Planning Review

Porter's competitive advantage, revisited

Donald E Heany

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Donald E Heany, (1986),"Porter's competitive advantage, revisited", Planning Review, Vol. 14 Iss 1 pp. 27 - 29
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(1996),"Michael Porters Competitive Advantage revisited", Management Decision, Vol. 34 Iss 6 pp. 12-20 http://
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(1997),"COMPETITIVE STRATEGY", Measuring Business Excellence, Vol. 1 Iss 2 pp. 12-17 http://dx.doi.org/10.1108/
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27

PORTER'S COMPETITIVE
ADVANTAGE, REVISITED

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By Donald E Heany

N E A R L Y FORTY YEARS AGO, Professor Edward Advantage to help bridge the current gap between
Mason, then the guru of industrial organiza strategy formulation and strategy implementation.
tion in the Graduate School of Arts and Bottom-Up Planning Is Ineffective: Most of the
Sciences at Harvard began an experiment. He en strategic planning done in the 1970s and early 1980s
couraged his doctoral students to investigate topics focused on lines of business. Firms such as General
that opened up new territory between economics Electric, General Motors, and duPont, with decen
and business, and between economics and law. tralized organizational structures, favored bottom-up
Mason believed that these topics called for an planning systems. This meant that line managers
interdisciplinary approach. He also wanted to prepared plans and senior executives reviewed them.
accumulate reliable data on the workings of the Only a few people worried about the tension between
modern business concern. To do this he asked some business-unit strategies and corporate strategy. It
of his friends on the business school and law was assumed that a handful of senior executives
faculties at Harvard to help his students gain access would be able to adjudicate conflicts among busi
to particular firms and to data on their industries, nesses and that every one would appreciate the ad
and also to help them master techniques of analysis vantages of pooling work (e.g., purchasing, EDP,
and perspectives that had few exponents on his side R&D).
of the Charles River.
As things turned out, however, activity sharing
Now, forty odd years later, Mason would view developed slowly and businesses did not readily
Michael E. Porter's newest bookCompetitive Ad- enter into coalitions. Strategic opportunities that
required teamwork across organizational boundaries
vantage: Creating and Sustaining Superior Performance
as a confirmation of his faith in interdisciplinary went begging.
research. Professor Porter has crossed and recrossed
Porter is quite rightly upset by this. Being a realist,
the Charles River a number of times. He has he expects that the merits of bottom-up planning
obviously been inside many firms. He has used the will have its defenders. He knows that organizational
tools of many disciplines to illuminate strategic barriers will have to be removed before these
decision making in multibusiness firms. Only in one interrelationships can be activated.
area has he not fulfilled Mason's dream: his book Senior Managers Must Do More than Review
includes only anecdotal data.
Plans: As strategic business units multiplied like
rabbits, and planning departments began to turn out
PORTER'S KEY IDEAS
lengthy strategic plans, executives at corporate,
For the benefit of those who have not followed
sector, and group levels found themselves over
this young author's intellectual development, a
whelmed. In multibusiness firms, top-level executives
summary of the central ideas found in Competitive
had little time for or interest in preparing a corporate
Advantage appears to be our first order of business: (or group) strategic plan or formulating an explicit
Strategy Implementation Remains a Problem:
Porter's starting point was his concern that many
well-conceived business strategies were not being
implemented properly. He wrote Competitive

"horizontal strategy." Had you asked a group of

CEO's for a copy of their corporate strategic plans,
they would have pointed to a giant three-ringed
binder containing the plans of all the businesses
making up their portfolio. At best, they would have
Donald F. Heany, formerly with the Strategic Planning
offered a platitudinous mission statement.
Institute and General Electric's planning group, is now a
consultant in strategic and tactical planning located This
in isn't enough for Porter. He urges senior
Stoneham, Massachusetts.
executives to initiate top-down planning and to

January
Planning Review
1986

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28

January
Planning Review
1986

press for competitive advantages based upon business

interrelationships.
The Neglect of Quality: In the early 1970s, the
PIMS research team announced that they had con
firmed General Electric's hypothesis that relative
quality (i.e., the quality of your products and
services vs. that of your Big-3 competitors) was
positively correlated with business-unit profitability.
The import of this finding was not appreciated by
many executives and planners, and the strategic
plans of the 1970s all but ignored product quality.
Few general managers attempted to orchestrate a
multifunctional effort designed to establish a quality
edge over their competitors.
Those who question this observation need only
study the response of U.S. businesses to the surge of
Japanese imports. Their quality-enhancement pro
grams were based on an internal view of quality.
Only a modest number of businesses adopted PIMS's
external view of quality, in which it was necessary to
consider:
Their customers' perceptions of product quality.
The incremental advantages of services as well
as products.
The way their competitors' products affected
their customers' perceptions of product quality.
Porter lists factors (ancillary services included)
that might be artfully manipulated to achieve a
sustainable degree of product differentiation. He
urges managers to track changes in customer tastes
and competitor behavior. Finally, he goes beyond
PIMS in his belief that differentiation is a generic
strategy.
Attention All Managers: Competitive Edge
Can Evaporate! It's not enough for a business to
achieve a competitive advantage. It must be sus
tained. Porter repeatedly dips into his earlier book
(Competitive Strategy) to show how competitor and
industry analysis are relevant to the formulation and
implementation of a generic strategy.
The Value Chain: Porter offers his readers a
framework to help them cope with the many
complex factors that can affect their level of differen
tiation and their relative cost position. He calls it
"the value chain." This is a graphic model of a firm's
value activities and margin. He wants managers to
use it to scan each and every area of their business
that might contribute a high-quality, cost-effective
product line.
The full payoff from an analysis of a business's
value chain is realized only by managers who exploit
the linkages among those functional activities.

