goal of any enterprise. He discusses that ‘... Delivering greater value allows a company to charge higher average unit prices; greater efficiency results in lower average unit costs’ (Mintzberg, et.al. 2003). It has been noted that a root cause for problems in the current times is the failure and lack of understanding the difference between the operational effectiveness and strategy. Thus it is essential to understand the meaning of Operational effectiveness. This mainly refers to an organisation that performs similar activities to its rivals however in a better way. One of the best examples that have been provided is that of the Japanese companies. It has been noted that these companies have a different style of performance and also these companies have been known to trigger the operational effectiveness as long as 1970 and 1980s. The Japanese manufacturers have been noted to have enjoyed substantial cost and quality for a number of years mainly due to the operational effectiveness as well. Porter has argued that examining of the competitive capability in the market place requires the organisations to choose from three very important strategies. These include cost leadership, differentiation and also focus. He argues that it is essential for companies to gain dominance in the markets and gain a ‘niche market’. This mainly means that the company requires knowing the right market for the products and niche is a subset of the market sector. Porter also argues that the organisational effectiveness may also in some cases create the opportunity for strategy development by inventing new technologies and methods. One of the finest examples for this is 3M and the improved glue. The company’s experimentation with the new improved glues and the invention of post – it notes. According to Porter, companies require having a right choice if time and right choice of market that needs to be selected to bring success to the company (Porter, 1996). He had divided the generic strategies on five forces which the organisations need to be considered by the companies to build strong and well rounded strategies. These include, a) Power of customers to affect the margins and prices, b) power of suppliers on the pricing of the organisations, c) the threats for substitutes, d) competition from new entrants in the markets and lastly, e) Level of existing competition. However with the changing times and changing needs of companies across the world, Porter has reinvented and revised his earlier works. He has included factors which help focus on the acceleration of the market change. The current situation requires companies to compete not only on the strategic front but at all levels. Porter’s approach has been classified to be classical. It has also been noted that the approach is quite focused on profit maximisation and is also quite analytical. Porter’s approach to strategy has a clear influence of the economical conditions and the military. Comparison of Views: There have been a number of other writers as well who have provided for a number of different definitions and explanation of Strategy. Firstly let’s begin with Henry Mintzberg’s view on strategy. In his book, The Rise and Fall of Strategic Planning, Mintzberg has pointed out a number different ways that people conceive Strategy. He mentions the four common meaning of strategy are: 1. “Strategy is a plan, a "how," a means of getting from here to there. 2. Strategy is a pattern in actions over time; for example, a company that regularly markets very expensive products is using a "high end" strategy. 3. Strategy is position; that is, it reflects decisions to offer particular products or services in particular markets. 4. Strategy is perspective, that is, vision and direction.” There have been a number of arguments from Mintzberg (Mintzberg, et.al., 2003). He feels that strategy emerges over time. This is mainly because he said that as time passes by the intentions would collide. This will require for accommodation to the current reality to be able to cope up with the current environment. He thus explained that it would be necessary for the individual or business to start with a perspective and conclude with a certain position which can only be gained through well crafted plans and designs. The outcome he explained would come out in a certain pattern or design. This was then called ‘realized’ or emergent strategy. Mintzberg has been noted to be a writer who supports the definition of the earlier years and of all he supported Kenneth Andrew’s views to a great extent. Mintzberg’s view on strategy has been a little different from that if Porter. According to Mintzberg, Brunet and Water’s, for over ten years now strategy has been defined as ‘A pattern in stream of decisions’. Mintzberg and Waters have provided a very different theory (Mintzberg, 2008). It is essential to understand that the various approaches that have been created vary in their own ways. Every decade has seen newer and more advanced approaches to the definition of the meaning of strategy. The term strategy has seen a number of various approaches over the last 30 years. The table below highlights the main focus of each approach and also provides for a better understanding of the various elements of each approach. Four Perspectives on Strategy   Classic