Michael Porter
Interview
MBA in één dag®
In dit miniboekje vindt u meer informatie over Michael Porter.1 Kijk voor meer tips, foto’s en videomateriaal op www.mbain1dag.nl MBA in één dag | Michael Porter
CV Michael Porter •
Michael Eugene Porter werd geboren in 1947 in Ann Arbor in Michigan, als zoon van een legerofficier.
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Hij studeerde luchtvaarttechniek aan Princeton en later bedrijfskunde aan de prestigieuze Harvard Business School in Cambridge, aan de oostkust van de VS.
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In 1971 haalde hij zijn MBA en twee jaar later promoveerde hij aan de Harvard Business School.
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Nu, ruim 20 jaar later, is hij nog altijd verbonden aan diezelfde Harvard Business School.
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Michael Porter is nu de Bishop William Lawrence University Professor.
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Michael Porter is een serieuze man die over serieuze onderwerpen schrijft en spreekt. Hij is geen typische goeroe die met allerlei anekdotes en volkse wijsheden strooit.
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Zijn eerste boek ‘Competitive Strategy’ is al meer dan 60 keer herdrukt en wereldwijd vertaald.
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Een van de belangrijkste redenen daarvoor is de heldere, praktische benadering, waarmee managers en ondernemers meteen hun voordeel kunnen doen.
2 MBA in één dag | Michael Porter
Michael Porter
MBA in ® één dag
3 MBA in één dag | Michael Porter
Michael Porter’s
Big Ideas By Keith Hammonds, February 28, 2001 The world’s most famous business-school professor is fed up with CEOs who claim that the world changes too fast for their companies to have a long-term strategy. If you want to make a difference as a leader, you’ve got to make time for strategy.
Here is how Michael E. Porter regards the business landscape: Beginning in the mid1980s, he more or less left the strategy world to its own devices, focusing his attention
“People were being tricked and misled by other ideas,” he says. Like a domineering parent, Porter seems both miffed by the betrayal and pleased by
instead on the question of international competitiveness. He advised foreign governments on their economic policies and headed a U.S. presidential commission. He wrote books and papers on industry dynamics -- from ceramics manufacturing in Italy to the robotics sector in Japan. He spoke everywhere. He was consumed by understanding the competitive advantage of nations.
his apparent indispensability. I can’t turn my back for five minutes. Well, kids, the man is back. Porter seeks to return strategy to its place atop the executive pyramid.
Then, in the mid-1990s, he resurfaced. “I was reading articles about corporate strategy, too many of which began with ‘Porter said . . . and that’s wrong.’ “ Strategy had lost its intellectual currency. It was losing adherents.
Business strategy probably predates Michael Porter. Probably. But today, it is hard to imagine confronting the discipline without reckoning with the Harvard Business School professor, perhaps the world’s best-known business academic. His first book, Competitive Strategy: Techniques for Analyzing Industries and Competitors (Free Press, 1980), is in its 53rd printing and has been translated into 17 languages. For years, excerpts from that and other Porter works have been required reading
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in “Competition and Strategy,” the first-year course that every Harvard MBA student must take. Porter’s strategy frameworks have suffered some ambivalence over the years in academic circles -- yet they have proved wildly compelling among business leaders around the world. This is the paradox that Porter faces. His notions on strategy are more widely disseminated than ever and are preached at business schools and in seminars around the globe. Yet the idea of strategy itself has, in fact, taken a backseat to newfangled notions about competition hatched during the Internet frenzy: Who needs a long-term strategy when everyone’s goal is simply to “get big fast”? With his research group, Porter operates from a suite of offices tucked into a corner of Harvard Business School’s main classroom building. At 53, his blond hair graying, he is no longer the wunderkind who, in his early thirties, changed the way CEOs thought about their companies and industries. Yet he’s no less passionate about his pursuit -and no less certain of his ability. In a series of interviews, Porter told Fast Company why strategy still matters. Business keeps moving faster -- but you better make time for strategy. It’s been a bad decade for strategy. Companies have bought into an extraordinary number of
flawed or simplistic ideas about competition -- what I call “intellectual potholes.” As a result, many have abandoned strategy almost completely. Executives won’t say that, of course. They say, “We have a strategy.” But typically, their “strategy” is to produce the highest-quality products at the lowest cost or to consolidate their industry. They’re just trying to improve on best practices. That’s not a strategy. Strategy has suffered for three reasons. First, in the 1970s and 1980s, people tried strategy, and they had problems with it. It was difficult. It seemed an artificial exercise. Second, and at the same time, the ascendance of Japan really riveted attention on implementation. People argued that strategy wasn’t what was really important -- you just had to produce a higher-quality product than your rival, at a lower cost, and then improve that product relentlessly. The third reason was the emergence of the notion that in a world of change, you really shouldn’t have a strategy. There was a real drumbeat that business was about change and speed and being dynamic and reinventing yourself, that things were moving so fast, you couldn’t afford to pause. If you had a strategy, it was rigid and inflexible. And it was outdated by the time you produced it. That view set up a straw man, and it was a ridiculous straw man. It reflects a deeply 5
