Author Archives: Mike Clayton

About Mike Clayton

Mike is an author and speaker, specialising in personal effectiveness, project management and the management of change. When we try to make change work for us, things don't always go as planned: Shift happens! Over the years, Mike has developed personal and professional strategies to anticipate and deal with shift. You can contact Mike at mike@mikeclayton.co.uk

The Post-Truth Pocketbook

In four days, we are proud to announce the launch of the latest addition to the Management Pocketbooks series:

The Post-Truth Pocketbook

Post Truth Pocketbook

Post Truth Pocketbook

This is the perfect book to prepare you for office politics, marketing, sales, or stakeholder engagement. It’s an invaluable tool for crisis and contingency planning, and for developing your corporate message calendar.

Written by accomplished communications consultant, Ruth Spott, the Post-Truth Pocketbook is available from 1 April 2017.

Here are some of the reviews the advanced copies have received:

‘As your corporate communications bible, this is bound to surpass the bible in sales’
Pope Francis, 266th Bishop of Rome

‘I wish I’d had this book this time last year’
Nigel Farage, 267th Bishop of Rome

‘What a load of old %^&*’
Professor Brain Cox, Media Superstar

Men are deceived - Niccolo Machiavelli

Watch for our formal publication announcement in four days’ time.

 

Niccolò Machiavelli: The Prince

For the last of our solo* Management Thinkers… and Doers, we turn to a thinker on leadership and a politician supreme. His thinking has influenced 500 years’ of politicians, and has been influencing managers since the term came to have a real meaning in the mid 19th Century.

Niccolò Machiavelli arguably saw far into his future, and his writings hold genuine nuggets of wisdom and debate for today’s generation of managers.

Niccolò Machiavelli 1469-1527

Niccolò Machiavelli 1469-1527

Short Biography

Niccolò Machiavelli was born in Florence, in 1469. At the time, Italy was just a set of small, frequently warring, states. Florence was ruled by the powerful Medici family, so despite his patrician roots, there were few opportunities for a talented young man. However, the regime changed and when, in 1498, Florence became a republic, Machiavelli secured a senior administrative post as Secretary of the second Chancery.

He served Florence for 14 years in roles we may now recognise as collectively politician, civil servant, and diplomat. During this time, he travelled widely around European courts and met with powerful people.

However, in 1512, after another of Italy’s persistent small wars, and with Papal politics underwriting them, the Medici’s regained control of Florence, and Machiavelli’s career in public service came to an abrupt end. But before the tedium of exile came a short interlude (that probably seemed very long) of imprisonment and torture.

After his expulsion, Machiavelli turned to writing and very soon (1513) produced the book for which he is best known, Il Principe, or The Prince. A large number of other political books followed, along with dramatic and historical works. After another 14 years of working his land and writing in the evenings, Machiavelli died, at the age of 58, in 1527.

His name and his work, however, persist 500 years on. I wonder how many of our contemporary thinkers on politics and leadership will achieve that.

Themes from The Prince that Touch on Modern Management

I’m not the first to think of this idea. In an out-of-print book called Management and Machiavelli, Anthony Jay examines just this. Let’s look at three areas where Machiavelli’s writing offers us some food for thought.

I am not, by the way, inclined to think he necessarily offers us the ‘right’ answers. After all, although he did not use the phrase ‘the end justifies the means’, he is very much associated with that level of political pragmatism. And we all know where that can lead in the wrong hands.

And finally, before I kick off onto three themes, I want to emphasise that Machiavelli’s conception of a ‘Prince’ is not one of a royal personage, with hereditary rulership rights. Instead,  it is one of a modern ruler who takes their place by election or power; rather like the modern day rulers of our corporations.

Personal Leadership

Above all, Machiavelli believed that skillful leadership is crucial for any endeavour to thrive. And yes, he does suggest that if you can’t have both, it is better to be feared than loved. But he also plays down the importance of luck and knowledge. He says it is often easy to gain power, but harder to hold onto it, and for that you need to be shrewd. Political acumen is still very much an essential part of managerial leadership.

