A Look At Michael E. Porter’s Competitive Advantage If It Were Written For 2023 And Beyond

Michael Porter is the father of the MBA and strategy design. I was blessed to work as a group partner at his Monitor Group company (now part of Deloitte’s consulting) and more importantly much of what he talked about in his text “Competitive Advantage, Creating and sustaining superior performance,” sits at the heart of the tens of millions of people around the world who have MBA’s. It even sits at the heart of how nations can build and sustain competitive advantage.

His ideas are Newtonian in their importance and have stood the test of recessions, wars, Web 1.0, Web 2.0 and maybe Web 3.0. His simple pentagon of pressures or areas for competitive power, supplier power, buyer power, competitive power, the threat of substitution and the threat of a new entrant are the simplest exercise you can do as a trade-off exercise on a white board.

However, we have to ask if they are the right way to think about the underlying needs of strategy trade off in a digital world where the speed and dimensions of change are frenetic, sometimes irrational and can cause explosive upsides (Zoom or Peloton in Covid) or calamitous down sides (Twitter and Netflix controversies over true subscriber numbers)?

We live in extra-ordinary times that have to question the rhythmic simplicity of the trade-offs Porter’s five competitive forces implies.

We know how Amazon has re shaped near everything. How Google has opened the door to near instant information and how Tesla has re written the rules for the automotive industry. However, it is not just the idea of doing this once from selling books online to now showing the EPL and NFL for Amazon Prime video. companies that can jump from one category to another, time and time again and be successful will be the winners.

We also know continued supply chain issues, inflation, labor shortages and a rapid reversal of unfettered global trade is going to be more pronounced in 2023 than 2023. We cannot think the way we did in 2022 in the world of 2023 and expect different results.

In The Digital Helix (Wall Street Journal best seller on strategy) one very important DNA metric was an 87% predictor of extra-ordinary economic returns. The idea that those who adjust to the idea of living in a world of constant change are very capable and their results (OPEX changes, CAPEX reductions, margin growth revenue growth and capacity for innovations) are three times better than all the other companies that index just 15% lower than they do on a constant change index. Just spend a second to chew that one over.

It’s now time to change that simple Porter pentagon and look at five new drivers of competitive management see them below. One idea, the ability to handle constant change at the highest performing levels is the primary indicator of economic success in turbulent times. There are though five underlying forces of that ability to handle constant change I call S.H.A.P.S.

Note that S.H.A.P.S., in machine learning is a mathematical method to explain the predictions of machine learning models, or really, it's about the idea for how to reverse engineer the output of a predictive algorithm.

It stands for Shapley additive explanations (Lundberg and Lee - 2017). Dig deeply into the DNA of successful digital companies as they adjust and perform over time. We know that to be empirically true since 2017.

Force One :

Signal management drives pattern recognition

Tell me something you cannot find online? Information is all around us (some real, some fake). Seeing through that noise to find signals is vital. Developing patterns for how to assess it (find more on this topic in The Digital Helix - DNA of Theme and Streams) is going to be an increasingly real strategic differentiator. Should Peloton have been tracking metrics on back to office and Covid infection rates versus pumping out more of their bikes? What signals did they miss? Should Zoom have found ways to measure the desire of their users 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 at signal management? Signal management really matters if you are open to finding new sources or ways to look at information. Pattern recognition is often seen as some sixth sense. It isn’t if you learn how to hunt, aggregate, and draw patterns from them.

Managing signals at all levels of the organization from social through to influencer feedback inside large and complex purchases is the foundational force. It’s questionable if you can stop a smarter competitor if they manage signals better than you.

Force Two:

Agile decision making is iterative not definitive

There is no one right move. It isn’t 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 image a world with short waves, occasional Tsunami’s, tidal bores and sudden Bermuda triangles can appear. Each of those need different types of decisions. The ability to be agile in how you make decisions is essential. It is not all or nothing, but maybe fast, slow and change direction. It is 100% impossible to predict the future, but it should not be 100% impossible to be able to navigate through it.

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

Force Three:

Customers permission elasticity matters

Brands are struggling to sustain historical strengths and dominance when there are so many choices for customers. Business customers and consumers are facing more ambiguity over choices than ever before. They are more open to looking at alternatives than ever before, not just companies but ways to solve challenges either not being solved or might need to be solved soon. If you do not know how strongly your customers are open to new relationships with you – I call this permission elasticity.

Knowing what that is will be vital to how you work out your opportunities for new services, products or even conversations. If you are not constantly talking with customers about their challenges and possibilities somebody else will be. Signal management, agile decision making and recognizing that the world of constant change is all around your customers too, changes how they think about what is possible for them too.

Customer’s elasticity of permission is a vital force that you should be applying. If you don’t others will open the window of opportunities with them.

Force 4:

Supply does not mean a chain any more

We get products delivered right to our door within minutes, even $7 Taco Bell orders in my zip code. Instant is going to be the new imperative and that means supply chains need to be so compressed to the point where they almost do not exist. The next few years and the last two years have and will illustrate how painful chains are, so the chains need to be broken.

This idea relates as much to people as it does to product and service delivery. It’s a primary reason why software centered companies that are in constant connection with their product and their customers in a virtuous circle (like a three circles Venn diagram) can adjust the potential economic returns almost at will based on force one, signal management, force two, agile decision making, force three, accessing customer permission. Ideas like intelligent systems and big concepts like the machine economy and edge compute center around the idea of constantly connected, learning systems that adjust to reduce the chains elements of supply to near zero.

Force Five:

Strategy is only one step ahead

Great chess players work one or two steps ahead, (Capablanca). Unlike current controversies with chess, they cannot predict the right moves many moves ahead with hidden signal indicators. It is one the seven Digital Helix DNA components. In a digital world most of the signals are absolutely in front of us, the pressure is to investigate and shop for them. The ability to build an organization capable of living like this is a new cadence and pressure. Understanding how to iteratively build and adjust strategy in near real time is the same skill so brilliantly shown by Super Bowl winning coaches. Read this chapter on, “optimal mindset,” from The Digital Helix with a Super Bowl winning coach on how he does it. This requires a constant challenging mindset – growth mindset in its purest format.

The fifth force is about building an organization capable of handling strategy as a constant examination and not just through the bi-annual management retreat. Strategy, as a fifth force is fed by exceptional signal management.

If you want to thrive and deliver repeatable strategy you need to score your whole organization against these S.H.A.P.S. variables, signal management, agile decision making, customer permission, supply without the chain and an idea that strategy cannot be more than one step ahead. Every successful company over the next twenty or maybe thirty years will need to solve these combined five forces on an ongoing basis. Strategy in an intelligent, digital first world is a constant, not just an annual retreat.

The power of systems that bring that intelligence into play on an ongoing basis will separate winners from losers in the next digital ages. The five combined forces of S.H.A.P.S. should be the new strategy imperative.

Michael Porter over you for the next book for the next millions of MBA graduates around the world. How you can get those five S.H.A.P.S. forces to work for you is the new imperative.