Article 9
Michael Porter’s Big Ideas
The world’s most famous business-school professor is fed up with CEOs who claim that
the world changes too fast for their companies to have a long-term strategy. If you want
to make a difference as a leader, you’ve got to make time for strategy. Here’s Michael
Porter’s clear-eyed take on why strategy matters now more than ever.
by Keith H. Hammonds
Here is how Michael E. Porter regards the
they have proved wildly compelling among business lead-
business landscape:
ers around the world.
This is the paradox that Porter faces. His notions on strat-
egy are more widely disseminated than ever and are
Beginning in the mid-1980s, he more or less left the strategy
preached at business schools and in seminars around the
world to its own devices, focusing his attention instead on
globe. Yet the idea of strategy itself has, in fact, taken a
the question of international competitiveness. He advised
backseat to newfangled notions about competition hatched
foreign governments on their economic policies and
during the Internet frenzy: Who needs a long-term strategy
headed a U.S. presidential commission. He wrote books
when everyone’s goal is simply to “get big fast”?
and papers on industry dynamics—from ceramics manu-
With his research group, Porter operates from a suite of
facturing in Italy to the robotics sector in Japan. He spoke
offices tucked into a corner of Harvard Business School’s
everywhere. He was consumed by understanding the com-
main classroom building. At 53, his blond hair graying, he
petitive advantage of nations.
is no longer the wunderkind who, in his early thirties,
Then, in the mid-1990s, he resurfaced. “I was reading ar-
changed the way CEOs thought about their companies and
ticles about corporate strategy, too many of which began
industries. Yet he’s no less passionate about his pursuit—
with ‘Porter said… and that’s wrong.’” Strategy had lost its
and no less certain of his ability. In a series of interviews,
intellectual currency. It was losing adherents. “People were
Porter told
being tricked and misled by other ideas,” he says.
FAST COMPANY why strategy still matters.
Like a domineering parent, Porter seems both miffed by
Business keeps moving faster—but you better make time for
the betrayal and pleased by his apparent indispensability. I
strategy.
can’t turn my back for five minutes. Well, kids, the man is
back. Porter seeks to return strategy to its place atop the ex-
It’s been a bad decade for strategy. Companies have bought
ecutive pyramid.
into an extraordinary number of flawed or simplistic ideas
Business strategy probably predates Michael Porter.
about competition—what I call “intellectual potholes.” As
Probably. But today, it is hard to imagine confronting the
a result, many have abandoned strategy almost completely.
discipline without reckoning with the Harvard Business
Executives won’t say that, of course. They say, “We have a
School professor, perhaps the world’s best-known business
strategy.” But typically, their “strategy” is to produce the
academic. His first book, Competitive Strategy: Techniques
highest-quality products at the lowest cost or to consolidate
for Analyzing Industries and Competitors (Free Press,
their industry. They’re just trying to improve on best prac-
1980), is in its 53rd printing and has been translated into 17
tices. That’s not a strategy.
languages. For years, excerpts from that and other Porter
Strategy has suffered for three reasons. First, in the 1970s
works have been required reading in “Competition and
and 1980s, people tried strategy, and they had problems
Strategy,” the first-year course that every Harvard MBA stu-
with it. It was difficult. It seemed an artificial exercise. Sec-
dent must take. Porter’s strategy frameworks have suffered
ond, and at the same time, the ascendance of Japan really
some ambivalence over the years in academic circles—yet
riveted attention on implementation. People argued that
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ANNUAL EDITIONS
strategy wasn’t what was really important—you just had to
which a company seeks to be unique. Strategy 101 is about
produce a higher-quality product than your rival, at a lower
choices: You can’t be all things to all people.
cost, and then improve that product relentlessly.