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flawed view of competition. But that view has become very well entrenched. The irony, of course, is that when we look at the companies that we agree are successful, we also agree that they all clearly do have strategies. Look at Dell, or Intel, or Wal-Mart. We all agree that change is faster now than it was 10 or 15 years ago. Does that mean you shouldn’t have a direction? Well, probably not. For a variety of reasons, though, lots of companies got very confused about strategy and how to think about it. There’s a fundamental distinction between strategy and operational effectiveness. Strategy is about making choices, trade-offs; it’s about deliberately choosing to be different. Operational effectiveness is about things that you really shouldn’t have to make choices on; it’s about what’s good for everybody and about what every business should be doing. Lately, leaders have tended to dwell on operational effectiveness. Again, this has been fed by the business literature: the ideas that emerged in the late 1980s and early 1990s, such as total quality, just-in-time, and reengineering. All were focused on the nitty-gritty of getting a company to be more effective. And for a while, some Japanese companies turned the nitty-gritty into an art form. They were incredibly competitive. Japan’s obsession with operational
effectiveness became a huge problem, though, because only strategy can create sustainable advantage. And strategy must start with a different value proposition. A strategy delineates a territory in which a company seeks to be unique. Strategy 101 is about choices: You can’t be all things to all people. The essence of strategy is that you must set limits on what you’re trying to accomplish. The company without a strategy is willing to try anything. If all you’re trying to do is essentially the same thing as your rivals, then it’s unlikely that you’ll be very successful. It’s incredibly arrogant for a company to believe that it can deliver the same sort of product that its rivals do and actually do better for very long. That’s especially true today, when the flow of information and capital is incredibly fast. It’s extremely dangerous to bet on the incompetence of your competitors -- and that’s what you’re doing when you’re competing on operational effectiveness. What’s worse, a focus on operational effectiveness alone tends to create a mutually destructive form of competition. If everyone’s trying to get to the same place, then, almost inevitably, that causes customers to choose on price. This is a bit of a metaphor for the past five years, when we’ve seen widespread cratering of prices. There have been those who argue that in this
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new millennium, with all of this change and new information, such a form of destructive competition is simply the way competition has to be. I believe very strongly that that is not the case. There are many opportunities for strategic differences in nearly every industry; the more dynamism there is in an economy, in fact, the greater the opportunity. And a much more positive kind of competition could emerge if managers thought about strategy in the right way. Technology changes, strategy doesn’t. The underlying principles of strategy are enduring, regardless of technology or the pace of change. Consider the Internet. Whether you’re on the Net or not, your profitability is still determined by the structure of your industry. If there are no barriers to entry, if customers have all the power, and if rivalry is based on price, then the Net doesn’t matter -- you won’t be very profitable. Sound strategy starts with having the right goal. And I argue that the only goal that can support a sound strategy is superior profitability. If you don’t start with that goal and seek it pretty directly, you will quickly be led to actions that will undermine strategy. If your goal is anything but profitability -- if it’s to be big, or to grow fast, or to become a technology leader -- you’ll hit problems. Finally, strategy must have continuity. It can’t be constantly reinvented. Strategy is
about the basic value you’re trying to deliver to customers, and about which customers you’re trying to serve. That positioning, at that level, is where continuity needs to be strongest. Otherwise, it’s hard for your organization to grasp what the strategy is. And it’s hard for customers to know what you stand for. Strategy hasn’t changed, but change has. On the other hand, I agree that the half-life of everything has shortened. So setting strategy has become a little more complicated. In the old days, maybe 20 years ago, you could set a direction for your business, define a value proposition, then lumber along pursuing that. Today, you still need to define how you’re going to be distinctive. But we know that simply making that set of choices will not protect you unless you’re constantly sucking in all of the available means to improve on your ability to deliver. So companies have to be very schizophrenic. On one hand, they have to maintain continuity of strategy. But they also have to be good at continuously improving. Southwest Airlines, for example, has focused on a strategy of serving price-minded customers who want to go from place to place on relatively short, frequently offered flights without much service. That has stayed consistent over the years. But Southwest has been extremely aggressive about assimilating every new idea possible to deliver on that strategy. Today, it 7
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does many things differently than it did 30 years ago -- but it’s still serving essentially the same customers who have essentially the same needs. The error that some managers make is that they see all of the change and all of the new technology out there, and they say, “God, I’ve just got to get out there and implement like hell.” They forget that if you don’t have a direction, if you don’t have something distinctive at the end of the day, it’s going to be very hard to win. They don’t understand that you need to balance the internal juxtaposition of change and continuity. The thing is, continuity of strategic direction and continuous improvement in how you do things are absolutely consistent with each other. In fact, they’re mutually reinforcing. The ability to change constantly and effectively is made easier by high-level continuity. If you’ve spent 10 years being the best at something, you’re better able to assimilate new technologies. The more explicit you are about setting strategy, about wrestling with trade-offs, the better you can identify new opportunities that support your value proposition. Otherwise, sorting out what’s important among a bewildering array of technologies is very difficult. Some managers think, “The world is changing, things are going faster -- so I’ve got to move faster. Having a strategy seems to slow me down.” I argue no, no, no -- having a strategy actually speeds you up.
