Good Managers and Bad Strategies

Knowledge@Wharton has a Michael Porter article about why good managers set bad strategies.

Errors in corporate strategy are often self-inflicted, and a singular focus on shareholder value is the "Bermuda Triangle" of strategy, according to Michael E. Porter, director of Harvard's Institute for Strategy and Competitiveness.

These were two of the takeaways from a recent talk by Porter — titled "Why Do Good Managers Set Bad Strategies?" — offered as part of Wharton's SEI Center Distinguished Lecture Series. During his remarks, Porter stressed that managers get into trouble when they attempt to compete head-on with other companies. No one wins that kind of struggle, he said. Instead, managers need to develop a clear strategy around their company's unique place in the market.

When Porter started out studying strategy, he believed most strategic errors were caused by external factors, such as consumer trends or technological change. "But I have come to the realization after 25 to 30 years that many, if not most, strategic errors come from within. The company does it to itself."

Porter makes some good points, like the fact that people define strategy all sorts of ways, and that Wall Street puts pressure on companies to emulate their peers. Ultimately though, strategy builds on differentiation. Strategy involves your reaction to moves by competitors and major changes within your industry. Lots of people find this blog by searching for business strategy, and I think they might be looking for some secret sauce to help them beat their competition. Unfortunately, no such thing exists, and even if you have a good strategy, if you can't execute, it won't do you any good.

The best advice I can offer is to think of strategy like this: What am I offering my customers that is different from my competition? What do I have going for me that enables my company to do do this better than the competition? Is there a viable market where the answers to those two questions intersect?

And finally, be wary of the last part of the Porter article. It touches on leadership and strategy, claiming that strong leaders are needed in order to keep a strategy on course. I think that confuses strategy with execution, and ignores the need for strategy to be part anticipatory and part reactive. Just because Porter is the strategy guru doesn't mean you should blindly believe what he says, so be sure to leave your thinking cap on when you read this one.

  • Rob

    LOL. Good point. I bet it has something to do with the fact that there is more money to be made telling people what they want to hear, and they would much rather have the finger pointed external.

  • Tim

    A very needed advice. Keep it up! Just to let you know this: I ran into an exciting book: China and the new world order: how entrepreneurship, globalization, and borderless business are reshaping China and the world, written by the outspoken Chinese journalist George Zhibin Gu. It is a must read, for it has huge hot topics on global business, trade, jobs transfers and politics.

  • Your thoughts on differentiations are right on. It all really comes down to that in the original purpose for a company existing, and it’s continual growth as it responds and adapts to its customers.

    If we don’t have the answers to the two questions, we won’t be in business long.