10 Updates

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...

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16 weeks ago

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

 
Update
10

6 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

Cambodia's Famous Battambang Circus
KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat wa ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

6 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

New Zealand All Blacks Squad Announcement
KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was b ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

6 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

Federal Aviation Administration Bans All US Flights To Israel
KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the Dewan Rakyat to ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

6 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri His ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

INDIA-CHINA-DIPLOMACY-TRADE
PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the sou ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

Government Weekly Cabinet Meeting
KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over R ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk Seri Mustapa Mohamed ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

Iskandar Johor Open - Previews
JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of RM20 milli ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

EurAsia Cup presented by DRB-HICOM - Day One
PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar Schem ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyway (Kidex) ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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