Beware the myth of inflection points. The catch is this: Sometimes the environment or the needs of customers do shift far enough so that continuity doesn’t work anymore, so that your essential positioning is no longer valid. But those moments occur very infrequently for most companies. Intel’s Andy Grove talks about inflection points that force you to revisit your core strategy. The thing is, inflection points are very rare. What managers have done lately is assume that they are everywhere, that disruptive technologies are everywhere. Discontinuous change, in other words, is not as pervasive as we think. It’s not that it doesn’t exist. Disruptive technologies do exist, and their threat has to be on everyone’s mind. But words like “transformation” and “revolution” are incredibly overused. We’re always asking the companies we work with, “Where is that new technology that’s going to change everything?” For every time that a new technology is out there, there are 10 times that one is not. Let’s look again at the Internet. In Fast Company two years ago, we would have read that the Internet was an incredibly disruptive technology, that industry after industry was going to be transformed. Well, guess what? It’s not an incredibly disruptive technology for all parts of the value chain. In many cases, Internet technology is actually complementary to traditional technologies. What we’re seeing is that the companies winning on the Internet use the new technology to leverage
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Great strategists get a few (big) things right. Change brings opportunities. On the other hand, change can be confusing. One school of thought says that it’s all just too complicated, that no manager can ever solve the complex problem that represents a firmwide strategy today. So managers should use the huntand-peck method of finding a strategy: Try something, see if it works, then proceed to the next. It’s basically just a succession of incremental experiments. I say that method will rarely work, because the essence of strategy is choice and trade-offs and fit. What makes Southwest Airlines so successful is not a bunch of separate things, but rather the strategy that ties everything together. If you were to experiment with onboard service, then with gate service, then with ticketing mechanisms, all separately, you’d never get to Southwest’s strategy. You can see why we’re in the mess that we’re in. Competition is subtle, and managers are prone to simplify. What we learn from looking at actual competition is that winning companies are anything but simple. Strategy is complex. The good news is that even successful companies almost never get everything right up front. When the Vanguard Group started competing in mutual funds, there was no Internet, no index funds. But Vanguard had an idea that if it could strip costs to the bone and keep fees low -- and not try to beat the market by taking on risk -- it
would win over time. John Bogle understood the essence of that, and he took advantage of incremental opportunities over time.
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their existing strategy.
You don’t have to have all the answers up front. Most successful companies get two or three or four of the pieces right at the start, and then they elucidate their strategy over time. It’s the kernel of things that they saw up front that is essential. That’s the antidote to complexity. The chief strategist of an organization has to be the leader -- the CEO. A lot of business thinking has stressed the notion of empowerment, of pushing down and getting a lot of people involved. That’s very important, but empowerment and involvement don’t apply to the ultimate act of choice. To be successful, an organization must have a very strong leader who’s willing to make choices and define the trade-offs. I’ve found that there’s a striking relationship between really good strategies and really strong leaders. That doesn’t mean that leaders have to invent strategy. At some point in every organization, there has to be a fundamental act of creativity where someone divines the new activity that no one else is doing. Some leaders are really good at that, but that ability is not universal. The more critical job for a leader is to provide the discipline and the glue that keep such a unique position sustained over time. Another way to look at it is that the leader 9
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has to be the guardian of trade-offs. In any organization, thousands of ideas pour in every day -- from employees with suggestions,
If people in the organization don’t understand how a company is supposed to be different, how it creates value compared to its rivals,
from customers asking for things, from suppliers trying to sell things. There’s all this input, and 99% of it is inconsistent with the organization’s strategy.
then how can they possibly make all of the myriad choices they have to make? Every salesman has to know the strategy -- otherwise, he won’t know who to call on. Every engineer has to understand it, or she won’t know what to build. The best CEOs I know are teachers, and at the core of what they teach is strategy. They go out to employees, to suppliers, and to customers, and they repeat, “This is what we stand for, this is what we stand for.” So everyone understands it. This is what leaders do. In great companies, strategy becomes a cause. That’s because a strategy is about being different. So if you have a really great strategy, people are fired up: “We’re not just another airline. We’re bringing something new to the world.”
Great leaders are able to enforce the tradeoffs: “Yes, it would be great if we could offer meals on Southwest Airlines, but if we did that, it wouldn’t fit our low-cost strategy. Plus, it would make us look like United, and United is just as good as we are at serving meals.” At the same time, great leaders understand that there’s nothing rigid or passive about strategy -- it’s something that a company is continually getting better at -- so they can create a sense of urgency and progress while adhering to a clear and very sustained direction. A leader also has to make sure that everyone understands the strategy. Strategy used to be thought of as some mystical vision that only the people at the top understood. But that violated the most fundamental purpose of a strategy, which is to inform each of the many thousands of things that get done in an organization every day, and to make sure that those things are all aligned in the same basic direction.
Keith H. Hammonds (khammonds@fastcompany.com) is a Fast Company senior editor based in New York.