But he also emphasises the importance of a well organised and well-practised team, so for him a shrewd organiser will trump a charismatic leader or a technocrat any day.

Corporate Structure

This is not to say that he didn’t see a role for technocrats. He was, after all, one of them himself. In the debate, still very current, between centralisation and decentralisation, he sees a need for skilled bureaucrats to go into the parts, and run them quasi-autonomously, because of the communication challenges the late mediaeval rulers faced.

However, there are limits to this quasi-atonomy. Machiavelli favoured bureaucratic structures where place-men run components of the distant territories, over federal structures of self governing territories. In the latter, he sees too much scope for these small leaders to build a power base and overthrow the overall ruler. In the bureaucratic structure, it is easier for the prince to exert control, and effectively divide and rule.

Two modern day examples illustrate these choices.

Berkshire Hathaway is a highly federal corporation. Each of its many divisions operates almost entirely autonomously. Its CEO and leadership team have total freedom to make the decisions they choose, to optimise their business. They can compete against one another, change direction when they need to, and need only provide the thinnest of reporting to the Berkshire Hathaway executive.

Honeywell also has a small (though nowhere near as small) centre. But its trading divisions are largely shells, served by highly technocratic functions. All the power resides with functional leads at multiple levels. Profit and Loss accountability may sit with general managers and managing directors, but their goods are designed by engineering verticals, their marketing sits with a marketing function, and cross brand sales teams sell their products.Look inside the ‘business’ that represents a go-to-market brand, and there’s little to see.

Corporate Strategy

Of course, both Berkshire Hathaway and Honeywell grew by acquisition, and Italian states grew in much the same way – but with more casualties. Machiavelli points out that subjugating a whole population is not easy. You cannot rule from afar, with the threat of oppression as your local implementation.

Instead, he tells us to swap in some of your most trusted people as key managers to replace those whom you cannot trust. Get them out of the way, and the rest of the population will fall in line, according to how well those managers meet the concerns of the populace.

And of course this leads us to every manager’s favourite quote from Machiavelli (you’ll see my own favourite next week).

‘It must be considered that there is nothing more difficult to carry out ,
nor more doubtful of success, nor more dangerous to handle, than to
initiate a new order of things.’


* We may add a few additional solo representatives to this list, from time to time, but with well over 150, we are starting to find new candidates of genuine quality thin on the ground. So we are going to turn instead to Management Pairs; thinkers and practitioners whose best work was done or is being done in collaboration. Watch out for that series to start in a couple of weeks.

Zhang Yin: Paper Empress

‘Women hold up half of the sky’

… so said Chairman Mao. And you won’t find many management publishers quoting him. But if it is figuratively true, then Chinese society has no more got the memo than has Western Society, and women still occupy a woeful proportion of its leading roles.

One exception is self-made multi-billionaire entrepreneur, Zhang Yin, whose paper empire is a dominant player in the three largest economies of the world: China, Europe, and the US. Her American Chung Nam business gathers high quality waste paper from the US and ships it to Hong Kong and China, where her Nine Dragons Paper Holdings business turns it into packaging materials for the cardboard containers used by many of the household name manufacturers like Sony, Coca Cola, and Nike.

Zhang Yin

Zhang Yin

Short Biography

Zhang Yin was born in 1957 and grew up in Guangdong, China. Although a former junior officer in the Red Army, her father was imprisoned during the Cultural Revolution, in 1966, so Zhang was unable to gain further education. She worked locally, as an accountant, before moving to Hong Kong in the early 1980s, to work in a paper trading company.

Zhang’s links to Hong Kong mean you will often see her name transliterated into its cantonese form Cheung Yan.

