The False Expectations of Michael Porter’s Strategic ... · 10 The False Expectations of Michael Porter’s Strategic Management Framework Univ. Empresa, Bogotá (Colombia) 3 (6):

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Omar Aktouf

Univ. Empresa, Bogotá (Colombia) 3 (6): 9-41, octubre de 2004

The False Expectations of MichaelPorter’s Strategic ManagementFramework

Omar Aktouf, Ph. D.Full Professor, HEC Montreal

Recibido: 03 de agosto de 2004 - Aprobado: 17 de agosto de 2004

ABSTRACTThe article tries to reveal the inadequacies of Porter’s strategic thought from themethodological and epistemological point of view. It shows that the praxiological promisesof his thought are impossible to realize given its dubious and impossible to operationalize.The article lacks of fundamental issues (as pointed out by the Resource Based Theorists)that the organization needs to assess and harness in order to be successful in its attempt toreach and keep its competitive advantage, making it not easily imitable.

Key words: competitive advantage, competitive strategy, Creating value, Generic strate-gies, Legitimating domination, Resource based theorists.

RESUMENEl artículo busca demostrar las inconsistencias del pensamiento estratégico de Porter des-de el punto de vista metodológico y epistemológico. De igual manera, muestra que laspropuestas praxológicas de Porter son imposibles de operacionalizar y normativizar. Ade-más, la teoría carece de factores fundamentales que permitan a las organizaciones perdurary ser exitosas en el tiempo teniendo ventaja defendible y difícilmente imitable.

Palabras clave: ventaja competitiva, estrategia competitiva, creación de valor, estrategiasgenéricas, legitimación de la dominación, teoría basada en los recursos.

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The False Expectations of Michael Porter’s Strategic Management Framework


INTRODUCTION

More than 20 years after its first pub-lication, Michael Porter’s Competi-tive Strategy (1980) is available in17 languages and is in its 53rd print-ing. His Competitive Advantage(1985) has been reprinted 32 times,and the Competitive Advantage ofNations (1990) brought Porter’sthought to the forefront of develop-ment theories. He has published adozen other books and more than 85articles in the most prestigious jour-nals, and his ideas “quickly becamethe foundation of required courses atHarvard.”1 Indeed, Porter remainsthe field’s most cited author. In a re-cent work, La Stratégie des Organi-sations : Une Synthèse,2 Porter ismentioned 60 times in the index, farahead of classics such as Andrews(22 times), Ansoff (9 times), Barnard(18 times), and Chandler (26 times).The same is true for a book publishedin late 2000, Strategic Manage-ment,3 in which Porter is by far themost cited reference. Closer to home,the journal Academy of ManagementPractices published an interview ofPorter and devoted several articlesunderlining the value of his contri-bution to administration science.

To what is this phenomenal successdue? Brandenburger (2002) suggeststhat two factors account for the lon-gevity and extent of Porter’s influence:

1. His thought “gives a clear imageof the essential activity of busi-ness. It depicts the whole verticalchain of economic activity run-ning from suppliers (i.e., ownersof resources) through businessesand on to the customers. It high-lights the central role of businessin creating value but also empha-sizes how businesses are interde-pendent with their suppliers andcustomers” (Brandenburger2002: 58). Brandenburger addsthat in contrast to canonical eco-nomic models which assume at-omized producers and consumers,Porter’s model is more realistic inthat it focuses on the reality oflarge businesses that dominatemany industries, that is, on situa-tions of monopoly or oligopoly;

2. The very limited number of ge-neric strategies that he advocates(differentiation and domination bycosts) is another element of clar-ity that attracts the attention ofdecision makers, consultants andteachers to Porter’s model.

But it is unlikely that clarity and ac-cessibility suffice to guarantee thewide diffusion of a given work onmanagement, in that most of what iswritten about strategy is quite clearand accessible, without those elements

1 See the article on Porter on the ad hoc Web site.2 Hafsi, T., Séguin, F. and Toulouse, J. M., Les

Éditions Transcontinentales, Montréal, second,reconsidered and enhanced edition, 2000.

3 Published by Wiley & Sons by three Stanfordprofessors: G. Saloner, A. Shepard and J. Podolny.

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resulting in an unparalleled success.Porter frames matters differently, interms, he claims, of making a contri-bution to science and of scientific rig-our. With regard to CompetitiveAdvantage, he maintained in an inter-view which was quite revealing of theins and outs of his thought: “Therewas an opportunity to bring industrialorganization thinking into the studyof strategy, and vice versa” (Argyreset McGahan, 2002B: 43 ).4 As such,he was the first author to bring to-gether two disciplines —industrialorganization and strategy— to providea better discussion of strategic choicesby businesses. He went on to explainwhy this discussion also had to rid it-self of classical economic thought:“Ceteris parabus assumptions don’twork. Managers must consider eve-rything. I concluded that we neededframeworks rather than models”(Argyres et McGahan, 2002B: 43 ).Lastly, with regard to scientific rig-our, he added: “We also needed a moredisciplined way to think about strat-egy. We needed a more rigorous ap-proach, a systematic way to look atindustries and where firms stood intheir industries” (Argyres etMcGahan, 2002B: 43-44 ).

In the following pages, we attempt toshow that while Porter’s frameworkis the basis of a systematic approach

to strategy, it in no way guaranteesthe scientific rigor he claims for it andfurthermore, does not assure theachievement of a lasting, defensibleand non-easily imitable competitiveadvantage. In addition, we try to shedfurther light as to why his work hasbeen attractive for so long to a sig-nificant proportion of western man-agement, business consultants andacademics. We discuss each of histhree pivotal works —CompetitiveStrategy, Competitive Advantage andThe Competitive Advantage of Na-tions— in order to draw out theirfoundations, to reveal how their pur-ported scientificity is non-demonstra-ble, and to point to the epistemologicaland methodological insufficiencieswhich seriously undermine Porter’sclaims to academic rigour. We alsovisit two other schools of thought,namely the Resource Based View andadvocates of co-operation and col-laboration, which not only highlightpractical and operational weak-nesses in Porter’s proposed frame-work, but also serve to reinforce ourview of epistemological and meth-odological insufficiencies. Wepresent our own arguments about thereal reasons for the success enjoyedby Porter’s thought. At the ideologi-cal level, we suggest that this successis due to an argument that legitimizesthe current state of relations of forcewithin businesses operating in ad-vanced capitalism, between these busi-nesses, and between nations. Thelegitimizing power of his thoughtmakes it an ideal wellspring from

4 We cite this interview often because it is one ofthe rare documents in which Porter discusses themethodological and epistemological aspects ofhis thought, which are generally glossed over inhis central works.

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which dominants can draw argumentsand reasons of a scientific nature tojustify the situations of dominationfrom which they benefit. At the op-erational level, we suggest that his suc-cess is due to concepts that offer easeof comprehension, relative ease of im-plementation and subsequent gratifi-cation from initial (but very oftennon-lasting, nor easily defendable) op-erational successes.

Porter’s theoretical structure is basedon a 1979 influential article in theHarvard Business Review which fo-cused on the analysis of the environ-ment and corporate sector in orderto determine strategic positioning(Porter, 1979). Competitive Strategy(Porter, 1980) was an extension ofthis article. Competitive Advantage(Porter, 1985), as we will see, wasdevoted to one of the gaps in the twopreceding publications, namely, themicroeconomic dimensions of histheory. Lastly, The Competitive Ad-vantage of Nations (Porter, 1990) isa generalization of his theoreticalcorpus to national industrial policiesand development.

DOCTRINE OFPOSITIONING ANDLEGITIMATINGDOMINATION

In contrast to the authors who pre-ceded him in the field of strategy,Porter is an advocate of the strategicpositioning of a business in a given

industry (Porter, 1979, 1980). Thisapproach was novel in that previousauthors in the area of strategy largelydevoted their attention either to theelaboration of strategies or to strate-gic planning (Mintzberg et al., 1998).However, the notion of competitiveadvantage, which would come to oc-cupy a central place in his work, wasabsent, only barely mentioned. Ac-cording to Porter, strategic position-ing derived from an exhaustiveanalysis of a certain number of fac-tors which he baptized as “the fivecompetitive forces”: competitive ri-valry, bargaining power of suppliers,bargaining power of buyers, threatof new entrants, and threat of substi-tutes. These five forces, which“[e]merged as an encompassing wayto look at an industry,” as Argyresand McGahan (2002B: 44) put it, aresupposed to be the most relevant andmost significant indicators for anybusiness seeking to penetrate andmake profitable the industry whichsuits it best.