Bron: www.fastcompany.com
10 MBA in één dag | Michael Porter
Interview
New Cluster Mapping Project Helps Companies Locate Facilities Editor’s Note: Too often corporations decide to locate facilities based solely on cost savings. And that’s shortsighted, argues Harvard Business School professor Michael Porter. Instead, business leaders should look for locations that gather industry-specific resources together in one “cluster” (think Silicon Valley or the Napa wine country) that can lead to competitive advantage. Sean Silverthorne
Porter’s Institute for Strategy and Competi tiveness has just introduced a new database tool to help corporations and policy makers pinpoint these clusters, which number fortyone in the United States. The tool, called the Cluster Mapping Project, uses statistical techniques to profile the performance over time of regional economies in the U.S., with a special focus on clusters. Clusters are geographically concentrated groups of interconnected companies, universities, and related institutions that arise out of linkages or externalities across industries. Regional economies and clusters are analyzed at various geographic levels including states, economic areas, and metropolitan areas. Access to top-level data on the CMP is free; more in-depth information is available for a modest charge. In an e-mail interview with HBS Working Knowledge editor, Sean Silverthorne, Porter discusses the importance of cluster research and the value of the CMP. Silverthorne: How can data from the Cluster
Mapping Project help corporations make better location decisions? Porter: The competitiveness of a company is strongly influenced not just by the decisions it makes and the assets inside the company, but also by the surrounding business environment in the locations at which the company operates. The business environment shapes the skills, knowledge, and technology available as well as the productivity with which a company can operate. At the core of the business environment is the cluster, or the group of interconnected firms, industries, and institutions present in a particular field. Examples of clusters include Silicon Valley, Boston in asset management, and Houston in energy. Being a part of a cluster allows a company to be more competitive because it is easier to source skilled people, access suppliers efficiently, and operate productively. In money management, for example, every road show comes to Boston because there is a cluster of major investors there, making it easier for Boston
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money managers to conduct research and gain access to company managements. Clusters allow companies to operate more productively than where they must do things themselves (vertical integration) or where they must outsource goods and ideas from distant locations. Since the existence and depth of clusters affects productivity and competitiveness, a company needs to understand where the clusters are in its business. It must understand the competitive position of its cluster versus other locations. This is important not only to inform location decisions, but also to inform how a company should direct its energy towards enhancing its cluster, both individually and collectively through trade organizations. The Cluster Mapping Project reveals the detailed patterns of cluster location across the United States. It allows an evaluation of whether a cluster is growing or shrinking in a particular region, where it is gaining or losing national share, and whether it is getting broader or narrower in depth. The data covers not only the overall cluster but also segments or “subclusters.” These further reveal the cluster’s strengths and weaknesses. The data is a powerful new tool to take location and economic development decisions to a new level of sophistication. Q: Many U.S. companies over the last twenty years, particularly in high tech, made the decision to move manufacturing offshore where costs are lower. You have argued that the location decision should involve much more than simple financial savings. What have these companies missed out on
in terms of benefits not realized? Are they less competitive today? A: There has been a tendency to look too narrowly at location decisions, focusing just on labor cost, electricity costs, tax breaks, etc. But input costs are not what matters. What matters is total cost, which depends on the quality of inputs and, most importantly, the productivity with which they can be used. Cheap labor is not really cheap if workers are unproductive. Input costs can be overshadowed by logistical costs, delays, and inefficiencies. There are hidden costs of outsourcing. The most obvious is the cost of management and coordination required to supervise disparate sites, transfer new product lines, update technologies, etc. Another cost of outsourcing is the cost of inventory. A part might be manufactured cheaply in Mexico, but shipping the part involves inventory, not to mention delays and risks. Another growing cost of outsourcing is lead time. Sourcing from Asia, for example, requires weeks for transit alone, not even considering coordination time. Product cycles are shortening, and less lead time allows companies to wait longer to make decisions on quantity, features, style, and fashion. Q: Over the next ten or twenty years, what new clusters do you think will emerge that are not now represented in the forty-one competitive clusters covered in your research? A: One of the major trends in the world economy is the aging of populations, which will create the need for retirement living,
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Q: One area companies seem not to consider in their expansion or moving plans is the inner city. But your work with, among others, the Initiative for a Competitive Inner City (www.icic.org), has shown that inner cities have advantages in terms of proximity to transportation infrastructure, unmet market needs, lower employee turnover and much more. Have you seen a growing awareness of the potential of urban areas, or is corporate America still bypassing a huge opportunity? A: There is some heartening progress. The word is out among retailers about the underserved market in inner cities. Drug chains, such as Walgreen’s, and many other retailers, such as Home Depot, are pursuing this opportunity to good results. There is also beginning to be an awareness of the inner city opportunity in services. For example, there is a trend to locate call centers in central cities, to access a loyal and available labor force and strong telecommunications infrastructure. The corporate sector is starting to wake up
to the opportunity, but there is still much to be done. Perceptions are slow to change. Many business people still view inner cities as areas where there are no businesses, no workers to hold jobs, and rampant crime. The Initiative for a Competitive Inner City is working to change these perceptions and document inner city business opportunities. In partnership with Inc. magazine, the ICIC scours America each year looking for the most rapidly growing private companies based in inner city areas. The Inner City 100, as we call them, were selected this year from more than 4,000 nominations. The Inner City 100 companies, and hundreds that do not quite make the list, are proof that there are opportunities to take advantage of the inherent competitive advantages of an inner city location. As the number of nominees for the list goes up and the size of our annual awards dinner grows, the word is starting to get out.
