HENLEY ALUMNI ASSOCIATION – MALTA
NEWSLETTER – 24 July 2010
Issue No: 228
A fortnightly newsletter to keep Henley Alumni Association – Malta (HAAM) members
informed with latest management practices and with news and activities of HAAM.
The contents of this edition are:
Introduction
Management Concepts
Porter’s five competitive forces
Leading Management Thinkers
Michael Porter
Members Section
Presentation: How To Blast Open Big Doors In
Business And Life - 29th July 2010
News from Henley Business School Appointed new Dean of Henley Business
School
News from HAAM
Future Acitivities
Introduction
This e-Newsletter is designed as a Web page so as to facilitate navigating through its
pages. Using Word for Microsoft 97 or later versions, you should be able to browse
through this document by clicking on the underlined links. These will take you to the
relevant sections of this newsletter and also to Internet resources. To achieve the latter
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Your feedback and contribution (for example sending relevant research papers, Internet
sites of interest to Alumni) would be appreciated. E-mail your feedback or request for
further information to the following address:
haam@henley.com
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Management Concepts
This section contains an article on some essential business idea/s. Remind yourself and
get to grips with key management concepts in a language that's easy to understand.
Porter’s five competitive forces
Harvard Business School’s Michael Porter remains one of the world’s most influential
business thinkers. When it appeared in 1979, his article in the Harvard Business Review,
“How Competitive Forces Shape Strategy,” changed the way companies thought about
strategy forever. The article has been rated the tenth most influential HBR article of all
time.
In his 1980 book Competitive Strategy: Techniques for Analyzing Industries and
Competitors, Porter developed the model still regarded as essential reading for strategy
makers and MBA students the world over. His timing was impeccable. Publication of his
model coincided with a wholesale rethink of Western business principles. In the 1970s,
corporate America had watched in horror as Japanese companies stole market share in
industry after industry. Initially, US companies put Japanese competitiveness down to
cheap labor, but by the end of the decade it was dawning on them that there was
something more fundamental was occurring. Porter encouraged a complete re-evaluation
of the nature of competitiveness.
While completing his PhD at Harvard, Porter was influenced by the economist Richard
Caves, who became his mentor. He joined the Harvard faculty at the age of 26, becoming
one of the youngest tenured professors in the school’s history. He subsequently left the
Harvard economics department to join the faculty of Harvard Business School. In so
doing, Porter was one of the first serious academics to recognize the wider applications of
his discipline to the business community. At HBS, Porter’s great achievement was to
produce well researched models of competitiveness at a corporate, industry-wide and
national level. He took an industrial economics framework called the structure-conduct
performance paradigm (SCP) and translated it into the context of business strategy. In so
doing, he adapted and popularized a model which might otherwise have remained buried
in the academic literature.
From this emerged the five forces framework developed in his 1980 book. “In any
industry, whether it is domestic or international or produces a product or a service, the
rules of competition are embodied in five competitive forces,” he wrote.
These five forces, he asserted, shape the competitive landscape. Initially, they were
passively interpreted as the facts of competitive life – the current rules of engagement.
But by laying them bare, Porter provided a framework for companies to understand and
challenge the competitive markets in which they operate. For strategy makers, the five
forces represented levers upon which any strategy must act on if it is to have an impact
on a company’s competitive position.
“The collective strength of these five competitive forces determines the ability of firms in
an industry to earn, on average, rates of return on investment in excess of the cost of
capital. The strength of the five forces varies from industry to industry, and can change as
an industry evolves,” Porter observed.
A late addition to his book was the concept of generic strategies. He argued that there
were three “generic strategies,” “viable approaches to dealing with … competitive forces.”
Strategy, in Porter’s eyes, was a matter of how to compete. The first of Porter’s generic
strategies was differentiation, competing on the basis of value added to customers
(quality, service, differentiation) so that customers will pay a premium to cover higher
costs. The second was cost-based leadership, offering products or services at the lowest
cost. Under this strategy, quality and service are not unimportant, but cost reduction
provides differentiation. The third generic strategy identified by Porter was focus. It
asserted that companies with a clear strategy outperform those whose strategy is unclear
or those who attempt to achieve both differentiation and cost leadership.
“Sometimes the firm can successfully pursue more than one approach as its primary
target, though this is rarely possible,” he said. “Effectively implementing any of these
generic strategies usually requires total commitment, and organizational arrangements
are diluted if there’s more than one primary target.”
If a company failed to follow any of the three generic strategies it was liable to encounter
problems. “The firm failing to develop its strategy in at least one of the three directions – a
firm that is stuck in the middle – is in an extremely poor strategic situation,” Porter wrote.
“The firm lacks the market share, capital investment, and resolve to play the low-cost
game, the industry-wide differentiation necessary to obviate the need for a low-cost
position, or the focus to create differentiation or low cost in a more limited sphere. The
firm stuck in the middle is almost guaranteed low profitability. It either loses the highvolume customers who demand low prices or must bid away its profits to get this
business away from low-cost firms. Yet it also loses high-margin businesses – the cream
– to the firms who are focused on high-margin targets or have achieved differentiation
overall. The firm stuck in the middle also probably suffers from a blurred corporate culture
and a conflicting set of organizational arrangements and motivation system.”
When Competitive Strategy was published, in 1980, Porter’s generic strategies offered a
rational and straightforward method of companies extricating themselves from strategic
confusion. It was, however, short-lived. Less than a decade later, companies were having
to compete on all fronts. They had to be differentiated, through improved service or
speedier development, and be cost leaders, cheaper than their competitors.
