Michael Porter
Everyone getting better is not a strategy
Rivals copy the best practice until they all look the same, and the profit is competed away
"What Is Strategy?", Harvard Business Review, 1996
My rivals and I are all faster and cheaper, and my margin is still thin. This page is about the difference between doing things better and doing different things.
What actually happened?
In 1996 Harvard professor Michael Porter wrote an essay about an odd pattern. Management had never had so many good ideas: total quality, benchmarking, outsourcing, change programmes. Everyone learned them and everyone used them, yet in many industries profits kept thinning. His explanation: whatever you can learn, your rivals can learn too. Everyone moves toward the same best practice and starts to look alike, and the one thing a customer can still compare is price.
Better and different are two separate things
He called the first operational effectiveness: doing similar things better than rivals do. Strategy is something else, doing different things, or the same things in a different way. He says both are essential to performance, but they work in very different ways.
Two tea shops both cut service to three minutes. That is efficiency. One sells only freshly brewed tea and the other only delivers: that is choosing a road.
A good practice spreads fast and the lead does not last
Once a practice is shown to work, rivals pick it up and consultants carry it round the industry. The lead it gave you is closed within a short time, and the savings end up with the customers.
A shop installs a new queue system and customers praise it for six months. The shop next door buys the same one and has it running in a month.
Running in the same direction is a war of attrition
He called it competitive convergence. When every firm races along the same best-practice line, the only thing left to compare is price. That kind of competition wears everyone down, and it only stops when someone changes what they compete on.
Five hotpot restaurants on one street all offer a free sauce bar and a birthday cake. Diners choose by whoever has a discount today.
Efficiency is not optional, only insufficient
He is not telling anyone to ignore efficiency. A firm that falls behind best practice will struggle to stay in the game at all. His point is that efficiency alone gets you to the line, and the line is where everyone else already stands.
A shop with slow service and wrong orders should fix those first. After that, it still needs a reason that only it can give.
How do I use it today?
Where you are: You are in a crowded industry, doing the same thing faster and cheaper every year, and the price is still being pushed down.
Ask first: Which things do I do that my rivals do not, or do not do in this way? Write them down. If you can name them, that is your road. If you cannot, you have been competing on efficiency and not on direction.
Where it goes wrong: Reading it as "ignore efficiency". He says both are essential. Catch up first, then ask what the different part is.
Lines to keep
Operational effectiveness is not strategy.
Competitive strategy is about being different.
On the best-practice line, everyone stands in the same place.
Same situation, other people are asking
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send it to someone who needs it, or keep it somewhere you will find it again.