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health services, and no doubt many other goods and services. This may create an entirely new cluster. We are also witnesses to substantial breakthroughs in life sciences technologies and continued breakthroughs in information technology. While there is no entirely new technology cluster evident on the horizon, new segments will be added to existing clusters such as genomics and proteomics in biopharmaceuticals. Economies are remarkably dynamic, however, and some entirely new clusters may emerge out of existing ones and become clusters in their own right.
What is not yet recognized is that inner cities mirror the future of the U.S. economy. Inner cities are disproportionately populated by minority groups, which reflects the growing consumer market. The workforce is also becoming increasingly diverse, making inner cities a window into the workforce of the future. The logistical efficiencies of inner cities—just-in-time, rapid response, rapid servicing—are metaphors for where the economy is going. Inner cities are not only important for social or equity reasons, but for economic reasons. As companies understand this better, they will come to view inner cities as a more strategic location than they can imagine today.
Bron: ww.ibscdc.com 13
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The Rediff Interview/Michael Porter, head, Strategy Insititute, Harvard
‘India still has a long way to go’ Manjari Raman | December 29, 2004 Harvard Business School’s Michael Porter is said to be the world’s greatest authority on strategy and global competitiveness. The overwhelming message from Porter is that it is still too early for India to think it has been successful -- or even partially successful. And there’s a worry that India’s globalisation story may be aborted by short-sightedness in policy or blindsided by misguided ambition. Were Indian companies more likely to succeed at globalisation if government helped them -- or were they better off without policy support? Why were relatively-new industries like IT services and pharmaceuticals spawning the first Indian multinationals while long-time leaders like textiles and apparel floundering in dim obscurity? Why did the US, Japan and the Netherlands display a higher propensity to nurture global corporations than other nations did?
What Porter says can be summed up in two words: tough love. Not only did he spare time from a hectic schedule to comment on India’s competitive global standing, he took pains to be honest in his feedback. As a frequent visitor to India and as head of the Institute for Strategy and Competitiveness at Harvard, Porter has a clear understanding of India’s potential as well as Indian companies’ latent aspirations for global growth. At the same time, as the architect of the Business Competitiveness Index in the World Economic Forum’s annual Global Competitiveness Report, he knows how far Indian companies have to go before they can rightfully claim their place in the League of Multinationals. He also knows, first hand, how hard it is to make Indian CEOs realise that a critique is not the same as criticism. “India has a tremendous tendency for overstatement,” says Porter, adding wryly: “I’ve made many presentations over the years in India. One thing I’ve noticed is that
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To compete in an aggressive global environment, Indian companies must not only learn to invite criticism, but also find ways to use it to strengthen strategy and twist into competitive advantage. In a nopunches-pulled interview, Porter reiterates the purity of his purpose while “critically” evaluating Indian’s global competitiveness. “I want to make sure (my opinions) come across as sympathetic and respectful. I have a deep affection for India,” Porter says repeatedly in an interview with Manjari Raman. Just as the interview is ending, he says it once more -- with feeling. “Indians come to the US and they thrive! They build great companies, they’re global. Isn’t that a wonderful metaphor for what we are talking about?” Indeed, it is. Excerpts from an exclusive interview: The Top 100 listings of global companies or global brands never had any Indian companies whereas companies from a few countries, like the US, the UK, Japan, Italy, France, and the Netherlands, tended to dominate the lists. Why do some countries spawn more global companies than others? Surely that has implications for India? You’re absolutely right! The ability of Indian companies to prosper and be competitive internationally has a lot to do with the home base, and whether India offers an attractive business environment. What we’ve learnt over and over again is that if companies don’t have to compete at home and don’t have
a vibrant, dynamic environment at home, it’s very, very hard for them to compete internationally. What must be done so that Indian companies make it to the Top 100 global lists?
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Indians don’t take criticism well. They get very offended.”
A good place to start is to think about the nature of the business environment in India and where India stands internationally. Certainly, India is on the right track and is improving its economic performance. The growth in GDP per capita has been quite good. The growth in productivity is still low, but there is some evidence that it has picked up a bit. Although I did say in my presentation at Mumbai earlier this year that there seems to be a slight deceleration, it is not yet clear what we should make of that. India’s exports are growing, but that growth is dominated by growth in service exports and in particular IT-related services. India is doing quite well in IT-enabled services, but to a considerable extent, that’s it! It’s a one-trick pony. India is getting tremendous international profile from IT service exports, but they aren’t indicative of the broader economy. If you look at the India’s export portfolio, the export clusters that are growing rapidly are jewelry and precious metals, textiles/apparel, fishing, construction, metal manufacturing and agriculture. Interesting that you don’t mention pharmaceuticals and automotive components where Indian companies are trying to be more global. 15
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Pharmaceuticals are very small, and according to our data, the sector is growing at a slower rate than India’s average growth rate of
Isn’t sensitivity to criticism a defense mechanism? One of the critical problems that companies in developing economies
exports of goods. In automotive components, we do see India showing up on the list; in automotive products, India has a 0.15 per cent share of world exports, and it has not grown its share.
face when internationalising is quite simply, confidence. But your point is that by being self-critical, Indian businesses can go global faster than if they were defensive.
