No, Michael Porter is not dead.  Only the consulting firm that he co-founded in 1983 is gone.  Today, the global accounting giant, Deloitte, announced that it had completed its acquisition of Monitor, which had filed for bankruptcy this past November.  As reported in The Economist last November 14th, the once proud firm, “was able to compete with the likes of much bigger McKinsey, the Boston Consulting Group and Bain.”

No mention was made in the announcement of what role Porter might play in the newly formed division of Deloitte but he remains a highly regarded professor at the Harvard Business School.

Businesses come and go all the time and acquisitions are a daily occurrence.  What is of note here is that Monitor was founded by a man acclaimed as one of the great business strategists of the past century, and more importantly by his principles, best known as “Porter’s Five Forces”.  Under the guidance of the Five Forces framework and Porter’s fame, Monitor’s legions of consultants found millions of dollars of billable work among foreign governments, multi-national corporations and commodity boards.  That work began to dwindle in 2008 when Monitor had to seek a series of loans from its partners and venture capital firms in order to stay afloat.

In the November issue of Forbes, contributor and business author, Steve Denning, uses his rapier-like writing skills to tear apart both Monitor and the philosophical approach behind it.  In other words, he does some dancing on Porter’s grave.  While the article is now two months old, it makes for compelling reading if you were a believer or doubter of Porter’s framework.  Put me in the latter camp.

I first read Porter’s seminal article in the Harvard Business Review, “How Competitive Forces Shape Strategy” in 1979. I was one year out of business school and a loan officer in a commercial bank.  My mantra was a phrase coined by another business guru, Peter Drucker, and known as “Managing by walking around.”  The idea is that by engaging with people both inside and outside an organization, managers can best understand how their companies, products and management styles are perceived, how they perform and what to do about them.  That’s a simple concept that one could explain in an elevator between the first and second floors.

It served me well then and has since as I’ve made the practice of engaging with both internal and external audiences to find the intersection between internal capabilities and external needs as the place to find the sweet spot for successful strategy.

Porter’s Five Forces, on the other hand, require a much longer elevator ride. The idea is that by managing a framework of five market forces, a company or industry could find sustainable competitive advantage.  “The state of competition in an industry depends on five basic forces…The collective strength of these forces determines the ultimate profit potential of an industry.”

I can’t say I fully understood it in 1979 and I can pretty much say the same today.  I looked at the model then as I do now and ask, “Why is the competition at the center?  Why not the customer?” Drucker taught that the only valid purpose of a business is to create a customer.  Yet, here was Porter, saying that it’s all about dominating the competition.

I had a memorable meeting at Monitor’s Cambridge headquarters in the early nineties.  At the time, I was doing some consulting for the government of Chile on export promotion, inbound investment and tourism development.  Monitor had built up a practice in consulting in these areas and proposed a partnership.  I felt this might add some prestige to the project.  At our meeting, one of their senior consultants explained how they would apply the discipline of the Five Forces to the project.  He drew lots of squares and circles on the board labeling them various types of competitive clusters and argued that it was winning against competing countries, not customer perceptions that would win the day for Chile.

I left there confused and unconvinced that the focus should be on “competitive clusters” rather than matching what Chile offered with customer needs.  If you spend your time focusing on rivalries, you’re losing time creating more innovation to meet growing market demands and before you know it, your competition will be your problem.  As the famous baseball pitcher, Satchel Paige, said,  “Don’t look back.  Something might be gaining on you.”

As Steve Denning notes about Monitor, “Its consultants were not people with deep experience in understanding what customers might want or what is involved in actually making things or delivering services in particular industries or how to innovate and create new value.”

Today, factors such as globalization, the Internet, and the growth of social media have heightened the importance of building strategy around customers.  Now that the world is flat, customers decide who wins in every industry and political arena.  As Denning ends his article, “Monitor was crushed by the single dominant force in today’s marketplace:  the customer.”

It’s hard to argue against the man who is one of the most cited scholars in economics and business and whose ideas are widely used by business and government leaders around the world.  But we are in a different time where the key is satisfying customer needs for innovation, whether they be in features, quality, service, or value.  Companies like Apple, Amazon, Fresh Direct, and Kayak are just a few of the examples of how our flattened world has given power to customers.