The essence of strategy is that you must set limits on
what you’re trying to accomplish. The company without a
strategy is willing to try anything. If all you’re trying to do is
“Strategy is about making
essentially the same thing as your rivals, then it’s unlikely
that you’ll be very successful. It’s incredibly arrogant for a
company to believe that it can deliver the same sort of
choices, trade-offs; it’s about
product that its rivals do and actually do better for very
long. That’s especially true today, when the flow of infor-
deliberately choosing
mation and capital is incredibly fast. It’s extremely danger-
ous to bet on the incompetence of your competitors—and
that’s what you’re doing when you’re competing on opera-
to be different.”
tional effectiveness.
What’s worse, a focus on operational effectiveness alone
tends to create a mutually destructive form of competition.
If everyone’s trying to get to the same place, then, almost
The third reason was the emergence of the notion that in
inevitably, that causes customers to choose on price. This
a world of change, you really shouldn’t have a strategy.
is a bit of a metaphor for the past five years, when we’ve
There was a real drumbeat that business was about change
seen widespread cratering of prices.
and speed and being dynamic and reinventing yourself,
There have been those who argue that in this new mil-
that things were moving so fast, you couldn’t afford to
lennium, with all of this change and new information, such
pause. If you had a strategy, it was rigid and inflexible. And
a form of destructive competition is simply the way compe-
it was outdated by the time you produced it.
tition has to be. I believe very strongly that that is not the
That view set up a straw man, and it was a ridiculous
case. There are many opportunities for strategic differences
straw man. It reflects a deeply flawed view of competition.
in nearly every industry; the more dynamism there is in an
But that view has become very well entrenched.
economy, in fact, the greater the opportunity. And a much
The irony, of course, is that when we look at the compa-
more positive kind of competition could emerge if manag-
nies that we agree are successful, we also agree that they all
ers thought about strategy in the right way.
clearly do have strategies. Look at Dell, or Intel, or Wal-
Technology changes, strategy doesn’t.
Mart. We all agree that change is faster now than it was 10
or 15 years ago. Does that mean you shouldn’t have a di-
The underlying principles of strategy are enduring, regard-
rection? Well, probably not. For a variety of reasons,
less of technology or the pace of change. Consider the In-
though, lots of companies got very confused about strategy
ternet. Whether you’re on the Net or not, your profitability
and how to think about it.
is still determined by the structure of your industry. If there
are no barriers to entry, if customers have all the power,
Of course strategy is hard—it’s about making tough choices.
and if rivalry is based on price, then the Net doesn’t mat-
ter—you won’t be very profitable.
There’s a fundamental distinction between strategy and op-
Sound strategy starts with having the right goal. And I ar-
erational effectiveness. Strategy is about making choices,
gue that the only goal that can support a sound strategy is
trade-offs; it’s about deliberately choosing to be different.
superior profitability. If you don’t start with that goal and
Operational effectiveness is about things that you really
seek it pretty directly, you will quickly be led to actions that
shouldn’t have to make choices on; it’s about what’s good
will undermine strategy. If your goal is anything but profit-
for everybody and about what every business should be do-
ability—if it’s to be big, or to grow fast, or to become a tech-
ing.
nology leader—you’ll hit problems.
Lately, leaders have tended to dwell on operational ef-
Finally, strategy must have continuity. It can’t be con-
fectiveness. Again, this has been fed by the business litera-
stantly reinvented. Strategy is about the basic value you’re
ture: the ideas that emerged in the late 1980s and early
trying to deliver to customers, and about which customers
1990s, such as total quality, just-in-time, and reengineer-
you’re trying to serve. That positioning, at that level, is
ing. All were focused on the nitty-gritty of getting a com-
where continuity needs to be strongest. Otherwise, it’s hard
pany to be more effective. And for a while, some Japanese
for your organization to grasp what the strategy is. And it’s
companies turned the nitty-gritty into an art form. They
hard for customers to know what you stand for.
were incredibly competitive.
