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Michael Porter: Competitive Strategy

Of all the strategic thinkers we have covered (like Igor Ansoff, Kenichi Ohmae, and Porter’s student, Kathryyn Rudi Harrigan), Michael Porter deserves a special place. His 1980 book, Competitive Strategy, transformed thinking, moving us from the pre-Porter world of strategic thinking dominated by Ansoff, to the post-Porter world that he still dominates.

Porter is an intellectual and an influencer who does not covet the easy quotability of some of his contemporaries. But the rigour of his analysis has made him all the more sought-after. His books have sold in the hundreds of thousands, and his speaking fees are legendary.

Michael Porter
Michael Porter

Short Biography

Michael Porter was born in 1947, in Michigan, and went to Princeton to study for a BSE in Aeronautical Engineering in 1969. He graduated top of his class and was inducted into the two most prestigious honor houses. He then shifted his focus to business, and went to Harvard Business School, where he received an MBA in 1971 and a PhD in Economics in 1973. From there he joined the faculty.

He remains at Harvard today, as a University Professor, and also Founding Director of Harvard Business School’s Institute for Strategy and Competitiveness, which he founded in 2001 to further his work and research.

Porter’s breakthrough came with the 1980 publication of Competitive Strategy. Other significant yet accessible books are The Competitive Advantage of Nations (1990) and the 1998 article and essay collection, On Competition. But these are among 15 other successful books and article collections.

But what you are interested in are Porter’s big ideas…

Michael Porter’s Big Ideas

Before Porter, Igor Ansoff dominated thinking on corporate strategy. His approach boiled down to choosing your market, matching your resources to meet the market’s demand, and then improving your competitiveness to increase your market share.

Michael Porter did not reject these ideas. Rather, he opened them out, approaching strategy from the perspective of the whole industry and then, later, as a national endeavour. He considered that earlier strategic thinking had become confused with simple (ahem) operational effectiveness. He argued that improving operational processes merely levelled out competitors, rather than giving them a differentiation that led to competitive advantage.

Let’s survey five big ideas that Michael Porter has given us. All remain core parts of any business education.

Primary and Secondary Activities, and the Importance of the Value Chain

Porter divided corporate activities into Primary Activities and Secondary Activities.

Primary Activities are the value chain from inbound materials to production operations, to outbound goods and their distribution, to the ‘far end of the value chain‘, marketing and sales, to customer care and after sales services. Here, Porter argued, lay the ground for competitive advantage. The key task is to integrate these into one value chain.

Secondary Activities are the business support functions, like IT, HR, Procurement, Facilities Management, and Finance. These cannot create competitive advantage They can merely enable efficiency, or act as a drag on the business.

Porter’s Five Forces

Corporations sit in a competitive environment, which creates five forces.

Michael Porter's Five Forces
Michael Porter’s Five Forces

Porter’s current view is that a company must aim to use these forces to re-cast the rules of its industry, in its own favour.

Sources of Competitive Advantage, and the Three Competitive Strategies

Porter argued that there are two sources of competitive advantage:

  1. Cost – being able to sell the same products or services at a lower price than your competitors, whilst maintaining profit margins
  2. Differentiation – being able to offer products and services which your customers want, but that your competitors cannot (yet) offer

This leads him to his three competitive strategies:

  1. Cost leadership – build the capability to produce at a lower cost than anyone else
  2. Differentiation – find a new product or service, or enhance what you offer to make it different
  3. Niche focus – find a profitable niche, and dominate it

Recently, we see competitors dominating their market with a fourth strategy, based on a third source of competitive advantage: deep loyalty. How does Apple dominate? Not by offering cheaper products, certainly. Although their supply chain efficiencies mean that their margins are exceptional.

And, some would argue, not by differentiation. Whilst they often lead for a short time here, their rivals also innovate, and certainly catch up quickly. Is there much a Mac can do that a PC cannot? Is there much an iPhone can do that a Samsung cannot?

And a company with as many and varied customers as Apple cannot truly be said to serve a niche.

No, I believe the source of Apple’s current dominance is largely the loyalty of its customer base, built on historic innovation, differentiation in multiple niches, and a reputation for excellence.

Diversification

Like Ansoff before him, Porter sees diversification as a shrewd strategy that spreads a corporation’s risk. This maybe through product development, or business acquisition.