In 1985, the Chinese Government liberalised economic restrictions and Zhang took the opportunity to start a paper trading business in Hong Kong, with 30,000 Yuan of her own money (less than US$4,000). As her ambitions outgrew the opportunities in Hong Kong, she moved to the United States. There she re-married and, with her new husband, created America Chung Nam in 1990. Based in Los Angeles, it gathered high quality waste paper (made in the US from wood pulp) and exported it by container vessel to China, where paper pulp is of lower quality.

She expanded again, after returning to Hong Kong in 1995. With her husband and brother, Zhang created Nine Dragons Paper (NDP), which quickly became Asia’s largest manufacturer of packaging paper – mainly ‘container board’ – the corrugated cardboard used to package most of the world’s products. Of course, it uses recycled feed stock exported from around the world by America Chung Nam (ACN).

Nine Dragons is the literal translation of Kowloon, the district in Hong Kong where the business was originally based. Nine is an auspicious number in Chinese culture and the nine dragons are the sons of the Dragon King in Chinese mythology.

In 2006, the Hurun Report cited Zhang as the richest person in China with a wealth of US$3.6 billion. Without a doubt she is the richest self-made woman in the world, exceeding JK Rowling and Oprah Winfrey.

The business suffered a series of setbacks from 2007, but Zhang’s sense of privacy means there is little publicly available information to document this. But at time of writing, she remains a dollar billionaire and both ACN and NDP continue to trade successfully.

What Can We Learn from Zhang Yin?

I think managers and business people can learn a lot from Zhang Yin.

Zhang isn’t interested in celebrity, fame, fashion, or boasting of her wealth

Perhaps her primary business vice is nepotism – appointing her son (in his early 20s) to be the only non-executive director of her business. Time will tell if her counsel and mentorship makes this a wise or foolish decision. But many of the other trappings of her wealth and status seem not to interest her. She is a private person who rarely gives interviews. She just gets on with the job of running her paper empire.

Zhang spotted a big gap in a huge market

‘Where there’s muck, there’s brass’

This is a saying from the north of England. Zhang spotted a shortage of good quality waste paper to supply the Chinese paper making industry and filled that gap. At that point, she realised that the fragmented and small scale manufacturing industry in China offered a gap she could fill with one large consolidated paper packaging manufacturer. Now she had control of the raw materials and the manufacturing capacity.

Zhang has the ability to look ahead, forecast, and invest strategically

Zhang is patient and measured. Her investments grew her business rapidly but incrementally. Now it firmly trades on its green credentials. And, whilst far from the epitome of sustainability, Zhang’s paper making business at least eats its own tail: consuming the waste paper from the packaging it makes. While the world’s population has an insatiable taste for consumer products, this may be the best we can achieve.

 

 

Karol Adamiecki: Management Harmony

We tend to think of leading management theorists as coming from the United States. This seems especially so of Scientific Management. But when the privilege of naming things for the world’s largest audience goes to those who write in English, history creates a bias. And because that audience largely reads only one language, that bias gets amplified.

One of many losers from the Anglo-centric nature of management and business thinking was Karol Adamiecki. He was a Polish engineer, turned economist and management thinker, who can claim to have invented the Gantt Chart before Henry Gantt, PERT before the US Navy, the Theory of Constraints before Eliyahu Goldratt, and much of Scientific Management before FW Taylor.

Karol Adamiecki 1866-1933

Karol Adamiecki 1866-1933

Short Biography

Karol Adamiecki was born in southern Poland, in 1866. He studied engineering at the Institute of Technology in St Petersburg, graduating in 1891. He then returned to his home town, where he took charge of a steel mill. He stayed for nearly 30 years, during which time, he formed his ideas about management.

In 1919, he left the mill, and became a lecturer at the Warsaw Polytechnic, becoming a professor in 1922. There, he further codified and published his ideas. In 1925, he founded the Institute of Scientific Management in Warsaw, becoming its Director and remaining until his death in 1933.