Logically, it is argued, the analysisof these indicators leads to a busi-ness’s strategic positioning in an in-dustry in which there is:

• little competition;• suppliers and buyers with weak

negotiating power;• high entry barriers;• few substitute products.

In its under these circumstances, it isclaimed, that a business can maximize

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profits: “I decided that fundamentalto any theory of positioning had to besuperior profitability” (Argyres andMcGahan, 2002B: 44). It should alsobe noted that Porter seeks to situatehis theory in a normative perspective,something which he takes pains tostress: “My work aims not to be de-scriptive but normative. What princi-ples explain successful strategies? Ibelieve strongly that managers canapply these principles prospectively,and that most do” (Argyres andMcGahan, 2002B: 44).

Up to this point, businesses are a kindof black box in Porter’s work, inas-much as he chose to situate his analy-sis at the meso-economic level, thatis, the industry level. The criticismsof this choice led him, in Competi-tive Strategy, to integrate themicroeconomic level into his modelvia the notion of the value chain. Wereturn to this point below. For themoment, we discuss two major issues—one epistemological in nature, theother dealing with the theory’s nor-mative dimension— raised by thepart of his work focused exclusivelyon positioning.

Firstly, how does Porter justify hisepistemological decision to set the levelof analysis at the industry level? Aswe have learned from the science ofcomplexity, the choice of the organi-zational level to analyze determines thescope of the results of the analysis.Why is the analysis of competitiveforces more relevant in strategy? In

canonical management terms, whyshould the strategist’s interest be fo-cused on the environment and only onthe environment? To be sure, there wasa real need in the field of strategy togo beyond existing models, such as theBCG portfolio model or models basedon an analysis of advantages and dis-advantages, which limited themselvesto the microeconomic level. However,this does not suffice to justify the epis-temological choice made by Porter,who does not develop his argumentany further. The question remains, andleads one to believe that there is a cer-tain arbitrariness to this choice.Moreover, one wonders what logic andwhich criteria underlie Porter’s iden-tification of the number and nature ofcompetitive forces. The only argumentinvoked by Porter is that when he be-gan his research he took his inspira-tion from industrial organization,which discussed phenomena such asmonopsony (a situation in which thereis only one customer for a company’sproduct). He also acknowledges thatthe notion of substitution already ex-isted in economic thought. But hemaintains that it was necessary to gofurther by imagining a series of fac-tors integrated within the same kindof framework for analyzing industries.In the same interview quoted above,however, he maintains two differentarguments about the identification, thenature and the number of these fac-tors. On the one hand, he argues that“[t]hese dimensions… have to be in-tuitively grounded” (Argyres andMcGahan, 2002B: 46). A little further

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on, on the other hand, he corrects him-self and claims that: “I didn’t come tothe conclusion that there were fiveforces until I’d looked at hundreds ofindustries” (Argyres and McGahan,2002B: 46). Intuition and case stud-ies are not mutually exclusive; theycan even be complementary, with thecase study confirming or invalidatingthe intuition. But this is not the prob-lem. The real problem is at the levelof generalization or more specifically,at the level of the argument support-ing the generalization. However, Por-ter is silent on this point. We returnbelow to the issue of the generaliza-tion of case studies since it is a prob-lem that pervades all of Porter’sthought. For the moment, we bring upanother objection. Whether we situ-ate ourselves with respect to Popperianfalsification (Popper, 1972) or Hab-ermas’s (1990) communicative ethics,Porter’s position is untenable.

According to Popper, a propositionis not true because it has been veri-fied by one or several empirical ex-periences, as is claimed by rigidpositivism. It is true for only so longas an example does not contradict it,that is, until it has been falsified. Withrespect to the number of competitiveforces, it is simple enough to imag-ine a good number of industries inwhich other competitive forces aremuch more determinant than thoseidentified by Porter: government inthe arms and pharmaceutical indus-tries; non-government organizationsin the hydrocarbon industry, etc. This

points to the extreme fragility of theuniversality of Porter’s model. ForHabermas, the morality of a givenutterance depends on the dialogicalexchange made up of a claim to va-lidity by a speaker, objections to thisclaim by other speakers, and argu-ments by the speaker in response tothese objections, all of which occurswithin the framework of a space offree speech. The problem here is thatPorter’s positivism imposes thenumber and nature of competitiveforces and the result of the ensuinganalysis of industries as scientific andtherefore non-debatable truths. It isin this sense that Porter’s model is aformidable instrument of domination.There are no possible grounds of le-gitimacy for questioning the model’scomponents and results within agiven business. This domination isexercised by expert analysts and theirconstituents, senior management. Thiselement appears as an unacknowl-edged foundation running throughoutPorter’s thought.

Continuing in an epistemological vein,Porter’s thought is characterized byenvironmental determinism, in that heglosses over an enactment phenom-enon which has for some time beenviewed as central in the analysis ofenvironment in management studies(Morgan, 1986). The process of en-actment is the process through whichwe proactively shape and structure ourrealities in an unconscious manner. AsMorgan states (1986: 130), “althoughwe often see ourselves as living in a

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reality with objective characteristics,life demands much more of us thanthis. It requires that we take an activerole in bringing our realities into be-ing through various interpretiveschemes, even though these realitiesmay then have a habit of imposingthemselves on us as “the way thingsare”…”. This phenomenon appears toproduce at least as many projections(from the point of view and the inter-est of those conducting the analysis)about the characteristics of the envi-ronment under study as those whichare really “measured” or “observed.”This is in addition to the inevitablechanges brought about by any “sec-tor study” in any environment whenthe study gives rise to strategies andthe implementation of decisions thatare likely to have an impact on theenvironment. In this event, it is nolonger the environment that deter-mines corporate strategy, but the re-verse. Over 30 years ago, this positionwas seriously discussed, illustratedand confirmed with concrete, edify-ing examples (Galbraith, 1967). Inparticular, Galbraith showed how the(strategic) planning of certain GM andFord car models (his analysis focusedon the Mustang, for which six yearselapsed between the design phase andthe marketing phase) contributed todetermining — in defiance of all so-called market laws — internal andexternal salaries as well as the priceof products such as rubber, iron, coal,steel, etc., and this for a number ofyears. This analysis contributes todemonstrating how the policies of

large corporations “manufacture” toa large extent domestic and interna-tional environments and completelydistort the play of competition.

Secondly, for Porter’s recommenda-tions with regard to industry analy-sis to be normative and prescriptive,they have to permit an ex-ante iden-tification of the industries which bestsuit the business seeking to positionitself. As we have seen, this industrymust display competitive forces thatare favourable to the business. Is itpossible to do this before the fact? Itis possible but only in particularcases and given a condition which isimpossible to fulfill. Positioning abusiness in an industry through theanalysis of competitive forces canoccur in the case of an entrepreneurialsituation in which the business or thebusiness division does not yet exist.For it is difficult to imagine an in-dustry, that really exists, with suchfavourable conditions for a businessto be able to exercise its domination,that is, with businesses that havenever considered the possibilities of-fered by their industry. There canonly be one explanation of this— these businesses have not re-ceived the services of experts andconsultants trained in Porter’s indus-try analysis. But in this case, howdid these businesses make decisionbefore the appearance of this model?This impasse brings us again to thetrue logical outcome of this mode:handing the lion’s share of powerover to experts and analysts.

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In the event of a business already op-erating in a given industry, Porter’smodel will lead it either to exit (inas-much as the competitive forces areunfavourable) or to remain in it be-cause the analysis of the competitiveforces reveals that it dominates theindustry. But the analysis will neverenable the business to know how tochange its situation if it is precarious.As such, the claim that Porter’s modelis normative is without foundation. Onthe other hand, it will enable the ex-ante justification of a monopoly oroligopoly situation since the analysisof the competitive forces will showthat it is quite normal for a businessor businesses to have a monopoly oroligopoly in an industry in which theypositioned themselves as a function ofthe nature of the competitive forces.It is for this reason that Porter’s modelshould be viewed from the perspec-tive of a legitimization of situationsof domination by the most powerfulcompanies with the help of a seeminglylearned discourse. It also accounts forPorter’s aversion to anti-trust regula-tions, which he expresses in, amongother places, the chapter devoted tothe United States in The Competi-tive Advantage of Nations (Porter,1990: 728 ff.)

COMPETITIVEADVANTAGE AN THEEXPERT’S APOLOGY

Of all the inadequacies identified inCompetitive Strategy, Porter is par-

ticularly, if not exclusively open to asingle criticism: determining the po-sitioning of a business in a given in-dustry without inquiring into thebusiness’s fit (in terms of its capaci-ties, its resources, its abilities, etc.)with the suggested position could incertain cases lead businesses to en-ter industries which do not suit themat all. In other words, Porter feltobliged to turn to the microeconomicaspects of his doctrine.