In deciding how to diversify, Porter proposes three tests:

  1. Does the new industry, product set, or niche offer attractive returns on investment? Is there the opportunity to build differentiation or cost leadership?
  2. Is the cost of entry proportionate to the likely returns? If not, the risks are too high.
  3. Does the acquisition or the new venture leave the parties better-off? This is basically Ansoff’s concept of synergy.

The National Competitive Environment

In The Competitive Advantage of Nations, Porter fully articulated a line of thinking that placed national conditions at the heart of corporate success. A strong home base with good infrastructure and healthy competition grows successful global companies. Porter’s Diamond Model sets out four factors that affect a nation’s industries.

Michael Porter's Diamond Model
Michael Porter’s Diamond Model

Michael Porter on Competitive Strategy

An old, but excellent video of Porter describing some of his main ideas.

You might enjoy the Strategy Pocketbook

… and the following earlier Pocketblogs:

 

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On Competition, again: Porter’s Five Forces

Back in the summer of 2011, we did a couple of blogs on the work of Michael Porter – one of the most serious-minded academic thinkers in the realm of corporate strategy.

In the first, ‘On Competition: Five Forces’, we surveyed his five forces model from a high vantage point and also introduced his three sources of competitive advantage.  We then, in ‘On Competition: The Far End of the Value Chain’ questioned whether there are not, in fact other sources of competitive advantage.

The Five Forces

I think it’s time to take a closer look at these five forces, and maybe question the adequacy of that model too.  So what are Porter’s Five Forces?

1. The Bargaining Power of Suppliers

If your business is dependent upon the supply of materials, assets, or people, then your suppliers have power over your business – which is increased as the market dominance of your supplier increases.  You need a strategy to keep your suppliers’ interests aligned with yours, by being as important to them as they are to you.  Dependence on a monopoly or near monopoly supplier is a route to doom.  Consider creating alternative supply sources, alternative inputs, or vertical integration to control your own supply source.

2. The Bargaining Power of Customers

It would be great to be a monopoly supplier of a commodity product.  Few are although, if you can differentiate your product sufficiently – for example, as Apple did with the launches of the iPhone and iPad – then you can simulate that position for a while.  Ultimately, the customer is king or queen: without them, you are doomed.

3. Competitive Rivalry

Existing players in your market will be jostling for customers’ attention and preferential deals for suppliers.  For most people, this is where their conception of competition ends.  Porter knew differently . . .

4. The Threat of New Entrants

When Sea and Atari were slugging it out for dominance of the games console market, who would have predicted the arrival of the Sony Playstation?  Answer: anyone familiar with this model.  They would not necessarily have known it would be Sony or that it would be successful, but the threat was there… As it was some years later, when, Atari gone, Microsoft entered the market to challenge Sega and Sony, with the X-Box.

5. The threat of Substitute Products

Somewhere in my stationery cupboard, I have a bottle of Tipp-Ex (probably set solid) and a pack of acetate sheets.  Is there a better supplier of correction fluid or a superior priced transparent paper?  Who knows?  Who cares?  I don’t use either: I print drafts from my PC and re-print when I’ve made corrections, and I project straight from my PC when I need slides.  I doubt many of my clients retain a working overhead projector (OHP).

Are there More Forces?

There you have it in a nutshell: five competitive forces that allow a business to evaluate its competitive strategy.  It is one of the most successful and widely used management models.

The last fifteen years have emphasised the rightful role of regulation as a competitive force or, rather, sometimes the failure of regulation to curb competitive behaviours (Enron, anybody?) I think we would now have to add regulatory forces to any complete analysis.

But I also have to ask, what about internal forces.  How do the social, cultural, political, operational, technological… forces within the business affect strategy.  To me, this is a big gap.

If only someone could plug it . . .

Happily, they can.
But you’ll have to wait until next week’s Pocketblog for that.

Management Pocketbooks you might Enjoy

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Stakeholder Management

The Management Pocketbooks Pocket Correspondence Course

Pocketblog has gone back to basics. This is part of an extended management course.


We are working through a series of blogs, looking at some of the essential models that a project manager will need. We will cover:

 

The Stakeholder Management Process

Stakeholder management starts during scoping, to understand their varying needs and wants, and negotiate with them  to balance stakeholders’ long shopping lists with your constrained resources. In the planning stage, you need to figure out how to win over – or at least pacify – the doubters and keep your supporters happy, so that throughout this stage and the implementation stage, you can engage with your stakeholders actively. In the evaluation stage you will need their perceptions if you want to create a full assessment of your project.

