Who Should You Follow: Michael Porter Or Clayton Christensen?

Apr 2 2014, 10:52am CDT | by

Should business school professors abandon Porter’s five forces theories about business strategy in favor of Christensen’s disruptive innovation theories?

Porter’s theories suggest that the strategy for success is to dominate suppliers, customers, and direct, indirect, and new competitors in order to eliminate threats. His theories encourage executives to bulk up, i.e. to buy their competitors to reduce competition and better control their markets and vendors. Taken to an extreme, this would lead to one company in each industry or a few companies in each industry (if regulators will not allow monopolies, as we hope) who can dominate their customers and vendors. But there are still some issues in addition to the problem with monopolies or oligopolies. If Company A dominates its industry and sells to Company B which also dominates its market, who wins in that relationship? Maybe they collude to take advantage of the ultimate customers.

Secondly, with size and oligopolies, executives will seek to protect the status quo to increase profits by focusing on low-risk, evolutionary improvements to keep up with their similarly inclined competitors. Their organizational and business practices will be designed for dominance in their industry as the industry is currently structured. They become big like Barnes & Noble or Borders – but less dynamic. I know you can see what is coming. When the rules of the game change, and the old structure crumbles, the giants of the industry become dinosaurs. Think about giants such as Digital Equipment, Control Data, Sears, and so many more. Porter’s theories seem to be designed to build large, lumbering organizations that survive due to size and lack of competition. In a fast-moving world, it could be disastrous. Porter’s theories can also be a problem for:

  • Customers of the oligopolies who pay higher prices for lousier products, as with cars.
  • Small vendors who are squeezed by the giants, and who also bulk up.
  • Middle managers of the merging giants who are no longer needed and are fired.

But the strategy is great for executives of the merging companies who receive giant packages for doing little. Talk to the CEO of Time Warner Cable who sold his company to Comcast, creating a potential monopoly. He will receive $80 million for a few months of work. The selling shareholders get a premium for their shares and the buying company gets more market power and the privilege to gouge customers. Who benefits? Shareholders, executives, and Wall Street. Who loses? See above.

Porter’s theories are also not a great fit for new-business development. It is tough for new businesses to use their size and clout to dominate because, usually, they have no size or clout unless they have some unique advantages such as a fantastic patent (like Qualcomm). But the competitive advantages for newer ventures change when new industries emerge with the introduction of revolutionary innovations, which was popularized by Christensen as “disruptive innovations.” Under Porter’s theories, this is one of the “forces”, i.e. threats that the company should eliminate. But history has shown that the giants dismiss revolutionary technologies or threats when their potential or threat is not clear. By the time the threat to the slow-moving, old-school business is evident, it is usually too late. This is how entrepreneurial companies like Microsoft beat IBM, or how Amazon beat Borders and Barnes & Noble.

How does this apply to new-business development? Billion-dollar entrepreneurs, who are the uncivilized hordes, often grow by defeating dinosaurs when a revolutionary industry emerges. They are the “threat” and they are riding a new trend that shall not be denied. But business-school professors seem to love the static (Porter) over the dynamic (Christensen). Wonder why?

MY TAKE: It is time to retire Porter’s five forces. Executives of giant companies should know that they are living in a dynamic world and even the biggest empire crumbles when it does not adapt to new, revolutionary threats. Jeff Pfeffer, who is an academic at Stanford put it very diplomatically when he noted that Porter is “partly right and largely wrong”. My advice to business-school professors who are teaching Porter is to understand that you are living in a dynamic world, not a static one. Christensen’s direction is better for a dynamic world where trends are changing, and competitors and customers and vendors cannot always be controlled. I have found that lessons from billion-dollar entrepreneurs show a clearer path to new-business development for entrepreneurs or for corporate renewal with limited risk in a dynamic world.

Source: Forbes Business


Don't miss ...


<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.


blog comments powered by Disqus

Latest stories

Albania opens Communist-era nuclear bunker to public
Tirana, Nov 29 (IANS/EFE) The Albanian government has opened to the public the country's biggest Communist-era nuclear bunker, a secret symbol of the 40-year Cold War and the extravagances of the Communist regime.
Alleged flu vaccine-related deaths spark fears in Italy
Rome, Nov 29 (IANS) At least nine people were reported to have died in Italy for reasons allegedly linked to a flu vaccine which has been suspended by the Italian competent authority for drugs AIFA, media reported Friday.
Ireland to repay 9 billion euros IMF loans by year end
Dublin, Nov 29 (IANS) Irish Finance Minister Michael Noonan said Friday his country will repay 9 billion euros ($11 billion) of the bailout loans it owed to the International Monetary Fund(IMF) by the end of the year.
China to use new test to prevent Ebola
Beijing, Nov 28 (IANS) Chinese health authorities have approved three home-grown Ebola test reagents to be used for preventing the virus' spread.

Latest from the Network

Abigail Breslin slams ex Michael Clifford
Abigail Breslin has slammed her ex, Michael Clifford. The 'My Sister's Keeper' actress went on a date with the 5 Seconds of Summer guitarist last year but it seems as though it didn't end well after she released a song...
Read more on Celebrity Balla
Kevin Bacon to sizzle in Jungle
Kevin Bacon is to star in 'Jungle'. The 56-year-old actor will appear in the survival drama, which is based on the true story of Yossi Ghinsberg, an adventurer who found himself lost in the Amazon rainforest for three...
Read more on Movie Balla
Mickey Rourke to return to boxing at 62
Mickey Rourke will return to boxing aged 62. The actor will come out of retirement and step into the ring tonight (11.28.14) for the first time in 20 years as he competes against 29-year-old Elliot Seymour. He said: ''...
Read more on Celebrity Balla
Kristen Stewart: Actors are isolated
Kristen Stewart claims actors become ''isolated'' because of their fame. The 24-year-old actress has become one of the biggest movie stars in the world following her portrayal of Bella Swan in the 'Twilight' franchise...
Read more on Celebrity Balla
Burt Reynolds to sell memorabilia
Burt Reynolds is selling over 600 personal items to stave off bankruptcy. The 78-year-old Hollywood star is reportedly struggling financially so will see awards, cars and costumes go under the hammer in Las Vegas next...
Read more on Celebrity Balla
Eddie Redmayne's fear of failure
Eddie Redmayne has a fear of failure. The 'Theory of Everything' star has admitted that like fellow actor, Rachel Weisz, he worries about ever getting hired again. He said: ''I was reading an interview with Rachel Weisz...
Read more on Celebrity Balla
Where to Find Black Friday Car Deals
The Black Friday Car Sales events have gained traction over the past couple of years. This year several major brands ran nation-wide commercials announcing their Car Black Friday deals. In the beginning it was creative...
Read more on Auto Balla
Indian Aces win inaugural IPTL tie
Manila, Nov 28 (IANS) The much-awaited inaugural International Premier Tennis League (IPTL) got off to a flying start with the Indian Aces notching an impressive 26-16 first victory against the Singapore Slammers at...
Read more on Sport Balla
Australian navy's largest ship commissioned
Canberra, Nov 28 (IANS) HMAS Canberra, a 27,000-tonne landing helicopter dock (LHD), was commissioned Friday, providing the Royal Australian Navy (RAN) with one of the world's most capable and sophisticated amphibious...
Read more on Politics Balla
Sindhu, Prannoy enter Macau Open semis
Macau, Nov 28 (IANS) Indian shuttlers P.V. Sindhu and H.S. Prannoy came out with contrasting wins to enter their respective semi-finals at the $120,000 Macau Open Grand Prix Gold here Friday. While defending champion...
Read more on Sport Balla