Adamiecki’s  Law of Harmony in Management

While running the steel rolling mill, Karol Adamiecki developed sophisticated thinking around management that was, from our perspective, ahead of its time. The three principal components were:

  1. Harmony of Choice
    Management should select and supply production tools that are mutually compatible. He went on to argue that this should be especially so in terms of their output production speed. This anticipated the Theory of Constraints, and the ideas of Eliyahu Goldratt by 75 years or more.
  2. Harmony of Doing
    Sequencing and scheduling of activities need to be fully co-ordinated to optimise production efficiency. Here, he not only developed a tool that looks very similar to the Gantt Chart, well before Gantt published. His approach also anticipated the US Navy’s Program Evaluation and Review Technique (PERT) and du Pont’s Critical Path Method (CPM) by over 50 years.
  3. Harmony of Spirit
    I imagine the Pharaohs’ overseers were constantly emphasising the importance of creating a good team. But this is another theme that feels very modern – perhaps even more so than the other two. Let’s not forget that Taylor’s view of Scientific Management was mechanistic and process-oriented. It took Mayo to bring humanism to the fore, and ideas of team working in management only started to dominate from the 1970s.

Adamiecki started to publish in 1898, several years before Taylor did so.

Harmony of Doing:
The Harmonograph or Harmonogram (or Harmonograf)

In 1896, Adamiecki solved the problem of sequencing and scheduling in production and published, in1903, his solution. He called it a Harmonograf. And it looks very much like what we now call a Gantt Chart. However, Henry Gantt did not publish until 1910. There is no evidence to suggest Gantt copied Adamiecki’s idea.

In constructing the Harmonograf, however, Adamiecki describes a process that is pretty similar to the PERT and CPM methods. He certainly is able to include critical path and float. These are two concepts Gantt did not consider at all.

As Adamiecki described his methods, he was able to optimise production schedules by sliding paper tabs and arranging paper strips. In a very real sense, he developed an analog scheduling computer.

Assessment

Without a doubt, Adamiecki’s thinking was of its time, but way ahead of its rediscovery. He possibly failed to realise just how valuable it was. But more likely, he simply suffered from an Anglophone bias in scholarship and manufacturing. Publishing in Polish simply did not get him recognition far beyond the borders of his home country. Even now, it is only in the Karol Adamiecki University of Economics in Katowice, that his name is celebrated.

And I have to ask, could this happen again? Yes. I think it can, will and probably is happening now. Last week, we met Vlatka Hlupic. Arguably, her work is known despite her Croatian origin, because she lives and works in London. With the US and the UK increasingly looking to close their borders for differing but related reasons, the next Karol Adamiecki’s work could well lay undiscovered for just as long as that of the first.

Vlatka Hlupic: Humanising Management

I am always interested to learn about a new leadership model, so I give you this week’s Management Thinker, Professor Vlatka Hlupic.

Vlatka Hlupic

Vlatka Hlupic

Short Biography

Vlatka Hlupic was born in 1965 and grew up in Croatia. She studied economics at the University of Zagreb, gaining her BSc in 1988, and continuing her studies there with an MSc in Information Systems. She then moved to the London School of Economics, where she completed her PhD in Information Systems in 1993.

From there, Hlupic took up a lectureship at Brunel University, where she remained until 2005, when she moved to her current academic role as Professor of Business and Management at the University of Westminster.

In 2014, Hlupic published her first non-academic book, The Management Shift, in which she documents her thinking.

Vlatka Hlupic’s Six Box Leadership Model

Models of leadership tend to come in three main flavours:

Characteristics models suggest that to be a good leader, you must cultivate certain characteristics in yourself. These could be anything from assertiveness and decisiveness, to friendliness and charm.

Styles based models suggest that effective leadership is a matter of style. A subset are what are called situational leadership models, which suggest that the right style depends on the situation.

Roles based models set about a number of roles that a leader needs to perform. If you can perform them all, to a high standard, then you will lead well.

Of course, nobody would seriously contend that any one of these is sufficient. Clearly a leader has a range of roles to fulfil. And they will do so best when they deploy the right style at the right time, applying the right character traits.