The broad process for managing stakeholders has four steps.

Stakeholder Management Process

Stakeholder Plan

Build your plan for each stakeholder, based on your assessment of:

  • what they want from you
  • what you want from them
  • what level of influence and power they have
  • how supportive or sceptical they are
  • … and any other factors

Your plan should contain:

  • The messages you want to communicate
  • The means by which you plan to communicate them
  • What attitude to take (for example: consultative, informing, instructing, requesting…)
  • The best time to deliver each message
  • Who will be responsible for preparing and delivering each message
  • How you will test whether the message has gone down as you intended
  • How you will gather feedback from the stakeholder

Stakeholders are vital to your project. It is they, after all, who will pass the final verdict on whether it has a success…

or a failure.

Further Reading

From the Management Pocketbooks series:

  1. Project Management Pocketbook
  2. The Influencing Pocketbook
  3. Handling Resistance Pocketbook
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Business Strategy Tools

The Management Pocketbooks Pocket Correspondence Course

Pocketblog has gone back to basics. This is part of an extended management course.


Over the years, Pocketblog has covered some important business strategy thinkers, so we will start by reviewing what we have.

Good Strategy/Bad Strategy

This is the name of Richard Rumelt’s book and it neatly frames any discussion of business strategy by defining what your outcome needs to look like. Take a look at ‘What makes good business strategy?

The Balanced Scorecard

In one of the all-time classic Harvard Business Review articles, Robert Kaplan and David Norton set out to ensure that our business strategies are balanced across a range of different areas of the business. The tool they introduced is nearly ubiquitous in the upper reaches of the management world, and no manager can get away without at least a passing familiarity with the Balanced Scorecard. Take a look at ’Balance is Everything’.

The McKinsey 7S Model

One of my own favourite tools is also about balance, but this time about ensuring all the elements of your business strategy and planning are all aligned. It was developed by consultants at top US firm, McKinsey: Tom Peters and Robert Waterman. The seven S model reminds us that shared values, style, skills, staff, structure, systems, and strategy must all be consistent with one another. Take a look at ‘On Competition: Internal Forces and the 7-S Model’.

The Awesome Michael Porter

Over the years, three blogs have featured the thinking of business strategy specialist, Michael Porter.

‘On Competition: Five Forces’ briefly introduced two of his principal ideas: the five forces model and his three generic business strategies that flow from them.

‘On Competition, again: Porter’s Five Forces’ took a deeper look at the five forces model.

‘On Competition – The Far End of the Value Chain’ focused on the three generic business strategies and his concept of the value chain. Here, I speculated that some businesses have found a fourth, very successful business strategy.

By the way, a recent entry in the Pocketblog Correspondence course returned to the idea of the value chain. Take a look at ‘The Value Chain’.

The Boston Consulting Group Matrix

Having finished reviewing the archives, let’s take a look at one business strategy tool. This is designed to help us answer a very simple question:

‘We have a number of products (or services) but limited resources to invest in their development and marketing. Which products (or services) should we focus our investment on?’

The folk at Boston Consulting Group who developed the tool suggested that two considerations are paramount in making our judgements:

  1. What is our market share?
    Do we have a dominant market position with this product/service, or a modest share. This dictates the base from which investment can grow or maintain our position.
  2. What is the growth potential of the market?
    Is this product in a growing, static or declining market? Clearly static and declining markets offer far less opportunity to recoup investments.

The result was a simple matrix that plots these two conditions against one-another and identifies four generic strategies. You can click on the image to enlarge it.

The Boston Consulting Group (BCG) Business Strategy Matrix

The Matrix gives us four strategies, three compelling labels for our products/services and one label that is, frankly, honest but lame.

Stars

Place your biggest investment bets on the products which dominate markets with high growth potential. If you are Samsung, you will be investing highly in mobile telephone products because the market continues to expand and you already have a dominant position.

Dogs

Do not invest – arguably, disinvest – in products which have a small share of a static or declining market. There is not much to win and you are not placed to take much of it.

Cash Cows

What do you do if you are a dominant player in a static or declining market? BCG suggested it is like having invested in a cow: you should look after it and milk it while it is healthy. This is how I read the men’s razor market. If you are one of the big players in your region (Gillette, Wilkinson Sword, Bic, for example, here in the UK), then you have a lot of investment in products and marketing, and a strong, valuable revenue stream. Over investment can gain little, as the market will never expand until men grow two heads or we need to shave more of ourselves. But if you don’t invest, you will lose the benefit of your position to your rivals. So, what do we see? Incremental investment in new – but hardly innovative – products. When I started shaving, two blades was new. Now we are up to five. By the time I no longer need to shave (about thirty years or so, I guess) I predict an eight bladed razor will be common.