Our consulting approach is to put customers at the center and to understand their frustrations.  After all, a frustration is simply an unmet need.  Find the innovation to serve that need, erase the frustration and you’ll find a successful business — that’s a short speech in any elevator.

Tags: Amazon, Apple, Assumptions, Change, Chile, competitive clusters, Corporate Myopia, Customers, Deloitte, elevator speech, Five Forces, Forbes, Fresh Direct, futureshift, Governments, Harvard Business School, Kayak, Managing by walking around, Michael Porter, Monitor, Monitor Group, Outcomes, Peter Drucker, Porter's Five Forces, Positioning, Satchel Paige, Situation Analysis, Steve Denning, Strategy, Trade Associations, U.S. Marketplace, Winning

This is the fourth installment in a series on Mistakes Countries Make and How They Can Get It Right.

There are consultants out there who advise foreign governments to make everything they do perfect for their target markets.  They go internal to focus on changing policy, strategy, innovation and investment over a very long period of time.  The result is that governments invest their time on getting their house in order and the problem with that is that the people walking by the house have no idea what’s going on inside.  It’s simply not a case of building the perfect country so that all the investors come running.

There’s no question that real change only takes place when countries change what they do, not just what they say.  But in our marketing driven world, it’s not enough to simply make those changes and expect the world to notice.  In the 90’s we ran national image development campaigns in the U.S. for both Norway and Chile and saw ample evidence that perceptions were changed through use of marketing tools that often are used for common everyday products.

Marketing tools play a key role as long as they represent changes that are real.  Years ago, Michael Porter wrote that strategy is only valid if it represents real operations.  In other words, you can’t sell the store without knowing the goods are on the shelves.

Countries can change policy, strategy, innovation and investment over a very long period but if no one knows about it, export development and FDI will come at a much slower pace than if there is a coordinated marketing campaign that represents the real situation.

Over the years, we’ve done a considerable amount of country positioning work (our preferred term) and continue to do so today. We’ve found governments often make three major mistakes when considering their image or brand abroad:

1. Too many internal assumptions about what foreign markets think and want. For example, New Yorkers will often talk about garbage in the streets while foreigners exalt the skyline, energy of the city and multiple entertainment options. When Americans return from Chile, they can’t stop talking about the beauty of the Andes and the perfect manners of the people who live there.  Chileans on the other hand will talk about smoggy days and can be quite self-critical.  It’s human nature.  We see things in the mirror everyday that others around us see differently.  Countries have to adjust their marketing by what others think.  Effective strategy is found at the intersection of internal capabilities and external needs.
2. Failure to conduct sufficient open-ended research to determine what’s really on people’s minds in other countries. It’s not difficult to give thousands of people closed-ended questions with multiple choice responses or agreement scales and then make our own interpretations based on internal assumptions. The problem is that closed-ended questions create bias because they predefine the range of answers.  As to agreement scales, what’s the difference between one person’s 3 and another’s 4 and why?  Nobody knows but everybody has an opinion.  Real perceptions come by asking open-ended questions that begin with “What”, “Why” and “How”.  Effective positioning campaigns cannot be conducted without knowing what people really think on an unaided basis.
3. Perfect the model before showing it to the public. There is a lot in this blog about this for good reason.  Too many countries invest too much money into defining what they are before going out to the market.  What they often find is that the market has changed and their perfected “image” model is no longer relevant.  It’s better to move earlier into the market and get feed back on what you’re doing and saying so that you can adjust as you go. Today’s online marketing tools enable incredible capabilities to gather communities of interest and shared needs that will provide feedback and become brand advocates.  Nation marketing is now about building relationships through communities, both those that are publicly available and private ones too.

Change has to be real and long-term but I don’t know of any entity, that after instituting real change, didn’t benefit from a well-conceived marketing plan.

Tags: Assumptions, Change, Chile, foreign investment, Governments, Marketing, Michael Porter, Mistakes, Norway, open-ended research, Positioning, Strategy, U.S. Marketplace