Winning strategy is about being different than the best

Porter led a workshop on creating and growing a competitive strategy in Johannesburg last week at the close of the Global Leaders Africa Summit held at the Coca-Cola Dome in Northgate.

Porter is a faculty member at the prestigious Harvard Business School. He has written 17 books and over 125 articles on the issue of strategy; lectured on the subject all around the world; and his 'Micro-economics of Competitiveness' course is taught not only at Harvard but at 56 other universities.

As a starting point for the workshop, Porter stressed the need for a new conception of competition.

"The worst error in strategy," he said, "is to compete with rivals on the same dimensions." Companies should compete to be unique rather than compete to be the best.

A strategy, he explained, was about creating a unique value proposition and a different, tailored value chain. It required clear tradeoffs with organisations choosing what not to do rather than attempting to do it all. In addition, a sound strategy would ensure that the organisation's activities fitted together and reinforced each other.

However, it was important to clearly distinguish between operational effectiveness improvement and strategy. Too many companies focused on operational effectiveness - which was focused on beating the competition and which was not always sustainable.

Realistic profits

Interestingly, Porter also told delegates that creating and growing a strategy should not focus on growth. Rather, the fundamental goal of a company should be superior long-term return on investment capital (ROIC).

"Growth is good only if superiority in ROIC is achieved and sustained," he said and noted that prevalent accounting adjustments such as write-offs, write-downs and restructuring charges could obscure true economic performance and lead to bad competitive choices. "Profitability must be measured realistically, capturing the actual profits on the full investment. However, setting unrealistic profitability or growth targets can undermine strategy," he added.

According to Porter, organisations that wanted to grow strategically would have to make their strategies even more distinctive and unique.

"Introduce new technologies, features, products or services that are tailored to the strategy and which leverage other distinctive activities within the value chain. Rather than broaden the value chain, companies should look to deepen the strategic position and expand geographically to tap new regions or countries using the same positioning.

"Market expansion should be achieved through finding customers and segments that would most enhance the existing strategy and value proposition rather than trying to adjust the strategy to accommodate the perceived different needs of a different market," he said.

He warned that many companies made the mistake of believing that growth (and especially profitability) was easier to achieve in untapped or growth segments. In fact, he believed it was difficult, and often dangerous, to try to grow faster than the underlying market for an extended period.

Unique

"Industry leaders should concentrate as much, or more, on growing their unique category as on growing market share," he said.

Porter stressed that leaders within organisations had a critical role to play in the development and implementation of their strategies.

"Leaders must lead the process of choosing the company's unique position with the CEO fulfilling the position of chief strategist. The choice of strategy cannot be entirely democratic," he said.

Finally, he told the leaders attending the workshop, that as leaders, their responsibility ultimately was also to: