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Richard Stacy


Why Michael Gove Should Pay Attention to the Failure of Michael Porter

Posted: 28/11/2012 12:47

This is a great article, written by Steve Denning in Forbes. It exposes fundamental flaws in the way many businesses have approached the business of strategy in recent years and it puts the focus back on the creation of value based around giving customers what they want. In a nutshell it says that success in business comes from a focus on the customer, not by focusing on 'outcompeting' your rivals. The lens that Denning uses is an exposé of the recently failed Monitor Group, established by 'legendary consulting guru' Michael Porter. Porter's philosophy was that "the essence of strategy is coping with competition." And this philosophy went on to become, according to Joan Magretta in Understanding Michael Porter "the most widely used in practice by business and government leaders around the world. His frameworks have become the foundation of the strategy field."

Here is a sample of what Denning has to say:

Sound business is unlike warfare or sports in that one company's success does not require its rivals to fail. Unlike competition in sports, every company can choose to invent its own game. As Joan Magretta points out, a better analogy than war or sports is the performing arts. There can be many good singers or actor - each outstanding and successful in a distinctive way. Each finds and creates an audience. The more good performers there are, the more audiences grow and the arts flourish.

And also:
The purpose of strategy - or business or business education - is not about coping with competition - ie a contest in which a winner is selected from among rivals. The purpose of business is to add value for customers and ultimately society.

This message is important in many ways. The world of social media has changed the terms of the relationship between organizations and customers, in a way which is giving much more power to the customer. This is because they are in a position to stop being individual customers and become connected customers and thus improve their bargaining power - be this in terms of sharing information or creating collective forms of purchasing or negotiation. It is also important at a political level, because as a society (in the UK) we have elected a government that is committed to inserting the forces of competition into every possible nook and cranny of the public realm. Education is to be reformed by dismantling systems of collaboration and management, turning the whole space into a series of individual institutions which will then compete against each other to create the best outcome. Likewise the provision of public healthcare is to be broken up into various competing units, contractors and suppliers. The visible manifestations of this approach (an approach which was, incidentally, really first established by the previous Labour government) are to be found in the explosion of points, tables, scores and rankings that are now used to try and drive competitive markets and have become the sole framework around which management now operates. (Co-incidentally I write this on a day when yet another ranking has been published exposing 'sharp inequalities' in the provision of education. Why do we remain surprised about this? A system based around competition is designed to produce sharp inequalities - winners and losers).

Denning does a very effective job in exposing why it is that a fundamentally flawed approach to strategy held sway over business for so long. Essentially it is because it created and perpetuated a type of class system within management - CEOs and other senior managers at the top became responsible for 'strategic management' lording it over the socially and intellectually inferior ranks of 'operational management' ie it was a system that allowed the already advantaged and powerful to entrench and advance their positions of advantage. This perhaps helps explain the attachment of certain political parties to this philosophy and why it is that in societies which adopt the mantra of competition and free-market fundamentalism one inevitably sees a situation where the rich get richer.

When looking at the division between strategic and operational management I am reminded of speech given at the annual bash of the Chartered Institute of Marketing I attended a few years back. The guest of honour was Alan Leighton (formerly CEO of ASDA and at the time Chairman of Royal Mail), and in his speech he delivered a devastating broadside against 'strategy' specifically the idea that there was such a thing as strategic management. As I remember, he put it thus: any business has only two types of people within it - the important people and everyone else. The important people were those at the frontline who make the products or deliver the service and the role of 'everyone else' was to help the important people do their job better. He also said something which has lodged itself in my brain ever since. "No-one ever comes to work wanting to do a bad job. If they end up doing a bad job I therefore see that as my responsibility."

The people (or more precisely the person, The Right Honourable Michael Gove MP) responsible for the public provision of education in this country, who seem so keen to lay the finger of blame on poor teaching, poor headteachers and poor schools, might like to consider the words of Alan Leighton and also the fate of Michael Porter. No teacher comes to school wanting to do a bad job. If they end up doing a bad job, whose fault is it?

Business appears to be waking up to the need to create strategy models that are based around creating value for customers, rather than out-competing their rivals - the failure of the Monitor Group being an example of this. As Denning points out - Monitor failed, not because of any failure to compete, but because it ultimately failed to service the needs of its customers. Let us hope that governments also learn that while competition has its place, creating management systems based exclusively around a focus on competition, rarely produce good outcomes.


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