The reason for being of CompetitiveAdvantage is specifically to respondto this problem. As such the notionof competitive advantage ceased toplay a preponderant role in Porter’sthought: “I decided I needed to saysomething about positioning… con-nected to competitive advantage”(Argyres and McGahan, 2002b: 47).However, profitability continues toplay a pivotal role in his reasoning:“required competitive advantage, andfundamental to any thinking aboutcompetitive advantage was scope, orthe breadth of the company’s strate-gic target. That led to the genericstrategies” (Argyres and McGahan2002b: 44). Competitive advantagefollows on the heels of the specific,unique value that the business pro-duces to the benefit of differentgroups of consumers. It is for thisreason that the business “needs todevelop a unique set of skills thatother organizations don’t have”(Argyres and McGahan 2002b: 47).These abilities are supposed to beincorporated into the business’s ac-

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tivities, but attaining them requires adetailed analysis of these very activi-ties, which Porter groups under an-other fundamental notion in histhought — the value chain.

At first glance, Porter appears to havegiven a coherent response to a flaw inhis earlier works. This at least is whatis claimed by the mainstream litera-ture in the field of strategy. However,a close examination of his discourseabout competitive advantage, thevalue chain and generic strategies re-veals several tensions, which, as wasthe case with Competitive Strategy,bring seriously into question the sci-entific worth of his theory.

We begin here with Jeremy Klein’s(2000) apposite remarks in this con-nection. Porter’s definition of competi-tive advantage is problematic, in thatit is ambiguous, tautological or marredby a serious ontological confusion.Porter writes that “[c]ompetitive ad-vantage grows fundamentally out ofthe value a firm is able to create forits buyers that exceeds the firm’s costof creating it” (Porter, 1985: 30). AsKlein notes, this in no way definescompetitive advantage, unless, onemight be tempted to suggest, oneagrees to lump competitive advantagewith value. In this case, and even ifwe ignore the problems engendered bythis confusion, and bearing in mindthat the question of value has dividedtheorists for decades, competitive ad-vantage loses its relevance as a cen-tral notion in strategic thinking.

Therein lies the ambiguity of this defi-nition. Moreover, when Porter claimsthat “[c]ompetitive advantage is at theheart of a firm’s performance in com-petitive markets” (Porter, 1985: XV),not only is the issue of the definitionof competitive advantage glossed over,but Porter’s claim is clearly tautologi-cal. In addition, as Klein points out,defining something exclusively interms of its consequences logicallymeans that the consequences areknown ex-ante and must have emergedprior to the thing itself, somethingwhich is a logical impossibility, espe-cially when the reasoning is empiri-cal in nature, as is the case with Porter.As such, the notion of competitiveadvantage cannot be used before thefact to explain what occurs after thefact, namely, a business’s competitiveperformance. In this light, Porter’sclaim that his theory is normative isdevoid of meaning. It is for this rea-son that we feel justified in pointingto a profound contradiction pervad-ing the entirety of the Porterian ap-proach. His initial objective was toprovide a normative framework forbusiness strategy; however, its formal-ism yields an analytic approach whichhas no prescriptive power.

Let us take things further. For com-petitive advantage to be genuinelyefficacious, it is absolutely neces-sary for it to be impossible to imi-tate it. However, for this conditionto be met, it is necessary that com-petitive advantage be impossible tobe identified, even, paradoxically, by

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the company that situates it at theheart of its strategy. Indeed, in thehighly hypothetical case in whichcompetitive advantage and the ana-lytical process leading to its identi-fication could be theorized as Porterclaims, all businesses would be ableto carry it out and thereby procurethe same competitive advantages. Inthis event, “advantage” and “com-petitive” become instances of theabusive use of language. There isonly one irrefutable way out of thisimpasse for Porter’s theory. Its im-portance is crucial inasmuch as itclearly identifies both the implicitand never stated implications of thistheory and the underlying reasonsfor its success; it is not because ofthe existence of a formal strategicanalytic framework that all busi-nesses manage to use it adequatelyas a means of identifying their com-petitive advantage. It is a field ofscientific expertise in which only“high-powered” experts and con-sultants can operate effectively.Leaving aside for the moment theintrinsic limitations of this view ofthings (we come back it shortly), letus focus on how the scientific aurathat Porter seeks to give his theoryultimately serves to legitimize theinordinate power accorded to ex-perts and consultants, a group towhich Porter himself belongs. Wemade the same discovery with re-gard to Competitive Strategy, andnow we have come to the same con-clusion with regard to CompetitiveAdvantage. This observation strikes

us as one of the most significant rea-sons underlying the success of Por-ter’s work among consultants. Theanalysis of the value chain yields thesame result.

Porter firmly argues that there are twogeneric strategies —domination bycost and differentiation. A fundamen-tal question must be asked: What ex-actly does the notion of differentiationmean for Porter? What is differenti-ated, the business or the product? Ac-cording to Porter, it is the business:“A firm differentiates itself from itscompetitors when it provides some-thing unique that is valuable to buyersbeyond simply offering a low price”(Porter, 1985: 120). The “beyond sim-ply offering a low price” clearly re-fers to competitive advantage. But aswe showed above, the concept of com-petitive advantage is too ambiguousto signify anything precise. At best,differentiation means something differ-ent depending on whether one is in theposition of a company’s directors (itis the business that is differentiated,which is Porter’s point of view) or inthat of the employees and the consum-ers (for whom “differentiated” onlyconcerns the product). As for domi-nation by cost, it is neither more norless than the reuse of an old neoclassi-cal economic notion, and largely con-cerned with minimizing costs with aview to maximizing profits. Lastly, inlimiting himself to two formal genericstrategies, Porter excludes anythingconnected with emergent, creative andinnovative strategic notions.

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Lastly, the value chain is a schematicrepresentation of business activities,broken down into main activities andsupporting activities, each one likelyto contain value enabling the businessto acquire a competitive advantage.The task of the expert or consultant isto sketch this representation, studyeach activity on its own, and identifywhich one will give the business thevalue which will procure a competi-tive advantage. The analytic aspectof Porter’s conception of strategygains in strength and consolidatesonce again the influence of expertsand consultants. In methodologicalterms, this way of doing things is akinto the Cartesian method of analysis,and suffers from the same inadequa-cies. A Cartesian attitude towards acomplex problem (determining thesource of a specific value within abusiness with countless activities)involves subdividing it into a numberof simple problems (breaking downthe business’s activities into so manyeasy-to-study activities) and to ex-amine each activity on its own, with-out considering the others. Once allthese simple problems are resolved,it is only a matter of reconstitutingthe whole. We now know that thereis no validity to this kind of rea-soning, given that it presupposesthat the whole (the business) ismerely the sum of it its parts (thebusiness’s activities). This view,however, amounts to a major epis-temological error. Twentieth cen-tury science has shown that thewhole is made up of often complex

relationships among the parts, andnot merely the juxtaposition of theparts. In other words, it is less im-portant to understand each part in itssingularity than to understand the sin-gularity of the relationships this parthas with the other parts and thespecificity of the relationships bind-ing together the parts of the whole.

Returning to the analysis of the valuechain according to Porter’s teachings,it is quite likely that activity identi-fied, after having examined it on itsown, as yielding the value which willprocure a competitive advantage willnot necessarily be identified in theseterms if it is analyzed in relation toother activities. This indicates the ex-tent to which Porter remains a pris-oner of the linear, fragmentedreasoning of classical science and themost simplistic elements it has to of-fer. However, if Porter’s writings havebeen successful, it is because this sim-plicity is easy to present in the busi-ness and consulting worlds, neither ofwhich are particularly familiar withepistemological reflection. It is thusnot illegitimate to speak here in termsof the false representation of a cur-rent of thought, the scientific value ofwhich stems from the ignorance ofthose for whom it is intended.

In a similar vein and for the samereasons, no one or almost no one hasidentified another very serious limi-tation of Porter’s ideas. Porter explic-itly assumes the omniscience and theabsolute rationality of experts and

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consultants who are able to find, fittogether and analyze a significantsum of data about competitive forcesand about the components of thevalue chain. As such, Porter scornsthe generally acknowledged observa-tion in organizational theory regard-ing the limited rationality ofindividuals, namely, that there is limitto the amount of information thathuman beings can process. Evencomputer simulations cannot resolvethis problem. On the one hand, it isdifficult to standardize, as we haveseen, the determining factors com-mon to all industries, and on the otherhand, the simulation is the applica-tion of a computer program designedon the basis of an algorithm con-structed by human beings, that is, thesame human beings characterized bytheir limited rationality.