Japan’s obsession with operational effectiveness became
Strategy hasn’t changed, but change has.
a huge problem, though, because only strategy can create
sustainable advantage. And strategy must start with a differ-
On the other hand, I agree that the half-life of everything
ent value proposition. A strategy delineates a territory in
has shortened. So setting strategy has become a little more
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Article 9. Michael Porter’s Big Ideas
complicated. In the old days, maybe 20 years ago, you
one’s mind. But words like “transformation” and “revolu-
could set a direction for your business, define a value prop-
tion” are incredibly overused. We’re always asking the
osition, then lumber along pursuing that. Today, you still
companies we work with, “Where is that new technology
need to define how you’re going to be distinctive. But we
that’s going to change everything?” For every time that a
know that simply making that set of choices will not protect
new technology is out there, there are 10 times that one is
you unless you’re constantly sucking in all of the available
not.
means to improve on your ability to deliver.
Let’s look again at the Internet. In FAST COMPANY two
So companies have to be very schizophrenic. On one
years ago, we would have read that the Internet was an in-
hand, they have to maintain continuity of strategy. But they
credibly disruptive technology, that industry after industry
also have to be good at continuously improving. Southwest
was going to be transformed. Well, guess what? It’s not an
Airlines, for example, has focused on a strategy of serving
incredibly disruptive technology for all parts of the value
price-minded customers who want to go from place to
chain. In many cases, Internet technology is actually com-
place on relatively short, frequently offered flights without
plementary to traditional technologies. What we’re seeing
much service. That has stayed consistent over the years. But
is that the companies winning on the Internet use the new
Southwest has been extremely aggressive about assimilat-
technology to leverage their existing strategy.
ing every new idea possible to deliver on that strategy. To-
day, it does many things differently than it did 30 years
Great strategists get a few (big) things right.
ago—but it’s still serving essentially the same customers
Change brings opportunities. On the other hand, change
who have essentially the same needs.
can be confusing. One school of thought says that it’s all
The error that some managers make is that they see all of
just too complicated, that no manager can ever solve the
the change and all of the new technology out there, and
complex problem that represents a firmwide strategy today.
they say, “God, I’ve just got to get out there and implement
So managers should use the hunt-and-peck method of find-
like hell.” They forget that if you don’t have a direction, if
ing a strategy: Try something, see if it works, then proceed
you don’t have something distinctive at the end of the day,
to the next. It’s basically just a succession of incremental
it’s going to be very hard to win. They don’t understand that
experiments.
you need to balance the internal juxtaposition of change
I say that method will rarely work, because the essence
and continuity.
of strategy is choice and trade-offs and fit. What makes
The thing is, continuity of strategic direction and contin-
Southwest Airlines so successful is not a bunch of separate
uous improvement in how you do things are absolutely
things, but rather the strategy that ties everything together.
consistent with each other. In fact, they’re mutually rein-
If you were to experiment with onboard service, then with
forcing. The ability to change constantly and effectively is
gate service, then with ticketing mechanisms, all sepa-
made easier by high-level continuity. If you’ve spent 10
rately, you’d never get to Southwest’s strategy.
years being the best at something, you’re better able to as-
You can see why we’re in the mess that we’re in. Com-
similate new technologies. The more explicit you are about
petition is subtle, and managers are prone to simplify. What
setting strategy, about wrestling with trade-offs, the better
we learn from looking at actual competition is that winning
you can identify new opportunities that support your value
companies are anything but simple. Strategy is complex.
proposition. Otherwise, sorting out what’s important
The good news is that even successful companies almost
among a bewildering array of technologies is very difficult.
never get everything right up front. When the Vanguard
Some managers think, “The world is changing, things are
Group started competing in mutual funds, there was no In-
going faster—so I’ve got to move faster. Having a strategy
ternet, no index funds. But Vanguard had an idea that if it
seems to slow me down.” I argue no, no, no—having a
could strip costs to the bone and keep fees low—and not try
strategy actually speeds you up.
to beat the market by taking on risk—it would win over
time. John Bogle understood the essence of that, and he
Beware the myth of inflection points.
took advantage of incremental opportunities over time.
