Rolling for Initiative is a weekly column by Scott Thorne, PhD, owner of Castle Perilous Games & Books in Carbondale, Illinois and instructor in marketing at Southeast Missouri State University. This week, Thorne gives us a primer on a key business thought leader and his impact.
Why should you care who Michael Porter is or what he does? Have you ever discussed diversifying your product lines? How about whether you have achieved the lowest costs possible? What about seeking to dominate your market niche? Have you considered whether it is better to keep all of your business activities in-house or outsource those you cannot efficiently perform (Do you keep your own books and prepare your own tax forms or have an accountant do them)? Have you ever considered what your competitive advantage is over other stores or businesses in the game industry? Have you ever thought about how you can add value to a component of your business' value chain?
All of these concepts are fundamental to a business and successful businesses have utilized them for centuries, but it took Porter, now a professor at Harvard University, to apply terms now to these concepts. Businesses always had a value chain but Porter came up with the first model showing how the process actually worked. Businesses always diversified into other product lines but Porter first applied the term to the process and developed models to show when a business should consider improving profits by reducing costs and when it should consider diversification instead.
I recently read a couple of articles by and about Porter and they refreshed my memory as to how important he is to modern business theory and thought. Though it has always existed, Porter was the first to identify and describe the concept of the competitive advantage. A business has a competitive advantage when it gives its customers a reason to purchase products or services from it rather than from competitive suppliers. A competitive advantage is something a competing business cannot easily co-opt or duplicate. Lowering a price, for example, is not a competitive advantage for most businesses because competitors can easily reduce their prices to meet yours, eliminating the competitive advantage. Location or an exclusive product line are not easily copied and can grant your business a longer term advantage over competition businesses.
I first ran across Porter's concepts in the early 1990s, reading his books Competitive Strategy and Competitive Advantage (both still available having gone through over 60 printings) and still refer students (and businesses) to his "diamond model of competition", which set the stage for most other modern models of business behavior and activity. Briefly, the diamond model of competition shows every company subject to five forces: current competition, the threat of new competition, the threat of substitutes for products and services (think PDFs for paper RPGs), bargaining power of suppliers, and the bargaining power of consumers.
Within that competitive environment, every business (even yours) has to choose one of three strategies: achieving the lowest costs (Wal-Mart), differentiating its products and services (Hollister) or dominating a niche (Amazon). Trying to do some of each only puts you in the middle of the road and, if you are in the middle of the road, you get run over by those who implement one of the three strategies fully.
You may be saying "Oh this is obvious stuff," and that is key to why Porter is so important to business management. He took, and still takes, complex concepts explains them in such a way as to make them clear and understandable by anyone. If you read business writing prior to 1979, when Porter started writing, you won't find discussion of these ideas. Post 1979, they slowly became topics for discussion at upper levels of management throughout the world. Arguably, with the exception of Peter Drucker, no other writer on business has a greater effect on the way we manage business today.
That's why you should care about Michael Porter and what he has to say.
The opinions expressed in this column are solely those of the writer, and do not necessarily reflct the views of the editorial staff of ICv2.com.
Column by Scott Thorne
Posted by ICv2 on November 18, 2012 @ 10:41 pm CT
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