One last, ontological remark in thisconnection is necessary. Situating thevalue produced by a business at thelevel of its activities is not at all ob-vious, and requires an argument tothis end. However, Porter is contentto claim this phenomenon, limitinghimself to decreeing it in a self-ref-erential discourse. The consequencesof this are significant. Firstly, itamounts to a reification of the busi-ness through its activities. Secondly,the fact of rooting value in activitiesoccludes the role that employees canplay in the creation of value, whichis wrongly attributed to the “busi-ness.” But this occlusion plays ahighly ideological role, that of avoid-

ing at all costs the social and politi-cal dimensions of the business thatis the object of the strategic analy-sis. Furthermore, as we shall see inthe following section where we visitthe resource based theorists, it be-comes evident that Porter’s lack ofattention on the role of the employee,worker morale, level of managementleadership and interpersonal skills tobring out the maximum potential ofemployees, etc. poses serious limita-tions to the operational effectivenessof his framework in attaining a last-ing, defensible and not easily imita-ble competitive advantage.

PORTER VS THERESOURCE BASEDTHEORISTS

In Competitive Advantage (1985A),Porter’s “value chain” model at-tempts to analyse the sources of com-petitive advantage by examining allthe activities a company performsand how they are linked together. Butintrinsic factors such as corporateculture, worker morale, level of com-munication and team spirit, level ofmanagement leadership and interper-sonal skills to bring out the maximumpotential of employees, etc. are notconsidered in his analysis. In Tech-nology and Competitive Advantage(1985B) he uses a similar approachto Competitive Advantage in identi-fying all primary and supportingtechnologies a firm may be involvedwithin the “value chain”. He then

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states how a company should try toidentify the core technologies thathave significant impacts towardsachieving a competitive advantage.Superficial attention is given to thesignificance of a company’s internalresources when he refers to “relativetechnological skills”, whereby hestates that it is a function of manyfactors such as management, com-pany culture, and organisationalstructure. He also adds “use acquisi-tions or joint ventures to introducenew technological skills to the cor-poration, or to invigorate existingskills”. But as in Competitive Advan-tage, intrinsic factors that can leadto creation or further advancementof technology innovation is hardlymentioned. Furthermore, the com-plexities and effects of corporate cul-tures that are encountered onintegrating new technologies in situ-ations of acquisitions are not ad-dressed in any meaningful manner.

The resource based approach emergedin 1990 with Prahalad and Hamel’sarticle on “core competence” followedby Stalk, Evans, and Schulman’s(1992) article on “capabilities-basedcompetition”. Supporters of the re-source-based approach take the viewthat the competitive environment ofthe 1990’s and beyond has changedsignificantly such that the structuralapproach represented by Porter’scompetitive-forces framework is nolonger effective. Prahalad andHamel’s (1990) definition of corecompetencies is “the collective learn-

ing in the organisation, especially howto co-ordinate diverse productionskills and integrate multiple streamsof technologies”. Prahalad and Hamel(1990) focused on corporate widetechnologies and production skills indefining core competencies whileStalk, Evans, and Shulman (1992)took a broader value chain or busi-ness process view of the skill base indefining capabilities. According toStalk, Evans, and Schulman (1992),the “war of position” was a strategythat a company could follow when theeconomy was relatively static, char-acterised by “durable products”, sta-ble consumer needs, well definednational and regional markets, andclearly defined competitors. They con-tend that “competition is now a “warof movement” in which success de-pends on anticipation of market trendsand quick response to changing cus-tomer needs”. They added “…In suchan environment, the essence of strat-egy is not the structure of a compa-ny’s product and market but thedynamics of its behaviour”. In con-trast to Porter (1980, 1985A), boththeir work examine the behavioural“how” a company chooses to competerather than the “where” it chooses tocompete and contend that competitiveadvantage should be found in re-sources and skills within the company,as opposed to the general market en-vironment “outside” the company.

In Towards a Dynamic Theory ofStrategy (1991), Porter acknowl-edges the resource based approach

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as one of three “promising” streamsof research that attempt to addressthe challenge of developing a trulydynamic theory of strategy. He ar-gues though that the resource basedview is but an intermediate step inunderstanding the true source of com-petitive advantage and that ultimately“resources are not valuable in and ofthemselves”, but “are only meaning-ful in the context of performing cer-tain activities to achieve certaincompetitive advantages”. For Porter(1991), “competitive advantage de-rives from more than just resources…It is the collective advantages gainedfrom all sources that determines rela-tive performance”. He concludes thatit is even questionable how far weneed to go up the chain of causalityto generate a truly dynamic theoryof strategy, or as he puts it “we needto know how necessary or helpful itis to push even further back in thechain of causality…an importanttheoretical issue is where in the chainof causality to best cut into theproblem…it should be said that un-derstanding the ultimate origins ofadvantage may not always be neces-sary for thinking about how to im-prove future advantage”. In his view,more emphasis should be put on“crafting empirical research to makefurther progress in understandingthese questions”. He seems to implythat understanding and harnessing theunderlying fundamentals that fostercompetitive advantage is not as im-portant as generating empirical mod-els that may well work today, and

surely he hopes will work tomorrowwithout need for radical modifica-tions. But as Stalk, Evans andSchulman stated back in 1992 theenvironment is now a much more tur-bulent environment with unexpectedperturbations. From a methodologi-cal point of view, it would seem thatto deflect fundamental work and toonly depend on continuous overlap-ping layers of empirical studies is areactive strategy tantamount to in-creasing the magnitude of the “dayof reckoning” when conditions willbe so dynamic and unpredictable thatall empirical work will be as good asuseless while no fundamental workwill have been done towards tryingto truly understand, and subsequentlyco-exist with these conditions. InPorter’s defence, at the time of hiswriting this article, one can say thatthe resource based view was still inits infancy and probably not ad-vanced enough in trying to determinethe true source of competitive advan-tage. In the ensuing years it suffered,as Nonaka and Takeuchi (1995: 48)point out, from a somewhat blurredfocus because of the lack of agreed-upon and well-defined definition ofterms, or as quoted by Teece, Pisano,and Shuen (1991: 17-18): “Thereresources, capabilities, skills…andthe conceptual framework isoverdetermined in that there are toomany competing explanations for thephenomena identified”. In looking atvarious resource based articles, westill see this fuzziness, although wewill attempt to portray one type of

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philosophy within this view as beingthe fundamental building block to-wards competitive advantage.

In recent history many have identi-fied a number of explicit attributestowards attaining competitive advan-tage. For example, there was TotalQuality Management (TQM) fromthe 80’s to the early or mid-90’s, tech-nology roughly throughout the sameperiod extending into the late 90’s,and knowledge management and in-novation from the mid-90’s to thepresent day period. But is there amore fundamental element whichtranscends all these attributes? If welook at TQM, many in the west laudedthe Japanese mastery of quality andresulting competitive advantage, andin response, proceeded to implementTQM methods. A study by Powell(1995) however examined the effec-tiveness of TQM as competitive ad-vantage and noted that “potentialTQM adopters may not appreciatethat TQM success depends not onlyon adopting the TQM attributes, butalso on pre-existence of complemen-tary factors apparently unrelated toTQM, yet more difficult to imitatethan TQM itself”. It appears to re-quire a culture receptive to change, amotivation to improve, people capa-ble of understanding and implement-ing TQM’s peculiar set of practicesas well as corporate perseverance.But more fundamentally, he reportsin his literature review, that it appearsto require a complete restructuring ofsocial relationships both within the

firm and among the firm and itsstakeholders. He states “Under TQM,firms must reconstitute all these rela-tionships among employees and be-tween managers and employees. Andthey must reconstitute them more orless at the same time”. We agree withhim that this social re-engineering isusually beyond the capabilities ofmost firms. His study concluded thatfirms who implement TQM proce-dures do not produce performanceadvantages if they do not create aculture within which these procedurescan thrive; namely, executive commit-ment, an open organisation, employeeempowerment, and good reputationwith suppliers and customers. Hisoverall conclusion is that althoughTQM can produce competitive ad-vantage, “adopting the vocabularies,ideologies, and tools promoted by theTQM gurus and advocates mattersless than the underlying intangibleresources that make TQM implemen-tation successful”. As Agayo (1990)illustrates in his book on quality im-plementation (chiefly inspired by theviews and notions of W. EdwardsDeming), much of what is requiredto implement quality within the workplace has less to do with metrics orsophisticated gadgetry and more with,as Demings once stated, “pride ofworkmanship”. The source of com-petitive advantage seems to be point-ing towards people: by people, wemean employees, management andthe social-corporate environment inwhich they work. Even Nonaka andTakeuchi’s (1995) work on knowl-

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edge management, which is primarilyinterested with the process of creat-ing, harnessing and managing knowl-edge and innovation, is really pointingback to the process of interaction andthe managing of people. Thus ourposition is that people are the truesource of competitive advantage.