Question Marks

What to call these pesky products… Does the label attach to the products or the challenge BCG found in labelling them with a cute title? Set aside that curious linguistic conundrum and we face the most difficult challenge of all. Your market is growing, so there is a big prize for the skilled/lucky investor. But your market position is weak, so you have a low chance of success against bigger rival products. Like many good tools, the BCG matrix does not give you all the answers. But it does bring your choices into stark relief.

Further Reading

From the Management Pocketbooks series:

  1. The Strategy Pocketbook
  2. Business Planning Pocketbook
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Lean Thinking

The Management Pocketbooks Pocket Correspondence Course

Pocketblog has gone back to basics. This is part of an extended management course.


Imagine that you were an Egyptian overseer, responsible for building a great pyramid for your Pharaoh. How would you want to organise things?

  • Would you want to start by knowing exactly what your Pharaoh wants?
  • Would you want to fully understand every part of the process?
  • Would you want to understand how stone moves from being part of the wall of a quarry to a perfectly fitting part of your Pharaoh’s pyramid?
  • Would you want to ensure that the giant blocks of stone arrived fast enough so the workers on the ramp always had a stone ready to move up?
  • Would you want to make sure stones got up to the top of the ramp fast enough to make sure that they were there as soon as the last stone was placed on the pyramid?
  • Would you want to avoid stones arriving too fast and causing a bottleneck?
  • Would you want to make sure every stone was perfect to avoid having to stop and find a replacement or re-dress the stone on site?

If your answer is yes to all of those questions, then congratulations: you are instinctively an ancient Lean Manager.

Lean thinking is not new: the ideas have been around for a very long time and accumulated in industry over the years. But there are a few names that are strongly associated with its emergence as a driving force in organisational effectiveness in the last years of the twentieth and early years of the twenty first century.

The thinking was done by the founder of Toyota, Sakichi Toyoda, his son, Kiichiro Toyoda, and their postWW2 production chief, Taiichi Ohno. The Toyodas set out how a production line could work best, avoiding the problems of Henry Ford’s original ‘don’t stop the flow of the line if anything goes wrong – sort it out at the end’ approach. When they could not make it work due to the flaws in their supply chain, it was Ohno who then solved the practical problems.

The message came out in a landmark study by researchers from The Massachusetts Institute of Technology (MIT). This was published in the 1991 book ‘The Machine that Changed the World’ which introduced the world to the term ‘Lean’. Two of its authors: James Womack and Daniel Jones, went on to write a series of influential books, spelling out how to apply the lean principles they had researched at Toyota, starting with ‘Lean Thinking’ and becoming even more practical, with ‘Lean Solutions’.

The Value Chain

At the heart of Lean Thinking is an understanding of the value chain, which we discussed in an earlier post. Lean thinking starts by defining value from the point of view of the end customer for your products or services. When you do this, you usually find that only a small proportion of your activities directly contribute to that value (from the customer’s perspective). The rest – including some parts of what Michael Porter described as Primary Business Activities are only necessary as supporting this value creation.

Performance improvement comes first from eliminating steps and interactions that are not necessary for value creation and then, redesigning those that are to be as effective and efficient as possible. This means less wastage due to delays, re-work, duplication, scrapping below quality products, and oversupply.

The five principles of Lean Thinking are set out below.

The Five Principles of Lean Thinking

Waste

At various points, Lean Thinking decries wastage. The Toyota production chief set out seven sources of waste that destroy value.

  1. overproduction
  2. excessive inventory
  3. defects
  4. delays
  5. unnecessary transportation of goods
  6. unnecessary movement of materials
  7. unnecessary processing or materials

Where is there waste in your organisation?

Further Reading

In 1997, James Womack founded the Lean Enterprise Institute. Its website is a valuable source of resources for understanding more about Lean thinking.

In our Management Thinkers series, you may like Taiichi Ohno: Lean Production.

From the Management Pocketbooks series:

  1. Improving Efficiency Pocketbook
  2. Improving Profitability Pocketbook
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The Value Chain

The Management Pocketbooks Pocket Correspondence Course

Pocketblog has gone back to basics. This is part of an extended management course.