Managers who neglect these linkages may discover

that they have achieved an ephemeral degree of
differentiation or, worse, differentiation without
profitability.
To Porter, the value chain is more than a buzz
word. He offers it as a new perspective, a clinical
approach to strategy implementation.
Relative Cost: A value chain is equally useful to
businesses that opt for a second generic strategy:
cost leadership. Here, Porter is careful to distance
himself from a simplistic use of the experience
curve. Notice, too, his interest in relative coststhe
actions of competitors are never out of his mind.
Customers, Suppliers, and Distributors Have
Value Chains as Well: In many a decentralized
firm, purchasing agents are instructed to regard
vendors as adversaries. People began questioning the
wisdom of this practice when they saw the advantages
of "just-in-time" inventory practices. They wondered
if collaboration might not be more effective than
conflict.
Porter would certainly agree. He encourages his
readers to capitalize on opportunities to link their
own value chain with those of their suppliers,
distributors, and buyers. Significant advantages are
possible if separate quests for a competitive advan
tage are integrated.
A Role Reversal for Executives: When General
Electric first created group executives thirty-odd
years ago, their main function was to resolve
conflicts among line managers and to intervene if a
particular business strategy created problems for the
corporation.
Porter believes that, at a time when firms are
being challenged on many industrial fronts, senior
executives can no longer play the role of sage
counselor to younger line managers. Multipoint
competition demands top-down strategy and lots of
initiative at the top levels of the firm.
Porter sees a crying need for "horizontal strategies"
that encompass several businesses. Stellar perfor
mances from individual managers are no longer
enough to assure the success of a modern firm. To
create an enduring competitive position against
world-class competitors, senior executives must take
a proactive role in strategy development and imple
mentation. Only they have the power to develop a
horizontal strategy. Only they can lower the organiza
tional barriers that prevent its execution. No one
else can get line managers to rein in the performance
of their businesses in the interests of the firm.
This is tough medicine, and Porter beams it
directly at senior executivesthe people who must

29
decide how to gain competitive advantage. How else
does one explain the absence of the term "planner"
or "strategic planner" from the index of Competitive
Advantage?
AN EVALUATION
Michael Porter's book deserves the attention it is
receiving. People enjoy seeing someone challenge the
conventional wisdom, and they like authors who
accompany their critique with an alternative. However:

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Are executives likely to act on Porter's

suggestions?
How will this book affect the job of strategic
planners?
Whereif at allis Porter's case flawed or
incomplete?
The Question of Feasibility: More than a decade
ago, a number of us on General Electric's corporate
staff invited a group executive to take on the new
strategic role of defining "horizontal strategy" for
each "cluster" of businesses. We failed in our effort
because the role we were advocating greatly increased
this executive's level of personal riskit would be
his head in the basket if that strategy turned sour.
Even our efforts to draft corporate guidelines for
individual lines of business ran into the same kind of
resistance. Senior managers were most reluctant to
give specific orders to the SBU managers whose
knowledge base was superior to their own. It was
much safer to communicate in general terms. Ths
enabled them to sustain their image of omnipotence.
In my opinion, it would be naive to think we can
change pussy cats into tigers by making Competitive
Advantage required reading for attendees at the
corporate management education center.
Another difficulty is that quite a few firms have
eliminated or drastically reduced the number of
planning positions at all organizational levels. Porter's
approach requires a sizable investment in research
time to discover the perceptions of customers and to
assemble data on competitors, industry segments,
and value chains at a time when profit pressures
remain acute.
I submit that Porter's yardstick for success is not
"sales to aspiring managers" but rather "investment
in people who can support executives who are
disposed to act on his theses." In the short term, I
expect warm applause for his effort, a spurt in sales,
but no feet to move.
Long term, however, there's no doubt that cor
porate performance could be improved if senior

executives invested in realistic portfolio analyses and

became involved in the development of horizontal
strategies. How long will this take? Remember when
the chief advocate of input-output analysis was
awarded a Nobel prize in economics? How many
firms have subsequently adopted his counsel and
now regularly apply input-output analysis?
The Impact on Strategic Planners: Those cor
porate strategic planners who escaped the recent
purges in their departments have more opportunities
in the near term to apply Porter's ideas. Unfortu
nately, his book does not comment on how one goes
about implementing these ideas.
If planners prove more willing than senior execu
tives to expand their role, they will defuse the critics
who have identified planning with cloud 9, and make
their own jobs more recession proof than they
currently are.
I sincerely hope that Porter's critique of bottom-up
planning and aimless acquisition programs will
stimulate planners to elevate their sights to corporate
planning. Too many planners I know occupy them
selves almost exclusively with line-of-business plans.
SUGGESTIONS FOR THE SECOND EDITION

Any author must anticipate that some readers will

complain that his treatment of some topics is skimpy
and that other important topics are ignored.
I do not dispute that Porter's suggestions appear
to be logical ways to achieve a consensus. It's just that
people on the firing line have tried these methods
and found them wanting. Perhaps Porter could intro
duce material showing how members of committees
and task forces can reconcile their conflicting objec
tives and orient themselves to the needs of the parent
company.
For decades, scientists and engineers have
clamored for more influence over business and cor
porate policy. None of these will find in Competitive
Advantage much concrete guidance as to how this is
to be done. And I question whether Porter's advice
will turn out to be operational in diversified firms.
The message is clear: Be careful not to generalize
from uncomplicated firms.
Porter knows the limitations of anecdotal data.
He made good use of PIMS's cross-sectional data
base when he investigated barriers to exiting a
business. He has also played a leading role in HBS's
effort to accelerate the collection of industry data.
Yet, Competitive Advantage consists exclusively of
"throw-away" examples that appeal primarily to a
classroom environment.

January
Planning Review
1986