Pfeffer (1994) seems to advocate thisview in Competitive AdvantageThrough People where he looks at the5 top performing companies on thestock market in North America from1972 to 1992 (in ascending orderPlenum Publishing with 15,689%,Circuit City with 16,410%, TysonFoods with 18,118%, Walmart with19,807% and Southwest Airlineswith 21,775%). These companieswould have met the exact oppositecriteria of what Porter’s frameworkof five fundamental competitiveforces recommends. The industries inwhich these top companies are in-volved (retailing, airlines, publishingand food processing) were “charac-terised by massive competition andhorrendous losses, widespread bank-ruptcy, virtually no barriers to entry(for airlines after 1978), little uniqueor proprietary technology, and manysubstitute products or services. Andin 1972, none of these firms was (andsome still are not) the market-shareleader, enjoying economies of scaleor moving down the learning curve”.He goes on to show that what thesefive firms have in common is howthey manage their work force. Thereason why SouthWest Airlines

achieved a cost advantage comesfrom a “very productive, very moti-vated and (by the way) unionisedworkforce”. But as he explains, thiscost advantage is not easily imitableby competitors due to the fact thatthe culture and practices that enableSouthWest to achieve this success arenot easily obvious. “It is often hardto comprehend the dynamics of aparticular company and how it oper-ates because the way people are man-aged often fits together as a system.It is easy to copy one thing, but muchmore difficult to copy numerousthings that fit together in a system.This is because the change needs tobe more comprehensive and also be-cause the ability to understand thesystem of management practices ishindered by its extensiveness”. In hisPutting People First For An Organi-sational Success (1999), he presentsin detail seven practices of success-ful companies:

1. Employment Security2. Selective Hiring3. Self-Managed Teams and Decen-

tralisation as Basic Elements ofOrganisational Design

4. Comparatively High Compensa-tion Contingent on OrganisationalPerformance (not individual per-formance)

5. Extensive Training6. Reduction of Status Differences7. Sharing Information

He states that, in general, companieshave about a one in eight chance of

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succeeding at this since they oftenattempt “piecemeal innovation” andtherefore fail, or many of the onesthat do try to integrate all these prac-tices give up before the results areforthcoming.

In Creating Advantage, Porter (1997)refers to the need and importance forinnovation and how a company needsto master technologies such that it canapply and integrate it (and not justmake the scientific breakthroughs).It is taken as a “given” that it can bedone irrespective of the organisa-tional environment within the firmonce everyone at the executive andstrategic level accept that this is animportant attribute to strive for. Butfew companies which have adoptedthis approach have been able to dis-tinguish themselves from the rest oftheir competitors in any significantor lasting manner in their respectiveindustries. It is an easy-to-adopt con-cept which, as long as no extra effortis taken to instil the internal dynam-ics and conditions to make it happen,remains easily imitable. This inter-nal or intrinsic ingredient is the non-imitable portion of the formula. Andunlike Porter’s view in Innovation:Location Matters (2001), it is prima-rily created by forces within the com-pany as opposed to forces in theexternal environment. These forcesare created by people within the firm.By primarily focusing on the exter-nal forces many managers have losttouch with people even though theyknow how important they are to-

wards achieving competitive advan-tage. As Bartlett (2002) mentions,“most managers see the strategicimplications of the information-based, knowledge-driven, service-in-tensive economy….They know thatskilled people are key, and yet, a dec-ade of delayering, destaffing, restruc-turing and reengineering hasproduced people who are more ex-hausted or cynical than empow-ered…. developing internal resourcesand capabilities is more difficult toimitate…. Senior managers mustmove beyond slogans, and developcommitment to a set of beliefs thatnot only are articulated in clear terms,but also are reflected in daily actionsand decisions.”

To simply generate a strategy at thelevel to which Porter advocated in hisschool of positioning in the 1980’s and1990’s would be missing enormousfundamental issues which a firm needsto assess and harness in order to betruly successful in attaining a sustain-able competitive advantage. But Por-ter’s framework is attractive in bothits relative simplicity to comprehendand, more importantly, relative easeof co-ordination to implement. Astrategy of acquisition and position-ing is much easier to implement (andimitate) than, as Pfeffer (1999) pointedout, trying to put in place a cultureand organisation that seeks strengthfrom within the firm. Ease of under-standing and relative ease (not with-standing financial resources) ofimplementation is the reason why we

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believe many consultants to this dayhave been successful in attractingclient-firms to the Porterian view. Itis another question as to whetherfirms have been truly successful inacquiring lasting advantages fromthis strategy.

THE DIAMOND MODELAND WORLD HEGEMONY

In The Competitive Advantage of Na-tions (Porter, 1990), Porter seeks togeneralize his theoretical corpus toencompass the global economy. Hismain objective is to answer the ques-tion: “Why does a nation achieve in-ternational success in a particularindustry?” (Porter, 1990: 71). In lightof this attempted extension, he estab-lishes at the conclusion of the book atypology of national economiesthroughout the world and makes claimsabout what the future strategies ofsome them should be (Singapore,South Korea, Italy, Sweden, Denmark,Japan, Switzerland, Germany, UnitedKingdom, United States).

Porter’s model, known in the litera-ture on strategy as the “diamondmodel” has four interrelated “deter-minants”, the schematic representationof which resembles the geometric formof a diamond (Porter, 1990: 72). Thesedeterminants are (Porter, 1990: 70):

• Factor conditions. The nation’sposition in factors of production,such as skilled labor or infrastruc-

ture, necessary to compete in agiven industry;

• Demand conditions. The natureof home demand for the industry’sproduct of service;

• Related and supporting indus-tries. The presence or absence inthe nation of supplier industriesand related industries that are in-ternationally competitive;

• Firm strategy, structure and ri-valry. The conditions in the na-tion governing how companies arecreated, organized, and managed,and the nature of domestic rivalry.

Two other determinants are men-tioned —government and chance—,though neither is viewed as suffi-ciently relevant to be formally inte-grated into the model.

Porter concludes that businesses pro-cure a competitive advantage in theirindustries and internationally in threecases:

• When their home base allows andsupports the most rapid accumu-lation of specialized assets andskills, sometimes solely to greatercommitment;

• When their home base affords bet-ter ongoing information and insightinto product and process needs;

• When the goals of owners, man-agers, and employees support in-tensive commitment and sustainedinvestment, (Porter 1990: 71)

Most of the book is devoted to pre-senting the model and the success con-ditions for the economic strategies of

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nations, with strong references to casestudies. The book ultimately classifieseconomies into a linear typology thatfollows the evolution of nationalcompetitiveness since the SecondWorld War. Four stages are identi-fied: factor-driven competitiveness,investment-driven competitiveness,innovation-driven competitiveness,and wealth-driven competitiveness(Porter, 1990: 685). Each of the teneconomies he studies is situated inone or another stage and must striveto move to the next stage, with the ex-ception of two cases, for which therecommendation is that they move toa prior stage. In ascending order, Sin-gapore, South Korea, Italy and Japanare at the first stage and must moveforward; the United States, the UnitedKingdom and Germany are at the thirdstage and must move to the fourth; andlastly, Sweden and Denmark are alsoat the third stage, but should moveback to the second stage.

Our objective here is not to examineeach case and to test the validity ofthe analysis; that would amount toaccepting Porter’s diamond modeland linear reasoning. What we mustdo here is see whether this model andthis reasoning are on a solid footing.

We can begin by taking up the samediscussion of this model and its re-sults as we conducted in our effort toshow the subjectivity, indeed, the ar-bitrariness, in the identification of thenature and number of competitiveforces. Porter claims that he is fill-

ing a gap with a new integratedframework for understanding worldeconomies. However, notions likefactor endowment, level of local de-mand, degree of national integrationand competition are commonplacesfound in the vast literature on devel-opment economics. Porter appears tobe ignorant of this literature since hedoes not cite any of its authors in hisreferences, even the most well known,either at present or in the past, suchas Celso Furtado, François Perrous,Samir Amin or Gunder-Franck. Moreimportantly, he loses sight of the factof the failure of development eco-nomics because it accorded too muchimportance to strictly economic fac-tors like those which make up theframework of Porter’s model. As forthe notion of specialization, referredto so often in Porter’s thought, it issurely the oldest and most outmodednotion of economics.

Forty years ago, notwithstanding thesuccess it enjoyed, Rostow’s theoryof growth stages was severely criti-cized for its linearity (Rostow, 1960).Rostow imagined that there were eco-nomic stages going from subsistenceeconomies to industrialized econo-mies, through which all countries gothrough with varying degrees of suc-cess. This same linearity can be iden-tified and equally criticized inPorter’s work. The only future hori-zon that it offers to countless econo-mies is the current state of theAmerican and British economies.There is a certain element of perver-

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sity in this vision, in that if aneconomy manages to develop in away that differs from the patterns ofAnglo-Saxon economies, it will in-evitably be required to abandon thepolicy that enabled this success andtake the path defined by the Ameri-can or British economy. We aremerely pushing Porter’s logic to itsextreme and noting its perversity.Porter himself, in the chapter de-voted to Korea, says as much whenhe recommends that it abandon allforms incentive planning, that it handover strategic investment decisions tothe private sector, that it orients edu-cation towards employability, and, tobe sure, that it accord special atten-tion to specialization (Porter, 1990:688 ff.).

Among other things, the determinantsin the diamond model are a necessaryreduction to enable the continuity ofPorter’s reasoning, in that he attemptsto compare different economies with-out having to concern himself withtheir differences. It is not easy to com-pare the maximalist financial logic ofthe self-regulated, American-styledcapitalist market (which in recenttimes has moved towards unimagina-ble and irrational summits of specu-lation since the heady rush engenderedand maintained by Internet businessesand the Enron and Worldcom scan-dals) to the kinds of “state-regulated,social-market” industrial capitalismfound in Germany and Japan. MichelAlbert (1991) made very importantdistinctions between the behaviour of

shareholders (and therefore stock mar-ket systems) in the United States, Ja-pan, Scandinavia and Germany. Thelatter economies are financed by banksrather than by market speculation, andthe financial-capitalism kind of specu-lation (which “valued” a business likeYahoo at more than $75 billion on thestock exchange even though it was los-ing money) is “structurally” impossi-ble in them because dividend paymentsare limited to the real value of the busi-ness’s assets and performance, in ad-dition to the emphasis on capital gainsas the mode of share payment ratherthan on maximal, short-term profit. Itis thus productive investments, effortsto maintain jobs, job qualifications(which are viewed as a socially rec-ognized “right” rather than a privilegethat each individual has to fight for),and research and development becomesources of gains and competitive ad-vantages, and not the inflation offictive values based on savage cuts(downsizing, dis-investments,synergetic mergers-redeployments andother forms of outsourcing), unpun-ished pollution and financial manipu-lations.

Is it possible to imagine a model otherthan Porter’s to understand economicsystems, both national and business,that does a better job of treating theircomplexity? The limits of the presentarticle prevent us from providing adetailed answer to this question. How-ever, we would like to cite the exam-ple of the French school of regulation,which in our view provides an frame-

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work for the analysis of socio-produc-tive systems, which is much richerthan Porter’s model, and which is farremoved from his linear simplicity andideological tendencies. This model ispresent in Boyer and Freyssenet(2000). A socio-productive system isdefined as “a largely non-intentionalprocess for determining the externalrelevance and internal coherence oftechnical, organizational, manage-ment and social changes in responseto new problems of economic profit-ability and social acceptability, whichemerged out the previous model andthe changes in the competitive, macr-oeconomic and social context” (Boyerand Freyssenet, 2000). The absenceof intentionality and the effect of com-position in the creation of socio-pro-ductive systems significantly reducesthe significant weight Porter’s assignsto strategies. And it is not merelychance, as Porter would have it in link-ing it with unlikely, rarely occurringevents, but the element of uncertaintyand subtlety that all complex systemsgo through during their development.Within the context of national systems,this can, for example, refer to the roleof the imaginary or of mythology inthe articulation of national economiesand agents such as businesses(Aktouf, 1996) or to the role of fam-ily structures (Todd, 1988), etc.

What comes next are the innumer-able organizational, social, politicaland other factors detailed by Boyerand Freyssenet while discussingchoice of indicators that enable them

to be taken into consideration. Assuch, several socio-productive sys-tems can co-exist without any one ofthem necessarily and ineluctably rep-resenting the future of the others.More fundamentally, this model ofsocio-productive systems enables theexamination of economies confrontedwith enormous economic, social andpolitical problems, that is, most ofthe world’s economies in LatinAmerica, in Africa, in eastern Europeand in Asia, which Porter passes overin silence. This silence convenientlyallows him to side-step the core ofthe problem facing the worldeconomy and globalization, namely,the domination of the rest of the worldby industrialized economies and theirmanagerial prescriptions. Similarly,he can also avoid discussing the is-sue of the structural adjustment plansordered by the IMF and the inextri-cable situations they engender in in-debted countries. As such, and onceagain, Porter’s thought serves in re-ality to justify why the dominantgroups dominate and how they haveto continue to dominate, both at thenational and the business levels.

Two other points are worth discuss-ing in The Competitive Advantage ofNations. The first is methodologicalin nature and concerns the casemethod used by Porter. The secondconcerns the use he makes of the no-tion of competition.

Porter has in effect a serious validityproblem in going from his hypoth-

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eses to their empirical verification inthe field. He notes in this regard thata good number of explanations arebased on assumptions that are farremoved from the reality of compe-tition, and that he encountered somedifficulties in making the majority ofhis hypotheses fit the experience heacquired studying and working withinternational businesses (Porter, 1990:xvi). In addition, Porter displays apositivism in the abusive use of casestudies as the only means for infer-ring his theories. It is in fact a sup-posedly heuristic approach whichconsists, as is often done with the casemethod in management teaching (onceagain, in an abusive manner, and notin itself), in induction followed bydeduction on the basis of situationslimited to and narrowly situated inspace (generally American space and,much less often, other so-called ad-vanced countries), in time (post-warand during the triumphal ascensionof scientism in economics), and ideo-logically (the ideology of the neo-lib-eral market, managers and those withfinancial interests, to the exclusionof all others). What is induced hereare the purportedly universal rulesand laws for governing decisionmaking and the behaviour of insti-tutions in general. It is worth recall-ing here that the sample of countriesused to establish the general theoryof the competitive advantage of na-tions consists in ten countries madeto fit into categories deduced fromeven more limited realities, namely,businesses in previously studied in-

dustrial sectors. Indeed, as Porterhimself admits, he merely transposedonto nations what he had deducedand written based on “case studies”of businesses ten years earlier in hiswork on the competitive strategies ofcompanies.

As for competition, Porter raises itthe rank of a paradigm. In the fol-lowing section we digress back to thecorporate level to briefly examiningboth direct and indirect critics ofPorter who advocate various degreesof co-operation and collaboration asa means to achieve competitive ad-vantage. The subsequent sectionsthen look at the limitations of com-petition with respect to regional, na-tional and global economies.

PORTER VS CO-OPERATIVE DIMENSIONSOF CORPORATESTRATEGY

Various academics began to considerthe possibilities of collective and col-laborative strategies. For example,Astley (1983), in considering thegrowing complexity of the businessenvironment states “firms must con-sider a new level of planning - col-lective strategy… The collectiveapproach helps enhance the aware-ness of organisational nuances thatare so important in controlling the en-vironment”. Ohmae (1989), in look-ing at globalisation states “thesimultaneous developments involved

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in globalisation make alliances nec-essary… are not tools of conven-ience, but are critical instruments forserving customers in global environ-ment… This convergence of cus-tomer needs, together with arelentless dispersion of technology,has changed managers’ logic. Tocompete in the global arena, firmsmust find partners that can help am-ortise the immense fixed costs”.

Collaboration also began to be con-sidered by proponents of the Re-source Based View. Hamel andPrahalad (1989) in their study of 15strategic alliances see collaborationsas a means to acquire new technolo-gies or skills, and “…collaborationas competition in a differentform…learning from partners isparamount. Successful companiesview each alliance as a window ontheir partners’ broad capabilities.They use the alliance to build skillsin areas outside the formal agreementand systematically diffuse the knowl-edge throughout their organisations”.Aguayo (1990: 83-92), in his workon Quality Management, “…is notpreaching an end to competition butmore co-operation –competition inthe framework of greater co-opera-tion”. He argues “quality cannot beobtained, and improvement is impos-sible without co-operation: co-opera-tion among workers, amongmanagers, between the company andits suppliers, and even between thecompany and its competitors”. Forexample, he denounces Porter’s po-

sition on dealing with suppliers byfirst quoting him from CompetitiveStrategy (1980: 123-124):

Spread Purchases. Purchases of an itemcan be spread among alternate suppliersin such a way as to improve the firm’sbargaining position. The business givento each individual supplier must be largeenough to cause the supplier concern overlosing it – spreading purchases too widelydoes not take advantage does not takeadvantage of structural bargainingposition. However, purchasing everythingfrom one supplier may yield that suppliertoo much of an opportunity to exercisepower or build switching costs. Cuttingacross these considerations is thepurchaser’s ability to negotiate volumediscounts, which is partly a matter ofbargaining power and partly a matter ofsupplier economics. Balancing thesefactors, the purchaser would seek tocreate as much supplier dependence onits business as possible and reap themaximum volume discounts withoutexposing itself to too great a risk of fallingprey to switching costs.

According to Porter, by using theproper strategy we can obtain thelowest possible price of supply. Butas Aguayo states, “…no mention ismade of quality, reliability or im-provement. Implicit in this view is awin-lose view of the business proc-ess”. He paraphrases Deming’s viewin that “price is meaningless withoutreference to quality. What appearscheapest in price when coming in thedoor may actually end up being moreexpensive at the end. The pointshould be to lower total cost”. Hegoes on to “urge companies to work

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toward using one supplier for eachpart purchased. This will lessen thevariation for each part and improveoverall quality and costs…He (thesupplier) can devote time to workingwith the buyer , understand the buy-er’s needs, and find out how his prod-uct is being used, which allows himto continually improve and lowercosts for both of them. Through mu-tual co-operation they both win.Competitive strategy offers no suchpossibility”.

Brandenburger and Nalebuff (1995),use game theory to illustrate certainsimilar ideas brought forward byAguayo. Here they look at co-opera-tion with certain businesses to expandthe size of the market “pie” and com-petition with others to get as large aslice of the market “pie” as possible.Unlike Porter’s five forces model,their “Value Net” model explicitlyconsiders businesses whose productscomplement other businesses from aresource and knowledge standpoint–otherwise known as complementors.In their view, not only do thesecomplementors make it easier to sella given product, but also to pushtechnological development forwarddue to the sharing of resources andknowledge. Moore (1996A, 1996B)goes further along these lines by in-dicating that a mix of collaborationand competition is required for inno-vation to flourish. He uses the termcoevolution which in his words“means cultivating innovation in anorganisation and in others”. He speci-

fies that the “lead” company with anovel idea or product requires it towork with other companies’ productsand services such that they evolve inconcert with each other. He calls theresulting relationship an “ecosys-tem”. The competitive or dominanttwist in his thinking is that he seesthe lead company taking leadershipof the “ecosystem”. If we look atPorter, his pursuit of “a tayloredvalue chain or series of activities re-quired to produce and deliver a prod-uct or service in a unique anddefensible manner” is done purelythrough his five forces model (i.e.existence of direct competitors andpurely dominant relationships withsuppliers and customers). For Por-ter, any hint of alliances or collabo-ration is viewed as a potential sourceof erosion to long term competitiveadvantage. His position is under-standable in the event that the result-ant collaboration creates nothing newand unique (Porter, 2001B). But notall collaborations are like this. Weagree with Moore’s view that whatis required to produce a unique anddefensible competitive advantage iscollaborative community-like link-ages to produce inter-company inno-vation, which in turn, createscross-supportive products and serv-ices that are unique, hard to imitateand therefore defensible. The inter-company community-linkage andcoevolution which Moore speaks ofis similar to certain key elements ofthe knowledge creation model devel-oped by Nonaka and Takeuchi

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(1995). They illustrated howsocialisation, which is essentially asharing of experiences, is a key stepin cultivating tacit knowledge. Theensuing step which is called exter-nalisation is where tacit knowledgeis converted to explicit knowledge.This externalisation step requiresgroup interaction and discussionssuch that a tacit mental image is con-verted into an explicit concept. Thisknowledge conversion process, asNonaka and Takeuchi point out, ishow new explicit knowledge is cre-ated. This in turn is the basis for com-petitive advantage via innovationwhich Moore refers to.

In summary, we see that co-opera-tion can lead to lower costs, accessto more skills and knowledge, an in-crease in the size of the market “pie”via product complementors, in-creased differentiation and inimita-bility via complementary productinnovation (“ecosystems”), as well asact as a catalyst for further knowl-edge creation and innovation.

LIMITS OF COMPETITIONWITH REGARD TOREGIONAL ANDNATIONAL ECONOMIES

We can trace the genesis of the notionof competition and the self-regulatedmarket (via the invisible hand) toAdam Smith (1973) in the 18th cen-tury. But we had to wait for later eco-nomic “science,” with the neo-classics,

for the emergence of a less poetic con-cept and the possibility of integratingthis concept into calculations intendedto be as learned and as exact as thosein physics. This was the objective setby Léon Walras. In seeking a solutionto the simultaneous equilibria amongquantities, prices and values necessaryto the functioning of a “pure”economy, he simply and uncriticallyposited the existence of the equivalentof a celestial mechanics of society(from which we get pre-econometricformulations of equilibrium problemsin Newtonian terms) and the interven-tion of an “auctioneer” (a kind ofequivalent to Maxwell’s demon inphysics and Quesnay’s “secretary gen-eral of the marketplace”) who an-nounced the equilibrium price of allproducts and services, while remain-ing neutral relative to the poles in thegravitational play between suppliersand demanders (Walras, 1952). How-ever, there remained a significantproblem to be resolved, that of math-ematically and scientifically account-ing for this kind of simultaneousequilibria in a given market whileavoiding embarrassing “celestial me-chanics” and “auctioneer” assump-tions. It was Kenneth Arrow andGérard Debreu, two Nobel winners,who tackled this formidable problem.They maintain that if there is a math-ematical solution to Walras’s problem,it is so highly probabilistic that thestate of the market’s simultaneousequilibria can only be an extraordi-nary accident (Arrow, 1983; Debreu,1966). Moreover, Lipsey and Lancas-

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ter’s theorem, which until that pointhad not been refuted, says that themarket obeys a kind of law of all ornothing, that there cannot be twomarket states: either it is fully a pureand perfect competitive economy(100%) or not at all (0%). But weknow that the pure and perfecteconomy is at best wishful thinking;therefore, there is only one solution:we are in a 0% market situation. Assuch, we can ask a number of ques-tions: Who is manipulating this mar-ket, which cannot under anycircumstances be self-regulating?What emerges is that Porter’s praisefor competition has an ideologicalfunction; it advocates deregulationand privatization to the benefit ofthe most powerful players.

At the operational level, we also seethe ineffectiveness of competition assole notion to embrace. For example,if we look at Porter’s (1995A) pro-posed strategy for America’s innercities we hear the familiar message:

A sustainable economic base can becreated in the inner city only throughprivate, for-profit initiatives andinvestment based on economic self-interest and genuine competitiveadvantage. An economic model mustbegin with the premise that inner citybusinesses must be profitable andpositioned to compete on a regional,national, and even international scale.

In a rebuttal to his critics, Porter(1995B) states:

We must stop trying to cure theproblems of these distressed urbanareas by perpetually expanding socialprograms and hoping that economicactivity will follow. Our nation’s urbanpolicies and programs have fallen intothe trap of only redistributing wealth.The necessity and the real opportunityis to create income and wealth, byharnessing the power of market forcesrather than trying to defy them. Theprivate sector must play a leadingrole…. Government, communityorganisations, and inner-city residentscannot realistically and economicallyrevitalise inner cities alone - they lackthe management skills, technology, ca-pital, and appropriate incentives.

But Porter’s notion of “harnessing thepower of market forces rather thantrying to defy them” is based on us-ing his 5 forces positioning modelwhich, as we illustrated earlier, doesnot capture the true nature andmechanisms of achieving competitiveadvantage. His strategy is too mac-roscopic in nature (to his defence,Porter clarifies that his strategyshould be one component of a largerstrategy, albeit the leading one). If weaccept that modern strategy is basedon perpetual innovation, then as weillustrated in earlier sections this canonly be achieved via practices thattruly acknowledge people as beingthe true sources of competitive ad-vantage and understanding that co-operation/collaboration can be a keycatalyst in achieving knowledge crea-tion and innovation. We thus see af-finities with Haynes and Nembhard’s(1999) proposal of using “co-opera-

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tive enterprise development as a vi-able economic strategy for inner-cityredevelopment”. They cite success-ful examples around the world pro-ducing “goods and services for themarket and providing social condi-tions and work opportunities capa-ble of responding to human needs anddeveloping human potential”. Onenotable example includes theMondragon Co-operative Corpora-tion (MCC). The “corporationevolved from a small co-operativefirm built in the economically de-pressed Basque lands of northernSpain, in the 1950s, into a modern-day multinational corporation withover $8 billion in assets and $3.5 bil-lion in sales in 1993”. In 1999, MCCwas operated “by almost 30,000worker-owners organised into finan-cial, industrial, and distributionalgroupings. The MCC has become apowerful force in shaping regionaldevelopment strategies and is a modelof economic collaboration which ishighly respected throughout theworld”. They question the validity ofneo-classical economic theory, whichis at the root of Porter’s and otherurban development analyses:

The narrow framework of mainstreameconomic theory upon which Porter’sideas are based does not respond to thebroad dimensions of community needs,nor does it capture the value of the activity(labour) expended in the service ofbettering community, with the profit mo-tive tangential. The sterile mathematicalmodels of the modern economictheoretician are not synchronised with or

reflective of the policies and activities ofthe practitioners who are attempting torespond to the needs and assets of innercity communities… Porter’s call forprivate enterprise development is actuallyindustrial policy under the mistakenassumption that the building of industryis community economic development.Even among his critics, many of thesolutions manifest themselves ineconomic policy built around onecomponent of the economy-Industry. Weacknowledge that building effectiveindustry is a critical component ofcommunity revitalisation, but argue thatthe current methods of organising privateenterprise through sole-propriety,partnerships and corporations are toolimited to fulfil community needs forempowerment.