You don’t have to have all the answers up front. Most
The catch is this: Sometimes the environment or the needs
successful companies get two or three or four of the pieces
of customers do shift far enough so that continuity doesn’t
right at the start, and then they elucidate their strategy over
work anymore, so that your essential positioning is no
time. It’s the kernel of things that they saw up front that is
longer valid. But those moments occur very infrequently for
essential. That’s the antidote to complexity.
most companies. Intel’s Andy Grove talks about inflection
points that force you to revisit your core strategy. The thing
Great strategies are a cause.
is, inflection points are very rare. What managers have
done lately is assume that they are everywhere, that disrup-
The chief strategist of an organization has to be the leader—
tive technologies are everywhere.
the CEO. A lot of business thinking has stressed the notion
Discontinuous change, in other words, is not as perva-
of empowerment, of pushing down and getting a lot of peo-
sive as we think. It’s not that it doesn’t exist. Disruptive
ple involved. That’s very important, but empowerment and
technologies do exist, and their threat has to be on every-
involvement don’t apply to the ultimate act of choice. To be
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successful, an organization must have a very strong leader
mystical vision that only the people at the top understood.
who’s willing to make choices and define the trade-offs.
But that violated the most fundamental purpose of a strat-
I’ve found that there’s a striking relationship between really
egy, which is to inform each of the many thousands of
good strategies and really strong leaders.
things that get done in an organization every day, and to
That doesn’t mean that leaders have to invent strategy.
make sure that those things are all aligned in the same basic
At some point in every organization, there has to be a fun-
direction.
damental act of creativity where someone divines the new
If people in the organization don’t understand how a
activity that no one else is doing. Some leaders are really
company is supposed to be different, how it creates value
good at that, but that ability is not universal. The more crit-
compared to its rivals, then how can they possibly make all
ical job for a leader is to provide the discipline and the glue
of the myriad choices they have to make? Every salesman
that keep such a unique position sustained over time.
has to know the strategy—otherwise, he won’t know who
Another way to look at it is that the leader has to be the
to call on. Every engineer has to understand it, or she won’t
guardian of trade-offs. In any organization, thousands of
know what to build.
ideas pour in every day—from employees with suggestions,
from customers asking for things, from suppliers trying to
The best CEOs I know are teachers, and at the core of
sell things. There’s all this input, and 99% of it is inconsis-
what they teach is strategy. They go out to employees, to
tent with the organization’s strategy.
suppliers, and to customers, and they repeat, “This is what
Great leaders are able to enforce the trade-offs: “Yes, it
we stand for, this is what we stand for.” So everyone under-
would be great if we could offer meals on Southwest Air-
stands it. This is what leaders do. In great companies, strat-
lines, but if we did that, it wouldn’t fit our low-cost strategy.
egy becomes a cause. That’s because a strategy is about
Plus, it would make us look like United, and United is just
being different. So if you have a really great strategy, people
as good as we are at serving meals.” At the same time, great
are fired up: “We’re not just another airline. We’re bringing
leaders understand that there’s nothing rigid or passive
something new to the world.”
about strategy—it’s something that a company is continu-
ally getting better at—so they can create a sense of urgency
and progress while adhering to a clear and very sustained
direction.
KEITH H. HAMMONDS (KHAMMONDS@FASTCOMPANY.COM)
A leader also has to make sure that everyone under-
IS A FAST COMPANY SENIOR EDITOR BASED IN NEW YORK.
stands the strategy. Strategy used to be thought of as some
CONTACT MICHAEL PORTER BY EMAIL (MPORTER@HBS.EDU).
From the Fast Company magazine, March 2001, pp. 150, 152-154, 156. © 2001 by the Fast Company.
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Document Outline

• Michael Porters Big Ideas
  • Here is how Michael E. Porter regards the business landscape:

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