With that context setting out of the way, we can place Vlatka Hlupic’s leadership model clearly as a role based model. Hlupic sets out six roles for leaders to fulfil. Three of them are focused on people and the way a leader addresses those around them, and three are process roles that are concerned with material and abstract elements of an organisation.

Vlatka Hlupic - 6 Box Leadership Model

Vlatka Hlupic – 6 Box Leadership Model

Humanising Management

Hlupic sees the future for organisational success as being about relinquishing a measure of control and focusing on empowering people. This is hardly original. She sets up a Taylorist paradigm as a straw person to tilt at, declaring that an over-controlling management style is demotivating and stifles staff (as did Douglas McGregor and indeed Mary Parker Follett). She advocates treating people with respect and distributing decision-making throughout the organisation.

However, the fact that her consultancy and keynote speaking business is apparently thriving tells us much about industry and governments’ continued failure to grasp these ideas.

What I think makes Hlupic’s work valuable is the suite of tools she has developed, which help her to diagnose strengths and weaknesses and to prescribe practical interventions. These are backed by her academic research.

Five Shifts to Aim for

For a summary of the shifts she advocates, we can take a look at five dichotomies that appear in her work (in my terminology, not hers):

  1. From command and control to trust and empowerment
  2. From rules to principles
  3. From giving instructions to empowering teams
  4. From transactional relationships to alliances
  5. From short term profit motives to serving stakeholders

To me, all of this seems a little like obvious idealism. And yet some of it is swimming against the tide of international affairs, where many Governments are being formed by transactional, narrow interest politicians.

I’d like to think that Hlupic’s research base will finally tip the scales and make some of the changes become commonplace. Perhaps it will. Her latest initiative is an attempt to harness popular sentiment to drive change in large organisations’ cultures. I am interested to see if she will succeed.

 

 

Vlatka Hlupic talking about how reducing control can increase profit

Deborah Tannen: Talking from 9 to 5

Deborah Tannen is not a manager. And neither is she a management thinker. But she deserves her place in this blog, for her contribution to our understanding of the way men and women communicate in the workplace.

Tannen is no merchant of easy solutions, nor a broad system-builder. Rather, she is a detailed observer of what happens when people communicate through the medium of natural language. And she has made her focus the communication between men and women.

If your working world is inhabited by both women and men, then her work should be on your reading list.

Deborah Tannen

Deborah Tannen

Short Biography

Deborah Tannen was born in 1945, in Brooklyn, and studied English Literature at Harpur College. Following her BA in 1966, she went on to get an MA at Wayne State University in 1970, before moving to the University of California, Berkeley to study linguistics. There she was awarded an MA and then a PhD in 1979.

That year, Tannen became an Assistant Professor in the Department of Linguistics at Georgetown University, where she remains today, since 1991 as a University Professor.

Tannen first came to public attention with her 1986 book, That’s Not What I Meant. This  popularised her detailed research into how we converse with one another, and the effect our style has on our relationships. Her 1990 follow-up was a huge best-seller: You Just Don’t Understand. This analyses the different conversational styles of men and women, and the impact it has on us.

However, it is Tannen’s third book for the popular market that will interest us. In 1995’s Talking from 9 to 5, she looked at the impact of the different ways men and women use language on the workplace. It links differences in style to the differences in perception and power that arise.

Since then, Tannen has written four more books that will be of interest to anyone curious about language, gender and family relationships.

Deborah Tannen’s Research and Ideas

Deborah Tannen is a sociolinguist; she studies the way different people in society use language. We are familiar with the idea of dialect: different versions of the same language arising from regional variations. Sociolinguists recognise different sociolects; different versions of a language arising in different parts of society. Sociolects can arise from just about any societal differences. Ethnolects arise from the ethnic backgrounds of the language speaker, and genderlects from the gender. Ultimately, we all speak our own personal ideolect.

Tannen’s methodology is observational and rigorous. She observes, transcribes, and analyses conversations. She does not see her role as offering solutions, but as one of relating and classifying what happens.