They carefully remind the reader that“there is little connection betweenwork and better outcomes for ghettodwellers or for their communities….To move up economically requiresmoving out. As a result, the link be-tween job and social betterment is lostcollectively as achievers move out ofthe ghetto rather than pass on socialand networking skills to the commu-nity or act as the magnets for com-munity human resource recovery.Porter does not suggest ways to cap-ture this social capital in the commu-nity as it is developed”. Co-operativeenterprises are a viable, self-sustain-ing and profitable alternative whichoffer the opportunity to re-invest prof-its back into the community.

This is not to say we prone for theelimination of competition altogether.

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Otherwise we risk drifting into com-placency and possible mismanage-ment. For example, Nonaka andTakeuchi (1995) explain how theJapanese tendency for consensus atall cost carries the risk of generatingknowledge concepts to the level ofthe “the lowest common denomina-tor”. In their study of knowledgecreation they showed how livelyconflictual discussions tended tochallenge the status quo so as to con-tinually improve explicit knowledgeconcepts.

It is with a somewhat sympathetic earthat we listen to Porter’s (1999) ob-jections to corporate and national al-liances where he cites specificexamples of government mismanage-ment of funds and the use of subsi-dies to prop up ailing industries. Butunlike Porter, we believe the solutionlies in further improving the effec-tiveness of these co-operative meas-ures, not eliminating them altogether.We must ensure that all stakeholders(including the individual employee)not only participate but understandthat they must participate and have asay in co-operative initiatives. Thisshould be coupled with the harness-ing of the competitive spirit that iswithin all of us towards more con-tinuous self-improvement and lessdirected against each other. Thesetwo measures conducted in tandemwill bring out the best of all peopleas well as ensure that we collectivelyreach the “highest common denomi-nator” in a profitable manner.

LIMITS OF COMPETITIONWITH REGARD TO THEGLOBAL ECONOMY

As an assumption, international com-petition is as improbable as competi-tion in national markets, due to theundeniable fact of the domination ofthe planet’s economy by multination-als. The considerable weight of mul-tinationals cannot foster healthycompetition; rather it fosters concen-tration, mega-mergers, quasi-monopo-lies and oligopolies. Indeed, if there iscompetition, it is monopolisitc com-petition, an expression which, accord-ing to linguistics and the philosophyof language, is a contradiction interms. It is difficult to imagine faircompetition between partners display-ing enormous power disparities, suchas is the case between the powerfulAmerican and European economiesand the fragile economies of Mexico,India or Tunisia. Indeed, according to“Decade of Executives,” a detailedstudy available on the Internet, forcompanies like GM, Ford, GE andIBM, NAFTA (North American FreeTrade Agreement) has only resulted inreal gains for American and CanadianPresidents and CEOs (who have hadraises ranging from 400% to 600%),while productivity and labour forcegains have been around 18%-25%. ForMexico, however, the result has beenbankruptcies, declines in local prod-ucts and systematic wage reductions.

As it appears to be viewed by Porter,free trade is no more than a sort of

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race for domination, a “competitive-ness” which only assumes rivalriesand struggles, in a context of globali-zation viewed above all as expandingbeyond national boundaries to encom-pass the entire planet —battlesbetween businesses?— the whole ofwhich is conceived in terms of theAmerican model, which is largely in-voked and treated as a managerial andeconomic summit, an indisputable factworth studying and generalizing, forthe good of all.

By way of a Conclusion: the Inter-business effects of Porterism

We have attempted to reveal the in-adequacies of Porter’s strategicthinking from a methodological andepistemological point of view. Wehave also sought to show that thepraxiological promises of thisthought are impossible to realizegiven its dubious, impossible-to-operationalize normativity as well asit missing enormous fundamental is-sues (as pointed out by the ResourceBased theorists) which a firm needsto assess and harness in order to betruly successful in attaining a last-ing, defendable and not easily imita-ble competitive advantage. Lastly,guided by the question of why thisperspective has enjoyed so much suc-cess among academics, consultantsand management, we have suggestedthat the reason is not only to be foundin its content (ie. ease of understand-ing and relative ease of implementa-tion) but also in the ideological role

it plays in legitimizing situations ofdomination at the business, industryand global levels. At the businesslevel, a specific model of governanceemerges from Porter’s thought, inwhich domination is exercised bymanagerial spheres due to the exor-bitant power accorded to experts andanalysts. The degree of analytic,quantitative and empirical expertiserequired by strategic positioning,competitive advantage, the valuechain, and so on reinforces the im-age of the consultant and manage-ment as “the only” experts and deniesthe legitimacy of the participation ofall of the business’s other humancomponents in the process of con-ceiving strategy or in questioning thestrategy advocated. Indeed, expertsare a priori immunized from criti-cism because of the supposedly “sci-entific” nature of their reasoning,analyses and decisions. As a result,employees are reified as blind sys-tem drones, confined to the role ofperformers, “implementers” of strat-egies, which leads one to think thatPorter’s thought is merely anotherepisode in the long history of ortho-dox management theories. In the fi-nal analysis, therefore, it is amovement intended to reinforce cen-tralized and hierarchic characters,with their array of exclusive privi-leges and dominant role, one that isin line with the most conservativemanagerial ideologies. By the sametoken, and given the highly special-ized character and the high-level po-sition accorded to expert-strategists,

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it is also an interdiction of any kindof movement towards participatorymanagement, something which de-prives organizations that adhere toPorterism of a significant competi-tive advantage enjoyed by organiza-tions operating within the embrace ofthe Resource Based View who seekstrength from within the firm by ac-knowledging the importance of em-ployees, management style employedand the social-corporate environmentthat is cultivated.

At the level of industries, Porter’stheory justifies and legitimizes threegeneral trends inherent to the domi-nant financial capitalism: dominationby large corporations, the concentra-tion of capital, and excessivehierarchization-centralization. As wehave seen, Porter offers no help tosmall actors in a given industry, orto companies that want to draw moreon their employee’s knowledge andfield experience in formulating theirstrategies.

In addition, in his thought, all ac-tivity sectors are viewed exclusivelyin terms of hostile relations betweencompetitors, between businesses andconsumers, between business andsuppliers, and, by the very featuresof its process of formulation and im-plementation, between managementand employees. This conception isbased largely on relations of forcein which the final word goes to thestrategist-analyst-expert, who leavesno room for any other kind of rela-

tion. The war of all against all andits corollary, the quest for domina-tion, are the foundation of the entirePorterian edifice. The same logic isfound in Porter’s discussion of theindustrial strategies of nations. Atthe global level, the ideologicalthrust of Porterism is illustrated bythe fact that the only pathway im-plicitly offered to emerging econo-mies consists in reproducingapparently proven ways of doingthings. We say “implicitly” becauseonly dominant economies are of in-terest to Porter, in that his thoughtis ultimately limited to justifying thecurrent state of relations of force inthe global economy, be it at the levelof markets and relations of busi-nesses or at the level of labour rela-tions within a given business. Butoperationally, we have seen alterna-tive options at the inter-corporatelevel that are based on co-operationand collaboration which can lead tolower costs, access to more skillsand knowledge, an increase in sizeof the market “pie” via productcomplementors, increased differen-tiation and inimitability via comple-mentary product innovation, as wellas act as a catalyst for furtherknowledge creation and innovation.We have also visited a viable andprofitable alternative for developingcommunities via cooperative enter-prises who’s prime mandate is tocultivate and strengthen social con-ditions and work opportunities ca-pable of responding to human needsand developing human potential.

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