Oh Professor Porter, whatever did you do?

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Is it really so bad to be “stuck in the middle”? If you can master the art of the “shifting concept” you can make any idea stick.

One of the first tricks a management guru learns is the art of the “shifting concept”. The following exchange will give you the idea. The business school professor tells the class that successful firms must establish high market share. “What about BMW?”, asks the smart alec student in the front row, who knows that BMW have a far smaller share of the world car market than many less successful companies. Ah, the professor replies triumphantly, BMW have a high market share in the luxury saloon segment.

Take another example: the claim widespread a few years ago, that quality is free: higher quality invariably leads to higher profits. It only requires a second’s thought to see that this claim is quite absurd, although a second is a long time in the world of management gurus. Harrods makes less profit than Wal-Mart, the Savoy was not as good an investment as Forte Travelodges, and Anita Brookner receives lower advances than Jeffrey Archer. Not many people need, or will pay for, the level of quality which Harrods, the Savoy and Ms Brookner provide.

I expect that several management consultants have already switched on their laptops and modems to communicate with the Editor. They will write that I have completely misunderstood what is meant by quality. Other people would say that the Waterside Inn at Bray provides better quality meals than McDonalds. That is how the Michelin guide assesses quality when it awards three stars to the Waterside Inn and does not trouble to list McDonalds at all. It is also what ordinary people mean by quality, and is why your partner will be more appreciative if you celebrate your wedding anniversary at the Waterside than at McDonalds.

But that ordinary meaning of quality is not what business gurus mean by quality. What they mean is quality relative to customer expectations, or quality relative to what you set out to achieve. By these standards, McDonalds quality is outstanding, and that is why McDonalds is such a successful company. There is a sense in which this is right. But the price a guru pays for this kind of infallibility is very high. Since there is no observation which could ever refute his claim, his maxim gives you no practical guidance.

So does the pursuit of quality mean these firms should change what they do? Should McDonalds offer duck a l’orange, or the Waterside Inn offer even more exquisite morsels at even more elevated prices? I don’t know and nor does he. And the injunction creates confusion among simple people who though that quality meant what it usually means. It had precisely that effect and British Home Stores, which though it had to move up market, only to discover that Marks & Spencer customers were happy at Marks & Spencer and British Home Stores customers didn’t want to pay the extra.

One of the most famous propositions in business strategy is Michael Porter’s injunction not to be “stuck in the middle”. “The worst strategic error is to be stuck in the middle, or to try simultaneously to pursue all the strategies. This is a recipe for strategic mediocrity and below-average performance, because pursuing all the strategies simultaneously means that a firm is not able to achieve any of them because of their inherent contradictions “(Porter, 1990, p5). “A classic example is Laker Airways, which began with a clear cost focus. Over time, Laker began adding frills, new services and new routes. The consequences were disastrous.” Porter (1985, p17).

The trouble with this proposition is that it is just not true. Porter is wrong in his account of why Laker failed, and many successful firms are stuck inthe middle. Every Sainsbury van has “good food costs less at Sainbury’s” painted on the side. Is Sainsbury’s problem today that it is stuck in the middle?

And Sainsbury is not alone. Table 1 drawn from the PIMS data base, shows how return on investment relates to strategic position. The stuck in the middle position – medium cost, medium quality – in fact does slightly better than the clearly focussed choices of high cost/high quality or low cost/low quality.

Return on investment, by strategic position (%)

Cost relative to competitors

Relative quality

Low Medium High

Low 11.7 6.8 3.4

Medium 14.2 13.9 4.8

High 19.7 17.9 13.8

Source: Cronshaw, Davis and Kay, 1994

So what does a guru do when faced with the prospect of own goal? You shift the posts. Perhaps don’t be stuck in the middle means not that you must choose one or the other, but that if you don’t succeed at something you will fail. Confronted by the Sainsbury van on British television, Porter argued that since Sainsbury was not a delicatessen, it must be a low cost competition. Yet if “good food costs less” is not a strategic position which is stuck in the middle, it is hard to know what is.

Perhaps all “don’t be stuck in the middle” means is that it’s good to be good at something. You can find support for that version from Porter as well.

“The firm failing to develop its strategy in at least one of three directions – a firm that is stuck in the middle – is in an extremely poor strategic situation.” That, at least, is true. If you look at table one, you see that firms which have high cost/low quality, don’t do very well, and indeed that the best situation to be in is to achieve high quality at low cost. But while it is always useful to have one’s intuitions confirmed, I think I already knew that.

The version of stuck in the middle that is true – you won’t succeed if you’re not good at something – is so nearly tautological as hardly to be worth enunciating. The version of it that has major content – that you cannot pursue both cost reduction and product differentiation – is clearly false. There are obvious dangers in confusing one with the other.

That is why clarity of terms and precision of concepts and essential precision of concepts are essential precursors to worthwhile knowledge on any subject, including management. Dr Joad was not simply pedantic when he argued that it all depends what you mean by market share, quality, or being stuck in the middle. It does.

M Porter Competitive Advantage (1980)

Competitive Strategy (1995)

The Competitive Advantage of Nations 1990)

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