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It’s been widely reported that the company co-founded by Michael Porter, the famous Harvard Business School professor who wrote The Book on business strategy, was forced into bankruptcy protection.
We’ve written several blogs about Michael Porter’s insights. How could a business started by the guru of five-force analysis, possibly one of the most widely-adopted competitive strategy in the world, possibly fail?
Why did the Monitor Group fail?
The basic premise of Porter’s approach is that by analyzing an industry’s structure and the forces shaping it, one could develop sustainable competitive positions that would reliably generate significant profitability.
Presumably the business he co-founded, the Monitor Group, used that approach. And yet it failed.
Shall we toss his theories into the dust bin of history?
Not so fast. Every business is risky. A primary reason businesses succeed and others fail is luck. Luck on market shifts, when competitors enter or leave the market, on securing key contracts with customers and suppliers.
Sure, skill is a big part of all those factors, but a lot of it is luck too. Successful entrepreneurs fail, and failed entrepreneurs succeed. The difference often is luck.
Thus, the failure of a business that follows a particular strategy, even if led by the guru himself, does not invalidate the strategy. One piece of data does not prove anything.
Lessons from the Monitor Group failure
That said, the failure of Michael Porter’s Monitor Group offers some useful lessons. First, his assumption that analyzing industry structure could by itself create sustainable competitive advantage has neither been demonstrated through research nor holds up to simple business logic.
Companies succeed if they are able to attract and retain customers profitably by providing value, not, or least not exclusively, by defeating its competitors.
Many companies grow when other companies in their industry grow. New technologies and regulatory changes, often supported by multiple competitors, can lead to everyone’s benefit, most importantly the customers and ultimately society, but also the providers in that market.
Imagine if in the early days of the Internet the primary goal of every online business had been to defeat their competitors rather than to find new customers and help grow the Internet?
That said, understanding your competitors and looking for a strategic advantage for positioning your business makes all the sense in the world. It just shouldn’t be the last word.
Good luck!
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PS: Frankly, I think Michael Porter should be honored for taking his Harvard-honed theories into the main street marketplace, putting his investments and credibility on the line, as every entrepreneur does starting every new business. There are plenty of business professors and writers who recommend all sorts of strategies they haven’t implemented themselves!
