Competitive Advantage. Part 1

Japanese successes shook the confidence of the western business elite, but detailed comparisons of the two management styles and examinations of successful businesses convinced westerners that they could overcome the threat. The 1980s and early 1990s produced theories explaining exactly how this could be done. They cannot all be detailed here, but some of the more important strategic advances of the decade are explained below.

Gary HamelandC. K. Prahaladdeclared that strategy needs to be more active and interactive; less “arm-chair planning” was needed. Their most well known advance was the idea ofcore competency, the idea that each organization has some functional area in which it excels and that the business should focus on opportunities in that area, letting others go.

Active strategic management required active information gathering and active problem solving. In the early days of Hewlett-Packard (HP), Dave Packard and Bill Hewlett devised an active management style that they called management by walking around (MBWA). Senior HP managers were seldom at their desks. They spent most of their days visiting employees, customers, and suppliers. This direct contact with key people provided them with a solid grounding from which viable strategies could be crafted. Management consultants Tom Peters and Robert H. Waterman had used the term in their 1982 book In Search of Excellence: lessons from America's best-run companies. Some Japanese managers employ a similar system, which originated at Honda, and is sometimes called the 3 G's (Genba, Genbutsu, and Genjitsu, which translate into “actual place”, “actual thing”, and “actual situation”).

Probably the most influential strategist of the decade was Michael Porter. He introduced many new concepts including; 5 forces analysis, generic strategies, the value chain, strategic groups and clusters. In 5 forces analysis he identified the forces that shape the strategic environment. It is like a SWOT analysis with structure and purpose. It shows how a firm can use these forces to obtain sustainable competitive advantage. Porter modifies Chandler's dictum about structure following strategy by introducing a second level of structure: while organizational structure follows strategy, it in turn follows industry structure. Porter's generic strategies detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies. Although he did not introduce these terms, he showed the importance of choosing one of them rather than trying to position your company between them. He also challenged managers to see their industry in terms of a value chain. A firm will be successful only to the extent that it contributes to its industry's value chain. This forced management to look at its operations from the customer's point of view.