A critical examination of the central contributions of Michael Porter to the development of management thought
and manager’s should assess their organisation by evaluating it in the terms of these five factors.
Porter believed that companies needed to choose one of the following strategies: cost-leadership, differentiation or focus. Cost-leadership related to striving to become the lowest cost producer in the relevant industry; differentiation meant striving to develop a product or service that was unique and also valued by buyers; and focus aims at segments of industries such as specific consumer groups or product lines.
Porter believed, also that for a company to be at a competitive advantage by pursuing a low cost approach they needed to adopt one of these three generic strategies. He believed by trying to be all things to all people companies are spreading themselves too thinly and therefore not obtaining in advantage or ‘difference’ in the industry. These three specific generic strategies are considered a classic and have become a ‘dominant paradigm’ in business policy and research (Hill, in Rubach, 1998, p.1). Studies by Hambrick (1983) have also found support for Porter’s generic strategies. Research has clearly shown that among the higher producing firms all three generic strategies are present and that one strategy was clearly the focus in individual circumstances. (Rubach, 1998, p.1).
Porter uses the term ‘stuck in the middle’ to describe organisations that have failed to gain a competitive by using one of the above generic strategies. Such companies find it hard to achieve long term success unless they are apart of an industry doing particularly well or by coincidence all their competitors happen to be stuck in the middle as well. Porter believes that the secret to long term success is resisting the actions by their competitors or changes in the industry for a reason to change their strategy. Porter is the first to admit that this is no easy task due to technology and customer change and the fact that competitors can easy imitate advantages an organisation has. Ways of achieving long term success include: strong economics of scale, reducing price gain to volume, tying up suppliers with contracts and encouraging government policies that reduce foreign competition (Robbins, 1997, p. 261). Management must also stay on their toes in order to sustain competitive advantage and keep one step ahead of the competition.
However, despite the developments in the mid-80’s strategic management, many believed it was developing short falls in the implementation of strategy. In 1985 Porter felt that many companies had lost sight of competitive advantage in their struggle to pursue growth and diversification and turned to such tools as total quality management (TQM), benchmarking and reengineering (Porter, 1985, p.x). This lead to his second major work entitled ‘Competitive advantage: creating and sustaining superior performance’. Out of this work Porter developed the value chain. The value chain distinguishes centrally between activities that directly produce, market, and deliver the product and those that create or source inputs or factors (including planning and management) required to do so (Porter, 1991, p. 90). The value chain is a tool that helps [next page]