Are you saying there is need to be cautious because the gains India has made so far are small compared to the global competitiveness of other countries?
It’s over defensive. In terms of the business environment, IT service exports are growing, but India’s service exports, in general, are not growing that fast. Exports of goods are growing, but, again, not that fast, and the big areas in goods exports are still traditional clusters like textiles. There is certainly movement in the right direction, but the magnitude of that improvement is still tiny. In terms of assessing where India really is, we have to understand that there’s a long way to go.
India has a tremendous tendency for overstatement. I’ve made many presentations over the years in India. I’ve noticed that Indians don’t take criticism well. They get very offended. Everybody feels they have to overstate the positives and understate the negatives.
Where does a country’s globalisation story begin? Does good government policy, which creates internationally competitive clusters which yield global companies, come first? Or do companies identify global competitive advantages, and need to be supported by sound government policy?
I once gave a presentation to a group of senior managers attending the Advanced Management Program at Harvard Business School, and the Indian managers in the class were enraged although I made a very balanced presentation.
Theory would say that to build a competitive economy, first, you need to have sound overall contextual conditions, such as macroeconomic policy, a sound legal system, etc. Those are cross-context factors, and include macro, legal, social, and political factors. They need to be sound, stable, and trusted for an economy to be competitive. But in of themselves, those are not enough.
Components are one area that has been doing a little bit better, according to our data. India has a 0.3 per cent world export share in automotive parts and it has grown slightly. But automotive components exports from India in 2002 amounted to just $460 million.
One point that ought to emerge from this interview is that India needs to learn to be more self-critical, more open, and much more honest about what needs to be done.
In order to have a competitive economy, you also have to have competitive firms. To have
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clusters because they are a major asset. What needs to be done is to upgrade those clusters. In textiles and apparel, for example,
and the right competitive pressure to allow firms to improve their productivity.
government must ask: how can India move to the next level of technology? How can the quality levels improve? What are the constraints--does India need standards? What are the things that will allow Indian clusters to rise to a higher level?
Governments shouldn’t work with individual firms--that’s almost always a mistake. Government should work, first, to enhance and improve the overall business environment-the cross-cutting business environment that affects many clusters. Then, government ought to work with established or emerging clusters to remove the obstacles and constraints that prevent those clusters from becoming more dynamic. If government does those two things, we find that exports and outward foreign direct investment follow. But it’s inappropriate and inefficient for government to engage with individual companies. Moreover, when it is engaging in cluster development, the government’s role is really to support the efforts of all existing and emerging clusters to upgrade productivity rather than to make choices about which clusters need specific support. There has long been a tendency in India of distorted support through subsidies. The mentality needs to shift from “we need to support some clusters” to “we need to create a policy framework that allows all clusters to flourish.” Does that imply that government should give up traditional clusters in favor of emerging clusters that fit in better with the needs of the global economy at that point in time? It would be a big mistake to ignore traditional
Interview
competitive firm, you need to have an efficient and appropriate business environment, which creates the right inputs, the right incentives,
I strongly believe that no nation should ever abandon any cluster. Indeed, the most important cluster that needs attention in India is agriculture because it’s dominant in employment. If India could make its agriculture more productive, it could not only raise the standard of living, but it can also free up people who then can migrate into more productive uses in the rest of the economy. Basically, while there are new clusters and emerging clusters, like bio-pharmaceuticals, there are also traditional clusters--and government should pay equally vigorous attention to all of them. Let us consider the links between country, clusters, and companies. Why do you think it is important to have globally competitive companies in a country? The way we define competitiveness is, companies that can be productive and meet the test of international competition. A company has to be globally competitive, or it’s simply going to die. From a company’s point of view, competitiveness is a matter of survival. Having competitive companies is the way a country supports a high and rising 17
MBA in één dag | Michael Porter
standard of living because those companies can afford to pay high and rising wages. They create new jobs. And by the way, India
to the emerging economies in terms of sheer weight.
has a crisis of jobs in the formal economy.
How does India compare?
When we think about cluster development, we can’t think national; we have to think regional. The locus of economic development, particularly in a country of the scale and size of India, needs to be driven down to the state level, and within the state, down to the metropolitan and urban areas. The fact that some states are fairly advanced and organised in terms of that kind of thinking is one reason that India as a nation is successful.
There’s quite an interesting story about India. Although the Indian business environment is improving in multiple respects, it has some fundamental weaknesses. Number one, the capital markets remain relatively weak and undeveloped. Number two, the physical infrastructure is abysmally ranked.