“Porter’s translation did not resolve, and could not resolve, the fundamental weakness of
the SCP approach. Why did some companies manage the five forces better than others?”
notes John Kay, former head of Oxford’s Said Business School. (1)
Porter’s five competitive forces are:
1. The entry of new competitors: new competition necessitates some sort of competitive
response which will inevitably require resources, thus reducing profits.
2. The threat of substitutes: the presence of viable alternatives to your product or service
in the marketplace, will mean that the prices you can charge will be limited.
3. The bargaining power of buyers: if customers have bargaining power they will use it.
This will reduce profit margins and, as a result, affect profitability.
4. The bargaining power of suppliers: given power over you, suppliers will increase their
prices and adversely affect your profitability.
Rivalry among existing competitors: competition leads to the need to invest in marketing,
R&D or price reductions, which will reduce your profits.
The five forces analysis has since been updated by Porter acolytes and a sixth force has
been suggested. This is complementors: the dependencies that you develop in a
business on companies whose products work in conjunction with yours, so that they have
synergy. In modern business, this is an increasingly significant force. The example often
cited is the synergistic link between Microsoft and Intel.
Kay, John “Why gurus should cross the bridge into business”, Financial Times, 17
November 1997.
Key Reading
Porter, Michael (1979) “How Competitive Forces Shape Strategy” Harvard Business Review
Porter, Michael (1980) Competitive Strategy, Free Press, New York
Porter, Michael (1985) Competitive Advantage, Free Press, New York
Porter, Michael (1990) The Competitive Advantage of Nations, Macmillan, London
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Leading Management Thinkers
This page gives a short profile and backgrounder on the leading management thinkers,
past and present
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Michael Porter
Michael Porter (b. 1947) is the benchmark: someone with high academic credibility who
has managed to create a successful business. But, Porter was always destined to overachieve – an aeronautical engineer, economist, best-selling author and one of Harvard’s
youngest tenured professors.
Porter's genius has lain in producing brilliantly researched and cogent models of
competitiveness at a corporate, industry-wide and national level. He took an industrial
economics framework - the Structure-conduct performance paradigm (SCP) - and
translated it into the context of business strategy. From this emerged his best known
model: the five forces framework.
His books include Competitive Strategy: Techniques for Analyzing Industries and
Competitors (1980); Competitive Advantage (1985); The Competitive Advantage of
Nations (1990); and, most recently, Can Japan Compete? (with Hirotaka Takeuchi and
Mariko Sakakibara, 2000).
Porter launched his own consulting business Monitor in 1983. Porter was one of the first
gurus to refer to himself as a brand. He has managed that brand carefully. His brand –
made up of his academic reputation, best-selling books, high credibility – is the
cornerstone of the business; but it isn’t all of the business. Monitor basically allows Porter
to do what he wants. He closes deals and maximizes his appearances.
Porter’s five forces framework is part of every MBA program and is b-school fodder. Every
five forces flip chart is an ad for Monitor. At a macro level, Monitor’s clients have included
AT&T and it was involved in Sears’ ill-fated move into “everyday low pricing”. A day with
Michael Porter in the flesh would cost hundreds of thousands of dollars. One ranking put
Monitor as the 49th biggest consulting firm in the world – just behind Perot Systems.
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MEMBERS SECTION
This page is dedicated to the contribution of our members. Members are invited to contribute to this page
by submitting e.g. their own profiles, research studies, job opportunities, product/service advertisements,
etc. All contributions must be in Word 97 format and not greater than 200K Bytes so as to facilitate
distribution through this Newsletter.
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“How To Blast Open Big Doors In Business And Life”
We are pleased to inform you about a presentation that is being held this coming Thursday 29th
July at 7.30pm at the Intercontinental Hotel. This event is being organised by Rotary Club La
Valette Malta and focuses on lead generation and sales methodology and also goal setting in your
personal and professional life.
For more details see the attached two pdf files and/or contact Mr. Herman Zandt MBA (Henley),
phone 2702 7286 / 99 834 527. We encourage you to attend this interesting event.
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News from Henley Business School:
Appointed new Dean of Henley Business School
Sent on behalf of the University's Vice-Chancellor
I am delighted to announce that Professor John Board has been appointed new Dean of
Henley Business School .
We are also pleased to announce that Professor Ginny Gibson has been appointed
Deputy Dean. Both of them will take up their new roles on 1 October 2010.
During the course of the day a formal press release will be distributed to the media but
the news has been posted on the Henley Business School Linked In Alumni group and
you can read an adaptation of the release and link to their biographies by clicking below:
http://www.henley.reading.ac.uk/news/hbs-120710-news.aspx
I hope you will join me in congratulating both John and Ginny. I would also like to take the
opportunity to pay tribute to Chris Bones. He has been instrumental in the smooth
creation of the new Business School which is quite some legacy. Chris will remain as
Dean until October.
Professor Gordon Marshall
Vice-Chancellor
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NEWS FROM HAAM
Latest news, appointments, events can be found in this page.
---------------------------------Future Activities
HAAM is working on a program of activities for the rest of the year. These include
traditional activities (Boat Trip, Summer BBQ, Film & Meal, cultural activities). We also
strive to bring you educational activities as opportunities arise.
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Your comments are appreciated – e-mail them to: haam@henley.com
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