The Value Chain is the complete set of processes that links everything an organisation does. Let us say you make widgets. The value chain starts with the process of sourcing raw materials, which you then purchase from a supplier, who then delivers them to you, which you process into finished widgets, that you market and sell, after which you deliver them to your customers, who incorporate your widgets into their value chain.

Most often, the value chain is represented as links in a single chain. I think that this is unrealistic. Instead, it is better to think of it as links in multiple chains, all joined up…

Value Chain

Understanding the value chain is essential for any manager who wants to step beyond their parochial role within it. Understanding and analysing your value chain will allow you to:

  • spot opportunities to create efficiencies within your part of the value chain
  • improve hand-offs with other parts of the value chain
  • appreciate the full strategic scope of the value chain and where you fit into it
  • determine where most and least value  is added and review how to improve the value to cost ratio
  • find where your competitive advantages lie
  • benchmark your performance against industry norms and best practices

Michael Porter distinguished primary business activities (the value generating activities described in the value chain) from secondary business activities, which are necessary in supporting the primary activities. These include:

  • technology and systems infrastructure implementation and maintenance
  • personnel and human resource management, including recruitment, development, appraisal, remuneration, succession, discipline
  • financial planning and management

We can view these as further side links to the value chain.

Porter was clear that a successful business must ensure that all links between elements of this full value chain are strong, if it is to thrive under the pressures of competition.

Further Reading

Two previous Pocketblogs will add to your understanding of the Value Chain:

  1. On Competition: Internal Forces and the 7-S Model
  2. On Competition – The Far End of the Value Chain

You may also like The Strategy Pocketbook

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Value Engineering: The Same for Less

Value Engineering: The Same for Less

Value Engineering: The Same for LessHow do some products achieve astonishing quality and functionality at affordable prices? The answer is in the discipline of Value Engineering.

Value Engineering is often tarred with the same brush as ‘cost-cutting‘. Although it has a similar role, it plays to a wholly different business strategy. So, let’s look at what it is and why it matters.

Continue reading Value Engineering: The Same for Less

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Charles Margerison & Dick McCann: Team Management

Charles Margerison and Dick McCann developed one of the leading tools to help managers with team performance.

When you want your team to perform well, there are two approaches you can take:

  1. Manage them well
  2. Select them for a good balance

There are tools available for each, though there are fewer to help with selecting a balanced team. Of those there are, without a doubt, Meredith Belbin‘s Team Roles is the best known by far.

But it is not the only game in town. You might choose it for its simplicity. But for sophistication, let’s look at the work of Charles Margerison and Dick McCann.

Charles Margerison and Dick McCann
Charles Margerison and Dick McCann

Charles Margerison

Charles Margerison grew up in the 1940s in the UK. He studied economics at the University of London School of Economics, securing a BSc. He remained to research a PhD in educational psychology. In 1967, he moved to Bradford University, and in 1971 was awarded his second PhD, in social science.

Some time after this, he moved to Australia, and joined the staff of University of Queensland. He was Professor of Management from 1982 to 1989.

From 1982, he worked with Dick McCann to research team management. And, in 1985, they co-founded Team Management Systems. He remains a part of the business, as well as being a director and President of Amazing People Worldwide.

Charles Margerison has written many books, including one with Dick McCann.

Dick McCann

Dick McCann also grew up in the 1940s, but in Australia. From 1961-5, he studied for a bachelor’s degree in Chemical Engineering, at the University of Queensland. He followed this with a PhD. In 1969, he moved to England, to work for BP Chemicals. There, he worked as a research engineer, and also trained as a certified accountant.

In 1974, he returned to Australia, to become a research fellow at the University of Sydney. In 1982, he started his collaboration with Charles Margerison.

In 1985, Dick McCann became the Managing Director of Team Management Systems in Australia. At the same time, his co-founder focused on European and US expansion.

Dick McCann stepped down from his director role in 2015, but remains involved in research. He is author of four books. They include Team Management: Practical New Approaches, which he co-wrote with Margerison.

Margerison and McCann’s Contribution

Margerison and McCann have developed a fair number of interconnecting models. There is too much to attempt to describe them here. They include work on:

  • Workplace values
  • Influencing skills
  • Opportunities and Obstacles

We’ll focus on their most widely used model, the Margerison-McCann Team Management Wheel. But before we can get to it, we must first understand the work that underpins it: the Margerison-McCann Types of Work Wheel.

Types of Work

Margerison and McCann interviewed with over 300 managers. They wanted to find what made a difference between good and poor performance.

When they assessed the team members’ activities, their data fell into eight work functions. They describe them as:

Advising
Gathering and reporting information

Innovating
Creating and experimenting with ideas

Promoting
Exploring and presenting opportunities

Developing
Assessing and testing the applicability of new approaches

Organising
Establishing and implementing ways of making things work

Producing
Concluding and delivering outputs

Inspecting
Controlling and auditing the working of systems

Maintaining
Upholding and safeguarding standards and processes

From their work, they suggest that different jobs have different critical functions. These need people with the right skills and competencies, to perform them well.

Margerison and McCann present these types of work in a trade-marked Types of Work Wheel, which we present here with a link back to the TMS website.

Margerison-McCann Types of Work Wheel
Margerison-McCann Types of Work Wheel http://www.tmsdi.com

Critical Work Functions

Let’s compare two examples that they offer. For each, they give three ‘critical work functions’. These make the difference between good and poor job performance.

Finance and Accounting
The critical work work functions are: Organizing, Producing and Inspecting.

Design/R&D jobs
The critical work functions are Advising, Innovating and Developing.

Team Management

From here, it isn’t hard to see how Margerison and McCann relate their work functions to individuals’ work preferences.

This creates their concept of ‘role preferences’. These are the roles in a team that people are most likely to enjoy. When people’s critical work functions match their work preferences, they are likely to:

  • be happier in their job
  • perform better

Team Role Preferences

The role preferences are:

Reporter-Adviser
Supportive. Enjoys collecting and sharing information. Knowledgeable and flexible.

Creator-Innovator
Imaginative, creative, and able to embrace complexity and uncertainty. Enjoys researching new ideas.

Explorer-Promoter
Enjoys exploring possibilities, looking for new opportunities, and then selling them to colleagues. Persuasive, fast thinking, and easily bored.

Assessor-Developer
Analytical and objective. Enjoys ideas, developing and testing new opportunities, and making them work.

Thruster-Organizer
Highly results-focused, Likes to set up systems, push forward and see results. Analytical, but quick to make decisions.

Concluder-Producer
Highly practical. Enjoys systematic planning and work processes. Takes pride in efficiency, effectiveness, and quality of outputs.

Controller-Inspector
Enjoys focusing on and controlling the detailed aspects of their work. Good at checking and enforcing standards, but less skilled with informal influencing.

Upholder-Maintainer
Likes to uphold standards and values. Can be conservative in the face of change, but has a strong sense of purpose.

How Margerison and McCan Identified their Role Preferences

Margerison and McCann worked with four measures related to how people approached work. They were strongly influenced in the choices by Carl Jung’s psychological types. So you’ll see a strong relationship to the work of Isabel Briggs-Myers and Katharine Briggs.

Margerison and McCann’s measures are:

  • How people prefer to relate with others
  • How people prefer to gather and use information
  • How people prefer to make decisions
  • How people prefer to organize themselves and others

These measures lead to RIDO scales (Relationships, Information, Decisions, Organization). And the scales showed a strong relationship to the Types of Work.

Like the Types of Work Wheel, they present their team role preferences as a Team Management Wheel. Again, we present this trademarked model with a link to the TMS website.

Margerison-McCann Team Management Wheel
Margerison-McCann Team Management Wheel – http://www.tmsdi.com

The Linker Role

At the centre of the wheel is the ‘Linker’ role. Every jobholder needs this role to be successful in their job. It involves integrating and co-ordinating other people’s work. This is both within the team, and with external players.

This role is particularly important for the team leader, as you’d expect.

Linking comprises thirteen skills:

  • six people skills
  • five task skills
  • for the team leader, two leadership skills

These, however, are the subject of a whole other model, the Linking Leader Model.

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Christopher Bartlett & Sumantra Ghoshal: Managing Across Borders

In the 1980s, globalisation was the ‘Big New Thing’. Never mind that Chinese and Levantine traders had traded across half the globe at the start of the first millennium BCE. At the forefront of thinking about how multi-national corporations could organise themselves to prosper were a truly multi-national pair: an Australian, who’d worked in London and Paris and now occupied a professorship in the US, and an Indian who’d studied in the US and was a professor in France.

