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

One infant dies in Pakistan hospital
Islamabad, Nov 23 (IANS) One more infant died due to lack of oxygen in an incubator and negligence of the hospital administration in Pakistan, bringing the number of such deaths to 19 in the past five days.
 
 
American whiskey faces challenge in whisky-gulping India
Washington, Nov 23 (IANS) For the most part Indians love things American, but when it comes to their tipple, the world's largest whisky drinkers usually go for Scotch or their very own home-made brands.
 
 
Tiny shrimps hold clue to alien life
Washington, Nov 23 (IANS) A tiny shrimp residing at one of the world's deepest undersea hydrothermal vents holds clues about what life could be like on other planets, NASA scientists report.
 
 
What causes discomfort among users of contact lenses
Melbourne, Nov 23 (IANS) If you are not comfortable wearing contact lenses, it could be due to degradation of the lipid layer in the eyes' natural tear film, says a study.
 
 
 

Latest from the Network

Bayern Munich increase Bundesliga advantage
Berlin, Nov 23 (IANS) Bayern Munich extended their lead atop the Bundesliga standings with a 4-0 win over Hoffenheim as Schalke upset runner-up Wolfsburg 3-2 and Frankfurt shocked Monchengladbach with a comeback win....
Read more on Sport Balla
 
A8 Chip of iPhone 6 and iPhone 6 Plus Can Handle 4K Videos
The outstanding features of the A8 chip are continuing to be revealed, as the processor is found to have the capability of playing 4K videos on the new iPhone 6 and iPhone 6 Plus.According to Mac Rumors, the fact has...
Read more on Apple Balla
 
One infant dies in Pakistan hospital
Islamabad, Nov 23 (IANS) One more infant died due to lack of oxygen in an incubator and negligence of the hospital administration in Pakistan, bringing the number of such deaths to 19 in the past five days. The death...
Read more on Business Balla
 
American whiskey faces challenge in whisky-gulping India
Washington, Nov 23 (IANS) For the most part Indians love things American, but when it comes to their tipple, the world's largest whisky drinkers usually go for Scotch or their very own home-made brands. Indians...
Read more on Business Balla
 
Tiny shrimps hold clue to alien life
Washington, Nov 23 (IANS) A tiny shrimp residing at one of the world's deepest undersea hydrothermal vents holds clues about what life could be like on other planets, NASA scientists report. These tiny shrimps in the...
Read more on Business Balla
 
Katy Perry hits back at Australian media
Los Angeles, Nov 23 (IANS) Singer Katy Perry has called the paparazzi in Australia "perverted" and "disgusting" for following her along the beach and for asking her to pose during her visit to the country for her...
Read more on Celebrity Balla
 
Tiger Woods gets new swing coach
Miami, Nov 23 (IANS) Former World No.1 golfer Tiger Woods said that he has named Chris Como as new swing coach. Como is the fourth swing coach for Woods since the American turned professional in 1996, reports Xinhua...
Read more on Sport Balla
 
All's not well between Kourtney Kardashian, Scott Disick
Los Angeles, Nov 23 (IANS) Pregnant reality TV star Kourtney Kardashian has hinted at a relationship strife with partner Scott Disick by posting a cryptic message-based image on a social media platform. The 35-year-...
Read more on Celebrity Balla
 
$1 Samsung Galaxy S5 Best Buy Black Friday Deal is on Sale Now
Best Buy has released a new set of deals on Sunday 11/23 including a deal advertised in the Best Buy Black Friday 2014 Ad. The $1 Samsung Galaxy S5 Black Friday deal is now on sale at bestbuy.com.The regular price of...
Read more on Apple Balla
 
What causes discomfort among users of contact lenses
Melbourne, Nov 23 (IANS) If you are not comfortable wearing contact lenses, it could be due to degradation of the lipid layer in the eyes' natural tear film, says a study. Patients with discomfort showed degradation...
Read more on Business Balla