Part 1: Competitive Advantage without Michael Porter?

I was posed with a sim­ple yet very poignant ques­tion today on Linked-In, is Michael Porter’s Com­pet­i­tive Advan­tage Model incomplete?

First off, here is the boiled down ver­sion of Michael Porter’s con­cept. There are two types of com­pet­i­tive advan­tages a busi­ness can obtain: low-cost and dif­fer­en­ti­a­tion. These two advan­tages in rela­tion­ship to the busi­ness’ tar­get mar­ket scope (niche or broad) and prod­uct mix (lim­ited or wide) yields the fol­low­ing four busi­ness strategies:

Cost-Leadership:  The advan­tage is based on being the industry’s low-cost pro­ducer in a mix of products/services; think big box stores pri­vate label brands. This is a pure value play that works best with a well-understood and accepted ser­vice.
Prod­uct Dif­fer­en­ti­a­tion:  When a busi­ness has an actual or per­ceived unique­ness it is said to have an advan­tage by means of dif­fer­en­ti­a­tion.
Cost Focus:  This is when one’s posi­tion allows it to offer to niche mar­ket at prices lower than the com­pe­ti­tion.
Focused Dif­fer­en­ti­a­tion:  Lever­ages a bet­ter under­stand­ing of a nar­row seg­ment of the mar­ket to develop unique prod­ucts that can be sold at pre­mium prices because they solve a niche’s press­ing issue.

It is my belief that the Com­pet­i­tive Advan­tage Model is too sim­plis­tic for today’s com­plex global envi­ron­ment. The ‘Flag­ship Model’, which was devel­oped by Alan Rug­man and Joseph D’Cruz, is an alter­na­tive frame­work, which comes at the sit­u­a­tion from a net­work per­spec­tive. If you have stud­ied keiret­sus or chae­bols then you’ll quickly grasp the con­cept. The frame­work includes government(s) and other loosely asso­ci­ated influ­ences. Quite sim­ply the Flag­ship Model states that suc­cess will come eas­ier to those who adopt strate­gies that are mutu­ally rein­forced within a busi­ness sys­tem that incen­tives long-term goal among the part­ners in the system.

Here is how it breaks down:

• The firm is at the cen­ter of a five (5) part­ner and one (1) influ­encer structure.
• The Flag­ship firm pro­vides the vision, lead­er­ship, and resources.
• Key Sup­pli­ers per­form value-creating actions and have an alliance with the Flag­ship firm. This alliance hor­i­zon­tally shares strate­gies, resources, and respon­si­bil­ity. Think Intel and Microsoft or bet­ter yet the recently announced Hewlett-Packard and Microsoft strate­gic alliance in the data cen­ter market.
• Other Sup­pli­ers who have a tra­di­tional provider-customer relationship.
• Key Cus­tomers who pro­vide direct feed­back on func­tion­al­ity within their busi­ness process; logis­ti­cal fit, suit­abil­ity, chang­ing needs. Think of it as a race­car dri­ver pro­vid­ing feed­back to the crew chief dur­ing the race.
• Key Con­sumers pro­vides tra­di­tional feed­back on the prod­uct or ser­vice pro­vided via sales and focus groups.
• Selected Com­peti­tors are firms with which the Flag­ship firm has alliances with in selected pro­duce areas or mar­kets. Both con­cerns under­stand that the alliance is devel­oped for a spe­cific rea­son and that in other areas they are fierce competitors.

In the model the influ­encer struc­ture is called a Non-business Infra­struc­ture, which is com­posed of government(s), uni­ver­si­ties, unions, and oth­ers who can or do sup­ply intan­gi­ble inputs. As way of an exam­ple these inputs could be intel­lec­tual property.

I will be the first to admit that each model is valid, with its valid­ity dic­tated by the busi­ness’ sit­u­a­tion. One should also take into con­sid­er­a­tion that Porter’s better-known Five Forces Model is often used in con­junc­tion with the Com­pet­i­tive Advan­tage, Value Chain, and National Com­pet­i­tive Advan­tage mod­els. I how­ever feel that as the world con­verges, thanks to enhanced com­mu­ni­ca­tion and the rapid emer­gence of busi­nesses from around the globe, it becomes harder and far less appro­pri­ate for many busi­nesses to take a lim­ited per­spec­tive. The Flag­ship model help iden­tify the best areas in which an orga­ni­za­tion should nego­ti­ate a strate­gic partnership.

What are your thoughts?

I’ll take a look at some of the frame­works used to iden­tify and exploit inter­na­tional busi­ness devel­op­ment oppor­tu­ni­ties in Parts 2 and

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