Christopher Bartlett and Sumantra Ghoshal surveyed the way multinationals organised themselves and categorised when each of the structures would be appropriate. Their legacy is visible on our high streets, in our back-offices, in factories and in building services today. A huge proportion of the goods we use are sold by multinationals.

Christopher Bartlett & Sumantra Ghoshal
Christopher Bartlett & Sumantra Ghoshal

Christopher Bartlett

Christopher Bartlett was born in 1943, and grew up in Australia. He studies Economics at the University of Queensland, gaining a BA in 1964. He worked as a marketing manager for the Alcoa company in Australia, before becoming a consultant with the London office of McKinsey and Co, and then a General Manager in France, for Baxter Laboratories.

But academia called to Bartlett, and he travelled to the US, to do a Masters (1971) and then PhD (1979) in business administration at Harvard, joining the faculty of Harvard Business School in 1979. He remained there and is not an emeritus Professor.

Sumantra Ghoshal

Sumantra Ghoshal was born in Calcutta, India, in 1946. He studied Physics at Delhi University, gaining his BSc. From there, he worked from 1969 to 1981 at the Indian Oil Corporation.

In 1981, a Fulbright scholarship took Ghoshal to the US, where he took a an SM at MIT in 1983, then did something extraordinary. He worked on and completed two different PhD theses at two different universities, at the same time. He was awarded a PhD by MIT in 1985 and a DBA by Harvard the next year.

And in 1985, he took up a position at Insead, where he became Professor of Business Policy in 1992. Two years later, he moved to the London Business School to become Professor of Strategic Leadership. He remained there until his untimely death from brain haemorrhage in 2004.

Managing Across Borders: Strategies for Multi-National Corporations

Surveying 250 managers from 9 multinational companies, Bartlett and Ghoshal concluded that there are three principal models that multinationals followed:

The Multinational – ‘Multi-domestic’ – Corporation

The Multinational structure is a decentralised, federal organisational structure that focuses on local markets and has only loose central control. They later called this model ‘multi-domestic’, and is most responsive to local demand. The corporation looks most like a portfolio of different companies. Now, these will be seen as band portfolios in which the brands have a lot of autonomy and much of their own infrastructure.

Food and drink, and household appliances are products that most need this strategy.

The Global Corporation

The global organisation tries to gain maximum economies of scale by centralising as many of its functions as possible. This often results in brands sharing infrastructure and services, leading to a lot of strategic decisions being driven by functional expertise and priorities. Brands therefore become increasingly global and undifferentiated in local markets.

Plant and heavy machinery, technical equipment, and raw materials production are products that most need this strategy.

The International Corporation

Here, there is a lot more centralisation than in the multi-domestic corporation. But there is also more local autonomy than in the global model. One role of the centre is to facilitate knowledge transfer among the trading divisions, so they can share technologies and achieve economies, while making some of their own choices to optimise use of domestic supply chains and expertise.

Textiles, light machinery, and printing and publishing are products that most need this strategy.

A Fourth Model…

Bartlett and Ghoshal considered that these three models left open the possibility of a new, fourth structure. This would combine elements of all three, and they also assessed which of the four models would work best, according to two pressures:

  1. Pressure for Local Market Responsiveness
  2. Pressure for Global Integration

Their book on this topics, was the 1989 best-seller (often reprinted): Managing across Borders: A Transnational Solution.

Strategic Options for Multi-National Corporations - Bartlett & Ghoshal
Strategic Options for Multi-National Corporations – Bartlett & Ghoshal

When both pressures were high, their new model would be most suitable:

The Transnational Corporation

The transnational corporation is the most complex. It balances widespread global integration of technology and supply chains against the need to adapt products and services to local market preferences. It is supported by a strong central headquarters, that is able to move managers around to gain international experience and share knowledge.

Cars, consumer electronics, and pharmaceuticals are products that most need this strategy.

From Systematic Efficiency to Responsive Innovation

Bartlett and Ghoshal also discerned powerful shifts in the fundamental needs of a business strategy. Where Michael Porter had laid out strategies that would allow companies to win the largest share of a market, Ghoshal and Bartlett argued that corporations need a strategy to create value anew, and grow their market as a way of winning business. They said companies need to innovate their way out of market pressures, rather than push against them.