At the heart of Tannen’s explanation is the idea of a tension in all of us, between the need for independence from other people, and the need for involvement with them.

Deborah Tannen - Involvement and Independence

Deborah Tannen – Involvement and Independence

If your goal is to communicate information and you have no interest in involvement, then your communication is likely to be short, clear and factual. But in a social world, what it is necessary to say, and how to make it clear is far from obvious. So we add a tier of politeness that seeks to balance the need not to impose, with the desire to connect.

Many of our differences in the way we tackle day-to-day communication challenges arise from how our social norms dictate we should handle this balance.This manifests very clearly at work.

Men and Women at Work

The patterns Tannen observes are of more indirect and polite communication among women and more direct and factual communication among men. Problems arise when we fail to recognise the differences as arising from style and assume they are communicating substance.

Or, worse still, problems also arise when we do see the differences as arising from style, but we then go on to judge that style difference as representing a difference in capabilities to which it bears no relation. Glass ceiling anyone? And, although Tannen focuses on the differences arising from genderlects, let’s remember that ethnolects mean that cultural differences between people of different family heritage can also cause the same two problems: misunderstanding and prejudice.

An Example

Let’s end this brief overview with a concrete example. I’m drawing the idea for this example from Talking from 9 to 5, but embellishing it from my own experience. Let’s look at Jacqui, a female manager, and her male direct report, Anil.

Anil creates a poor report summarising the project he and Jacqui are working on. But he is new, and Jacqui does not want to demotivate him. So in giving feedback, she works hard to identify the strong points of his work, before highlighting the need for changes.

Anil re-does his report, but Jacqui is horrified. He has made few changes and the report remains inadequate. With little time left, she sees no alternative but to work late and re-write it herself.

If all of this seems reasonable, let’s look at it from Anil’s point of view. When he hears the next day about what she has done, he is angry and upset. Firstly, Jacqui lied to him. His report was not good, with the need for a few changes; it was poor. Why didn’t she tell him? Her diplomacy comes across as dishonesty.

And then Jacqui took it upon herself to re-write the report. Clearly she does not trust Anil. Jacqui’s concern to avoid asking him to work late seems to Anil like distrust.

But it gets worse. When Anil tells Jacqui what he thinks, she is upset. So when her boss comes around and asks her about how the reporting process went, she gives plenty of credit to Anil for the final report. Yet when her boss speaks to Anil, he tells the boss that Jacqui was indecisive about the report, and left her final changes to the last minute.

Jacqui’s boss leaves with the impression of Jacqui as a weak manager and Anil as a strong subordinate.

Deborah Tannen: That’s Not What I Meant! – Signals, Devices, and Rituals

 

Michael Porter: Competitive Strategy

Of all the strategic thinkers we have covered (like Igor Ansoff, Kenichi Ohmae, and Porter’s student, Kathryyn Rudi Harrigan), Michael Porter deserves a special place. His 1980 book, Competitive Strategy, transformed thinking, moving us from the pre-Porter world of strategic thinking dominated by Ansoff, to the post-Porter world that he still dominates.

Porter is an intellectual and an influencer who does not covet the easy quotability of some of his contemporaries. But the rigour of his analysis has made him all the more sought-after. His books have sold in the hundreds of thousands, and his speaking fees are legendary.

Michael Porter

Michael Porter

Short Biography

Michael Porter was born in 1947, in Michigan, and went to Princeton to study for a BSE in Aeronautical Engineering in 1969. He graduated top of his class and was inducted into the two most prestigious honor houses. He then shifted his focus to business, and went to Harvard Business School, where he received an MBA in 1971 and a PhD in Economics in 1973. From there he joined the faculty.

He remains at Harvard today, as a University Professor, and also Founding Director of Harvard Business School’s Institute for Strategy and Competitiveness, which he founded in 2001 to further his work and research.