Processual Evolutionary Systematic Strategy Formal Crafted Efficient Embedded Rationale Profit Maximization Vague Survival Local Focus Internal (plans) Internal (Politics/ Cognitions) External (Markets) External (Societies) Processes Analytical bargaining / Learning Darwinian Social Key Influences Economics / Military Psychology Economics / Biology Sociology Key Authors Chandler, Ansoff, Porter Cyert and March, Mintzberg Hannan and Freeman Granvetter, Whiteley Emergence 1960s 1970s 1980s 1990s Table 1: Four Perspectives on Strategy (Mazzucato, 2002) Authors like Mintzberg have provided for strategies perspectives which are processual and are crafted. These provide the company with strong strategies which are mainly influenced by psychology. It is also essential to understand that the strategic perspective provides by Waters and Mintzberg is not very clear and to some extent the rationale is vague. Also since these have been developed as long as 30 years ago, there are a few aspects of these strategies that cannot be used as a part of the current working scenario. Porter although the perspective is quite old and from a number of years ago, the style and the rationale on which it is based is quite steady and firm. It is based on a focus which has been and will always remain the main focus for any business, i.e. profit maximization (Lampel,, et.al., 1998). Hence this strategy is still followed by a number of companies and the companies have been successful basing the strategies on this perspective. All the authors have a different rationale on their theories however it is important to understand that some of the basic need for businesses, like profit maximisation and survival will always be given complete consideration at all times. Comparatively all the theories that have been developed over the years are apt in their own ways and have their own positives and negatives. However a well structured company will consider all the aspects of internal, external, markets, societies, political, and plans of the company before creation of the strategies. Conclusions: The comparison has led to gain a better understanding of how the progress and changes over the years. The progress into developing the theories to change along with time is helpful for companies. With time, there is a huge change in the environment that companies work in. Thus it is essential that the strategies used by the companies have a strong touch of the various theories that have been developed. Using Porter’s strategy as a base further which other aspects of strategies can be added into the base. An excellent example to be considered here is that of Rent – A – Car. The strategy followed by them is based on the theory of Porter and the company has to a great extent been quite successful. Each of these strategies will lead to the success of the company. In conclusion it is safe to say that the main differences that have been made by each of these authors and their perspectives although quite different lead to gaining the same solution for the companies, i.e. the success of the companies (Grant, 2007). The concept of strategy has been borrowed from the military and this has been adopted into the businesses as well. The main aim of all the authors is to reach on e end, i.e., success of the company, the specification of the route however differ from every person’s perspective. In short it is safe to say that strategies includes how the aims will be achieved however it does not include what the aims are. Based on the theories that have been covered here, it is clear that strategy is based on four main parts. These include a) the ends to be obtained, b) the strategies to be followed to achieve them, c) the tactics that are used for the resources to be used to reach the aim of the company and put the strategies to use and d) the means of disposal (Farlex, 2002). Thus it is easily understood that strategies and tactics act as a bridge for filling up the gap between the ends and the means. Also it is essential to remember that strategy is completely based on the people who govern and manage it. Thus it can change with the changing needs not only externally but also with the change in the internal needs of the companies as well. Bibliography Farlex, (2002), Michael Porter: What is Strategy?, April 2002, Accessed on 07 June 2009, Available at http://www.thefreelibrary.com/Michael+Porter+:+What+is+Strategy%3F-a085608624. Grant, R. M. (2007), Contemporary Strategy Analysis, 6th Edition, Wiley – Blackwell Publishers, London Lampel, J., Ahlstrand, B. and Mintzberg, H. (1998), Strategy Safari: A Guided Tour through the Wilds of Strategic Management, 1st Edition, Free Pres, USA Mazzucato, M. (2002), Strategy for Business, Open University, Sage Publishers, New York Mintzberg, H. (2008), Tracking Strategies: Towards a General Theory of Strategy Formulation, Oxford University Press, USA Mintzberg, H., Lampel, J., Quinn, J.B., & Ghoshal, S., 2003, ‘The Strategy Process: Concepts, Contexts and Cases’, 4th Edition, Pearson Education Limited, Essex, England Nickols, F. (2004), Strategy: Definitions and Meaning, 6th October 2004, Accessed on 07 June 2009, Available at http://home.att.net/~nickols/strategy_definition.htm Porter, M.E., 1996, ‘What is Strategy?’, Harvard Business Review, November – December 1996 Read More