They also challenged the orthodoxy that began with the Scientific Management movement of Taylor, Gantt, Adamiecki, and the Gilbreths,  and then the efficiency drives of people like Ford and Sloane. Sloane’s approach of Strategy, Structure, and Systems became the McKinsey 7S model. But Bartlett and Ghoshal wanted to replace Strategy, Structure, and Systems by Purpose, Process, and People.

The three Ps were the new building blocks of a corporation. In a series of articles for the Harvard Business Review, they placed responsibility for each of these firmly on the shoulders of top management.

So here we are, in 2017. And our world is dominated by a range of global, multinational, and transnational corporations, whose focus is on process and whose mantra is people. Not a bad body of work to act as a symbol of what multinational collaboration can achieve!

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W Chan Kim & Renée Mauborgne: Blue Ocean Strategy

So here are your primary strategic choices:

  • Exploit an existing market and beat your competition
    – or –
  • Find a whole new market where there is no competition

These two approaches have been championed by some of the greatest management thinkers and corporate leaders. W Chan Kim & Renée Mauborgne gave these strategies compelling names, and championed the latter in in a phenomenally high-selling book. They called it the Blue Ocean Strategy.

W Chan Kim & Renee Mauborgne
W Chan Kim & Renee Mauborgne

W Chan Kim

W Chan Kim was born in Korea, in 1952. After studying at the University of Michigan’s Ross Business School, he joined the faculty, becoming a professor. In 1992, he moved to the prestigious European Business School, INSEAD, in France, where he is The Boston Consulting Group Bruce D. Henderson Chair Professor of Strategy and International Management and Co-Director of the INSEAD Blue Ocean Strategy Institute.

Renée Mauborgne

Like Kim, Renée Mauborgne studied and taught at the University of Michigan Ross Business School. They moved together to INSEAD. Mauborgne is an American, born in 1963 (AVGY). The two have been long term collaborators, and their primary work together has been the research and writing about corporate strategy, which led to the concept and book, called Blue Ocean Strategy.

Blue Ocean Strategy

The 2004 HBR article, Blue Ocean Strategy, and the 2005 book of the same name are both best-sellers. The book’s sales are approaching 4 million. So clearly, if you’re a manager with any interest in business strategy, you need to know about this idea.

The concept is disarmingly simple.

A Blue Ocean Strategy sees a business finding a new market that is unexploited, and creating a market space for itself. Kim and Mauborgne’s metaphor is that Oceans represent market spaces.

They contrast new market spaces (blue oceans) with existing markets (red oceans). Companies that adopt a red ocean strategy focus on beating their competition and for this, an understanding of strategic concepts like Porter’s Five Forces will help.

The critique that Kim and Mauborgne level at red ocean strategies is that they often operate in crowded (or overcrowded) markets, offer limited opportunities for growth, and require lower profit margins. The bottom line impact of a red ocean strategy is, at best, conservative.

Instead of this ‘market-competing’ approach, they advocate a ‘market-creating’ strategy, which places an emphasis on ‘value innovation’. This strategy should see customer value increasing, while costs drop, because (in Porter’s terms) you are targeting differentiation, rather than cost leadership. Differentiate yourself, they say, by finding new demand that competitors cannot yet address, and meet it.

As you’d expect from two leading academics, Kim and Mauborgne have created a Blue Ocean Strategy Institute, which they co-direct, and built a suite of analytical tools for companies to draw down on.

Critique of the Blue Ocean Strategy

The first critique could equally be seen as an endorsement. Their idea is not new. Numerous business strategy thinkers have developed and published similar ideas, like Gary Hamel, C K Prahalad, Kenichi Ohmae, and even the venerable Igor Ansoff.

The second critique is harder for Kim and Mauborgne to shake. There is little or no empirical evidence that their strategy works, in the sense of creating lasting competitive advantage through its deliberate application.

Without a doubt, businesses have innovated throughout history, creating new markets from nowhere. And many of them have gone on to maintain dominant positions for many years. You cannot argue with the thesis that finding a Blue Ocean and quickly becoming the top predator there works. Their book is full of modern case studies.

But, who has read the book, decided to launch a blue ocean strategy, applied the tools, found some blue ocean, and created a dominant position?

The counter to this argument is: ‘it’s only been a few years’. But as time goes on, we are waiting for the evidence.

So, what is Blue Ocean Strategy?

Is it an innovative management theory that contains a deep new insight backed by rigorous research?

Or is it a brilliantly packaged re-casting of familiar and self-evident ideas, illustrated by a number of compelling case studies?

I leave you to judge.

 

 

 

 

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