Michael Porter is one of the world's most influential thinkers when it comes to strategy. He's developed different frameworks, models and tests and helped countless executives in the business and management field. What we want to do in this post is examine his formula to developing a successful strategy, to see if it will work for different sizes and organisations. Can one size really fit all?
Like all good frameworks, Porter's recipe for strategy success consists of five simple steps. It's based on the premise that 'Competitive strategy is about being different', and draws on examples like IKEA to prove the concept. So how easily adaptable are the five steps for organisations that aren't multinational corporations? Let's look at each in turn.
1. A unique value proposition. Porter's first step is to establish the type of value that an organisation will create for its customers. To do this, you need to ask yourself who your customers are, what products or services you'll focus on, and what you can charge for them. Answers to these three questions should shape your value proposition, or USP. Now, this would seem sensible for any organisation, no matter what size. Your starting point might be different - so, you might identify a gap in the market first before defining who your customers are - but pinpointing these three elements of your business should be fundamental to all your thinking.
2. A distinctive value chain. The second step is to think beyond your customer's needs. Porter explains it like this. It's essential that you know what your customer needs from your product or service. But knowing this by itself isn't enough. To make a strategy really successful, you need to think about distinctive ways that you can meet those needs. So, going back to IKEA, the value proposition (step 1) includes offering good quality furniture at a low price point. Their distinctiveness comes from the way they decided to deliver that proposition, from the experience of IKEA stores to the flat-pack design. I think this is a really interesting approach, particularly when markets are competitive. And you don't need to be a multinational to do it. You might think about how you create new partnerships to add value to your proposition, or change the way you engage with your customers. No matter what your size, it should be possible to think as much about how you deliver your services as about what they are.
3. Making strategic trade offs. Porter's next step is to be clear about what you are not going to deliver. As Porters explains, 'a trade-off means that more of one thing necessitates less of another'. Making these trade offs helps to define your offer, and enables you to focus your efforts on a specific set of priorities. This is often the hardest step for a lot of organisations. It's tough to say that you're not going to meet all the needs of all your possible customers. But it is essential, no matter what the size or shape of your organisation. Start with your purpose. What is your organisation for? Then reflect on Porter's first two steps, so you have a clear idea of your what your offer is (your value proposition) and how you're going to deliver that (your value chain). Finally, spend time thinking where your focus should be. And be bold about not doing everything.
4. Fit across value chain. The fourth step in the process is to think about how your activities fit together, and using this to further differentiate your offer from the competition. Porter uses the IKEA example to illustrate, showing how the different parts of the value chain fit together to create 'a system of activities, not a collection of parts'. Competitive advantage is further enhanced by the way all the elements fit together and reinforce each other. To me, this seems like common sense, from all sorts of angles. If you're a small organisation, making sure your activities are closely aligned means they'll be easier to manage. You'll have a clear framework that you can use to base decisions about new products or services. And a 'system of activities' will create a much stronger message to your customers, and a clearer description of your purpose.
5. Continuity over time. Finally, Porter tells us to be consistent. The strongest strategies are those that show continuity with previous decisions. Constantly changing direction is confusing, to staff and to customers. So your strategy should build on what has gone before, and use that to strengthen your position in the market. Porter is clear that this doesn't mean organisations should never innovate. But it does mean that innovation should add to your value proposition. This last step, like the four before, is equally applicable to small, medium and large organisations. Clarity about what your organisation is for should guide all your decisions. Rather than changing what you do, think about how you can make it better.
What does all this tell us? I think it shows that we shouldn't be put off by thinking that strategy models are only for large multinationals. Working through Porter's five-step framework demonstrates that companies large and small can benefit from the approach. I'm not sure if one size can ever fits all, but applying this framework to your own situation could really help your strategic planning.