A look at Michael E. Porter’s competitive edge if written for 2023 and beyond

Michael Porter is the father of the MBA and strategic design. I had the good fortune to work as a group partner in his firm Monitor Group (now part of Deloitte’s consulting firm) and more importantly much of what he talked about in his text” Competitive advantage, creating and sustaining superior performance,” lies at the heart of the tens of millions of people around the world who have an MBA. It is even at the heart of how nations can create and maintain competitive advantage.

His ideas are Newtonian in their importance and have stood the test of recessions, wars, Web 1.0, Web 2.0 and perhaps Web 3.0. Its simple pentagon of pressures or areas of competitive power, supplier power, buyer power, competitive power, threat of substitution and threat of new entrant is the simplest exercise you can do as an exercise in compromise on a whiteboard.

However, we must ask ourselves if they are the right way to think about the underlying needs of strategic compromise in a digital world where the speed and dimensions of change are frenetic, sometimes irrational and can cause explosive advantages (Zoom or Platoon in Covid) or calamitous downsides (Twitter and Netflix controversies over actual follower counts)?

We live in extraordinary times that must challenge the rhythmic simplicity of trade-offs that Porter’s Five Competitive Forces entail.

We know how Amazon has redesigned almost everything. How Google opened the door to near-instant insights and how Tesla rewrote the rules of the auto industry. However, it’s not just the idea of ​​doing it once, from selling books online to streaming EPL and NFL video for Amazon Prime. companies that can jump from one category to another, over and over again and succeed will be the winners.

We also know that persistent supply chain issues, inflation, labor shortages and a rapid reversal in unfettered global trade will be more pronounced in 2023 than in 2023. We cannot think as we did in 2022 in the world of 2023 and expect different results.

In The digital propeller (The Wall Street Journal’s best-selling strategy book) a very important DNA metric was an 87% predictor of extraordinary economic returns. The idea that those who adapt to the idea of ​​living in a constantly changing world are very capable and that their results (changes in OPEX, reductions in CAPEX, margin growth, revenue growth and capacity for innovation ) are three times better than all other companies that index only 15% less than they do on a constant variation index. Just spend a second chewing that one.

Now is the time to change that simple Porter pentagon and look at five new engines of competitive management, see below. An idea, the ability to manage constant change at top performing levels is the primary indicator of economic success in turbulent times. There are, however, five forces underlying this ability to manage constant change which I call SHAPS

Note that SHAPS in machine learning is a mathematical method to explain the predictions of machine learning models, or actually it is the idea of ​​how to invert the output of a predictive algorithm .

It represents Shapley’s additive explanations (Lundberg and Lee – 2017). Dive deep into the DNA of successful digital businesses as they adapt and perform over time. We have known this to be empirically true since 2017.

Strength One:

Signal management boosts pattern recognition

Tell me something you can’t find online? Information is all around us (some true, some false). Seeing through this noise to find signals is vital. Develop models to evaluate it (read more about this in The digital propeller – DNA of Theme and Streams) is going to be an increasingly real strategic differentiator. Should Peloton have followed measures on returning to the office and Covid infection rates rather than pumping out more bikes? What signals did they miss? Should Zoom have found ways to measure its users’ desire to use more or different services from them during the transition from Covid as a crisis to Covid as a way of life? Is Facebook good or bad for signal management? Signal management is really important if you are open to finding new sources or new ways to look at information. Pattern recognition is often considered a sixth sense. This is not the case if you learn to chase them, aggregate them and draw patterns from them.

Managing signals at all levels of the organization, from social media to influencer feedback in large and complex purchases, is the fundamental strength. It’s debatable whether you can stop a smarter competitor if they handle signals better than you.

Force Two:

Agile decision making is iterative, not final

There is not one right move. It’s not just supplier power or customer power in the old model. Imagine a world where the curve of time is long and moderately predictable, like a gentle wave. Now imagine a world with short waves, occasional tsunamis, tidal bores and sudden Bermuda Triangles can appear. Each of these requires different types of decisions. The ability to be agile in how you make decisions is key. It’s not all or nothing, but maybe fast, slow and change of direction. It’s 100% impossible to predict the future, but it shouldn’t be 100% impossible to be able to navigate it.

Iterative decision-making should be guided by the idea of ​​”in-game decision-making and choice”, not by a definitive path with a binary set of choices. For force two to work, force one, signal handling is key

Force Three:

Elasticity of customer permissions matters

Brands are struggling to maintain their historic strengths and dominance when there are so many choices for customers. Business customers and consumers face more ambiguity about choices than ever before. They are more open than ever to looking for alternatives, not just businesses, but ways to solve problems that are unsolved or may soon be. If you don’t know how open your customers are to new relationships with you, I call it the elasticity of permission.

Knowing what it is will be key to knowing how you work on your opportunities for new services, products, or even conversations. If you don’t constantly talk with customers about their challenges and opportunities, someone else will. Signal management, agile decision-making, and recognizing that the ever-changing world surrounds your customers also changes the way they think about what’s possible for them, too.

The elasticity of customer permission is a life force that you must apply. If you don’t, others will open the window of opportunity with them.

Strength 4:

Supply no longer means a chain

We get products delivered right to our door in minutes, even $7 Taco Bell orders in my zip code. Snapshot is going to be the new imperative and that means supply chains have to be so compressed to the point that they hardly exist anymore. The next few years and the last two years have illustrated and will illustrate how painful the chains are, so they must be broken.

This idea is as much about people as it is about delivering products and services. This is one of the main reasons why software-centric companies that are in constant connection with their product and their customers in a virtuous circle (like a three-circle Venn diagram) can scale potential economic returns almost to will based on force one, signal management, force two, agile decision making, force three, client authorization access. Ideas like intelligent systems and big concepts like machine economics and edge computing revolve around the idea of ​​constantly connected learning systems that adapt to reduce the elements of the learning chain. near zero supply.

Force Five:

Strategy is one step ahead

The great chess players are one or two steps ahead (Capablanca). Unlike current controversies with chess, they cannot predict good moves many moves in advance with hidden signal indicators. It is one of seven digital propeller Components of DNA. In a digital world, most signals are absolutely in front of us, the pressure is to investigate and buy them. The ability to build an organization that can live like this is a new pace and pressure. Understanding how to iteratively build and adjust strategy in near real-time is the same skill so brilliantly demonstrated by Super Bowl-winning coaches. Read this chapter on “the optimal state of mind” from The digital propeller with a Super Bowl-winning coach on how he does it. It requires a constant challenge mindset – a growth mindset in its purest format.

The fifth strength is to build an organization that can manage strategy as a constant review and not just through the bi-annual management retreat. The strategy, as a fifth force, is fueled by exceptional signal management.

If you want to thrive and deliver a repeatable strategy, you need to assess your entire organization against these variables SHAPS, Signal Management, Agile Decision Making, Customer Authorization, Supply Chain Free and an idea that strategy cannot be more than one step ahead. Every successful business over the next twenty or maybe thirty years will need to address these five combined forces on an ongoing basis. Strategy in a smart, digital first world is a constant, not just an annual retreat.

The power of systems that continuously bring this intelligence into play will separate the winners from the losers in the coming digital eras. The five combined forces of SHAPS should be the new strategic imperative.

Michael Porter on you for the next book for the next millions of MBA graduates around the world. How you can make these five SHAPS strengths work for you is the new imperative.

About Chris McCarter

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