Harvard's #1 Strategy Guru on the Key Decision for Your Business
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Competition has brought many once-dominant names to the brink of survival – General Motors, Kodak, Sears and Xerox. Advisors ignoring the important lesson here do so at their peril.
“For your business to thrive, you shouldn’t compete to be the best. Rather, you should compete to be unique.”
That was the key message delivered at a recent talk by Harvard Business School’s Michael Porter. The author of 18 books on strategy and six-time winner of the award for best Harvard Business Review article of the year, Porter is today’s undisputed leading voice on competitive strategy and positioning.
And he had an important message for financial advisors.
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The flaw with being the best
Porter began by addressing the flaws with the goal of being the best, a notion popularized by former General Electric CEO Jack Welch, whose dictum was to exit any business in which GE couldn’t be a top three player in market share.
Porter presented a different view. The notion that you have to be the best comes from the worlds of sports and war, where there is one winner. The problem with that “winner take all” mindset is that the field is littered with the losers, with only one winner emerging. The battle to be the best also leads to a focus on operational excellence, where businesses strive to out-execute, doing the same things as their competitors, only better.
There are two big downsides to this approach. First, given the growing focus on industry “best practices,” this is a difficult strategy to sustain over time. And second, focus on operational efficiency alone leads to a downward spiral of price competition as firms try to squeeze other entrants by capitalizing on their lower cost structure.
In Porter’s view, a better analogy comes from the performing arts, where you can have many outstanding entertainers and actors, each building his or her own distinct audience. And by having multiple performers thriving, they expand the total audience as a result.And he pointed to retailing, where it’s possible to have successful companies as different as Walmart and Costco on one hand and Tiffany’s, Hermes and Coach on the other. The thing that successful retailers have in common: They have homed in on a distinct audience.