It’s not that India is successful; certain regions have been particularly successful, and those regions are driving the whole country. I don’t see any systematic policy framework that works collaboratively between central and state governments to upgrade clusters on a national scale. In the last two years, you have done competitiveness reports on Brazil, Russia, China, and India. Do those emerging nations display any common trends? Emerging economies are becoming more significant players in the global economy. We are seeing increasing outbound foreign investment from the emerging economies, and India is an example of that. Foreign investment out of India is up to roughly $1 billion a year, and that’s a meaningful amount of external investment by Indians. That would be one trend. Secondly, the global economy has been shifting a little from the traditional West
Indian firms face a really compelling logistical disadvantage over companies in China in terms of getting goods and services to market. But the most pernicious problems in India-which are still not being confronted head-on - are the pervasive barriers to competition. A lot of Indian companies are investing abroad partly to, if you will, escape weaknesses in the domestic business environment, and to build assets and skills that are slow to develop at home. It’s interesting that the most successful Indian clusters are ones where the government didn’t really have any (contribution). A fundamental shift is still required in the nature of the business-government relation ship. That is still very much a work in progress. Traditional belief is linked to getting to global scale in domestic markets and then going global -- but the Indian IT industry has hardly any home base and is focused on exports. What happened to building scale locally in that case? That works where the local market is very
18 MBA in één dag | Michael Porter
So, Indian IT companies have bypassed
some capability in the domestic market, and competition will drive them to start looking abroad. That dynamic could happen in India
the domestic market and preferred to seek opportunities in the global market because it is open and competitive?
if the fundamental characteristics of the business environment are systematically addressed.
Exactly. Bollywood’s case would be the opposite. There is a lot of domestic demand and competition, and that’s now internatio nalised too. Those are two very interesting symbolic cases, both of which weren’t affected much by government policy, but have internationalised for different reasons.
The other consequence of a large domestic market--which affects both India and China-is, what little foreign investment comes into India is not because India is a great business platform; it’s there because of the consumers.
India would have the opportunity to see more of the natural pattern if it could free up internal competition. But, right now, that natural growth has been stunted by the policy legacy. Do you find that when there is a large domestic market, like in India, companies virtually have a disincentive to globalise? In general, that’s absolutely true, and it’s certainly true for India. Firms can be fat, dumb, and happy at home. I remember cases like bicycles, where because the market was protected and sheltered, products were abysmal. The consumer had no clout and no choice. Basically, India ended up with a frozen situation, where it had companies happy to make very good profits operating at home. But if India opens up its domestic market and has a lot of competition in the domestic market--as in the United States--then it will begin a more positive cycle. Companies will get to ramp up and build
Interview
open and competitive. India’s been frozen.
China has taken better advantage of that than India has because China is in many ways more open, more dynamic. We’ve seen many more companies come into China because that’s such a dynamic place. The business environment is a bit more efficient, which is why multinationals use China as an export platform. But we don’t see that much in India. The multinationals are there primarily just to do business in India and sell to the Indian market. Another really big challenge for India, if she is going to develop the more advanced clusters, is the issue of intellectual property (IP) protection. Until India can be really credible on that, I think the growth of biotech will be limited. In a way, globalisation is a great spur for Indian companies to address the IP issue. More Indian companies in emerging clusters are beginning to recognise the value of innovation, and how leveraging IP can increase returns by an order of magnitude. All the metrics on innovative activity in India 19
MBA in één dag | Michael Porter
used to be horrendously low. In the last five years, we’ve seen a real pick up in innovative
in a healthy way. In IT services, for example, companies understand that they have to
activity. The acid test is US patenting, and that supports your point.
move upscale and offer more advanced services. Some of their foreign investment is in getting closer to the customer, so that they can be more involved--not just in backoffice business, but also in design.
Indian companies are starting to see that IP is valuable, and that protecting it is valuable. That gives them a lever with which to be competitive in the international market. It’s crucial for that momentum to build, so that government policy can be improved in that area. What government should try to do is create a business environment that supports higher levels of productivity and innovation, and encourages company strategies based on productivity and innovation. In the past, India’s business environment was very inefficient and unproductive. The mentality of most companies was, “let’s stay home, let’s copy or imitate, and let’s compete on price.’ That didn’t lead to many competitive companies. That explains your first question (on why more Indian companies don’t show up in the top global lists). Hopefully, there will be continued progress on the business environment and a continued mindset shift and a reallocation of competitive strategy among Indian companies. That combine will yield more clusters like Bollywood and IT services.
Ideally, Indian companies should use inter national investment to upgrade their strategy over time. The big risk is that they will go and make a lot of acquisitions to be big and to claim that they have a global position without having any strategic clarity or focus about how they are going to be different from all the other companies in the global market. Some Indian companies that are investing abroad are doing so with a really strategic focus. Others are just buying companies, so that they can say they are global. Chinese outbound foreign investment is about five times as big as India’s outbound foreign investment. Even though it’s an important trend that more Indian companies are internationalising, in absolute terms, it’s still relatively small. You appear to be concerned that Indian business might harm their cause by celebrating their global success too soon.
Indian companies are starting to internatio
India shouldn’t want to overstate. People tend to look at current trends, and say, ‘wow, isn’t it a big deal?’ Well, it’s only a billion dollars a year; it’s a trickle in terms of FDI. Indian companies are going to have to step up to
nalise more, and have more international strategies. In some sectors, that is proceeding
a much higher level of internationalisation. I also think Indian companies are bypassing
What are the common mistakes of emerging globalisers that you would caution Indian companies about?