Porter’s breakthrough came with the 1980 publication of Competitive Strategy. Other significant yet accessible books are The Competitive Advantage of Nations (1990) and the 1998 article and essay collection, On Competition. But these are among 15 other successful books and article collections.

But what you are interested in are Porter’s big ideas…

Michael Porter’s Big Ideas

Before Porter, Igor Ansoff dominated thinking on corporate strategy. His approach boiled down to choosing your market, matching your resources to meet the market’s demand, and then improving your competitiveness to increase your market share.

Michael Porter did not reject these ideas. Rather, he opened them out, approaching strategy from the perspective of the whole industry and then, later, as a national endeavour. He considered that earlier strategic thinking had become confused with simple (ahem) operational effectiveness. He argued that improving operational processes merely levelled out competitors, rather than giving them a differentiation that led to competitive advantage.

Let’s survey five big ideas that Michael Porter has given us. All remain core parts of any business education.

Primary and Secondary Activities, and the Importance of the Value Chain

Porter divided corporate activities into Primary Activities and Secondary Activities.

Primary Activities are the value chain from inbound materials to production operations, to outbound goods and their distribution, to the ‘far end of the value chain‘, marketing and sales, to customer care and after sales services. Here, Porter argued, lay the ground for competitive advantage. The key task is to integrate these into one value chain.

Secondary Activities are the business support functions, like IT, HR, Procurement, Facilities Management, and Finance. These cannot create competitive advantage They can merely enable efficiency, or act as a drag on the business.

Porter’s Five Forces

Corporations sit in a competitive environment, which creates five forces.

Michael Porter's Five Forces

Michael Porter’s Five Forces

Porter’s current view is that a company must aim to use these forces to re-cast the rules of its industry, in its own favour.

Sources of Competitive Advantage, and the Three Competitive Strategies

Porter argued that there are two sources of competitive advantage:

  1. Cost – being able to sell the same products or services at a lower price than your competitors, whilst maintaining profit margins
  2. Differentiation – being able to offer products and services which your customers want, but that your competitors cannot (yet) offer

This leads him to his three competitive strategies:

  1. Cost leadership – build the capability to produce at a lower cost than anyone else
  2. Differentiation – find a new product or service, or enhance what you offer to make it different
  3. Niche focus – find a profitable niche, and dominate it

Recently, we see competitors dominating their market with a fourth strategy, based on a third source of competitive advantage: deep loyalty. How does Apple dominate? Not by offering cheaper products, certainly. Although their supply chain efficiencies mean that their margins are exceptional.

And, some would argue, not by differentiation. Whilst they often lead for a short time here, their rivals also innovate, and certainly catch up quickly. Is there much a Mac can do that a PC cannot? Is there much an iPhone can do that a Samsung cannot?

And a company with as many and varied customers as Apple cannot truly be said to serve a niche.

No, I believe the source of Apple’s current dominance is largely the loyalty of its customer base, built on historic innovation, differentiation in multiple niches, and a reputation for excellence.

Diversification

Like Ansoff before him, Porter sees diversification as a shrewd strategy that spreads a corporation’s risk. This maybe through product development, or business acquisition.

In deciding how to diversify, Porter proposes three tests:

  1. Does the new industry, product set, or niche offer attractive returns on investment? Is there the opportunity to build differentiation or cost leadership?
  2. Is the cost of entry proportionate to the likely returns? If not, the risks are too high.
  3. Does the acquisition or the new venture leave the parties better-off? This is basically Ansoff’s concept of synergy.

The National Competitive Environment

In The Competitive Advantage of Nations, Porter fully articulated a line of thinking that placed national conditions at the heart of corporate success. A strong home base with good infrastructure and healthy competition grows successful global companies. Porter’s Diamond Model sets out four factors that affect a nation’s industries.

Michael Porter's Diamond Model

Michael Porter’s Diamond Model

Michael Porter on Competitive Strategy

An old, but excellent video of Porter describing some of his main ideas.

You might enjoy the Strategy Pocketbook

… and the following earlier Pocketblogs: