The Return Of Michael Porter The master strategist is back with a collection of essays, a new book, and an almost retro approach to business: Strategy matters.
By James Surowiecki

(FORTUNE Magazine) – When we started talking about publishing a collection of my essays, my first thought was that I wasn't ready to be a fossil," says Michael Porter, the Harvard Business School professor whose insights into competition have defined thinking about corporate strategy for the past generation and whose new volume, On Competition, is a greatest-hits collection of his work over the past 20 years.

As Porter's comment suggests, the publication of a volume of collected essays, like the issuing of a CD boxed set, can be a sign that an author's best work is behind him. But On Competition is less a farewell than an integral part of Porter's return to the battlefield of strategy management. With this, and with a new book on corporate strategy coming out later this year, Porter is making a bold, if counterintuitive, claim: Even in the age of the Internet, even in an age where streamlining and efficiency seem to be king, corporations are lost without the kind of strategic truths he articulated a decade ago.

"Starting in the late 1980s, I fell off the radar screen in terms of writing about strategy," Porter says. The focus of his work shifted from corporations to economic development and regional competitiveness. While Porter continues to consult with states ranging from Catalonia to Canada, and to work on his Initiative for a Competitive Inner City, he's once again consulting for companies, including Procter & Gamble and Edward Jones. "A growing body of literature has challenged my work, and while I was happy there was a fertile intellectual debate, I've been itching to get back in and talk about questions that I still think are key," he says. "Partly what's motivating me is that there's a lot of confusion out there about exactly what strategy is, and a lot of dangerous practice. And partly it's the desire to get back into the fray."

Porter's description of his work as vanishing from managerial sight is more than a bit of an exaggeration. "Porter is the single most important strategist working today, and maybe of all time," says Kevin Coyne of McKinsey & Co., whose verdict echoes that of the Strategic Management Society, which recently voted Porter the most influential living strategist. "People have not forgotten about him or his work."

Still, if Porter's work has not been forgotten, it has been seriously challenged. Where Porter emphasized the need for a company to build a strategy in the context of the forces shaping its industry's profitability, Gary Hamel and C.K. Prahalad have emphasized instead the need for a company to identify its core competencies and build a strategy around them. On a different front, the very idea of strategy itself has come under attack. Work ranging from Henry Mintzberg's critique of strategic planning to the burgeoning literature on hypercompetition suggests that formalized strategic thinking is doomed to failure in an ever-changing business environment. Many corporations have dethroned such thinking in favor of concepts like time-based competition, TQM, and reengineering, assuming that incremental changes in execution and quality are the most meaningful sources of competitive strength.

On Competition is a rebuttal of this "death of strategy" argument. It's also evidence of how much Porter has refined and broadened his thinking, most notably in the chapter "What Is Strategy?" first published in the Harvard Business Review two years ago and already regarded as a classic in the field.

In that essay Porter articulates a distinction crucial to his new work, namely that between operational effectiveness and strategic positioning. Operational effectiveness means simply performing better the same activities your competitors perform. Practices like benchmarking, TQM, and lean manufacturing are all necessary and valuable routes to improving operational effectiveness. But while superior operational effectiveness can be a source of short-run competitive advantage, in the long run it's nowhere near sufficient. The "rapid diffusion of best practices" means that industries become more efficient without individual companies' becoming more profitable. Even more dangerously, benchmarking means that companies become more alike.

Instead, Porter suggests, companies need to position themselves differently from their competitors. They need to do so not, as Hamel and Prahalad might have it, by discovering their core competency but rather by figuring out where the opportunities in the industry lie. Ikea, for instance, tries to be all things to a particular group of people that's not being served, namely "young furniture buyers who want style at low cost." Jiffy Lube, on the other hand, tries to be one thing (the oil-change guys) to all people. In both cases, the companies have a clear sense of how those strategies are different from their competitors'. "Operational effectiveness means you're running the same race faster," Porter says. "but strategy is choosing to run a different race because it's the one you've set yourself up to win."

For Porter, much of what has passed for management thinking in the past decade may have been important, but it wasn't strategy--and isn't nearly as crucial as good strategy. "Strategy is not accidental. It is a purposeful process," he says. "Luck is alive and well. Intuition is alive and well. But human beings have some control over their own destiny. And you can improve your odds of making better judgments."

Porter's skepticism about the idea that strategy is less important today than it once was is mirrored by his skepticism about the idea that the Internet will turn the business world upside down. "The arrival of the Internet will affect every industry in some way, but for 50% or more of the economy it's not a transformational event," he says. "It will have a powerful impact on the supply of information to customers and the relationship between companies and their suppliers, but it's not like the automobile. You don't have to change the theory of strategy to deal with the Internet."

Porter points to the dominant players in the New Economy as classic exemplars of successful strategic thinking. "The average technology company is not all that gifted in terms of strategy," Porter says. "But the most successful companies--the Dells, the Intels, the Ciscos--don't think about strategy as incremental or impossible. They have a clear sense of what they're trying to do and of how to do it."

Another way of putting it is that these companies have achieved what Porter calls "strategic fit" between every part of a company's value chain, ranging from customer service to relationships with suppliers. In the absence of that kind of fit, strategies get reduced to tactics, and the possibility of gaining a long-term competitive edge vanishes. Compaq didn't become Dell when it announced it was selling direct, because Dell's entire value chain is structured by its direct selling, while Compaq's is not. "Fit locks out imitators by creating a chain that is as strong as its strongest link," Porter writes. "In most companies with good strategies, activities complement one another in ways that create real economic value."

Fit is also, in a different sense, at the heart of Porter's most ambitious new work, which is on the phenomenon of "clusters," those regions where competitors congregate and are quickly surrounded by "end-product or service companies; suppliers of specialized inputs, components, machinery, and services; financial institutions; and firms in related industries."

Clusters--the most famous of which is Silicon Valley, but which range from the furniture cluster in Grand Rapids to the carpet cluster in Dalton, Ga., to the weaving cluster in northern Italy--are an abiding feature of all developed economies, and Porter shows how the benefits of proximity to your competitors outweigh the costs: New technology that improves the productivity of the industry as a whole gets diffused more easily; it's easier to pick up on new trends in what buyers want; the arrival of component and services suppliers makes it easier to work closely with them to improve the value chain; and the effects of competing for employees are balanced by the fact that qualified people from all over the world gravitate to your cluster. More than ever, Porter suggests, in what is surely a counterintuitive take on the virtual economy, location matters.

That, of course, is what's most interesting about Porter's return to corporate strategy: he has chosen to jump in again at a time when so much of what he says seems counterintuitive. At a time when strategic thinking is as fragmented as it's ever been and when pronouncements of permanent revolution are in the air, Porter's faith in enduring strategic truths runs strikingly against the grain. But he doesn't seem to mind. "I'm enormously invigorated," he says. "It's just good to get back into the debate again."

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