20 MBA in één dag | Michael Porter
Indian companies be self-critical? Can they overcome traditional mindsets and policy
be starting with the region and then moving to Europe and North America.
failures which held the country back for the last 40 years? Only Indians can answer that question.
For prestige and ego, perhaps, we are seeing too much of a focus on the advanced economies rather than on the gigantic opportunity in the region and Asia.
Interview
some of their natural markets in interna tionalising. A lot of Indian companies should
Bron: www.in.rediff.com
Imagine the year 2025. Are Indian companies on Top 100 global lists--or do US, European, and Japanese companies continue to dominate them? It’s up to India collectively, to determine the answer to that question. We should see Indian companies on those lists, as we see Samsung and Sony on them now. Thirty or forty years ago, they didn’t exist, they weren’t on lists, they weren’t important. There’s every reason why Indian companies could become part of the global 100 or 200 or 500--but that is going to require change. Although the trends are positive, the magnitude of the changes that have taken place in the business environment and company strategy are still modest. India is a complex democracy, with a complex governance process with a cumbersome, slow, and torturous reform trajectory. It remains to be seen whether India can sustain a rapid enough rate of progress, so that we see a South Korea or Japan kind of situation 30 or 40 years from now. Going back to my earlier observation, the question is: can India be self-critical? Can 21 MBA in één dag | Michael Porter
MBA in één dag: ultrakort en tóch volledig Wat verklaart het succes van MBA in één dag? Waarin zit de kracht? MBA in één dag biedt antwoord op twee fundamentele vragen van managers: Vraag 1: Hoe blijf ik bij? U heeft een méér dan volle werkweek. Het bijhouden van de managementliteratuur schiet er dan bij in. Dat is logisch, maar ook zonde. Want juist met de inzichten uit managementboeken kunt u effectiever en slimmer werken. En dat bespaart weer veel tijd. Maar welke boeken zijn écht goed en relevant voor u als manager? Hoe scheidt u het kaf van het koren? Wat moet u lezen en wat niet? Iemand moet een selectie maken. Vraag 2: Hoe zat het ook alweer? Tijdens uw opleiding heeft u de boeken van goeroes als Henry Mintzberg, Philip Kotler of Michael Porter gelezen. Maar dat is alweer een hele tijd geleden. Terwijl u juist nú deze kennis zou kunnen toepassen: hoe geef ik beter leiding? Hoe organiseer ik mijn bedrijf het beste? Hoe communiceer ik de strategie van mijn organisatie? Eigenlijk zouden Mintzberg, Kotler, Porter en al die anderen eens opnieuw voorbij moeten komen. Bijblijven + opfrissen = MBA in één dag In ‘MBA in één dag’ smelten deze twee vragen samen in een wervelend seminarprogramma. Ben Tiggelaar behandelt de greatest hits in management. Hij selecteerde de beste inzichten uit acht meter managementboeken met maar één criterium: wat kan een manager hier praktisch mee? Morgen al! Daarmee is MBA in één dag uitgegroeid tot de snelste manier om managementkennis op te frissen en aan te scherpen. Een MBA-opleiding in één dag: dat kan toch niet? Uiteraard is dit seminar geen volwaardige MBA opleiding. En u krijgt ook geen titel om achter uw naam te zetten. Maar toch: managen is een praktisch vak en MBA in één dag is ontdaan van alle fratsen die veel opleidingen zo onnodig hoogdravend maken. Méér dan de inzichten uit dit seminar heeft u niet nodig om effectief te zijn als manager.
22 MBA in één dag | Michael Porter
‘MBA in één dag’ staat onder de bevlogen leiding van bestsellerauteur en toptrainer Ben Tiggelaar. Ben verzorgt sprankelende seminars waarin hij ‘inhoud’ en ‘vorm’ op een perfecte manier samenbrengt. Een dag Tiggelaar is beslist géén luierdag: Ben hanteert een hoog tempo en presenteert ontzettend veel inzichten, eyeopeners en praktische tips. Hij brengt zijn verhaal daarnaast op een bevlogen, enthousiaste en interactieve manier, waardoor u toch de hele dag op het puntje van uw stoel zit.
Reacties Dit zeggen deelnemers over Ben Tiggelaars ‘MBA in één dag’... “Met een TGV door managementland!” Martijn Kamp, Getronics PinkRoccade “Waanzinnig interessant. Een waardevolle vertaalslag van zoveel ‘guru’ informatie.” Marinus van der Steen, Ministerie van Defensie “Hier heb ik jaren naar uitgekeken! Geweldige opstap naar verdere verdieping. Uitermate motiverend om een stapje terug te doen van de day-to-day brandblusmomenten.” Karel Burger, Nielsen Nederland “Bomvol. Genoeg ideeën opgedaan om komend jaar mee vooruit te kunnen.” Marie Jose Klaren, Universiteit Leiden “Beste scholing van de laatste vijf jaar!” A. Janse, Chr. Scholengemeenschap Vincent van Gogh “Super. Volledige overview. Ultrasnel. Precies zoals ik het wilde.” Aad van den Boogaart, Aranea Consult
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Interview
Ben Tiggelaar
MBA in één dag®
Michael Porter
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